MID PENN BANCORP INC 10-Q

ITEM 1 – FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands, except share data) March 31, 2022 December 31, 2021 ASSETS Cash and due from banks $ 54,961 $ 41,100 Interest-bearing balances with other financial institutions 3,187 146,031 Federal funds sold 700,283 726,621 Total cash and cash equivalents 758,431 913,752 Investment securities held to maturity, at amortized cost (fair value $ 343,023 and $ 330,626 ) 363,145 329,257 Investment securities available for sale, at fair value 145,039 62,862 Equity securities available for sale, at fair value 474 500 Loans held for sale, at fair value 7,474 11,514 Loans and leases, net of unearned interest 3,121,531 3,104,396 Less: Allowance for loan and lease losses ( 15,147 ) ( 14,597 ) Net loans and leases 3,106,384 3,089,799 Bank premises and equipment, net 33,612 33,232 Bank premises and equipment held for sale 3,098 3,907 Operating lease right of use asset 8,751 9,055 Finance lease right of use asset 3,042 3,087 Cash surrender value of life insurance 49,907 49,661 Restricted investment in bank stocks 7,637 9,134 Accrued interest receivable 11,584 11,328 Deferred income taxes 11,974 10,779 Goodwill 113,835 113,835 Core deposit and other intangibles, net 8,250 9,436 Foreclosed assets held for sale 125 — Other assets 34,412 28,287 Total Assets $ 4,667,174 $ 4,689,425 LIABILITIES & SHAREHOLDERS’ EQUITY Deposits: Noninterest-bearing demand $ 866,965 $ 850,438 Interest-bearing demand 1,050,923 1,066,852 Money Market 1,159,809 1,076,593 Savings 358,186 381,476 Time 553,154 626,657 Total Deposits 3,989,037 4,002,016 Long-term debt 74,681 81,270 Subordinated debt and trust preferred securities 74,134 74,274 Operating lease liability 10,923 11,363 Accrued interest payable 2,067 1,791 Other liabilities 22,171 28,635 Total Liabilities 4,173,013 4,199,349 Shareholders' Equity: Common stock, par value $ 1.00 per share; 20,000,000 shares authorized; Shares issued: 16,059,368 at March 31, 2022 and 16,056,282 at December 31, 2021; Shares outstanding: 15,960,917 at March 31, 2022 and 15,957,830 at December 31, 2021 16,059 16,056 Additional paid-in capital 385,765 384,742 Retained earnings 99,206 91,043 Accumulated other comprehensive income (loss) ( 4,946 ) 158 Treasury stock, at cost; 98,452 shares at March 31, 2022 and 98,452 shares at December 31, 2021 ( 1,923 ) ( 1,923 ) Total Shareholders’ Equity 494,161 490,076 Total Liabilities and Shareholders' Equity $ 4,667,174 $ 4,689,425 The accompanying notes are an integral part of these consolidated financial statements. 3 MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands, except per share data) Three Months Ended March 31, 2022 2021 INTEREST INCOME Interest and fees on loans and leases $ 35,016 $ 28,330 Interest and dividends on investment securities: U.S. Treasury and government agencies 1,536 178 State and political subdivision obligations, tax-exempt 336 277 Other securities 417 302 Total Interest and Dividends on Investment Securities 2,289 757 Interest on other interest-bearing balances 13 2 Interest on federal funds sold 314 79 Total Interest Income 37,632 29,168 INTEREST EXPENSE Interest on deposits 2,294 2,966 Interest on short-term borrowings — 174 Interest on long-term and subordinated debt 924 703 Total Interest Expense 3,218 3,843 Net Interest Income 34,414 25,325 PROVISION FOR LOAN AND LEASE LOSSES 500 1,000 Net Interest Income After Provision for Loan and Lease Losses 33,914 24,325 NONINTEREST INCOME Mortgage banking income 529 2,379 Income from fiduciary and wealth management activities 1,052 556 Service charges on deposits 684 152 ATM debit card interchange income 1,057 568 Net (loss) gain on sales of SBA loans ( 9 ) 100 Merchant services income 73 92 Earnings from cash surrender value of life insurance 246 74 Other income 2,118 791 Total Noninterest Income 5,750 4,712 NONINTEREST EXPENSE Salaries and employee benefits 13,244 9,598 Occupancy expense, net 1,799 1,480 Equipment expense 1,011 751 Software licensing and utilization 2,106 1,445 FDIC Assessment 591 470 Legal and professional fees 639 426 Charitable contributions qualifying for State tax credits 65 270 Mortgage banking profit-sharing expense 145 120 Gain on sale or write-down of foreclosed assets, net ( 16 ) — Intangible amortization 481 281 Post-acquisition restructuring expense 329 — Other expenses 5,351 2,717 Total Noninterest Expense 25,745 17,558 INCOME BEFORE PROVISION FOR INCOME TAXES 13,919 11,479 Provision for income taxes 2,565 2,167 NET INCOME $ 11,354 $ 9,312 PER COMMON SHARE DATA: Basic and Diluted Earnings Per Common Share $ 0.71 $ 1.11 Diluted Earnings Per Common Share $ 0.71 $ 1.10 Cash Dividends Declared $ 0.20 $ 0.19 The accompanying notes are an integral part of these consolidated financial statements. 4 MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (Dollars in thousands) Three Months Ended March 31, 2022 2021 Net income $ 11,354 $ 9,312 Other comprehensive (loss) income: Unrealized (loss) income arising during the period on available-for-sale securities, net of income taxes of ($ 1,390 ) and $ 0 , respectively ( 5,230 ) 1 Change in defined benefit plans, net of income taxes of $ 33 and $ 159 , respectively (a) 127 600 Reclassification adjustment for settlement losses and other activity related to benefit plans, net of income taxes of ($ 0 ) and ($ 1 ), respectively (b) ( 1 ) ( 43 ) Total other comprehensive (loss) income ( 5,104 ) 558 Total comprehensive income $ 6,250 $ 9,870 ( a ) The change in defined benefit plans consists primarily of unrecognized actuarial gains (losses) on defined benefit plans during the period. ( b ) The reclassification adjustment for benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss. Amounts are included in other income on the Consolidated Statements of Income within total noninterest income. Please reference Note 11 – Defined Benefit Plans, for more information. The accompanying notes are an integral part of these consolidated financial statements. 5 MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (Dollars in thousands) Accumulated Additional Other Total Common Paid-in Retained Comprehensive Treasury Shareholders' Stock Capital Earnings Income (Loss) Stock Equity Balance, January 1, 2022 $ 16,056 $ 384,742 $ 91,043 $ 158 $ ( 1,923 ) $ 490,076 Net income — — 11,354 — — 11,354 Total other comprehensive loss, net of taxes — — — ( 5,104 ) — ( 5,104 ) Common stock dividends declared — — ( 3,191 ) — — ( 3,191 ) Riverview restricted stock adjustment — 776 — — — 776 Employee Stock Purchase Plan ( 1,710 shares) 2 44 — — — 46 Director Stock Purchase Plan ( 1,377 shares) 1 35 — — — 36 Restricted stock activity — 168 — — — 168 Balance, March 31, 2022 $ 16,059 $ 385,765 $ 99,206 $ ( 4,946 ) $ ( 1,923 ) $ 494,161 Balance, January 1, 2021 $ 8,512 $ 178,853 $ 70,175 $ ( 57 ) $ ( 1,795 ) $ 255,688 Net income — — 9,312 — — 9,312 Total other comprehensive income, net of taxes — — — 558 — 558 Common stock dividends declared — — ( 1,599 ) — — ( 1,599 ) Repurchased stock ( 5,800 shares) — — — — ( 128 ) ( 128 ) Employee Stock Purchase Plan ( 1,647 shares) 2 38 — — — 40 Director Stock Purchase Plan ( 1,743 shares) 1 32 — — — 33 Restricted stock activity — 132 — — — 132 Balance, March 31, 2021 $ 8,515 $ 179,055 $ 77,888 $ 501 $ ( 1,923 ) $ 264,036 The accompanying notes are an integral part of these consolidated financial statements. 6 MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) Three Months Ended March 31, 2022 2021 Operating Activities: Net Income $ 11,354 $ 9,312 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan and lease losses 500 1,000 Depreciation 966 828 Amortization of intangibles 481 281 Net amortization of security discounts/premiums 197 167 Amortization of operating lease right of use assets 419 430 Amortization of finance lease right of use asset 45 45 Earnings on cash surrender value of life insurance ( 246 ) ( 74 ) Mortgage loans originated for sale ( 10,488 ) ( 98,578 ) Proceeds from sales of mortgage loans originated for sale 15,057 100,621 Gain on sale of mortgage loans ( 529 ) ( 2,379 ) SBA loans originated for sale ( 669 ) ( 971 ) Proceeds from sales of SBA loans originated for sale 721 1,071 Loss (gain) on sale of SBA loans 9 ( 100 ) Gain on disposal or write-down of property, plant, and equipment ( 45 ) — Loss on sale of bank premises and equipment held for sale 809 — Write-off of bank premises and equipment held for sale 705 — Stock compensation expense 168 132 Deferred income tax expense (benefit) 321 ( 1,251 ) (Increase) decrease in accrued interest receivable ( 256 ) 1,116 (Increase) decrease in other assets ( 6,125 ) 2,826 Increase (decrease) in accrued interest payable 276 ( 105 ) Net change in operating lease liability ( 555 ) ( 436 ) Decrease in other liabilities ( 6,438 ) ( 665 ) Net Cash Provided By Operating Activities 6,677 13,270 Investing Activities: Proceeds from the maturity or call of available-for-sale securities 1,478 2,499 Purchases of available-for-sale securities ( 90,330 ) — Proceeds from the maturity or call of held-to-maturity securities 5,898 12,959 Purchases of held-to-maturity securities ( 39,928 ) ( 14,386 ) Reduction of restricted investment in bank stock 1,497 734 Net increase in loans and leases ( 17,271 ) ( 263,006 ) Purchases of bank premises and equipment ( 1,372 ) ( 652 ) Proceeds from the sale of bank premises and equipment 71 — Net Cash Used In Investing Activities ( 139,957 ) ( 261,852 ) Financing Activities: Net (decrease) increase in deposits ( 12,979 ) 192,247 Net increase in short-term borrowings — 182,136 Common stock dividends paid ( 3,191 ) ( 2,020 ) Proceeds from Employee Stock Purchase Plan stock issuance 46 40 Proceeds from Director Stock Purchase Plan stock issuance 36 33 Treasury stock purchased — ( 128 ) Riverview restricted stock adjustment 776 — Net change in finance lease liability ( 22 ) ( 21 ) Accretion of subordinated debt ( 140 ) — Long-term debt repayment ( 6,567 ) ( 58 ) Net Cash (Used In) Provided By Financing Activities ( 22,041 ) 372,229 Net (decrease) increase in cash and cash equivalents ( 155,321 ) 123,647 Cash and cash equivalents, beginning of period 913,752 303,724 Cash and cash equivalents, end of period $ 758,431 $ 427,371 7 MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) (Dollars in thousands) Three Months Ended March 31, 2022 2021 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 2,942 $ 3,948 Supplemental Noncash Disclosures: Recognition of operating lease right of use assets $ 115 $ 1,064 Recognition of operating lease liabilities 115 1,064 Obsolete Riverview asset writeoff 705 — Asset transferred to bank premises and equipment held for sale — 1,008 Loans transferred to foreclosed assets held for sale 125 20 The accompanying notes are an integral part of these consolidated financial statements. 8 MID PENN BANCORP, INC. (1) Basis of Presentation For all periods presented, the accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. (“Mid Penn” or the “Corporation”), its wholly-owned subsidiary, Mid Penn Bank (the “Bank”), and three nonbank subsidiaries which were established during 2020, including MPB Financial Services, LLC, under which two additional nonbank subsidiaries have been established: (i) MPB Wealth Management, LLC, created to expand the wealth management services and capabilities of the Corporation, and (ii) MPB Risk Services, LLC, created to fulfill the insurance needs of both existing and potential customers of the Corporation. As of March 31, 2022, the accounts and activities of these nonbank subsidiaries established in 2020 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. On November 30, 2021, Mid Penn completed its acquisition of Riverview Financial Corporation (“Riverview”), pursuant to the previously announced Agreement and Plan of Merger dated as of June 30, 2021. On November 30, 2021, Riverview was merged with and into Mid Penn, with Mid Penn being the surviving corporation. Refer to Note 3, Acquisition of Riverview Financial Corporation, as well as the Company’s Current Report on Form 8-K filed on December 1, 2021, for more information. The comparability of Mid Penn’s results of operations for the period ended March 31, 2022, compared to the periods ended March 31, 2021 and the year ended December 31, 2021, in general, has been materially impacted by this acquisition, as further described in Note 3, as well as events and legislation related to the COVID-19 pandemic in 2020 and 2021, as further described in Note 15, COVID-19 Pandemic Implications. For comparative purposes, the March 31, 2021 and December 31, 2021 balances have been reclassified, when necessary, to conform to the 2022 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. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021. Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2022, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the issuance date of these consolidated financial statements. (2) Summary of Significant Accounting Policies The accounting and reporting policies of Mid Penn conform with accounting principles as required under GAAP and general practices within the financial industry. The following is a description of the more significant accounting policies. Investment Securities Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available for sale and carried at fair value. Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and pledging requirements, and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, reductions in pledging levels, and other factors related to effective portfolio management. Securities to be held to maturity are carried at amortized cost. For available-for-sale debt securities, realized gains and losses on dispositions are based on the difference between net proceeds and the amortized cost of the securities sold, using the specific identification method. Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income on an after-tax basis, whereas realized gains and losses flow through Mid Penn’s consolidated statement of income for the respective period. ASC Topic 320, Investments – Debt and Equity Securities , clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess, in addition to the credit condition of the underlying issuer, whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the Corporation will recover the cost basis of the investment. In instances when a determination is made that an other-than-temporary impairment of a debt security exists, but the Corporation does not intend to sell the debt security, and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss), and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. 9 MID PENN BANCORP, INC. Equity Securities In accordance with ASC Topic 825 , Financial Instruments , Mid Penn reports its equity securities with readily determinable fair values at fair value on the Consolidated Balance Sheets, with realized and unrealized gains and losses reported in other expense on the Consolidated Statements of Income. Mid Penn’s equity securities consisted of Community Reinvestment Act (“CRA”) funds with a fair value totaling $ 474,000 and $ 500,000 as of March 31, 2022 and December 31, 2021, respectively. No equity securities were sold during the three months ended March 31, 2022 or March 31, 2021. Loans Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans, generally being amortized over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method. The loan portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: commercial and industrial, commercial real estate, commercial real estate-construction and lease financing. Consumer loans consist of the following classes: residential mortgage loans, home equity loans and other consumer loans. For all classes of loans, the accrual of interest generally is discontinued when the contractual payment of principal or interest has become 90 days or more past due, or management has serious doubts about further collectability of principal or interest even though the loan is currently performing. A loan past due 90 days or more may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest is credited to income. Interest received on nonaccrual loans, including impaired loans, is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Nonaccrual loans may be restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally, at least nine consecutive months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments. Commercial and Industrial Loans Mid Penn originates commercial and industrial loans. Most of the Bank’s commercial and industrial loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory, and accounts receivable. Commercial loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies. The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Generally, the maximum term on non-mortgage lines of credit is one year . The loan-to-value ratio on such loans and lines of credit generally may not exceed 80 percent of the value of the collateral securing the loan. The Bank’s commercial business lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower. Analysis of the borrower’s past, present, and future cash flows is also an important aspect of the Bank’s current credit analysis. Nonetheless, such loans are believed to carry higher credit risk than other extensions of credit. Commercial and industrial loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, which, in turn, is likely to be dependent upon the general economic environment. Mid Penn’s commercial and industrial loans are usually, but not always, secured by business assets and personal guarantees. However, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business. Commercial Real Estate and Commercial Real Estate – Construction Loans Commercial real estate and commercial real estate construction loans generally present a higher level of risk than loans secured by one-to-four family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. In addition, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired. 10 MID PENN BANCORP, INC. Residential Mortgage Loans Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction. The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas. Residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 percent of the lesser of the appraised value of the security property or the contract price. Private mortgage insurance is generally required in an amount sufficient to reduce the Bank’s exposure to at or below the 85 percent loan to value level. Residential mortgage loans generally do not include prepayment penalties. In underwriting residential mortgage loans, the Bank evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan. Most properties securing real estate loans made by Mid Penn are appraised by independent fee appraisers. The Bank generally requires borrowers to obtain title insurance and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a “due on sale” clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property. The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, Federal Home Loan Bank, or Pennsylvania Housing Finance Agency standards, with the intention of selling the majority of residential mortgages originated into the secondary market. In the event that the facts and circumstances surrounding a residential mortgage application do not meet the required underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request. In the event that the loan is funded and held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk. Consumer Loans, Including Home Equity Credits Mid Penn offers a variety of secured consumer loans, including home equity, automobile, and deposit secured loans. In addition, the Bank offers other secured and unsecured consumer loans. Most consumer loans are originated in Mid Penn’s primary market and surrounding areas. The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit. Substantially all home equity loans and lines of credit are secured by junior lien mortgages on principal residences. The Bank will lend amounts, which, together with all prior liens, typically may be up to 85 percent of the appraised value of the property securing the loan. Home equity term loans may have maximum terms up to 20 years, while home equity lines of credit generally have maximum terms of ten years . Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts, and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount. Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt. Generally, foreclosure actions could become more prevalent if the real estate market weakens and property values deteriorate. Payroll Protection Program (“PPP”) Loans Included in total loans as of March 31, 2022, within the commercial and industrial loan portfolio classification, are $ 34,124,000 of Paycheck Protection Program (“PPP”) loans, net of deferred fees, which, as of March 31, 2022, were still outstanding as the remaining borrowers and the Small Business Administration (“SBA”) had not yet completed the loan forgiveness and repayment process. Comparatively, as of December 31, 2021, Mid Penn had $ 111,286,000 of PPP loans outstanding, net of deferred fees. Mid Penn has been a significant participating lender under the PPP, which was originally created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, and extended by the signing of the Consolidated Appropriations Act, 2021 into law on December 27, 2020, and further extended to May 31, 2021 by the PPP Extension Act of 2021. The PPP loans, which are 100 percent guaranteed by the SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term. 11 MID PENN BANCORP, INC. The SBA also provided a processing fee per loan to financial institutions who participated in the PPP, with the amount of such fee generally ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective credit. As of March 31, 2022, Mid Penn had received $ 41,869,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP initiative. In addition to receiving and deferring the processing fees, Mid Penn recorded and deferred related loan origination costs, and in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, the processing fees and loan origination costs are being amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of each respective loan. As of March 31, 2022, Mid Penn had $ 822,000 of PPP deferred loan processing fees not yet realized as income. Comparatively, as of December 31, 2021, Mid Penn had PPP deferred loan processing fees not yet realized as income totaling $ 3,811,000 . Mid Penn recognized $ 2,989,000 of PPP processing fees during the quarter ended March 31, 2022, compared to $ 5,047,000 of PPP processing fees for the same period of 2021. PPP processing fees are reflected within interest and fees on loans and leases on the Consolidated Statements of Income. Allowance for Loan and Lease Losses The allowance for credit losses (“allowance”) and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not required to adopted the current expected credit loss (“CECL”) accounting standard until January 1, 2023, and Mid Penn has not elected to early adopt CECL. The allowance consists of (i) the allowance for loan and lease losses, and (ii) the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The reserve for unfunded lending commitments was $ 74,000 at March 31, 2022 and $ 72,000 at December 31, 2021. The allowance is increased by the provision for loan and lease losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses. The allowance is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance. The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in collateral values, changes in the experience of the lending staff and loan review systems, changes in lending policies and procedures (including underwriting standards), changes in the mix and volume of loans originated, the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio, shifting industry or portfolio concentrations, and other relevant factors. Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in relevant analyses and a narrative accompanying the allowance for loan loss calculation. 12 MID PENN BANCORP, INC. The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through the specific and general components. For example, at times Mid Penn could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral, or unforeseeable effects on the portfolio from other influences, inducing the long-term impact of the pandemic. Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses. This includes, but is not limited to, (i) the unpredictable timing and amounts of charge-offs, (ii) the fact that historical loss averages don’t necessarily correlate to future loss trends, (iii) data and trends supporting qualitative factor judgements may not be indicative of the true nature of future period risks, and (iv) unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors. Mid Penn generally considers a commercial loan (consisting of commercial and industrial, commercial real estate, commercial real estate-construction, and lease financing loan classes) to be impaired when it becomes 90 days or more past due and not in the process of collection, or sooner when it is probable that Mid Penn will be unable to collect all contractual principal and interest due. This methodology assumes the borrower cannot or will not continue to make additional payments. At that time, the loan would generally be considered collateral dependent as the discounted cash flow method would generally indicate no operating income available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent. In addition, Mid Penn’s rating system assumes any loans classified as nonaccrual, included in the substandard rating, to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent. Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans classified as substandard nonaccrual, doubtful, having probable loss will first have a collateral evaluation completed in accordance with the guidance on impaired loans. Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. Commercial real estate loans determined to be impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans. An updated real estate valuation is ordered, and the collateral evaluation is modified to reflect any variations in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). The process of charging off a residential mortgage loan begins when a loan becomes delinquent for 90 days and is not in the process of collection. The existing appraisal is reviewed, and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible. The collateral shortfall of the consumer loan is recommended for charge-off at this point. As noted above, Mid Penn assesses a specific allocation for commercial loans and commercial real estate loans. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In addition, Mid Penn takes a preemptive step when any commercial loan becomes classified under its internal classification system. A preliminary collateral evaluation, in accordance with the guidance on impaired loans, is prepared using the existing collateral information in the loan file. This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation. This collateral evaluation is preliminary but allows Mid Penn to determine if any potential collateral shortfalls exist. It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation, Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation. The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no material time lapses noted with the above processes. In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances, a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary. For impaired loans with no valuation allowance required, the independent third-party market valuations on the subject property obtained by Mid Penn as soon as practically possible following the credit being placed on nonaccrual status sometimes indicates that the loan-to-value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a case-by-case analysis of the impaired loans. 13 MID PENN BANCORP, INC. Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, Mid Penn does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement. Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for nine consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired. The allowance calculation methodology includes segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Any loans not classified as noted above are rated pass. In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. No such additions were required from any recent examinations. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate. Mid Penn had $ 34,124,000 and $ 111,286,000 of PPP loans outstanding, net of deferred fees, as of March 31, 2022 and December 31, 2021, respectively, which though they are classified as commercial and industrial credits, the PPP loans are guaranteed by the Small Business Administration and, thus, have no loss reserve allocated to them. Acquired Loans Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses. Loans acquired at fair value and included in the balance of loans and leases, net of unearned interest, on the Consolidated Balance Sheets totaled $ 965,314,000 and $ 1,010,039,000 as of March 31, 2022 and December 31, 2021, respectively. The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. These loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require Mid Penn to evaluate the need for an additional allowance. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which Mid Penn will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan. Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows. To the extent that the expected cash flows of a loan have decreased due to credit deterioration, Mid Penn establishes an allowance. Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20. These loans are initially recorded at fair value and include credit and interest rate marks associated with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition. 14 MID PENN BANCORP, INC. Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Mid Penn expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, Mid Penn may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment. Mortgage Banking Derivative Financial Instruments During the third quarter of 2021, Mid Penn began using mortgage banking derivative financial instruments as part of our overall strategy to manage exposure to market risk within our mortgage banking operations, primarily due to fluctuations in interest rates, and to reduce the risk of price volatility of loans in the commitment phase. In connection with its mortgage banking activities, Mid Penn enters into interest rate lock commitments (IRLCs) to extend credit to a mortgage applicant within a specified period of time, provided certain specified terms and conditions are met, and with both the interest rate and the maximum loan amount set prior to funding. This loan commitment binds Mid Penn (subject to approval of the loan) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. Outstanding IRLCs may expose Mid Penn to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The IRLC does not contractually obligate the borrower to close the loan, regardless of whether Mid Penn approves the loan. Mid Penn originates all mortgage loans with the intention that the loans will be held for sale in the secondary market. Mid Penn enters into forward mortgage loan sales commitments shortly after extending an IRLC to the borrower to mitigate interest rate risk related to the IRLC for mortgage loans originated for sale. Mid Penn enters into mortgage loan sales commitments as either (i) a mandatory commitment, meaning that the loan must be delivered at an agreed-upon price within a specified timeframe, or (ii) a best-effort commitment, meaning that the loan will be delivered if and when it closes, with a price that is typically less favorable than a mandatory commitment and often with a large markup. If a mandatory commitment is not delivered within the agreed-upon timeframe or price point, Mid Penn would likely be required to “pair out” of the commitment and may be subject to a pair-off fee. In addition, Mid Penn enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Mandatory forward loan sales commitments are accounted for as freestanding derivative instruments and are carried at fair value equal to the amount required to settle the commitment as of the reporting date based on the underlying mortgage loans and the probability of commitments being exercised. Gross derivative assets and liabilities are recorded within other assets and other liabilities on the consolidated balance sheet, with changes in fair value during the period recorded in other noninterest income in the Consolidated Statements of Income. Best effort forward sales commitments are financial instruments which are carried at fair value under ASC 825 – Financial Instruments. Fair value is estimated as the amount required to settle the commitment as of the reporting date, which is based on the underlying mortgage loans and the probability of commitments being exercised. Gross derivative assets and liabilities are recorded within other assets and other liabilities on the consolidated balance sheet, with changes in fair value during the period in other noninterest income in the Consolidated Statements of Income. Loan-Level Interest Rate Swaps Mid Penn enters into loan-level interest rate swaps (“swaps”) to facilitate certain customer transactions and meet their financing needs. These swaps qualify as derivatives but are not designated as hedging instruments. A loan-level interest rate swap is a contract in which the series of interest rate flows (fixed and variable) are exchanged over the term of a loan with certain qualifying commercial loan customers, and Mid Penn simultaneously enters into an interest rate swap with a dealer counterparty with identical notional amounts and terms. The net result of these swaps is that the customer pays a fixed interest rate and Mid Penn receives a floating interest rate. The swap positions with customers are equally offset with the dealer counterparties to minimize the potential impact on Mid Penn’s financial statements. Pursuant to our agreements with the dealer counterparties, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial. Derivatives contain an element of credit risk, including the possibility that we will incur a loss because a party to the agreements, which may be a dealer counterparty or a customer, fails to meet its contractual obligations. Derivative contracts may only be executed with dealer counterparties as approved by our Board of Directors. Similarly, derivatives with customers may only be executed with customers within credit exposure limits as approved by our Board of Directors. Loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting. 15 MID PENN BANCORP, INC. Bank Premises and Equipment Held for Sale Bank premises and equipment designated as held for sale are carried at the lower of cost or market value, and at March 31, 2022 and December 31, 2021, totaled $ 3,098,000 and $ 3,907,000 , respectively. These balances are related to the December 7, 2021 announcement of a Retail Network Optimization Plan under which the Bank announced its intention to close certain retail locations throughout its expanded footprint. The branch closures occurred on March 4, 2022. Adjustments to record these held for sale assets at the lower of cost or fair value related to the held for sale properties were included in post-acquisition restructuring expenses and totaled $ 874,000 for the year ended December 31, 2021. During the three months ended March 31, 2022, Mid Penn had a write-off expense of obsolete bank premises and equipment held for sale of $ 705,000 , as a result of branch closures during the first quarter of 2022, as previously announced on a Form 8-K dated December 7, 2021. There were no impairment charges recorded during the three months ended March 31, 2022 or 2021. Foreclosed Assets Held for Sale Foreclosed assets held for sale consist primarily of real estate acquired through, or in lieu of, foreclosure in settlement of debt, and are recorded at fair value less the selling costs at the date of transfer, establishing a new cost basis. Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses. Subsequent to acquisition, foreclosed assets are carried at fair value less estimated costs of disposal, based upon periodic evaluations that consider changes in market conditions and development and disposal costs. Operating results from assets acquired in satisfaction of debt, including rental income less operating costs and gains or losses on the sale of, or the periodic evaluation of foreclosed assets, are recorded in noninterest expense. As of March 31, 2022, Mid Penn had $ 76,000 residential real estate held in other real estate owned and $ 697,000 loans for which formal foreclosure proceedings were in process. As of December 31, 2021, Mid Penn had no residential real estate held in other real estate owned and no loans for which formal foreclosure proceedings were in process. Leases Mid Penn leases certain premises and equipment and adopted Accounting Standards Update 2016-02, Leases (Topic 842). In accordance with ASU 2016-02, Mid Penn recognizes a right-of-use asset and a related lease liability for each distinct lease agreement. The lease right-of-use asset consists of the amount of the initial measurement of the lease liability, adjusted for (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and (ii) any initial direct costs incurred by the lessee (defined as costs of a lease that would not have been incurred had the lease not been executed). The related lease liability is equal to the present value of the future lease payments, discounted using the rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Given that the rate implicit in the lease is rarely available, all lease liability amounts were calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term. Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis. Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the right-of-use asset. Finance lease expense consists of the amortization of the right-of-use asset, recognized as a component of occupancy expense on the Consolidated Statements of Income, and interest expense on the lease liability, which is recorded as a component of other interest expense on the Consolidated Statements of Income. In assessing whether a contract contains a lease, Mid Penn reviews third-party agreements to determine if the contract conveys the right to control the use of identified property, plant, or equipment (defined as an identified asset by Topic 842) for a period of time in exchange for consideration, and grants Mid Penn the right to both (i) obtain substantially all of the economic benefits from the identified asset’s use, and (ii) direct the use of the identified asset throughout the term of the agreement. Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the (i) lease components, consisting of consideration paid to transfer a good or service to Mid Penn, and (ii) non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance. Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term. These renewal and extension options were not included in the calculation of the right-of-use assets and lease liabilities as Mid Penn is not reasonably certain that these renewals and extensions will be utilized. Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of right-of-use assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred. None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments. Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations. 16 MID PENN BANCORP, INC. Investments in Limited Partnerships Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania. The carrying value of Mid Penn’s investment in the limited partnership was $ 91,000 at March 31, 2022, and $ 102,000 at December 31, 2021, net of amortization, using the straight-line method. The investment in this limited partnership is reported in other assets on the Consolidated Balance Sheets, and Mid Penn’s maximum exposure to loss is limited to the carrying value of the investment. Mid Penn owns a limited partnership interest in a low-income housing project with thirty-seven apartments and common amenities in Dauphin County, Pennsylvania. The total investment in this limited partnership, net of amortization to date, was $ 5,774,000 and $ 5,962,000 on March 31, 2022 and December 31, 2021, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units qualified for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution totaled $ 7,506,000 and the investment was fully funded within a three-year period beginning in 2018 and ending during the first quarter of 2021. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period using the cost amortization method which began upon commencement of operations of the facility in December 2019. The project was formally awarded $ 8,530,000 in total LIHTCs by the Pennsylvania Housing Finance Agency, which will be recognized over the ten-year period from December 2019 through November 2029, with an annual LIHTC amount of $ 853,000 to be awarded to Mid Penn for the year-ended December 31, 2021. Core Deposit Intangible Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The carrying amount of core deposit intangible was $ 6,199,000 and $ 7,282,000 at March 31, 2022 and December 31, 2021, respectively. The core deposit intangible is being amortized over a ten-year period starting at each respective acquisition date and using the sum-of-the-year’s digits amortization method. The current balance of the core deposit intangible includes unamortized assets from (i) the Phoenix Bancorp, Inc. acquisition (“Phoenix”) in March 2015, (ii) The Scottdale Bank and Trust Company acquisition (“Scottdale”) in January 2018, (iii) the First Priority Financial Corp. acquisition (“First Priority) in July 2018, and (iv) the Riverview acquisition in November 2021. Core deposit amortization expense is reflected in the Consolidated Statements of Income in intangible amortization and was $ 378,000 and $ 272,000 for the three months ended March 31, 2022 and 2021, respectively. Core deposit intangible assets are subject to impairment testing whenever events or changes in circumstances indicate the need for such evaluation. For much of the year ended December 31, 2021, and through the three months ended March 31, 2022, the novel coronavirus (“COVID-19”) global pandemic continued to impact the United States including the State of Pennsylvania and Mid Penn’s market area and communities and customers. Accordingly, Mid Penn management evaluated whether this ongoing COVID-19 pandemic resulted in any impairment to Mid Penn’s business and the value of its acquired consumer demand and savings deposit base. Management’s determination was that there was no impairment to its core deposit intangible to date as a result of the pandemic or related factors. Supporting this assertion, and as reflected in the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, Mid Penn has recognized a total core deposit increase, which excludes time deposits, of $ 60,524,000 or 2 percent ( 7 percent annualized) during the first three months of 2022. Subsequent to March 31, 2022, and through the date of this filing, these increased deposit levels were sustained and continued to reflect no evidence of core deposit intangible impairment. Goodwill Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with past business acquisitions. The goodwill balance was $ 113,835,000 at both March 31, 2022 and December 31, 2021 and was comprised of (i) $ 50,995,000 related to the November 30, 2021 Riverview acquisition, (ii) $ 39,744,000 related to the July 31, 2018 First Priority acquisition, (iii) $ 19,178,000 related to the January 8, 2018 Scottdale acquisition, and (iv) $ 3,918,000 recorded as a result of the Phoenix acquisition in 2015. Goodwill is evaluated annually for impairment; however, if certain events occur which indicate goodwill might be impaired between annual tests, goodwill would be tested for impairment when such events occur. In making a potential impairment assessment of goodwill, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc. There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of goodwill impairment. Mid Penn did not identify any impairment on its outstanding goodwill from its most recent comprehensive impairment evaluation, which was performed as of October 31, 2021 and has been evaluated regularly for impairment given the ongoing pandemic. 17 MID PENN BANCORP, INC. Rabbi Trust As a result of the November 30, 2021 acquisition of Riverview, Mid Penn assumed certain benefit plan liabilities related to compensation arrangements totaling $ 7,447,000 and $ 7,708,000 as of March 31, 2022 and December 31, 2021, respectively, 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 obligations are fully funded through a Rabbi Trust having a cash balance of $ 7,439,000 and $ 7,708,000 within other assets on the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively, to provide a source of funds in satisfying the obligations under the respective compensation arrangements. Revenue from Contracts with Customers Mid Penn recognizes revenues when earned based upon (i) contractual terms as transactions occur, or (ii) as related services are provided and collectability is reasonably assured. The largest source of revenue for Mid Penn is interest income, which is primarily recognized on an accrual basis according to a written contract, such as loan and lease agreements or investment securities contracts. Mid Penn earns noninterest income through a variety of financial and transactional services such as trust and wealth management services, deposit account transaction fees, ATM debit card fees, and mortgage banking fees. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed. In certain circumstances, noninterest income is reported net of associated expenses. Mid Penn adopted FASB Topic 606, Revenue from Contracts with Customers . This ASU establishes principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods and services to customers. Topic 606 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans. Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit card interchange income, merchant service fees and certain components of other income are within the scope of Topic 606 and are discussed in greater detail below. Income from Fiduciary and Wealth Management Activities Income from fiduciary and wealth management activities consist of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income. Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned. Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur. Payment is typically received in the following month. Estate fee income is recognized as services are performed over the service period, generally eighteen months. Service Charges on Deposits Service charges on deposits consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts. Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs and the related service charge is subsequently processed. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts. ATM Debit Card Interchange Income ATM debit card interchange income consists of interchange fees earned when Mid Penn’s debit cards are processed through card payments networks. The interchange fee is calculated as a percentage of the total electronic funds transfer (EFT) transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT transaction, and the type of business at which the transaction was processed. Revenue is recognized daily as transactions occur and interchange fees are subsequently processed. Payment for most interchange activity is received daily, while some fees are aggregated, and payment is received in the following month. Merchant Services Income Merchant services income is processed through third party providers with whom Mid Penn has partnered to provide merchant services to its business customers. Fees are charged to merchants to process their debit card transactions, cash advance services, and other related products. Mid Penn receives a percentage of the revenue generated from each joint customer relationship after the respective third-party provider has collected the fee income from the merchant. Payment is primarily received in the following month. 18 MID PENN BANCORP, INC. Other Income Certain aspects of other income, such as credit card royalties, check orders, and letter of credit fees, are within the scope of Topic 606. These fees are primarily transactional, and revenue is recognized when transactions occur, and the related services are subsequently processed. Payment is primarily received immediately or in the following month. Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied. Mid Penn has not recognized any assets from the costs to obtain or fulfill a contract with customers for revenue streams that fall within the guidance of Topic 606. Comprehensive Income Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income. Mid Penn also recognizes other comprehensive income (loss) from an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees. These plans utilize assumptions and methods to calculate the fair value of plan assets and Mid Penn recognizes the overfunded and underfunded status of the plans on its consolidated balance sheet. Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment. The components of accumulated other comprehensive income (loss), net of taxes, are as follows: (Dollars in thousands) Unrealized Loss on Securities Defined Benefit Plans Accumulated Other Comprehensive Income (Loss) Balance - March 31, 2022 $ ( 5,485 ) $ 539 $ ( 4,946 ) Balance - December 31, 2021 $ ( 255 ) $ 413 $ 158 Earnings Per Common Share Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus common shares that would have been outstanding if dilutive potential common shares, consisting of unvested restricted stock, had been issued. The effect of dilutive unvested restricted stock was not material and did not result in a difference, when rounded to the whole cent, between the basic earnings per share compared to the diluted earnings per share for any of the periods presented. As previously announced on a Form 8-K on May 4, 2021, Mid Penn completed an underwritten public offering of 2,990,000 shares of common stock at a price of $ 25.00 per share, with the aggregate gross proceeds of the offering totaling $ 74,750,000 before underwriting discounts and offering expenses. The net proceeds of the offering after deducting the underwriting discount and other offering expenses were $ 70,238,000 . 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 three months ended March 31, 2022 earnings per share calculations. The following data shows the amounts used in computing basic and diluted earnings per common share. (Dollars in thousands, except per share data) Three Months Ended March 31, 2022 2021 Net income $ 11,354 $ 9,312 Weighted average common shares outstanding (basic) 15,957,864 8,415,586 Effect of dilutive unvested restricted stock grants 20,072 14,599 Weighted average common shares outstanding (diluted) 15,977,936 8,430,185 Basic earnings per common share $ 0.71 $ 1.11 Diluted earnings per common share $ 0.71 $ 1.10 There were no antidilutive instruments at March 31, 2022 and 2021. 19 MID PENN BANCORP, INC. (3) Acquisition of Riverview Financial Corporation On November 30, 2021 , Mid Penn completed its acquisition of Riverview through the merger of Riverview with and into Mid Penn. In connection with this acquisition, Riverview Bank, Riverview’s wholly-owned bank subsidiary, merged with and into Mid Penn Bank. Pursuant to the merger agreement, shareholders of Riverview common stock received, for each share of Riverview common stock held at the effective time of the merger, 0.4833 shares of Mid Penn common stock as merger consideration with an acquisition date fair value of $ 142,192,000 based on the closing stock price of Mid Penn’s common stock on November 30, 2021 of $ 31.46 . This exchange ratio did not change as a result of changes in the Mid Penn share price. Additionally, outstanding options at the time of the merger were converted into the right to receive an amount in cash equal to the product obtained by multiplying the aggregate number of shares of Riverview common stock that were issuable upon exercise of each option outstanding, and the closing sale price of Mid Penn’s common stock on the fifth (5th) business day prior to the merger closing date multiplied by the exchange ratio, less the per share exercise price of each option outstanding, without interest. There were 172,964 options outstanding to purchase Riverview common stock and the closing price of Mid Penn common stock was at $ 30.76 per share on the fifth business day prior to the merger closing date. Additionally, 2,500 shares of restricted stock were paid out in cash, resulting in $ 776,000 of cash consideration relating to stock awards. Including $ 16,000 of cash paid in lieu of fractional shares, the total fair value of consideration paid was $ 142,984,000 . The assets and liabilities of Riverview were recorded on the consolidated balance sheets of Mid Penn at their estimated fair value as of November 30, 2021, and their results of operations have been included in the consolidated income statement of the Corporation since such date. Riverview has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of Riverview included in the consolidated income statement since the acquisition date is impracticable to provide. The acquisition of Riverview resulted in the recognition and recording of intangible assets including $ 50,995,000 of goodwill, a core deposit intangible of $ 4,096,000 , and a customer list intangible of $ 2,160,000 . The core deposit intangible and customer list intangible will be amortized over a ten-year period using a sum of the years’ digits basis. The goodwill will not be amortized but will be measured annually for impairment or more frequently if circumstances require. 20 MID PENN BANCORP, INC. The allocation of the purchase price is as follows: (Dollars in thousands) Assets acquired: Cash and cash equivalents $ 316,079 Investment securities 226 Restricted stock 2,209 Loans 837,505 Goodwill 50,995 Core deposit intangible 4,096 Customer list intangible 2,160 Bank owned life insurance 32,120 Premises and equipment 11,819 Deferred income taxes 7,110 Accrued interest receivable 1,919 Other assets 6,683 Total assets acquired 1,272,921 Liabilities assumed: Deposits: Noninterest-bearing demand 182,291 Interest-bearing demand 371,283 Money Market 152,365 Savings 176,294 Time 199,414 Long-term debt 6,500 Subordinated debt and trust preferred securities 36,308 Accrued interest payable 439 Other liabilities 5,043 Total liabilities assumed 1,129,937 Consideration paid $ 142,984 Cash paid $ 792 Fair value of common stock issued 142,192 21 MID PENN BANCORP, INC. Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, allows for adjustments to goodwill up to one year after the merger date for information that becomes available during this post-merger period that reflects circumstances at the date of merger. The following table summarizes the estimated fair value of the assets acquired and liabilities and equity assumed in the Riverview transaction that management believes are final; however, these values could be adjusted under ASC 805 until November 30, 2022. (Dollars in thousands) Total purchase price (consideration paid) $ 142,984 Net assets acquired: Cash and cash equivalents 316,079 Investment securities 226 Restricted stock 2,209 Loans 837,505 Core deposit intangible 4,096 Customer list intangible 2,160 Bank owned life insurance 32,120 Premises and equipment 11,819 Deferred income taxes 7,110 Accrued interest receivable 1,919 Other assets 6,683 Deposits: Noninterest-bearing demand ( 182,291 ) Interest-bearing demand ( 371,283 ) Money Market ( 152,365 ) Savings ( 176,294 ) Time ( 199,414 ) Long-term debt ( 6,500 ) Subordinated debt and trust preferred securities ( 36,308 ) Accrued interest payable ( 439 ) Other liabilities ( 5,043 ) Net assets acquired 91,989 Goodwill $ 50,995 In general, factors contributing to goodwill recognized as a result of the Riverview acquisition include expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of short-term investments into higher-yielding loans. The goodwill acquired as a result of the Riverview acquisition is not tax deductible. The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $ 837,505,000 . The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired. (Dollars in thousands) Gross amortized cost basis at November 30, 2021 $ 850,920 Market rate adjustment 529 Credit fair value adjustment on pools of homogeneous loans ( 13,117 ) Credit fair value adjustment on impaired loans ( 827 ) Fair value of purchased loans at November 30, 2021 $ 837,505 The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans. The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date. The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan. 22 MID PENN BANCORP, INC. The information about the acquired Riverview impaired loan portfolio as of November 30, 2021 is as follows: (Dollars in thousands) Contractually required principal and interest at acquisition $ 5,591 Contractual cash flows not expected to be collected (nonaccretable discount) ( 1,739 ) Expected cash flows at acquisition 3,852 Interest component of expected cash flows (accretable discount) ( 541 ) Fair value of acquired loans $ 3,311 The following table presents pro forma information as if the merger between Mid Penn and Riverview had been completed on January 1, 2021. The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with Riverview at the beginning of 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. (Dollars in thousands, except per share data) Three Months Ended March 31, 2021 Net interest income after loan loss provision $ 33,935 Noninterest income 7,235 Noninterest expense 28,798 Net income 12,372 Net income per common share 0.70 (4) Investment Securities The majority of the investment portfolio is comprised of securities issued by U.S. Treasury and government agencies, mortgage-backed U.S. government agencies, and state and political subdivision obligations. The amortized cost, fair value, and unrealized gains and losses on investment securities at March 31, 2022 and December 31, 2021 are as follows: (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value March 31, 2022 Available-for-sale debt securities: U.S. Treasury and U.S. government agencies $ 7,500 $ — $ 174 $ 7,326 Mortgage-backed U.S. government agencies 120,342 — 5,740 114,602 State and political subdivision obligations 4,371 — 443 3,928 Corporate debt securities 19,768 — 585 19,183 Total available-for-sale debt securities 151,981 — 6,942 145,039 Held-to-maturity debt securities: U.S. Treasury and U.S. government agencies $ 206,039 $ — $ 13,127 $ 192,912 Mortgage-backed U.S. government agencies 58,175 2 3,136 55,041 State and political subdivision obligations 84,930 221 3,712 81,439 Corporate debt securities 14,001 18 388 13,631 Total held-to-maturity debt securities 363,145 241 20,363 343,023 Total $ 515,126 $ 241 $ 27,305 $ 488,062 23 MID PENN BANCORP, INC. (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 2021 Available-for-sale debt securities: Mortgage-backed U.S. government agencies $ 49,760 $ 3 $ 283 $ 49,480 State and political subdivision obligations 3,899 26 11 3,914 Corporate debt securities 9,525 — 57 9,468 Total available-for-sale debt securities 63,184 29 351 62,862 Held-to-maturity debt securities: U.S. Treasury and U.S. government agencies $ 178,136 $ 26 $ 1,165 $ 176,997 Mortgage-backed U.S. government agencies 61,157 440 272 61,325 State and political subdivision obligations 75,958 2,305 27 78,236 Corporate debt securities 14,006 133 71 14,068 Total held-to-maturity debt securities 329,257 2,904 1,535 330,626 Total $ 392,441 $ 2,933 $ 1,886 $ 393,488 Estimated fair values of debt securities are based on quoted market prices, where applicable. If quoted market prices are not available, fair values are based on quoted market prices of instruments of a similar type, credit quality and structure, adjusted for differences between the quoted instruments and the instruments being valued. Please refer to Note 8, Fair Value Measurement , for more information on the fair value of investment securities. Investment securities having a fair value of $ 339,665,000 at March 31, 2022 and $ 244,763,000 at December 31, 2021 were pledged to secure public deposits, some Trust department deposit accounts, and certain other borrowings. In accordance with legal provisions for alternatives other than pledging of investments, Mid Penn also obtains letters of credit from the Federal Home Loan Bank of Pittsburgh (“FHLB”) to secure certain public deposits. These FHLB letter of credit commitments totaled $ 301,450,000 as of March 31, 2022 and $ 450,850,000 as of December 31, 2021. 24 MID PENN BANCORP, INC. The following tables present gross unrealized losses and fair value of debt security investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021. (Dollars in thousands) Less Than 12 Months 12 Months or More Total Number Number Number of Fair Unrealized of Fair Unrealized of Fair Unrealized March 31, 2022 Securities Value Losses Securities Value Losses Securities Value Losses Available-for-sale debt securities: U.S. Treasury and U.S. government agencies 4 $ 7,326 $ 174 0 $ — $ — 4 $ 7,326 $ 174 Mortgage-backed U.S. government agencies 58 106,050 5,740 0 — — 58 106,050 5,740 State and political subdivision obligations 8 3,928 443 0 — — 8 3,928 443 Corporate debt securities 7 12,414 585 0 — — 7 12,414 585 Total temporarily impaired available-for-sale debt securities 77 $ 129,718 $ 6,942 0 $ — $ — 77 $ 129,718 $ 6,942 Held-to-maturity debt securities: U.S. Treasury and U.S. government agencies 117 $ 185,228 $ 12,316 5 $ 7,684 $ 811 122 $ 192,912 $ 13,127 Mortgage-backed U.S. government agencies 60 54,163 3,136 0 — — 60 54,163 3,136 State and political subdivision obligations 143 61,324 3,643 3 665 69 146 61,989 3,712 Corporate debt securities 5 5,835 226 2 2,838 162 7 8,673 388 Total temporarily impaired held-to-maturity debt securities 325 306,550 19,321 10 11,187 1,042 335 317,737 20,363 Total 402 $ 436,268 $ 26,263 10 $ 11,187 $ 1,042 412 $ 447,455 $ 27,305 25 MID PENN BANCORP, INC. (Dollars in thousands) Less Than 12 Months 12 Months or More Total Number Number Number of Fair Unrealized of Fair Unrealized of Fair Unrealized December 31, 2021 Securities Value Losses Securities Value Losses Securities Value Losses Available-for-sale securities: U.S. government agencies 24 $ 45,476 $ 283 0 $ — $ — 24 $ 45,476 $ 283 State and political subdivision obligations 2 1,168 11 0 — — 2 1,168 11 Corporate debt securities 4 4,943 57 0 — — 4 4,943 57 Total temporarily impaired available-for-sale securities 30 51,587 351 0 — — 30 51,587 351 Held-to-maturity securities: U.S. Treasury and U.S. government agencies 91 $ 149,425 $ 1,165 0 $ — $ — 91 $ 149,425 $ 1,165 Mortgage-backed U.S. government agencies 24 39,995 272 0 — — 24 39,995 272 State and political subdivision obligations 17 5,302 25 1 255 2 18 5,557 27 Corporate debt securities 6 6,928 71 0 — — 6 6,928 71 Total temporarily impaired held to maturity securities 138 201,650 1,533 1 255 2 139 201,905 1,535 Total 168 $ 253,237 $ 1,884 1 $ 255 $ 2 169 $ 253,492 $ 1,886 Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such additional evaluation. Consideration is given to the length of time and the extent to which the fair value of the security has been less than amortized cost, as well as the overall financial condition of the issuer. In addition, for debt securities, Mid Penn considers (i) whether management has the intent to sell the security, (ii) whether it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (iii) whether management expects to recover the entire amortized cost basis. At March 31, 2022, the majority of securities in an unrealized loss position were U.S. government agency securities and mortgage-backed U.S. government agency securities. At December 31, 2021, the majority of securities in an unrealized loss position were attributable to mortgage-backed U.S. government agency securities. Mid Penn had no securities considered by management to be other-than-temporarily impaired as of March 31, 2022, December 31, 2021, or March 31, 2021, and did not record any securities impairment charges in the respective periods ended on these dates. This determination reflects management’s assessment that no securities in its portfolio were impaired as a result of any COVID-19 pandemic impacts, to date, to the repayment ability of the underlying issuers of securities. Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality. Gross realized gains and losses on sales of available-for-sale debt securities for the three months ended March 31, 2022 and 2021 are shown in the table below. (Dollars in thousands) Three Months Ended March 31, 2022 2021 Realized gains $ — $ 137 Realized losses — ( 5 ) Net gains $ — $ 132 26 MID PENN BANCORP, INC. The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of March 31, 2022. (Dollars in thousands) Available-for-sale Held-to-maturity Amortized Fair Amortized Fair March 31, 2022 Cost Value Cost Value Due in 1 year or less $ 250 $ 250 $ 1,950 $ 1,952 Due after 1 year but within 5 years 5,000 4,738 49,912 48,973 Due after 5 years but within 10 years 22,319 21,793 213,035 200,726 Due after 10 years 4,070 3,656 40,073 36,331 31,639 30,437 304,970 287,982 Mortgage-backed securities 120,342 114,602 58,175 55,041 $ 151,981 $ 145,039 $ 363,145 $ 343,023 (5) Loans and Allowance for Loan and Lease Losses As of March 31, 2022 and December 31, 2021, the types of loans in Mid Penn’s portfolio, summarized using Mid Penn’s internal risk rating system between those rated “pass” (net of deferred fees and costs of $ 3,619,000 as of March 31, 2022 and $ 6,264,000 as of December 31, 2021), which comprise the vast majority of the portfolio, and those classified as “special mention” and “substandard”, are as follows: (Dollars in thousands) Special March 31, 2022 Pass Mention Substandard Total Commercial and industrial $ 572,596 $ 10,899 $ 2,949 $ 586,444 Commercial real estate 1,672,461 20,770 29,437 1,722,668 Commercial real estate - construction 380,910 — 1,221 382,131 Residential mortgage 301,442 317 3,552 305,311 Home equity 112,133 681 705 113,519 Consumer 11,458 — — 11,458 $ 3,051,000 $ 32,667 $ 37,864 $ 3,121,531 (Dollars in thousands) Special December 31, 2021 Pass Mention Substandard Total Commercial and industrial $ 606,484 $ 10,321 $ 2,757 $ 619,562 Commercial real estate 1,601,196 35,508 31,438 1,668,142 Commercial real estate - construction 371,337 — 1,397 372,734 Residential mortgage 319,862 294 3,067 323,223 Home equity 106,853 534 2,919 110,306 Consumer 10,429 — — 10,429 $ 3,016,161 $ 46,657 $ 41,578 $ 3,104,396 All PPP loans, whether disbursed in 2020 or 2021, are included in commercial and industrial loans and are fully guaranteed by the SBA; therefore, all PPP loans outstanding (net of the related deferred PPP fees) are classified as “pass” within Mid Penn’s internal risk rating system as of March 31, 2022. Mid Penn had no loans classified as “doubtful” as of March 31, 2022 and December 31, 2021. 27 MID PENN BANCORP, INC. Impaired loans by loan portfolio class as of March 31, 2022 and December 31, 2021 are summarized as follows: March 31, 2022 December 31, 2021 (Dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial and industrial $ — $ — $ — $ — $ 31 $ — Commercial real estate 821 1,213 — 854 1,243 — Commercial real estate - construction — 5 — 22 27 — Residential mortgage 1,338 1,377 — 1,259 1,295 — Home equity 99 99 — 2,377 2,377 — Consumer — — — — — — With no related allowance recorded and acquired with credit deterioration: Commercial and industrial $ — $ — $ — $ — $ — $ — Commercial real estate 2,109 2,826 — 2,231 2,909 — Commercial real estate - construction 1,221 1,463 — 1,196 1,469 — Residential mortgage 1,285 1,863 — 1,362 1,847 — Home equity 85 107 — 86 111 — Consumer — — — — — — With an allowance recorded: Commercial and industrial $ 523 $ 554 $ 75 $ 308 $ 339 $ 67 Commercial real estate 280 345 114 287 359 121 Commercial real estate - construction — — — — — — Residential mortgage — — — — — — Home equity — — — — — — Consumer — — — — — — Total Impaired Loans: Commercial and industrial $ 523 $ 554 $ 75 $ 308 $ 370 $ 67 Commercial real estate 3,210 4,384 114 3,372 4,511 121 Commercial real estate - construction 1,221 1,468 — 1,218 1,496 — Residential mortgage 2,623 3,240 — 2,621 3,142 — Home equity 184 206 — 2,463 2,488 — Consumer — — — — — — 28 MID PENN BANCORP, INC. The average recorded investment of impaired loans and related interest income recognized for the three months ended March 31, 2022 and 2021 are summarized as follows: Three Months Ended March 31, 2022 March 31, 2021 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial and industrial $ — $ — $ 753 $ — Commercial real estate 838 — 4,405 — Commercial real estate - construction 11 — 31 — Residential mortgage 1,346 6 787 8 Home equity 1,237 84 2,350 — Consumer — — — — With no related allowance recorded and acquired with credit deterioration: Commercial and industrial $ — $ — $ — $ — Commercial real estate 2,186 — 1,414 — Commercial real estate - construction 1,205 — — — Residential mortgage 1,335 — 317 — Home equity 85 — — — Consumer — — — — With an allowance recorded: Commercial and industrial $ 528 $ — $ 157 $ — Commercial real estate 283 — 880 — Commercial real estate - construction — — — — Residential mortgage — — — — Home equity — — — — Consumer — — — — Total Impaired Loans: Commercial and industrial $ 528 $ — $ 910 $ — Commercial real estate 3,307 — 6,699 — Commercial real estate - construction 1,216 — 31 — Residential mortgage 2,681 6 1,104 8 Home equity 1,322 84 2,350 — Consumer — — — — 29 MID PENN BANCORP, INC. Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of March 31, 2022 and December 31, 2021 are summarized as follows: (Dollars in thousands) March 31, 2022 December 31, 2021 Commercial and industrial $ 523 $ 308 Commercial real estate 3,210 3,372 Commercial real estate - construction 1,221 1,218 Residential mortgage 2,143 2,186 Home equity 410 2,463 $ 7,507 $ 9,547 30 MID PENN BANCORP, INC. The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The classes of the loan portfolio summarized by the past due status as of March 31, 2022 and December 31, 2021 are summarized as follows: Loans (Dollars in thousands) 30-59 60-89 Greater Receivable > Days Past Days Past than 90 Total Past 90 Days and March 31, 2022 Due Due Days Due Current Total Loans Accruing Commercial and industrial $ 1,053 $ 220 $ 436 $ 1,709 $ 584,735 $ 586,444 $ 133 Commercial real estate 315 40 679 1,034 1,719,525 1,720,559 — Commercial real estate - construction 220 — — 220 380,690 380,910 — Residential mortgage 1,218 148 876 2,242 301,784 304,026 — Home equity 829 — 255 1,084 112,350 113,434 — Consumer 12 — — 12 11,446 11,458 — Loans acquired with credit deterioration: Commercial and industrial — — — — — — — Commercial real estate 18 — 1,532 1,550 559 2,109 — Commercial real estate - construction — — — — 1,221 1,221 — Residential mortgage 166 — 421 587 698 1,285 — Home equity 14 — 56 70 15 85 — Consumer — — — — — — — Total $ 3,845 $ 408 $ 4,255 $ 8,508 $ 3,113,023 $ 3,121,531 $ 133 Loans (Dollars in thousands) 30-59 60-89 Greater Receivable > Days Past Days Past than 90 Total Past 90 Days and December 31, 2021 Due Due Days Due Current Total Loans Accruing Commercial and industrial $ 1,378 $ 62 $ 404 $ 1,844 $ 617,718 $ 619,562 $ 96 Commercial real estate 32 55 769 856 1,665,055 1,665,911 — Commercial real estate - construction — — 205 205 371,333 371,538 205 Residential mortgage 1,246 205 1,002 2,453 319,408 321,861 212 Home equity 403 — 2,377 2,780 107,440 110,220 — Consumer 6 2 2 10 10,419 10,429 2 Loans acquired with credit deterioration: Commercial and industrial — — — — — — — Commercial real estate — 3 1,628 1,631 600 2,231 — Commercial real estate - construction — — — — 1,196 1,196 — Residential mortgage 54 — 818 872 490 1,362 — Home equity — — — — 86 86 — Consumer — — — — — — — Total $ 3,119 $ 327 $ 7,205 $ 10,651 $ 3,093,745 $ 3,104,396 $ 515 31 MID PENN BANCORP, INC. The allowance for loan losses and the related loan loss provision for the periods presented reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023, and Mid Penn has not elected to early adopt CECL. PPP loans, both those disbursed in 2020 and those disbursed in 2021, are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the Small Business Administration, no allowance for loan losses was recorded against the $ 34,124,000 balance of PPP loans outstanding (net of related deferred PPP fees) as of March 31, 2022. The following tables summarize the allowance and recorded investments in loans receivable. (Dollars in thousands) As of, and for the three months ended, March 31, 2022 Commercial and industrial Commercial real estate Commercial real estate - construction Residential mortgage Home equity Consumer Unallocated Total Allowance for loan and lease losses: Beginning balance, January 1, 2022 $ 3,439 $ 9,415 $ 38 $ 459 $ 560 $ 2 $ 684 $ 14,597 Charge-offs — — — — — ( 57 ) — ( 57 ) Recoveries 13 65 24 — 1 4 — 107 Provisions (credits) 359 511 ( 21 ) 24 1 53 ( 427 ) 500 Ending balance, March 31, 2022 3,811 9,991 41 483 562 2 257 15,147 Individually evaluated for impairment 75 114 — — — — — 189 Ending balance: Collectively evaluated for impairment $ 3,736 $ 9,877 $ 41 $ 483 $ 562 $ 2 $ 257 $ 14,958 Loans receivables: Ending balance $ 586,444 $ 1,722,668 $ 382,131 $ 305,311 $ 113,519 $ 11,458 $ — $ 3,121,531 Ending balance: individually evaluated for impairment 523 1,101 — 1,338 99 — — 3,061 Ending balance: acquired with credit deterioration — 2,109 1,221 1,285 85 — — 4,700 Ending balance: collectively evaluated for impairment $ 585,921 $ 1,719,458 $ 380,910 $ 302,688 $ 113,335 $ 11,458 $ — $ 3,113,770 32 MID PENN BANCORP, INC. (Dollars in thousands) December 31, 2021 Commercial and industrial Commercial real estate Commercial real estate - construction Residential mortgage Home equity Consumer Unallocated Total Allowance for loan and lease losses: Ending balance $ 3,439 $ 9,415 $ 38 $ 459 $ 560 $ 2 $ 684 $ 14,597 Ending balance: individually evaluated for impairment 67 121 — — — — — 188 Ending balance: collectively evaluated for impairment $ 3,372 $ 9,294 $ 38 $ 459 $ 560 $ 2 $ 684 $ 14,409 Loans receivable: Ending balance $ 619,562 $ 1,668,142 $ 372,734 $ 323,223 $ 110,306 $ 10,429 $ — $ 3,104,396 Ending balance: individually evaluated for impairment 308 1,141 22 1,259 2,377 — — 5,107 Ending balance: acquired with credit deterioration — 2,231 1,196 1,362 86 — — 4,875 Ending balance: collectively evaluated for impairment $ 619,254 $ 1,664,770 $ 371,516 $ 320,602 $ 107,843 $ 10,429 $ — $ 3,094,414 (Dollars in thousands) As of, and for the three months ended, March 31, 2021 Commercial and industrial Commercial real estate Commercial real estate - construction Residential mortgage Home equity Consumer Unallocated Total Allowance for loan and lease losses: Beginning balance, January 1, 2021 $ 3,066 $ 8,655 $ 134 $ 429 $ 507 $ 1 $ 590 $ 13,382 Charge-offs ( 859 ) — — ( 3 ) — ( 3 ) — ( 865 ) Recoveries 1 56 — 9 — 8 — 74 Provisions (credits) 780 233 ( 12 ) 3 21 ( 5 ) ( 20 ) 1,000 Ending balance, March 31, 2021 2,988 8,944 122 438 528 1 570 13,591 Individually evaluated for impairment 68 263 — — — — — 331 Ending balance: collectively evaluated for impairment $ 2,920 $ 8,681 $ 122 $ 438 $ 528 $ 1 $ 570 $ 13,260 Loans receivables: Ending balance $ 964,045 $ 1,135,660 $ 264,945 $ 197,788 $ 75,423 $ 8,375 $ — $ 2,646,236 Ending balance: individually evaluated for impairment 368 1,469 30 758 2,334 — — 4,959 Ending balance: acquired with credit deterioration — 1,408 — 309 — — — 1,717 Ending balance: collectively evaluated for impairment $ 963,677 $ 1,132,783 $ 264,915 $ 196,721 $ 73,089 $ 8,375 $ — $ 2,639,560 33 MID PENN BANCORP, INC. Mid Penn entered into forbearance or modification agreements on loans currently classified as troubled debt restructures, and these agreements have resulted in additional principal repayment. The terms of these forbearance agreements vary and generally involve modifications from the original loan agreements, including either a reduction in the amount of principal payments for certain or extended periods, interest rate reductions, and/or the intent for the loan to be repaid as collateral is sold. Mid Penn’s troubled debt restructured loans at March 31, 2022 totaled $ 774,000 and included: (i) two accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $ 430,000 , and (ii) $ 344,000 of troubled debt restructurings attributable to six loans among four relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. The balance of these nonaccrual impaired troubled debt restructured loans as of March 31, 2022 was comprised of $ 309,000 in commercial real estate loans amongst two borrowers and two residential mortgage loans for $ 35,000 . As of March 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. In addition to contractual paydowns, the decrease in Mid Penn’s troubled debt restructured loan balance since December 31, 2021 reflects the successful workout of two nonaccrual impaired loans. Mid Penn’s troubled debt restructured loans at December 31, 2021 totaled $ 819,000 , and included (i) two accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $ 435,000 , and (ii) $ 384,000 of troubled debt restructurings attributable to eight loans among six relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. The balance of these nonaccrual impaired troubled debt restructured loans as of December 31, 2021 was comprised of $ 320,000 in commercial real estate loans amongst two borrowers, one commercial real estate construction loan for $ 22,000 , two residential mortgage loans for $ 37,000 , and one commercial and industrial loan for $ 5,000 . As of December 31, 2021, 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 2021. The recorded investments in troubled debt restructured loans at March 31, 2022 and December 31, 2021 are as follows: (Dollars in thousands) Pre-Modification Post-Modification March 31, 2022 Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial real estate $ 1,213 $ 1,115 $ 309 Residential mortgage 647 645 465 $ 1,860 $ 1,760 $ 774 (Dollars in thousands) Pre-Modification Post-Modification December 31, 2021 Outstanding Recorded Investment Outstanding Recorded Investment Recorded Investment Commercial and industrial $ 8 $ 8 $ 5 Commercial real estate 1,214 1,115 320 Commercial real estate - construction 40 40 22 Residential mortgage 647 645 472 $ 1,909 $ 1,808 $ 819 34 MID PENN BANCORP, INC. The CARES Act, along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 do not need to be accounted for as troubled debt restructurings. Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications ranged from deferrals of both principal and interest payments, with some borrowers reverting to interest-only payments. The majority of the deferrals granted by Mid Penn were for a period of three months, but some as long as six months, depending upon management’s specific evaluation of each borrower’s circumstances. Interest does continue to accrue on loans modified under the CARES Act during the deferral period. The principal balance of loans remaining in a CARES Act qualifying deferment status totaled $ 3,571,000 , or less than 1 percent of the total loan portfolio, as of March 31, 2022 and December 31, 2021. One loan remains in deferment status, and the remainder of borrowers who were granted a CARES Act deferral have returned to regular payment status. Mid Penn remains in communication with the borrower still in deferral status to assess the ongoing credit standing of the borrowers, and may make further adjustments to a borrower’s relationship at some future time if warranted for the specific situation. The following tables provide activity for the accretable yield of acquired impaired loans from the Phoenix (March 2015), Scottdale (January 2018), First Priority (July 2018), and Riverview (November 2021) acquisitions for the three months ended March 31, 2022 and 2021. (Dollars in thousands) Three Months Ended March 31, 2022 2021 Accretable yield, beginning of period $ 580 $ 40 Accretable yield amortized to interest income ( 81 ) — Accretable yield, end of period $ 499 $ 40 (6) Leases Mid Penn adopted FASB Topic 842, Leases , and all subsequent ASUs that modified Topic 842, which primarily affected the accounting treatment for operating lease agreements in which Mid Penn is the lessee. Operating and finance lease right-of-use assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt. Mid Penn has elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) or equipment leases (deemed immaterial) on the Consolidated Balance Sheets. As of the merger with Riverview on November 30, 2021, Mid Penn assumed eight operating leases. Subsequent to the merger, and prior to March 31, 2022, two of the leases expired and were not renewed. Three additional leases are connected with branch locations added during the merger that have been closed prior to March 31, 2022, and Mid Penn will not retain these leases upon expiration, with the latest expiring in December of 2023. The three remaining operating leases are open branch locations that Mid Penn currently intends to continue to operate. In 2016, Mid Penn entered into a subleasing agreement with an unrelated party on one of its properties under an operating lease. The sublease included an escalation clause. The initial term of the sublease agreement began on July 1, 2016 and ended on March 31, 2022, and was extended for an additional one-year term ending March 31, 2023. As of March 31, 2022 and December 31, 2021, two of Mid Penn’s operating leases were with related parties. There were no sale and leaseback transactions, leveraged leases, or leases that had no t commenced as of March 31, 2022. Below is a summary of the operating and finance lease right-of-use assets and related lease liabilities, as well as the weighted average lease term (in years) and weighted average discount rate for each of the lease classifications as of March 31, 2022 and December 31, 2021. (Dollars in thousands) March 31, 2022 December 31, 2021 Operating Leases Finance Lease Operating Leases Finance Lease Right of use asset $ 8,751 $ 3,042 $ 9,055 $ 3,087 Lease liability $ 10,923 $ 3,358 $ 11,363 $ 3,380 Weighted average remaining lease term (in years) 6.86 16.92 7.03 17.17 Weighted average discount rate 3.14 % 3.81 % 3.12 % 3.81 % 35 MID PENN BANCORP, INC. A summary of lease costs during the three and nine months ended March 31, 2022 and 2021 are presented below. Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income. (Dollars in thousands) Three Months Ended March 31, 2022 2021 Finance lease cost: Amortization of right-of-use asset $ 45 $ 45 Interest expense on lease liability 32 33 Total finance lease cost 77 78 Operating lease cost 497 516 Short-term and equipment lease cost 20 10 Variable lease cost — — Sublease income ( 6 ) ( 9 ) Total lease costs $ 588 $ 595 A summary of cash paid for amounts included in the measurement of lease liabilities is presented below. (Dollars in thousands) Three Months Ended March 31, 2022 March 31, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 32 $ 34 Operating cash flows from operating leases 620 544 Financing cash flows from finance leases 22 21 Future minimum payments for operating and finance leases and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below. (Dollars in thousands) March 31, 2022 Operating Leases Finance Lease Lease payments due for each of the years ending December 31, 2022 $ 1,832 $ 163 2023 2,068 217 2024 1,903 252 2025 1,479 259 2026 1,249 259 Thereafter 3,636 3,473 Total undiscounted cash flows 12,167 4,623 Discount on cash flows ( 1,244 ) ( 1,265 ) Total lease liability $ 10,923 $ 3,358 36 MID PENN BANCORP, INC. ( 7 ) Derivative Financial Instruments As of March 31, 2022 and December 31, 2021, Mid Penn did not designate any derivative financial instruments as formal hedging relationships. Mid Penn’s free-standing derivative financial instruments are required to be carried at their fair value on Consolidated Balance Sheets. Mortgage Banking Derivative Financial Instruments In connection with its mortgage banking activities, Mid Penn enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, Mid Penn enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. The notional amount and fair value of Mid Penn’s mortgage banking derivative financial instruments as of March 31, 2022 and December 31, 2021 are presented below. March 31, 2021 December 31, 2021 (Dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Interest Rate Lock Commitments $ 19,707 $ 131 $ 16,107 $ 56 Forward Commitments 21,217 29 20,521 32 The following table presents Mid Penn’s mortgage banking derivative financial instruments, their fair values, and their location in the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021. March 31, 2021 December 31, 2021 (Dollars in thousands) Asset Derivatives Liability Derivatives Asset Derivatives Liability Derivatives Interest Rate Lock Commitments $ — $ 131 $ 56 $ — Forward Commitments — 29 32 — Total $ — $ 160 $ 88 $ — The following table presents Mid Penn’s mortgage banking derivative financial instruments and the amount of the net gains or losses recognized within other noninterest income on the Consolidated Statements of Income for the three months ended March 31, 2022 and 2021. Three months ended (Dollars in thousands) March 31, 2022 March 31, 2021 Interest Rate Lock Commitments $ ( 187 ) $ — Forward Commitments 753 — Total $ 566 $ — Loan-level Interest Rate Swaps Mid Penn enters into loan-level interest rate swaps with certain qualifying, creditworthy commercial loan customers to provide a loan pricing structure that meets both Mid Penn’s and the customer’s interest rate risk management needs. Mid Penn simultaneously enters into parallel interest rate swaps with a dealer counterparty, with identical notional amounts and terms. The net result of the offsetting customer and dealer counterparty swap agreements is that the customer pays a fixed rate of interest and Mid Penn receives a floating rate. Mid Penn’s loan-level i nterest rate swaps are considered derivatives but are not accounted for using hedge accounting. 37 MID PENN BANCORP, INC. The fair value, notional amount, and collateral posted related to loan-level interest rate swaps are presented below. (Dollars in thousands) March 31, 2022 December 31, 2021 Interest Rate Swap Contracts - Commercial Loans: Fair Value (a) $ 5,298 $ 102 Notional Amount 112,543 109,577 Cash Collateral Posted (b) 1,600 1,600 (a) Represents the total of the equal and offsetting fair value assets and liabilities related to the loan level interest rate swaps (b) Included in cash and due from banks on the Consolidated Balance Sheet The gross amounts of commercial loan swap derivatives, the amounts offset and the carrying values in the Consolidated Balance Sheets, and the collateral pledged to support such agreements are presented below. (Dollars in thousands) March 31, 2022 December 31, 2021 Interest Rate Swap Contracts - Commercial Loans: Gross amounts recognized $ 5,298 $ 102 Gross amounts offset 5,298 102 Net Amounts Presented in the Consolidated Balance Sheets — — Gross amounts not offset: Financial instruments — — Cash collateral 1,600 1,600 Net Amounts $ 1,600 $ 1,600 38 MID PENN BANCORP, INC. ( 8 ) Fair Value Measurement Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased. Information on identifying circumstances when a transaction may not be considered orderly is also included within the guidance. Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance. This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value. Inputs to valuation techniques refer to the assumptions that market participants would use in measuring the fair value of an asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available in the circumstances. Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement or disclosure. The fair value hierarchy is as follows: Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). 39 MID PENN BANCORP, INC. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no transfers of assets between fair value Level 1 and Level 2 during the three months ended March 31, 2022 and 2021. The following tables illustrate the assets measured at fair value on a recurring basis segregated by hierarchy fair value levels. Fair value measurements at March 31, 2022 using: (Dollars in thousands) Total carrying value at Quoted prices in active markets Significant other observable inputs Significant unobservable inputs Assets: March 31, 2022 (Level 1) (Level 2) (Level 3) Loans held for sale $ 7,474 $ 7,482 $ — Available-for-sale securities: U.S. Treasury and U.S. government agencies 7,326 — 7,326 — Mortgage-backed U.S. government agencies 114,602 — 114,602 — State and political subdivision obligations 3,928 — 3,928 — Corporate debt securities 19,183 — 19,183 — Other assets: Equity securities 474 474 — — Interest rate swap agreements 5,298 — 5,298 Total $ 158,285 $ 474 $ 157,819 $ — Fair value measurements at December 31, 2021 using: (Dollars in thousands) Total carrying value at Quoted prices in active markets Significant other observable inputs Significant unobservable inputs Assets: December 31, 2021 (Level 1) (Level 2) (Level 3) Loans held for sale $ 11,514 $ — $ 11,787 $ — Available-for-sale securities: Mortgage-backed U.S. government agencies 49,480 — 49,480 — State and political subdivision obligations 3,914 — 3,914 — Corporate debt securities 9,468 — 9,468 — Other assets: Equity securities 500 500 — — Interest rate swap agreements 629 — 629 — Mortgage banking derivative assets 88 — 88 — Total $ 75,593 $ 500 $ 75,366 $ — Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following tables illustrate the assets measured at fair value on a nonrecurring basis segregated by hierarchy fair value levels. Fair value measurements at March 31, 2022 using: (Dollars in thousands) Total carrying value at Quoted prices in active markets Significant other observable inputs Significant unobservable inputs Assets: March 31, 2022 (Level 1) (Level 2) (Level 3) Impaired Loans $ 690 $ — $ — $ 690 40 MID PENN BANCORP, INC. Fair value measurements at December 31, 2021 using: (Dollars in thousands) Total carrying value at Quoted prices in active markets Significant other observable inputs Significant unobservable inputs Assets: December 31, 2021 (Level 1) (Level 2) (Level 3) Impaired Loans $ 508 $ — $ — $ 508 The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Mid Penn has utilized Level 3 inputs to determine the fair value. (Dollars in thousands) Quantitative Information about Level 3 Fair Value Measurements March 31, 2022 Fair Value Estimate Valuation Technique Unobservable Input Range Weighted Average Impaired Loans $ 690 Appraisal of collateral (a), (b) Appraisal adjustments (b) 2% - 73% 24 % (Dollars in thousands) Quantitative Information about Level 3 Fair Value Measurements December 31, 2021 Fair Value Estimate Valuation Technique Unobservable Input Range Weighted Average Impaired Loans $ 508 Appraisal of collateral (a), (b) Appraisal adjustments (b) 21% - 69% 30 % (a) Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable. (b) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, or age of the appraisal. There were no changes in unrealized gains and losses included in other comprehensive income during the three months ended March 31, 2022 or 2021 related to Level 3 recurring fair value measurements, as Mid Penn has no assets measured at fair value on a Level 3 recurring basis. Mid Penn uses the following methodologies and assumptions to estimate the fair value of certain assets and liabilities. Securities: The fair value of equity securities and debt securities classified as available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather, relying on the securities’ relationship to other benchmark quoted prices. Mortgage Banking Derivative Assets: Mortgage banking derivative assets represent the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors and the fair value of interest rate swaps. The fair values of the Corporation’s interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. These characteristics classify interest rate swap agreements as Level 2. See "Note 6 - Derivative Financial Instruments," for additional information. Interest Rate Swap Agreements: Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2. Impaired Loans (included in “Net Loans and Leases” in the following tables): All performing troubled debt restructured loans and loans classified as nonaccrual are deemed to be impaired, and all of these loans are considered collateral dependent; therefore, all of Mid Penn’s impaired loans, whether reporting a specific allowance allocation or not, are considered collateral dependent. 41 MID PENN BANCORP, INC. It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation, Mid Penn will use existing real estate valuations to determine any potential allowance for loan loss issues and will update the allowance impact calculation upon receipt of the updated real estate valuation. In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary. Mid Penn considers the estimates used in its impairment analysis to be Level 3 inputs. Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values, either in a positive or negative way, due to the passage of time or some other change in one or more valuation inputs. Collateral values for impaired loans will be reassessed by management at least every 12 months for possible revaluation by an independent third party. Foreclosed Assets Held for Sale: Certain assets included in foreclosed assets held for sale are carried at fair value and accordingly is presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity. The following table summarizes the carrying value and fair value of financial instruments at March 31, 2022 and December 31, 2021. (Dollars in thousands) March 31, 2022 December 31, 2021 Carrying Fair Carrying Fair Value Value Value Value Financial assets: Cash and cash equivalents $ 758,431 $ 758,431 $ 913,572 $ 913,572 Available-for-sale investment securities 145,039 145,039 62,862 62,862 Held-to-maturity investment securities 363,145 343,023 329,257 330,626 Equity securities 474 474 500 500 Loans held for sale 7,474 7,482 11,514 11,787 Net loans and leases 3,106,384 3,103,333 3,089,799 3,118,416 Restricted investment in bank stocks 7,637 7,637 9,134 9,134 Accrued interest receivable 11,584 11,584 10,779 10,779 Interest rate swap agreements 5,298 5,298 629 629 Mortgage banking derivative assets — — 88 88 Financial liabilities: Deposits $ 3,989,037 $ 3,983,980 $ 4,002,016 $ 4,046,217 Long-term debt (a) 71,323 70,799 77,890 77,455 Subordinated debt 74,134 71,796 74,274 74,553 Accrued interest payable 2,067 2,067 1,791 1,791 Mortgage banking derivative liabilities 160 160 — — (a) Long-term debt excludes finance lease obligations. The Bank’s outstanding and unfunded credit commitments and financial standby letters of credit were deemed to have no significant fair value as of March 31, 2022 and December 31, 2021. 42 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 March 31, 2022 and December 31, 2021. Carrying values approximate fair values for cash and cash equivalents, restricted investment in bank stocks, accrued interest receivable and payable, and short-term borrowings. Other than cash and cash equivalents, which are considered Level 1 Inputs and mortgage servicing rights, which are Level 3 Inputs, these instruments are Level 2 Inputs. These tables exclude financial instruments for which the carrying amount approximates fair value, not previously disclosed. Fair Value Measurements Quoted Prices in Active Markets Significant (Dollars in thousands) for Identical Assets Significant Other Unobservable Carrying or Liabilities Observable Inputs Inputs March 31, 2022 Amount Fair Value (Level 1) (Level 2) (Level 3) Financial instruments - assets Held-to-maturity investment securities $ 363,145 $ 343,023 $ — $ 343,023 $ — Loans held for sale 7,474 7,482 — 7,482 — Net loans and leases 3,106,384 3,103,333 — — 3,103,333 Financial instruments - liabilities Deposits $ 3,989,037 $ 3,983,980 $ — $ 3,983,980 $ — Long-term debt (a) 71,323 70,799 — 70,799 — Subordinated debt 74,134 71,796 — 71,796 — Fair Value Measurements Quoted Prices in Active Markets Significant (Dollars in thousands) for Identical Assets Significant Other Unobservable Carrying or Liabilities Observable Inputs Inputs December 31, 2021 Amount Fair Value (Level 1) (Level 2) (Level 3) Financial instruments - assets Held-to-maturity investment securities $ 329,257 $ 330,626 $ — $ 330,626 $ — Loans held for sale 11,514 11,787 — 11,787 — Net loans and leases 3,089,799 3,118,416 — — 3,118,416 Financial instruments - liabilities Deposits $ 4,002,016 $ 4,046,217 $ — $ 4,046,217 $ — Long-term debt (a) 77,890 77,455 — 77,455 — Subordinated debt 74,274 74,553 — 74,553 — (a) Long-term debt excludes finance lease obligations. ( 9 ) Guarantees, Commitments, and Contingencies Guarantees In the normal course of business, Mid Penn makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying consolidated financial statements. The commitments include various guarantees and commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Mid Penn evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer. Standby letters of credit and financial guarantees written are conditional commitments to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Mid Penn had $ 47,841,000 and $ 55,609,000 of standby letters of credit outstanding as of March 31, 2022 and December 31, 2021, respectively. Mid Penn does not anticipate any losses because of these transactions. The amount of the liability as of March 31, 2022 and December 31, 2021 for payment under standby letters of credit issued was not considered material. 43 MID PENN BANCORP, INC. Commitments As of June 30, 2021, Mid Penn’s Board of Directors had approved Mid Penn Bank to enter into a commitment to purchase a limited partnership interest in a low-income housing project to construct thirty-nine apartments and common amenities in Cumberland County, Pennsylvania. All of the units are expected to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment is expected to be $ 10,805,000 which will be paid in installments over the course of construction of the low-income housing facilities. The investment in the limited partnership will be reported in other assets on the balance sheet and amortized over a ten-year period. The project has been conditionally awarded $ 1,205,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $ 12,046,000 to be received by Mid Penn over the ten-year amortization period. Mid Penn’s commitment to purchase the limited partnership interest is conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it may deem necessary. 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 seventeen apartments and two commercial shops in Schuylkill County, Pennsylvania. 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 $ 4,356,000 which will be paid in installments over the course of construction of the low-income housing facilities. The investment in the limited partnership will be reported in other assets on the balance sheet and amortized over a ten-year period. Additionally, the agreement commits Mid Penn to a construction loan in the maximum principal amount of $ 3,500,000 which will bear interest at 5.5 percent annum with a term of twenty-four months . The project has been conditionally awarded $ 484,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $ 4,840,000 to be received by Mid Penn over the ten-year amortization period. Mid Penn’s commitment to purchase the limited partnership interest is conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it may deem necessary. Contingencies As of March 31, 2022, Mid Penn had received $ 41,869,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the SBA’s Payroll Protection Program (“PPP”), consisting of (i) $ 20,883,000 of loan processing fees received during the year ended December 31, 2020, (ii) $ 17,997,000 of loan processing fees received during the year ended December 31, 2021, and (iii) $ 2,989,000 during the three months ended March 31, 2022. These PPP loan processing fees, and any offsetting loan origination costs, were deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs , and have been, and will continue to be, amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the respective loans. The processing fees received from the SBA for administering the application for, and disbursing of, the PPP loans may be subject to clawback (or if the SBA has not yet paid the fee, the fee may not be paid), after full disbursement of a PPP loan if (i) the PPP loan is cancelled or voluntarily terminated and repaid after disbursement but before the borrower certification safe harbor date, (ii) the PPP loan is cancelled, terminated, or repaid after disbursement (and after the borrower certification safe harbor date) because the SBA conducted a loan review and determined that the borrower was ineligible for a PPP loan, or (iii) the lender has not fulfilled its obligations under the PPP regulations. As of March 31, 2022, Mid Penn is not aware of any PPP loans outstanding, for which fees have been received from the SBA, that have been cancelled, terminated, or repaid due to a borrower being determined to be ineligible for a PPP loan. Litigation Mid Penn is subject to lawsuits and claims arising out of its normal conduct of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of Mid Penn. 44 MID PENN BANCORP, INC. ( 10 ) Debt Short-term FHLB and Correspondent Bank Borrowings Short-term borrowings generally consist of federal funds purchased and advances from the FHLB with an original maturity of less than a year. Federal funds purchased from correspondent banks mature in one business day and reprice daily based on the Federal Funds rate. Advances from the FHLB are collateralized by Mid Penn’s investment in the common stock of the FHLB and by a blanket lien on selected loan receivables comprised principally of real estate secured loans within the Bank’s portfolio totaling $ 1,359,150,000 at March 31, 2022. The Bank had a short-term borrowing capacity from the FHLB as of March 31, 2022 up to the Bank’s unused borrowing capacity of $ 573,941,000 (equal to $ 948,646,000 of maximum borrowing capacity, less the aggregate amount of FHLB letter of credits securing public funds deposits, and other FHLB advances and obligations outstanding) upon satisfaction of any stock purchase requirements of the FHLB. No draws were outstanding on short-term FHLB or correspondent bank borrowings as of March 31, 2022 and December 31, 2021. The Bank also has unused overnight lines of credit with other correspondent banks amounting to $ 35,000,000 at March 31, 2022. No draws have been made on these lines of credit and accordingly the balance was zero on both March 31, 2022 and December 31, 2021. Short-term PPPLF Borrowings As of March 31, 2022 and December 31, 2021, Mid Penn paid all funding obtained from the Federal Reserve through the Paycheck Protection Program Liquidity Facility (“PPPLF”). The PPPLF allowed banks to pledge PPP loans as collateral to borrow funds for up to a term of five years (to match the term of the respective PPP loans) at an interest rate of 0.35 %. Long-term Debt As of March 31, 2022, and December 31, 2021, the Bank had long-term debt outstanding in the amount of $ 74,681,000 and $ 81,270,000 , respectively, consisting primarily of FHLB fixed rate instruments, as well as one finance lease obligation. As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity. The FHLB fixed rate instruments obtained by the Bank are secured under the terms of a blanket collateral agreement with the FHLB consisting of FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans. Mid Penn also obtains letters of credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of credit as a legally allowable alternative to investment pledging. These FHLB letter of credit commitments totaled $ 301,450,000 as of March 31, 2022 and $ 450,850,000 as of December 31, 2021. The following table presents a summary of long-term debt as of March 31, 2022 and December 31, 2021. (Dollars in thousands) March 31, 2022 December 31, 2021 FHLB fixed rate instruments: Due April 2022, 0.86343 % $ 70,000 $ 70,000 Due March 2023, 0.7514 % — 6,500 Due August 2026, 4.80 % 1,288 1,353 Due February 2027, 6.71 % 35 37 Total FHLB fixed rate instruments 71,323 77,890 Lease obligations included in long-term debt 3,358 3,380 Total long-term debt $ 74,681 $ 81,270 45 MID PENN BANCORP, INC. ( 1 1 ) Subordinated Debt and Trust Preferred Securities Subordinated Debt Assumed November 2021 with the Riverview Acquisition On November 30, 2021, Mid Penn completed its acquisition of Riverview and assumed $ 25,000,000 of Subordinated Notes (the “Riverview Notes”). In accordance with purchase accounting principles, the Riverview Notes were assigned a fair value premium of $ 2,302,000 . 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 basis points, 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 As a result of the merger with Riverview, 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 issued $ 5,155,000 of floating rate trust preferred securities as part of a pooled offering of such securities, which are adjusted quarterly to the three-month LIBOR rate plus 2.95 %. CBT issued subordinated debentures to the trust in exchange for ownership of all of the common securities of the trust and the proceeds of the offering; the debentures represent the sole asset of the trust. CBT became 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 must be redeemed no later than 2033. Similarly, in 2005, a trust formed by CBT issued $ 4,124,000 of fixed rate trust preferred securities as part of a pooled offering of such securities (the “CBT 2015 Notes”). CBT issued subordinated debentures to the trust in exchange for ownership of all of the common securities of the trust and the proceeds of the offering; the debentures represent the sole asset of the trust. CBT became eligible to redeem the subordinated debentures, in whole but not in part, beginning in 2010 at a price of 100 % of face value. Interest payments on the debentures may be deferred at any time at the election of Mid Penn for up to 20 consecutive quarterly periods. Interest on the debentures will accrue during the extension period, and all accrued principal and interest must be paid at the end of the extension period. During an extension period, Mid Penn may not declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to any of Mid Penn’s capital stock. In accordance with purchase accounting principles, the CBT 2017 Notes and CBT 2015 Notes assumed from Riverview were assigned a fair value premium of $ 6,000 . The subordinated debentures are treated as Tier 1 capital for regulatory reporting purposes. 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 $ 12,150,000 of its Subordinated Notes due December 2030 (the “December 2020 Notes”) on a private placement basis to accredited investors. The December 2020 Notes are treated as Tier 2 capital for regulatory capital purposes. The December 2020 Notes bear interest at a rate of 4.5 % per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the December 2020 Notes are floating will at no time be less than 4.5 %. Interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on March 31, 2021. The December 2020 Notes will mature on December 31, 2030 and are redeemable, in whole or in part, without premium or penalty, on any interest payment date on or after December 31, 2025 and prior to December 31, 2030, subject to any required regulatory approvals. Additionally, if (i) all or any portion of the December 2020 Notes cease to be deemed Tier 2 Capital, (ii) interest on the December 2020 Notes fails to be deductible for United States federal income tax purposes, or (iii) Mid Penn will be considered an “investment company,” Mid Penn may redeem the December 2020 Notes, in whole but not in part, by giving 10 days’ notice to the holders of the December 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the December 2020 Notes at 100% of the principal amount of the December 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption. Holders of the December 2020 Notes may not accelerate the maturity of the December 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $ 750,000 of the December 2020 Notes as of March 31, 2022 and December 31, 2021. 46 MID PENN BANCORP, INC. Subordinated Debt Issued March 2020 On March 20, 2020, Mid Penn Bancorp, Inc. entered into agreements with accredited investors who purchased $ 15,000,000 aggregate principal amount of Mid Penn Subordinated Notes due March 2030 (the “March 2020 Notes”). As a result of Mid Penn’s merger with Riverview on November 30, 2021, $ 6,870,000 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 March 31, 2022 was $ 8,130,000 . The March 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The March 2020 Notes bear interest at a rate of 4.0 % per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the March 2020 Notes are floating will at no time be less than 4.25 %. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30. The March 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030. Additionally, if all or any portion of the March 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the March 2020 Notes at 100% of the principal amount of the March 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption. Holders of the March 2020 Notes may not accelerate the maturity of the March 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $ 1,700,000 of the March 2020 Notes as of March 31, 2022 and December 31, 2021. Subordinated Debt Issued December 2017 On December 19, 2017, Mid Penn Bancorp, Inc. entered into agreements with investors to purchase $ 10,000,000 aggregate principal amount of its Subordinated Notes due 2028 (the “2017 Notes”). The 2017 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The offering closed in December 2017. The 2017 Notes bear interest at a rate of 5.25 % per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50 %, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0 %. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption. Holders of the 2017 Notes may not accelerate the maturity of the 2017 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $ 1,450,000 of the 2017 Notes as of March 31, 2022 and December 31, 2021. Subordinated Debt Issued December 2015 On December 9, 2015, Mid Penn Bancorp, Inc. sold $ 7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due in 2025. Given that the 2015 Notes are in the sixth year since issuance, eighty percent of the principal balance of the notes is treated as Tier 2 capital for regulatory capital purposes as of March 31, 2022. The 2015 Notes paid interest at a rate of 5.15 % per year for the first five years outstanding, including the three months ended March 31, 2020. Beginning January 1, 2021, the 2015 Notes bear interest at a floating rate based on the Wall Street Journal’s Prime Rate plus 0.50 %, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0 %. Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025. Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption. Holders of the 2015 Notes may not accelerate the maturity of the 2015 Notes, except upon Mid Penn’s or Mid Penn Bank’s bankruptcy, insolvency, liquidation, receivership or similar event. Related parties held $ 1,930,000 of the 2015 Notes as of March 31, 2022 and December 31, 2021. 47 MID PENN BANCORP, INC. ASC Subtopic 835-30, Simplifying the Presentation of Debt Issuance Costs , requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability. The unamortized debt issuance costs associated with the 2015 Notes and the 2017 Notes were collectively $ 38,000 at March 31, 2022 and $ 44,000 at December 31, 2021. (1 2 ) Defined Benefit Plans Mid Penn has an unfunded noncontributory defined benefit retirement plan for directors. The plan provides defined benefits based on years of service. Mid Penn also sponsors a defined benefit healthcare plan that provides post-retirement medical benefits and life insurance to qualifying full-time employees. These healthcare and life insurance plans are noncontributory and each plan uses a December 31 measurement date. As a result of the acquisition of Scottdale on January 8, 2018, Mid Penn assumed a noncontributory defined benefit pension plan covering certain former employees of Scottdale. Mid Penn does no t expect any necessary contributions to this defined benefit plan during the year ended 2022. A December 31 measurement date for the plan is used. The components of net periodic benefit costs from these defined benefit plans are as follows: Three Months Ended March 31, (Dollars in thousands) Pension Benefits Other Benefits 2022 2021 2022 2021 Service cost $ 42 $ 33 $ 4 $ 1 Interest cost 46 40 17 2 Expected return on plan assets ( 59 ) ( 57 ) — — Accretion of prior service cost — — ( 5 ) ( 5 ) Amortization of net loss (gain) ( 2 ) ( 49 ) 4 — Net periodic benefit expense (income) $ 27 $ ( 33 ) $ 20 $ ( 2 ) Service costs are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets and amortization (accretion) of prior service cost are reported as a component of other income. (1 3 ) Common Stock Treasury Stock Repurchase Program Mid Penn adopted a treasury stock repurchase program initially effective March 19, 2020, and the buyback remains available as it was extended through March 19, 2023 by Mid Penn’s Board of Directors on March 23, 2022. The treasury stock repurchase program authorized the repurchase of up to $ 15,000,000 of Mid Penn’s outstanding common stock, which represents approximately 3.5 % of the issued shares based on Mid Penn’s closing stock price and shares issued as of March 31, 2022. Under the program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase. The repurchase plan may be modified, suspended or terminated at any time, in Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate. The repurchase program does not obligate Mid Penn to repurchase any shares. As of March 31, 2022 and December 31, 2021, Mid Penn had repurchased 98,452 shares of common stock at an average price of $ 19.53 per share under the treasury stock repurchase program. Shares Converted Pursuant to Riverview Merger As announced on a Form 8-K on December 1, 2021, pursuant to the terms of the Merger Agreement, each share of Riverview common stock issued and outstanding as of November 30, 2021 was converted into the right to receive 0.4833 shares of Mid Penn common stock. Cash was paid to Riverview shareholders in lieu of any fractional shares. As a result of the Merger, Mid Penn issued 4,519,776 shares of Mid Penn common stock. The additional shares issued on December 1, 2021 significantly impacted the weighted average number of shares outstanding used for the earnings per share calculation for the three months ended March 31, 2022. Underwritten Public Follow-On Common Stock Offering As previously announced on a Form 8-K on May 4, 2021, Mid Penn completed an underwritten public offering of 2,990,000 shares of common stock at a price of $ 25.00 per share, with the aggregate gross proceeds of the offering totaling $ 74,750,000 before underwriting discounts and offering expenses. The net proceeds of the offering, after deducting $ 4,512,000 of combined underwriting discounts and 48 MID PENN BANCORP, INC. other offering expenses , were $ 70,238,000 . The additional shares issued on May 4, 2021 significantly impacted the weighted average number of shares outstanding used for the earnings per share calculation for the three months ended March 31, 202 2 . Dividend Reinvestment Plan Under Mid Penn’s amended and restated dividend reinvestment plan (“DRIP”), 330,750 shares of Mid Penn’s authorized but unissued common stock are reserved for issuance. The DRIP also allows for voluntary cash payments, within specified limits, to be used for the purchase of additional shares. Restricted Stock Plan Under Mid Penn’s 2014 Restricted Stock Plan, which was amended in 2020, Mid Penn may grant awards not exceeding, in the aggregate, 200,000 shares of common stock. The Plan was established for employees and directors of Mid Penn and the Bank, selected by the Compensation Committee of the Board of Directors, to align the interest of plan participants with those of Mid Penn’s shareholders. The plan provides those persons who have a responsibility for its growth with additional incentives by allowing them to acquire an ownership interest in Mid Penn and thereby encouraging them to contribute to the success of the company. As of March 31, 2022, a total of 118,069 restricted shares were granted under the Plan, of which 5,073 shares were forfeited and available for reissuance, 65,874 shares were vested, and the remaining 47,122 shares were unvested. During the three months ended March 31, 2022, 200 shares were forfeited due to a voluntary termination. No shares were forfeited during the three months ended March 31, 2021. The Plan shares granted and vested resulted in $ 168,000 in share-based compensation expense for the three months ended March 31, 2022, while $ 132,000 of share-based compensation expense was recorded for the three months ended March 31, 2021. Share-based compensation expense relating to restricted stock is calculated using grant date fair value and is recognized on a straight-line basis over the vesting periods of the awards. Restricted shares granted to employees vest in equal amounts on the anniversary of the grant date over the vesting period and the expense is a component of salaries and benefits expense on the Consolidated Statements of Income. The employee grant vesting period is determined by the terms of each respective grant, with vesting periods generally between one and four years . Restricted shares granted to directors have a twelve-month vesting period, and the expense is a component of directors’ fees and benefits within the other expense line item on the Consolidated Statements of Income. (1 4 ) Recent Accounting Pronouncements Accounting Standards Adopted in 2021 ASU 2018-14: The FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to defined benefit pension and other postretirement plans by removing and adding certain disclosures. The ASU was effective for public business entities for fiscal years ending after December 15, 2020 and Mid Penn adopted this standard effective January 1, 2021 on a prospective basis. As a result of this ASU, several disclosures were removed from Topic 715, including: (i) disclosures of the amounts in accumulated comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and (ii) the effects of a one-percentage point change in the assumed health care cost trend rates on the aggregate of service and interest cost components of net periodic postretirement health care benefit costs. However, some additional disclosures will be required as a result of this ASU, including the requirement to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period. Mid Penn discloses condensed information related to its defined benefit plans in interim periods, therefore, the prospective adoption of this ASU will result in disclosure changes only to Mid Penn’s Annual Report on Form 10-K for the year ended December 31, 2021 when expanded disclosures are made. The adoption of this standard did not impact Mid Penn’s overall financial condition. ASU 2019-12: The FASB issued ASU 2019-12, Income Taxes (Topic 740) This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to (i) the approach for intra-period tax allocation, (ii) the methodology for calculating income taxes in an interim period, and (iii) the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Finally, it clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020. ASU 2019-12 did not have a material impact on Mid Penn’s overall financial condition. Accounting Standards Pending Adoption 49 MID PENN BANCORP, INC. ASU No. 2022-02: The FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the TDR recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan. In addition, this ASU enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. For entities that have adopted the amendments in update 2016-13, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in update 2016-13, the effective dates for the amendments in this update are the same as the effective dates in Update 2016-13. The Company has not yet adopted this accounting standard as ASU 2016-13 has not been adopted. Management continues to evaluate the impact of its future adoption of this guidance on the Company’s financial statements. ASU 2016-13 : The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further amended . The ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”) should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above. Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. Certain incremental disclosures are required. Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02 to clarify, improve, or defer the adoption of ASU 2016-13. In October 2019, the FASB issued ASU 2019-10 which deferred the implementation date of ASU 2016-13 for smaller reporting companies (SRCs) until January 1, 2023. The effective date for larger SEC filers would remain unchanged at January 1, 2020. Mid Penn qualifies as an SRC as of the most recent measurement date of September 30, 2019; therefore, Mid Penn has chosen to delay the adoption of ASU 2016-13. Mid Penn is currently evaluating the details of this ASU and the impact the guidance will have on Mid Penn’s consolidated financial statements. Mid Penn expects that it is possible that the ASU may result in an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities. The amount of the change in the allowance for credit losses, if any, resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption. Mid Penn will continue to collect the required data elements needed implement the CECL model in advance of the January 1, 2023 adoption date. (15) COVID-19 Pandemic Implications On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due the Novel Coronavirus (“COVID-19”), and on March 11, 2020, the WHO classified COVID-19 as a pandemic based on the rapid increase in exposure globally. After initially closing its branch lobbies beginning on March 17, 2020 to curtail the spread of the virus, Mid Penn reopened its branch lobbies effective April 19, 2021 given the extensive measures taken to ensure the safety of the Bank’s customers and employees. Additionally, higher vaccination rates have resulted in lifting many state restrictions related to mask requirements, limited occupany levels, and social distancing. The full impact of the coronavirus and its variants continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Corporation’s financial condition, liquidity, capital position, and future results of operations. 50 MID PENN BANCORP, INC. In addition, the adverse economic effects of the coronavirus may lead to an increase in credit risk on the Corporation’s commercial and residential loan portfolios. Also, the Corporation is also monitoring the fluctuations in the markets as it pertains to interest rates and the fair value of our investments, as well as the impact of the pandemic of underlying bond issuers and the potential for OTTI. Management is actively monitoring the global situation on its financial condition, liquidity, capital position, operations, industry, and workforce. Given the daily evolution of the coronavirus and the global responses to curb its spread, the Corporation is not able to estimate the effects of the coronavirus on its results of operations, financial condition, capital position, or liquidity for fiscal year 2022. Coronavirus Aid, Relief, and Economic Security Act Mid Penn has been a significant participating lender under the Paycheck Protection Program which was created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020 and concluded August 8, 2020. The PPP program was reinstated under the Consolidated Appropriations Act, 2021 which was signed into law on December 27, 2020 and concluded on May 31, 2021 . The PPP loans, which are 100 percent guaranteed by the SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term . The SBA also provided a processing fee per loan to financial institutions who participated in the PPP, with the amount of such fee generally ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective credit. As of March 31, 2022, Mid Penn received $ 41,869,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the SBA’s Payroll Protection Program (“PPP”), consisting of (i) $ 20,883,000 of loan processing fees received during the year ended December 31, 2020, (ii) $ 17,997,000 of loan processing fees received during the year ended December 31, 2021, and (iii) $ 2,989,000 during the three months ended March 31, 2022. In addition to receiving and deferring the processing fees, Mid Penn recorded and deferred related loan origination costs, and in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs , the processing fees and loan origination costs are being amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of each respective loan. As of March 31, 2022, Mid Penn had $ 822,000 of PPP deferred loan processing fees not yet realized as income, compared to $ 3,811,000 of PPP deferred loan processing fees not yet realized as income as of December 31, 2021. Mid Penn recognized $ 2,989,000 of PPP processing fees during the quarter ended March 31, 2022, within interest and fees on loans and leases on the Consolidated Statements of Income, compared to $ 5,047,000 of PPP processing fees recognized for the same period of 2021. The CARES Act, along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 do not need to be accounted for as troubled debt restructurings. Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications ranged from deferrals of both principal and interest payments, with some borrowers reverting to interest-only payments. The majority of the deferrals granted by Mid Penn were for a period of three months, but some as long as six months, depending upon management’s specific evaluation of each borrower’s circumstances. Interest does continue to accrue on loans modified under the CARES Act during the deferral period. The principal balance of loans remaining in a CARES Act qualifying deferment status totaled $ 3,571,000 , or less than 1 percent of the total loan portfolio, as of March 31, 2022 and December 31, 2021. One loan remains in deferment status, and the remainder of borrowers who were granted a CARES Act deferral have returned to regular payment status. Mid Penn remains in communication with the borrower still in deferral status to assess the ongoing credit standing of the borrowers, and may make further adjustments to a borrower’s relationship at some future time if warranted for the specific situation. 51 MID PENN BANCORP, INC.