2020
ANNUAL REPORT TO SHAREHOLDERS
MEMBER FDIC
A L E T T E R F R O M
Robert C. Grubic, our Chair, and
Rory G. Ritrievi, our President and CEO
DEAR FELLOW SHAREHOLDERS:
As we write this letter to you in early March, 2021, the COVID-19 public health
crisis and the nation’s response to handling that crisis continues. Our principal
thoughts remain with all those who have lost a loved one to this coronavirus and
to those individuals and businesses who have been harmed financially with the
loss of a job or business income. While there appears to be some encouraging
signs with vaccine distribution, there is clearly work to be done to get our
communities and our country safely back to normal.
Your Board of Directors continues to oversee Mid Penn Bancorp, Inc.’s (“Mid
Penn” or the “Corporation”) effort to help those who have been most affected,
both within our company and throughout our communities. While markets
were roiling throughout 2020, we remained steadfast in our commitment to
help as many customers as possible secure the loans or payment deferrals they
needed, or to grant them access to the liquidity they needed. We believe those
commitments were instrumental in helping individuals and preserving many
businesses throughout Pennsylvania.
Through those efforts, we are pleased to report solid performance for the
Corporation for the year 2020 in many different respects. We had record levels
of organic asset growth, core deposit growth, revenues, net income, and earnings
per share. The Board and Management Team are pleased to deliver those results
to you despite a difficult year for so many. Allow us to highlight a few of those
financial and non-financial successes for you.
... continued on next page.
A L E T T E R F R O M
Robert C. Grubic, our Chair, and Rory G. Ritrievi, our President and CEO
UNIQUE CULTURE/UNIQUE STRATEGY
In the first few months of 2020 as COVID-19 began to grip the
country, it became apparent to us that the work we had done in 2019
formulating a 2020 strategic plan was almost all for naught. Starting
in late February 2020, our Management Team, under the close
supervision of the Board, began to develop a new strategic plan
crafted in the early hours of each day and evaluated for adjustments at
the end of each long day. We focused our commitments on protecting
our employees and customers and on creating an environment
where the employees could continue to provide world class customer
service in a way never before done, supporting the needs of our
customer base when they needed it most. When the Commonwealth
of Pennsylvania went into shutdown mode, we transitioned 80% of our
employees to work from home virtually overnight. We were able to
do that as a result of our diligent disaster recovery planning in the years
leading up to 2020. We did not allow the employees to become
isolated though, as we developed a Community Portal for them to
stay connected with each other and to the Management Team. It also
enabled each of those employees to take care of job #1: ensuring
their own and their families’ health and welfare.
While we believe that we have always had a strong culture throughout
Mid Penn, we put that belief to the test in 2020 by entering the
American Banker “Best Banks To Work For” contest. The ranking that
results from that is, in essence, an employee morale gauge. Of the
over 5,000 banks eligible to participate, we placed as the 20th Best
Bank To Work For in the country and the best in Pennsylvania. We
take a great deal of pride in that accomplishment as it is the strength
of our morale -the basis of our culture- that enabled us to deliver on
our uniquely designed daily strategic plans, the results of which were
meaningful to our customers and instrumental to our performance.
ORGANIC GROWTH
Over the five years leading up to 2020, as we acquired Phoenix
Bancorp, Inc. (Schuylkill and Luzerne counties), The Scottdale Bank
and Trust Company (Westmoreland and Fayette counties) and First
Priority Bank (Chester, Bucks, Montgomery and Berks counties), while
growing in our existing counties of Dauphin and Cumberland and
adding Lancaster organically, we built a footprint of demographic
diversity that we felt would accelerate organic growth on both sides
of the balance sheet regardless of the circumstances in the external
environment. That was proven in 2020. In a year where many
financial institutions were unable or reticent to provide liquidity to
the marketplace, we originated nearly $1.2 billion in commercial,
consumer and residential loans. That was a record level of production
for us and it led to a near best-in-class 13% organic loan growth.
In providing that liquidity to borrowers, we were also able to deepen
our relationships with depositors. Throughout 2020, we grew our core
deposit portfolio by 29%, with 50% of that in the form of noninterest-
bearing deposits. That growth allowed us to decrease our cost of
deposits by 75 basis points which helped to preserve our net interest
margin at a level above most banks in our regional peer group.
We also had a record level of growth and performance in our Trust
and Wealth Management business as revenues topped $1 million
for the first time in our history, despite the challenges for members of
our Trust and Wealth Management calling team to meet with their
customers and prospects for most of the year.
RECORD REVENUES/RECORD EARNINGS
With that organic growth success on both sides of the balance sheet,
we had, for the first time in our history, over $100 million in revenues.
While doing our best to control expenses, and despite a loan loss
provision expense that was more than triple that of the previous year,
we were able to convert those revenues into a record level of net
earnings available to common shareholders of $26 million (up from
$17 million in 2019) and a record level of earnings per share of $3.11
(up from $2.09 in 2019).
With that earnings success, we were able to deliver our highest level of
dividend distribution in 12 years while still increasing our book value by
8% and tangible book value by 12%.
While the market for financial stocks, including Mid Penn, was severely
depressed in 2020 due to concerns over potential asset quality
fallout, we are extremely happy to deliver this type of improvement in
measurable shareholder value.
ASSET QUALITY
We clearly take great pride in the organic growth we delivered in
2020; however, we are even more encouraged by our asset quality
performance and the overall state of our asset quality, even during a
state-wide and country-wide economic crisis.
We added over $4 million to our reserve for loan losses in 2020
(the second highest level of annual provisioning in our history), but
experienced only $332,905 in net charge-offs. Consequently, our
overall loan loss reserve ratio increased from 0.54% in 2019 to 0.67%
in 2020. This is encouraging for a company with the level of loan
growth (both organic and acquired) we have had over the last six
years as aggregate net charge-offs over that six year period amount
of just over $1 million. Management’s key asset quality metric (an
aggregation of the net charge-off ratio + less than 90-day delinquency
+ non-performing asset ratio compared to total loans) remained steady
around 1% throughout the year. We are very pleased with that result.
The success we had in asset quality in 2020 is attributed to the strength
A L E T T E R F R O M
Robert C. Grubic, our Chair, and Rory G. Ritrievi, our President and CEO
of our overall loan team. We are confident that our team of
lenders, credit administration professionals and loan operations
specialists develop, underwrite and administer loan growth in a
manner that is consistent with our objective of pristine asset quality.
Additionally, throughout 2020 as our borrowing community was
challenged given the pandemic’s effect on the economy, we did
everything possible to stabilize that community. We held daily
forums throughout the year where we evaluated loan payment
deferral requests and implemented those approvals in an efficient
and secure manner. When the Paycheck Protection Program was
implemented, we did it as well as any bank in the country which
really helped to stabilize borrowers in our portfolio. And, of course,
even though we were unable to meet with borrowers face to face,
we made the commitment to continue strong communications with
them throughout the year. Those actions all attributed to delivering
solid asset quality performance for the year.
PAYCHECK PROTECTION PROGRAM
The Corporation had a solid year of performance partially aided
by Mid Penn Bank’s participation in the Paycheck Protection
Program (PPP), a small business recovery program implemented by
the federal government in late March of 2020. Throughout that first
round of PPP, we worked to deliver over 4,100 PPP loans totaling
over $630 million, helping to protect over 55,000 paychecks
for employees throughout our market. The success we had, which
ranked us in the top tier of performance nationally, was the result
of leveraging our SBA and technology expertise in building a
solid processing environment that was staffed around the clock for
several months by a core group of employees, including each of
our named executives. There was, of course, an immediate and
positive impact to the Corporation in generating almost $21 million
of origination fees on those loans, but there was also a longer-
term positive impact. In working so efficiently to get those loans
approved for businesses that so desperately needed them to survive
and in establishing communications that eased the stress of those
applicants, we generated a significant amount of goodwill with
both existing customers and customers new to us through the PPP
process. The responses we received from those customers—existing
and new—was so overwhelming that we decided to memorialize
it all in a book. You will see a few of those comments displayed
later in this annual report. Throughout the remainder of the year,
our team of calling professionals throughout the company utilized
that goodwill to develop even deeper relationships with pre-PPP
customers and to establish non-PPP relationships with those new to
us. That effort was instrumental in our ability to deliver the organic
growth numbers identified above.
YOUR BOARD
The Board of Mid Penn delivered oversight and guidance to the
Corporation’s Management Team and mission in a manner of which
we as shareholders can be proud. While there were very few face-
to-face meetings, through the use of technology, we had more Board
and Board-related meetings than in any previous year. Through that
oversight and guidance, the Corporation was able to deliver record
results of operations, a record level of organic growth, PPP production
that positioned us at the top of banks nationally, and the placement of
$27 million of subordinated debt to increase our capital position at no
cost to the shareholders. The Board was focused on keeping the entire
Management Team intact and motivated to deliver record results. Each
and every member of our Board was instrumental in getting that done.
Our Board also grew and continued to demonstrate its commitment
to increase diversity. Late in 2020, we welcomed Brian Hudson
to the team. Brian has long term, statewide financial executive
experience as a retired CEO of the Pennsylvania Housing Finance
Agency. As a Certified Public Accountant, Brian becomes the third
Independent “Financial Expert” on the Board and Audit Committee.
We are confident that our shareholders will be pleased with
Brian’s appointment. The Nominating and Corporate Governance
Committee has developed a multi-year succession and diversity plan
that we feel will keep this Board energetic, engaged and a driving
factor for successfully propelling our organization into the future.
OUR VIEW OF 2021
On February 18, 2021, we issued a Form 8-K and press release
that announced that we had already funded over 2,100 Round 2
PPP loans for over $290 million which helped to save over 26,000
paychecks. We are once again distinguishing ourselves as being
the PPP bank of choice for many businesses in need throughout
Pennsylvania and surrounding states. The sense of satisfaction we get
in completing this process on behalf of our business customers and
their employees makes all the work we do very worthwhile.
With another round of PPP success, continued strong business
development throughout the state in our loan, deposit, trust and wealth
management business lines, as well as a great start in MPB Financial
Service’s wealth and insurance lines, we are cautiously optimistic that
2021 will be another great year.
We thank you for your investment in Mid Penn Bancorp, Inc. and wish
you and yours all the very best of health, happiness and prosperity
throughout the year.
Rory G. Ritrievi
President and CEO
Robert C. Grubic
Chair of the Board
FOCUSING ON
EDUCATION AND DEVELOPMENT
Although 2020 provided many challenges, Mid Penn
University found ways to persevere and continued to
deliver on its commitment to provide the best education and
development opportunities for all Mid Penn Bank employees.
Leveraging recent investments in classroom and meeting
technologies, the University transitioned to a fully-virtual
environment in early 2020, converting 100% of offered
classes to online availability. Despite this pivot, 2020 saw the
highest enrollment in Mid Penn University history with 2,250
students enrolled in 292 classes.
The Summer Intern Program was in full swing over the summer
of last year as ten college students were onboarded into
various business units, learning valuable skills and getting
to know how business operates. Each intern met with senior
executives and leaders around the Bank and were exposed to
multiple facets of our operation.
The University supported 40 mentorship pairs in 2020
that help facilitate the growth and development of emerging
leaders and foster an inclusive and collaborative environment.
Mid Penn Bank’s mentor program helps employees gain
confidence, provides professional development opportunities
and exposes them to new and different ways of thinking. We
believe strongly that mentorships are a great talent builder and
serve to develop a pipeline of future leaders that understand
our business and the Mid Penn Bank culture.
2020 EDUCATION & DEVELOPMENT HIGHLIGHTS
200%
INCREASE IN
CLASSES HELD
100%
165%
160
OF UNIVERSITY CLASSES
TRANSFORMED FROM CLASSROOM
TO VIRTUAL DELIVERY IN 2 MONTHS
INCREASE IN THE NUMBER OF
MENTORSHIPS SUPPORTED
AT THE UNIVERSITY
EMPLOYEES ENROLLED IN
CERTIFICATION PROGRAMS;
28 GRADUATES
10
COLLEGE
INTERNS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
(cid:1800)(cid:1800) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURIT
R
IES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2020
OR
(cid:1798)(cid:1798) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-13677
MID PENN BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania
(State or Other Jurisdiction of f
Incorporation or Organization)
349 Union Street
Millersburg, Pennsylvania
(Address of Principal Executive Offices)
25-1666413
(I.R.S. Employer
Identification Number)
17061
(Zip Code)
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:3)(cid:70)(cid:82)(cid:71)(cid:72)(cid:3)1.866.642.7736
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1.00 par value per share
Trading
Symbol(s)
MPB
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as define
t
d in Rule 405 of the Securities Act. Yes (cid:1798) No (cid:1800)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:1798) No (cid:1800)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes (cid:1800) No (cid:1798)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:1800) No (cid:1798)
d
Indicate by check mark whether the registrant is a large accelerated filer, an accele
rated filer, a non-accelerated filer, a smaller reporting company, or an emerging
(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:179)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:180)(cid:15)(cid:3)(cid:179)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:180)(cid:15)(cid:3)(cid:179)(cid:86)(cid:80)(cid:68)(cid:79)(cid:79)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:53)(cid:88)(cid:79)(cid:72)(cid:3)(cid:20)(cid:21)(cid:69)-2 of the
Exchange Act.
t
Large accelerated filer
Non-accelerated Filer
(cid:1798) Accelerated Filer
(cid:1798)
Smaller Reporting Company
Emerging Growth Company
(cid:1800)
(cid:1800)
(cid:1798)(cid:3)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1798)
ff
Indicate by check mark whether the registrant has filed a repo(cid:85)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:87)(cid:87)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:87)(cid:82)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3)
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report
(cid:1800)
its internal control over
(cid:73)(cid:73)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:1798) No (cid:1800)
(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:89)(cid:82)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:81)-voting common equity held by non-affiliates computed by reference
to the closing price of the common
equity of $18.43 (cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:47)(cid:47)(cid:38)(cid:3)(cid:11)(cid:179)(cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52)(cid:180)(cid:12)(cid:15)(cid:3)(cid:82)(cid:81) June 30, 2020(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)
completed second quarter was approximately $126,417,268.
d
As of March 1, 2021, the registrant had 8,413,383 shares of common stock outstanding, par value $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
(cid:51)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3) connection with the 2021 Annual Meeting of Shareholders is incorporated herein by reference in
partial response to Part III, hereof.
MID PENN BANCORP, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1 -
Business
Item 1A -
Risk Factors
Item 1B -
Unresolved Staff Comments
Item 2 -
Properties
Item 3 -
Legal Proceedings
Item 4 -
Mine Safety Disclosures
PART II
Item 5 -
(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86) and Issuer Purchases of
Equity Securities
Item 6 -
Selected Financial Data
Item 7 -
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) Condition and Results of Operations
Item 7A -
Quantitative and Qualitative Disclosure About Market Risk
Item 8 -
Financial Statements and Supplementary Data
Item 9 -
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A -
Controls and Procedures
Item 9B -
Other Information
PART III
Item 10 -
Directors, Executive Officers and Corporate Governance
Item 11 -
Executive Compensation
Item 12 -
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13 -
Certain Relationships and Related Transactions, and Director Independence
Item 14 -
Principal Accountant Fees and Services
PART IV
Item 15 -
Exhibits and Financial Statement Schedules
Item 16 -
Form 10-K Summary
Signatures
EXHIBITS
PAGE
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55
56
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2
MID PENN BANCORP, INC.
PART I
ITEM 1. BUSINESS
The (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:72)(cid:71)(cid:3)(cid:179)(cid:54)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:68)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:49)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:41)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)-Looking
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:51)(cid:68)(cid:85)(cid:87)(cid:3)(cid:44)(cid:44)(cid:15)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80) (cid:26)(cid:15)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)
and other cautionary statements set forth elsewhere in this report.
Mid Penn Bancorp, Inc.
(cid:85)
Mid Penn Bancorp, Inc. is a financial holding company incorporated in the Commonwealth of Pennsylvania in August 1991. Mid
Penn Bancorp, Inc. and its wholly owned bank and nonbank (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:3) (cid:68)(cid:86)(cid:3) (cid:179)(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:180) (cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
(cid:179)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:180)(cid:3)(cid:3)(cid:50)(cid:81)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) 31, 1991, Mid Penn acquired, as part of the holding co
mpany formation, all of the outstanding common
(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:37)(cid:68)(cid:81)(cid:78)(cid:180)), and the Bank became a wholly-owned subsidiary of Mid Penn. During the year ended
December 31, 2020, Mid Penn established three nonbank subsidiaries, 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
function and services 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 December 31, 2020, the accounts and activities of these nonbank subsidiaries
established in 2020 were not material to warrant separate disclosure or segment reporting. (cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:89)(cid:76)(cid:86)(cid:72)(cid:3)
and coordinate the business of its Bank and nonbank subsidiaries, and to provide them with the capital and resources to fulfill their
respective missions.
l
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:68)(cid:79)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:85)(cid:72)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:80)anaged as
a single business segment. At December 31, 2020, Mid Penn had total consolidated assets of $2,998,948,000 with total deposits of
$2,474,580(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)255,688,000. The holding company and its nonbank subsidiaries currently do not
own or lease any real property. The Bank owns or leases the banking offices as identified in Part I, Item 2.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:81)(cid:82)(cid:81)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:71)(cid:3)six full-time employees as of December 31, 2020. All other employees of the Corporation
are employed by the Bank, with a shared services agreement to support the operation of the holding company. At December 31, 2020,
the Bank had 438 full-time and 28 part-time employees. The Bank and its employees are not subjec
t to a collective bargaining
n
agreement, and the Bank believes it enjoys good relations with its employees.
aa
Mid Penn Bank
Mid Penn Bank was organized in 1868 under a predecessor name, Millersburg Bank, and became a state-chartered bank in 1931.
Millersburg Bank obtained trust powers in 1935, at which time its name was changed to Millersburg Trust Company. In 1971,
(cid:48)(cid:76)(cid:79)(cid:79)(cid:72)(cid:85)(cid:86)(cid:69)(cid:88)(cid:85)(cid:74)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:3)(cid:179)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:180)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:75)(cid:72)(cid:68)(cid:71)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:23)(cid:28)
Union Street, Millersburg, Pennsylvania 17061.
(cid:50)(cid:81)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:75)(cid:82)(cid:72)(cid:81)(cid:76)(cid:91)(cid:3)(cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:11)(cid:179)(cid:51)(cid:75)(cid:82)(cid:72)(cid:81)(cid:76)(cid:91)(cid:180)(cid:12)(cid:3)(cid:69)(cid:92)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:15)(cid:3)(cid:51)(cid:75)(cid:82)(cid:72)(cid:81)(cid:76)(cid:91)(cid:182)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:79)(cid:92)-owned
banking subsidiary, Miners Bank, was merged with and into the Bank, with the Bank being the surviving charter.
(cid:50)(cid:81)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:11)(cid:179)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:180)(cid:12)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)er
of Scottdale with and into the (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3) (cid:48)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:180)(cid:12)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3) (cid:48)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:73)(cid:76)(cid:89)(cid:72)(cid:3) (cid:69)ranches in
(cid:58)(cid:72)(cid:86)(cid:87)(cid:72)(cid:85)(cid:81)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:179)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:9)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:15)(cid:3)(cid:68)(cid:3)(cid:39)(cid:76)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:180).
On July 31, 2018, (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:17)(cid:3) (cid:11)(cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:3) (cid:83)(cid:88)(cid:85)(cid:86)(cid:88)(cid:68)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)
Priority was merged wit(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:48)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:69)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:85)(cid:89)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)
(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:48)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:17)(cid:3) (cid:36)(cid:86)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:76)(cid:86)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:15)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)nto the
Bank. The Fi(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:48)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:54)(cid:82)(cid:88)(cid:87)(cid:75)(cid:72)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:81)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:86)(cid:3) (cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)
(cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3)(cid:68)(cid:3)(cid:39)(cid:76)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:180)(cid:17)(cid:3) Subsequent to December 31, 2020, Mid Penn announced in February 2021 the rebranding of
branches and offices in its First Priority Bank Division in southeastern Pennsylvania to the Mid Penn Bank brand.
Additional information related to the Scottdale and First Priority mergers can be found in Notes 4 and 5 to the Consolidated Financial
Statements contained in Item 8 of this report.
3
MID PENN BANCORP, INC.
Effective December 31, 2020, Mid Penn closed three full-service office locations, all within the Commonwealth of Pennsylvania,
As of December 31, 2020, the
aa
located in Pillow (Dauphin County), Malvern (Chester County), and Vanderbilt (Fayette County).
Bank has thirty-six full-service retail banking locations in the Pennsylvania counties of Berks, Bucks, Chester, Cumberland, Dauphin,
Fayette, Lancaster, Luzerne, Montgomery, Northumberland, Schuylkill and Westmoreland. Mid Penn has no branches or offices
located outside of the Commonwealth of Pennsylvania.
aa
ff
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3) The
Bank engages in full-service commercial banking and trust business, making available to the community a wide range of financial
services, including, but not limited to, mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines
of credit, construction financing, farm loans, community development and local government loans and various types of time and
demand deposits. The Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (the
(cid:179)(cid:41)(cid:39)(cid:44)(cid:38)(cid:180)(cid:12)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:89)(cid:76)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:17)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:182)(cid:86)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:41)(cid:88)(cid:81)(cid:71)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:39)(cid:44)(cid:41)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)
extent provided by law. In addition, the Bank provides a full range of trust and retail investment services. The Bank also offers other
services such as online banking, telephone banking, cash management services, automated teller services and safe deposit boxes.
ff
Business Strategy
The Bank provides services to commercial businesses and real estate investors, consumers, nonprofit organizations, and municipalities
through its thirty-six full-service retail banking properties, one loan production office, two corporate administrations office, and one
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base across twelve Pennsylvania counties, including having several offices in and around the state capital region of Harrisburg. The
Bank emphasizes developing long-term customer relationships, maintaining high quality service, and providing quick responses to
customer needs. Mid Penn believes that local relationship building and its prudent
approach to lending are important factors in the
success and growth of Mid Penn.
t
Lending Activities
The Bank offers a variety of loan products to its customers, including commercial real estate loans, residential real estate loans,
commercial and industrial loans, and consumer loans(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:29)
(cid:120)
(cid:120)
(cid:120)
to establish relationships with creditworthy customers who exhibit positive historical repayment trends, stable cash flows
and secondary sources of repayment from tangible collateral;
to establish a diversified loan portfolio; and
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administrative costs, bad debts, local economic conditions, competition, customer relationships, the term of the loan,
credit risk, collateral quality and a reasonable profit margin.
Credit risk is managed through portfolio diversification, underwriting policies and procedures, and loan monitoring practices. Lenders
are provided with detailed underwriting policies for all types of credit risks accepted by the Bank, and must obtain appropriate internal
approvals for credit extensions. The Bank also maintains strict documentation requirements and extensive credit quality assurance
at are discovered might be mitigated
practices in order to identify credit portfolio weaknesses as early as possible so any exposures th
or potential losses reduced. The Bank generally secures its loans with real estate with such collateral values dependent and subject to
change based on real estate market conditions within its market area. As of December 31, 2020(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:86)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)
credit is in commercial real estate.
u
y
a
Investment Activities
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3) (cid:76)(cid:86)(cid:3) (cid:68)(cid:3) (cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:69)(cid:82)(cid:87)(cid:75)(cid:3) liquidity and interest earnings, and serves to support pledging requirements on
public funds deposits through investments in primarily higher-quality fixed-income debt securities. Mid Penn does not have any
significant non-governmental concentrations within its investment securities portfolio.
Mid Penn maintains both a held-to-maturity investment portfolio and an available-for-sale investment portfolio. Both portfolios are
comprised primarily of lower-risk debt securities, including U.S. Treasury notes, U.S. agency mortgage-backed securities, U.S. agency
notes, investment-grade municipal securities, and corporate bonds. The held-to-maturity portfolio was established to support the
(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75) may require pledging of investment securities. The investments in the held-to-maturity
portfolio are recorded on the balance sheet at book value (amortized cost), while the available-for-sale securities are recorded on the
balance sheet at fair value. These debt securities derive fair values relative to investments of the same type and credit profile with
(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3) (cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:71)(cid:68)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3) (cid:3) (cid:36)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:76)(cid:86)(cid:3) (cid:71)(cid:76)(cid:73)ference
ff
(cid:73)(cid:73)
4
MID PENN BANCORP, INC.
between the amortized cost and fair value of available-for-sale investment securities, or unrealized loss, amounted to $3,000 as of
December 31, 2020. On an after-tax basis, this unrealized loss on available-for-(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)
equity, through the accumulated other comprehensive loss component, of $2,000. No investments in either the held-to-maturity
portfolio or available-for-sale portfolio as of December 31, 2020 were deemed to have other-than-temporary-impairment. The
majority of the investments are high quality United States and municipal securities that, if held to maturity, are expected to result in no
realized loss to the Bank.
(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3) (cid:82)(cid:73)(cid:3) (cid:21)(cid:19)(cid:20)(cid:28)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:72)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3) (cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:56)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3) (cid:11)(cid:179)(cid:36)(cid:54)(cid:56)(cid:180)(cid:12)(cid:3) (cid:21)(cid:19)(cid:20)(cid:28)-04, Codification
Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments), and as part of the adoption, reclassified 113 held-to-maturity debt securities with an aggregate amortized cost of
$67,096,000 to the available for sale category. All 113 securities were subsequently sold during the fourth quarter of 2019 and Mid
Penn recognized a pre-tax gain on the sales of $1,779,000. Please refer to Note 25, Recent Accounting Pronouncements, for more
information regarding the adoption of ASU 2019-04.
Deposits and Other Sources of Funds
The Bank primarily uses deposits and, to a lesser extent, wholesale borrowings to finance lending and investment activities.
Wholesale borrowing sources include advances fro(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:43)(cid:82)(cid:80)(cid:72)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:76)(cid:87)(cid:87)(cid:86)(cid:69)(cid:88)(cid:85)(cid:74)(cid:75)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:41)(cid:43)(cid:47)(cid:37)(cid:180)(cid:12)(cid:15)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:86)
(cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:85)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:15)(cid:3) (cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:182)(cid:86)(cid:3) (cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3) (cid:58)(cid:76)(cid:81)(cid:71)(cid:82)(cid:90)(cid:15)(cid:3) (cid:82)(cid:85)(cid:3) (cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79)
program funding such as the $125,617,000 of funding outstanding as of December 31, 2020 that Mid Penn obtained from the Federal
(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:51)(cid:68)(cid:92)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3) (cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3) (cid:47)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:47)(cid:41)(cid:180)(cid:12)(cid:17) Under the PPPLF, the Federal Reserve supplies
financing to the Bank at a rate of 35 basis points (0.35%) for a term and amount determined based on the principal amount of PP
P
loans fully and specifically pledged as collateral in support of the PPPLF borrowings. Draws of PPPLF funds must be repaid to the
Federal Reserve immediately after the specific PPP loans collateralizing the related draws are repaid to the Bank.
rr
(cid:36)(cid:79)(cid:79)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:85)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)curities.
Collateral levels, therefore, limit the extent of borro(cid:90)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:79)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3) (cid:3)(cid:36)(cid:86)(cid:3)(cid:68)(cid:3)
result, generating and retaining retail deposits remains critical to the future funding and growth of the business. Deposit growth within
the banking industry has been subject to strong competition from a variety of financial services companies. This competition may
require financial institutions to adjust their product offerings and pricing to maintain and grow deposits.
Additionally, the safety of traditional bank deposit products has remained an attractive option during periods of market volatility. Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79) (cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:182)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:68)(cid:73)(cid:72)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)insured or local
investments versus the returns offered by alternative choices as part of their personal investment mix.
Competition
The financial services and banking business is highly competitive, and the profitability of Mid Penn depends principally upon the
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)successfully compete in its market area. The Bank actively competes with other financial services companies
for deposit, loan, trust and wealth management business. Competitors include other commercial banks, credit unions, savings banks,
savings and loan associations, insurance companies, securities brokerage firms, finance companies, mutual funds, and product/service
alternatives via the Internet. Financial institutions compete primarily on the quality of services rendered, interest rates on loans and
deposits, service charges, the convenience of banking facilities, location and hours of operation and, in the case of loans to larger
commercial borrowers, relative lending limits.
t
Many competitors are larger than the Corporation and have significantly greater financial resources, personnel and locations from
which to conduct business. In addition, the Bank is subject to banking regulations while certain non-banking competitors may not be
(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3) (cid:3) (cid:41)(cid:82)(cid:85)(cid:3) (cid:80)(cid:82)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:86)(cid:72)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72) (cid:179)(cid:54)(cid:88)(cid:83)(cid:72)(cid:85)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3) (cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:44)(cid:87)(cid:72)(cid:80)(cid:3) (cid:20)(cid:36)(cid:15)(cid:3) (cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)
(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:17)
Mid Penn has been able to compete effectively with other financial institutions by emphasizing customer-focused relationship
management and services, convenient hours, efficient and friendly employees, a consultative sales approach, local decision making,
and quality products.
5
MID PENN BANCORP, INC.
Supervision and Regulation
General
Financial holding companies and banks are extensively regulated under both federal and state laws.
The regulation and supervision of
the Corporation and particularly the Bank are primarily focused on the protection of depositors, the DIF, and the monetary system, and
do not prioritize shareholder interests. Enforcement actions that may be imposed by federal and state banking regulators include the
imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance on deposits, the
imposition of civil money penalties, and removal and prohibition orders. If a banking regulator takes any enforcement action, the
value of an equity investment in Mid Penn could be substantially reduced or eliminated. As of December 31, 2020, the Corporation
was not subject to any supervisory enforcement actions.
d
Federal and state banking laws contain numerous provisions affecting various aspects of the business and operations of Mid Penn and
(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:15)(cid:3)(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)ard
of Governors of the Federal Re(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3) (cid:54)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:76)(cid:86)(cid:3) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:82)(cid:15)(cid:3) (cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)
Pennsylvania Department of Banking and Securities and the FDIC. The descriptions below of, and references to, applicable statutes
and regulations are not intended to be complete lists or reflective of all applicable provisions or their effects on the Corporation. They
are summaries of the more significant laws and regulations and are qualified in their entirety by reference to the complete pro
visions
of such statutes and regulations.
r
Holding Company Regulation
Mid Penn is a registered financial holding company subject to supervision and regulation by the Federal Reserve. As such, it is
(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:43)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:24)(cid:25)(cid:3)(cid:11)(cid:179)(cid:37)(cid:43)(cid:38)(cid:36)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:80)(cid:88)(cid:79)(cid:74)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:17)(cid:3)(cid:3)
The Federal Reserve has broad enforcement powers over financial and bank holding companies, including the power to impose
substantial fines and civil penalties.
The BHCA requires Mid Penn to file an annual report with the Federal Reserve regarding the holding company and its subsidiary
bank. The Federal Reserve Board also makes examinations of the holding company. The Bank is not a member of the Federal
Reserve System; however, the Federal Reserve possesses cease-and-desist powers over financial and bank holding companies and
their subsidiaries where actions would constitute an unsafe or unsound practice or violation of law. The Federal Reserve Board also
makes policy that applies to the declaration and distribution of dividends by financial and bank holding companies.
d
r
The BHCA restricts a financial or (cid:69)(cid:68)(cid:81)(cid:78)(cid:3) (cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:86)(cid:17)(cid:3) (cid:3) (cid:44)(cid:81)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:43)(cid:38)(cid:36)(cid:3)
restricts the activities in which financial or bank holding companies may engage directly or through nonbank subsidiaries.
Gramm-Leach-Bliley Financial Modernization Act
Under the Gramm-Leach-(cid:37)(cid:79)(cid:76)(cid:79)(cid:72)(cid:92)(cid:3) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:48)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:36)(cid:70)(cid:87)(cid:3) (cid:11)(cid:179)(cid:42)(cid:47)(cid:37)(cid:180)(cid:12)(cid:15)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:3) (cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:80)(cid:72)(cid:72)(cid:87)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81) management,
capital, and Community Reinvestment Act standards, are permitted to become financial holding companies. No prior regulatory
approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in
certain financial activities permitted under GLB. Activities cited by GLB as being financial in nature include:
securities underwriting, dealing and market making;
sponsoring mutual funds and investment companies;
insurance underwriting and agency;
(cid:120)
(cid:120)
(cid:120)
(cid:120) merchant banking activities; and
(cid:120)
activities that the Federal Reserve has determined by regulation to be closely related to banking.
In addition to permitting financial holding (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:182) entry into new lines of business, the law allows companies the freedom to
streamline existing operations and to potentially reduce costs. The GLB may increase both opportunity and competition.
6
MID PENN BANCORP, INC.
In December 2019, Mid Penn made the election to change from a bank holding company to a financial holding company as its
holding company
(cid:87)
(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:3)(cid:44)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:36)(cid:70)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:80)(cid:83)(cid:87)(cid:3)(cid:70)(cid:82)(cid:85)(cid:85)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)
and Bank were deemed by the regulators to be well managed, and the Bank had at least a satisfactory rating under the Community
Reinvestment Act. The required filing supporting this change was a declaration that the bank holding company wished to become a
(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:72)(cid:87)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:74)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71) the
e and
intended broadening spectrum of financial product and service offerings to potentially include, but not be limited to, insuranc
wealth management services.
y
Bank Regulation
Mid Penn Bank, a Pennsylvania-chartered institution, is subject to supervision, regulation and examination by both the Pennsylvania
Department of Banking and Securities and the FDIC. The deposits of the Bank are insured by the FDIC to the maximum extent
provided by law. The FDIC assesses deposit insurance premiums, the amount of which depends in part on both the asset size and the
condition of the Bank. Moreover, the FDIC may terminate deposit insurance of the Bank under certain circumstances. The federal and
state banking regulatory agencies have broad enforcement powers over depository institutions under their jurisdiction, including the
power to terminate deposit insurance, to impose fines and other civil and criminal pena
eceiver if
mm
any of a number of conditions is met. In addition, the Bank is subject to a variety of local, state and federal laws that affect its
operations.
t
lties, and to appoint a conservator or r
ypes and
(cid:37)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:68)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87) (cid:81)(cid:82)(cid:87)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:15)(cid:3)(cid:83)(cid:72)(cid:85)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)
amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans, compensation standards,
payment of dividends, various bank account and bank service disclosures, and the safety and soundness of banking practices.
(cid:87)
Capital Requirements, Prompt Corrective Action and Basel III Capital Reforms
Under risk-based capital requirements for financial or bank holding companies, Mid Penn is required to maintain a minimum ratio of
total capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) of eight percent. At
less
qq
least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock,
(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:11)(cid:179)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:20)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:15)(cid:3)(cid:81)(cid:82)(cid:81)-qualifying preferred stock and a limited amount of
(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:11)(cid:179)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:21)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:38)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:20)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:21)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:179)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)
(cid:79)(cid:180)(cid:17)(cid:3)(cid:3)(cid:36)(cid:86)
(cid:85)
of December 31, 2020, Mid Penn complied with these risk-based capital requirements.
In addition, the Federal Reserve has established minimum leverage ratio requirements for bank holding companies. These
(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:20)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:79)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:180)(cid:12)(cid:3)(cid:72)qual to 3
percent for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank
holding companies will generally be required to maintain a leverage ratio of at least
4-5 percent. The requirements also provide that
bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the requirements
indicate that the Federal Reserve will con(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:3)(cid:68)(cid:3)(cid:179)(cid:55)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:20)(cid:3)(cid:47)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:53)(cid:68)(cid:87)(cid:76)(cid:82)(cid:180)(cid:3)(cid:11)(cid:71)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:86)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
proposals for expansion or new activity. As of December 31, 2020, Mid Penn has met these leverage requirements, and the Federal
ff
Reserve has not advised Mid Penn of any specific minimum Tier 1 leverage ratio requirement.
d
a
The Bank is subject to similar capital requirements adopted by the FDIC, and as of December 31, 2020(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)
sufficient to be considered (cid:179)(cid:90)(cid:72)(cid:79)(cid:79)-(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:71)(cid:89)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:86)(cid:17)
(cid:87)
The capital ratios of Mid Penn and the Bank are described in Note 19, Regulatory Matters, within Item 8, Notes to Consolidated
Financial Statements, which are included herein.
Banking regulators may further refine capital requirements applicable to banking organizations, including those discussed in the
(cid:179)(cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:180)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:17)(cid:3)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)tability of Mid Penn or
the fair value of Mid Penn stock.
7
MID PENN BANCORP, INC.
d
(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:15)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:179)(cid:83)(cid:85)(cid:82)(cid:80)(cid:83)(cid:87)(cid:3)(cid:70)(cid:82)(cid:85)(cid:85)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:3)
have discretion to take, based upon the capital
which federal banking agencies are required to take, and certain actions which they
category into which a federally regulated depository institution falls. Regulations set forth detailed procedures and criteria for
implementing prompt corrective action in the case of any institution that is not adequately capitalized. Under the rules, an institution
(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:179)(cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:3)(cid:76)(cid:73)(cid:3)(cid:76)(cid:87)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:43)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:76)(cid:87) will be
(cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3)(cid:179)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:3)(cid:76)(cid:73)(cid:3)(cid:76)(cid:87)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:3)(cid:76)(cid:73)(cid:3)(cid:76)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)-
Based Capital ratio that is less than 6 percent, a Tier 1 Risk-Based Capital ratio that is less than 3 percent, or a leverage ratio that is
less than 3 percent, (cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:70)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:3)(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:84)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)
than 2 percent.
a
The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along wi
th a
performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain
automatic restrictions including a prohibition on payment of dividends, a limitation on asset growth and expansion, in certain cases, a
(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:68)(cid:76)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:179)(cid:80)(cid:68)(cid:81)agement
(cid:73)(cid:72)(cid:72)(cid:86)(cid:180)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:179)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:180)(cid:17)(cid:3)(cid:44)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)are also subject to certain additional supervisory
(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:88)(cid:85)(cid:71)(cid:72)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:80)(cid:82)(cid:81)(cid:76)(cid:87)(cid:82)(cid:85)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:68)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:68)cquisitions,
open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with
affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require
replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed
(cid:179)(cid:70)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:87)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)ceptions, that
the institution be placed in receivership.
aa
In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes
required by the Dodd-(cid:41)(cid:85)(cid:68)(cid:81)(cid:78)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:53)(cid:72)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:39)(cid:82)(cid:71)(cid:71)-(cid:41)(cid:85)(cid:68)(cid:81)(cid:78)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:88)(cid:79)es established a
common equity tier 1 capital conservation buffer with a multi-year phase in to an eventual buffer of 2.5 percent of risk-weighted assets
applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and
the
n
applicable capital conservation buffer for a given year, the bank could be subject to certain restrictions on capital distributions and
discretionary bonus payments. The phase-in period for the capital conservation and countercyclical capital buffers for all banking
organizations began on January 1, 2016 and were phased-in over a three-year period. The final rules called for the following
minimum capital requirements, including the capital conservation buffer, effective at January 1, 2019 and subsequent years.
Common equity tier 1 capital to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Leverage ratio
Effective January 1,
2019
7.0%
8.5%
10.5%
4.0%
The final rules also allowed community banks to make a one-time election not to include the additional components of accumulated
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:179)(cid:36)(cid:50)(cid:38)(cid:44)(cid:180)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:72)(cid:68)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72) general risk-based capital
rules that excludes most AOCI components from regulatory capital. Mid Penn made the election not to include the additional
components of AOCI in regulatory capital.
The final rules permanently grandfather non-qualifying capital instruments (such as trust preferred securities and cumulative p
erpetual
tt
preferred stock) issued before May 19, 2010 for inclusion in the Tier 1 Capital of banking organizations with total consolidated assets
less than $15 billion as of December 31, 2009 and banking organizations that were mutual holding companies as of May 19, 2010.
Consistent with the Dodd-Frank Act, the new rules replace the ratings-based approach to securitization exposures, which is based on
external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these
exposures. Alternatively, banking organizations may use the existing gross-ups approach to assign securitization exposures to a risk
weight category or choose to assign such exposures a 1,250 percent risk weight.
(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3)(cid:80)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:48)(cid:54)(cid:36)(cid:86)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:39)(cid:55)(cid:36)(cid:86)(cid:180)(cid:12)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:85)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)tations
than those applicable under the former general risk-based capital rule. The new rules also increase the risk weights for past-due loans,
certain risk weights and credit conversion factors.
8
MID PENN BANCORP, INC.
Mid Penn and the Bank complied throughout the phase-in period, and currently remain in compliance, with all regulatory capital
requirements. Accordingly, the final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-
Frank Act (cid:71)(cid:76)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)
(cid:87)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)
since the changes were implemented.
(cid:79)
Safety and Soundness Standards
The federal banking regulatory agencies have adopted a set of guidelines prescribing safety and soundness standards for depository
institutions such as the Bank. The guidelines establish general standards relating to management practices, internal controls and
information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset
quality, liquidity, capital, earnings, compensation, fees and benefits.
In general, the guidelines require, among other things,
rohibit
ff
appropriate systems and practices to identify and manage the risks and exposures specif
ied in the guidelines. The guidelines p
ff
excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are
unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In
addition, the agencies adopted regulations that authorize an agency to order an institution that has been given notice by an agency that
it is not satisfying any of such safety and soundness standards to submit a compliance plan. If an institution is not satisfying certain
safety and soundness standards and fails to submit to the banking regulatory agency an acceptable compliance plan or fails to
implement an accepted plan, the agency may issue an order directing action to correct the deficiency and may issue an order directing
other actions be taken, including restricting asset growth, restricting interest rates paid on deposits, restricting dividend payments to
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:41)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81) this Form 10-K
and in the period subsequent to December 31, 2020, up to the date of the filing of this Form 10-K, Mid Penn was not subject to any
such bank regulatory orders.
Payment of Dividends and Other Restrictions
Mid Penn(cid:182)(cid:86)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)is a legal entity separate and distinct from the wholly-owned Bank subsidiary. There are various legal
and regulatory limitations on the extent to which the Bank can, among other things, finance, or otherwise supply funds to the holding
company. Specifically, dividends from the Bank are the principal source of the holding company(cid:182)(cid:86)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:15) and there are certain
legal restrictions under Pennsylvania law and Pennsylvania banking regulations on the payment of dividends by state-chartered banks.
The relevant regulatory agencies also have authority to prohibit Mid Penn and the Bank from engaging in what, in the opinion of such
regulatory body, constitutes an unsafe or unsound banking practice. Depending upon the fi
nancial condition of the holding company
and the Bank, the payment of dividends could be deemed by a regulatory agency to constitute such an unsafe or unsound practice.
The holding company and the Bank were not subject to any such dividend prohibitions during the years ended December 31, 2020,
2019, and 2018.
d
f
Deposit Insurance
The FDIC insures deposits of the Bank through the DIF. The FDIC maintains the DIF by assessing depository institutions an
insurance premium. The amount each institution is assessed is based upon a variety of factors that include the level of assets and
tangible equity, and the condition of the Bank (the degree of risk the institution poses to the insurance fund). The FDIC insu
resu
deposits up to $250,000. The Bank pays an insurance premium into the DIF based on a regulatory defined assessment calculation.
The FDIC uses a risk-based premium system that assesses higher rates on those institutions that pose greater risks to the DIF. The
FDIC places each institution in one of four risk categories using a two-step process based first on capital ratios (the capital group
assignment) and then on other relevant information (the supervisory group assignment). Subsequently, the rate for each institution
within a risk category may be adjusted depending upon different factors that either enhance or reduce the risk the institution poses to
the DIF, including the unsecured debt, secured liabilities and brokered deposits related to each institution. Finally, certain
risk
multipliers may be applied to the adjusted assessment.
h
k
Beginning with the second quarter of 2011 and as applicable continuously through to the current period, as mandated by the Dodd-
Frank Act, the assessment base that the FDIC uses to calculate assessment premiums is the B(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:80)(cid:76)(cid:81)(cid:88)(cid:86)(cid:3) (cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
tangible equity. As the asset base of the banking industry is larger than the deposit base, the range of assessment rates is a low of 2.5
basis points and a high of 45 basis points, per $100 of assets.
The FDIC is required under the Dodd-Frank Act to establish assessment rates that will allow the DIF to achieve a reserve ratio of 1.35
percent of Insurance Fund (cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:179)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:180)(cid:3)(cid:82)(cid:73)(cid:3)
2 percent, a target ratio that, until it is achieved, will not likely result in the FDIC reducing assessment rates. In attempting to achieve
the mandated 1.35 percent ratio, the FDIC is required to implement assessment formulas that charge banks over $10 billion in asset
size more than banks under that size. These new formulas did not affect Mid Penn Bank as it was less than $10 billion in total assets
size.
9
MID PENN BANCORP, INC.
(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:182)(cid:86)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:41)(cid:88)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72) ratio
met a threshold resulting in the FDIC providing the Bank with a $492,000 credit, which was applied to the deposit insurance
assessments for both the second and third quarters of 2019.
Consumer Protection Laws
A number of laws govern the relationship between the Bank and its customers. For example, the Community Reinvestment Act is
designed to encourage services, investments, and lending activities in low- and moderate-income areas. The Home Mortgage
Disclosure Act and the Equal Credit Opportunity Act attempt to minimize lending decisi
ons based on impermissible criteria, such as
tt
race or gender. The Truth-in-Lending Act and the Truth-in-Savings Act require banks to provide certain disclosure of relevant terms
related to loans and savings accounts, respectively. Anti-tying restrictions (which prohibit conditioning the availability or terms of
credit on the pur(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:12)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:68)
comprehensive compliance management program to promote its compliance with these and other applicable consumer protection laws
and regulations.
m
t
Privacy Laws
The federal banking regulators have issued a number of regulations governing the privacy of consumer financial and customer
information. The regulations limit the disclosure by financial institutions, such as Mid Penn(cid:182)(cid:86)(cid:3) (cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) and Bank, of
nonpublic personal information about individuals who obtain financial products or services for personal, family, or household
purposes. Subject to certain exceptions allowed by law, the regulations cover information sharing between financial institutions and
nonaffiliated third parties. More specifically, the regulations require financial institutions to provide:
(cid:120)
(cid:120)
(cid:120)
initial notices to customers about their privacy policies, describing the conditions under which they may disclose
nonpublic personal financial information to nonaffiliated third parties and affiliates;
annual notices of their privacy policies to their current customers; and
(cid:68)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:179)(cid:82)(cid:83)(cid:87)(cid:3)(cid:82)(cid:88)(cid:87)(cid:180)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:81)(cid:82)(cid:81)(cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)
Affiliate Transactions
Transactions between the Bank and the Corporation, and/or its nonbank subsidiary affiliates are governed by Sections 23A and 23B of
(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:17)(cid:3)(cid:36)(cid:81)(cid:3)(cid:179)(cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:180)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)t controls, is controlled by, or is
under common control with the bank or savings institution. Generally, a subsidiary of a depository institution that is not also a
depository institution is not treated as an affiliate of the bank for purposes of Sections 23A and 23B. Sections 23A and 23B are
intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by
sactions with any one affiliate and with all affiliates
limiting the extent to which a bank or its subsidiaries may engage in covered tran
of the bank in the aggregate, and requiring that such transactions be on terms that are consistent with safe and sound banking practices.
a
The USA Patriot Act, Anti-Money Laundering and Anti-Terrorism Financing
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(cid:11)(cid:179)(cid:56)(cid:54)(cid:36)(cid:3) (cid:51)(cid:68)(cid:87)(cid:85)(cid:76)(cid:82)(cid:87)(cid:3) (cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:3) (cid:69)(cid:85)(cid:82)(cid:68)(cid:71)(cid:72)(cid:81)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:81)(cid:87)(cid:76)-money laundering regulations to apply to additional types of financial
institutions, such as broker-dealers, and strengthened the ability of the U.S. government to detect and prosecute international money
laundering and the financing of terrorism. Under Title III of the USA Patriot Act, also known as the International Money Laundering
Abatement and Anti-Terrorism Financing Act of 2001, all financial institutions, including Mid Penn and the Bank, are required in
general to identify their customers, adopt formal and comprehensive anti-money laundering programs, scrutinize or prohibit altogether
certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning their
customers and their transactions. The principal provisions of Title III of the USA Patriot Act require that regulated financial
institutions, including state-chartered banks:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
establish an anti-money laundering program that includes training and audit components;
comply with regulations regarding the verification of the identity of any person seeking to open an account;
take additional required precautions with non-U.S. owned accounts; and
perform certain verification and certification of money laundering risk
relationships.
ff
for their foreign correspondent banking
10
MID PENN BANCORP, INC.
Additional information-sharing among financial institutions, regulators, and law enforcement authorities is encouraged for financial
institutions that comply with this provision and the authorization of the Secretary of the Treasury to adopt rules to further encourage
cooperation and information-sharing.
a
The USA Patriot Act also expanded the conditions under which funds in a U.S. interbank account may be subject to forfeiture and
increased the penalties for violation of anti-money laundering regulations. Failure of a financial institution to comply with the USA
(cid:51)(cid:68)(cid:87)(cid:85)(cid:76)(cid:82)(cid:87)(cid:3)(cid:36)(cid:70)(cid:87)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)The effectiveness of a financial
institution in combating money-laundering activities is a factor to be considered in any application submitted by the financial
institution under the Bank Merger Act, which applies to the Bank.
k
The Bank has adopted policies, procedures and controls to address compliance with the requirements of the USA Patriot Act under the
existing regulations and will continue to revise and update its policies, procedures and controls to reflect changes required by the USA
Patriot Act and implementing regulations.
r
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, in response to the novel (cid:70)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3) (cid:11)(cid:179)(cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-(cid:20)(cid:28)(cid:180)(cid:12)(cid:3) (cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3) (cid:36)(cid:76)(cid:71)(cid:15)(cid:3) (cid:53)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)
(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:11)(cid:179)(cid:38)(cid:36)(cid:53)(cid:40)(cid:54)(cid:180)(cid:12)(cid:3) (cid:36)(cid:70)(cid:87) was signed into law. (cid:55)(cid:75)(cid:76)(cid:86)(cid:3) (cid:79)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:51)(cid:68)(cid:92)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3) (cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3) (cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)
ent, and
hh
which permitted eligible business entities to apply for loans through a participating financial institution to cover payroll, r
other business expenses during the COVID-19 pandemic. The PPP loans, which are 100 percent guaranteed by the Small Business
(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:54)(cid:37)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:88)(cid:83)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:3) (cid:73)(cid:76)(cid:89)(cid:72)-year term to maturity and carry a low interest rate of 1 percent throughout the loan
term. (cid:55)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:86)(cid:87)(cid:3)(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:51)(cid:51)(cid:51)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86) issued in 2020 have a two-year term to maturity. The SBA may forgive the 2020
PPP loans if, among other criteria, at least 60 percent of the proceeds are used for payroll costs. Also, the borrowers will not have to
make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the
deferment period. The SBA also provided a processing fee per loan to financial institutions who participated in the PPP, with the
amount of such fee ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective
credit. In addition to the processing fees, Mid Penn recorded related loan origination costs.
h
As of December 31, 2020, Mid Penn had received $20,883,000 of nonrefundable loan processing fees related to the loans disbursed as
(cid:68)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) 2020 PPP lending activities. The balance of these fees that have not yet been realized as income, and the
related loan origination costs, are deferred in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs
and
will be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of each
respective loan. During the year ended December 31, 2020, Mid Penn recognized $13,137,000 of PPP processing fees within interest
and fees on loans and leases on the Consolidated Statements of Income.
—
d
As of December 31, 2020, Mid Penn had $388,313,000 of net 2020 PPP loans outstanding ($396,059,000 of gross PPP loans, net of
deferred PPP processing fees of $7,746,000) with all of these loans being recorded in the commercial and industrial loan portfolio
classification.
On February 22, 2021, on a Form 8-(cid:46)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)
(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:20)(cid:27)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:20)(cid:3) (cid:76)(cid:87)(cid:3) (cid:75)(cid:68)(cid:71)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3) (cid:21)(cid:19)(cid:21)(cid:20)(cid:3) (cid:51)(cid:68)(cid:92)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3) (cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3) (cid:11)(cid:179)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3) (cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:68)(cid:79)s through the Small
(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:37)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3) disbursements, for 2,047 business customers totaling more than $290
million in loans. These businesses collectively employ more than 26,000 individuals. See Note 27, COVID-19 Pandemic
Implications, to the consolidated financial statements in Part II, Item 8 for more details.
In addition to the creation of the PPP, the CARES Act also included several tax relief initiatives, including allowing net oper
ating
losses generated in 2018, 2019, or 2020 to be carried back up to five years. As a result of this change, the full-year tax provision
through December 31, 2020 includes a $318,000 tax benefit as the result of carrying certain NOLs acquired from First Priority and
Scottdale back to 2017 when the federal statutory tax rate was higher (34 percent versus 21 percent). See Note 18, Income Taxes, to
the consolidated financial statements in Part II, Item 8 for more details.
f
JOBS Act
In 2012, the Jumpstart Our Business (cid:54)(cid:87)(cid:68)(cid:85)(cid:87)(cid:88)(cid:83)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:45)(cid:50)(cid:37)(cid:54)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:80)(cid:72)(cid:3)(cid:79)(cid:68)(cid:90)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:45)(cid:50)(cid:37)(cid:54)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:76)(cid:80)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:68)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)
by smaller companies, banks, and bank holding companies. Certain changes implemented by the JO
included (i) raising the threshold requiring registration under the Securities Exchange Act of 1934 (the "Exchange Act") for banks and
bank holdings companies from 500 to 2,000 holders of record, and (ii) raising the threshold for triggering deregistration under the
Exchange Act for banks and bank holding companies from 300 to 1,200 holders of record.
BS Act that impacted Mid Penn
r
rr
11
MID PENN BANCORP, INC.
Dodd-Frank Act
The Dodd-Frank Act, which became law in July 2010, significantly changed regulation of financial institutions and the financial
services industry. Dodd-Frank created a Financial Services Oversight Council to identify emerging systemic risks and improve
interagency cooperation, and centralized responsibility for consumer financial protection by creating a new agency, the Consumer
Financial Protection Bureau, which is responsible for implementing, examining and enforcing compliance with federal consumer
financial laws. Dodd-Frank also permanently raised the current standard maximum deposit insurance amount to $250,000, established
strengthened capital standards for banks, disallowed certain trust preferred securities from qualifying as Tier 1 Capital (subject to
certain grandfather provisions for existing trust preferred secu
rities), established new minimum mortgage underwriting standards,
ff
granted the Federal Reserve the power to regulate debit card interchange fees, and implemented corporate governance changes.
Effects of Government Policy and Potential Changes in Regulation
Changes in regulations applicable to Mid Penn(cid:182)(cid:86)(cid:3) (cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15) the Bank, or its nonbank subsidiaries, or shifts in monetary or
other government policies, could have a material effect on our business. The Corporation(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
financial services industry in general. As a result of legal, economic, and competitive changes, management believes that the
Corporation and the financial services industry will continue to experience an increased rate of change from both the opportunities and
r
competitive challenges resulting from greater product and service offerings, technologica
l advancements, and business combinations.
f
operations requirements and the cost of
From time to time, legislation is enacted that has the effect of increasing the compliance and
doing business, changing the tax structure applicable to Mid Penn, limiting or expanding permissible activities, or affecting the
competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, and before
various bank regulatory agencies. Mid Penn cannot predict the likelihood of any major changes or the impact such changes might
have on Mid Penn, the Bank, or the nonbank subsidiaries. Congressional bills and other proposals could result in additional
significant changes to the financial services and banking system, including, but not limited to, provisions for limitations on deposit
insurance coverage, changing the timing and method financial institutions use to pay
for deposit insurance, expanding the power of
aa
banks by removing the restrictions on bank underwriting activities, changing the regulation of bank derivatives activities, and allowing
commercial enterprises to own banks. As a consequence of the extensive regulation of commercial banking activities in the United
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:76)(cid:86)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3) (cid:86)(cid:88)(cid:86)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:69)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:79)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3) (cid:76)(cid:81)(cid:70)rease the
costs of doing business or change the Corporation(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:79)(cid:68)(cid:81)(cid:71)(cid:86)(cid:70)(cid:68)(cid:83)(cid:72)(cid:17)(cid:3) (cid:3) (cid:58)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:68)(cid:81)(cid:92)(cid:3) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:79)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:69)(cid:72)(cid:3) (cid:72)(cid:81)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:85)(cid:3)
additional regulations will be adopted, and how they might impact Mid Penn, cannot be determined at this time.
d
a
r
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:15)(cid:3)(cid:71)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)omic conditions and the monetary and fiscal policies of the United
States government and its agencies. The monetary policies of the Federal Reserve have had, and will likely continue to have, anaa
impact on the operating results of commercial banks because (cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:80)(cid:82)(cid:81)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3)
to, among other things, promote employment, control inflation or combat recession. The Federal Reserve has a major impact on the
loan and deposit rates offered by the Bank and its competitors, and on the levels of bank loans, investments and deposits, through its
open market operations in United States government securities and through its regulation of, among other things, the discount rate on
borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to reasonably predict
the
nature, amount, frequency, and impact of future changes in monetary and fiscal policies.
t
t
Environmental Laws
Management does not anticipate that compliance with environm(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)
capital, expenditures, earnings, or competitive position. However, environmentally-related hazards have become a source of high risk
and liability for some financial institutions.
(cid:71)
Additionally, the Pennsylvania Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act
provides, among other things, protection to lenders from environmental liability and remediation costs under the environmental laws
for releases and contamination caused by others. A lender who engages in activities involved in the routine practices of commercial
lending, including, but not limited to, the providing of financial services, holding of security interests, workout practices,
foreclosure
or the recovery of funds from the sale of property shall not be liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by virtue of the fact that the lender engages in such
commercial lending practice. A lender, however, will be liable if it, its employees or agents, directly cause an immediate release or
directly exacerbate a release of a regulated substance on or from the property, or knew and willfully compelled the borrower to
commit an action which caused such release or to violate an environmental act. The Pennsylvania Economic Development Agency,
Fiduciary and Lender Environmental Liability Protection Act does not limit federal liability, which still exists under certain
circumstances.
a
12
MID PENN BANCORP, INC.
Corporate Governance
The Sarbanes-(cid:50)(cid:91)(cid:79)(cid:72)(cid:92)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:19)(cid:21)(cid:3)(cid:11)(cid:179)(cid:54)(cid:50)(cid:59)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:40)(cid:38)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52)(cid:3)(cid:68)(cid:71)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86)(cid:29)(cid:3)
corporate governance, auditor independence and accounting standards, executive compensation, insider loans, whistleblower
protection, and enhanced and timely disclosure of corporate information. Mid Pe
nn has established policies, procedures, and systems
designed to promote compliance with these regulations. Section 404 of SOX requires publicly held companies to document, test and
certify that their internal control systems over financial reporting are effective. Effective for year-end financial reports beginning with
December 31, 2017, Mid Penn is subject to the independent attestation requirement under Section 404 of the SOX. The Bank remains
subject to independent auditor attestation under FDIC regulation 363.3(b), which is a similar independent attestation requirement at
the Bank level.
y
Available Information
Mid (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81) 12(b) of the Exchange Act and is traded on NASDAQ under the trading symbol
MPB. Mid Penn is subject to the informational requirements of the Exchange Act, and, accordingly, files reports, proxy statements
and other information with the SEC. Mid Penn is an electronic filer with the SEC. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The (cid:54)(cid:40)(cid:38)(cid:182)(cid:86)
Internet site address is www.sec.gov.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:75)(cid:72)(cid:68)(cid:71)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:22)(cid:23)(cid:28)(cid:3)(cid:56)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:15)(cid:3)(cid:48)(cid:76)(cid:79)(cid:79)(cid:72)(cid:85)(cid:86)(cid:69)(cid:88)(cid:85)(cid:74)(cid:15)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)(cid:20)(cid:26)(cid:19)(cid:25)(cid:20)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:20)-866-642-
(cid:26)(cid:26)(cid:22)(cid:25)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:90)(cid:72)(cid:69)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:76)(cid:86) midpennbank.com and Mid Penn makes available through its website, free of charge, its annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonabl
y
possible after filing with the SEC. Mid Penn has adopted a Code of Ethics that applies to all employees and this document is also
(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:90)(cid:72)(cid:69)(cid:86)(cid:76)(cid:87)(cid:72)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)(cid:72)(cid:69)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)
p
d
ITEM 1A. RISK FACTORS
Before investing in Mid Penn common stock, an investor should carefully read and consider the risk factors described below, which
are not intended to be all inclusive, and to review other information contained in this report and in our other filings with th
e SEC. The
risks and uncertainties described below are not the only ones facing Mid Penn(cid:182)(cid:86)(cid:3) (cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15) the Bank, and nonbank
subsidiaries. Additional risks and uncertainties that we are not aware of, or that we currently deem less significant, or that we are
otherwise not specifically focused on, may also impact our business, results of operations, and our common stock. If any of these
known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be
materially and adversely affected. If this were to happen,
the market price of our common stock could decline significantly, and an
investor could lose all or part of his or her investment in Mid Penn.
ff
ff
(cid:56)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:91)(cid:87)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:179)(cid:90)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:88)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:82)(cid:88)(cid:85)(cid:15)(cid:180)(cid:3)(cid:179)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:15)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:15)(cid:180) collectively refer to
Mid Penn Bancorp, Inc. and its subsidiaries(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:37)(cid:68)(cid:81)(cid:78)(cid:180)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:79)(cid:92)-owned banking
subsidiary of Mid Penn Bancorp, Inc.
Risks Related to Our Primary Business and Industry
Mid Penn is subject to interest rate risk.
(cid:87)(cid:87)
ference
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17)(cid:3)(cid:3)(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:73)
(cid:73)(cid:73)
between interest income earned on interest-earning assets such as loans and securities, and interest expense paid on interest-bearing
liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond Mid Pen(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:15)
including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of
Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, could influence not only
the interest income the Bank receives on loans and securities and the amount of interest expense it pays on deposits and borrowings,
but such changes could also affect (i) (cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12) the fair value of financial assets and
liabilities, and (iii) the average duration of mortgage-(cid:69)(cid:68)(cid:70)(cid:78)(cid:72)(cid:71)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:17)(cid:3)(cid:3)(cid:44)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)
deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, Mid (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)
interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates
received on loans and investments fall more quickly than the interest rates paid on deposits and borrowings.
Management believes it has implemented effective asset and liability management strategies and interest rate risk management
activities (cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:3)(cid:36)(cid:81)(cid:92)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:15)(cid:3)(cid:88)(cid:81)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)d,
prolonged, or rapid change in mar(cid:78)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)
13
MID PENN BANCORP, INC.
Mid Penn is subject to credit risk.
As of December 31, 2020, approximately 88 per(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3) (cid:76)(cid:81)(cid:3) (cid:55)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:27)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)
Analysis consisted of commercial real estate, commercial and industrial, and agricultural loans. These types of loans are generally
viewed as having more risk of default than residential real estate loans or secured consumer loans. Commercial loans are also
typically larger than residential real estate loans and consumer loans. Because the loan portfolio contains a significant numb
er of
r
commercial and industrial loans, and construction and commercial real estate loans with relatively large balances, the deterioration of
one or a few of these loans could cause a significant increase in non-(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)
exacerbated when the collateral held by Mid Penn cannot be readily realized or liquidated at prices sufficient to recover the full
amount of the credit or derivative exposure due to Mid Penn. An increase in non-performing loans or collateral value deficiencies
on for possible loan and lease losses and an increase in
m
could result in a net loss of earnings from these loans, an increase in the provisi
loan charge-(cid:82)(cid:73)(cid:73)(cid:86)(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)
n
ff
The allowance for loan and lease losses may be not be sufficient to cover actual loan and lease losses.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)stimate
of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is
necessary to reserve for estimated loan and lease losses and risks inherent in the loan portfolio. The level of the allowance reflects
(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:76)nuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio
quality; changes in present economic, political and regulatory conditions; other external factors such as the ongoing pandemic; and
unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for possible loan
and lease losses inherently involves a high degree of subjectivity and requires Mid Penn to make significant estimates of current credit
risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, the impact
of the ongoing pandemic, new information regarding existing loans, identification of additional problem credits and other factors, both
(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:15)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:68)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:83)(cid:72)riodically
(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:82)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)rovision for possible loan and
lease losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if
charge-offs in future periods exceed the allowance, Mid Penn may need additional provisions to increase the allowance for possible
loan and lease losses. Any increases in the allowance resulting from loan loss provisions will result in a decrease in net income and,
(cid:83)(cid:82)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:92)(cid:15)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) condition and results of operations.
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Competition from other financial institutions may adversely affect Mid Penn’s and the Bank’s profitability.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:3)(cid:73)(cid:68)(cid:70)(cid:72)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:17) This competition
comes principally from other banks, credit unions, savings institutions, mortgage banking companies and other lenders. Many of
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sources and higher lending limits, a
larger competitors who offer loans enjoy advantages over the Bank, including greater financial re
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wider geographic presence, more accessible branch office locations, the ability to offer
a wider array of services or more favo
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pricing alternatives, as well as lower origination and operating costs. This competition coul(cid:71)(cid:3) (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:81)(cid:72)(cid:87)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:69)(cid:92)(cid:3)
decreasing the number and size of loans that its banking subsidiary originates and the interest ra
tes it may charge on these loans.
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such as
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In attracting business and consumer deposits, the Bank faces substantial competition from other insured depository institutions
other commercial banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives,
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:80)(cid:82)(cid:81)(cid:72)(cid:92)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:17)(cid:3) (cid:48)(cid:68)(cid:81)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:90)(cid:75)(cid:82)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87) deposits also enjoy advantages over the Bank,
including greater financial resources, more aggressive marketing campaigns, better brand recognition, and more convenient branch
locations. These competitors may offer higher interest rates than Mid Penn, which could decrease the deposits that the Bank attracts
or require an increase in rates and interest expense to retain existing deposits or attract new deposits. Increased deposit competition
(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:81)ecessary for lending operations. As a result, Mid Penn may need to
seek other sources of funds that may be more expensive to obtain and could increase its cost of funds.
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(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:3) and nonbank subsidiaries also compete with non-banking providers of financial services, such as
brokerage firms, consumer finance companies, credit unions, insurance agencies and governmental organizations, which may offer
more favorable terms. Some of its non-banking competitors are not subject to the same extensive and costly regulations that go
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(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) operations. As a result, such non-banking (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92) and
nonbank subsidiaries in providing certain products and services. This competition may (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3) (cid:82)(cid:85)(cid:3) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:86)(cid:3) (cid:82)(cid:81)
banking services, (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:81)(cid:82)(cid:81)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15) reduce its market share and adversely affect its earnings and
financial condition.
14
MID PENN BANCORP, INC.
The expected discontinuance of LIBOR presents risks to the financial instruments originated, issued or held by Mid Penn that use
LIBOR as a reference rate.
(cid:47)(cid:44)(cid:37)(cid:50)(cid:53)(cid:3)(cid:76)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:80)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3)(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)rates are
determined. Transactions include those in which Mid Penn lends and borrows money; issues, purchases and sells securities; and enters
(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:17) (cid:47)(cid:44)(cid:37)(cid:50)(cid:53)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)latory
guidance and proposals for reform. The United Kingdom Financial Conduct Authority, which regulates the process for setting LIBOR,
announced in July 2017 that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the
administrator of LIBOR after 2021. There are ongoing efforts to establish an alternative reference rate to LIBOR, such as the Secured
by this
(cid:71)
(cid:50)(cid:89)(cid:72)(cid:85)(cid:81)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:54)(cid:50)(cid:41)(cid:53)(cid:180)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)
change are updated accordingly.
If another rate does not achieve wide acceptance as the alternative to LIBOR, there likely will be disruption to all of the markets
relying on the availability of a broadly accepted reference rate. Even if another reference rate ultimately replaces LIBOR, risks will
remain for Mid Penn with respect to outstanding loans, derivatives or other instruments using LIBOR. Those risks arise in connection
with transitioning those instruments to a new reference rate and the corresponding value transfer that may occur in connection with
that transition. Risks related to transitioning instruments to a new reference rate or to how LIBOR is calculated and its availability
include impacts on the yield on loans or securities held by Mid Penn, amounts paid on securities Mid Penn has issued, or amounts
received and paid on derivative instruments Mid Penn has entered into. The value of loans, securities, or derivative instruments tied to
LIBOR and the trading market for LIBOR-based securities could also be impacted upon its discontinuance or if it is limited. Further,
it is possible that LIBOR quotes will become unavailable prior to 2021 if sufficient banks decline to make submissions to the LIBOR
administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
These risks may also be increased due to the shorter timeframe for preparing for the transition.
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The Basel III capital requirements require Mid Penn to maintain higher levels of capital, which could reduce profitability.
rd common equity as the key source of
Basel III established higher levels of base capital, certain capital buffers, and a migration towa
regulatory capital. Although these capital requirements have been phased in and met by Mid Penn, the Basel III requirements signal a
growing effort by domestic and international bank regulatory agencies to require financial institutions, including depository
institutions, to maintain higher levels of capital. The Basel III implementation activities and related regulatory capital targets required
additional capital to support our business risk profile. Maintaining higher levels of capital potentially reduces opportunities to
leverage interest-earning assets, which could limit the net interest income and profitability of Mid Penn, and adversely impact our
financial condition and results of operations.
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t
Acts of terrorism, natural disasters, global climate change, pandemics and global conflicts may have a negative impact on our
business and operations.
Acts of terrorism, natural disasters, global climate change, pandemics, global conflicts or other similar events could have a negative
impact on our business and operations. While we have business continuity plans in place, such events occurring or persisting, such as
the current COVID-19 pandemic, could disrupt or delay the normal operations of our business and our facilities (including
communications and technology), result in harm to or cause travel limitations on our employees, and have a similar impact on our
clients, suppliers, third-party vendors and counterparties. These events also could impact us negatively to the extent that they result in
reduced capital markets activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or
in financial market settlement functions. In addition, these or similar events may impact economic growth negatively, which could
have an adverse effect on our business and operations, and may have other adverse effects on us in ways that we are unable to predict.
As a participating lender in the SBA Paycheck Protection Program (“PPP”), we are subject to additional risks of litigation from our
clients or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan
guaranties.
On March 27, 2020, President Trump signed the CARES Act, which included a loan program administered through the SBA referred
to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and
other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. We are a
participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing
of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the
PPP, which exposes the Corporation to risks relating to noncompliance with the PPP. Since the opening of the PPP, several other
larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for
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15
MID PENN BANCORP, INC.
the PPP. We may be exposed to the risk of litigation, from both clients and non-clients that approached us regarding PPP loans,
regarding our process and procedures used in processing applications for the PPP. If any such litigation is filed against us and is not
resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition,
litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related
litigation could have a material adverse impact on our business, financial condition and results of operations.
We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan
was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may
not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from
a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was
originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it
has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.
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y
The COVID-19 pandemic has caused a significant global and national economic downturn and unprecedented levels of
unemployment, which may adversely affect, our business and results of operations, and the future impact of the COVID-19 pandemic
on the global, national and local economies and our business, results of operations and financial condition remain uncertain.
The COVID-19 pandemic has caused a significant global and national economic downturn and unprecedented levels of
(cid:88)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)esults of
operations, and the future impact of the COVID-(cid:20)(cid:28)(cid:3) (cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:15)(cid:3) (cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3) (cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)
business, results of operations and financial condition remain uncertain.
The COVID-19 pandemic has resulted in authorities implementing numerous measures attempting to contain the spread and impact
of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activity, including
closures. These measures are, among other things, severely restricting global and national economic activity, which is disrupting
supply chains, lowering asset valuations, significantly increasing unemployment and underemployment levels, decreasing liquidity in
markets for certain securities and causing significant volatility and disruptions in the financial markets. These measures have
negatively impacted, and could continue to negatively impact, businesses, market participants, our counterparties and clients, and the
global, national and local economies for a prolonged period of time. Should current economic conditions persist or continue to
deteriorate, this economic environment could have a continued adverse effect on our business and operations, including but not limited
to: decreased demand for our products and services; protracted periods of lower interest rates; lower asset management fees; and
increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining
and net charge-offs. Additionally, our
n
asset and collateral values, which may result in an increase in our provision for credit losses
in the
(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3) (cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:71)(cid:85)(cid:68)(cid:90)(cid:68)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:89)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:92)
capital and credit markets, and customer draws on lines of credit. To the extent the COVID-19 pandemic continues to adversely affect
the economy, and/or adversely affects our business, results of operations or financial condition, it may also have the effect of
increasing the likelihood and/or magnitude of other risks including those related to market, credit, and business operations.
tt
In response to the economic and market conditions resulting from the COVID-19 pandemic, governments and regulatory authorities,
including central banks, have acted to provide fiscal and monetary stimulus to
support the global and national economy. However,
there can be no assurance that these measures will stimulate the global and national economy or avert recessionary conditions in
markets in which we conduct operations.
d
We continue to closely monitor the COVID-19 pandemic and related risks as they evolve. The magnitude, duration and likelihood of
the current outbreak of COVID-19, further outbreaks of COVID-19, future actions taken by governmental authorities and/or other
l
third parties in response to the COVID-19 pandemic, and its future direct and indirect effects on the global, national and loca
economies and our business and results of operation are highly uncertain. The COVID-19 pandemic may cause prolonged global,
national or local recessionary economic conditions or longer lasting effects on economic conditions than currently exist, which could
have a material adverse effect on our business, results of operations and financial condition.
t
16
MID PENN BANCORP, INC.
Interest rate volatility stemming from COVID-19 could negatively affect our net
profitability.
g
interest income, lending activities, deposits and
Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest
rates caused
by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to
a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector. A prol
onged
t
period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk
mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of
future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the
level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and
cial
interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or finan
condition.
r
ff
If Mid Penn’s information systems are interrupted or sustain a breach in security, those events may negatively affect Mid Penn’s
financial performance and reputation.
In conducting its business, Mid Penn relies heavily on its information systems. Maintaining and protecting those systems and data is
difficult and expensive, as is dealing with any failure, interruption, or breach in security of these systems, whether due to acts or
omissions by Mid Penn or by a third party, and whether intentional or not. Any such failure, interruption, or breach could result in
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(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:88)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)inancial
(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3)(cid:69)(cid:85)(cid:72)(cid:68)(cid:70)(cid:75)(cid:72)(cid:86)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:54)(cid:88)(cid:70)(cid:75)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)ulent activity may consist of check fraud,
(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:85)(cid:82)(cid:81)(cid:76)(cid:70)(cid:3) (cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:15)(cid:3) (cid:90)(cid:76)(cid:85)(cid:72)(cid:3) (cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:15)(cid:3) (cid:179)(cid:83)(cid:75)(cid:76)(cid:86)(cid:75)(cid:76)(cid:81)(cid:74)(cid:180)(cid:15)(cid:3) (cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:72)(cid:81)(cid:74)(cid:76)(cid:81)(cid:72)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3) (cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:73)(cid:87)(cid:15)(cid:3) (cid:82)(cid:85)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:71)(cid:72)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:68)(cid:70)(cid:87)(cid:86)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)res, and
technical safeguards put in place by Mid Penn to prevent or limit the effect of any failure, interruption, or security breach of its
information systems and data may be insufficient to prevent or remedy the effects of any such occurrences. The occurrence of any
(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:69)(cid:85)(cid:72)(cid:68)(cid:70)(cid:75)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:71)
(cid:68)(cid:80)(cid:68)(cid:74)(cid:72)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)
Mid Penn to incur additional expenses, result in online services or other businesses becoming inoperable, subject Mid Penn to
regulatory sanctions or additional regulatory scrutiny, or expose Mid Penn to civil litigation and possible financial liability, any of
(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)
(cid:73)(cid:73)
(cid:73)(cid:73)
Mid Penn’s business operations and interaction with customers are increasingly done via technology and electronic delivery
channels, and this has increased risks related to cyber-attacks and cyber incidents.
Mid Penn is exposed to the risk of cyber-attacks in the normal course of business. In general, cyber incidents can result from
deliberate attacks or unintentional events. An increased level of attention in the industry is focused on cyber-attacks that include, but
are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information,
corrupting data, or causing operational disruption. To combat against these attacks, Mid Penn has certain security systems and
policies and procedures in place to prevent or limit the effect of the possible security breach of its information systems and it has
insurance against some cyber-risks and attacks. While Mid Penn has not incurred any material losses related to cyber-attacks, nor is it
aware of any specific or threatened cyber-incidents as of the date of this report, it may incur substantial costs and suffer other negative
consequences if it falls victim to successful cyber-attacks. Such negative consequences could include remediation costs that may
include liability for stolen assets or information and repairing system damage that cyber-attacks may have caused; deploying
additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues
resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; l
itigation;
and reputational damage adversely affecting customer or investor confidence.
r
t
We are required to make a number of judgments in applying generally accepted accounting standards, and different estimates and
assumptions in the application of these accounting standards could result in a decrease in capital and/or other material changes to
our reports of financial condition and results of operations.
Generally accepted accounting principles involve certain estimates and processes that are particularly susceptible to significa
nta
change, including those related to the determination of the allowance for loan losses and reserve for unfunded lending commitments,
the fair value of and potential impairment of certain financial instruments including investment securities, income tax assets or
liabilities (including deferred tax assets and any related valuation allowance), and share-based compensation. While we have identified
critical accounting policies and have procedures and processes in place to support making the related judgments and estimates,
changes to the processes, assumptions, or models in the application of these generally accepted accounting principles, and the impact
to the related judgments and estimates could result in a decrease to net income and, possibly, capital and may have a material adverse
effect on our financial condition and results of operations. From time to time, the Financial Ac
counting Standards Board and the SEC
issues changes to or updated interpretations of the financial accounting and reporting guidance that governs the preparation of Mid
m
aa
f
tt
17
MID PENN BANCORP, INC.
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:15)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:69)(cid:72)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:72)(cid:71)(cid:76)(cid:70)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:75)ow we
y new or revised guidance retrospectively, which
f
report our financial condition and results of operations. We could be required to appl
may result in the revision of prior financial statements by material amounts. The implementation of new or revised guidance could
also result in material adverse effects to our reported capital.
Mid Penn’s mortgage banking income may experience significant volatility.
a
Mortgage banking income is highly influenced by the level and direction of market forces including mortgage interest rates, and real
estate and refinancing activity. In lower interest rate environments, the demand for mortgage loans and refinancing activity will tend
to increase. This has the effect of increasing fee income, but could adversely impac(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)
servicing rights as the rate of loan prepayments increase. In higher interest rate environments, the demand for mortgage loans and
refinancing activity will generally be lower. This has the effect of decreasing mortgage loan originations and refinance activities, and
related fee income opportunities.
d
ify mortgage loan purchasers due to breaches of representations
Mid Penn could be required to repurchase mortgage loans or indemn
and warranties, borrower fraud, or certain borrower defaults, which could have a material adverse impact on our liquidity, results of
operations and financial condition.
e
Mid Penn originates and sells a significant amount of residential mortgage loans into the secondary market. When Mid Penn sells
mortgage loans, Mid Penn is required to make customary representations and warranties to purchasers about the mortgage loans and
require Mid Penn to repurchase or
the manner in which they were originated. The agreements pursuant to which the loans are sold
substitute mortgage loans in the event there was a breach of any of these representations or warranties. In addition, Mid Penn
may be
required to repurchase mortgage loans as a result of borrower fraud or in the event of early payment default of the borrower on a n
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condition may be adversely affected.
aa
t
Mid Penn’s profitability depends significantly on economic conditions in Pennsylvania.
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significant degree on economic conditions in Pennsylvania, especially in the twelve counties and the specific markets primarily served
by Mid Penn. The banking industry is affected by general economic
conditions, including the effects of inflation, recession,
unemployment, real estate values, trends in national and global economics, and other factors beyond our control. An economic
recession or a delayed recovery over a prolonged period of time in Pennsylvania, or more specific to the counties or communities in
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thereby causing operating losses, impairing liquidity, and eroding capital. Mid Penn cannot assure that adverse changes in the
local
and state economy supporting its market area would not have a material adv(cid:72)(cid:85)(cid:86)(cid:72)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
condition, results of operations, and cash flows.
aa
ff
Mid Penn is subject to claims and litigation pertaining to fiduciary responsibility.
From time to time, customers may make claims and take legal action perta(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:82)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:73)(cid:76)(cid:71)(cid:88)(cid:70)(cid:76)(cid:68)(cid:85)(cid:92)(cid:3)
es are
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founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to Mid Penn, the claims or related
litigation processes may result in significant financial expense and liability, and/or adversely affect the market perception of Mid Penn
and its products and services, as well as impact customer demand for those products and services. Any financial liability or r
eputation
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a
(cid:73)
18
MID PENN BANCORP, INC.
Mid Penn operates in a highly regulated environment and may be adversely affected by changes in fe
regulations.
dd
deral, state and local laws and
Mid Penn(cid:182)(cid:86)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15) the Bank, and its nonbank subsidiaries are collectively subject to extensive regulation, supervision and
examination by federal and state banking authorities. The potential exists for additional or amended federal or state laws and
regulations, or changes in supervisory policies or activities, to material
ly affect many aspects of Mid Pen(cid:81)(cid:182)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)
rr
capital levels, lending and funding practices, and liquidity standards. New laws and regulations may increase costs of regulatory
compliance and of doing business and otherwise affect operations, and may significantly affect the markets in which Mid Penn does
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charged, and ongoing operations, costs and profitability. Further, additional legislation and regulations that could significantly affect
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its financial condition and results of operations. Also, regulators have significant discretion and authority to prevent or remedy unsafe
or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and
enforcement duties. Any changes in applicable regulations or federal, state or local legislation, or the exercise of bank regulatory
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common stock.
The soundness of other financial institutions may adversely affect Mid Penn.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. Mid Penn has
exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial
services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these
transactions expose Mid Penn to credit risk and losses in the event of a default by a counterparty or client. Any such losses could have
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(cid:71)
f
Volatility in financial markets and the economy may have materially adverse effects on our liquidity and financial condition.
onomic disruption, including the most recent
aa
In the recent past, the capital and credit markets experienced extreme volatility and ec
volatility and market stresses from the COVID-19 pandemic. Adverse financial market and economic conditions can exert downward
pressure on stock prices, security prices, and credit availability for certain issuers without regard to their underlying financial strength.
If such levels of financial market and economic disruption and volatility return, there can be no assurance that Mid Penn will not
experience adverse effects, which may materially affect its liquidity, financial
condition, and profitability.
ff
Mid Penn’s banking subsidiary may be required to pay higher FDIC insurance premiums or special assessments which may adversely
affect its earnings.
on stressed the DIF and increased the costs of
Poor economic conditions and the resulting bank failures from the most recent recessi
FDIC to increase its premiums above the recently
(cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:41)(cid:39)(cid:44)(cid:38)(cid:3) (cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3) (cid:3) (cid:41)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:3) (cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:83)(cid:85)(cid:82)(cid:80)(cid:83)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)
(cid:68)(cid:68)
increased levels or to issue special assessments. Mid Penn generally is unable to control the amount of premiums or special
assessments that its banking subsidiary is required to pay for FDIC insurance. Any future changes in the calculation or assessment of
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(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)
a
(cid:87)
If we conclude that the decline in the value of any of our investment securities is other than temporary, we are required to write down
the value of that security through a charge to earnings.
Mid Penn reviews its investment securities portfolio at each quarter-end reporting period to determine whether the fair value of
individual securities or the portfolio as a whole is below the current carrying value. When the fair value of any of its investment
securities has declined below its carrying value, Mid Penn is required to assess whether the decline is other than temporary. If Mid
Penn concludes that the decline is other than temporary, it is required to write down the value of that security through a charge to
earnings. Changes in the expected cash flows of these securities and/or prolonged price declines may result in Mid Penn concluding
that impairment of these securities is other than temporary, which would require a charge to earnings to write down these securities to
their fair value. Due to the complexity of the process, inputs, calculations and assumptions used in determining whether an investment
(cid:76)(cid:86)(cid:3) (cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:85)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:68)(cid:70)(cid:70)(cid:88)(cid:85)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)tual
impairment in the future.
19
MID PENN BANCORP, INC.
Mid Penn is subject to environmental liability risk associated with lending activities.
y
(cid:36)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:70)(cid:82)(cid:88)(cid:85)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)Penn may
foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be
found on these properties. If hazardous or toxic substances are found, Mid Penn may be liable for remediation costs, as well as for
personal injury and property damage. Environmental laws may require Mid Penn to incur substantial expenses and may materially
aws or more
(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:79)(cid:79)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:79)
stringent interpretations or enforcement policies with respect to existing laws may i(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:72)(cid:91)(cid:83)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)
liability. Although Mid Penn has policies and procedures to perform an environmental review before initiating any foreclosure action
on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:81)(cid:3) (cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3) (cid:75)(cid:68)(cid:93)(cid:68)(cid:85)(cid:71)(cid:3) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:68)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)ial
condition and results of operations.
d
(cid:87)(cid:87)
Mid Penn’s financial performance may suffer if its information technology is unab
developments.
a
le to keep pace with its growth or industry
(cid:40)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:76)(cid:86)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92)(cid:3) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)
resources and processes provided both internally and through third party vendors. In addition to better serving customers, the
(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:72)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71), in part,
upon its ability to address the needs of its customers by effectively and safely using technology to provide products and services to
enhance customer convenience, attract customers who prefer technological delivery channels, and to create additional efficiencies in
its oper(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:3)(cid:48)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) and infrastructure.
Additionally, as technology and information security requirements in the financial services industry change and evolve, keeping pace
becomes increasingly complex and expensive for Mid Penn. There can be no assurance that Mid Penn will be able to effectively keep
pace with these technological advancements or the related substa
ntial costs and investments required, which could adversely affect its
dd
financial condition and results of operations.
ff
Growing by acquisition entails certain risks, and difficulties in integrating past or future acquisitions could adversely affect our
business.
In 2018, Mid Penn completed acquisitions of both The Scottdale Bank & Trust Company and First Priority Financial Corp. and
continued the integration of these acquisitions in the subsequent periods. Growth by acquisition involves substantial risks, as
the
t
ultimate success of such acquisitions may depend on, among other things, the ability to realize anticipated cost savings and to integrate
the acquired companies and operation in a manner that does not result in decreased revenues. Excessive acquisition costs, conversion
costs and the disruption of existing customer relationships in both the acquired companies and legacy markets may occur. If we
are not
able to successfully achieve the financial efficiencies or integration and growth objectives of acquisitions, the anticipated benefits of
an acquisition may not be realized fully, or at all, or may take longer to realize than planned.
n
Further, the asset quality or other financial characteristics of an acquired company may deteriorate from the date a merger or
n
acquisition agreement is entered into and when the transaction is completed or the post-merger period.
other
Mid Penn has spent and may continue to spend significant resources identifying companies and businesses to acquire. The efficient
and effective integration of any companies and businesses we acquire and integrate into our organization is critical to our growth. The
recent Scottdale and First Priority mergers, and any future mergers or acquisitions, involve numerous risks including difficulties in
(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:88)(cid:79)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3) (cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:81)(cid:72)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:87)(cid:87)(cid:72)ntion
from other business concerns and the potential loss of customers. Failure to fully integrate the operations of Scottdale and First
(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:85)(cid:80)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)l condition,
results of operations and cash flows.
We plan to pursue a growth strategy and there are risks associated with rapid growth.
d
We intend to pursue a growth plan consistent with our prior business strategy, including growth by acquisition, as well as leveraging
our existing branch network or adding new branch locations or offices and personnel in current and adjacent markets we choose to
serve. The Scottdale Merger and First Priority Merger were part of our growth strategy.
Our ability to manage growth successfully will depend on our ability to attract or retain qualified personnel, maintain cost controls and
efficiencies, and ensure our areas of growth continue to meet our high asset quality standards, while attracting additional loans and
deposits on favorable terms, as well as on factors beyond our control, such as economic conditions and competition in existing and
new markets. If we grow too quickly and are not able to attract qualified personnel, control costs and maintain asset quality, this
continued rapid growth could materially adversely affect our financial performance.
aa
20
MID PENN BANCORP, INC.
Risks Related to Mid Penn Common Stock
The trading volume in Mid Penn’s common stock is less than that of other larger financial services companies.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:76)(cid:86)(cid:3)(cid:79)(cid:76)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52) (symbol: MPB); however, the trading volume in its common stock is less
than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity
(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:79)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:88)(cid:92)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:79)(cid:79)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:74)(cid:76)ven
time. This presence depends on the individual decisions of investors and general economic and market conditions over which Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:75)(cid:68)(cid:86)(cid:3) (cid:81)(cid:82)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:17)(cid:3) (cid:3) (cid:42)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3) (cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)
c(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:68)(cid:79)(cid:79)(cid:17)
(cid:71)
The market price of Mid Penn common stock may fluctuate significantly, and this may make it difficult for investors to resell shares of
common stock owned by them at times or at prices they find attractive.
The market price of our common stock as reported on NASDAQ is subject to constant change during business trading hours. We
expect that the market price of Mid Penn common stock will continue to fluctuate and there can be no assurance about the stability or
trend of market prices for Mid Penn common stock. Stock price volatility, particularly with a stock like ours with lower trading
volumes than larger financial services companies, may make it difficult for investors to resell their Mid Penn common stock when
a variety of
(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:90)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:73)(cid:76)(cid:81)(cid:71)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:17)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)
(cid:73)
(cid:71)
factors, many of which are beyond our control. These factors in(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3)(cid:72)(cid:79)(cid:86)(cid:72)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:85)(cid:72)(cid:3)(cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)
in this document, and our other filings with the SEC.
u
Mid Penn’s ability to pay dividends on its common stock, and principal and interest on
dividends from its banking subsidiary, which is subject to regulatory limits.
tt
its subordinated notes, depends primarily on
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:69)(cid:92)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) to pay
dividends on its common stock, and principal and interest on its subordinated notes, depends on its receipt of dividends from the Bank.
Dividend payments from its banking subsidiary are subject to legal and regulatory limitations, generally based on net profits and
retained earnings, imposed by the respective regulatory agencies that supervise the Bank. The ability of the Bank to pay dividends is
also subject to profitability, financial condition, liquidity, and capital management limits. There is no assurance that Mid (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)
banking subsidiary or other subsidiaries established in the future will be able to pay dividends, or that Mid Penn itself will generate
adequate cash flow to pay dividends in the future. Federal Reserve policy, which applies to Mid Penn as a registered bank holding
rr
company, also provides that dividends by bank holding companies should generally be paid out of ear
nings from both the current
period and a designated look-(cid:69)(cid:68)(cid:70)(cid:78)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)
paid, could have a material adverse effect on the market price of its common stock.
d
(cid:81)
t
Mid Penn may need to, or be required to, raise additional capital in the future, and capital may not be available when needed and on
terms favorable to current stockholders.
Federal banking regulators require Mid Penn(cid:182)(cid:86)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92) and the Bank to maintain adequate levels of capital to support their
operations. These capital levels are determined and dictated by law, regulation, and banking regulatory agencies. In addition, capital
(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:72)(cid:70)essary to
(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)
If Mid Penn raises capital through merger and acquisition activities, or through the issuance of additional shares of its common stock
or other securities, it would likely dilute the ownership interests of current investors and could dilute the per share book value and
earnings per share of its common stock. Furthermore, a capital raise through issuance of additional shares may have an adverse
(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:17)(cid:3) (cid:3) (cid:49)(cid:72)(cid:90)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:68)(cid:79)(cid:86)(cid:82)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72) (cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:15)(cid:3) (cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:83)(cid:85)(cid:76)(cid:89)(cid:76)(cid:79)(cid:72)(cid:74)(cid:72)(cid:86)(cid:3) (cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)t
common stockholders, which may adversely impact its current common stockholders.
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3)(cid:85)(cid:68)(cid:76)(cid:86)(cid:72)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:76)de of its
control, and on its financial performance. Accordingly, Mid Penn cannot be certain of its ability to raise additional capital on
acceptable terms and acceptable time frames or to raise additional capital at all. If Mid Penn cannot raise additional capital
in
sufficient amounts when needed, its ability to comply with regulatory capital requirements could be materially impaired.
(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:85)(cid:68)(cid:76)(cid:86)(cid:72)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:3) (cid:86)(cid:88)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3) (cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)sults of
operations.
f
21
MID PENN BANCORP, INC.
Offerings of debt, which would be senior to Mid Penn’s common stock upon liquidation, and/or preferred equity securities which may
of our
be senior to our common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price
common stock.
dd
Mid Penn may attempt to increase its capital reso(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3) (cid:76)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:86)(cid:3) (cid:73)(cid:68)(cid:79)(cid:79)(cid:3) (cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)
minimums. Mid Penn(cid:182)(cid:86)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92) or the Bank could be required to raise additional capital by making additional offerings of
debt or preferred equity securities, including medium-term notes, senior or subordinated notes and preferred stock. If a future
liquidation of Mid Penn occurs, holders of debt securities and shares of preferred stock and lenders with respect to other borrowings
are likely to receive distributions of available assets prior to the holders of our common stock. Additional equity offerings may dilute
the holdings of existing shareholders or reduce the market price of our common stock, or both. Holders of Mid Penn common stock
are not entitled to preemptive rights or other protections against dilution.
(cid:36)(cid:79)(cid:86)(cid:82)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:3)(cid:82)(cid:81)(cid:72) (cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72) without
any action on the part of the shareholders. The board of directors also has the power, without shareholder approval, to set the terms of
rights, dividend rights, and preferences over common
any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences ove
stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms. If Mid Penn issues preferred stock
in the future that has a preference over its common stock with respect to the payment of dividends or upon our liquidation, dissolution
or winding up, or if preferred stock is issued with voting rights that dilute the voti g
olders of
f
(cid:78)
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)
(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:17)
ng power of common stock, the rights of h
(cid:92)
g
Pennsylvania Business Corporation Law and various anti-takeover provisions under our articles of incorporation and bylaws could
impede the takeover of Mid Penn.
Various Pennsylvania laws affecting business corporations may have the effect of discouraging offers to acquire Mid Penn, even if the
acquisition would be advantageous to shareholders. In addition, Mid Penn has various anti-takeover measures in place under its
articles of incorporation and bylaws, including a supermajority vote requirement for mergers, the staggered election of Mid P(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)
board of directors, and the absence of cumulative voting. Any one or more of these laws or measures may impede the takeover of Mid
Penn and may prevent its shareholders from taking part in a transaction in which they could realize a premium over the current market
price of its common stock.
f
Mid Penn’s common stock is not insured by any governmental entity.
Although Mid Penn and the Bank are regulated by governmental agencies, Mid Penn common stock is not a deposit account or other
obligation of the Bank or any other bank and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, any
other governmental entity or by any other public or private entity. Investment in Mid Penn common stock is inherently risky for the
reasons described e(cid:79)(cid:86)(cid:72)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:40)(cid:38)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)
stock is also subject to the same market forces that affect the price of common stock in any other publicly traded company. As a result,
investors who acquire Mid Penn common stock may lose some or all of their investment.
ff
r
General Risk Factors
Mid Penn’s controls and procedures may fail or be circumvented.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:15)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71) corporate governance policies and
procedures, and periodically reviews and updates them. Any system of controls, however well designed and operated, is based in part
on performance by personnel or certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of
(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:72)(cid:87)(cid:17)(cid:3)(cid:3)(cid:36)(cid:81)(cid:92)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:89)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:92)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) related
business, results of operations, and financial condition.
(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)
n
(cid:87)
Mid Penn may not be able to attract and retain skilled personnel.
(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:81)(cid:72)(cid:79)(cid:17)(cid:3) (cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)e best
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:86)(cid:15)(cid:3) (cid:76)(cid:81)(cid:3) (cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:15)(cid:3) (cid:82)(cid:81)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:15)(cid:3) (cid:78)(cid:72)(cid:92)
personnel in most activities engaged in by Mid Penn can be intense, and Mid Penn may not be able to hire or retain them. The
(cid:88)(cid:81)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:81)(cid:72)(cid:79)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)iness
(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:86)(cid:78)(cid:76)(cid:79)(cid:79)(cid:86)(cid:15)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:15)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:80)(cid:83)(cid:87)(cid:79)(cid:92)(cid:3)(cid:73)(cid:76)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74) qualified
replacement personnel.
(cid:87)(cid:87)
22
MID PENN BANCORP, INC.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The Bank owns a building in Millersburg, Pennsylvania, located at 349 Union Street, which serves as (cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86) headquarters.
The Bank also owns one building in Halifax, Pennsylvania that serves as an operational support facility and two buildings in
Harrisburg, Pennsylvania that serve as corporate administrative and operational support offices. Administrative space is also leased in
(cid:51)(cid:82)(cid:87)(cid:87)(cid:86)(cid:89)(cid:76)(cid:79)(cid:79)(cid:72)(cid:15)(cid:3) (cid:47)(cid:68)(cid:81)(cid:70)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:38)(cid:75)(cid:68)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:69)(cid:88)(cid:85)(cid:74)(cid:15)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:3) (cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3) (cid:76)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:76)(cid:85)(cid:87)(cid:92)-six full-service
locations and one loan production office as of December 31, 2020. Eleven retail banking locations are located in Dauphin County,
five in Schuylkill County, four in Berks County, three in Westmoreland County, three in Cumberland County, three in Lancaster
County, one in Fayette County, one in Chester County, two in Luzerne County, and one location in each of Northumberland,
Montgomery, and Bucks Counties. As of December 31, 2020, retail banking facilities at seventeen locations were owned, while
nineteen branch facilities and the loan production office were leased. All real estate owned by Mid Penn is free and clear of
(cid:72)(cid:81)(cid:70)(cid:88)(cid:80)(cid:69)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3) (cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3) (cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:3) (cid:68)(cid:87)(cid:3) (cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3) (cid:71)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) year 2039 and generally include options to renew. For
additional information regarding the lease commitments, refer to Note 9, Leases, within Item 8, Notes to Consolidated Financial
Statements.
n
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any litigation that would have a material adverse effect on the consolidated financial position of the
Corporation. Mid Penn and the Bank have no proceedings pending other than ordinary, routine litigation occurring in the normal
course of business. In addition, management does not know of any material proceedings contemplated by governmental authorities
against Mid Penn, the Bank, or any of its properties.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM (cid:24)(cid:17)(cid:3)(cid:48)(cid:36)(cid:53)(cid:46)(cid:40)(cid:55)(cid:3)(cid:41)(cid:50)(cid:53)(cid:3)(cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60)(cid:15)(cid:3)(cid:53)(cid:40)(cid:47)(cid:36)(cid:55)(cid:40)(cid:39)(cid:3)(cid:54)(cid:43)(cid:36)(cid:53)(cid:40)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:3)(cid:48)(cid:36)(cid:55)(cid:55)(cid:40)(cid:53)(cid:54)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:44)(cid:54)(cid:54)(cid:56)(cid:40)(cid:53)(cid:3)
Q
PURCHASES OF EQUITY SECURITIES
(cid:52)
(cid:15)
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81) NASDAQ under the symbol MPB.
Transfer Agent: Computershare, Attn: Shareholder Services, P.O. Box 30170, College Station, TX 77842-3170. Phone: 1-800-368-
5948.
g
Number of Shareholders: As of March 1, 2021, there were approximately 2,510 (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:17)
Dividends: In 2020, cash dividends of $0.77 were paid, while cash dividends of $0.82 were declared. Cash dividends of $0.79 were
paid and declared in 2019. In 2018, cash dividends of $0.70 were paid, while cash dividends of $0.45 were declared. The declaration
o(cid:73)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:85)(cid:72)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:89)idend is
based on a number of factors, including, but not limited to, earnings, prospects, financial condition, regulatory capital levels,
applicable covenants under any credit agreements and other contractual restrictions, Pennsylvania law, federal and Pennsylvania
a
bank
tt
ff
regulatory law, and other factors deemed relevant.
Dividend Reinvestment and Stock Purchases: Shareholders of Mid Penn may acquire additional shares of common stock by
reinvesting their cash dividends under the Dividend Reinvestment Plan without paying a brokerage fee. Voluntary cash contribut
ions
may also be made under the Plan. For additional information about the Plan, contact the Transfer Agent.
n
Annual Meeting: The Annual Meeting of the Shareholders of Mid Penn is expected to be held virtually at 10:00 a.m. on Tuesday,
May 11, 2021.
g
p
Accounting, Auditing and Internal Control Complaints: Information on how to report a complaint regarding accounting, internal
accounting controls or auditing matters is available at Mid Penn's website: www.midpennbank.com
g,
g
23
MID PENN BANCORP, INC.
y
q
y
Purchases of Equity Securities by the Issuer and Affiliated Purchasers: During 2020, Mid Penn announced the adoption of a treasury
(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3) (cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:88)(cid:83)(cid:3) (cid:87)(cid:82)(cid:3) (cid:7)(cid:20)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)
stock price and shares issued as of December 31,
(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:27)(cid:17)(cid:19)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)
(cid:71)
2020. Under the treasury stock purchase 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 became effective March
(cid:20)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:20)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:15) (cid:88)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)
A summary of treasury stock activity during the year ended December 31, 2020 is presented below.
r
Total Number
of Shares
Purchased
Average
Price
Per Share
(cid:178)(cid:178)
(cid:178)(cid:178)
19.39
19.30
19.39
19.52
19.33
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
$
$
$
$
$
$
$
$
$
$
(cid:178)(cid:178)
(cid:178)(cid:178)
60,816
19,707
1,265
2,292
8,572
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under
the Plans or Programs
$
$
(cid:178)(cid:178) $
(cid:178)(cid:178) $
60,816 $
80,523 $
81,788 $
84,080 $
92,652 $
92,652 $
92,652 $
92,652 $
15,000,000
15,000,000
13,820,763
13,440,326
13,415,796
13,371,063
13,205,325
13,205,325
13,205,325
13,205,325
Period
March 1 - March 31, 2020
April 1 - April 30, 2020
May 1 - May 31, 2020
June 1 - June 30, 2020
July 1 - July 31, 2020
August 1 - August 31, 2020
September 1 - September 30, 2020
October 1 - October 31, 2020
November 1 - November 30, 2020
December 1 - December 31, 2020
Securities Authorized for Issuance under Equity Compensation Plans: (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
plans is included in Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters.
q
y
p
24
MID PENN BANCORP, INC.
Stock Performance Graph p
The following five-year performance graph compares the cumulative total shareholder return (including reinvestment of dividends) on
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:53)(cid:88)(cid:86)(cid:86)(cid:72)(cid:79)(cid:79)(cid:3)(cid:22)(cid:19)(cid:19)(cid:19)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:91)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:51)(cid:72)(cid:72)(cid:85)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)-Atlantic commercial banks
with assets between $2 billion and $4 billion as of September 30, 2020. The stock performance graph assumes that $100 was invested
on December 31, 2015, and the cumulative return is measured as of each subsequent fiscal year end.
Total Return Performance
Mid Penn Bancorp, Inc.
Russell 3000 Index
Peer Group
300
250
e
u
l
a
V
x
e
d
n
I
200
150
100
50
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Period Ending
Index
Mid Penn Bancorp, Inc.
Russell 3000
Mid-Atlantic Custom Peer Group*
12/31/15
12/31/16
100.00 153.90
100.00 112.74
100.00 137.62
12/31/18
12/31/19
12/31/17
12/31/20
219.65 155.01 200.24 157.97
136.56 129.40 169.54 204.95
150.50 140.58 166.52 131.25
* Peer Group consists of Mid-Atlantic commercial banks with assets between $2 billion and $4 billion as of September 30,
2020.
Source: S&P Global Market Intelligence
© 2021
www.snl.com
A detailed list of the Banks comprising the Mid-Atlantic Custom Peer Group is incorporated her
which is filed with this Annual Report on Form 10-K.
m
ein by reference to Exhibit 99.1,
25
MID PENN BANCORP, INC.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
INCOME:
Total Interest Income
Total Interest Expense
Net Interest Income
Provision for Loan and Lease Losses
Noninterest Income
Noninterest Expense
Income Before Provision for Income Taxes
Provision for Income Taxes
Net Income
Series D Preferred Stock Dividends
Net Income Available to Common Shareholders
COMMON STOCK DATA PER SHARE:
Earnings Per Common Share (Basic)
Earnings Per Common Share (Fully Diluted)
Cash Dividends Declared
Cash Dividends Paid
Book Value Per Common Share
Tangible Book Value Per Common Share (a)
AVERAGE SHARES OUTSTANDING
FOR THE YEAR (BASIC):
AVERAGE SHARES OUTSTANDING
FOR THE YEAR (FULLY DILUTED):
AT YEAR-END:
Available-For-Sale Investment Securities
Held-to-Maturity Investment Securities
Loans and Leases, Net of Unearned Interest
Allowance for Loan and Lease Losses
Total Assets
Total Deposits
Short-term Borrowings
Long-term Debt
Subordinated Debt
Shareholders' Equity
RATIOS:
2020
2019
2018
2017
2016
$ 107,935
19,727
88,208
4,200
17,908
70,577
31,339
5,130
26,209
(cid:178)(cid:178)
26,209
$
3.11
3.10
0.82
0.77
30.37
22.39
$
$
$
$
95,312
25,164
70,148
1,390
12,621
59,953
21,426
3,725
17,701
(cid:178)(cid:178)
17,701
2.09
2.09
0.79
0.79
28.05
19.96
$
$
68,654
12,720
55,934
500
7,462
50,171
12,725
2,129
10,596
102
10,494
1.48
1.48
0.45
0.70
26.38
18.10
$
$
43,892
6,304
37,588
325
5,693
31,367
11,589
4,500
7,089
(cid:178)(cid:178)
7,089
1.67
1.67
0.77
0.62
17.85
16.82
40,212
5,367
34,845
1,870
5,924
28,818
10,081
2,277
7,804
(cid:178)(cid:178)
7,804
1.85
1.85
0.68
0.58
16.65
15.59
8,439,427
8,468,586
7,071,091
4,236,616
4,229,284
8,443,092
8,492,073
7,091,797
4,252,561
4,239,630
$
5,748
128,292
2,384,041
13,382
2,998,948
2,474,580
125,617
75,115
44,580
255,688
$
37,009
136,477
1,762,756
9,515
2,231,175
1,912,394
(cid:178)(cid:178)
32,903
27,070
237,874
$ 111,923
168,370
1,624,067
8,397
2,077,981
1,726,026
43,100
48,024
27,082
223,209
$
93,465
101,356
910,404
7,606
1,170,354
1,023,568
34,611
12,352
17,338
75,703
$ 133,625
(cid:178)(cid:178)
813,924
7,183
1,032,599
935,373
(cid:178)(cid:178)
13,581
7,414
70,467
Return on Average Assets
Return on Average Shareholders' Equity
Cash Dividend Payout Ratio
Allowance for Loan and Lease Losses to Loans and Leases at
Year End
Average Shareholders' Equity to Average Assets for the Year
0.95 %
10.76%
24.76%
0.56 %
8.83 %
0.82 %
7.67 %
37.80 %
0.54 %
10.65 %
0.63 %
5.98 %
47.30 %
0.52 %
10.54 %
0.64 %
9.48 %
37.18 %
0.84 %
6.78 %
0.78 %
10.71 %
31.35 %
0.88 %
7.28 %
(a) Tangible Book Value Per Common Share is a non-GAAP measure as it excludes goodwill and core deposits and other intangibles, net; see Reconciliation of
Non-GAAP Measure below.
26
MID PENN BANCORP, INC.
RECONCILIATION OF NON-GAAP MEASURE:
This Annual Report on Form 10-K contains financial information determined by methods other than in accordance with U.S.
Generally Accepted Accounting Principles ("GAAP"). For tangible book value per common share, the most directly comparable
financial measure calculated in accordance with GAAP is our book value per common share. Management of Mid Penn believes that
this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per
common share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book
value while not increasing our tangible book value. Income tax effects of non-GAAP adjustments are calculated using the applic
able
ff
statutory tax rate for the jurisdictions in which the charges (benefits) are incurred, while taking into consideration any valuation
allowances or non-deductible portions of the non-GAAP adjustments. This non-GAAP disclosure has limitations as an analytical tool,
should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in
(cid:76)(cid:86)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:15)(cid:3)(cid:81)(cid:82)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:87)(cid:3)(cid:81)(cid:72)(cid:70)essarily
comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-
(cid:42)(cid:36)(cid:36)(cid:51)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:69)(cid:72)(cid:3) (cid:75)(cid:72)(cid:79)(cid:83)(cid:73)(cid:88)(cid:79)(cid:3) (cid:76)(cid:81)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:76)(cid:86)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)
presentation should not be constr(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:88)(cid:81)(cid:68)(cid:73)
(cid:73)(cid:73)
(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)
determined in accordance with GAAP.
rr
(Dollars in thousands, except per share data)
2020
2019
December 31,
2018
2017
2016
Shareholder's Equity
Less: Goodwill
Less: Core Deposit and Other Intangibles
Tangible Equity
$
255,688
$
62,840
4,360
188,488 $
$
237,874
$
62,840
5,758
169,276 $
223,209
$
62,840
7,221
153,148 $
$
75,703
3,918
434
71,351 $
70,467
3,918
539
66,010
Common Shares Outstanding
8,419,183
8,480,938 8,459,918 4,242,216
4,233,297
Book Value per Common Share
$
30.37 $
28.05 $
26.38 $
17.85 $
16.65
Tangible Book Value per Common Share
$
22.39 $
19.96 $
18.10 $
16.82 $
15.59
.
27
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
ITEM (cid:26)(cid:17)(cid:3) (cid:3) (cid:48)(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3) (cid:39)(cid:44)(cid:54)(cid:38)(cid:56)(cid:54)(cid:54)(cid:44)(cid:50)(cid:49)(cid:3) (cid:36)(cid:49)(cid:39) ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this document may constitute forward-looking statements for purposes of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or achievements of Mid Penn or the Bank to be
materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The
(cid:90)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3)(cid:179)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:15)(cid:180)(cid:3)(cid:179)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:15)(cid:180)(cid:3)(cid:179)(cid:83)(cid:79)(cid:68)(cid:81)(cid:15)(cid:180)(cid:3)(cid:179)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75) forward-
looking (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)-looking statements
due to a variety of factors, including, without limitation:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the effects of future economic conditions on Mid Penn, the Bank, its nonbank subsidiaries, and their markets and
customers;
governmental monetary and fiscal policies, as well as legislative and regulatory changes;
future actions or inactions of the United States government, including a failure to increase the government debt limit or a
prolonged shutdown of the federal government;
business or economic disruption from national or global epidemic or pandemic events, including those from the ongoing
COVID-19 pandemic;
the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan
collateral, the value of investment securities, and interest rate protection agreements;
the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies,
credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial
(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:76)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:68)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:79)(cid:86)(cid:72)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)
nationally and internationally, together with such competitors offering banking products and services by mail, telephone,
computer and the internet;
(cid:68)(cid:81)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3) (cid:55)(cid:68)(cid:91)(cid:3) (cid:87)(cid:82)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:76)(cid:86)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3) (cid:82)(cid:85)(cid:3)
imposition of any additional taxes on the capital stock of Mid Penn or Mid Penn Bank;
impacts of the capital and liquidity requirements imposed by bank regulatory agencies;
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the
Public Company Accounting Oversight Board, Financial Accounting Standards Board, the SEC, and other accounting and
reporting standard setters;
the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
technological changes;
our ability to implement business strategies, including our acquisition strategy;
our ability to successfully expand our franchise, including acquisitions or establishing new offices at favorable prices;
our ability to successfully integrate any banks, companies, offices, assets, labilities, custom
ers, systems and management
ff
personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within
expected time frames;
potential goodwill impairment charges, or future impairment charges and fluctuations in the fair values of reporting units
or of assets in the event projected financial results are not achieved within expected time frames;
our ability to attract and retain qualified management and personnel;
results of regulatory examination and supervision processes;
the failure of assumptions underlying the establishment of reserves for loan and lease losses, the assessment of potential
impairment of investment securities, and estimations of values of collateral and various financial assets and liabilities;
our ability to maintain compliance with the listing rules of NASDAQ;
our ability to maintain the value and image of our brand and protect our intellectual property rights;
volatility in the securities markets;
disruptions due to flooding, severe weather, or other natural disasters or Acts of God; and
acts of war or terrorism; and
the factors described in Item 1A of this Annual Report.
All written or oral forward-looking statements attributable to Mid Penn are expressly qualified in their entirety by these cautionary
factors.
28
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:93)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:3)(cid:72)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)cial statements and should be read in conjunction with the Consolidated Financial Statements of the
Corporation and Notes thereto and other detailed information appearing elsewhere in this Annual Report on Form 10-K. The
comparability of the results of operations for the year ended 2020, compared to 2019 and 2018, in general, have been materially
impacted by the acquisition of The Scottdale Bank and Trust Company, which closed on January 8, 2018, and the acquisition of First
Priority Financial Corp., which closed on July 31, 2018. For comparative purposes, some 2019 and 2018 balances have been
reclassified to conform to the 2020 presentation. Such reclassifications had no impact on net income available to common
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)
Mid Penn is not aware of any current trends, events, uncertainties or any current recommendations by the regulatory authorities which,
(cid:81)
(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:83)(cid:72)
rations.
Critical Accounting Estimates
g
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)accounting principles generally accepted in the United
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:11)(cid:179)(cid:42)(cid:36)(cid:36)(cid:51)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:87)(cid:82)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:80)(cid:68)(cid:79)(cid:79)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)s.
Application of certain principles involves significant judgments and estimates by management that have a material impact on the
carrying value of certain assets and liabilities. The judgments and estimates used in applying these principles are based on historical
nts
experiences and other factors which are believed to be reasonable under the circumstances. Because of the nature of the judgme
and estimates that have been made, actual results could differ from these judgments and estimates, which could have a material impact
on the carrying values of assets and liabilities and the reported results of operations.
a
Management of the Corporation considers the accounting judgments relating to the allowance for loan and lease losses, the evaluation
(cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)-than-temporary impairment, the valu(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3)
impairment, and the valuation of assets acquired and liabilities assumed in business combinations, to be the accounting areas that
require the most subjective and complex judgments.
The allowance for loan and lease l(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:75)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
lease portfolio. Determining the amount of the allowance for loan and lease losses is considered a critical accounting estimate because
it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired
loans, estimated losses on pools of homogeneous loans based on historical loss experience adjusted for subjectively determined
qualitative factors, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.
The loan and lease portfolio also represents the largest asset type on the consolidated balance sheet. Throughout the remainder of this
(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:179)(cid:79)(cid:82)(cid:68)(cid:81)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:180)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:17)
Valuations for the investment portfolio are determined using quoted market prices, where available. If quoted market prices ar
e not
available, investment valuation is based on pricing models, quotes for similar investment securities, and observable values based upon
yield curves and spreads. In addition to valuation of securities, management must assess whether there are any declines where
the fair
value is below the carrying value of any investments such that the decline should be considered other than temporary or otherwise
require an adjustment in carrying value and recognition of a loss in the consolidated statement of income.
d
t
Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment. Goodwill is tested at
least annually for impairment, and if certain events occur which indicate goodwill might be impaired between annual tests, such
as the
t
potential impact of the COVID-19 pandemic, goodwill must be tested when such events
occur. In making this assessment, Mid Penn
considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current
market data, stock price, etc. Similarly, the amortized basis of the core deposit intangible asset and trade name intangible areaa
pplying
(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:75)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)
(cid:85)(cid:85)
them to the analysis of core deposit intangible, trade name intangible, and goodwill impairment. Future changes in economic and
operating conditions could result in goodwill or core deposit intangible or trade name intangible impairment in subsequent periods.
dd
Valuations of assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In
many cases, determining the fair value of the assets acquired and liabilities assumed requires Mid Penn to estimate the timing and
amount of cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of
interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.
29
MID PENN BANCORP, INC.
Financial Summaryy
2020 versus 2019
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Mid (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) net income to common shareholders (earnings) for the year ended December 31, 2020 was $26,209,000 or $3.11 per
common share basic and $3.10 per share diluted, compared to earnings of $17,701,000 or $2.09 per common share basic and diluted
for the year ended December 31, 2019. The results for the year ended December 31, 2020 included the recognition of $13,137,000 of
(cid:51)(cid:51)(cid:51)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:51)(cid:51)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:51)(cid:51)(cid:51)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)nized into interest
income over the term of the respective loan (most have a 24-month maturity), or sooner if the loans are forgiven by the Small Business
(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:71)(cid:82)(cid:90)(cid:81)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:17)
Total assets of Mid Penn were $2,998,948,000 as of December 31, 2020, reflecting an increase of $767,773,000 or 34 percent
compared to total assets of $2,231,175,000 as of December 31, 2019. Included in this increase is the significant volume of
$388,313,000 (cid:82)(cid:73)(cid:3)(cid:51)(cid:68)(cid:92)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3)(cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80) (cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:85)(cid:72)
banking loans (total loans excluding both the PPP portfolio and mortgage loans held for sale) increased to $1,995,728,000 as of
December 31, 2020, representing an annualized core loan growth rate of over 13 percen
t since the end of 2019. The asset growth was
funded primarily by both (i) $562,186,000 of deposit growth, representing an annual deposit growth rate of over 29 percent, including
an increase of $226,188,000 in noninterest-bearing deposits for the year ended December 31, 2020; and (ii) a $167,829,000 net
increase in borrowings, including $125,617,000 of funding obtained from the Federal Reserve through the Paycheck Protection
Program (cid:47)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:47)(cid:41)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:51)(cid:51)(cid:47)(cid:41)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:22)(cid:24)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)
points (0.35%) for a term and amount determined based on the principal amount of PPP loans fully and specifically pledged as
collateral in support of the PPPLF borrowings. Draws of PPPLF funds must be repaid to the Federal Reserve immediately after the
specific PPP loans collateralizing the related draws are repaid to the Bank.
d
As part of the annual increase in borrowings, long-term debt increased from $32,903,000 at December 31, 2019 to $75,115,000 at
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:3) (cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81) (cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:3) (cid:81)(cid:72)(cid:90)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:43)(cid:82)(cid:80)(cid:72)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:11)(cid:179)(cid:41)(cid:43)(cid:47)(cid:37)(cid:180)(cid:12)(cid:3) (cid:87)(cid:90)(cid:82)-year
term lower-cost borrowing of $70,000,000 to fund anticipated core loan growth. This increase was partially offset by the prepa
yment
of $27,500,000 of higher-cost long-term FHLB borrowings. Mid Penn recognized $165,000 of FHLB prepayment penalties, which
were recorded within other noninterest expenses on the Consolidated Statements of Income. Mid Penn recognized $93,000 of FHLB
prepayment penalties during the year ended December 31, 2019 attributable to the prepayment of $20,000,000 of higher-cost FHLB
borrowings.
ff
Subordinated Debt
Subordinated debt outstanding increased $17,510,000 or 65 percent, from $27,070,000
December 31, 2020. The year-over-year increase reflects the net impact of three subordinated debt transactions:
d
at December 31, 2019 to $44,580,000 at
(cid:120)
(cid:120)
In March 2020, Mid Penn issued an (cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:19)(cid:22)(cid:19)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:19)2(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)
to accredited investors. The March 2020 Notes bear interest at a rate of 4 percent per year for the first five years and then float at
(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)(cid:51)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:53)ate, and are intended to be treated as Tier 2 capital for regulatory capital purposes.
(cid:44)(cid:81)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:3) (cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:20)(cid:21)(cid:15)(cid:20)(cid:24)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:82)(cid:73)(cid:3) (cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:71)(cid:88)(cid:72)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:22)(cid:19)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)
202(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17) The December 2020 Notes bear interest at a rate of 4.5 percent per year for the first five
(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)(cid:51)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:21)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92) capital
purposes.
(cid:120) Also, during the fourth quarter of 2020, Mid Penn redeemed $9,500,000 in subordinated debt assumed in 2018 in conjunction
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92) Bank subordinated debt paid a high fixed rate of interest of
7 percent, and was redeemed promptly following the expiration of the noncallable period and after receiving the required
regulatory approval for the redemption. Mid Penn recognized prepayment fees of $143,000 related to the early redemption,
which are included in other noninterest expenses.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:179)(cid:53)(cid:50)(cid:40)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)y, was
10.76% in 2020 and 7.67% in 2019(cid:17)(cid:3) (cid:3) (cid:53)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3) (cid:82)(cid:81)(cid:3) (cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:11)(cid:179)(cid:53)(cid:50)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3) (cid:68)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:19)(cid:17)
95% in 2020 and
0.82% in 2019.
(cid:68)(cid:68)
30
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
r
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:87)(cid:68)(cid:91)-equivalent net interest margin for the year ended December 31, 2020 was 3.48 percent vers
us 3.57 percent for the year
ended December 31, 2019. The yield on interest-earning assets decreased from 4.83 percent for 2019 to 4.25 percent for 2020. The
net interest margin and yields on loans and interest-earning assets reflect the recognition of PPP loan processing fees in total interest
income. Though the average balance of interest-earning assets increased year over year, the yields on interest-earning assets declined
due to both (i) the significant average balance of PPP loans, which earn interest at a rate of 1 percent while outstanding, and (ii)
reductions in market interest rates and the impact on the yields of loans, investments, and overnight funds subsequent to December m
2019 as a result of the (cid:20)(cid:17)(cid:24)(cid:19)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:11)(cid:179)(cid:41)(cid:50)(cid:48)(cid:38)(cid:180)(cid:12)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:70)(cid:88)(cid:87)(cid:86)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:72)
to the COVID-19 pandemic. The total cost of deposits for the year ended December 31, 2020 favorably decreased to 0.72 percent
compared to 1.19 percent for the year ended December 31, 2019 as a result of the aforementioned growth in noninterest-bearing
deposits, and from deposit rate decrease adjustments made during the year, including those made in response to the March 2020
FOMC rate cuts. Further discussion of the net interest margin can be found in the Net Interest Income section below.
d
d
aa
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3) at December 31, 2020 was $13,382,000 or 0.56% of total loans (less unearned
discount), as compared to $9,515,000 or 0.54% at December 31, 2019. Mid Penn had net loan charge-offs of $333,000 and $272,000
for the years ended December 31, 2020 and 2019, respectively. Further discussion of these items can be found in the Provision for
Loan and Lease Losses section below.
n
Total nonperforming assets were $15,644,000 at December 31, 2020, an increase compared to nonperforming assets of $12,157,000 a
t
December 31, 2019. Further discussion of the components of nonperforming assets can be found in the Credit Quality, Credit Risk,
and Allowance for Loan and Lease Losses section below.
d
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:20)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)l (to risk weighted assets) of $188,501,000 or 9.6%, and Total Capital
(to risk weighted assets) of $246,529,000 or 12.6%, at December 31, 2020(cid:15)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:179)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)
(cid:55)(cid:76)(cid:72)(cid:85)(cid:3) (cid:20)(cid:3) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3) (cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)eholders' equity less the value of goodwill and other intangible assets, and
excluding the impact of the accumulated other comprehensive income/loss component. Total Capital includes the Tier 1 Capital, as
(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:68)(cid:81)d the allowance for loan and lease losses, within permitted regulatory limits. Risk-
weighted assets are determined by assigning various levels of risk, in accordance with regulatory risk-weighting definitions, t
o
different categories of assets and off-balance sheet activities.
rr
2019 versus 2018
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:11)(cid:179)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:180)(cid:12)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)$17,701,000 or $2.09 per common share basic and diluted,
compared to earnings of $10,494,000 or $1.49 per common share basic and diluted for the year ended December 31, 2018. The results
(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:7)(cid:23)(cid:15)(cid:26)(cid:28)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)s
(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:17)(cid:3)(cid:11)(cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)
(cid:9)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:11)(cid:179)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:180)(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:17)
Total assets of Mid Penn grew $153,194,000 or 7 percent in 2019 to close the year at $2,231,175,000, compared to total assets of
$2,077,981,000 as of December 31, 2018. Asset growth during the year ended December 31, 2019 was primarily attributable to net
organic loan growth, an increase in liquid assets from demand deposit growth, and the recording of operating and finance lease right
of use assets a(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:38)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:36)(cid:54)(cid:38)(cid:12)(cid:3)(cid:27)(cid:23)(cid:21)(cid:3)(cid:177) Leases effective January 1, 2019.
Please reference Note 25, Recent Accounting Pronouncements, within Item 8, Notes to Consolidated Financial Statements, for more
information regarding the adoption of ASC 842.
r
Decreases in short-term and long-term debt during the year ended December 31, 2019 we
re the result of both (i) the paydown of
$43,100,000 of short-term borrowings during 2019, and (ii) the prepayment of $20 million of FHLB fixed rate borrowings originally
due in 2020. Mid Penn recognized a prepayment penalty of $93,000 related to these early payoffs. The prepayment penalty is
included in other expenses on the Consolidated Statement of Income for the year ended December 31, 2019.
t
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:179)(cid:53)(cid:50)(cid:40)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)y, was
(cid:26)(cid:17)(cid:25)(cid:26)(cid:8)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:24)(cid:17)(cid:28)(cid:27)(cid:8)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:17)(cid:3)(cid:3)(cid:53)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:53)(cid:50)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3)(cid:90)as 0.82% in 2019 and 0.63%
in 2018.
31
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Net interest margin was 3.57% in 2019 versus 3.67% in 2018. Net interest income on a tax equivalent basis increased to $71,012,000
d
in 2019 from $56,824,000 in 2018, as the 2019 net interest income reflected the full year impact of interest-earning assets and
interest-
bearing liabilities from the two 2018 acquisitions. Despite year-over-year increases in yields on interest-earning assets and growth in
noninterest-bearing deposits, the decrease in net interest margin was driven by both (i) the higher cost of deposits and borrowed funds
crease responsive to strong bank and nonbank
as a result of higher short-term rates for much of 2019 and defensive deposit rate in
t of the higher-cost wholesale funding sources
aa
competition for retail deposit customer market share, and (ii) the full-year impac
assumed effective July 31, 2018 with the First Priority acquisition, including brokered time deposits and subordinated debt. Further
discussion of net interest margin can be found in the Net Interest Income section below.
aa
ff
ff
f
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86) at December 31, 2019 was $9,515,000 or 0.54% of total loans (less unearned
discount), as compared to $8,397,000 or 0.52% at December 31, 2018. Mid Penn had net loan charge-offs of $272,000 for the year
ended December 31, 2019 compared to net recoveries of $291,000 during the year ended December 31, 2018. The net charge-off
position in 2019 was primarily due to a $205,000 charge-off taken on one relationship during the second quarter of 2019. The
favorable net recovery position during 2018 was driven by the recovery of $777,000 of principal from the successful workout of
a
commercial real estate relationship that originally had a large partial charge-off in 2009. Further discussion of these items can be
found in the Provision for Loan and Lease Losses section below.
m
Total nonperforming assets were $12,157,000 at December 31, 2019, compared to nonperforming assets of $12,283,000 at December
31, 2018. Further discussion of the components of nonperforming assets can be found in the Credit Quality, Credit Risk, and
Allowance for Loan and Lease Losses section below.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:20)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:11)(cid:87)(cid:82)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:25)(cid:27)(cid:15)(cid:20)(cid:23)(cid:25)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:82)(cid:85)(cid:3)9.8%, and Total Capital
(cid:82)(cid:85)(cid:92)(cid:3)(cid:179)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)ments.
(cid:11)(cid:87)(cid:82)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:21)(cid:19)(cid:23)(cid:15)(cid:27)(cid:20)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:82)(cid:85)(cid:3)(cid:20)(cid:20)(cid:17)(cid:28)(cid:8)(cid:15)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:15)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)
(cid:55)(cid:76)(cid:72)(cid:85)(cid:3) (cid:20)(cid:3) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3) (cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:10)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) (cid:79)(cid:72)(cid:86)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71) other intangible assets, and
excluding the impact of the accumulated other comprehensive income/loss component. Total Capital includes the Tier 1 Capital, as
(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)in permitted regulatory limits. Risk-
weighted assets are determined by assigning various levels of risk, in accordance with regulatory risk-weighting definitions, t
o
different categories of assets and off-balance sheet activities.
rr
(cid:85)
The average balances, effective interest differential, and interest yields for the years ended December 31, 2020, 2019, and 2018, and
the components of net interest income are presented below in Table 1. Table 2 provides a comparative presentation of the changes in
net interest income for 2020 compared to 2019, and 2019 compared to 2018, by reflecting changes in interest income and interest
expense caused by the volume and rate components of interest earning assets and interest-bearing liabilities.
32
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS
(Dollars in thousands)
ASSETS:
Interest Bearing Balances
Investment Securities:
Taxable
Tax-Exempt
Total Securities
Federal Funds Sold
Loans and Leases, Net
Restricted Investment in
Bank Stocks
Total Earning Assets
December 31, 2020
Income and Rates on a Taxable Equivalent Basis for Years Ended
December 31, 2019
December 31, 2018
Average
Balance
Interest
Average
Rates
Average
Balance
Interest
Average
Rates
Average
Balance
Average
Rates
Interest
$
3,593 $
39
1.09 % $
5,236 $
100
1.91 % $
4,983 $
75
1.51 %
112,636
49,410
162,046
2,524
1,276
3,800
(a)
2.24 %
2.58 %
2.35 %
149,187 3,442
89,011 2,590 (a)
238,198 6,032
2.31 %
2.91 %
2.53 %
165,422 3,838
102,656 2,940 (a)
268,078 6,778
2.32 %
2.86 %
2.53 %
135,243
497
2,247,002 103,871
(b)
63,436 1,222
0.37 %
4.62 % 1,678,000 88,398
(b)
25,745
1.93 %
5.27 % 1,243,987 61,965 (b)
451
1.75 %
4.98 %
6,554
360
2,554,438 108,567
5.49 %
424
4.25 % 1,990,834 96,176
5,964
7.11 %
275
4.83 % 1,546,360 69,544
3,567
7.71 %
4.50 %
Cash and Due from Banks
Other Assets
Total Assets
33,485
170,506
$ 2,758,429
30,134
145,996
$ 2,166,964
29,408
89,953
$ 1,665,721
LIABILITIES &
SHAREHOLDERS' EQUITY:
Interest-bearing Demand $ 538,385 $ 3,423
4,072
Money Market
346
Savings
Time
8,558
Total Interest-bearing
Deposits
605,552
186,132
443,607
1,773,676 16,399
0.64 % $ 415,359 $ 4,331
443,248 7,355
0.67 %
187,927
0.19 %
641
471,241 9,223
1.93 %
1.04 % $ 371,873 $ 2,447
309,705 2,990
1.66 %
191,686
0.34 %
540
324,853 4,907
1.96 %
0.66 %
0.97 %
0.28 %
1.51 %
0.92 % 1,517,775 21,550
1.42 % 1,198,117 10,884
0.91 %
Short-term Borrowings
Long-term Debt
Subordinated Debt
Total Interest-bearing
Liabilities
106,233
66,609
38,740
371
999
1,958
0.35 %
1.50 %
5.05 %
16,557
470
54,634 1,580
27,073 1,564
2.84 %
2.89 %
5.78 %
207
8,833
17,292
462
21,324 1,167
2.34 %
2.67 %
5.47 %
1,985,258 19,727
0.99 % 1,616,039 25,164
1.56 % 1,245,566 12,720
1.02 %
Noninterest-bearing Demand
Other Liabilities
Shareholders' Equity
505,094
24,435
243,642
Total Liabilities &
Shareholders' Equity
$ 2,758,429
296,872
23,325
230,728
232,562
12,030
175,563
$ 2,166,964
$ 1,665,721
Net Interest Income (taxable
equivalent basis)
Taxable Equivalent Adjustment
Net Interest Income
Total Yield on Earning Assets
Rate on Supporting Liabilities
Average Interest Spread
Net Interest Margin
$ 88,840
(632)
$ 88,208
$ 71,012
(864)
$ 70,148
$ 56,824
(890)
$ 55,934
4.25 %
0.99 %
3.26 %
3.48 %
4.83 %
1.56 %
3.27 %
3.57 %
4.50 %
1.02 %
3.48 %
3.67 %
(a)
(b)
Includes tax equivalent adjustments (calculated using statutory rates of 21 percent) of
f
$268,000, $544,000, and $617,000 for th
respectively, resulting from tax-free municipal securities in the investment portfolio.
Includes tax equivalent adjustments (calculated using statutory rates of 21 percent) of $364,000, $320,000, and $273,000 for th
f
respectively, resulting from tax-free municipal loans in the commercial loan portfolio.
d
e years 2020, 2019, and 2018,
e years 2020, 2019, and 2018,
33
MID PENN BANCORP, INC.
Net Interest Income
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Net interest income, Mid Penn's primary source of earnings, represents the difference between interest income received on loans,
investments, and overnight funds, and interest expense paid on deposits and short- and long-term borrowings. Net interest income is
affected by changes in interest rates and changes in average balances (volume) in the various interest-sensitive assets and liabilities.
Interest and average rates in Table 1 above are presented on a fully taxable-equivalent basis. Tax-equivalent adjustments were
calculated using statutory corporate tax rate of 21 percent for the years ended December 31, 2020, 2019 and 2018. For purposes of
calculating loan yields, average loan balances include nonaccrual loans. Loan fees of $15,
795,000, $2,153,000 and $1,038,000 are a
included with loan interest income in Table 1 above for the years ended December 31, 2020, 2019, and 2018, respectively. During the
year ended December 31, 2020, Mid Penn recognized $13,137,000 of PPP fees which are included in loan fees. Similar fees were not
recognized during the years ended December 31, 2019 or 2018.
a
rr
t
TABLE 2: VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in thousands on a Taxable Equivalent Basis)
INTEREST INCOME:
Interest Bearing Balances
Investment Securities:
Taxable
Tax-Exempt
Total Securities
2020 Compared to 2019
Increase (Decrease)
Due to Change In:
2019 Compared to 2018
Increase (Decrease)
Due to Change In:
Volume Rate
Net
Volume Rate
Net
$
(31) $
(30) $
(61)
$
4 $
21 $
25
(843)
(1,152)
(1,995)
(75)
(162)
(237)
(918)
(1,314)
(2,232)
(377)
(391)
(768)
(19)
41
22
(396)
(350)
(746)
Federal Funds Sold
Loans and Leases, Net
Restricted Investment Bank Stocks
Total Interest Income
1,383
29,975
42
29,374
(2,108)
(14,502)
(106)
(16,983)
(725)
15,473
(64)
12,391
660
21,619
185
21,700
111
4,814
(36)
4,932
771
26,433
149
26,632
INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand
Money Market
Savings
Time
Total Interest Bearing Deposits
Short-term Borrowings
Long-term Debt
Subordinated Debt
Total Interest Expense
1,283
2,693
(6)
(541)
3,429
(2,191)
(5,976)
(289)
(124)
(8,580)
2,546
346
674
6,995
(2,645)
(927)
(280)
(12,432)
(908)
(3,283)
(295)
(665)
(5,151)
(99)
(581)
394
(5,437)
286
1,289
(11)
2,211
3,775
181
998
315
5,269
1,598
3,076
112
2,105
6,891
82
120
82
7,175
1,884
4,365
101
4,316
10,666
263
1,118
397
12,444
NET INTEREST INCOME
$ 22,379 $
(4,551) $ 17,828
$ 16,431 $
(2,243) $ 14,188
The effect of changing volume and rate, which cannot be segregated, has been allocated entirely to the rate column. Tax-exempt
income is shown on a tax equivalent basis using a statutory corporate tax rate of 21 percent for the years ended December 31, 2020,
2019 and 2018.
34
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
For the y(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:87)(cid:68)(cid:91)-equivalent net interest margin was 3.48% versus 3.57% for the year ended
December 31, 2019 and 3.67% for the year ended December 31, 2018. During 2020, taxable equivalent net interest income increased
$17,828,000 or 25 percent compared to 2019. During 2019, taxable equivalent net interest income increased $14,188,000 or 25
percent compared to 2018. The primary sources of the increased taxable equivalent net interest income for the 2020 year included (i)
$2,292,000 of interest income from core loan growth, (ii) reduced interest expense due to a lower cost of deposits, and (iii) the
(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:22)(cid:15)(cid:20)(cid:22)(cid:26)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:51)(cid:51)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:51)(cid:51)(cid:17) These PPP fees
are recognized into interest income over the term of the respective loan (most have a 24-month maturity), or sooner if the loans are
(cid:73)(cid:82)(cid:85)(cid:74)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:80)(cid:68)(cid:79)(cid:79)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:71)(cid:82)(cid:90)(cid:81)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)y.
The yield on interest-earning assets decreased to 4.25% in 2020, from 4.83% in 2019 and 4.50% in 2018. Though the average balance
of interest-earning assets increased year over year, the yields on interest-earning assets declined due to both (i) the significant average
balance of PPP loans, which earn interest at a rate of 1 percent while outstanding, and (ii) reductions in market interest rates and the
impact of the yields on loans, investments, and overnight funds subsequent to December 2019 consisting of 1.50 percent of combined
(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:11)(cid:179)(cid:41)(cid:50)(cid:48)(cid:38)(cid:180)(cid:12)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:70)(cid:88)(cid:87)(cid:86)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-19 pandemic.
Interest expense for 2020 decreased by $5,437,000 or 22 percent when compared to 2019. Interest expense for 2019 increased by
$12,444,000 or 98 percent when compared to 2018. The cost of interest-bearing liabilities decreased to 0.99% in 2020 from 1.56% in
2019 and 1.02% in 2018. The decrease in the cost of interest-bearing liabilities in 2020 was due to an increase of $226,188,000
in noninterest-bearing deposits for the year ended December 31, 2020, and from deposit rate decrease adjustments made during th
e
31, 2020
year, including those made in response to the March 2020 FOMC rate cuts.
g
p
y
Further changes to the future mix of the loan, investment, and deposit products in the Bank's portfolios, and the volume of variable
rate and fixed rate instruments based upon new loan originations and investment purchases, may significantly change the net interest
margin and the yields on earning-assets and the costs of interest-bearing liabilities. In addition, net interest income may be impacted
by further interest rate actions of the Federal Reserve or other movements in market rates and the yield curve. Management continues
to monitor the net interest margin closely.
Provision for Loan and Lease Losses
The provision for loan and lease losses is the expense necessary to maintain the allowance for loan and lease losses at a level adequate
(cid:87)(cid:82)(cid:3)(cid:68)(cid:69)(cid:86)(cid:82)(cid:85)(cid:69)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)inherent (cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)
(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)s of the loan portfolio throughout each year. The purpose of the monthly reviews
is to assess loan quality, identify impaired loans and leases, analyze delinquencies, ascertain loan and lease growth, evaluate actual
and potential charge-offs and recoveries, assess general economic conditions in the markets we serve, and determine appropriate loan
loss provisions to maintain an adequate allowance.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)tial loss
assessment process, which took into consideration the risk characteristics of the loan and lease portfolio, shifting collateral values, and
the assessment of other relevant qualitative factors from December 31, 2019 to December 31, 2020. For the year ended December 31,
2020, the provision for loan and lease losses was $4,200,000 representing an increase of over 200 percent compared to a provisi
on for
loan losses of $1,390,000 for the year ended December 31, 2019. The allowance for loan losses and the related provision reflect Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3) (cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:3) (cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) losses as Mid Penn is not yet required to adopt the
(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:11)(cid:179)(cid:38)(cid:40)(cid:38)(cid:47)(cid:180)(cid:12)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:17) The increase in the loan loss reserves and the provision was primarily the
result of (i) providing for the year-to-date core loan growth (excluding PPP loans), which was over 13 percent during the year ended
December 31, 2020, and (ii) an increase in the values of qualitative factors applied related to economic and external conditions when
compared to prior periods, with such changes driven by the potential for ongoing financial implications from the COVID-19 pandemic
(cid:82)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:68)(cid:17) The allowance for loan and lease losses as a percentage of total loans was 0.56% at
December 31, 2020, compared to 0.54% at December 31, 2019 and 0.52% at December 31, 2018.
f
For the years ended December 31, 2020 and December 31, 2019, Mid Penn had net charge-offs of $333,000 and $272,000,
respectively, compared to net recoveries of $291,000 during the same period of 2018. Loans charged off during 2020 were comprised
of four commercial real estate, construction, and land development loans totaling $265,000, three commercial and industrial loans for
$45,000, one mortgage loan for $4,000, twelve consumer loans to unrelated borrowers totaling $37,000, and $21,000 of overdrawn
deposit account charge-offs.
Mid Penn may need to make future adjustments to the allowance and the provision for loan and lease losses if economic conditions or
loan credit (cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
of the level of the allowance for loan losses as compared to the balance of outstanding loans.
35
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
A summary of charge-offs and recoveries of loans and leases are presented in Table 3.
TABLE 3: ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES
(Dollars in thousands)
2020
Years ended December 31,
2018
2017
2019
2016
Balance, beginning of year
Loans and leases charged off:
Commercial real estate, construction and land
development
Commercial, industrial and agricultural
Real estate - residential
Consumer
Total loans and leases charged off
Recoveries on loans and leases previously
charged off:
Commercial real estate, construction and land
development
Commercial, industrial and agricultural
Real estate - residential
Consumer
Total loans and leases recovered
$
9,515 $
8,397 $
7,606 $
7,183 $
6,168
265
45
4
58
372
3
3
3
30
39
100
217
29
82
428
82
45
9
20
156
104
142
60
222
528
808
1
(cid:178)(cid:178)
10
819
322
25
102
48
497
216
820
4
67
1,107
553
26
4
12
595
211
4
26
11
252
Net charge-offs (recoveries)
Provision for loan and lease losses
Balance, end of year
333
4,200
13,382 $
272
1,390
9,515 $
(291)
500
8,397 $
(98)
325
7,606 $
855
1,870
7,183
$
2020
Years ended December 31,
2018
2017
2019
2016
Ratio of net charge-offs (recoveries) during the year to
average loans and leases outstanding during the year, net of
unearned discount
0.01%
0.02 %
-0.02 %
-0.01%
0.11%
Allowance for loan and lease losses as a percentage of total
loans and leases at December 31
0.56%
0.54 %
0.52 %
0.84 %
0.88%
Allowance for loan and lease losses as a percentage of
non-performing assets at December 31
85.54 %
78.27 %
68.37 %
67.26 %
124.73 %
36
MID PENN BANCORP, INC.
TABLE 4: NONINTEREST INCOME
(Dollars in thousands)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Years ended December 31,
2019
2018
2020
Income from fiduciary activities
Service charges on deposits
Net gain on sales of investment securities
Earnings from cash surrender value of life insurance
Mortgage banking income
ATM debit card interchange income
Merchant services income
Net gain on sales of SBA loans
Other income
Total Noninterest Income
$
$
1,694 $
637
467
301
9,682
1,960
392
442
2,333
17,908 $
1,416 $
884
1,878
314
3,771
1,594
413
831
1,520
12,621 $
1,155
933
137
286
751
1,253
347
561
2,039
7,462
Noninterest Income
2020 versus 2019
For the year ended December 31, 2020, noninterest income totaled $17,908,000, an increase of $5,287,000 or 42 percent, compared to
noninterest income of $12,621,000 for the year ended December 31, 2019.
Mortgage banking income was $9,682,000 for the year ended December 31, 2020, an increase of $5,911,000 or more than double the
mortgage banking income of $3,771,000 recorded during 2019. As mortgage interest rates declined and remained low for most of
2020, Mid Penn significantly increased residential mortgage originations (both purchase and refinance activity) and secondary-market
loan sales and gains during 2020.
ATM debit card interchange income was $1,960,000 for the year ended December 31, 2020, an increase of $366,000 or 23 percent
compared to interchange income of $1,594,000 for 2019. The increase resulted from increasing card-based transaction usage across
our expanding checking account customer base.
Income from fiduciary and wealth management activities was $1,694,000 for the year ended December 31, 2020, an increase of
$278,000 or 20 percent, compared to fiduciary income of $1,416,000 for 2019. The increased revenues in 2020 were attributed to
growth in trust assets under management and increased sales of retail investment products.
Net gains on sales of investment securities were $467,000 for the year ended December 31, 2020, a decrease of $1,411,000 compared
d
to net gains on sales of securities of $1,878,000 for the year ended December 31, 2019. During the fourth quarter of 2019, MidMid
Penn
(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:56)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3) (cid:11)(cid:179)(cid:36)(cid:54)(cid:56)(cid:180)(cid:12)(cid:3) (cid:21)(cid:19)(cid:20)(cid:28)-04, Codification Improvements to Topic 326, Financial Instruments—
Credit
t
Losses, Topic 815, Derivatives and Hedg ging, and Topic 825, Financial Instruments and, as part of the adoption, Mid Penn reclassified
Losses, Topic 815, Derivatives and Hedg
several held-to-maturity debt securities with an aggregate amortized cost of $67,100,000 to the available-for-sale category. Through
hrough
implementation of planned organic hedging activities as pa
(cid:85)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) (cid:68)(cid:79)(cid:79)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)
nd
securities were subsequently sold, and Mid Penn realized a pre-tax gain on the sales of $1,779,000 in 2019. Investment sales a
gains during the twelve months ended December 31, 2020 reflect the continued implementation of asset/liability management
strategies, which included effectively using some of these gains to offset $165,000 of debt prepayment penalties, recorded within other
noninterest expenses, associated with the early redemption of higher-cost FHLB advances.
-tax gain on the sales of $1,779,000 in 2019.
y
(cid:74)
Service charges on deposits were $637,000 during the year ended December 31, 2020, reflecting a decrease of $247,000 or 28 percent
when compared to 2019. The decrease is primarily due to less overdraft activity and decreased nonsuf
tod
ff
ficient funds fees charged
deposit customers.
ff
Net gains on sales of SBA loans were $442,000 for the year ended December 31, 2020, a decrease of $389,000 or 47 percent
compared to net gains on sales of SBA loans of $831,000 during 2019. Much of the decrease is due to the temporary shift of the
resources in our SBA lending function to focus on the SBA-administered PPP loan processing, funding, and forgiveness during 2020.
r
Other income was $2,333,000 for the year ended December 31, 2020, an increase of $813,000 compared to other income of
$1,520,000 for the year ended December 31, 2019. The increase in other income was primarily driven by higher volumes of fee-based
income, including loan-level swap fees, wire transfer fees, letter of credit fees, and credit card program referrals and royalties.
37
MID PENN BANCORP, INC.
2019 versus 2018
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
For the year ended December 31, 2019, noninterest income totaled $12,621,000, an increase of $5,
noninterest income of $7,462,000 for the year ended December 31, 2018.
d
159,000 or 69 percent, compared to
Mortgage banking income was $3,771,000 for the year ended December 31, 2019, an increase of $3,020,000 or over 400 percent
l
compared to mortgage banking income of $751,000 for the year ended December 31, 2018. Mid Penn expanded its team of residentia
mortgage originators in southeastern Pennsylvania during 2019, contributing to the larger volume of mortgage loans originated and
sold during the year. Additionally, longer-term mortgage interest rates have declined significantly over the past twelve months,
resulting in a higher level of mortgage originations and secondary-market loan sales during 2019.
aa
a
Net gains on sales of securities were $1,878,000 for the year ended December 31, 2019, an increase of $1,741,000 compared to net
gains on sales of securities of $137,000 for the year ended December 31, 2018. As previously reported on a Form 8-K dated
November 20, 2019, Mid Penn early adopted (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:56)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:179)(cid:36)(cid:54)(cid:56)(cid:180)(cid:12)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)-04, Codification Improvements to Topic
326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments), and as part
of the adoption, Mid Penn reclassified 113 held-to-maturity debt securities with an aggregate amortized cost of $67,096,000 to the
available-for-sale category. Through implementation of planned organic hedging activit(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:86)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)
management, all 113 securities were subsequently sold during the fourth quarter of 2019, and Mid Penn realized a pre-tax gain on the
sales of $1,779,000 which offset some of the market impact of lower earning-asset yields in the second half of 2019.
Income from fiduciary activities was $1,416,000 for the year ended December 31, 2019, an increase of $261,000 or 23 percent,
compared to fiduciary income of $1,155,000 for the year ended December 31, 2018. These additional revenues were attributed to
growth in trust assets under management and increased sales of retail investment products, as a result of successful continued business
(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:72)(cid:73)(cid:73)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:87)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:17)
ATM debit card interchange income was $1,594,000 for the year ended December 31, 2019, an increase of $341,000 or 27 percent
compared to interchange income of $1,253,000 for the year ended December 31, 2018. The increase resulted from increasing card-
of the added volume from demand deposit accounts
based transaction usage across our customer base, as well as the full-year impact
assumed in the 2018 First Priority acquisition.
r
Net gains on sales of SBA loans were $831,000 for the year ended December 31, 2019, an increase of $270,000 or 48 percent
(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:37)(cid:36)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:24)(cid:25)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:37)A
(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:83)(cid:85)(cid:76)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) as a preferred small business lender.
For the twelve months ended December 31, 2019, merchant services income totaled $413,000, an increase of $66,000 or 19 percent,
compared to $347,000 for the twelve months ended December 31, 2018, reflecting an increase in the volume of business customers
(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:80)(cid:72)(cid:85)(cid:70)(cid:75)(cid:68)(cid:81)(cid:87)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)Mid Penn
also established a relationship with a new merchant services vendor that has resulted in more favorable retention of revenues for the
Bank.
n
ff
Other income was $1,520,000 for the year ended December 31, 2019, a decrease of $519,000 compared to other income of $2,039,000
for the year ended December 31, 2018. For the full-year 2018, Mid Penn recognized $737,000 of defined benefit pension plan
settlement gains from certain plan participants receiving lump sum benefit payouts (the plan and related liabilities were assumed as a
result of the Scottdale acquisition in January 2018). During the year ended December 31, 2019, a lower amount of pension plan lump
sum payouts occurred, with related settlement gains totaling $34,000. Pension settlement gains are not expected to be a recurring item
on a going-forward basis.
38
MID PENN BANCORP, INC.
TABLE 5: NONINTEREST EXPENSE
(Dollars in thousands)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Years ended December 31,
2019
2018
2020
$
Salaries and employee benefits
Occupancy expense, net
Equipment expense
Software licensing and utilization
FDIC Assessment
Legal and professional fees
Charitable contributions qualifying for State tax credits
Mortgage banking profit-sharing expense
Pennsylvania Bank Shares tax expense
Marketing and advertising expense
Telephone expense
Loss (gain) on sale/write-down of foreclosed assets
Intangible amortization
Merger and acquisition expense
Director fees and benefits expense
ATM debit card processing expense
Meals, travel, and lodging expense
Insurance
Corporate donations and sponsorships
Investor services
Loan collection costs
OREO expense
Other expenses
Total Noninterest Expense
$
37,758 $
5,505
2,910
5,286
1,680
1,665
1,342
2,004
583
542
539
333
1,398
(cid:178)(cid:178)
1,109
819
644
368
207
200
197
150
5,338
70,577 $
32,360 $
5,352
2,647
4,394
839
1,679
755
(cid:178)(cid:178)
777
906
609
(15)
1,430
(cid:178)(cid:178)
1,005
685
1,036
353
401
153
487
91
4,009
$
59,953
23,862
4,019
2,186
3,609
772
1,117
585
(cid:178)(cid:178)
225
1,025
621
4
1,224
4,790
792
631
945
278
149
159
271
275
2,632
50,171
Noninterest Expense
p
2020 versus 2019
For the year ended December 31, 2020, noninterest expense totaled $70,577,000, an increase of $10,624,000 or 18 percent, compared
to noninterest expense of $59,953,000 for the year ended December 31, 2019.
Salaries and employee benefits were $37,758,000 for the year ended December 31, 2020, an increase of $5,398,000 or 17 percent,
versus 2019, with the increase primarily attributable to (i) increased commissions expense, commensurate with the mortgage loan
origination and sales success of the mortgage banking group; (ii) increased compensation expense for the substantial time and effort
devoted to the PPP loan initiative by many of our business development officers and staff members during 2020; and (iii) the addition
of private banking and insurance business development professionals in our new nonbank subsidiaries.
d
Software licensing and utilization costs were $5,286,000 for the year ended December 31, 2020, an increase of $892,000 or 20 percent
compared to $4,394,000 for the year ended December 31, 2019. This
increase reflects the additional costs from both transaction
r
volume-based charges, and licensing fees related to the addition of new staff and locations added since December 31, 2019, as well as
costs associated with ensuring secure connectivity for an increased volume of employees working remotely in response to the COVID-
19 pandemic restrictions. Additionally, Mid Penn continued to invest in upgrades to internal systems, networks, storage capabilities,
cybersecurity management, and data security mechanisms to enhance data management and security capabilities responsive to both
the larger company profile and increasing complexity of information technology management.
r
FDIC assessment expense was $1,680,000 for the year ended December 31, 2020, an increase of $841,000 or more than double the
$839,000 of FDIC assessment expense recognized during the year ended December 31, 2019. The lower assessment expense for the
year ended December 31, 2019 reflected the receipt of $492,000 of FDIC small bank assessment credits in 2019. Similar credits were
not received in 2020. Additionally, the total base assessment expense increased for 2020 when compared to 2019, primarily due to the
significant year-over-year increase in total average assets of the Bank on which the assessment is based.
n
d
39
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Community and charitable contributions qualifying for State tax credits totaled $1,342,000 for the year ended December 31, 2020, an
increase of $587,000 compared to similar program contributions of $755,000 for the year ended December 31, 2019. Mid Penn was
approved by the Commonwealth of Pennsylvania to contribute an increased tax-credit-qualifying amount to participants within
(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:182)(cid:86)(cid:3) (cid:39)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3) (cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:11)(cid:179)(cid:39)(cid:38)(cid:40)(cid:39)(cid:180)(cid:12)(cid:3) (cid:40)(cid:71)(cid:88)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:44)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:55)(cid:68)(cid:91)(cid:3) (cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)
(cid:11)(cid:179)(cid:40)(cid:44)(cid:55)(cid:38)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)-to-low incom(cid:72)(cid:3)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:38)(cid:40)(cid:39)(cid:182)(cid:86)(cid:3)(cid:49)(cid:72)(cid:76)(cid:74)(cid:75)(cid:69)(cid:82)(cid:85)(cid:75)(cid:82)(cid:82)(cid:71)(cid:3)(cid:36)(cid:86)(cid:86)(cid:76)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:11)(cid:179)(cid:49)(cid:36)(cid:51)(cid:180)(cid:12)(cid:3)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)
year ended December 31, 2020. These EITC and NAP contributions in 2020 generated tax credits totaling $1,132,000 to be applied to
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3) (cid:69)(cid:68)(cid:81)(cid:78)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:68)(cid:79)(cid:86)(cid:82)(cid:3) (cid:78)(cid:72)(cid:92)(cid:3) (cid:72)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)
Community Reinvestment Act compliance activities.
(cid:87)
Pennsylvania bank shares tax expense was $583,000 for the year ended December 31, 2020, a decrease of $194,000 or 25 percent
compared to $777,000 for the year ended December 31, 2019. The decrease in shares tax expense generally reflects the
aforementioned larger dollar volume of EITC and NAP donations made, which qualified for PA shares tax credits.
Mortgage banking profit-sharing expense totaled $2,004,000 for payments accrued for or made to third-party principals commensurate
with the record-level of earnings success within the Southeastern Pennsylvania mortgage banking group at Mid Penn for the year
ended December 31, 2020. Similar expenses were not recognized during the year ended December 31, 2019 as the group did not
generate sufficient earnings in 2019 to qualify for profit-sharing to the third-party principals.
r
Marketing and advertising expense was $542,000 for the year ended December 31, 2020, a decrease of $364,000 or 40 percent
compared to $906,000 during the same period in 2019. The year of 2019 reflected additional advertising expense and promotional
items expense to increase regional recognition and kn(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) division and expanded mortgage
origination operations in Southeastern Pennsylvania. Similar expenses were not recognized in 2020. Additionally, as a result of the
pandemic, in-person promotional events were significantly reduced in 2020, resulting in less advertising and promotional items
expense.
d
The loss on the sale or write-down of foreclosed assets was $333,000 during the year ended December 31, 2020 as compared to a gain
on the sale of foreclosed assets of $15,000 during the year ended December 31, 2019. The 2020 expense is attributable to write-
downs taken on two related foreclosed assets totaling $358,000 during the year ended December 31, 2020. These write-downs were
partially offset by $25,000 of collective gains on the sale of certain smaller foreclosed real estate properties during 2020.
2019 versus 2018
82,000 or 20 percent, compared
d
For the year ended December 31, 2019, noninterest expense totaled $59,953,000, an increase of $9,7
to noninterest expense of $50,171,000 for the twelve months ended December 31, 2018. The increase in noninterest expense for thet
twelve month period was driven by both (i) the full-year impact of the staff, facilities, and technology licensing costs added as a result
of the acquisition of First Priority in July 2018(cid:15)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:82)(cid:88)(cid:87)(cid:75)(cid:72)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:81)
Pennsylvania market, and (iii) the addition of business development professionals, primarily in our recently-acquired markets, to
better take advantage of new market opportunities to increase our revenues from lending and wealth management activities.
a
Salaries and employee benefits expenses were $32,360,000 during the year ended December 31, 2019, an increase of $8,498,000 or 36
percent, versus the same period in 2018, with the increase primarily attributable to (i) the full-year impact of the compensation and
benefit costs of the commercial business officers and the retail staff from the First Priority acquisition, effective July 31, 2018, (ii) the
personnel added as a result of the significant expansion of the mortgage banking division in 2019, and (iii) staff added as part of the
new Hazle Township office opened during the fourth quarter of 2019.
rr
Occupancy expenses increased $1,333,000 or 33 percent during the year ended December 31, 2019 compared to the twelve months
ended December 31, 2018. Similarly, equipment expense increased $461,000 or 21
percent during the year ended December 31, 2019
compared to the twelve months ended December 31, 2018. These increases related to (i) the full-year impact of the incremental
facilities operating costs, including rent, utilities, and depreciation expense associated with the acquisition of First Priority, and (ii)
ation facilities, and to realize additional
ff
expansion of the corporate administrative facilities to include expanded employee educ
efficiencies after the two 2018 mergers by further centralizing several back-office functions supporting the broader franchise.
a
Pennsylvania bank shares tax expense was $777,000 for the year ended December 31, 2019, an increase of $552,000 or over 200
percent compared to $225,000 for the year ended December 31, 2018. The increase in assessment expense generally reflects the
larger total shareholder equity balance upon which the tax is based (from both acquisition and organic growth activity) as of the tax
measurement date of January 1, 2019 when compared to January 1, 2018. Both years also reflected the impact of Pennsylvania tax
(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:86)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:40)(cid:71)(cid:88)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:44)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:55)(cid:68)(cid:91)(cid:3) (cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:11)(cid:40)(cid:44)(cid:55)(cid:38)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:49)(cid:72)(cid:76)(cid:74)(cid:75)(cid:69)(cid:82)(cid:85)(cid:75)(cid:82)(cid:82)(cid:71)(cid:3) (cid:36)(cid:86)(cid:86)(cid:76)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3) (cid:11)(cid:49)(cid:36)(cid:51)(cid:12)
community giving, with these donations totaling $755,000 and $585,000 in 2019 and 2018 respectively, resulting in tax credits
totaling $677,000 in 2019 and $522,000 in 2018.
40
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
FDIC assessment expense was $839,000 for the year ended December 31, 2019, an increase of $67,000 or 9 percent compared to
$772,000 for the year ended December 31, 2018. During the third quarter of 2019, Mid Penn received notification from the FDIC that
roviding the Bank with a $492,000 credit,
(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:182)(cid:86)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:41)(cid:88)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:80)(cid:72)(cid:87)(cid:3)(cid:68)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:86)(cid:75)(cid:82)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:39)(cid:44)(cid:38)(cid:3)(cid:83)
which was applied to assessment liability accruals for both the second and third quarters of 2019. The credit received during 2019
partially offset an increase in total assessment expense when comparing to the full year of 2018, primarily due the year-over-year
increase in total average assets of the Bank on which the assessment is based.
(cid:71)
Legal and professional fees for the year ended December 31, 2019 increased by $562,000 or 50 percent compared to the same period
in 2018 due to the increased size of the franchise and related expanded use and increased cost
s of third-party providers for information
technology support, human resources services, external audit, and loan review services.
d
Software licensing and utilization costs were $4,394,000 for the year ended December 31, 2019, an increase of $785,000 or 22 percent
compared to $3,609,000 for the year ended December 31, 2018. The year-over-year increase is a result of additional transaction
volume-based costs and licensing fees related to the addition of the locations, staff and accounts for the First Priority offices acquired
in July 2018, the expansion of the mortgage banking division during 2019, and the addition of the Hazle Township branch added in
2019. Additionally, Mid Penn continued to invest in upgrades to internal systems, networks, storage capabilities, and data security
mechanisms to enhance data management and security capabilities responsive to both the larger company profile and increasing
complexity of information technology management.
Intangible amortization increased from $1,224,000 during the year ended December 31, 2018 to $1,430,000 during the year ended
December 31, 2019 due to the full-year impact of amortization resulting from the core
deposit intangible asset added from the First
Priority acquisition on July 31, 2018.
t
Other expenses were $4,009,000 during the twelve months ended December 31, 2019, an increase of $2,632,000 or 52 percent
compared to other expense of $2,632,000 for the same period in 2018. As the First Priority acquisition and organic growth have
n
significantly (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:74)(cid:72)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:70)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:79)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:86)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:82)(cid:87)her expense experienced
related increases, including stationery and supplies, postage, printing, subscriptions, and employee relations.
No merger expenses were recorded during the year ended December 31, 2019. During the twelve months ended December 31, 2018,
merger and acquisition expenses totaling $4,790,000 were recorded including investment banking fees, merger-related legal and
professional fees, severance costs, and information technology conversion/termination costs incurred for the two 2018 acquisitions of
First Priority and Scottdale.
Investments
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3) (cid:76)(cid:86)(cid:3) (cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3) (cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3) (cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3) and interest rate risk management, to provide
collateral supporting pledging requirements for public funds on deposit, and to generate additional interest income within reasonable
(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:83)(cid:68)(cid:85)(cid:68)(cid:80)(cid:72)(cid:87)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)-to-maturity securities and available-for-sale securities.
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)-to-maturity securities, recorded at amortized cost, decreased $8,185,000 to $128,292,000 as of December
31, 2020, as compared to $136,477,000 as of December 31, 2019. (cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)-for-sale securities portfolio decreased
$31,261,000 or 84 percent, from $37,009,000 at December 31, 2019 to $5,748,000 at December 31, 2020. The year ended December
31, 2020 reflected a higher volume of calls of both available-for-sale and held-to-maturity securities as market yields dropped due to
both changes in the yield curve and from the FOMC reducing rates in response to the COVID-19 pandemic, leading to certain U.S.
Agencies and other security issuers to execute calls on some higher coupon securities. Additionally, Mid Penn initiated some sales of
available-for-sale investment securities for both strategic portfolio and asset liability management objectives.
d
(cid:55)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)-for-sale portfolio are recorded at fair value, which is generally based upon a market price
relative to other debt investments of the same type with similar maturity dates. As the interest rate environment and overall market
yield curve changes, the fair value of securities changes accordingly. The fair values of securities can also be impacted by changing
market supply and demand for certain types of securities.
At December 31, 2020, the unrealized loss on available-for-(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)
$2,000 (comprised of a gross unrealized loss on securities of $3,000 net of a deferred income tax benefit of $1,000). At December 31,
2019, the unrealized loss on available-for-(cid:86)(cid:68)(cid:79)(cid:72)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:3) (cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) $127,000
(comprised of a gross unrealized loss on securities of $161,000 net of a deferred income tax benefit of $34,000). Mid Penn does not
have any significant concentrations of non-governmental securities within its investment portfolio. Table 6 provides a summary
of
our investment securities, and maturity and yield information relating to debt securities is shown in Table 7.
m
t
41
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
TABLE 6: FAIR VALUE OF INVESTMENT SECURITIES
(Dollars in thousands)
Available-for-sale securities:
U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Corporate debt securities
$
Available-for-sale equity securities:
Equity securities
Total available-for-sale debt securities
$
Total available-for-sale equity securities
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Corporate debt securities
$
Total held-to-maturity securities
Total $
TABLE 7: INVESTMENT MATURITY AND YIELD
2020
December 31,
2019
2018
(cid:178)(cid:178) $
2
(cid:178)(cid:178)
5,746
5,748
515 $
515
11,577 $
41,743
68,738
10,736
132,794
139,057 $
22,830 $
12,890
30
1,259
37,009
507 $
507
50,036 $
42,091
45,349
(cid:178)(cid:178)
137,476
174,992 $
41,572
38,849
29,256
2,246
111,923
492
492
16,856
64,548
83,649
1,539
166,592
279,007
(Dollars in thousands)
As of December 31, 2020
Available for sale securities, at fair value:
Mortgage-backed U.S. government agencies
Corporate debt securities
Held to maturity securities, at amortized cost:
U.S. Treasury and U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Corporate debt securities
g
Weighted Average Yields
Available for sale securities:
g
Mortgage-backed U.S. government agencies
Corporate debt securities
Held to maturity securities:
U.S. Treasury and U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Corporate debt securities
One Year
and Less
After One After Five
Year thru Years thru
Five Years Ten Years
After Ten
Years
Total
$
$
$
$
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178) $
4,747
4,747 $
(cid:178)(cid:178) $
999
999 $
2 $
(cid:178)(cid:178)
2 $
2
5,746
5,748
7,988 $
(cid:178)(cid:178)
20,910
5,085
33,983 $
3,523 $
13,342
42,404
5,437
64,706 $
(cid:178)(cid:178) $
27,468
2,135
(cid:178)(cid:178)
29,603 $
11,511
40,810
65,449
10,522
128,292
After One
Year thru
Five
Years
After Five
Years
thru
Ten Years
One Year
and Less
After Ten
Years
Total
(cid:178)(cid:178)
(cid:178)(cid:178)
0.00%
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
0.00%
(cid:178)(cid:178)
5.00 %
5.00 %
1.42 %
(cid:178)(cid:178)
2.99 %
3.56 %
2.71 %
(cid:178)(cid:178)
4.50 %
4.50 %
2.42 %
2.95 %
3.08 %
3.03 %
3.01 %
2.35 %
(cid:178)(cid:178)
2.35 %
(cid:178)(cid:178)
2.66 %
2.92 %
(cid:178)(cid:178)
2.68 %
2.35%
4.91%
4.91%
1.73%
2.75%
3.05%
3.29%
2.85%
42
MID PENN BANCORP, INC.
Loans
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Total loans at December 31, 2020 were $2,384,041,000 compared to $1,762,756,000 at December 31, 2019, an increase of
$621,285,000 or 35 percent since year-end 2019. Much of the growth is attributable to the funding of PPP loans during the second
and third quarters of 2020, with $388,313,000 of PPP loans still outstanding as of December 31, 2020, net of deferred PPP processing
organic
fees of $7,746,000. The annual loan growth also reflects an increase of $232,972,000 in core (non-PPP) loans, or a 13 percent
loan growth rate, primarily in commercial real estate credits, and commercial and industrial loans.
n
At December 31, 2020, loans (net of unearned income) represented 85 percent of earning assets, compared to 86 percent and 85
percent at December 31, 2019 and 2018, respectively.
The majority of the Bank's loan portfolio is to businesses and individuals located within the Bank's primary market area of the
Pennsylvania counties of Berks, Bucks, Chester, Cumberland, Dauphin, Fayette, Lancaster, Luzerne, Montgomery, Northumberland,
Schuylkill and Westmoreland. Commercial real estate, construction, and land development loans are collateralized mainly by
mortgages on the income-producing real estate or land involved. Commercial, industrial, and agricultural loans are primarily made to
business entities and may be secured by business assets, including commercial real estate, or may be unsecured. Residential real
estate loans are secured by liens on the residential property. Consumer loans include installment loans, lines of credit and home equity
loans. The Bank has no si(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:86)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)
type is in commercial real estate financings.
A distribution of the Bank's loan portfolio according to major loan classification is shown in Table 8, and the maturity and rate aa
sensitivity information related to the loan portfolio is reflected in Table 9.
TABLE 8: LOAN PORTFOLIO
(Dollars in thousands)
Commercial real estate, construction
and land development
Commercial, industrial and
agricultural
Real estate - residential
Consumer
Total Loans
Unearned income
Loans net of unearned discount
Allowance for loan and lease losses
Net loans
2020
2019
December 31,
2018
2017
2016
Amount % Amount % Amount % Amount % Amount %
$1,348,569
56.6 $1,110,828
63.0 $1,003,542
61.8 $465,122
51.1 $397,547
48.8
752,354
276,065
7,064
21.1
286,583
29.5
323,639
0.6
10,351
2,384,052 100.0 1,762,777 100.0 1,624,115 100.0 910,490 100.0 814,082 100.0
20.7 171,985
27.8 240,418
4,132
17.6 188,262
19.9 253,152
3,954
339,147
304,995
7,807
19.2
17.3
0.5
31.6
11.6
0.2
0.7
0.4
(11)
2,384,041
(13,382)
$2,370,659
(21)
(48)
(86)
(158)
(9,515)
$1,753,241
(8,397)
$1,615,670
(7,606)
$902,798
(7,183)
$806,741
TABLE 9: LOAN MATURITY AND INTEREST SENSITIVITY
(Dollars in thousands)
As of December 31, 2020
Commercial real estate, construction and land development
rr
Commercial, industrial and agricultural
Real estate - residential mortgages
Consumer
Rate Sensitivityy
Predetermined rate
Floating or adjustable rate
One Year
and Less
$
After One
Year thru
Five Years
After Five
Years
Total
83,141 $
15,078
13,203
931
112,353 $
318,235 $
510,806
22,937
2,002
947,193 $ 1,348,569
752,354
226,470
276,065
239,925
7,053
4,120
853,980 $ 1,417,708 $ 2,384,041
50,067 $
62,286
112,353 $
228,957 $ 1,003,782
724,758 $
129,222
1,380,259
1,188,751
853,980 $ 1,417,708 $ 2,384,041
$
$
$
43
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses
y,
Q
,
Other than as described herein, Mid Penn does not believe there are current significant credit-related trends, events or uncertainties
relating to its loan portfolio that are reasonably expected to have a material impact on future results of operations, liquidity, or capital
resources. Mid Penn recognizes that the effects of current and past economic conditions and other unfavorable business conditions,
including the potential impact of the ongoing COVID-19 pandemic, may eventually adversely (cid:76)(cid:81)(cid:73)(cid:79)(cid:88)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)
comply with their repayment terms. Mid Penn regularly monitors the financial strength of its borrowers, including those at higher risk
of credit stress from the pandemic or its economic effects, and does not engage in practices which may be used to artificially shield
certain borrowers from the negative economic or business cycle effects that may compromise their ability to repay. Mid Penn does
not normally structure construction loans with interest reserve components, or perform commercial real estate or other type of loan
workouts whereby an existing loan was restructured into multiple new loans. Also, Mid Penn does not extend loans at maturity solely
due to the existence of guarantees, without recognizing the credit as impaired. While the existence of a guarantee may be a mi
tigating
factor in determining the proper level of allowance once impairment has been identified, the guarantee does not affect the impairment
analysis.
tt
t
TABLE 10: NONPERFORMING ASSETS
(Dollars in thousands)
Nonperforming Assets:
Nonaccrual loans
Accruing troubled debt restructured loans
Total nonperforming loans
Foreclosed real estate
Total nonperforming assets
2020
2019
December 31,
2018
2017
2016
$
15,047
463
15,510
134
15,644
$
11,471 $
490
11,961
10,749 $
517
11,266
10,575
544
11,119
$
196
12,157
1,017
12,283
189
11,308
4,658
877
5,535
224
5,759
Accruing loans 90 days or more past due
Total risk elements
(cid:178)(cid:178)
15,644
$
(cid:178)(cid:178)
12,157 $
(cid:178)(cid:178)
12,283 $
(cid:178)(cid:178)
11,308
$
59
5,818
$
Nonperforming loans as a % of total loans outstanding
0.65%
0.68%
0.69%
1.22 %
0.68%
Nonperforming assets as a % of total loans outstanding and
other real estate
0.66%
0.69%
0.76%
1.24 %
0.71%
Ratio of allowance for loan losses to nonperforming loans
86.28%
79.55%
74.53%
68.41 %
129.78 %
Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to partially or fully charging
off the loan. If a partial charge off is taken, the remaining balance remains a nonperforming loan with the original terms and interest
rate intact and is not treated as a restructured credit.
d
Foreclosed real estate decreased $62,000 from $196,000 at December 31, 2019 to $134,000 at December 31, 2020, driven by the sale
of several smaller foreclosed real estate properties in 2020. During 2020, nonperforming loans increased $3,487,000 from
$12,157,000 at December 31, 2019, to $15,644,000 at December 31, 2020. The increase in nonperforming assets was primarily the
result of one loan relationship totaling $2,331,000 being reclassified to nonaccrual status (see Loan relationship no. 2 below).
(cid:177)
Loan relationship no. 1 (cid:177) At December 31, 2020, the contractual
outstanding principal balance of this nonaccrual loan relationship was
$7,354,000 and consisted of two commercial and industrial loans and one commercial real estate credit acquired in 2018 which were
transferred from accrual to nonaccrual status during the fourth quarter of 2019. Given that the fair value of the collateral, primarily
comprised of a significant amount of commercial real estate, exceeds the outstanding principal balance, no specific allowance
allocation has been currently assigned to this relationship. Management is diligently pursuing its full rights given its priority liens to
the collateral under the loan agreements to collect the remaining outstanding balance.
44
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Loan relationship no. 2 (cid:177)The contractual outstanding principal balance of this nonaccrual loan relationship was $2,331,000 and was
comprised of two loans acquired in 2018. These loans were transferred from accrual to nonaccrual status during the second quarter of
2020. These loans are collateralized primarily by commercial real estate, and, given that the fair value of the remaining collateral
exceeds
this
relationship. Management expects to recover the remaining outstanding balance through the sale of real estate collateral pledged in
support of the loans.
the outstanding principal balance, no specific allowance allocation ha
s been currently assigned
to
a
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:87)(cid:85)(cid:82)(cid:88)(cid:69)(cid:79)(cid:72)(cid:71)(cid:3) (cid:71)(cid:72)(cid:69)(cid:87)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3) (cid:68)(cid:87)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)20 totaled $1,479,000 of which $463,000 were accruing loans in
compliance with the terms of the modification and $1,017,000 are included in the balance of total nonaccrual loans.
Mid Penn entered into forbearance agreements on all loans currently classified as troubled debt restructured loans, and these
agreements have resulted in additional principal repayment. The terms of these forbearance agreements vary and may include
reductions in principal payments, reductions in interest rates, and/or repayment of the loan as collateral is sold.
Further discussion of troubled debt restructured loans can be found in Note 7, Loans and Allowance for Loan and Lease Losses, within
Item 8, Notes to Consolidated Financial Statements. As of December 31, 2020, there were no defaulted troubled debt restructured
loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.
The following table provides additional analysis of partially charged off loans:
TABLE 11: PARTIALLY CHARGED OFF LOANS
(Dollars in thousands)
December 31,
2020
December 31,
2019
Period ending total loans outstanding (net of unearned income)
Allowance for loan and lease losses
Total Nonperforming loans
Recorded investment in nonperforming and impaired loans with partial charge-offs
$
$
2,384,041
13,382
15,510
836
1,762,756
9,515
11,961
332
Ratio of nonperforming loans with partial charge-offs to total loans
Ratio of nonperforming loans with partial charge-offs to total nonperforming loans
0.04 %
5.39 %
0.02%
2.78%
Coverage ratio net of nonperforming loans with partial charge-offs
91.20 %
81.82 %
Ratio of total allowance to total loans less nonperforming loans with partial charge-offs
0.56 %
0.54%
Mid Penn has not experienced any additional charge-offs on loans for which a partial charge-off ha
periods presented.
ff
d originally been taken during the
Mid Penn considers a commercial loan or commercial real estate loan to be impaired when it becomes 90 days or more past due and
the collection efforts indicate that receipt of all contractual amounts due is not probab
le. Impairment may occur before a 90-day or
more period of delinquency when it is probable, based upon the facts and circumstances, that Mid Penn will be unable to collect all
contractual principal and interest due. This methodology assumes the borrower cannot or will not continue to make additional
payments. At that time, the loan would likely b(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:3)(cid:11)(cid:179)(cid:39)(cid:38)(cid:41)(cid:180)(cid:12)(cid:3)(cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)
indicate no operating income is available to add to the (cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:182)(cid:86) collateral position; therefore, most impaired loans are deemed
to be collateral dependent.
n
t
t
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 rated as nonaccrual or lower 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 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 rated as 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 variation in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The balance rema
ins a
nonperforming loan with the original terms and interest rate intact (not restructured). The process of charge-off for residential
mortgage loans begins upon a loan becoming delinquent for 90 days and not in the process of collection. The existing appraisal is
d
d
45
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of thet
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. Consumer loans are recommended for charge-off after reaching delinquency of 90 days
and the loan is not in the process of collection. 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 both commercial loans and commercial real estate loans. The 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 or commercial real estate 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.
Larger groups of small-balance loans, such as residential mortgages and consumer installment loans are collectively evaluated for
impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures unless
such loans are the subject of a restructuring agreement.
ff
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) loan rating system assumes any loans classified as substandard nonaccrual to be impaired, and most of these loans are
(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3) (cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) (cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:3) (cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3) (cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:85)(cid:3) (cid:81)(cid:82)(cid:87), are
considered collateral dependent.
It is Mid P(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) third-party valuations on all impaired loans collateralized by real estate as soon as
ation Mid
d
practicable following the credit being classified as substandard non-accrual. Prior to receipt of the updated real estate valu
Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation
will be made until such time as 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 or private
sales. Management reviews the estimates of these third parties and discounts t(cid:75)(cid:72)(cid:80)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:76)(cid:73)(cid:3)
deemed necessary.
(cid:41)(cid:82)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:81)(cid:82)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)ations
on the subject property as soon as practicable following being placed on nonaccrual status sometimes indicates that the loan to
value
ratio is sufficient to obviate the need for a specific allocation, despite significant deterioration in real estate values in (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)
primary market area. These circumstances are determined on a case by case analysis of the impaired loans.
tt
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.
a
Mid Penn had loans with an aggregate balance of $15,510,000 which were deemed by manag
ement to be impaired at December 31,
2020, including $1,742,000 in loans from previous mergers which were acquired with credit deterioration. Of the $13,768,000 of
impaired loan relationships excluding the loans acquired with credit deterioration, $1,452,000 were commercial and industrial
relationships, $9,102,000 were commercial real estate relationships, $818,000 were residential relationships, $31,000 were
commercial real estate (cid:177) construction relationships, and $2,365,000 were hom
e equity relationships. As of December 31, 2020, there
were specific loan loss reserve allocations of $533,000 against the commercial and industrial relationships and $274,000 against the
commercial real estate relationships. Management currently believes that the specific reserves are adequate to cover probable future
losses related to these relationships.
(cid:177)
46
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
The allowance for loan losses is a reserve established in the form of a provision expense for loan and lease losses and is reduced by
loan charge-offs net of recoveries. In addition to a loan review function that operates independently of the lending function,
management monitors the loan portfolio at least monthly to identify changes to the credit risks in the portfolio so that an appropriate
allowance is maintained. Based on an evaluation of the loan portfolio, management presents a monthly review of the allowance for
loan and lease losses to the Board of Directors, indicating any changes in the allowance since the last review. In making the
evaluation, management considers the results of recent regulatory examinations, which typically include a review of the allowance for
loan and lease losses as an integral part of the examination process. As part of the examination process, federal or state regulatory
agencies may require Mid Penn to recognize additions to the allowance based on their judgments about information available to themt
at the time of their examination, which may not be currently available to management.
ff
aa
In establishing the allowance, management evaluates on a quantitative basis individual classified loans and nonaccrual loans, and
determines an aggregate reserve for those loans based on that review. In addition, an allowance for the remainder of the loan
and
lease portfolio is determined based on historical loss experience, adjusted by qualitative factors determined by management, within
certain components of the portfolio.
r
This determination inherently involves a higher degree of subjectivity, and considers risk factors that may not have yet manifested
themselves in historical loss experience. These factors include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
changes in international, national, regional, and local economic and business conditions and developments that affect the
collectability of the portfolio, including the condition of various market segments;
changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of
adversely classified or graded loans;
changes in the value of underlying collateral for collateral-dependent loans;
changes in the experience, ability, and depth of lending management and other relevant staff;
changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and
recovery practices not considered elsewhere in estimating credit losses;
changes in the quality of the institution's loan review system;
changes in the nature and volume of the portfolio and in the terms of loans;
the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated
credit losses in the institution's existing portfolio; and
the existence and effect of any concentrations of credit and changes in the level of such concentrations.
tt
While the allowance for loan and lease losses is maintained at a level believed to be adequate by management to provide for probable
losses inherent in the loan and lease portfolio, determination of the allowance is inherently subjective, as it requires estimates and
consideration of the above-noted qualitative factors which may be susceptible to significant change. Changes in these estimates may
impact the provisions charged to expense in future periods. Management believes, based on information currently available, that the
allowance for loan and lease losses of $13,382,000 as of December 31, 2020 is adequate to cover specifically identifiable loan losses,
as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable.
aa
The allocation of the allowance for loan and lease losses among the major classifications is shown in Table 12 as of December 31 of
each of the past five years.
TABLE 12: ALLOCATION OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES
(Dollars in thousands)
2020
2019
2017
2016
December 31,
2018
Commercial real estate, construction and land development
rr
Commercial, industrial and agricultural
Real estate - residential
Consumer
Unallocated
$
$
8,789 $
3,066
429
508
590
13,382 $
6,310 $
2,341
417
444
3
9,515 $
4,778 $
2,391
453
535
240
8,397 $
4,613 $
1,795
428
426
344
7,606 $
4,467
1,581
541
382
212
7,183
The increase in the allowance balance was the result of both organic loan growth during 2020, and from increases in the values
of
aa
qualitative factors for both economic conditions and external factors given the impact of the COVID-19 pandemic impact.
Management continues to monitor the portfolio very closely for pandemic-related stresses. See also the discussion in the Provision for
Loan and Lease Losses section.
47
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
The allowance for loan and lease losses at December 31, 2020 was $13,382,000 or 0.56% of total loans (less unearned discount), as
compared to $9,515,000 or 0.54% at December 31, 2019, and $8,397,000 or 0.52% at December 31, 2018.
Deposits and Other Funding Sources
p
g
Mid Penn's primary source of funds are retail deposits from businesses, public funds depositors, and consumers in its market area. For
the year ended December 31, 2020, total deposits increased by $562,186,000 or over 29 percent. Deposits as of year-end 2019 had
increased by $186,386,000 or 11 percent since December 31, 2018. Deposit growth duri
Deposit growth during the year ended December 31, 2020 was led d
by substantial increases in noninterest-bearing balances and money market deposits, primarily due to both new and expanded cash
by substantial increases in noninterest-bearing balances and m
elationships, including those from new customers established as a result of Mid Pe(cid:81)(cid:81)(cid:182)(cid:86)
management and commercial deposit account r
p
PPP loan activities. Deposit growth from
year-end 2018 to year-end 2019 was led by increases in money market deposits and
PPP loan activities. D
noninterest-bearing balances, primarily due to both new and expanded cash management and commercial deposit account
relationships. Average balances and average interest rates applicable to the classifications of deposits for the years ended D
ecember
31, 2020, 2019, and 2018 are presented in Table 13.
g
p
g
ff
Mid Penn had no brokered time deposits as of December 31, 2020, compared to $13,326,000 in brokered time
deposits at December
31, 2019 and $56,188,000 as of December 31, 2018. The decrease in brokered certificates of deposits during both 2019 and 2020 was
the result of brokered certificates of deposit assumed in the First Priority and Phoeni
x acquisitions which matured and were not
t
replaced.
d
TABLE 13: DEPOSITS BY MAJOR CLASSIFICATION
(Dollars in thousands)
2020
Years Ended December 31,
2019
2018
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Noninterest-bearing demand deposits $
Interest-bearing demand deposits
Money market
Savings
Time
505,094
538,385
605,552
186,132
443,607
$ 2,278,770
0.00% $
0.64
0.67
0.19
1.93
0.72% $ 1,814,647
296,872
415,359
443,248
187,927
471,241
0.00 % $
1.04
1.66
0.34
1.96
1.19 % $ 1,430,679
232,562
371,873
309,705
191,686
324,853
0.00%
0.66
0.97
0.28
1.51
0.76%
The maturity distribution of time deposits of $100,000 or more is reflected in Table 14.
TABLE 14: MATURITY OF TIME DEPOSITS $100,000 OR MORE
(Dollars in thousands)
Three months or less
Over three months to twelve months
Over twelve months
December 31,
2019
2020
$
$
33,819 $
116,798
77,344
227,961 $
31,314 $
148,449
92,041
271,804 $
2018
29,957
201,827
12,952
244,736
Short-(cid:87)(cid:72)(cid:85)(cid:80)(cid:3) (cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:20)(cid:21)(cid:24)(cid:15)(cid:25)(cid:20)(cid:26)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:68)(cid:87)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3) (cid:72)(cid:81)(cid:87)(cid:76)(cid:85)(cid:72)(cid:79)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)
(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:182)(cid:86) PPPLF. The PPPLF allows 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 percent. Mid Penn held no short-term borrowings as of Decembe
r 31,
2019. As of December 31, 2020 and 2019, the Bank had long-term debt outstanding in the amount of
f
$75,115,000 and $32,903,000,
respectively, consisting primarily of FHLB fixed rate advances as well as a finance lease liability executed in 2019.
t
t
Capital Resources
p
Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets. The deta
iled
(cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:86)(cid:3) (cid:70)(cid:68)(cid:81)(cid:3) (cid:69)(cid:72)(cid:3) (cid:73)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) Note 19, Regulatory Matters, within Item 8, Notes to
Consolidated Financial Statements. The greater the C(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72) likely it is to meet its cash obligations
and absorb unforeseen losses. Capital management practices have been, and will continue to be, of paramount importance to the
Corporation in support of both its regulatory capital requirements and its shareholders.
k
t
48
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:7)17,814,000 or 7 percent from $237,874,000 as of December 31, 2019 to $255,688,000 as of
December 31, 2020. The (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)-to-date net
income, net of dividends paid and declared. Some of the year-over-year increase (cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) was offset by the initiation of
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) treasury stock repurchase program, which reflected total common stock buybacks of $1,795,000 as of December 31,
2020. A total of 92,652 common shares were repurchased at a discount to tangible book value per share, with an average cost of
$19.37 per share.
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:7)(cid:20)(cid:23)(cid:15)(cid:25)(cid:25)(cid:23)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:82)(cid:85)(cid:3) (cid:26)(cid:3) (cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80) (cid:7)(cid:21)(cid:21)(cid:22)(cid:15)(cid:21)(cid:19)(cid:28)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:27)(cid:3) (cid:87)(cid:82)(cid:3) (cid:7)(cid:21)(cid:22)(cid:26)(cid:15)(cid:27)(cid:26)(cid:23)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3)
(cid:80)
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) during 2019 reflected (i) the growth in retained earnings through year-to-
date net income of $17,701,000 net of dividends paid totaling $6,688,000, (ii) a $316,000 favorable prior period adjustment posted as
part of the adoption of the new GAAP leasing standard, and (iii) other comprehensive income from the significant after-tax
appreciation in the available-for-sale portfolio, much of which had been realized from securities sales during 2019.
n
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:71)(cid:82)(cid:88)(cid:69)(cid:79)(cid:72)(cid:71)(cid:15)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:7)(cid:26)(cid:24)(cid:15)(cid:26)(cid:19)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:21)(cid:21)(cid:22)(cid:15)(cid:21)(cid:19)(cid:28)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)
due to (i) the issuance of 1,878,827 shares of Mid Penn common stock on January 8, 2018 in connection with the acquisition of
Scottdale; and (ii) the issuance of 2,320,800 shares of Mid Penn common stock on July 31, 2018, in connection with the acquisition of
First (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:7)(cid:20)(cid:19)(cid:15)(cid:23)(cid:28)(cid:23)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)lable
to common shareholders for 2018, less dividends declared during the year of $3,453,000. These increases were partially offset by
other comprehensive losses, primarily due to the after-tax impact of the unrealized reduction in market value within the available-for-
sale investment portfolio since December 31, 2017.
a
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3) (cid:83)(cid:68)(cid:92)(cid:82)(cid:88)(cid:87)(cid:3) philosophy looks to provide reasonable quarterly cash returns to shareholders while still retaining
(cid:86)(cid:88)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3) (cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:86)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:17)(cid:3) (cid:3) (cid:41)(cid:82)(cid:85)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:86)(cid:72)(cid:72)(cid:3) (cid:179)(cid:51)(cid:68)(cid:85)(cid:87)(cid:3) (cid:44)(cid:44)(cid:15)(cid:3) (cid:44)(cid:87)em 5,
(cid:179)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3) (cid:48)atters and Issuer Repurchases of Equity Securities (cid:177) (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:180)(cid:17)(cid:3)(cid:3)
Dividends paid and declared on common shares totaled $0.77 and $0.82, respectively, for the year ended December 31, 2020.
Dividends paid and declared on common shares totaled $0.79 for the year ended December 31, 2019. Dividends paid and declared on
common shares totaled $0.70 and $0.45, respectively, for the year ended December 31, 2018. The dividend payout ratio, which
represents the percentage of annual net income returned to shareholders in the form of cash dividends, was 24.80% for 2020 and
37.80% for 2019.
r
49
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Mid Penn maintained regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31, 2020 and 2019, as
follows:
(Dollars in thousands)
p,
Mid Penn Bancorp, Inc.
As of December 31, 2020
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
Mid Penn Bank
As of December 31, 2020
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
p,
Mid Penn Bancorp, Inc.
As of December 31, 2019
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
y
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
g
Capital Adequacy
Minimum for
Basel III Capital
Adequacy (a)
Amount Ratio
To Be
Well-Capitalized
Under Prompt
Corrective
Action Provisions
Amount Ratio
Actual
Amount
Ratio
$
188,501
6.8% $
111,201
4.0 % $
N/A
N/A
188,501
188,501
246,529
9.6%
9.6%
12.6%
137,351
166,783
206,026
7.0 %
8.5 %
10.5 %
N/A
N/A
N/A
N/A
N/A
N/A
$
218,676
7.9% $
111,166
4.0 % $
138,958
5.0 %
218,676
218,676
232,124
11.1%
11.1%
11.8%
137,288
166,707
205,933
7.0 %
8.5 %
10.5 %
127,482
156,901
196,126
6.5 %
8.0 %
10.0%
$
168,146
7.8% $ 86,773
4.0 % $
N/A
N/A
168,146
168,146
204,811
9.8%
9.8%
11.9%
120,020
145,738
180,030
7.0 %
8.5 %
10.5 %
N/A
N/A
N/A
N/A
N/A
N/A
Mid Penn Bank
As of December 31, 2019
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
$
185,101
8.5% $ 86,760
4.0 % $
108,450
5.0 %
185,101
185,101
204,196
10.8%
10.8%
11.9%
119,995
145,708
179,992
7.0 %
8.5 %
10.5 %
111,424
137,137
171,421
6.5 %
8.0 %
10.0%
(a) Minimum amounts and ratios include the full phase in of the capital conservation buffer of 2.5 percent required by the
BASEL III framework.
50
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Effective in the third quarter of 2018, the Federal Reserve raised the consolidated asset limit to be considered a small bank holding
company from $1 billion to $3 billion. A company that qualifies as a small bank holding company is not subject to the Federal
(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:79)(cid:87)(cid:75)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:68)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:86)(cid:82)(cid:3) (cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:72)(cid:86)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:73)(cid:76)(cid:79)(cid:72)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:70)(cid:68)(cid:83)ital
amounts and ratios. Mid Penn has elected to continue to report those amounts and ratios.
Subordinated Debt
Subordinated Debt Issued December 2020
On December 22, 2020, Mid Penn Bancorp, Inc. 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 (th(cid:72)(cid:3) (cid:179)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:3) (cid:82)(cid:81)(cid:3) (cid:68)(cid:3) (cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3) (cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3)
accredited investors. The December 2020 Notes are treated as Tier 2 capital for regulatory capital purposes.
r
The December 2020 Notes will bear interest at a rate of 4.5% per year for the first five
(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)
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 (A) all or any portion of the December 2020 Notes
cease to be deemed Tier 2 Capital, (B) interest on the December 2020 Notes fails to be deductible for United States federal income tax
(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:38)(cid:12)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:179)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:180)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:72)
(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3)(cid:74)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:20)(cid:19)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:182)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)ecember 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 the holding company or Mid Penn Bank, its principal banking subsidiary.
Related parties held $750,000 of the December 2020 Notes as of December 31, 2020.
rr
r
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
(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:22)(cid:19)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)March (cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17) The March 2020 Notes are 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 a(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)(cid:51)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)
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,
a
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
March 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 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.
r
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 the holding company or Mid Penn Bank, its principal banking subsidiary. Related parties
held $1,700,000 of the March 2020 Notes as of December 31, 2020.
Subordinated Debt Assumed July 2018 with the First Priority Acquisition
On July 31, 2018, Mid Penn (cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:72)(cid:71)(cid:3) (cid:7)(cid:28)(cid:15)(cid:24)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:82)(cid:73)(cid:3) (cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)
(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17) In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of
$247,000. The notes were treated as Tier 2 capital for regulatory reporting purposes.
aa
51
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
The First Priority Notes agreements were entered into by First Priority on November 13, 2015 with five accredited investors pursuant
to which First Priority issued subordinated notes totaling $9,500,000. The First Priority Notes had a maturity date of November 30,
2025, and bear interest at a fixed rate of 7.00% per annum. The Notes were non-callable for an initial period of five years and
included provisions for redemption pricing between 101.5% and 100.5% of the liquidation value if called after five years but prior to
the stated maturity date.
r
On December 18, 2020, Mid Penn redeemed the $9,500,000 of (cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:77)(cid:88)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)
acquisition of First Priority Bank. The First Priority subordinated debt was redeemed promptly following the expiration of the
noncallable period and after receiving the required regulatory approval for the redemption. Mid Penn recognized redemption pricing
fees of $143,000 related to the early redemption, which are included in other noninterest expenses.
d
Subordinated Debt Issued December 2017
On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its
(cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:27)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:55)(cid:76)(cid:72)(cid:85)(cid:3)(cid:21)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:17) The
offering closed in December 2017.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:24)(cid:17)(cid:21)(cid:24)(cid:8)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86) 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
(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:22)(cid:19)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:182)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:76)(cid:73)(cid:29)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:71)(cid:72)(cid:71)ucting
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.
a
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.
Subordinated Debt Issued December 2015
On December 9, 2015, Mid Penn entered into agreements with investors to purchase $7,500,000 aggregate principal amount of its
(cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:24)(cid:17)(cid:3) Eighty percent of the balance of the 2015 Notes were treated as Tier 2 capital for
regulatory capital purposes as of December 31, 2020.
The 2015 Notes b(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:24)(cid:17)(cid:20)(cid:24)(cid:8)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)(cid:51)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)
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
paid 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,
r
2020, and prior to December 9, 2025. Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from ti
me
(cid:87)(cid:82)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:22)(cid:19)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:182)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:76)(cid:73)(cid:29)(cid:3)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87) 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.
t
Holders of the 201(cid:24)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:21)(cid:19)(cid:20)(cid:24)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3) (cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)
bankruptcy, insolvency, liquidation, receivership, or similar event.
52
MID PENN BANCORP, INC.
Series D Preferred Stock
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
In accordance with the terms and conditions of the Agreement and Plan of Merger dated January 16, 2018 between Mid Penn and Fir
st
(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:48)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:41)(cid:76)(cid:91)(cid:72)(cid:71)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)(cid:3)(cid:38)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:72)(cid:85)(cid:83)(cid:72)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:38)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)
(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:12)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92) 31, 2018 was converted into the right to receive one share of Mid Penn Fixed Rate
Cumulative Perpetual Preferred Stock, Series D, having a $1,000 (cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:12)(cid:17) In
connection with the First Priority Merger, Mid Penn issued 3,404 shares of Mid Penn Preferred Stock totaling $3,404,000.
r
The terms of the Mid Penn Preferred Stock were no less favorable than those of the First Priority Preferred Stock as in effect
immediately prior to the Merger. The Mid Penn Preferred Stock was redeemable at the option of Mid Penn, subject to the prior
receipt of any requisite regulatory approval.
Dividends were payable quarterly on February 15, May 15, August 15 and November 15 of each year. The dividend rate on the Mid
Penn Preferred Stock was fixed at 9%.
(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:22)(cid:15)(cid:23)(cid:19)(cid:23)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)n
Preferred Stock at the $1,000 liquidation value. The redemption of the $3,404,000 of the Mid Penn Preferred Stock was completed and
the final dividend payment was made on December 14, 2018. Accordingly, no preferred stock was outstanding, and no preferred
dividends were paid, as of and for the years ended December 31, 2020 and December 31, 2019, respectively. Preferred dividends of
$102,000 were paid in 2018.
d
Income Taxes
se of $1,405,000 or 38 percent
t
The provision for income taxes was $5,130,000 during the year ended December 31, 2020, an increa
compared to $3,725,000 for the same period in 2019. The provision for income taxes for the year
ended December 31, 2020 reflects an
n
effective Federal tax rate of 16.8%, compared to an effective Federal tax rate of 17.8% for the year ended December 31, 2019. The
full-year 2020 tax provision and effective tax rate reflects (i) the impact of tax-free income earned on municipal investments and
loans, (ii) the impact of certain CARES Act provisions allowing for the carryback of federal tax net operating losses (NOLs) to prior
periods in which the Federal tax rate was 34 percent totaling $318,000, (iii) the full-year impact of tax credits recognized related to
periods in which the Federal tax rate was 34 percent totaling
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:90)-income housing project in Dauphin County, Pennsy
ylvania totaling $861,000, and (iv) state income
taxes that Mid Penn pays to the states of New Jersey, Maryland, and Delaware for revenues source
d in those respective states.
y
y
g
y
a
Income tax expense for 2019 was $3,725,000, compared to $2,129,000 for 2018. The provision for income taxes for the twelve
months ended December 31, 2019 reflects (i) an effective federal tax rate of 17.8%, with the difference from the statutory tax rate of
21% mostly related to tax-exempt income on municipal securities and loans; (ii) a favorable adjustment to federal income tax expense
of $277,000 for certain permanent nonrecurring tax benefits recorded during 2019; and (iii) New Jersey income tax expense of
$185,000 attributable to increased New Jersey sourced income, primarily from First Priority legacy customers. Federal income tax
expense in 2018 reflects the reduction in the maximum corporate income tax rate from 34 percent to 21 percent, legislated by the Tax
(cid:38)(cid:88)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:45)(cid:82)(cid:69)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:179)TCJA(cid:180)(cid:12) in December 2017, with the rate change effective January 1, 2018.
y
Liquidity
q
Mid Penn's asset-liability management policy addresses the management of Mid Penn's liquidity position and its ability to raise
sufficient funds to meet deposit withdrawals, fund loan growth and meet other operational needs. In addition to its cash and
equivalents, Mid Penn utilizes its investments as a source of liquidity, along with deposit growth and increases in borrowings. For
additional information, see Deposits and Other Funding Sources, which appears earlier in this discussion. Liquidity from investments
is provided primarily through investment calls, sales of available-for-sale securities, prepayments on mortgage-backed securities, and
from investments and interest-bearing balances with maturities of one year or less.
The Bank can obtain funds from overnight borrowings, short-term borrowings, and long-term borrowings from the FHLB, up to the
(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:43)(cid:47)(cid:37)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75) was $852,568,000 at December 31, 2020. FHLB borrowings require the
Bank to make certain restricted stock purchases in accordance with FHLB requirements. Borrowings with the FHLB are
collateralized by certain qualifying loans and investment securities of the Bank. The Bank also has unused lines of credit with other
correspondent banks amounting to $35,000,000 at December 31, 2020.
Major sources of cash in 2020 came from the $562,186,000 net increase in deposits, $348,756,000 of proceeds from sales of mortgage
loans originated for sale, and proceeds from short-term PPPLF borrowings of $125,617,000.
53
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
Major uses of cash in 2020 were $623,153,000 to fund net portfolio loan growth (primarily commercial PPP loans), $356,158,000 to
fund mortgage loans originated for sale, and $178,630,000 to fund the purchase of investment securities.
Major sources of cash in 2019 came from the $186,368,000 net increase in deposits, $160,279,000 of proceeds from sales of mortgage
loans originated for sale, and $154,307,000 in proceeds from the sales of available-for-sale investments securities.
Major uses of cash in 2019 were $163,228,000 to fund mortgage loans originated for sale, $139,430,000 to fund net portfolio loan
growth (primarily commercial loans) and $79,254,000 to fund the purchase of investment securities.
Aggregate Contractual Obligations
gg g
g
(cid:55)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:20)(cid:24)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:81)-and-off balance sheet aggregate contractual obligations to make future payments as of December
31, 2020.
TABLE 15: AGGREGATE CONTRACTUAL OBLIGATIONS
(Dollars in thousands)
Operating lease obligations
Finance lease obligation
Certificates of deposit
Long-term debt
Subordinated debt
Payments under benefit plans
Executive compensation payments
$
Financial Statements
Note Reference
9
9
10
12
13
16
17
$
Total
One Year or
Less
Payments Due by Period
Three to
Five
Years
One to
Three
Years
More than
Five
Years
12,791 $
4,894
425,295
72,792
61,224
3,534
8,571
589,101 $
1,942 $
217
258,135
942
1,972
221
50
263,479 $
3,569 $
434
142,862
70,887
3,944
481
97
222,274 $
2,814 $
511
23,685
705
11,444
739
55
39,953 $
4,466
3,732
613
258
43,864
2,093
8,369
63,395
We are not aware of any other commitments or contingent liabilities whi(cid:70)(cid:75)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:68)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3) (cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)
liquidity or capital resources.
Effects of Inflation
A bank's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and
liabilities of a bank are monetary in nature. Management believes the impact of inflation on its financial results depends principally
upon Mid Penn's ability to measure its sensitivity to changes in interest rates and to take appropriate actions, as needed or controllable
by the Bank, to mitigate the impacts of inflation on performance. Interest rates do not necessarily move in the same direction
or at the
ement seeks to manage the relationship
aa
same magnitude as the prices of other goods and services. As discussed previously, manag
between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from
inflation.
t
Information included elsewhere in this report will assist in the understanding of how Mid Penn is positioned to react to changing
interest rates and inflationary trends. In particular, the previously discussed risk factors, the composition of and yields on loans and
investments, and the composition and costs of deposits and other interest-bearing liabilities, should be considered.
n
Off-Balance Sheet Items
Mid Penn makes contractual commitments to extend credit and extends lines of credit, which are subject to Mid Penn's credit approval
and monitoring procedures. As of December 31, 2020, commitments to extend credit amounted to $654,977,000 compared to
$435,553,000 as of December 31, 2019.
Mid Penn also issues standby letters of credit to its customers. The risk associated with standby letters of credit is essentially the same
as the credit risk involved in loan extensions to customers. Standby letters of credit increased to $39,468,000 at December 31
, 2020,
from $26,574,000 at December 31, 2019.
d
54
MID PENN BANCORP, INC.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Q
Q
As a financial (cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3) (cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)(cid:3) (cid:76)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)(cid:17)(cid:3) (cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)(cid:3) (cid:76)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:91)(cid:83)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3)
(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:11)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:12)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:81)sitivity is a
function of the repricing characteristics of Mid Penn's portfolio of assets and liabilities. Each asset and liability reprices either at
maturity or during the life of the instrument. Interest rate sensitivity is measured as the difference between the volume of assets and
liabilities that are subject to repricing in a future period of time.
The principal purpose of asset-liability management is to maximize current and future net interest income within acceptable levels of
interest rate risk while satisfying liquidity and capital requirements. Net interest income is increased by increasing the net interest
margin and by volume growth. Thus, the goal of interest rate risk management is to maintain a balance between risk and reward such
that net interest income is maximized while risk is maintained at an acceptable level.
t
Mid Penn utilizes an asset-liability management model to measure the impact of interest rate movements on its interest rate sensitivity
(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)itional maturity gap analysis regularly. Mid Penn does not always attempt to
achieve an exact match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest
rate risk is inherent and appropriate in (cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)
f
Modeling techniques and simulation analysis involve assumptions and estimates that inherently cannot be measured with complete
ssets and liabilities, prepayments on
precision. Key assumptions in the analyses include maturity and repricing characteristics of a
amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumpti
ons are inherently uncertain due to
the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other
(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:43)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:73)(cid:88)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:84)(cid:88)(cid:68)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:74)(cid:68)(cid:88)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3) position
over time.
aa
a
Management reviews interest rate risk on a quarterly basis. This analysis includes earnings scenarios whereby interest rates are
increased and decreased by 100, 200, and 300 basis points. These scenarios, detailed in Table 16, indicate that Mid Penn would
experience enhanced net interest income over a one-year time frame due to upward interest rate changes, while a reduction in interest
rates would result in a decline in net interest income over a one-year time frame; however, actual results could vary significantly from
the calculations prepared by management. At December 31, 2020, all interest rate risk levels according to the model were within the
tolerance limits of the Board-approved policy.
aa
TABLE 16: EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
December 31, 2020
% Change in
Net Interest
Income
15.69%
10.03%
4.72%
-3.97%
-9.30%
-14.45%
Change in
Basis Points
300
200
100
0
(100)
(200)
(300)
Policy
Risk Limit
(cid:149) -20%
(cid:149) -15%
(cid:149) -10%
(cid:149) -10%
(cid:149) -15%
(cid:149) -20%
December 31, 2019
% Change in
Net Interest
Income
10.43%
6.84%
3.37%
-2.87%
-4.99%
-8.66%
Change in
Basis Points
300
200
100
0
(100)
(200)
(300)
Policy
Risk Limit
(cid:149) -20%
(cid:149) -15%
(cid:149) -10%
(cid:149) -10%
(cid:149) -15%
(cid:149) -20%
55
MID PENN BANCORP, INC.
ITEM 8. FINANCIAL STATEMENTS
The following audited financial statements are set forth in this Annual Report on Form 10-K on the following pages:
Index to Financial Statements
Management Report on Internal Controls Over Financial Reporting
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
57
58
62
63
64
65
66
68
56
MID PENN BANCORP, INC.
Management Report on Internal Controls Over Financial Reporting
(cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:71)(cid:3) (cid:82)(cid:88)(cid:87)(cid:3) (cid:68)(cid:81)(cid:3) (cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
including the Corp(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:15) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)
procedures, as defined in SEC Rules 13a-15(e) and 15d-(cid:20)(cid:24)(cid:11)(cid:72)(cid:12)(cid:17)(cid:3)(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)
and Chief Financial Officer concluded that, as of December 31, 2020(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3)
effective. Disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Co
(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods speci
fied
(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:40)(cid:38)(cid:182)(cid:86)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:17)(cid:3)
aa
ff
The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) reporting
and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
a
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)financial reporting as of December 31, 2020, using
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2020(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)
internal control over financial reporting is effective based on those criteria.
(cid:55)(cid:75)(cid:72)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3) RSM US LLP, an independent
d
registered public accounting firm, as stated in their report which is included herein.
/s/ Rory G. Ritrievi
Rory G. Ritrievi
President and
Chief Executive Officer
March 15, 2021
/s/ Michael D. Peduzzi, CPA
Michael D. Peduzzi, CPA
Sr. Executive Vice President and
Chief Financial Officer
March 15, 2021
57
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Mid Penn Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Mid Penn Bancorp, Inc. and Subsidiaries (the Company) as of
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)ash
flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Ac
counting Oversight Board (United States)
h
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
ng Organizations of the Treadway Commission in 2013, and
Control (cid:178) Integrated Framework issued by the Committee of Sponsori
our report dated March 15, 2021 expressed an unqualified opinion on the effectivenes
s of the Company's internal control over
financial reporting.
(cid:178)
n
Basis for Opinion
(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3) (cid:68)(cid:81)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81) the
Comp(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:38)(cid:36)(cid:50)(cid:37)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)
be independent with respect to the Company in accordance with U.S. federal securiti
es laws and the applicable rules and regulations of
aa
the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Allowance for Loan Losses (cid:177) Qualitative Factors
The allowance for loan losses as of December 31, 2020 was $13.4 million. As described in Notes 3 and 7 to the financial statements,
the allowance for loan losses is established through a provision for loan losses and represents an amount which, in managemen(cid:87)(cid:182)(cid:86)
judgement, will be adequate to absorb losses on existing loans.
(cid:177)
The allowance consists of specific and general components in the amounts of $0.8 million and $12.6 million, respectively. The
specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established
when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of
that loan. The general component covers pools of loans by 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. The evaluation of the qualitative factor adjustments requires a significant amount of
judgement by management and involves a high degree of subjectivity.
58
We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as auditing the underlying
qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly
subjective and includes significant estimation uncertainty.
Our audit procedures related to the qualitative factors included the following, among others:
- (cid:58)(cid:72)(cid:3) (cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)
factors, and t(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
review and approval of the qualitative factors and the data used in determining the qualitative factors.
- We obtained an understanding of how management developed the estimates
aa
and related assumptions, including:
o Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the
reliability of the underlying data on which these factors are based by comparing information to source documents
and external information sources.
o Evaluating the reasonableness of the qualitative factor established by management as compared to the underlying
internal or external information sources.
(cid:177)
Goodwill Impairment (cid:177) Fair Value of Reporting Unit
(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)020.
(cid:36)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:22)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:7)(cid:25)(cid:21)(cid:17)(cid:27)(cid:3)
Goodwill is evaluated annually for impairment or at interim periods if certain events occur which may cause the fair value of thett
reporting unit to fall below its carrying amount. The Company estimates the fair value of the single reporting unit by making
significant estimates and assumptions related to the specific circumstances of the reporting unit such as projections of net interest
income and net income.
(cid:80)(cid:80)
We identified the impairment assessment of goodwill as a critical audit matter due to the complexity of the analysis and certain
significant assumptions such as projected cash flows, discount and growth rates and comparable public companies. Auditing
(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:71)(cid:72)(cid:74)(cid:85)(cid:72)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:72)(cid:73)(cid:73)(cid:82)(cid:85)(cid:87)(cid:15) including the use of
internal specialists.
Our audit procedures related to the goodwill impairment assessments performed throughout the year included the following, among
others:
- We obtained an understanding of the relevant controls related to the assessment of goodwill impairment and tested such
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)
(cid:87)(cid:87)
review of significant assumptions such as discount and growth rates, and comparable public companies.
t
- (cid:58)(cid:72)(cid:3) (cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:88)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79)(cid:76)(cid:86)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3) (cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3) (cid:86)(cid:78)(cid:76)(cid:79)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3) (cid:81)(cid:72)(cid:72)(cid:71)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3)
evaluate their work.
- We tested the completeness and accuracy of the underlying data used in the fair value estimates by agreeing Company
financial data to internal records and using valuation specialists to obtain market data for a population of comparable
companies.
- (cid:58)(cid:72)(cid:3) (cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:70)(cid:68)(cid:86)(cid:75)(cid:3) (cid:73)(cid:79)(cid:82)(cid:90)(cid:3) (cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)
s plan by
(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:83)(cid:68)(cid:86)(cid:87)(cid:3) (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:80)(cid:72)(cid:72)(cid:87)(cid:3)
financial projections.
(cid:87)
(cid:71)
- We utilized internal specialists to assist in:
o Evaluating the discount rate by comparing to publicly available market data.
o Evaluating the long-term growth rate by comparing to industry standard metrics.
o (cid:40)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)
information publicly available for comparable companies.
o Evaluating the reasonableness and application of the methodologies used by management including the income
approach and the market approach.
/s/ RSM US LLP
We have served as the Company's auditor since 2020.
Philadelphia, Pennsylvania
March 15, 2021
59
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Opinion on the Consolidated Financial Statements
(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:12)(cid:3)(cid:68)(cid:86) of
December 31, 2019, the related consolidated statements of income, comprehen(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)
flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the
(cid:179)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)ncial statements present fairly, in all material respects, the
financial position of the Corporation and subsidiaries at December 31, 2019, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3) (cid:50)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:72)(cid:91)(cid:83)(cid:85)ess an
opinion (cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)
the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
(cid:71)
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud.
d
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reason
able basis for our opinion.
r
/s/ BDO USA, LLP
We served as the Corporation's auditor from 2013 to 2020.
Philadelphia, Pennsylvania
March 13, 2020
60
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Mid Penn Bancorp, Inc.
Opinion on the Internal Control Over Financial Reporting
l control over financial reporting as of December 31,
We have audited Mid Penn Bancorp, Inc. and Subsidiaries' (the Company) interna
2020, based on criteria established in Internal Control — Integrated Framework
k
issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organ
izations of the Treadway Commission in 2013.
—
—
k
r
rr
We have also audited, in accordance with the standards of the Public Company A
ccounting Oversight Board (United States)
h
(PCAOB), the consolidated financial statements of the Company and our report dated March 15, 2021 expressed an unqualified
opinion.
Basis for Opinion
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)anagement is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting in the accompanying Management Report on Internal Controls Over
Financial (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
ial reporting was maintained in all material respects.
to obtain reasonable assurance about whether effective internal control over financ
t
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness
tt
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our a
a
udit also
ff
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
e company are being made only in
t
accordance with generally accepted accounting principles, and that receipts and expenditures of th
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect
on the financial statements.
y
a
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Philadelphia, Pennsylvania
March 15, 2021
61
MID PENN BANCORP, INC.
(Dollars in thousands)
ASSETS
Cash and due from banks
Interest-bearing balances with other financial institutions
Federal funds sold
Total cash and cash equivalents
Investment securities held to maturity, at amortized cost (fair value $132,794 and $137,476)
rr
Investment securities available for sale, at fair value
Equity securities available for sale, at fair value
Loans held for sale
Loans and leases, net of unearned interest
Less: Allowance for loan and lease losses
Net loans and leases
Bank premises and equipment, net
Operating lease right of use asset
Finance lease right of use asset
Cash surrender value of life insurance
Restricted investment in bank stocks
Accrued interest receivable
Deferred income taxes
Goodwill
Core deposit and other intangibles, net
Foreclosed assets held for sale
Other assets
Total Assets
(cid:47)(cid:44)(cid:36)(cid:37)(cid:44)(cid:47)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54)(cid:3)(cid:9)(cid:3)(cid:54)(cid:43)(cid:36)(cid:53)(cid:40)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:54)(cid:182)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60)
Deposits:
Noninterest-bearing demand
Interest-bearing demand
Money Market
Savings
Time
Total Deposits
Short-term borrowings
Long-term debt
Subordinated debt
Operating lease liability
Accrued interest payable
Other liabilities
Total Liabilities
Shareholders' Equity:
Common stock, par value $1.00; 20,000,000 shares authorized
Shares issued: 8,511,835 and 8,480,938 at December 31, 2020 and December 31, 2019;
Shares outstanding: 8,419,183 and 8,480,938 at December 31, 2020 and December 31, 2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury Stock, at cost; 92,652 shares at December 31, 2020
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Total Liabilities and Shareholders' Equity
The accompanying notes are an integral part of these consolidated financial statements.
62
Consolidated Balance Sheets
December 31, 2019
December 31, 2020
$
$
$
31,284 $
1,541
270,899
303,724
128,292
5,748
515
25,506
2,384,041
(13,382)
2,370,659
24,886
10,157
3,267
17,183
7,594
12,971
3,619
62,840
4,360
134
17,493
2,998,948 $
536,224 $
605,567
720,506
195,038
417,245
2,474,580
125,617
75,115
44,580
11,200
2,007
10,161
2,743,260
8,512
178,853
70,175
(57)
(1,795)
255,688
$
2,998,948 $
25,746
4,657
108,627
139,030
136,477
37,009
507
8,422
1,762,756
(9,515)
1,753,241
24,937
11,442
3,447
16,881
4,902
7,964
2,810
62,840
5,758
196
15,312
2,231,175
310,036
458,451
488,748
177,737
477,422
1,912,394
(cid:178)(cid:178)
32,903
27,070
12,544
2,208
6,182
1,993,301
8,481
178,159
50,891
343
(cid:178)(cid:178)
237,874
2,231,175
MID PENN BANCORP, INC.
(Dollars in thousands, except per share data)
INTEREST INCOME
Interest and fees on loans and leases
Interest and dividends on investment securities:
U.S. Treasury and government agencies
State and political subdivision obligations, tax-exempt
Other securities
Total interest and dividends on investment securities
Interest on interest-bearing balances
Interest on federal funds sold
Total Interest Income
INTEREST EXPENSE
Interest on deposits
Interest on short-term borrowings
Interest on long-term and subordinated debt
Total Interest Expense
Net Interest Income
PROVISION FOR LOAN AND LEASE LOSSES
Net Interest Income After Provision for Loan and Lease Losses
NONINTEREST INCOME
Income from fiduciary activities
Service charges on deposits
Net gain on sales of investment securities
Earnings from cash surrender value of life insurance
Mortgage banking income
ATM debit card interchange income
Merchant services income
Net gain on sales of SBA loans
Other income
Total Noninterest Income
NONINTEREST EXPENSE
Salaries and employee benefits
Occupancy expense, net
Equipment expense
Software licensing and utilization
FDIC Assessment
Legal and professional fees
Charitable contributions qualifying for State tax credits
Mortgage banking profit-sharing expense
Pennsylvania Bank Shares Tax expense
Marketing and advertising expense
Telephone expense
Loss (gain) on sale or write-down of foreclosed assets
Intangible amortization
Merger and acquisition expense
Other expenses
Total Noninterest Expense
INCOME BEFORE PROVISION FOR INCOME TAXES
Provision for income taxes
NET INCOME
Series D preferred stock dividends
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
$
PER COMMON SHARE DATA:
Basic Earnings Per Common Share
Diluted Earnings Per Common Share
Cash Dividends Declared
$
$
$
The accompanying notes are an integral part of these consolidated financial statements
63
2020
Years Ended December 31,
2019
2018
Consolidated Statements of Income
$
103,507
$
88,078
$
61,692
1,631
1,008
1,253
3,892
39
497
107,935
16,399
371
2,957
19,727
88,208
4,200
84,008
1,694
637
467
301
9,682
1,960
392
442
2,333
17,908
37,758
5,505
2,910
5,286
1,680
1,665
1,342
2,004
583
542
539
333
1,398
(cid:178)(cid:178)
9,032
70,577
31,339
5,130
26,209
(cid:178)(cid:178)
26,209
3.11
3.10
0.82
$
$
$
$
3,084
2,046
782
5,912
100
1,222
95,312
21,550
470
3,144
25,164
70,148
1,390
68,758
1,416
884
1,878
314
3,771
1,594
413
831
1,520
12,621
32,360
5,352
2,647
4,394
839
1,679
755
(cid:178)(cid:178)
777
906
609
(15)
1,430
(cid:178)(cid:178)
8,220
59,953
21,426
3,725
17,701
(cid:178)(cid:178)
17,701
2.09
2.09
0.79
$
$
$
$
3,518
2,323
595
6,436
75
451
68,654
10,884
207
1,629
12,720
55,934
500
55,434
1,155
933
137
286
751
1,253
347
561
2,039
7,462
23,862
4,019
2,186
3,609
772
1,117
585
(cid:178)(cid:178)
225
1,025
621
4
1,224
4,790
6,132
50,171
12,725
2,129
10,596
102
10,494
1.48
1.48
0.45
MID PENN BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Net income
Other comprehensive income (loss):
Years Ended December 31,
2019
2020
2018
$
26,209 $
17,701 $
10,596
Unrealized gains (losses) arising during the period on available for sale
securities, net of income taxes of $131, $1,223, and ($259), respectively (d)
494
4,598
(1,010)
Reclassification adjustment for net gain on sales of available-for-sale
securities included in net income, net of income taxes of ($98), ($394), and
($29), respectively (a), (d)
(369)
(1,484)
(108)
Change in defined benefit plans, net of income taxes of ($134), ($79), and
$363, respectively (b), (d)
(503)
(296)
1,364
Reclassification adjustment for settlement gains and activity related to
benefit plans, net of income taxes of ($6), ($26), and ($156), respectively
(c), (d)
Total other comprehensive (loss) income
(22)
(97 )
(400)
2,721
(585)
(339)
Total comprehensive income
$
25,809 $
20,422 $
10,257
(a) Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate component
within total noninterest income.
(b) The change in defined benefit plans consists primarily of unrecognized actuarial (losses) gains on defined benefit plans during the period.
(c) The reclassification adjustment for defined benefit plans includes settlement gains, amortization of prior service costs, a
nd amortization of
net gain or loss. Amounts are included in other income on the Consolidated Statements of Income within the total noninterest income.
Please reference Note 16, Postretirement Benefit Plans, to the consolidated financial statements for more information.
n
(d) The income tax impacts of the components of other comprehensive income are calculated using the 21 percent statutory tax rate for 2020,
2019 and 2018.
The accompanying notes are an integral part of these consolidated financial statements.
64
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
MID PENN BANCORP, INC.
(Dollars in thousands
, except share data)
)
p
Balance, January 1, 2018
Preferred
Stock
$
Common
Stock
(cid:178)(cid:178) $
4,242 $
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Retained
Earnings Income (Loss)
(2,074) $
32,565 $
40,970 $
Impact of adoption of new accounting
standard (a)
Balance at January 1, 2018, adjusted
Net income
Total other comprehensive loss, net of taxes
Series D preferred stock issued in connection
with the First Priority acquisition
Series D preferred stock dividends
Series D preferred stock redemption
Common stock dividends declared
Common stock issued to Scottdale
shareholders (1,878,827 shares) (b)
Common stock issued to First Priority
shareholders (2,320,800 shares) (c)
Employee Stock Purchase Plan (4,132 shares)
Director Stock Purchase Plan (4,296 shares)
Restricted stock activity (9,647 shares)
Balance, December 31, 2018
$
Impact of adoption of new accounting
standard (d)
Balance at January 1, 2019, adjusted
Net income
Total other comprehensive income, net of
taxes
Common stock dividends declared
Employee Stock Purchase Plan (5,151 shares)
Director Stock Purchase Plan (5,232 shares)
Restricted stock activity (10,637 shares)
Balance, December 31, 2019
$
Net income
Total other comprehensive loss, net of taxes
Common stock dividends declared
Repurchased stock (12,129 shares)
Employee Stock Purchase Plan (8,005 shares)
Director Stock Purchase Plan (8,121 shares)
Restricted stock activity (14,771 shares)
Balance, December 31, 2020
$
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
4,242
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
40,970
(cid:178)(cid:178)
(cid:178)(cid:178)
(44 )
32,521
10,596
(cid:178)(cid:178)
35
(2,039)
(cid:178)(cid:178)
(339 )
3,404
(cid:178)(cid:178)
(3,404)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(102 )
(cid:178)(cid:178)
(3,453)
(cid:178)(cid:178)
1,879
62,302
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
0 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
0 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
0 $
2,321
4
4
10
8,460 $
73,801
115
120
257
177,565 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
39,562 $
(cid:178)(cid:178)
8,460
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
5
5
11
8,481 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
8
8
15
8,512 $
(cid:178)(cid:178)
177,565
(cid:178)(cid:178)
316
39,878
17,701
(cid:178)(cid:178)
(cid:178)(cid:178)
129
130
335
178,159 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
147
148
399
178,853 $
(cid:178)(cid:178)
(6,688)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
50,891 $
26,209
(cid:178)(cid:178)
(6,925)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
70,175 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(2,378) $
(cid:178)(cid:178)
(2,378)
(cid:178)(cid:178)
2,721
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
343 $
(cid:178)(cid:178)
(400 )
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(57 ) $
Treasury
Stock
Total
Shareholders'
Equity
(cid:178)(cid:178) $
75,703
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(9 )
75,694
10,596
(339 )
3,404
(102 )
(3,404 )
(3,453 )
(cid:178)(cid:178)
64,181
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
0 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
0 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(1,795)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(1,795) $
76,122
119
124
267
223,209
316
223,525
17,701
2,721
(6,688 )
134
135
346
237,874
26,209
(400 )
(6,925 )
(1,795 )
155
156
414
255,688
(a) Represents the impact of adopting Accounting Standard Update ASU 2016-01. See Note 25, Recent Accounting Pronouncements, to the
consolidated financial statements for more information.
(b) Shares issued on January 8, 2018 as a result of the acquisition of (cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:9)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:11)(cid:179)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:23),
Acquisition of The Scottdale Bank and Trust Company, to the consolidated financial statements for more information.
(c) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:17)(cid:3)(cid:11)(cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72) (cid:24), Acquisition of
First Priority Financial Corp., to the consolidated financial statements for more information.
(d) Represents the impact of adopting Accounting Standard Update ASU 2016-02. See Note 25, Recent Accounting Pronouncements, to the
consolidated financial statements for more information.
The accompanying notes are an integral part of these consolidated financial statements.
65
MID PENN BANCORP, INC.
(Dollars in thousands)
Operating Activities:
Net Income
Adjustments to reconcile net income to net cash provided by operating activities:
Consolidated Statements of Cash Flows
2020
Years Ended December 31,
2019
2018
$
26,209 $
17,701 $
10,596
Provision for loan and lease losses
Depreciation
Amortization of intangibles
Net amortization of security premiums
Amortization of operating lease right of use assets
Amortization of finance lease right of use asset
Gain on sales of investment securities
Earnings on cash surrender value of life insurance
Mortgage loans originated for sale
Proceeds from sales of mortgage loans originated for sale
Gain on sale of mortgage loans
SBA loans originated for sale
Proceeds from sales of SBA loans originated for sale
Gain on sale of SBA loans
Loss on write-down/disposal of property, plant, and equipment
Loss (gain) on sale / write-down of foreclosed assets
Restricted stock compensation expense
Deferred income tax (benefit) expense
(Increase) decrease in accrued interest receivable
Increase in other assets
(Decrease) increase in accrued interest payable
Net change in operating lease liability
Increase (decrease) in other liabilities
Net Cash Provided By Operating Activities
Investing Activities:
Proceeds from the sale of available-for-sale securities
Proceeds from the maturity or call of available-for-sale securities
Purchases of available-for-sale securities
Proceeds from the maturity or call of held-to-maturity securities
Purchases of held-to-maturity securities
Net cash received from acquisitions
(Purchases) redemptions of restricted investment in bank stocks
Net increase in loans and leases
Proceeds from bank owned life insurance
Purchases of bank premises and equipment
Proceeds from sale of bank premises and equipment
Proceeds from sale of foreclosed assets
Net Cash (Used In) Provided By Investing Activities
Financing Activities:
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Proceeds from long-term debt borrowings
Series D preferred stock dividends paid
Series D preferred stock redemption
Common stock dividends paid
Proceeds from Employee Stock Purchase Plan stock issuance
Proceeds from Director Stock Purchase Plan stock issuance
Treasury stock purchased
Net change in finance lease liability
Long-term debt repayment
Subordinated debt redemption
Subordinated debt issuance
Net Cash Provided By (Used In) Financing Activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
4,200
3,204
1,398
782
1,670
180
(467 )
(301 )
(356,158 )
348,756
(9,682)
(6,487)
6,929
(442 )
242
333
414
(1,367)
(5,007)
(1,971)
(201 )
(1,714)
3,549
14,069
101,739
8,538
(78,542 )
107,583
(100,029 )
(cid:178)(cid:178)
(2,692)
(623,153 )
(cid:178)(cid:178)
(3,685)
65
1,264
(588,912 )
562,186
125,617
70,000
(cid:178)(cid:178)
(cid:178)(cid:178)
(6,504)
155
156
(1,795)
(83 )
(27,705 )
(9,640)
27,150
739,537
164,694
139,030
303,724 $
1,390
2,815
1,430
755
1,678
150
(1,878)
(331 )
(163,228 )
160,279
(3,771)
(13,792 )
14,622
(831 )
168
(15 )
346
665
280
(8,193)
(54 )
(1,782)
(573 )
7,831
154,307
13,659
(20,406 )
23,160
(58,848 )
(cid:178)(cid:178)
1,744
(139,430 )
140
(3,885)
1,268
1,306
(26,985 )
186,368
(43,100 )
13,500
(cid:178)(cid:178)
(cid:178)(cid:178)
(6,688)
134
135
(cid:178)(cid:178)
(46 )
(32,184 )
(cid:178)(cid:178)
(cid:178)(cid:178)
118,119
98,965
40,065
139,030 $
500
2,395
1,224
517
(cid:178)(cid:178)
(cid:178)(cid:178)
(137)
(286)
(46,264)
46,353
(751)
(7,734)
8,296
(561)
71
4
267
1,317
(398)
(1,779)
528
(cid:178)(cid:178)
(3,175)
10,983
158,271
17,235
(24,830)
14,493
(75,375)
72,616
72
(132,097)
(cid:178)(cid:178)
(8,958)
(cid:178)(cid:178)
420
21,847
(12,469)
(25,836)
30,000
(102)
(3,404)
(4,513)
119
124
(cid:178)(cid:178)
(cid:178)(cid:178)
(198)
(cid:178)(cid:178)
(cid:178)(cid:178)
(16,279)
16,551
23,514
40,065
$
66
MID PENN BANCORP, INC.
(Dollars in thousands)
Supplemental Disclosures of Cash Flow Information:
Interest paid
Income taxes paid
Supplemental Noncash Disclosures:
Recognition of operating lease right-of-use assets
Recognition of operating lease liabilities
Recognition of finance lease right-of-use asset
Recognition of finance lease liability
Loan transfers to foreclosed assets held for sale
Debt securities transferred from held-to-maturity to available-for-sale
Common stock issued to First Priority and Scottdale shareholders
Dividends declared and not paid before year-end
Assets, Liabilities, and Equity in Connection with Mergers (a):
(Dollars in thousands)
Assets Acquired:
Securities
Loans
Restricted stock
Property and equipment
Foreclosed assets
Deferred income taxes
Accrued interest receivable
Core deposit and other intangible assets
Cash surrender value of life insurance
Other assets
Liabilities Assumed:
Deposits
Borrowings
Accrued interest payable
Other liabilities
Equity Acquired:
Preferred stock
Consolidated Statements of Cash Flows
2020
Years Ended December 31,
2019
2018
19,928 $
7,740 $
25,218 $
3,770 $
11,103
1,425
385 $
370 $
(cid:178)(cid:178) $
(cid:178)(cid:178) $
1,535 $
(cid:178)(cid:178) $
(cid:178)(cid:178) $
421 $
13,120 $
14,326 $
3,597 $
3,597 $
470 $
67,096 $
(cid:178)(cid:178) $
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,116
(cid:178)(cid:178)
4,200
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
177,016
582,392
2,334
2,643
136
4,190
3,282
7,976
3,363
1,100
784,432
714,927
49,939
1,089
6,309
772,264
(cid:178)(cid:178) $
(cid:178)(cid:178) $
3,404
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(a) This disclosure includes the impact of both the acquisition of The Scottdale Bank and Trust Company, effective January 8, 2018, and the
acquisition of First Priority Financial Corp., effective July 31, 2018. See Note 4, Acquisition of The Scottdale Bank and Trust Company, and
Note 5, Acquisition of First Priority Financial Corp., to the consolidated financial statements for more information.
The accompanying notes are an integral part of these consolidated financial statements.
67
MID PENN BANCORP, INC.
(1) Basis of Presentation
Notes to Consolidated Financial Statements
For all periods presented, the accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc.
(cid:11)(cid:179)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:12)(cid:15) its wholly-(cid:82)(cid:90)(cid:81)(cid:72)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:37)(cid:68)(cid:81)(cid:78)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)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 December 31, 2020, 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.
(cid:50)(cid:81)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:9)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:11)(cid:179)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)
bank and trust company, through the merger of Scottdale with and into Mid Penn Bank pursuant to the previously announced
Agreement and Plan of Merger, dated as of March 29, 2017, among Mid Penn, Mid Penn Bank and Scottdale. Refer to Note 4,
Acquisition of The Scottdale Bank & Trust Company(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on January 8,
2018, for more information.
(cid:50)(cid:81)(cid:3) (cid:45)(cid:88)(cid:79)(cid:92)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:17)(cid:3) (cid:11)(cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:15)(cid:3) (cid:83)(cid:88)(cid:85)(cid:86)(cid:88)(cid:68)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
previously announced Agreement and Plan of Merger dated as of January 16, 2018. On July 31, 2018, First Priority was merged
with and into Mid Penn, with Mid Penn being the surviving corporation. Refer to Note 5, Acquisition of First Priority Financial
Corp., as well as the C(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on August 1, 2018, for more information.
(cid:55)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)20, compared to the years ended
December 31, 2019 and 2018, in general, has been materially impacted by these two acquisitions, as
further described in Note 4
and Note 5, as well as events and legislation related to the COVID-19 pandemic in 2020, as further described in Note 27,
COVID-19 Pandemic Implications. For comparative purposes, the December 31, 2019 and December 31, 2018 balances have
been reclassified, when necessary, to conform to the 2020 presentation. Such reclassifications had no impact on net income or
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92). 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.
d
r
Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2020, 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) Nature of Business
Mid Penn, through operations conducted by the Bank and its nonbank subsidiaries, engages in a full-service commercial
banking and trust business, making available to the community a wide range of financial services, including, but not limited to,
mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines of credit, construction financing,
farm loans, community development loans, loans to non-profit entities and local government loans, and various types of time
and demand deposits including but not limited to, checking accounts, savings
accounts, clubs, money market deposit accounts,
certificates of deposit, and IRAs. In addition, the Bank provides a full range of trust and wealth management services through
(cid:76)(cid:87)(cid:86)(cid:3)(cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:39)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86) (cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:41)(cid:39)(cid:44)(cid:38)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)
law.
t
The financial services are provided to individuals, partnerships, non-profit organizations, and corporations through its thirty-six
retail banking offices located in the Pennsylvania counties of Berks, Bucks, Chester, Cumberland, Dauphin, Fayette, Lancaster,
Luzerne, Montgomery, Northumberland, Schuylkill and Westmoreland.
During 2020, Mid Penn established three nonbank subsidiaries consisting of 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.
68
MID PENN BANCORP, INC.
3)
Summary of Significant Accounting Policies
g
y
g
The accounting and reporting policies of Mid Penn conform with accounting principles generally accepted in the United States
(cid:82)(cid:73)(cid:3) (cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3) (cid:11)(cid:179)(cid:42)(cid:36)(cid:36)(cid:51)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:83)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3) (cid:76)(cid:86)(cid:3) (cid:68)(cid:3) (cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:80)(cid:82)(cid:85)(cid:72)(cid:3)
significant accounting policies.
(a) Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for
loan and lease losses, the assessment of other-than-temporary impairment of investment securities, the valuation of
goodwill and assessment for impairment, and the valuation of assets acquired and liabilities assumed in business
combinations.
(b) Cash and Cash Equivalents
q
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, balances due
from banks, and federal funds sold, all of which mature within ninety days.
(c) Restrictions on Cash and Due from Bank Accounts
The Bank is required by banking regulations to maintain certain minimum cash reserves. As of both December 31, 2020
and 2019, there was no cash reserve balances required to be maintained at the Federal Reserve of Philadelphia because the
Bank had sufficient vault cash available.
(d)
Interest-bearing Time Deposits with Other Financial Institutions
p
g
Interest-bearing time deposits with other financial institutions consist of certificates of deposits in other financial
institutions with maturities within one year.
69
MID PENN BANCORP, INC.
(e)
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. Available-for-sale securities are those that management intends to use as part of its asset and liability
management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment
risk, pledging requirements, and other factors related to effective portfolio management. 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, whereas realized gains and losses
flow through Mid Pe(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:17)
n
t
Securities to be held to maturity are carried at amortized cost. Unrealized hold
ing gains and losses on held-to-maturity
securities are excluded from earnings, and are not a component of accumulated other comprehensive income (loss) within
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)
a
Premiums and discounts on debt securities are amortized as an adjustment to interest income using the interest method.
Realized gains and losses on sales of investment securities are computed on the basis of specific identification of the cost
of each security.
t
–
, clarifies the interaction of the factors that should be considered when
ASC Topic 320, Investments – Debt Securities
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 Company will recover the cost basis of the investment.
a
In instances when a determination is made that an other-than-temporary impairment exists but the Company does not
intend to sell the respective 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.
y
(f) Equity Securities
q
As a result of (cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) adoption of ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities on January 1, 2018, the Corporation reports its equity
securities with readily determinable fair values at fair value on the Consolidated Balance Sheet, with realized and
unrealized gains and losses reported in other expense on the Consolidated Statements of Income. Prior to January 1, 2018,
equity securities were stated at fair value with unrealized gains and losses reported as a separate component of
accumulated other comprehensive income or loss, net of tax. The adoption of ASU 2016-01 on January 1, 2018 resulted
in net unrealized losses of $44,000 being reclassified out of accumulated other comprehensive loss and into retained
(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)y for the period ended December
31, 2018.
d
r
As of December 31, 2020 and 2019(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:73)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3) (cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:36)(cid:70)(cid:87)(cid:3) (cid:73)(cid:88)(cid:81)(cid:71)(cid:86)
totaling $515,000 and $507,000, respectively. An equity security consisting of $1,000,000 of preferred stock of another
financial institution was purchased and subsequently sold during the year ended December 31, 2020, resulting in a gain on
sale of $6,000. No equity securities were sold during the year ended December 31, 2019.
g
y
y
(g) Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are included in loans held for sale and are
reported at the lower of cost or fair value, as determined by the aggregate commitments from investors or current investor
yield requirements. Gains and losses on sales of mortgage loans are included in noninterest income in the Consolidated
Statements of Income.
70
MID PENN BANCORP, INC.
(h) Loans and Allowance for Loan and Lease Losses
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.
for sale are carried at fair value and are
Interest income is accrued on the unpaid principal balance. Residential loans held
included in loans held for sale on the balance sheet. Loan origination fees, net of certain
direct origination costs, are
n
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.
d
aa
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.
r
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
(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86) 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
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:17)(cid:3) (cid:3) (cid:48)(cid:82)(cid:86)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:69)(cid:72)(cid:72)(cid:81)
credits 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.
(cid:55)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3) (cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:73)(cid:76)(cid:79)(cid:72)(cid:3) (cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)
(cid:70)(cid:75)(cid:68)(cid:85)(cid:68)(cid:70)(cid:87)(cid:72)(cid:85)(cid:15)(cid:3) (cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:85)(cid:72)(cid:83)(cid:68)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:70)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:15)(cid:3) (cid:68)(cid:86)(cid:3) (cid:90)(cid:72)(cid:79)(cid:79)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:81)(cid:3) (cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)
(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:17)(cid:3) (cid:3) (cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86) (cid:83)(cid:68)(cid:86)(cid:87)(cid:15)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3) (cid:76)(cid:86)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3) (cid:68)(cid:81)(cid:3) (cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:3)
(cid:68)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:17)(cid:3)(cid:3)(cid:49)(cid:82)(cid:81)(cid:72)(cid:87)(cid:75)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
extensions of credit.
o
d
(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3) (cid:87)(cid:92)(cid:83)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:80)(cid:68)(cid:71)(cid:72)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:80)(cid:68)(cid:78)(cid:72)(cid:3) (cid:85)(cid:72)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)
(cid:70)(cid:68)(cid:86)(cid:75)(cid:3) (cid:73)(cid:79)(cid:82)(cid:90)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3) (cid:3) (cid:36)(cid:86)(cid:3) (cid:68)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)
loans may be substantially dependent on the success of the business itself, which, in turn, is likely to be dependent upon
(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:86)(cid:88)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:79)(cid:90)(cid:68)(cid:92)(cid:86)(cid:15)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)
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.
n
Commercial real estate and commercial real estate - construction
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
onditions on income producing
ff
principal in a limited number of loans and borrowers, the effect of general economic c
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
(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:17)(cid:3)(cid:3)(cid:44)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:83)(cid:68)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:17)
(cid:85)(cid:85)
71
MID PENN BANCORP, INC.
Residential mortgage
Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction.
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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
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to-value level. Residential mortgage loans generally do not include prepayment penalties.
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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
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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 all underwriting conditions of the
secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the
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(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:85)tfolio, the interest rate on the residential mortgage would be increased to compensate for the added
portfolio risk.
d
t
Consumer, including home equity
Mid Penn offers a variety of secured consumer loans, including home equity, automobile, and deposit secured loans. In
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primary market and surrounding areas.
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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 five years.
r
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
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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
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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.
r
t
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.
72
MID PENN BANCORP, INC.
Payroll Protection Program (“PPP”) Loans
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Paycheck Protection Program (cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:83)(cid:72)(cid:85)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:79)(cid:76)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:68)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
financial institution to cover payroll, rent, and other business expenses during the COVID-19 pandemic. The PPP loans,
which are 100 percent guaranteed by the S(cid:80)(cid:68)(cid:79)(cid:79)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:37)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)-year term to maturity
(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:90)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:86)(cid:87)(cid:3)(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:51)(cid:51)(cid:51)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)
two-year term to maturity. The SBA may forgive the PPP loans if, among other criteria, at least 60 percent of the
proceeds are used for payroll costs. Also, the borrowers will not have to make any payments for six months following the
date of disbursement of the loan, though interest will continue to accrue during the deferment period. The SBA also
provided a processing fee per loan to financial institutions who participated in the PPP, with the amount of such fee
ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective credit. In
addition to the processing fees, Mid Penn recorded related loan origination costs. As of December 31, 2020, Mid Penn
had received $20,883,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Pen(cid:81)(cid:182)(cid:86)
participation in the PPP initiative. The balance of these fees that have not yet been realized as income, and the related
loan origination costs, are deferred in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs
and will be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of
each respective loan. During the year ended December 31, 2020, Mid Penn recognized $13,137,000 of PPP processing
fees within interest and fees on loans and leases on the Consolidated Statements of Income.
—
As of December 31, 2020, Mid Penn had $388,313,000 of net PPP loans outs
tanding ($396,059,000 of gross PPP loans,
net of deferred PPP processing fees of $7,746,000) with all of these loans being recorded in the commercial and industrial
loan portfolio classification.
n
On February 22, 2021, on a Form 8-(cid:46)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)
that through February 18, 2021 it had received 2021 Paycheck Protecti(cid:82)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:11)(cid:179)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:68)(cid:79)(cid:86)
(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:80)(cid:68)(cid:79)(cid:79)(cid:3) (cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:54)(cid:37)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:80)(cid:68)(cid:71)(cid:72)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:71)(cid:76)(cid:86)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:21)(cid:15)(cid:19)(cid:23)(cid:26)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)
customers totaling more than $290 million in loans. These businesses collectively employ more than 26,000
individuals. The 2021 PPP application window remains open as of the date of this report, and Mid Penn is continuing to
process existing applications for loans that have not yet been approved or disbursed, and is continuing to receive new
applications for submission to the SBA for additional PPP loan support of customers. See Note 27, COVID-19 Pandemic
Implications, for more details.
a
Allowance for Loan and Lease Losses
loan and lease losses, and (ii) the reserve
(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:180)(cid:12)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)
(cid:87)
(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)
inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded
(cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:75)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:88)(cid:81)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:86)
recorded in other liabilities on the consolidated balance sheet. The reserve for unfunded lending commitments was
$66,000 at December 31, 2020 and $80,000 at December 31, 2019.
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 off to the allowance, and subsequent recoveries, if any, are credited to the
allowance. All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that
the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally
charged off no later than 120 days past due on a contractual basis, or earlier in the event of bankruptcy or if there is an
amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance for
loan and lease losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb
any and all loan losses.
The allowance is maintained at a level considered by management to be adequate to provide for losses that can be
reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance. The allowance is
(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:83)(cid:68)(cid:86)(cid:87)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3) (cid:78)(cid:81)(cid:82)(cid:90)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:75)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:15)(cid:3) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3) (cid:86)(cid:76)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3)
(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:83)(cid:68)(cid:92)(cid:15)(cid:3)(cid:87)he 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.
73
MID PENN BANCORP, INC.
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.
(cid:40)(cid:68)(cid:70)(cid:75)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:86)(cid:87)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
using relevant information available at the time of the evaluation. Adjustments to the factors are supported through
documentation of changes in conditions and a narrative accompanying the allowance for loan loss calculation.
The unallocated component of the allowance for loan and lease losses covers several considerations that are not
specifically measurable through either 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,
including but not limited to (i) the unknown long-term impact of the ongoing COVID-19 pandemic which may not be
reflected in current portfolio performance, (ii) unpredictable changes in economic growth or business conditions in our
markets or for certain industries in which we have commercial loan borrowers, or (iii) unanticipated stresses to the values
(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:17)(cid:3)(cid:3)(cid:36)(cid:81)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)ty 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, including the unpredictable timing and amounts of charge-offs, the fact that historical loss
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:71)(cid:82)(cid:81)(cid:182)(cid:87)(cid:3)(cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92) correlate to future loss trends, and unexpected changes to specific-credit or general portfolio
future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors.
Mid Penn 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
flows method would generally indicate no operating income available for evaluating the collateral position; therefore,
most impaired loans are deemed to be collateral dependent.
t
(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86) classified as nonaccrual, included in the substandard rating, to be
(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:30)(cid:3) (cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)
whether reporting a specific allocation or not, are considered collateral dependent.
n
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
ordered if deemed necessary by
position and any instances of intervening liens. A new appraisal of the property will be
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.
n
d
aa
74
MID PENN BANCORP, INC.
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
n
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.
I(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)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.
d
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
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:80)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:76)(cid:73)(cid:3)(cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3)(cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:92).
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 (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71) (cid:82)(cid:81)(cid:3)
a case by case analysis of the impaired loans.
(cid:71)
Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of
collateral values over time or changing circumstances by some factor, either positive or negative, from the original values.
All collateral values will be assessed by management at least every twelve months for revaluation by an independent third
party.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, Mid Penn
does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for
impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.
y
Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted
d
concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a
(cid:87)(cid:85)(cid:82)(cid:88)(cid:69)(cid:79)(cid:72)(cid:71)(cid:3) (cid:71)(cid:72)(cid:69)(cid:87)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:3) (cid:68)(cid:3) (cid:87)(cid:72)(cid:80)(cid:83)(cid:82)(cid:85)(cid:68)(cid:85)(cid:92)(cid:3) (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:85)(cid:3) (cid:68)(cid:81)(cid:3) (cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
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 i(cid:81)(cid:87)(cid:82)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)
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
(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:90)(cid:72)(cid:68)(cid:78)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:71)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:44)(cid:73)(cid:3)(cid:88)(cid:81)(cid:70)(cid:82)(cid:85)(cid:85)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79) 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.
r
In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the
(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3) (cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:87)(cid:82)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:3) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3) (cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)
information available to them at the time of their examination, which may not be currently available to management.
(cid:37)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3) (cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:3) (cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:15)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
allowance for loan losses is adequate.
75
MID PENN BANCORP, INC.
As of December 31, 2020, Mid Penn had $388,313,000 of PPP loans outstanding, net of deferred fees, which are
guaranteed by the Small Business Administration and, thus, have no loss reserve allocated to that pool.
Acquired Loans
Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of
(cid:83)(cid:85)(cid:72)(cid:71)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:182) related allowance for loan losses. The balance of loans acquired at fair value and included in the
balance of loans and leases, net of unearned interest on the Consolidated Balance Sheets totaled $276,701,000 and
$414,498,000 as of December 31, 2020 and December 31, 2019, respectively. Determining the fair value of acquired
loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans
and discounting those cash flows at a market rate of interest.
Loans acquired with credit deterioration are accounted for under ASC 310-30, Loans and Debt Securities Acquired with
Deteriorated Credit Quality. For these loans, the excess of cash flows expected at acquisition over the estimated fair
value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.
The difference between contractually required payments at acquisition and the cash flows expected to be collected at
acquisition is referred to as the nonaccretable discount. The nonaccretable discount includes estimated future credit losses
expected to be incurred over the life of the loan. Subsequent decreases to the
expected cash flows will require Mid Penn
f
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
t
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
n
credit deterioration, Mid Penn establishes an allowance.
Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for
under ASC 310-20. These loans are initially recorded at fair value, and include credit and interest rate marks associated
with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to
yield, using the level yield method, over the estimated contractual lives of the loans. There is no allowance for loan losses
established at the acquisition date for acquired performing loans. An allowance for loan losses is recorded for any credit
deterioration in these loans subsequent to acquisition.
t
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 established at the time of acquisition. 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.
Loan-Level Interest Rate Swaps
Beginning during the second quarter of 2020, Mid Penn entered into loan-(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:86)(cid:90)(cid:68)(cid:83)(cid:86)(cid:3)(cid:11)(cid:179)(cid:86)(cid:90)(cid:68)(cid:83)(cid:86)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:72)
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
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)
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.
tt
76
MID PENN BANCORP, INC.
(i) Bank Premises and Equipment
q p
Land is carried at cost. Buildings, furniture, fixtures, equipment, land improvements, and leasehold improvements are
stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Building assets are depreciated using an estimated useful life of five to fifty years. Furniture,
fixtures, and equipment are depreciated using an estimated useful life of three to ten years. Land improvements are
depreciated over an estimated useful life of ten to twenty years. Leasehold improvements are depreciated using an
estimated useful life that is the lesser of the remaining life of the lease or ten to fifteen years. Maintenance and normal
repairs are charged to expense when incurred, while major additions and improvements are capitalized. Gains and losses
on disposals are reflected in current operations.
(j)
q p
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
, and, at
elated to a retail banking property which was closed and listed for sale on
December 31, 2020, totaled $210,000 r
December 31, 2020.
d equipment classified as held for sale as of December 31, 2019. During
2019, Mid Penn sold the land and facility formerly used as a full-service retail banking property. An impairment charge of
$105,000 was recorded during the year ended December 31, 2019 related to this property and is included in other
expenses on the Consolidated Statement of Income. There were no impairment charges recorded during the year ended
December 31, 2020.
There were no premises an
g
y
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(k) Leases
Mid Penn leases certain premises and equipment, and as of January 1, 2019, for all leases in effect upon adoption of
Accounting Standards Update 2016-02, Leases (Topic 842), as well as any leases commencing thereafter, Mid Penn has
recognized 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
(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:70)(cid:68)(cid:81)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:76)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:12)(cid:17)(cid:3)(cid:42)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:76)(cid:70)(cid:76)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)e
(cid:76)(cid:86)(cid:3) (cid:85)(cid:68)(cid:85)(cid:72)(cid:79)(cid:92)(cid:3) (cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3) (cid:68)(cid:79)(cid:79)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3) (cid:90)(cid:72)(cid:85)(cid:72)(cid:3) (cid:70)(cid:68)(cid:79)(cid:70)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:70)remental borrowing rate at lease
inception, on a collateralized basis, for a similar term. For operating leases existing prior to January 1, 2019, the rate for
the remaining lease term as of January 1, 2019 was used.
aa
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,
x
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
x
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
(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:182)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)
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.
(cid:48)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:81)(cid:72)(cid:90)(cid:3)(cid:70)(cid:82)(cid:81)tracts 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.
77
MID PENN BANCORP, INC.
(cid:49)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:74)(cid:88)(cid:68)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72) lease payments. Mid Penn
(cid:71)(cid:82)(cid:72)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)
or cause Mid Penn to incur additional financial obligations.
(l) Bank-Owned Life Insurance
Mid Penn is the owner and beneficiary of bank-(cid:82)(cid:90)(cid:81)(cid:72)(cid:71)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:11)(cid:179)(cid:37)(cid:50)(cid:47)(cid:44)(cid:180)(cid:12)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)
directors, as well as BOLI policies acquired through the Phoenix and First Priority acquisitions covering certain former
Miners Bank and First Priority Financial Corp. employees. The earnings from the BOLI policies are an asset that can be
liquidated, if necessary, with associated tax costs. However, Mid Penn intends to hold these policies and, accordingly,
Mid Penn has not provided deferred income taxes on the earnings from the increase in cash surrender value.
Mid Penn is also party to certain Split-Dollar Life Insurance Arrangements, and in accordance with GAAP, has accrued a
liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement, and a
liability for the future death benefit.
(m) Restricted Investments in Bank Stocks
Restricted investments in bank stocks represent required investments in the common stock of correspondent banks. As a
(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:43)(cid:47)(cid:37)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:36)(cid:87)(cid:79)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:72)(cid:85)(cid:86)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:11)(cid:179)(cid:36)(cid:38)(cid:37)(cid:37)(cid:180)(cid:12)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:82)(cid:90)(cid:81)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)
investments in these correspondent banks, which is carried at cost. The level of stock ownership in the FHLB is adjusted
by the FHLB throughout the year based upon the level of outstanding borrowings of the Bank (in general, a higher amount
of borrowings, requires a higher amount of FHLB stock ownership). During the years ended December 31, 2020, 2019,
and 2018 dividends received from the FHLB totaled $360,000, $424,000, and $275,000 respectively.
(n)
Income Taxes
Mid Penn accounts for income taxes in accordance with income tax accounting guidance ASC Topic 740, Income Taxes.
Current income tax accounting guidance results in two components of income tax expense: current and deferred. Current
income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted
tax law to the taxable income or excess of deductions over revenues. Mid Penn determines deferred income taxes using
the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects
of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are
recognized in the period in which they occur.
ff
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax
assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that
some portion or all of a deferred tax asset will not be realized.
t
Mid Penn accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax
position will be realized or sustained upon examination. The term more-likely-than-not means a likelihood of more than
50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes,
if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as
the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a
d
taxing authority that has full knowledge of all relevant information. The determination of wheth
er or not a tax position has
met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the
reporting date and is subject to management's judgment.
rr
Mid Penn recognizes interest and penalties on income taxes, if any, as a component of income tax expense.
(cid:44)(cid:81)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:68)(cid:91)(cid:3)(cid:38)(cid:88)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:45)(cid:82)(cid:69)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:55)(cid:38)(cid:45)(cid:36)(cid:180)(cid:12)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:72)(cid:81)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71), reducing the corporate tax rate applicable to
Mid Penn, for tax years beginning after 2017, to a flat 21 percent statutory federal tax rate, which remains the applicable
statutory federal tax rate through December 31, 2020.
78
MID PENN BANCORP, INC.
(o) 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 totaled $62,840,000 at both December 31, 2020 and December 31, 2019 and was
comprised of, (i) $39,744,000 related to the July 31, 2018 First Priority acquisition, (ii) $19,178,000 related to the January
8, 2018 Scottdale acquisition and (iii) $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 must be tested when such events occur. In making this goodwill potential impairment assessment,
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
ges in economic and operating conditions
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:80)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)
could result in goodwill impairment in future periods.
(cid:80)
rr
(cid:44)(cid:81)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:86)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:179)(cid:54)(cid:87)(cid:72)(cid:83)(cid:3)(cid:50)(cid:81)(cid:72)(cid:180)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)
determine whether the current or expected impact from the COVID-19 global pandemic resulted in any impairment to the
recorded value of its goodwill intangible asset. Based upon this goodwill analysis, Mid Penn management determined
that there was no impairment to its goodwill as a result of the COVID-19 pandemic. Additionally, Mid Penn did not
identify any impairment on its outstanding goodwill from its most recent annual evaluation, which was performed as of
October 31, 2020 using a qualitative analysis. Similar qualitative analyses were performed in 2019 and 2018 with no
goodwill impairment recognized.
(cid:68)(cid:68)
p
(p) Core Deposit Intangible
g
aa
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 intangibles was $4,311,000 and
$5,526,000 at December 31, 2020 and 2019, respectively. Amortization expense is reflected in the Consolidated
Statements of Income in intangible amortization and was $1,215,000, $1,367,000, and $1,188,000 for the years 2020,
2019, and 2018, respectively. The core deposit intangible for each respective acquisition (Phoenix in 2015, and Scottdale
and First Priority in 2018) is being amortized over a ten-year period staring at the respective acquisition date and using a
sum-of-the-(cid:92)(cid:72)(cid:68)(cid:85)(cid:182)(cid:86)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:17)(cid:3)(cid:3)(cid:38)(cid:82)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:72)(cid:89)(cid:72)(cid:85)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)
circumstances indicate the need for such evaluation. During 2020 and continuing through the period subsequent to
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:82)(cid:89)(cid:72)(cid:79)(cid:3)(cid:70)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3)(cid:11)(cid:179)(cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-(cid:20)(cid:28)(cid:180)(cid:12)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17) Accordingly, Mid Penn management
evaluated whether this COVID-19 event resulted in any impairment to the value of its acquired consumer demand and
savings deposit base. (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:81)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)
as a result of the pandemic or related factors. Supporting this assertion, as reflected in the Consolidated Balance Sheets as
of December 31, 2020 and December 31, 2019, Mid Penn has recognized substantial total deposit growth of $562,186,000
or over 29 percent during 2020, with none of this growth attributable to brokered deposits. Subsequent to December 31,
2020, and through the date of this filing, these increased deposit levels were sustained and continued to reflect no
evidence of impairment. Mid Penn did not identify any core deposit intangible
impairment in either 2019 or 2018.
r
t
(q) 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 cost to sell 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,
ff
foreclosed assets are carried at fair value less 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 December 31, 2020, Mid Penn had $134,000 of residential real estate
held in other real estate owned. There was also $13,000 in loans for which formal foreclosure proceedings were in
process at December 31, 2020. As of December 31, 2019, Mid Penn had $78,000 of residential real estate held in other
real estate owned and $84,000 in loans for which formal foreclosure proceedings were in process.
79
MID PENN BANCORP, INC.
(r) Mortgage Servicing Rights
g g
g
g
Mortgage servicing rights are recognized as assets upon the sale of a mortgage loan. A portion of the cost of the loan is
allocated to the servicing right based upon relative fair value. The fair value of servicing rights is based on the present
value of estimated future cash flows of mortgages sold, stratified by rate and maturity date. Assumptions that are
incorporated in the valuation of servicing rights include assumptions about prepayment speeds on mortgages and the cost
to service loans. Servicing rights are reported in core deposit and other intangibles in the Consolidated Balance Sheets
and are amortized over the estimated period of future servicing income to be receiv
ed on the underlying mortgage loans.
The carrying amount of mortgage servicing rights was $49,000 and $78,000 at December 31, 2020 and 2019, respectively.
Amortization expense is reflected in the Consolidated Statements of Income in intangible amortization and was $29,000,
Servicing rights are evaluated for impairment
$28,000, and $20,000 for the years 2020, 2019, and 2018, respectively.
based upon estimated fair value as compared to unamortized carrying value. No servicing right impairments were
identified or recorded for the three-year period ended December 31, 2020. The pr
incipal balance of loans serviced for
others was $9,384,000 and $12,357,000 for December, 31 2020 and 2019, respectively.
aa
r
f
ff
(s)
Investment in Limited Partnershipp
Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania. The carrying
(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:7)(cid:20)46,000 at December 31, 2020 and $190,000 at December
a
31, 2019, net of amortization, using the straight-line method and is reported in other assets on the Consolidated Balance
(cid:54)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:17)(cid:3) (cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3) (cid:72)(cid:91)(cid:83)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:79)(cid:82)(cid:86)(cid:86)(cid:3) (cid:76)(cid:86)(cid:3) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3) (cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:71)
$31,000 in low-income housing tax credits for the tax year ended December 31, 2019, and $76,000 for the tax year ended
December 31, 2018.
Mid Penn also owns a limited partnership interest in a low-income housing project to construct thirty-seven apartments
and common amenities in Dauphin County, Pennsylvania. The total investment in this limited partnership, net of
amortization, was $6,682,000 and $7,249,000 on December 31, 2020 and December 31, 2019, respectively, and was
included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units qualified for Federal
Low-In(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:43)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:55)(cid:68)(cid:91)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:47)(cid:44)(cid:43)(cid:55)(cid:38)(cid:86)(cid:180)(cid:12)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:23)(cid:21)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:38)(cid:82)(cid:71)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:27)(cid:25)(cid:15)(cid:3)(cid:68)(cid:86)
(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:7)(cid:26)(cid:15)(cid:24)(cid:26)(cid:28)(cid:15)(cid:19)(cid:19)(cid:19)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)
future payments under this commitment, are paid in installments over the course of the construction and completion
phases of the low-(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:75)(cid:82)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:40)(cid:68)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
approval of the installment payment certificate and continued compliance with the terms of the original partnership
agreement. 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, as the facilities became operational and began to be occupied beginning in
December 2019. The project has been conditionally awarded $8,613,000 in total LIHTCs by the Pennsylvania Housing
Finance Agency, with an annual LIHTC amount of approximately $861,000 to be awarded to Mid Penn in the year-ended
December 31, 2020 and each full year thereafter during the ten-(cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:17)(cid:3) (cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3)
initiate investments in the limited partnership interest was 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 deemed necessary. All such initial co
nditions were satisfied and
Mid Penn began funding the investment during 2018, and the investment is expected to be fully funded during 2021.
Similar to the recognition period of the tax credits, Mid Penn intends to amortize this low-income housing investment
using the cost amortization method over a ten-year period.
d
d
a
(t) Marketing and Advertising Costs
g
g
Marketing and advertising costs are expensed as incurred.
80
MID PENN BANCORP, INC.
(u) Postretirement Benefit Plans
Mid Penn follows the guidance in ASC Topic 715, Compensation-Retirement Benefits, related to postretirement benefit
plans. This guidance requires additional disclosures about defined benefit pension plans and other postretirement defined
benefit plans.
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. Liabilities of $461,000 a
a
nd $183,000, representing the
funded status of the plan, were included in other liabilities as of December 31, 2020 and December 31, 2019, respectively.
Additionally, for the years ended December 31, 2020 and December 31, 2019, Mid Penn recognized $3,000 and $34,000,
respectively, of settlement gains as a result of certain lump sum payouts to participants of the defined benefit pension
plan. The settlement gains were recorded in noninterest income as a component of other income for the years ended
December 31, 2020 and December 31, 2019.
a
tt
(v) Other Benefit Plans
A funded contributory defined-contribution plan is maintained for substantially all employees. The cost of the Mid Penn
defined contribution plan is charged to current operating expenses and is funded annually.
m
During 2018, Mid Penn assumed the 401(k) plans of Scottdale and First Priority. During the year ended December 31,
2020, the First Priority plan was terminated, and all remaining assets were either transferred to the Mid Penn 401(k) Plan
or distributed to former employee participants. The Scottdale 401(k) Plan continues to be (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:75)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)
resources and trust areas; however, since the January 2018 Scottdale acquisition, the plan has been frozen resulting in no
new participants added and no further contributions being made to the plans for the period subsequent to the acquisition
through December 31, 2020.
(w) Trust Assets and Income
Assets held by the Bank in a fiduciary or agency capacity for customers of the Trust Department are not included in the
consolidated financial statements since such items are not assets of the Bank. Trust assets under management totaled
$148,621,000 and $152,492,000 at December 31, 2020 and 2019, respectively. Most trust income is recognized on the
cash basis, which is not materially different than if it were reported on the accrual basis.
(x) Revenue Recognition
g
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
ff
service or transaction performed. In certain circumstances, noninterest income is reported net of associated expenses.
On January 1, 2018, Mid Penn adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606).
Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts
were not adjusted and continue to be reported in accordance with the previous accounting guidance under ASC 605.This
ASU establishes principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows
(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3) (cid:74)(cid:82)(cid:82)(cid:71)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3) (cid:3) (cid:36)(cid:54)(cid:56)(cid:3) (cid:21)(cid:19)(cid:20)(cid:23)-09 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.
d
aa
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:81)(cid:82)(cid:81)-interest income revenue streams of income from fiduciary and wealth management 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.
81
MID PENN BANCORP, INC.
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
(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:73)(cid:72)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:71)(cid:89)(cid:76)(cid:86)(cid:82)(cid:85)(cid:92)(cid:3) (cid:73)(cid:72)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:87)(cid:92)(cid:83)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:80)(cid:68)
(cid:68)(cid:68)
(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)
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.
(cid:87)
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
(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:76)(cid:80)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)
accounts.
aa
ATM Debit Card Interchange Income
ATM debit card interchange incom(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:72)(cid:71)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)
card payments networks. The interchange fee is calculated as a percentage of the total electronic funds transfer (EFT)
transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT
transaction, and the type of business at which the transaction was processed. Revenue is recognized daily as transactions
occur and interchange fees are subsequently processed. Payment for interchange activity is received primarily daily,
while some fees are aggregated and payment is received in the following month.
Merchant Services Income
Merchant services income is processed through a third-party provider 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 third party has collected the fee income from the merc
hant. Payment is primarily received
in the following month.
tt
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.
(y) Comprehensive Income
p
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income
(loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and
reclassification adjustments for realized gains and losses on securities available for sale included in net income. Mid Penn
has an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-
time employees. These plans utilize assumptions and methods to calculate the fair value of plan assets and recognizing
the overfunded and underfunded status of the plans on its consolidated balance sheet. Gains and losses, prior service costs
and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon
curtailment.
82
MID PENN BANCORP, INC.
The components of accumulated other comprehensive income (loss), net of taxes, are as follows:
(Dollars in thousands)
Unrealized Loss on
Securities
Defined Benefit
Plan
Accumulated Other
Comprehensive
(Loss) Income
Balance - December 31, 2020
Balance - December 31, 2019
$
$
(3) $
(128) $
(54) $
471 $
(57)
343
(z) Restricted Common Stock
(cid:50)(cid:81)(cid:3) (cid:48)(cid:68)(cid:92)(cid:3) (cid:25)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:23)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:21)(cid:19)(cid:20)(cid:23)(cid:3) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
issuance of awards that shall not exceed, in the aggregate, 100,000 shares of common stock. At the August 26, 2020
annual shareholder meeting, Mid Penn shareholders approved an amendment to the Plan to increase the number of shares
of common stock authorized for issuance from 100,000 shares to 200,000 shares. Awards under the Plan are limited to
employees and directors of the Company and the Bank selected by the Com
mm
pensation Committee of the Board of
m
Directors, to advance the best interest of Mid Penn and its shareholders.
Share-based compensation expense relating to restricted stock is recognized on a straight-line basis over the vesting
periods of the awards and is a component of salaries and benefits expense. The restricted stock is non-voting and non-
participating until the granted shares vest. Once the shares vest, the recipient has full voting rights and is entitled to
common stock dividends.
g
(aa) Earnings Per Share
Basic earnings per share are computed by dividing net income available to common shareholders by the weighted average
number of common shares outstanding during each of the years presented. Diluted earnings per common share is
computed 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 following data show the amounts used in computing basic and diluted earnings per common share.
(Dollars in thousands, except per share data)
Net income
Less: Dividends on Series D preferred stock
Net income available to common shareholders
Weighted average shares outstanding (basic)
Effect of dilutive unvested restricted stock grants
Weighted average shares outstanding (diluted)
2020
2019
2018
$
$
26,209 $
(cid:178)(cid:178)
26,209 $
17,701 $
(cid:178)(cid:178)
17,701 $
10,596
102
10,494
8,439,427 8,468,586 7,071,091
20,706
8,443,092 8,492,073 7,091,797
23,487
3,665
Basic earnings per common share
Diluted earnings per common share
$
$
3.11 $
3.10 $
2.09 $
2.09 $
1.48
1.48
There were no antidilutive shares at December 31, 2020, 2019, and 2018.
p y
(4) Acquisition of The Scottdale Bank and Trust Company
q
On January 8, 2018, Scottdale merged with and into Mid Penn Bank, with Mid Penn Bank continuing as the surviving entity.
Pursuant to the merger agreement, each share of Scottdale common stock issued and outstanding immediately prior to January 8,
2018 converted into the right to receive (i) $1,166 in cash without interest or (ii) 38.88 shares of Mid Penn common stock. As a
result, Mid Penn issued 1,878,827 shares of Mid Penn common stock with an acquisition date fair value of approximately
(cid:7)(cid:25)(cid:23)(cid:15)(cid:20)(cid:27)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:82)(cid:81)(cid:3) (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:27)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:27)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:22)(cid:23)(cid:17)(cid:20)(cid:25)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:68)(cid:86)(cid:75)(cid:3) (cid:82)(cid:73)(cid:3)
$2,792,000. Including an insignificant amount of cash paid in lieu of fractional shares, the fair value of total consideration paid
was $66,973,000.
83
MID PENN BANCORP, INC.
The assets and liabilities of Scottdale were recorded on the consolidated balance sheet of the Company at their estimated fair
value as of January 8, 2018, and their results of operations have been included in the consolidated income statement of the
Company since such date. Scottdale has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of
Scottdale included in the consolidated income statement since the acquisition date is impracticable to provide.
n
Included in the purchase price was goodwill of $19,178,000 and a core deposit intangible of $4,940,000. The core deposit
intangible will be amortized over a ten-(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:88)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:182)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:72)(cid:71)(cid:15)(cid:3)
but will be measured annually for impairment or more frequently if circumstances require. During the years ended December
31, 2020 and 2019, core deposit intangible amortization expense related to the Scottdale acquisition totaled $719,000 and
$808,000, respectively. Core deposit intangible amortization related to the Scottdale acquisition for the five years beginning
2021 through 2025 is estimated to be $629,000, $539,000, $449,000, $359,000, and $269,000 per year, respectively, and
$270,000 in total for the two years after 2025.
The allocation of the purchase price is as follows:
(Dollars in thousands)
Assets acquired:
Cash and cash equivalents
Investment securities
Restricted stock
Loans
Goodwill
Core deposit intangible
Premises and equipment
Foreclosed assets
Deferred income taxes
Accrued interest receivable
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Accrued interest payable
Other liabilities
Total liabilities assumed
Consideration paid
Cash paid
Fair value of common stock issued
$
67,817
114,039
97
70,769
19,178
4,940
1,496
11
1,050
989
266
280,652
209,981
16
3,682
213,679
$
66,973
$
2,792
64,181
84
MID PENN BANCORP, INC.
The following table summarizes the final estimated fair value of the assets acquired and liabilities and equity assumed in the
Scottdale transaction.
aa
(Dollars in thousands)
Total purchase price (consideration paid)
$
66,973
Net assets acquired:
Cash and cash equivalents
Investment securities
Restricted stock
Loans
Core deposit intangible
Premises and equipment
Foreclosed assets
Deferred income taxes
Accrued interest receivable
Other assets
Deposits
Accrued interest payable
Other liabilities
Goodwill
67,817
114,039
97
70,769
4,940
1,496
11
1,050
989
266
(209,981)
(16 )
(3,682)
47,795
19,178
$
In general, factors contributing to goodwill recognized as a result of the Scottdale 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 Scottdale
acquisition is not tax deductible.
ff
The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $70,769,000. The
table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loansa
acquired.
(Dollars in thousands)
Gross amortized cost basis at January 8, 2018
Market rate adjustment
Credit fair value adjustment on pools of homogeneous loans
n
Credit fair value adjustment on impaired loans
Fair value of purchased loans at January 8, 2018
$
$
71,809
601
(995)
(646)
70,769
The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the
contractual rates of the acquired loans. The credit adjustment made on pools of homogeneous loans represents the changes in
credit quality of the underlying borrowers from loan inception to the acquisition date. The credit adjustment on impaired loans
is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible
based on our expectations of future cash flows for each respective loan.
The information about the acquired Scottdale impaired loan portfolio as of January 8, 2018 is as follows:
(Dollars in thousands)
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretable discount)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Fair value of acquired loans
$
$
2,586
(1,010)
1,576
(305)
1,271
85
MID PENN BANCORP, INC.
The following table presents pro forma information as if the merger between Mid Penn Bank and Scottdale had been completed
on January 1, 2017. The pro forma information does not necessarily reflect the results of oper
ations that would have occurred
had Mid Penn Bank merged with Scottdale at the beginning of 2017. The supplemental pro forma earnings for the year ended
December 31, 2018 exclude both (i) adjustments to estimate the eight-day impact of Scottdale due to immateriality and
e Scottdale acquisition, of which
impracticality and (ii) $1,304,000 of merger related costs incurred in 2018 related to th
$205,000 was not deductible for federal income tax purposes. Scottdale merger related costs also included approximately
$518,000 of severance and retention bonus expenses. The pro forma financial information does not include the impact of
possible business model changes, nor does it consider any potential impacts of current
revenues, expense
t
t
efficiencies, or other factors.
r
market conditions or
y
d
rr
f
(Dollars in thousands, except per share data)
ff
Net interest income after loan loss provision
Noninterest income
Noninterest expense
Net income
Net income per common share
$
For the Year Ended
December 31, 2018
2018
2017
55,434 $
7,462
48,867
11,736
1.64
43,371
6,094
38,403
8,075
1.32
(5)
Acquisition of First Priority Financial Corp.
p
q
y
On July 31, 2018, Mid Penn completed its acquisition of First Priority, through the merger of First Priority with and into Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:79)(cid:92)-owned bank subsidiary, was merged
with and into Mid Penn Bank.
r
Pursuant to the merger agreement between Mid Penn and First Priority, the common shareholders of First Priority received
0.3481 shares of Mid Penn common stock for each share of First Priority common stock owned. Additionally, outstanding
options to purchase First Priority common stock at the time of the merger were converted into the right to receive cash at a
per-option value of $11.07 less the applicable exercise price, without interest. (cid:36)(cid:86)(cid:3) (cid:68)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)
fulfillment of the merger consideration requirements resulted in (i) the issuance of 2,320,800 shares of Mid Penn common
(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:81)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:71)(cid:68)(cid:87)(cid:72) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3) (cid:7)(cid:26)(cid:25)(cid:15)(cid:20)(cid:21)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)
common stock of $32.80 on July 31, 2018, (ii) the payment $3,801,000 related to cashing out the stock options, (iii) cash paid
of $6,000 in lieu of fractional shares, and (iv) the issuance of 3,404 shares of Fixed Rate Cumulative Perpetual Preferred
Stock, Series D totaling $3,404,000 in replacement of similarly valued preferred shares previously issued by First Priority.
Aggregately, this resulted in a combined fair value of total consider
ation paid of $79,929,000.
r
t
The assets and liabilities of First Priority were recorded on the consolidated balance sheet of the Company at their estimated
fair value as of July 31, 2018, and their results of operations have been included in the consolidated income statement of the
Company since such date. First Priority has been fully integrated into Mid Penn; therefore, the amount of revenue and
.
earnings of First Priority included in the consolidated income statement since the acquisition date is impracticable to provide
t
Included in the purchase price was $39,744,000 of goodwill, a core deposit intangible of $2,832,000, and a trade name
intangible of $205,000. The core deposit intangible will be am
ortized over a ten-(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:88)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:182)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:86)
basis. The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances
require. Core deposit intangible amortization expense recognized in 2020 and 2019 related to the First Priority acquisition
totaled $442,000 and $493,000, respectively. Core deposit intangible amortization expense related to the First Priority
acquisition for the five years beginning 2020 through 2024 is estimated to be $390,000, $339,000, $288,000, $236,000 and
$185,000 per year, respectively, and $244,000 in total for the three years after 2025.
a
f
86
MID PENN BANCORP, INC.
The allocation of the purchase price is as follows:
(Dollars in thousands)
Assets acquired:
Cash and cash equivalents
Investment securities
Restricted stock
Loans
Goodwill
Core deposit intangible
Trade name intangible
Premises and equipment
Foreclosed assets
Deferred income taxes
Accrued interest receivable
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Borrowings
Accrued interest payable
Other liabilities
Total liabilities assumed
Equity acquired:
Preferred stock
Total equity acquired and liabilities assumed
Consideration paid
Cash paid
Fair value of common stock issued
$
11,398
62,977
2,237
511,623
39,744
2,832
205
1,147
125
3,140
2,293
4,197
641,918
504,946
49,939
1,073
2,627
558,585
3,404
561,989
$
79,929
$
3,807
76,122
87
MID PENN BANCORP, INC.
The following table summarizes the final estimated fair value of the assets acquired and liabilities and equity assumed in the
First Priority transaction.
(Dollars in thousands)
Total purchase price (consideration paid)
$
79,929
Net assets acquired:
Cash and cash equivalents
Investment securities
Restricted stock
Loans
Core deposit intangible
Trade name intangible
Premises and equipment
Foreclosed assets
Deferred income taxes
Accrued interest receivable
Other assets
Deposits
Borrowings
Accrued interest payable
Other liabilities
Preferred stock
Goodwill
11,398
62,977
2,237
511,623
2,832
205
1,147
125
3,140
2,293
4,197
(504,946)
(49,939)
(1,073)
(2,627)
(3,404)
40,185
39,744
$
In general, factors contributing to goodwill recognized as a result of the First Priority 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 First
Priority acquisition is not tax deductible.
The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $511,623,000. 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 July 31, 2018
Market rate adjustment
Credit fair value adjustment on pools of homogeneous loans
Credit fair value adjustment on impaired loans
Fair value of purchased loans at July 31, 2018
$
521,644
(3,023)
(6,742)
(256)
$
511,623
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.
88
MID PENN BANCORP, INC.
The information about the acquired First Priority impaired loan portfolio as of July
d
31, 2018 is as follows:
(Dollars in thousands)
Contractually required principal and interest at acquisition
$
Contractual cash flows not expected to be collected (nonaccretable discount)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Fair value of acquired loans
$
1,855
(858)
997
(125)
872
The following table presents pro forma information as if the merger between Mid Penn and First Priority had been completed
on January 1, 2017. The pro forma information does not necessarily reflect the results of operations that would have
occurred had Mid Penn merged with First Priority at the beginning of 2017. The supplemental pro forma earnings for the
year ended December 31, 2018 excludes $3,486,000 of merger related costs related to the First Priority acquisition, of which
$714,000 was not deductible for federal income tax purposes. First Priority merger related costs also included approximately
$1,475,000 of severance and retention bonus expenses. 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)
Net interest income after loan loss provision
Noninterest income
Noninterest expense
Net income
Net income per common share
$
For the Year Ended
December 31,
2018
2017
66,370 $
7,845
55,689
15,469
1.84
55,082
6,748
49,268
9,170
1.40
(6) Investment Securities
issued by U.S. government agencies and state and political
The majority of the investment portfolio is comprised of securities issued by U.S. government agencies and state and political
subdivision obligations. The amortized cost,
on investment securities at December
r
31, 2020 and December 31, 2019 are as follows:
fair value, and unrealized gains and losses
g
(Dollars in thousands)
December 31, 2020
Available for sale securities:
Amortized Unrealized Unrealized
Cost
Gains
Losses
Fair
Value
Mortgage-backed U.S. government agencies
Corporate debt securities
$
Total available for sale securities
Held to maturity securities:
U.S. Treasury and U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Corporate debt securities
Total held to maturity securities
Total $
2 $
5,750
5,752
11,511
40,810
65,449
10,522
128,292
134,044 $
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
66
948
3,295
215
4,524
4,524 $
(cid:178)(cid:178) $
4
4
2
5,746
5,748
11,577
(cid:178)(cid:178)
41,743
15
68,738
6
10,736
1
132,794
22
26 $ 138,542
89
MID PENN BANCORP, INC.
(Dollars in thousands)
December 31, 2019
Available for sale securities:
U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Corporate debt securities
Total available-for-sale debt securities
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Total held-to-maturity debt securities
Total $
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
$
22,894 $
12,996
30
1,250
37,170
50,210
42,098
44,169
136,477
173,647 $
6 $
7
(cid:178)(cid:178)
9
22
46
95
1,193
1,334
1,356 $
70 $
113
(cid:178)(cid:178)
(cid:178)(cid:178)
183
22,830
12,890
30
1,259
37,009
50,036
220
42,091
102
45,349
13
335
137,476
518 $ 174,485
aa
Estimated fair values of debt securities are based on quoted market prices, where a
pplicable. If quoted market prices are not
t
available, fair values are based on quoted market prices of comparable instruments, adjusted for differences between the quoted
d
justed for differences between the quoted
instruments and the instruments being valued. Please refer to Note 15, Fair Value Measurement, for more information on the
fair value of investment securities.
g
During the fourth quarter of 2019, Mid Penn early adopted Accounting Standards Update (cid:11)(cid:179)(cid:36)(cid:54)(cid:56)(cid:180)(cid:12)(cid:3) (cid:21)(cid:19)(cid:20)(cid:28)-04, Codification
Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825,
Financial Instruments), and as part of the adoption, reclassified 113 held-to-maturity debt securities with an aggregate amortized
cost of $67,096,000 to the available for sale category. All 113 securities were subsequently sold during the fourth quarter and
Mid Penn recognized a pre-tax gain on the sales of $1,779,000. Please refer to Note 25, Recent Accounting Pronouncements,
for more information regarding the adoption of ASU 2019-04.
Investment securities having a fair value of $102,959,000 at December 31, 2020, and $147,283,000 at December 31, 2019, were
pledged primarily to secure public fund deposits. Mid Penn also obtains letters of credit from the Federal Home Loan Bank of
(cid:51)(cid:76)(cid:87)(cid:87)(cid:86)(cid:69)(cid:88)(cid:85)(cid:74)(cid:75)(cid:3)(cid:11)(cid:179)(cid:41)(cid:43)(cid:47)(cid:37)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:70)(cid:75)(cid:82)(cid:82)(cid:79)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)the
FHLB letters of credit. These FHLB letter of credit commitments totaled $288,950,000 as of December 31, 2020 and
$169,051,000 as of December 31, 2019.
90
MID PENN BANCORP, INC.
The following table presents gross unrealized losses and fair value of investments aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss position at December 31, 2020 and 2019.
(Dollars in thousands)
Less Than 12 Months
12 Months or More
Total
December 31, 2020
Available for sale securities:
Corporate debt securities
Total temporarily impaired
available for sale securities
Held to maturity securities:
Mortgage-backed
U.S. government agencies
State and political
subdivision obligations
Corporate debt securities
Total temporarily impaired
held to maturity securities
Total
Number
of
Securities
Fair
Value
Unrealized
Losses
Number
of
Securities
Fair
Value
Unrealized
Losses
Number
of
Securities
Fair
Value
Unrealized
Losses
2
2
8
2
1
11
13
$ 3,497 $
3,497
4
4
$ 5,336 $
15
801
449
6,586
$ 10,083 $
6
1
22
26
0
0
0
0
0
0
0
$ (cid:178)(cid:178) $
(cid:178)(cid:178)
$ (cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
$ (cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
2
2
8
2
1
11
13
$ 3,497 $
3,497
4
4
$ 5,336 $
15
801
449
6,586
$ 10,083 $
6
1
22
26
(Dollars in thousands)
Less Than 12 Months
12 Months or More
Total
Number
of
Securities
Fair
Value
Unrealized
Losses
Number
of
Securities
Fair
Value
Unrealized
Losses
Number
of
Securities
Fair
Value
Unrealized
Losses
December 31, 2019
Available for sale securities:
U.S. government agencies
Mortgage-backed
U.S. government agencies
Total temporarily impaired
available for sale securities
y
Held to maturity securities:
U.S. Treasury and
U.S. government agencies
Mortgage-backed
U.S. government agencies
State and political
subdivision obligations
Total temporarily impaired
held to maturity securities
Total
4
1
5
18
6
3
27
32
$ 4,652 $
24
7
$ 11,982 $
46
1,643
4
14
10,603
109
6,295
28
21
22,585
155
$ 29,024 $
219
1
$ 2,999 $
8,445
35
13
11,050
1,383
13
0
(cid:178)(cid:178)
1
67
(cid:178)(cid:178)
11
15
26
19
19
$ 16,634 $
70
12,246
28,880
113
183
$ 32,023 $
220
19,495
102
3
1,383
13
335
518
38,852
$ 45,147 $
267
295
14
35
14,049
$ 36,634 $
68
223
41
67
52,901
$ 81,781 $
91
MID PENN BANCORP, INC.
Management evaluates securities for other-than-temporary impairment at least on quarterly basis, and more frequently when economic
or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has
been less than cost, and the financial condition and near-term prospects of the issuer. In addition, for debt securities, Mid Penn
considers (a) whether management has the intent to sell the security, (b) it is more likely than not that management will be re
quired to
n
sell the security prior to its anticipated recovery, and (c) whether management expects to reco
ver the entire amortized cost basis. For
tt
equity securities, management considers the intent and ability to hold securities until recovery of unrealized losses.
At December 31, 2020, the majority of the unrealized losses on securities in an unrealized loss position were attributable to mortgage-
backed U.S. government agencies. At December 31, 2019, the majority of the unrealized losses on securities in an unrealized loss
position were attributed to U.S. government agencies and mortgage-backed U.S. government agencies.
Mid Penn had no securities considered by management to be other-than-temporarily impaired as of December 31, 2020 and December
31, 2019, and did not record any securities impairment charges in the respective periods ended on these dates. 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.
t
Gross realized gains and losses on sales of available-for-sale securities for the years ended December 31, 2020, 2019, and 2018 are
shown in the table below.
(Dollars in thousands)
Realized gains
Realized losses
Net gains
For the year ended December 31,
2019
2020
2018
$
$
479
(12 )
467
$
$
1,951
(73 )
1,878
$
$
150
(13)
137
The table below illustrates the maturity distribution of investment securities at amortized cost and fair value at December 31,
d
2020.
(Dollars in thousands)
December 31, 2020
Due in 1 year or less
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Due after 10 years
Mortgage-backed securities
Available for Sale
Fair
Value
Amortized
Cost
Held to Maturity
Fair
Value
Amortized
Cost
$
$
(cid:178)(cid:178) $
4,750
1,000
(cid:178)(cid:178)
5,750
2
5,752 $
(cid:178)(cid:178) $
4,747
999
(cid:178)(cid:178) $
5,746
2
(cid:178)(cid:178) $
(cid:178)(cid:178)
35,196
33,983
53,659
51,364
2,196
2,135 $
91,051
87,482
41,743
40,810
5,748 $ 128,292 $ 132,794
92
MID PENN BANCORP, INC.
7) Loans and Allowance for Loan and Lease Losses
(cid:55)(cid:75)(cid:72)(cid:3)(cid:87)(cid:92)(cid:83)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:15)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:179)(cid:83)(cid:68)(cid:86)(cid:86)(cid:180)(cid:3)(cid:11)(cid:81)(cid:72)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)9,084,000 as
of December 31, 2020 and $1,081,000 as of December 31, 2019(cid:12)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3) (cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:179)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:80)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3) (cid:68)(cid:81)d
(cid:179)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:180)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:3)(cid:68)(cid:86) (cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)20 and December 31, 2019, are as follows:
(Dollars in thousands)
December 31, 2020
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
(Dollars in thousands)
December 31, 2019
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
Pass
739,306 $
$
1,084,123
248,882
200,544
71,856
7,053
Total
Special Mention Substandard
9,928 $
1,708
(cid:178)(cid:178)
53
3
(cid:178)(cid:178)
11,692 $
752,354
3,120 $
13,825 1,099,656
248,913
201,841
74,224
7,053
20,585 $ 2,384,041
31
1,244
2,365
(cid:178)(cid:178)
$ 2,351,764 $
$
Total
Pass
326,573 $
913,001
181,650
235,252
68,224
7,786
Special Mention Substandard
9,558 $
2,426
(cid:178)(cid:178)
55
(cid:178)(cid:178)
(cid:178)(cid:178)
12,039 $
3,016 $
13,711
40
1,417
47
(cid:178)(cid:178)
339,147
929,138
181,690
236,724
68,271
7,786
18,231 $ 1,762,756
$ 1,732,486 $
The increase in deferred fees and costs from December 31, 2019 to December 31, 2020 was the result of collected but unearned
PPP loan processing fees related to the PPP loans which Mid Penn processed and disbursed during the second and third quarters
of 2020. PPP loans are included in commercial and industrial loans and are fully guaranteed by the SBA; therefore, all PPP
loans outstanding (net of the related defer(cid:85)(cid:72)(cid:71)(cid:3)(cid:51)(cid:51)(cid:51)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:12)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:179)(cid:83)(cid:68)(cid:86)(cid:86)(cid:180)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:3)(cid:68)(cid:86)(cid:3)
of December 31, 2020.
Mid Penn had no loans classified as (cid:179)(cid:39)oubtful(cid:180) as of December 31, 2020 and December 31, 2019.
93
MID PENN BANCORP, INC.
m
Impaired loans by loan portfolio class as of December 31, 2020 and 2019 are summarized as follows:
(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
q
With no related allowance recorded and acquired
with credit deterioration: *
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
With an allowance recorded:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
Total:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
December 31, 2020
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Recorded
Investment
December 31, 2019
Unpaid
Principal
Balance
Related
Allowance
$
899 $
8,215
31
818
2,365
(cid:178)(cid:178)
$
(cid:178)(cid:178) $
1,419
(cid:178)(cid:178)
323
(cid:178)(cid:178)
(cid:178)(cid:178)
931 $
8,574
34
842
2,395
(cid:178)(cid:178)
(cid:178)(cid:178) $
1,693
(cid:178)(cid:178)
568
13
(cid:178)(cid:178)
$
$
553 $
887
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
574 $
994
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,452 $
10,521
31
1,141
2,365
(cid:178)(cid:178)
1,505 $
11,261
34
1,410
2,408
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
533 $
274
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
533 $
274
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
890 $
7,973
40
817
25
(cid:178)(cid:178)
890 $
8,366
61
838
27
(cid:178)(cid:178)
3 $
1,423
(cid:178)(cid:178)
381
1
(cid:178)(cid:178)
68 $
1,708
(cid:178)(cid:178)
578
5
(cid:178)(cid:178)
(cid:178)(cid:178) $
338
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
380
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
893 $
9,734
40
1,198
26
(cid:178)(cid:178)
958 $
10,454
61
1,416
32
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
166
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
166
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
*
Loans acquired with credit deterioration are presented net of credit fair value adjustment.
94
MID PENN BANCORP, INC.
The average recorded investment of impaired loans and related interest income recogni
d
2020, 2019, and 2018 are summarized as follows:
zed for the years ended December 31,
(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
With no related allowance recorded and acquired
with credit deterioration:
q
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
With an allowance recorded:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
Total:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
December 31, 2020
Interest
Income
Recognized
Average
Recorded
Investment
December 31, 2019
Interest
Income
Recognized
Average
Recorded
Investment
December 31, 2018
Interest
Income
Recognized
Average
Recorded
Investment
$
1,136 $
9,379
44
998
1,801
(cid:178)(cid:178)
$
1 $
1,423
(cid:178)(cid:178)
361
1
(cid:178)(cid:178)
205 $
752
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,342 $
11,554
44
1,359
1,802
$
$
(cid:178)(cid:178) $
5
(cid:178)(cid:178)
26
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
5
(cid:178)(cid:178)
26
(cid:178)(cid:178)
178 $
3,363
32
854
27
(cid:178)(cid:178)
18 $
1,597
(cid:178)(cid:178)
991
4
(cid:178)(cid:178)
962 $
424
147
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,158 $
5,384
179
1,845
31
3 $
20
(cid:178)(cid:178)
30
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
3 $
20
(cid:178)(cid:178)
30
(cid:178)(cid:178)
(cid:178)(cid:178) $
3,048
(cid:178)(cid:178)
754
101
(cid:178)(cid:178)
23 $
1,414
(cid:178)(cid:178)
832
1
(cid:178)(cid:178)
4,437 $
541
367
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
4,460 $
5,003
367
1,586
102
(cid:178)(cid:178)
3
(cid:178)(cid:178)
29
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
23
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
26
(cid:178)(cid:178)
29
(cid:178)(cid:178)
Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of December 31, 2020 and 2019
are summarized as follows:
(Dollars in thousands)
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
2020
2019
1,452 $
10,520
31
679
2,365
15,047 $
894
9,800
40
711
26
11,471
$
$
If nonaccrual loans and leases had been current in accordance with their original terms and had been outstanding throughout the
period or since origination, if held for part of the period, Mid Penn would have recorded interest income on these loans of
$638,000, $333,000, and $536,000, in the years ended December 31, 2020, 2019,
and 2018, respectively. Mid Penn has no
commitments to lend additional funds to borrowers with impaired or nonaccrual loans.
n
95
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 December 31, 2020 and 2019 are summarized as follows:
(Dollars in thousands)
December 31, 2020
30-59
Days
Past Due
60-89
Days
Past Due
Greater
than 90
Days
Total
Past Due Current
Total
Loans
Loans
Receivable
> 90 Days
and
Accruing
$
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
Loans acquired with credit
q
deterioration:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
Total
$
365 $
1,096
(cid:178)(cid:178)
126
71
(cid:178)(cid:178)
1,017 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
22
6
1,377 $
7,668
(cid:178)(cid:178)
282
2,343
(cid:178)(cid:178)
2,759 $
8,764
(cid:178)(cid:178)
408
2,436
6
749,595 $
752,354 $
1,089,473 1,098,237
248,913
201,518
74,224
7,053
248,913
201,110
71,788
7,047
(cid:178)(cid:178)
9
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,667 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,411
1,402
(cid:178)(cid:178)
(cid:178)(cid:178)
168
168
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,045 $ 13,240 $ 15,952 $
(cid:178)(cid:178)
8
(cid:178)(cid:178)
155
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,419
(cid:178)(cid:178)
323
(cid:178)(cid:178)
(cid:178)(cid:178)
2,368,089 $ 2,384,041 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(Dollars in thousands)
December 31, 2019
30-59
Days
Past Due
60-89
Days
Past Due
Greater
than 90
Days
Total
Past Due Current
Total
Loans
Loans
Receivable
> 90 Days
and
Accruing
$
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
Loans acquired with credit
q
deterioration:
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Home equity
Consumer
Total
$
(cid:178)(cid:178) $
1,298
(cid:178)(cid:178)
145
34
5
1,059 $
11
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
3
890 $
7,819
(cid:178)(cid:178)
326
(cid:178)(cid:178)
(cid:178)(cid:178)
1,949 $
9,128
(cid:178)(cid:178)
471
34
8
337,195 $
918,587
181,690
235,872
68,236
7,778
339,144 $
927,715
181,690
236,343
68,270
7,786
(cid:178)(cid:178)
16
(cid:178)(cid:178)
5
(cid:178)(cid:178)
(cid:178)(cid:178)
1,503 $
(cid:178)(cid:178)
473
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
3
3
934
1,423
(cid:178)(cid:178)
(cid:178)(cid:178)
203
208
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,546 $ 10,175 $ 13,224 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
173
1
(cid:178)(cid:178)
3
1,423
(cid:178)(cid:178)
381
1
(cid:178)(cid:178)
1,749,532 $ 1,762,756 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
96
MID PENN BANCORP, INC.
Activity in the allowance for loan and lease losses for the years ended December 31, 2020, 2019, and 2018, and the recorded
investment in loans receivable as of December 31, 2020, 2019, and 2018 are as follows:
m
(Dollars in
thousands)
Dec. 31, 2020
Allowance for
loan and lease
losses:
Beginning
balance
Charge-offs
Recoveries
Provisions
Ending balance
Ending balance:
individually
evaluated for
impairment
Ending balance:
collectively
evaluated for
impairment
Loans
receivable:
Ending balance
Ending balance:
individually
evaluated for
impairment
Ending balance:
g
acquired with
credit
deterioration
Ending balance:
collectively
y
evaluated for
impairment
Commercial
and
industrial
Commercial
real
estate
Commercial
real estate -
construction
Lease
Financing
Residential
mortgage
Home
equity
Consumer Unallocated Total
$
2,341 $
(45)
3
767
3,066
6,259 $
(258)
1
2,653
8,655
51 $
(7)
2
88
134
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
417 $
442 $
(4 ) (cid:178)(cid:178)
3
3
62
13
507
429
2 $
(58)
27
30
1
3 $
(cid:178)(cid:178)
(cid:178)(cid:178)
587
590
9,515
(372)
39
4,200
13,382
533
274
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) (cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
807
$
2,533 $
8,381 $
134 $
(cid:178)(cid:178) $
429 $
507 $
1 $
590 $
12,575
$
752,354 $ 1,099,656 $
248,913 $
(cid:178)(cid:178) $
201,841 $ 74,224 $
7,053 $ (cid:178) $ 2,384,041
1,452
9,102
31
(cid:178)(cid:178)
818 2,365
(cid:178)(cid:178)
(cid:178)
13,768
(cid:178)(cid:178)
1,419
(cid:178)(cid:178)
(cid:178)(cid:178)
323 (cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)
1,742
$
750,902 $ 1,089,135 $
248,882 $
(cid:178)(cid:178) $
200,700 $ 71,859 $
7,053 $ (cid:178) $ 2,368,531
97
Commercial
and
industrial
Commercial
real estate
Commercial
real estate -
construction
Lease
Financing
Residential
mortgage
Home
equity
Consumer Unallocated
Total
MID PENN BANCORP, INC.
(Dollars in
thousands)
Dec. 31, 2019
Allowance for
loan and
lease
losses:
Beginning
balance
$
Charge-offs
Recoveries
Provisions
Ending balance
Ending balance:
individually
evaluated for
impairment
Ending balance:
collectively
evaluated for
impairment
$
2,391 $
(217)
45
122
2,341
4,703 $
(60)
82
1,534
6,259
75 $
(40)
(cid:178)(cid:178)
16
51
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
453 $
(29)
9
(16)
417
528 $
(18)
5
(73)
442
7 $
(64)
15
44
2
240 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(237 )
3
8,397
(428)
156
1,390
9,515
(cid:178)(cid:178)
166
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
166
2,341 $
6,093 $
51 $
(cid:178)(cid:178) $
417 $
442 $
2 $
3 $
9,349
Loans
receivable:
Ending balance $
Ending balance:
individually
evaluated for
impairment
Ending balance:
acquired with
credit
deterioration
Ending balance:
collectively
evaluated for
impairment
$
339,147 $
929,138 $
181,690 $
(cid:178)(cid:178) $
236,724 $ 68,271 $
7,786 $
(cid:178)(cid:178) $ 1,762,756
890
8,311
40
(cid:178)(cid:178)
817
25
(cid:178)(cid:178)
(cid:178)(cid:178)
10,083
3
1,423
(cid:178)(cid:178)
(cid:178)(cid:178)
381
1
(cid:178)(cid:178)
(cid:178)(cid:178)
1,808
338,254 $
919,404 $
181,650 $
(cid:178)(cid:178) $
235,526 $ 68,245 $
7,786 $
(cid:178)(cid:178) $ 1,750,865
98
MID PENN BANCORP, INC.
(Dollars in
thousands)
Dec. 31, 2018
Allowance for
loan and
lease
losses:
Beginning
Balance
$
Charge-offs
Recoveries
Provisions
Ending balance
Ending balance:
individually
evaluated for
impairment
Ending balance:
collectively
evaluated for
impairment
$
Commercial
and
industrial
Commercial
real
estate
Commercial
real estate -
construction
Lease
Financing
Residential
mortgage
Home
equity
Consumer Unallocated
Total
1,795 $
(142)
1
737
2,391
4,435 $
(64)
808
(476)
4,703
178 $
(40)
(cid:178)(cid:178)
(63)
75
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
428 $
(60)
(cid:178)(cid:178)
85
453
423 $
(185)
1
289
528
3 $
(37)
9
32
7
344 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(104 )
240
7,606
(528)
819
500
8,397
500
204
38
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
742
1,891 $
4,499 $
37 $
(cid:178)(cid:178) $
453 $
528 $
7 $
240 $
7,655
Loans
receivable:
Ending balance $
Ending balance:
individually
evaluated for
impairment
Ending balance:
acquired with
credit
deterioration
Ending balance:
collectively
evaluated for
impairment
$
286,518 $
861,369 $
142,173 $
53 $
253,543 $ 70,096 $ 10,315 $
(cid:178)(cid:178) $ 1,624,067
4,527
2,728
367
(cid:178)(cid:178)
811
30
(cid:178)(cid:178)
(cid:178)(cid:178)
8,463
28
1,563
(cid:178)(cid:178)
(cid:178)(cid:178)
1,208
4
(cid:178)(cid:178)
(cid:178)(cid:178)
2,803
281,963 $
857,078 $
141,806 $
53 $
251,524 $ 70,062 $ 10,315 $
(cid:178)(cid:178) $ 1,612,801
99
MID PENN BANCORP, INC.
The recorded investments in troubled debt restructured loans at December 31, 2020 and 2019 are as follows:
(Dollars in thousands)
December 31, 2020
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
(Dollars in thousands)
December 31, 2019
Commercial and industrial
Commercial real estate
Commercial real estate - construction
Residential mortgage
Pre-Modification
Outstanding Recorded
Investment
Post-Modification
Outstanding Recorded
Investment
$
$
8 $
1,806
40
728
2,582 $
$
$
3 $
2,562
40
677
3,282 $
Pre-Modification
Outstanding Recorded
Investment
Post-Modification
Outstanding Recorded
Investment
Recorded Investment
6
933
31
510
1,480
8 $
1,707
40
725
2,480 $
Recorded Investment
3
1,705
40
490
2,238
3 $
2,463
40
675
3,181 $
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:87)(cid:85)(cid:82)(cid:88)(cid:69)(cid:79)(cid:72)(cid:71)(cid:3) (cid:71)(cid:72)(cid:69)(cid:87)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3) (cid:68)(cid:87)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)20 totaled $1,480,000, and included three accruing impaired
residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $463,000. The
remaining $1,017,000 of troubled debt restructurings were attributable to nine loans among seven relationships which were
classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. One
large relationship accounted for $535,000 of the total $1,017,000 in nonaccrual impaired troubled debt restructured loans. As of
nt
December 31, 2020, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were curre
n
with respect to their associated forbearance agreements. There were also no defaults on troubled debt restructured loans withi
twelve months of restructure during 2020.
d
t
d
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:87)(cid:85)(cid:82)(cid:88)(cid:69)(cid:79)(cid:72)(cid:71)(cid:3) (cid:71)(cid:72)(cid:69)(cid:87)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3) (cid:68)(cid:87)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:28)(cid:3) (cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:72)(cid:71)(cid:3) (cid:7)(cid:21)(cid:15)(cid:21)(cid:22)(cid:27)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:3) (cid:68)nd included three accruing impaired
residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $490,000. The
remaining $1,748,000 of troubled debt restructurings was attributable to eight loans among five relationships which were
classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. One
large relationship accounted for $1,252,000 of the total $1,748,000 in nonaccrual impaired troubled debt restructured loans. As
of December 31, 2019, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were
defaults on troubled debt restructured loans
current with respect to their associated forbearance agreements. There were also no
within twelve months of restructure during 2019.
ff
Mid Penn entered into forbearance agreements on all loans currently classified as troubled debt restructurings and all of these
agreements have resulted in additional principal repayment. The terms of these forbearance agreements vary whereby principal
payments have been decreased, interest rates have been reduced and/or the loan will be repaid as collateral is sold.
There were three loans modified in 2020, two loans modified in 2019, and one loan modified in 2018 that resulted in troubled
debt restructurings. The following table summarizes the loans whose terms have been modified resulting in troubled debt
restructurings during the years ended December 31, 2020, 2019, and 2018.
d
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
$
$
593 $
51
644 $
Recorded
Investment
535
47
582
593 $
51
644 $
(Dollars in thousands)
December 31, 2020
Commercial real estate
Residential mortgage
Number
of
Contracts
1
2
3
100
MID PENN BANCORP, INC.
(Dollars in thousands)
December 31, 2019
Commercial and industrial
Commercial real estate - construction
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Recorded
Investment
$
$
3 $
40
43 $
3 $
40
43 $
3
40
43
Number
of
Contracts
1
1
2
(Dollars in thousands)
December 31, 2018
Commercial real estate
Number
of
Contracts
1
1
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
$
$
270 $
270 $
Recorded
Investment
266
266
270 $
270 $
The CARES Act, signed into law in March 2020, along with a joint agency statement issued by banking agencies, provided that
short-term modifications made in response to COVID-19 to current and performing borrowers did 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 were granted for a period of three months, but some as long as six months,
(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3) (cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3) (cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:3) (cid:82)(cid:81)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)(cid:86)
modified under the CARES Act during the deferral period. During 2020, Mid Penn had provided loan modifications meeting
the CARES Act qualifications to over 1,000 borrowers. Mid Penn remains in communication with each of these borrowers to
assess the ongoing credit status of the bor(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:68)(cid:87)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)
time if warranted for the specific situation. As of December 31, 2020, the principal balance of loans remaining in this CARES
Act qualifying deferment status totaled $11,681,000, or less than 1 percent of the total loan portfolio. Most borrowers granted a
CARES Act deferral have returned to regular payment status.
t
The following table provides activity for the accretable yield of purchased impaired loans for the years ended December 31,
2020 and 2019.
(Dollars in thousands)
Accretable yield, beginning of period
Accretable yield amortized to interest income
Accretable yield, end of period
For the year ended December 31,
2020
2019
$
$
89 $
(49 )
40 $
309
(220)
89
The Bank has granted loans to certain of its executive officers, directors, and their related interests. The aggregate amount of
During 2020, $6,511,000 of new
these loans was $12,567,000 and $11,220,000 at December 31, 2020 and 2019, respectively.
ans were past due, in nonaccrual status,
aa
loans and advances were extended and repayments totaled $5,164,000. None of these lo
or restructured at December 31, 2020.
r
101
MID PENN BANCORP, INC.
(8) Bank Premises and Equipment
q p
At December 31, 2020 and 2019, bank premises and equipment are as follows:
(Dollars in thousands)
Land
Buildings
Furniture, fixtures, and equipment
Leasehold improvements
Construction in progress
Total cost
Less accumulated depreciation
Total bank premises and equipment
2020
2019
4,333 $
19,863
13,890
1,680
351
40,117
(15,231)
24,886 $
3,911
18,141
12,491
1,486
2,001
38,030
(13,093)
24,937
$
$
The construction in progress as of December 31, 2020 consisted primarily of computer equipment upgrades to be placed in
(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)location, as well as some facility renovations in process of completion at year-
end. The construction in progress as of December 31, 2019 included furniture and fixtures, computer equipment, and facility
improvements associated with a commercial building in Harrisburg, Pennsylvania that will serve as a central training and
meeting facility for Mid Penn. The renova
January 2020 and Mid Penn employees took
occupancy at that time.
occupancy at that time.
tions were substantially completed in
y
g
y
y
y
Depreciation expense was $3,204,000 in 2020, $2,815,000 in 2019, and $2,395,000 in 2018.
(9) Leases
On January 1, 2019, Mid Penn adopted ASU No. 2016-02, Leases (Topic 842), 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. As of
the January 1, 2019 adoption date, Mid Penn leased twenty-four branch locations under non-cancelable operating leases, which
(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:3) (cid:68)(cid:87)(cid:3) (cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3) (cid:71)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:22)(cid:24)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
parties. Subsequent to the adoption of Topic 842, Mid Penn entered into a lease agreement for one facility under a non-
cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039.
In 2016, Mid Penn entered into two subleasing agreements with unrelated parties on one of its
properties under an operating
h
lease. Both subleases included escalation clauses. The first sublease agreement began on April 1, 2016, while the second
sublease began on July 1, 2016. One sublease was terminated during the first quarter of 2019 due to the bankruptcy of the
tenant. The remaining sublease ends on March 31, 2021.
As a result of the adoption of ASU 2016-02, the remaining balance of a deferred sale/leaseback gain originated in 2017 was
eliminated through an opening adjustment to retained earnings. The adoption of this standard also resulted in an increase to
both other assets and other liabilities to record right-of-(cid:88)(cid:86)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:85)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73) (cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)
leased facilities. Please reference Note 25, Recent Accounting Pronouncements, for more information.
(cid:73)
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) on the Consolidated Balance
Sheet.
There were no sale and leaseback transactions or leveraged leases as of December 31, 2020. Mid Penn had executed a lease
agreement for a full-service branch location commencing February 1, 2021.
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 December 31, 2020
and December 31, 2019.
102
MID PENN BANCORP, INC.
(Dollars in thousands)
December 31, 2020
December 31, 2019
Right of use asset
Lease liability
Weighted average remaining lease term (in years)
Weighted average discount rate
$
$
Operating Leases
10,157
11,200
8.05
3.30 %
$
$
Finance Lease
Operating
Leases
Finance Lease
$
$
3,267
3,467
18.17
3.81 %
$
$
11,442
12,544
8.64
3.33 %
3,447
3,551
19.17
3.81 %
A summary of lease costs during the years ended December 31, 2020 and December 31, 2019 is presented below. Interest
expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy
(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72).
(Dollars in thousands)
Finance lease cost:
Amortization of right-of-use asset
Interest expense on lease liability
Total finance lease cost
Operating lease cost
Short-term and equipment lease costs
Variable lease cost
Sublease income
Total lease costs
$
$
December 31, 2020
December 31, 2019
Year Ended
$
180
133
313
2,061
40
(cid:178)(cid:178)
(21 )
$
2,393
150
113
263
2,077
55
(cid:178)(cid:178)
(24 )
2,371
A summary of cash paid for amounts included in the measurement of lease liabilities is presented below.
(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Year Ended
December 31, 2020
December 31, 2019
$
$
133
2,105
83
113
2,181
46
A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total
operating and finance lease liability amounts is presented below.
(Dollars in thousands)
Lease payments due:
Within one year
After one but within two years
After two but within three years
After three but within four years
After four but within five years
After five years
Total undiscounted cash flows
Discount on cash flows
Total lease liability
December 31, 2020
Operating Leases
Finance Lease
$
$
$
1,942
1,909
1,660
1,602
1,212
4,466
12,791
(1,591)
$
11,200
217
217
217
252
259
3,732
4,894
(1,427)
3,467
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:85)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) and finance leases as
of December 31, 2020, including a breakdown of the sublease rental income and future minimum payments owed to related
parties.
103
MID PENN BANCORP, INC.
(Dollars in thousands)
2021
2022
2023
2024
2025
thereafter
$
Lease
Obligation
2,445
2,426
2,179
2,013
1,632
8,543
19,238
As of December 31, 2020
Sublease
Rental
Income
Net
Rental
Expense
21
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
21 $
2,424
2,426
2,179
2,013
1,632
8,543
19,217
$
The rental expense paid to related parties was $269,000 in 2020, $279,000 in 2019, and $320,000 in 2018. The future minimum
payments to related parties are $274,000 (2021), $274,000 (2022), $274,000 (2023), $274,000 (2024), $185,000 (2025), and
$1,349,000 thereafter.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:85)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)
31, 2019, including a breakdown of the sublease rental income and future minimum payments owed to related parties.
(Dollars in thousands)
2020
2021
2022
2023
2024
thereafter
$
As of December 31, 2019
Sublease
Rental
Income
Net
Rental
Expense
24
6
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
$
30
2,534
2,302
2,183
1,891
1,717
9,549
20,176
$
Lease
Obligation
2,558
2,308
2,183
1,891
1,717
9,549
20,206
Rental expense in connection with leases was $2,371,000 in 2019 and $1,672,000 in 2018.
(10) Deposits
p
At December 31, 2020 and 2019, time deposits amounted to $417,245,000 and $477,422,000, respectively. Interest expense on
certificates of deposit amounted to $8,558,000, $9,223,000, and $4,906,000 for the years ended December 31, 2020, 2019, and
2018, respectively. The aggregate amount of demand deposit overdrafts that were reclassified as loans were $116,000 at
December 31, 2020, compared to $84,000 as of December 31, 2019.
Time deposits at December 31, 2020 mature as follows:
Time Deposits
Less than $250,000 $250,000 or more
42,285
$
18,072
4,874
2,114
782
(cid:178)(cid:178)
68,127
210,964 $
69,800
47,412
8,475
11,866
601
349,118 $
$
(Dollars in thousands)
Maturing in 2021
Maturing in 2022
Maturing in 2023
Maturing in 2024
Maturing in 2025
Maturing thereafter
104
MID PENN BANCORP, INC.
Mid Penn had no brokered certificates of deposits as of December 31, 2020 compared to brokered certificates of deposits
totaling $13,326,000 at December 31, 2019. The decrease in the balance during 2020 was the result of a portfolio of brokered
certificates of deposit assumed in the First Priority and Phoenix acquisitions which matured and were not replaced.
f
tt
Deposits and other funds from related parties held by Mid Penn at December 31,
rr
$54,360,000, respectively.
2020 and 2019 amounted to $60,125,000 and
(11) Short-term Borrowingsg
Short-term FHLB and Correspondent Bank Borrowings
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 our investment in the common stock of the FHLB and by a
blanket lien on selected loan receivables comprised principally of real estate secured loans (cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82) totaling
$1,222,193,000 at December 31, 2020. The Bank had short-(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:43)(cid:47)(cid:37)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:88)(cid:81)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)
borrowing capacity of $490,048,000 (equal to $852,568,000 of maximum borrowing capacity less letter of credit and other
FHLB advances outstanding) at December 31, 2020 upon satisfaction of any stock
purchase requirements of the FHLB. No
r
draws were outstanding on short-term FHLB or correspondent bank borrowings as of December 31, 2020 or 2019.
dd
n
The Bank also has unused overnight lines of credit with other correspondent banks amounting to $35,000,000 at December 31,
t
2020. No draws have been made on these lines of credit and on December 31, 2020 and 2019, the balance was zero.
PPPLF Borrowings
The entire balance of short-term borrowings of $125,617,000 at December 31, 2020 consisted of funding obtained from the
t
(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:68)(cid:92)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3) (cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3) (cid:47)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:47)(cid:41)(cid:180)(cid:12)(cid:17) The PPPLF allows 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%. Draws of PPPLF funds must be repaid to the Federal Reserve immediately after the specific PPP loans
collateralizing the related draws are repaid to the Bank. Mid Penn had
no short-term PPPLF borrowings as of December 31,
2019.
aa
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:88)(cid:87)(cid:79)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:82)(cid:85)(cid:87)(cid:85)(cid:85) -term borrowed funds at or for the years ended December 31,
2020 and 2019. The maximum balance represents the highest indebtedness for each category of short-term borrowed funds at
any month-end during each of the years shown.
ff
(Dollars in thousands)
Federal funds purchased:
Balance at year end
Weighted average rate at year end
Maximum month-end balance
Average daily balance during the year
Weighted average rate during the year
FHLB short-term borrowings:
Balance at year end
Weighted average rate at year end
Maximum month-end balance
Average daily balance during the year
Weighted average rate during the year
FRB PPPLF borrowings:
Balance at year end
Weighted average rate at year end
Maximum month-end balance
Average daily balance during the year
Weighted average rate during the year
105
December 31,
2020
2019
$
$
$
$
$
$
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $ 37,573
3,739
(cid:178)(cid:178) $
2.97 %
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $ 54,667
(cid:178)(cid:178) $ 12,819
(cid:178)(cid:178)
2.80 %
$ 125,617 $
0.35 %
$ 203,937 $
$ 106,233 $
0.35 %
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
MID PENN BANCORP, INC.
g
(12) Long-term Debt
As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity. As of
December 31, 2020, and 2019, the Bank had long-term debt outstanding in the amount of $75,115,000 and $32,903,000,
respectively, consisting of FHLB fixed rate instruments, and a finance lease liability executed in 2019.
The FHLB fixed rate instruments are secured under the terms of a blanket collateral agreement with the FHLB consisting of
FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans. Mid Penn also obtains letters of
credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of
the FHLB letters of credit. These FHLB letter of credit commitments totaled $288,950,000 as
of December 31, 2020 and
$169,051,000 as of December 31, 2019.
t
During the first quarter of 2019, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease,
which commenced March 1, 2019 and expires February 28, 2039 and is included in long-term debt on the Consolidated Balance
Sheets. Please reference Note 9, Leases, for more information (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81).
The following table presents a summary of long-term debt as of December 31, 2020 and December 31, 2019.
t
(Dollars in thousands)
FHLB fixed rate instruments:
Due June 2020, 1.72%
Due July 2020, 2.45%
Due August 2020, 3.05%
Due September 2020, 2.38%
Due October 2020, 3.06%
Due November 2020, 2.32%
Due December 2020, 1.78%
Due December 2020, 2.31%
Due April 2022, 0.86343%
Due August 2026, 4.80%
Due February 2027, 6.71%
Less: fair value adjustments on debt assumed in acquisitions
Total FHLB fixed rate instruments
Lease obligations included in long-term debt
Total long-term debt
$
$
At December 31,
2020
2019
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
70,000
1,606
42
(cid:178)(cid:178)
71,648
3,467
75,115 $
2,000
5,000
5,000
2,500
5,000
3,000
2,000
3,000
(cid:178)(cid:178)
1,846
47
(41)
29,352
3,551
32,903
During 2020, Mid Penn prepaid $25,000,000 of FHLB fixed rate instruments and recognized prepayment penalties of $165,000
that is included in other expenses on the Consolidated Statement of Income for the year ended December 31, 2020. During
2019, Mid Penn prepaid $20,000,000 of FHLB fixed rate instruments and recognized a prepayment penalty of $93,000 for the
year ended December 31, 2019. No prepayment penalties were recognized during the year ended December 31, 2018.
The aggregate principal amounts due on FHLB fixed rate instruments subsequent to December 31, 2020 are $258,000 (2021),
$70,271,000 (2022), $284,000 (2023), $299,000 (2024), $313,000 (2025) and $223,000 thereafter.
r
(13) Subordinated Debt
Subordinated Debt Issued December 2020
On December 22, 2020, Mid Penn Bancorp, Inc. (cid:11)(cid:179)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:180)(cid:12)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)
for and sold, at 100% of their principal amount, an aggregate of $12,150,000 of its Subordinated Notes due December 2030 (the
(cid:179)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)accredited investors. The December 2020 Notes are treated as Tier 2
capital for regulatory capital purposes.
r
106
MID PENN BANCORP, INC.
aa
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
pal balance during the period the
(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3) (cid:51)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3) (cid:53)(cid:68)(cid:87)(cid:72), provided that the interest rate applicable to the outstanding princi
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 (A) all
or any portion of the December 2020 Notes cease to be deemed Tier 2 Capital, (B) interest on the December 2020 Notes fails to
be deductible for United States federal inco(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:11)(cid:38)(cid:12)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:179)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:180)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)
(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:72)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3)(cid:74)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:20)(cid:19)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:182)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)
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.
a
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 December 31, 2020.
Subordinated Debt Issued March 2020
On March 20, 2020, Mid Penn entered into agreements with accredited investors who purchased $15,000,000 aggregate
(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3) (cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:71)(cid:88)(cid:72)(cid:3) (cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:21)(cid:19)(cid:22)(cid:19) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17) The March 2020 Notes are
treated as Tier 2 capital for regulatory capital purposes.
ff
The March 2020 Notes bear interest at a rate of 4.0% per year for the f(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)
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.
d
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 December 31, 2020.
Subordinated Debt Issued December 2017
On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount
(cid:82)(cid:73)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:71)(cid:88)(cid:72)(cid:3) (cid:21)(cid:19)(cid:21)(cid:27)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:21)(cid:19)(cid:20)(cid:26)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:87)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:55)(cid:76)(cid:72)(cid:85)(cid:3) (cid:21) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)
purposes. The offering closed in December 2017.
The 2017 (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:24)(cid:17)(cid:21)(cid:24)(cid:8)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)(cid:51)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)
Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no times 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 t(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:22)(cid:19)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:182)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:76)(cid:73)(cid:29)(cid:3)(cid:11)(cid:76)(cid:12)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)
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.
aa
107
MID PENN BANCORP, INC.
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. As of December 31,
2020 and 2019, related parties held $1,450,000 of the 2017 Notes.
Subordinated Debt Issued December 2015
(cid:50)(cid:81)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71)(cid:3)(cid:7)(cid:26)(cid:15)(cid:24)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:54)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:24)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:21)(cid:19)(cid:20)(cid:24)
(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3) Eighty-percent of the balance of the 2015 Notes are treated as Tier 2 capital for regulatory capital purposes as of
December 31, 2020.
(cid:73)(cid:73)
The 2015 (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:24)(cid:17)(cid:20)(cid:24)(cid:8)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:45)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)(cid:51)(cid:85)(cid:76)(cid:80)(cid:72)
Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no times be less than
4.0%. Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, and began 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
(cid:90)(cid:75)(cid:82)(cid:79)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:22)(cid:19)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:182)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)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.
aa
(cid:43)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)
(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:182)(cid:86)(cid:15)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:85)(cid:88)(cid:83)(cid:87)(cid:70)(cid:92)(cid:15)(cid:3)(cid:76)(cid:81)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)p or similar event. As of December 31, 2020 and
2019, related parties held $1,930,000 of the 2015 Notes.
Subordinated Debt Assumed July 2018 with the First Priority Acquisition
On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the
(cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17) In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value
premium of $247,000. The notes were intended to be treated as Tier 2 capital for regulatory reporting purposes.
The First Priority Notes agreements were entered into by First Priority on November 13, 2015 with five accredited investors
pursuant to which First Priority issued subordinated notes totaling $9,500,000. The First Priority Notes had a maturity date of
November 30, 2025, and paid interest at a fixed rate of 7.00% per annum. The Notes were non-callable for an initial period of
five years and include provisions for redemption pricing between 101.5% and 100.5% of the liquidation value if called after
five years but prior to the stated maturity date.
On December 18, 2020, Mid Penn redeemed this $9,500,000 in subordinated debt assumed in 2018 in conjunction with Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:85)st Priority subordinated debt was redeemed promptly following the expiration
of the noncallable period and upon receipt of the required regulatory approval. Mid
Penn recognized redemption pricing fees of
$143,000 related to the early redemption, which are included in other noninterest expenses.
f
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 liability. The unamortized debt issuance costs associated with
the 2015 Notes and the 2017 Notes were collectively $70,000 at December 31, 2020 and $103,000 at December 31, 2019.
(14) Loan-Level Interest Rate Swaps
Mid Penn enters into loan-level interest rate swaps with certain qualifying commercial loan customers to meet their interest rate
risk management needs. Mid Penn simultaneously enters into interest rate swaps with dealer counterparties, with identical
notional amounts and terms. The net result of the offsetting customer and dealer counterparty swap agreements is that the
(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3) (cid:83)(cid:68)(cid:92)(cid:86)(cid:3) (cid:68)(cid:3) (cid:73)(cid:76)(cid:91)(cid:72)(cid:71)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3) (cid:68)(cid:3) (cid:73)(cid:79)(cid:82)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:17)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:79)(cid:82)(cid:68)(cid:81)-level interest rate swaps are
considered derivatives but are not accounted for using hedge accounting.
108
MID PENN BANCORP, INC.
The fair value, notional amount, and collateral posted related to six outstanding loan-level interest rate swaps are presented
below.
(Dollars in thousands)
Interest Rate Swap Contracts - Commercial Loans:
December 31, 2020
December 31, 2019
Fair Value (a)
Notional Amount
Cash Collateral Posted (b)
489 $
22,331
500
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(a)
(b)
Included in other assets on the Consolidated Balance Sheets
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
uu
Balance Sheets, and the collateral pledged to support such agreements are presented below.
(Dollars in thousands)
Interest Rate Swap Contracts - Commercial Loans:
Gross amounts recognized
Gross amounts offset
Net Amounts Presented in the Consolidated Balance
Sheets
Gross amounts not offset:
Financial instruments
Cash collateral
Net Amounts
December 31, 2020
December 31, 2019
$
$
489 $
489
(cid:178)(cid:178)
(cid:178)(cid:178)
500
500 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(15) 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. The guidance also includes information on
identifying circumstances when a transaction may not be considered orderly.
Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine
t
or liability in relation to normal
whether there has been a significant decrease in the volume and level of activity for the asset
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.
aa
r
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 mar
e
rr
ket participants would use in pricing th
a
asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect
(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:90)(cid:81)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81) 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
(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:90)(cid:72)(cid:86)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:81)(cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:83)(cid:88)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:36)(cid:81)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:182)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:75)(cid:76)(cid:72)(cid:85)(cid:68)(cid:85)(cid:70)(cid:75)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3) the
lowest level of input that is significant to the fair value measurement or disclosure. The fair value hierarchy is as follows:
r
109
MID PENN BANCORP, INC.
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).
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 for the years ended December 31, 2020 or 2019.
The following tables illustrate the assets measured at fair value on a recurring basis segregated by hierarchy fair value levels:
(Dollars in thousands)
Assets:
Available-for-sale debt securities:
Mortgage-backed U.S. government agencies
Corporate debt securities
Other assets:
Equity securities
Interest rate swap agreements
(Dollars in thousands)
Assets:
Available-for-sale debt securities:
U.S. government agencies
Mortgage-backed U.S. government agencies
State and political subdivision obligations
Corporate debt securities
Other assets:
Equity securities
Fair value measurements at December 31, 2020
using:
Significant
other
observable
inputs
Significant
unobservable
inputs
Quoted prices
in active
markets
(Level 1)
(Level 2)
(Level 3)
Total
carrying
value at
December 31,
2020
$
$
2 $
5,746
515
489
6,752 $
(cid:178)(cid:178) $
(cid:178)(cid:178)
515
(cid:178)
515 $
2 $
5,746
(cid:178)(cid:178)
489
6,237 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
Fair value measurements at December 31, 2019
using:
Significant
other
observable
inputs
Significant
unobservable
inputs
Quoted prices
in active
markets
(Level 1)
(Level 2)
(Level 3)
Total
carrying
value at
December 31,
2019
$
$
$
22,830
12,890
30
1,259
507
$
37,516
$
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
507
$
507
$
22,830
12,890
30
1,259
(cid:178)(cid:178)
$
37,009
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
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).
110
MID PENN BANCORP, INC.
The following tables illustrate the assets measured at fair value on a nonrecurring basis segregated by hierarchy fair value levels.
(Dollars in thousands)
Assets:
Impaired Loans
Foreclosed Assets Held for Sale
(Dollars in thousands)
Assets:
Impaired Loans
Foreclosed Assets Held for Sale
Fair value measurements at December 31, 2020
using:
Significant
other
observable
inputs
Quoted
prices
in active
markets
gSignificant
unobservable
inputs
(Level 1)
(Level 2)
(Level 3)
Total
carrying
value at
December 31,
2020
$
800 $
77
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
800
77
Fair value measurements at December 31, 2019
using:
Significant
other
observable
inputs
Quoted
prices
in active
markets
Significant
unobservable
inputs
(Level 1)
(Level 2)
(Level 3)
Total
carrying
value at
December 31,
2019
$
271 $
122
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
271
122
The following tables present additional quantitative information about assets measur
a
which Mid Penn has utilized Level 3 inputs to determine the fair value.
n
ed at fair value on a nonrecurring basis and for
Foreclosed Assets Held for Sale
77
(Dollars in thousands)
December 31, 2020
Impaired Loans
(Dollars in thousands)
December 31, 2019
Impaired Loans
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
Estimate
800
$
Valuation
Technique
Unobservable
Input
Appraisal of
collateral (a), (b)
Appraisal of
collateral (a), (b)
Appraisal
adjustments (b)
Appraisal
adjustments (b)
Range
25%-100%
Weighted
Average
40%
27%-27%
27%
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
Estimate
271
$
Valuation
Technique
Unobservable
Input
Appraisal of
collateral (a), (b)
Appraisal of
collateral (a), (b)
Appraisal
adjustments (b)
Appraisal
adjustments (b)
Range
26% - 85%
Weighted
Average
36%
8% - 27%
16%
Foreclosed Assets Held for Sale
$
122
(a)
(b)
Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various level 3 inputs which are
not observable.
Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. 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.
111
MID PENN BANCORP, INC.
The following methodologies and assumptions were used to estimate the fair value of certain assets and liabilities:
Securities Available for Sale:
The fair value of equity and debt securities classified as available for sale is determined by obtaining quoted market prices o
n
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
(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:69)(cid:72)(cid:81)(cid:70)(cid:75)(cid:80)(cid:68)(cid:85)(cid:78)(cid:3)(cid:84)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17)
rr
p g
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.
(cid:11)
(cid:83)
(cid:12)
(cid:44)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:11)(cid:44)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:49)(cid:72)(cid:87)(cid:3)(cid:47)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:12)(cid:29)
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; therefor(cid:72)(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)
not, are considered collateral dependent.
(cid:74)
(cid:44)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)third-party valuations on all impaired loans collateralized by real estate within 30 days of 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.
u
n
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 (cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:17)(cid:3) (cid:3) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:80)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)
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 twelve 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.
112
MID PENN BANCORP, INC.
The following table summarizes the carrying value and fair value of financial instruments at December 31, 2020 and 2019.
(Dollars in thousands)
Financial assets:
Cash and cash equivalents
Available for sale investment securities
Held to maturity investment securities
Loans held for sale
Equity securities
Net loans and leases
Restricted investment in bank stocks
Accrued interest receivable
Interest rate swap agreements
Financial liabilities:
Deposits
Short-term borrowings
Long-term debt (a)
Subordinated debt
Accrued interest payable
December 31, 2020
Fair
Carrying
Value
Value
Carrying
December 31, 2019
Fair
Value
Value
5,748
132,794
26,262
515
$ 303,724 $
5,748
128,292
25,506
515
303,724 $ 139,030 $ 139,030
37,009
137,476
8,630
507
2,370,659 2,444,105 1,753,241 1,789,402
4,902
2,810
(cid:178)(cid:178)
37,009
136,477
8,422
507
7,594
3,619
489
4,902
2,810
(cid:178)(cid:178)
7,594
3,619
489
$ 2,474,580 $ 2,496,799 $ 1,912,394 $ 1,916,624
(cid:178)(cid:178)
30,216
25,273
2,208
125,617
70,498
43,098
2,007
125,617
71,648
44,580
2,007
(cid:178)(cid:178)
29,352
27,070
2,208
(a) Long-term debt excludes finance lease obligations.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:81)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:69)(cid:92)(cid:3)(cid:79)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:81)(cid:82)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)cant
fair value as of December 31, 2020 and 2019.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:15)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:75)(cid:76)(cid:72)(cid:85)(cid:68)(cid:85)(cid:70)(cid:75)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)truments
as of December 31, 2020 and 2019. Carrying values approximate fair values for cash and cash equivalents, equity securities, restricted
investment in bank stocks, accrued interest receivable and payable, interest rate swap agreements and short-term borrowings. Other
than cash and cash equivalents, which are considered as valued using Level 1 Inputs, these instruments are valued using Level 2
Inputs. The following tables exclude financial instruments for which the placement in the fair value hierarchy has been disclosed
elsewhere or for which the carrying amount approximates fair value.
(Dollars in thousands)
December 31, 2020
Financial instruments - assets
Held-to-maturity investment securities
Loans held for sale
Net loans and leases
Financial instruments - liabilities
Deposits
Long-term debt (a)
Subordinated debt
Quoted Prices
Fair Value Measurements
Significant
in Active Markets
Other
Significant
for Identical Assets Observable
Carrying
Amount Value
Fair
or Liabilities
(Level 1)
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
132,794 $
26,262
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
2,444,105
2,496,799 $
70,498
43,098
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
$
128,292 $ 132,794 $
26,262
2,370,659 2,444,105
25,506
$ 2,474,580 $ 2,496,799 $
70,498
43,098
71,648
44,580
113
MID PENN BANCORP, INC.
(Dollars in thousands)
December 31, 2019
Financial instruments - assets
Held-to-maturity investment securities
Loans held for sale
Net loans and leases
Financial instruments - liabilities
Deposits
Long-term debt
Subordinated debt
(16) Postretirement Benefit Plans
Quoted Prices
Fair Value Measurements
Significant
in Active Markets
Other
for Identical Assets Observable
Carrying
Fair
Amount Value
or Liabilities
(Level 1)
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
136,477 $ 137,476 $
8,630
1,753,241 1,789,402
8,422
$ 1,912,394 $ 1,916,624 $
30,216
25,273
29,352
27,070
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
137,476 $
8,630
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,789,402
1,916,624 $
30,216
25,273
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
Mid Penn has an unfunded noncontributory defined benefit plan for directors, which provides defined be
nefits based on the
(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:182)(cid:86)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3) (cid:68)(cid:86)(cid:3) (cid:90)(cid:72)(cid:79)(cid:79)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:83)(cid:82)(cid:86)(cid:87)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:79)(cid:76)(cid:73)(cid:72)(cid:3) (cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3) (cid:83)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:76)(cid:86)(cid:3)
noncontributory, covering certain full-time employees. Mid Penn also assumed a noncontributory defined benefit pension plan
as a result of the acquisition of Scottdale on January 8, 2018.
h
Service costs related to plans benefiting Mid Penn employees are reported as a component of salaries and employee benefits on
the Consolidated Statements of Income, while interest costs, expected return on plan assets, amortization (accretion) of prior
service cost, and settlement gain are reported as a component of other income. Service costs, interest costs, and amortization of
(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:81)(cid:82)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)ectors are reported as a component of director fees
and benefits expense within the other expense line item on the Consolidated Statement of Income.
The accrued benefit liability, related income statement impacts, and other significant aspects of the plans are detailed below.
f
(a) Life Insurance
Full-time employees who had at least ten years of service as of January 1, 2008 and retire with the Bank after age 55 and
at least 20 years of service are eligible for term life insurance coverage. The insurance amount will be $50,000 until age
65. After age 65, the insurance amount will decrease by $5,000 per year until age 74. Thereafter, the insurance amount
will be $5,000.
114
MID PENN BANCORP, INC.
(b) Health and Life Benefit Plan
Full-time employees who had at least 10 years of service as of January 1, 2008 and who retire at age 55 or later, after
completion of at least 20 years of service, are eligible for medical benefits. Medical benefits are provided for up to five
years after retirement. Employees who retired prior to December 31, 2015 may elect the least expensive single coverage
(cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3) (cid:80)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3) (cid:83)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3) (cid:3) (cid:44)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:72)(cid:3) (cid:69)(cid:72)(cid:70)(cid:82)(cid:80)(cid:72)(cid:86)(cid:3) (cid:72)(cid:79)(cid:76)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:48)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3) (cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:89)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:71)(cid:88)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3)
coverage, the Bank will pay, at its discretion, premiums for single 65-special coverage or similar supplemental coverage.
For those employees who retired between September 18, 2015 and December 31, 2015, the Bank will only pay up to
$5,000 towards such medical coverage. Employees who retired after December 31, 2015 may not participate in the
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(cid:44)(cid:81)(cid:86)(cid:87)(cid:72)(cid:68)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:11)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:3)(cid:69)(cid:92)(cid:3)(cid:22)(cid:25)(cid:17)(cid:26)(cid:28)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)
as of December 31, 2020) in medical costs.
The following tables provide a (cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
fair value of plan assets for the years ended December 31, 2020 and 2019, and a statement of the funded status at
December 31, 2020 and 2019.
(Dollars in thousands)
Change in benefit obligations:
Benefit obligations, January 1
Service cost
Interest cost
Change in experience
Change in assumptions
Benefit payments
Benefit obligations, December 31
Change in fair value of plan assets:
Fair value of plan assets, January 1
Employer contributions
Benefit payments
Fair value of plan assets, December 31
Funded status at year end
December 31,
2020
2019
404 $
3
13
45
27
(150)
342 $
(cid:178)(cid:178) $
150
(150)
(cid:178)(cid:178) $
475
3
17
(13)
34
(112)
404
(cid:178)(cid:178)
112
(112)
(cid:178)(cid:178)
(342) $
(404)
$
$
$
$
$
Mid Penn has capped the benefit to future retirees under its post-retirement health benefit plan. Employees who had
achieved ten years of service as of January 1, 2008 and subsequently retire after at least 20 years of service are eligible for
reimbursement of major medical insurance premiums up to $5,000, if the employee has not yet reached age 65. Upon
becoming eligible for Medicare, Mid Penn will reimburse up to $5,000 in premiums for Medicare Advantage or a similar
supplemental coverage. The maximum reimbursement period will not exceed five years regardless of retirement age and
(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72) (cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)
death.
ff
The amount recognized in other liabilities on the consolidated balance sheets at December 31, 2020 and 2019, is as
follows:
t
(Dollars in thousands)
Accrued benefit liability
2020
2019
$
342 $
404
The amounts recognized in accumulated other comprehensive loss consist of:
(Dollars in thousands)
Net loss (gain), pretax
Net prior service cost, pretax
December 31,
2020
2019
$
22 $
(40)
(50)
(64)
The accumulated benefit obligation for health and life insurance plans was $342,000 and $404,000 at December 31, 2020
and 2019, respectively.
115
MID PENN BANCORP, INC.
There will be $25,000 in estimated prior service costs amortized from accumulated other comprehensive income into net
periodic benefit cost during 2021.
The components of net periodic postretirement benefit (income) cost for 2020, 2019 and 2018 are as follows:
(Dollars in thousands)
Service cost
Interest cost
Amortization of prior service cost
Amortization of net (gain) or loss
$
Net periodic postretirement benefit (income) cost
$
2020
2019
2018
3 $
13
(25)
(cid:178)(cid:178)
(9) $
3 $
17
(25)
(5 )
(10) $
4
17
(25)
(1)
(5)
(cid:36)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)20 and 2019 are as follows:
Weighted-average assumptions:
Discount rate
Rate of compensation increase
2020
2019
2.25 %
2.00 %
3.00 %
2.00 %
(cid:36)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:76)(cid:70)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)20,
2019 and 2018 are as follows:
Weighted-average assumptions:
Discount rate
Rate of compensation increase
2020
2019
2018
3.00 %
2.00 %
4.00 %
3.00 %
3.50 %
2.50 %
Assumed health care cost trend rates at December 31, 2020, 2019 and 2018 are as follows:
Health care cost trend rate assumed for next year
5.50 %
5.50 %
5.50 %
2020
2019
2018
Rate to which the cost trend rate is assumed to
decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
5.40 %
2024
5.40 %
2024
5.40 %
2022
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. At
December 31, 2020, a one-percentage-point change in assumed health care cost trend rates would have the following
effects:
t
(Dollars in thousands)
Effect on total of service and interest cost
Effect on accumulated postretirement benefit obligation
One-Percentage Point
Increase
$
Decrease
(cid:178)(cid:178)
(7)
(cid:178)(cid:178) $
5
Mid Penn expects to contribute $36,000 to its life and health benefit plans in 2021. The following table shows the
estimated benefit payments for future periods.
(Dollars in thousands)
1/1/2021 to 12/31/2021
1/1/2022 to 12/31/2022
1/1/2023 to 12/31/2023
1/1/2024 to 12/31/2024
1/1/2025 to 12/31/2025
1/1/2026 to 12/31/2030
$
36
37
34
31
32
170
116
MID PENN BANCORP, INC.
(c) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)
Mid Penn has an unfunded defined benefit retirement plan for directors with benefits based on years of service. The
adoption of this plan generated unrecognized prior service cost of $274,000, which had been amortized over the expected
future years of service of active directors, of which $22,000 was recognized in 2018 and was fully amortized as of
December 31, 2018.
The following tables pro(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
fair value of plan assets for the years ended December 31, 2020 and 2019, and a statement of the status at December 31,
2020 and 2019. This Plan is unfunded.
(Dollars in thousands)
Change in benefit obligations:
Benefit obligations, January 1
Service cost
Interest cost
Actuarial loss (gain)
Change in assumptions
Benefit payments
Benefit obligations, December 31
Change in fair value of plan assets:
Fair value of plan assets, January 1
Employer contributions
Benefit payments
Fair value of plan assets, December 31
Funded status at year end
December 31,
2020
2019
1,077 $
49
31
7
65
(87)
1,142 $
(cid:178)(cid:178) $
87
(87)
(cid:178)(cid:178) $
1,100
51
42
(17)
(12)
(87)
1,077
(cid:178)(cid:178)
87
(87)
(cid:178)(cid:178)
(1,142) $
(1,077)
$
$
$
$
$
m
Amounts recognized in other liabilities on the consolidated balance sheet at Decem
n
ber 31, 2020 and 2019 are as follows:
(Dollars in thousands)
Accrued benefit liability
2020
2019
$
1,142 $
1,077
Amounts recognized in accumulated other comprehensive loss consist of:
(Dollars in thousands)
Net prior service cost, pretax
Net loss, pretax
December 31,
2020
2019
$
(cid:178)(cid:178) $
110
(cid:178)(cid:178)
38
The accumulated benefit obligation for the retirement plan was $1,142,000 at December 31, 2020 and $1,077,000 at
December 31, 2019.
No estimated prior service costs will be amortized from accumulated other comprehensive loss into net periodic benefit
cost during 2020 as the amount is fully amortized.
The components of net periodic retirement cost for 2020, 2019 and 2018 are as follows:
(Dollars in thousands)
Service cost
Interest cost
Amortization of prior-service cost
Net periodic retirement cost
2020
2019
2018
$
$
49 $
31
(cid:178)(cid:178)
80 $
51 $
42
(cid:178)(cid:178)
93 $
36
38
22
96
117
MID PENN BANCORP, INC.
(cid:36)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)20 and 2019 are as follows:
Weighted-average assumptions:
Discount rate
Change in consumer price index
2020
2019
2.25 %
1.00 %
3.00 %
1.00 %
(cid:36)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:76)(cid:70)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)20,
2019 and 2018 are as follows:
Weighted-average assumptions:
Discount rate
Change in consumer price index
2020
2019
2018
2.25 %
1.00 %
3.00 %
1.00 %
4.00 %
2.00 %
Mid Penn expects to contribute $100,000 to its retirement plan in 2020. The following table shows the estimated benefit
payments for future periods.
(Dollars in thousands)
1/1/2021 to 12/31/2021
1/1/2022 to 12/31/2022
1/1/2023 to 12/31/2023
1/1/2024 to 12/31/2024
1/1/2025 to 12/31/2025
1/1/2026 to 12/31/2030
$
100
102
102
83
85
328
The Bank is the owner and beneficiary of insurance policies on the lives of certain officers and directors, which informally
fund the retirement plan obligation. The aggregate cash surrender value of these policies was $3,987,000 and $3,921,000
at December 31, 2020 and 2019, respectively.
(e)
Scottdale Defined Benefit Pension Plan
As a result of the acquisition of Scottdale on January 8, 2018, Mid Penn has assumed a noncontributory defined benefit
pension plan covering certain former employees of Scottdale. After the acquisition, Mid Penn does not allow for any
further participants to join the Plan. (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3) (cid:76)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:73)(cid:88)(cid:81)(cid:71)(cid:3) (cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3)
managed by the Trust Department of the Bank and were primarily invested in corporate equity securities at the time of
acquisition, but have since been diversified into a more conservative investmen
t profile, including fixed income debt
ff
(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:179)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:180)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)
moderate level of income with target portfolio allocations of up to 20% cash, 30-50% fixed income securities, and 40-60%
(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86) is subject to market fluctuations.
For the years ended December 31, 2020 and 2019, Mid Penn recognized $3,000 and $34,000 of settlement gains,
respectively, as a result of certain lump sum payouts to participants of the defined benefit pension plan. The settlement
gains were recorded in noninterest income as a component of other income in the Consolidated Statements of Income for
the years ended December 31, 2020 and 2019.
118
MID PENN BANCORP, INC.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
fair value of plan assets for the year ended December 31, 2020 and 2019, and a statement of the status at December 31,
2020 and 2019.
(cid:81)
(Dollars in thousands)
Change in benefit obligations:
Benefit obligations, January 1
Service cost
Interest cost
Settlement (gain) loss
Actuarial loss (gain)
Settlement payments
Benefit payments
Benefit obligations, December 31
Change in fair value of plan assets:
Fair value of plan assets, January 1
Return on plan assets
Employer contributions
Benefit payments
Administrative expenses
Settlement payments
Fair value of plan assets, December 31
Funded status at year end
December 31,
2020
2019
5,587 $
79
180
(85)
495
(769)
(86)
5,401 $
5,404 $
229
200
(86)
(39)
(769)
4,939 $
5,163
92
217
(91)
655
(363)
(86)
5,587
4,818
498
600
(86)
(63)
(363)
5,404
(462) $
(183)
$
$
$
$
$
Amounts recognized in other liabilities on the consolidated balance sheet at December 31, 2020 and 2019 are as follows:
n
(Dollars in thousands)
Accrued benefit liability
2020
2019
$
462 $
183
Amounts recognized in accumulated other comprehensive loss consist of the following as of December 31 2020 and 2019:
(Dollars in thousands)
Unrecognized actuarial gain
December 31,
2020
2019
$
24 $
519
The accumulated benefit obligation for the retirement plan was $5,401,000 at December 31, 2020 and $5,587,000 at
December 31, 2019.
The components of net periodic retirement cost for December 31, 2020 and 2019 are as follows:
(Dollars in thousands)
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial gain
Net periodic retirement cost
2020
2019
79 $
180
(273)
(cid:178)(cid:178)
(14) $
92
217
(254)
(59)
(4)
$
$
119
MID PENN BANCORP, INC.
Assumptions used in the (cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:76)(cid:70) (cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)
2020 and 2019 are as follows:
Weighted-average assumptions:
Discount rate
Expected long-term return on plan assets
Rate of compensation increases
2020
2019
2.50 %
4.50 %
2.50 %
3.25 %
5.00 %
3.00 %
(cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)-average asset allocations by investment category as of December 31, 2020 and 2019 are as follows:
Weighted-average asset allocations:
Cash and cash equivalents
Common stock
Corporate bonds
2020
2019
10.57 %
58.45 %
30.98 %
100.00 %
51.76 %
35.23 %
13.01 %
100.00 %
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:75)(cid:76)(cid:72)(cid:85)(cid:68)(cid:85)(cid:70)(cid:75)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3) fair value as of December 31, 2020 and
2019.
(Dollars in thousands)
December 31, 2020
Cash and cash equivalents
Common stock:
Mining
Manufacturing
Transportation, Communications, Electric, Gas,
and Sanitary Services
Wholesale Trade
Finance, Insurance, and Real Estate
Services
Corporate bonds
(Dollars in thousands)
December 31, 2019
Cash and cash equivalents
Common stock:
Mining
Manufacturing
Transportation, Communications, Electric, Gas,
and Sanitary Services
Finance, Insurance, and Real Estate
Services
Other
Corporate bonds
Fair Value Measurements
Significant
other
observable
inputs
(Level 2)
Quoted prices
in active
markets
(Level 1)
Significant
unobservable
inputs
(Level 3)
$
522 $
23
807
555
17
1,348
137
(cid:178)(cid:178)
3,409 $
$
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
1,530
1,530 $
Fair Value Measurements
Significant
other
observable
inputs
(Level 2)
Quoted prices
in active
markets
(Level 1)
Significant
unobservable
inputs
(Level 3)
(cid:178)(cid:178) $
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
703
703 $
$
2,797 $
34
830
543
330
155
12
(cid:178)(cid:178)
4,701 $
$
120
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
MID PENN BANCORP, INC.
A description of the valuation methodologies used for assets measured at fair value is disclosed below.
Common Stocks
Valued at the closing price reported on the active market on which the in
d
dividual securities are traded.
Corporate Bonds
Valued using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities
without relying e(cid:91)(cid:70)(cid:79)(cid:88)(cid:86)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3) (cid:82)(cid:81)(cid:3) (cid:84)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:69)(cid:88)(cid:87)(cid:3) (cid:85)(cid:68)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:85)(cid:72)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3)
relationship to other benchmark quoted prices.
The methods described above may produce a fair value calculation that may not be
indicative of net realizable value or
reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent
with other market participants, the use of different methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different fair value m
easurement at the reporting date.
ff
t
Mid Penn expects to contribute $300,000 to the defined benefit pension plan in 2021. The following table shows the
estimated benefit payments for future periods.
ff
(Dollars in thousands)
1/1/2021 to 12/31/2021
1/1/2022 to 12/31/2022
1/1/2023 to 12/31/2023
1/1/2024 to 12/31/2024
1/1/2025 to 12/31/2025
1/1/2026 to 12/31/2030
(17) Other Benefit Plans
$
85
102
104
226
282
1,595
Mid Penn maintains several benefit plans for both current and former employees of the Bank. Liabilities related to the plans are
recorded in other liabilities on the balance sheet, and aggregate cash surrender values assets related to the life insurance plans
are recorded in the cash surrender value of life insurance line item on the balance sheet. Significant aspects of the plans are
detailed below.
(a)
( )
401(k) Plan
The Bank has a 401(k) plan that covers substantially all full-time employees. The plan allows employees to contribute a
portion of their salaries and wages to the plan and provides for the Bank to match a portion of employee-elected salary
(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:68)(cid:79)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:3)(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:86)(cid:68)(cid:79)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:74)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82) the 401(k) Plan
was $913,000, $680,000, and $514,000 for the years ending December 31, 2020, 2019, and 2018, respectively and is
included as a component of salaries and benefits expense in the Consolidated Statements of Income.
During 2018, Mid Penn assumed the 401(k) plans of Scottdale and First Priority. During the year ended December 31,
2020, the First Priority plan was terminated and all remaining assets were either transferred to the Mid Penn 401(k) Plan
(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:70)(cid:82)(cid:87)(cid:87)(cid:71)(cid:68)(cid:79)(cid:72)(cid:3)(cid:23)(cid:19)(cid:20)(cid:11)(cid:78)(cid:12)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:75)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)
resources and trust areas; however, since the January 2018 Scottdale acquisition, the plan has been frozen resulting in no
new participants added and no further contributions being made to the plans for the period subsequent to the acquisition
through December 31, 2020.
(b) Defined-Contribution Plan
The Bank has a funded contributory defined-contribution plan covering substantially all employees. The Bank did not
contribute to the plan in 2020, 2019, or 2018.
121
MID PENN BANCORP, INC.
(c) Deferred Compensation Plans
p
The Bank has an executive deferred compensation plan, which allows executive officers to defer compensation for a
ant in the plan is a former executive
specified period in order to provide future retirement income. The only particip
officer. The Bank accrued a liability for the plan of approximately $67,000 at December
31, 2020 and $87,000 at
December 31, 2019. The expense related to the plan was $3,000 in 2020, $4,000 in 2019, and $5,000 in 2018 and is
included as a component of salaries and benefits expense in the Consolidated Statements of Income.
y
tt
The Bank a(cid:79)(cid:86)(cid:82)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:83)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)
specified period in order to provide future retirement income. At December 31, 2020 and 2019, the Bank accrued a
liability of $1,308,000 and $1,044,000, respectively, for this plan. The expense related to the plan was $42,000 in 2020,
$41,000 in 2019, and $31,000 in 2018 and is included as a component of other expense in the Consolidated Statements of
Income.
d
(d) Salary Continuation Agreement
y
g
Th(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3) (cid:68)(cid:3) (cid:54)(cid:68)(cid:79)(cid:68)(cid:85)(cid:92)(cid:3) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:11)(cid:179)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12) (cid:73)(cid:82)(cid:85)(cid:3) (cid:68)(cid:3) (cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3) (cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
provides the former executive officer with a fixed annual benefit. The benefit is payable beginning at age 65 for a period
of 15 years. At December 31, 2020 and 2019, the Bank accrued a liability of approximately $214,000 and $224,000,
respectively, for the Agreement. The expense related to the Agreement was $17,000 for 2020, $16,000 for 2019, and
$17,000 for 2018 and is included as a component of salaries and benefits expense in the Consolidated Statements of
Income.
The Bank is the owner and beneficiary of an insurance policy on the life of the participating former executive officer,
which supports the funding of the benefit obligation. The aggregate cash surrender value of this policy was approximately
$1,422,000 and $1,387,000 at December 31, 2020 and 2019, respectively.
(e) Split Dollar Life Insurance Arrangements
p
g
At December 31, 2020 and 2019, the Bank had Split Dollar Life Insurance arrangements with two former executives for
which the aggregate collateral assignment and cash surrender values are approximately $1,404,000 and $1,396,000,
(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:17)(cid:3)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:51)(cid:75)(cid:82)(cid:72)(cid:81)(cid:76)(cid:91)(cid:182)(cid:86)(cid:3)(cid:54)(cid:83)(cid:79)(cid:76)(cid:87)(cid:3)(cid:39)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:3)(cid:47)(cid:76)(cid:73)(cid:72)(cid:3)(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:85)rangements in 2015 on select employees, which
had aggregate cash surrender values of $4,174,000 at December 31, 2020 and $4,094,000 at December 31, 2019. Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:54)(cid:83)(cid:79)(cid:76)(cid:87)(cid:3)(cid:39)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:3)(cid:47)(cid:76)(cid:73)(cid:72)(cid:3)(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:82)(cid:81)(cid:3)(cid:86)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)es, which had aggregate
cash surrender values of $3,516,000 at December 31, 2020 and $3,453,000 at December 31, 2019.
(f) Employee Stock Purchase Plan
p y
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:179)(cid:40)(cid:54)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:79)(cid:76)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)te. The plan
allows employees to use a portion of their salaries and wages to purchase shares of Mid Penn common stock at the market
value of shares at the end of each calendar quarter. A summary of shares purchased and average purchase price for the
years ended December 31, 2020, 2019, and 208 is presented below.
ESPP shares purchased
Average purchase price per share
(g) Director Stock Purchase Plan
2020 2019
8,005 5,151 4,132
$ 19.324 $ 26.015 $ 28.716
2018
(cid:50)(cid:81)(cid:3) (cid:48)(cid:68)(cid:92)(cid:3) (cid:21)(cid:23)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3) (cid:82)(cid:73)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:11)(cid:179)(cid:39)(cid:54)(cid:51)(cid:51)(cid:180)(cid:12)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3)
f
purpose of the DSPP is to provide non-employee directors of Mid Penn with a convenient means to purchase Corporation
common stock at fair market value on the last day of each calendar quarter. The plan was effective beginning July 1,
2017. A summary of shares purchased and average purchase price for the years ended December 31, 2020, 2019, and
2018 is presented below.
DSPP shares purchased
Average purchase price per share
122
2020
2019
8,121 5,232 4,296
$ 19.217 $ 25.852 $ 28.940
2018
MID PENN BANCORP, INC.
(h) Supplemental Executive Retirement Plan
pp
During August (cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:87)(cid:82)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3) (cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:83)(cid:79)(cid:68)(cid:81)(cid:3) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:11)(cid:179)(cid:54)(cid:40)(cid:53)(cid:51)(cid:86)(cid:180)(cid:12)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:73)(cid:82)(cid:88)(cid:85)(cid:3)
named executive officers. A fifth named executive officer entered into a SERP during May of 2019. Additional SERP
agreements were entered into with two oth(cid:72)(cid:85)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:3)Each SERP
provides for the monthly payment of a fixed cash benefit over a period of fifteen (15) years, commencing on the first day
(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:29) (i) occurring on or after reaching normal retirement age
(age 70); (ii) due to disability; (iii) due to death; or (iv) within two years following a change in control of the Bank. In
December 2020, Mid Penn amended the supplemental executive retirement plan agreements to provide solely for a
modification of the vesting schedule under the original agreements. Prior to the amendment, one-half of the annual
benefit was scheduled to vest on January 1, 2022, with an additional ten percent vesting on each January 1 thereafter until
fully vested on January 1, 2027. As amended, the annual benefit will vest ten percent each year, applied retroactively,
All other terms of the
(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:17)
supplemental executive retirement plan agreements remain unchanged. Any unvested portion of the benefit fully vests
upon a change in control of the Bank. The accrued liability for the supplemental retirement plans was $595,000 at
December 31, 2020 and $296,000 as of December 31, 2019. The expense related to the plan was $299,000 in 2020,
$223,000 in 2019 and $73,000 in 2018 and is included as a component of salaries and benefits expense in the
Consolidated Statements of Income.
(cid:73)(cid:73)
(18) Income Taxes
(cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)20 and 2019 are shown below.
(Dollars in thousands)
Deferred tax assets:
2020
2019
$
Allowance for loan and lease losses
Loan fees
Deferred compensation
Benefit plans
Unrealized loss on securities
Sale/leaseback adjustment
Lease adjustments
Business combination adjustments
Acquired NOL, Section 1231, and charitable contribution
carryforwards
Acquired AMT carryforward
Other
Deferred tax liabilities:
Depreciation
Bond accretion
Goodwill and intangibles
Prepaid expenses
Business combination adjustments
Benefit plans
Unrealized gain on securities
Deferred tax asset, net
$
2,810 $
1,908
722
68
(cid:178)(cid:178)
(cid:178)(cid:178)
219
148
91
(cid:178)(cid:178)
101
6,067
(394)
(30)
(359)
(474)
(641)
(549)
(1 )
(2,448)
3,619 $
1,998
227
581
127
34
(cid:178)(cid:178)
231
164
862
860
114
5,198
(717)
(23)
(354)
(405)
(240)
(649)
(cid:178)(cid:178)
(2,388)
2,810
123
MID PENN BANCORP, INC.
In assessing (cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)management considers whether it is more likely than
n of deferred tax assets is dependent
not some portion or all of the deferred tax assets will not be realized. The ultimate realizatio
upon the generation of future taxable income during periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent, feasible
and permissible as well as available tax planning strategies in making this assessment. At December 31, 2020, based on the
level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that Mid Penn will realize the benefits of these deferred tax assets
and has no valuation allowances recorded against any components of its deferred tax asset, including the carryforward balances
related to net operating losses (NOL), Section 1231 losses, and charitable contribution carryforwards.
e
The annual usage of acquired NOL, charitable contribution carryforwards, and Section 1231 losses is limited by IRS Section
382 regulations. These limitations are calculated separately for each acquisition as the federal long-term tax-exempt rate at the
date of acquisition multiplied by the valuation of the selling company as calculated in accordance with GAAP. As a result, the
usage of acquired NOLs, charitable contribution carryforwards, and Section 1231 losses to offset taxable income related to the
Scottdale acquisition is limited to $1,313,000 per year, and $1,854,000 per year for the First Priority acquisition.
r
(cid:38)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3)(cid:36)(cid:76)(cid:71)(cid:15)(cid:3)(cid:53)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:179)
At December 31, 2020 and 2019, Mid Penn had net oper(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:11)(cid:179)NOL(cid:180)(cid:12) carryforwards of $119,000 and $3,008,000 resulting
from the 2018 acquisitions First Priority and Scottdale. The (cid:38)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3)(cid:36)(cid:76)(cid:71)(cid:15)(cid:3)(cid:53)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:179)(cid:38)(cid:36)(cid:53)(cid:40)(cid:54)(cid:180)(cid:12)(cid:3)(cid:36)(cid:70)(cid:87)(cid:15)
signed into law on March 27, 2020 to mitigate the economic effects of the COVID-19 pandemic, implemented a five-year
carryback period for NOLs generated in tax years beginning in 2018, 2019, or 2020. As a result of this CARES Act provision,
during the year ended December 31, 2020, Mid Penn filed the required federal tax returns to carryback NOLs to the 2017 tax
year, comprised of (i) $1,238,000 of NOLs generated in 2018 and acquired from Scottdale, and (ii) $1,214,000 of NOLs
generated in 2018 and acquired from First Priority. The carryback of these NOLs to the 2017 tax year when the tax rate was 34
percent (versus 21 percent in 2018) generated a federal tax benefit of $318,000 recorded in the provision for income taxes on thet
Consolidated Statements of Income for the year ended December 31, 2020. The remaining NOL balance of $119,000 at
December 31, 2020 was generated in the 2012 tax year, was acquired from First Priority, and expires in 2032. Mid Penn is
2032. Mid Penn is
limited to a deduction of the
ent of pre-NOL taxable income in a single tax
lesser of the available NOL carryforward or 80 percent of pre-NOL taxable income in a single tax
yyear as set forth in the Tax
Cuts and Jobs Act.
y
y
At December 31, 2020, Mid Penn had no charitable contribution carryforwards, while at December 31, 2019, charitable
contribution carryforwards totaled $785,000. During the year ended December 31, 2020, Mid Penn generated sufficient taxable
income to utilize all charitable contribution carryforwards. During 2019, $211,000 of charitable contribution carryforwards
were written off, resulting in $44,000 of additional tax expense recorded upon the filing of the final 2018 tax return during the
third quarter of 2019. Mid Penn expects to generate sufficient taxable income to utilize all charitable contribution carryforwards
in the future.
m
The CARES Act also updated Alternative Minimum Tax (AMT) credit rules to permit AMT credit to be 100 percent refundable
in the 2018 tax year. As a result, during the year ended December 31, 2020, Mid Penn filed the required federal tax returns to
request a full refund of the AMT credits that had been acquired from First Priority and Scottdale.
Acquired Section 1231 losses totaling $314,000 were recorded as a result of filing the final First Priority return in 2019 and
expire in 2022.
The provision for income taxes consists of the following:
(Dollars in thousands)
Current tax provision
Federal
State
Total current tax provision
Deferred tax (benefit) expense
Federal
State
Total deferred tax expense
Total provision for income taxes
2020
2019
2018
$
$
$
$
6,340 $
157
6,497
2,875 $
185
3,060
(1,367)
(cid:178)(cid:178)
(1,367)
5,130 $
665 $
(cid:178)(cid:178)
665
3,725 $
812
(cid:178)(cid:178)
812
1,317
(cid:178)(cid:178)
1,317
2,129
124
MID PENN BANCORP, INC.
A reconciliation of the federal income tax provision at the statutory rate of 21% for 2020, 2019 and 2018 to Mid Penn's actual
federal income tax provision at its effective rate is as follows:
(Dollars in thousands)
Provision at the expected statutory rate
Effect of tax-exempt income
Effect of investment in life insurance
State income taxes, net of federal tax benefit
Nondeductible interest
Low income housing partnership tax credits
Nondeductible merger and acquisition expense
Rate change adjustment
Other items
Provision for income taxes
2020
2019
2018
$
$
6,581 $
(499)
(63)
124
26
(861)
(cid:178)(cid:178)
(cid:178)(cid:178)
(178)
5,130 $
4,499 $
(683)
(66)
146
59
(83)
(cid:178)(cid:178)
(cid:178)(cid:178)
(147)
3,725 $
2,672
(704 )
(60)
(cid:178)(cid:178)
40
(168 )
193
(cid:178)(cid:178)
156
2,129
Mid Penn has no unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future
periods. Mid Penn does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next
twelve months.
a
No amounts for interest and penalties were recorded in income tax expense in the consolidated statement of income for the years
ended December 31, 2020, 2019, or 2018. There were no amounts accrued for interest and penalties at December 31, 2020 or
2019.
Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the states of Pennsylvania, New Jersey,
Delaware, and Maryland. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years
before 2017.
(19) Regulatory Matters
y
g
Mid Penn Bancorp, Inc., is a financial holding company and maintains a well-capitalized status in both the consolidated
Corporation and in its bank subsidiary. Quantitative measures established by regulation to ensure capital adequacy require Mid
Penn to maintain minimum amounts and ratios (set forth below) of Tier 1 Capital to average assets and of Total Capital (as
defined in the regulations) to risk-weighted assets. As of December 31, 2020 and December 31, 2019, Mid Penn met all capital
(cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:70)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:179)(cid:90)(cid:72)(cid:79)(cid:79)-(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:180)(cid:17)(cid:3)(cid:3)(cid:43)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)
t
regulations could increase capital requirements and may have an adverse effect
on capital resources.
aa
capital rules applicable to Mid Penn. The
a
The federal banking agencies have substantially amended the regulatory risk-based
amendments implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The amended
rules included new minimum risk-based capital and leverage ratios, which became effective in January 2015, with certain
requirements phased in beginning in 2016, and refined the definition of what constitutes "capital" for purposes of calculating
those ratios.
125
MID PENN BANCORP, INC.
The revised minimum capital level requirements applicable to Mid Penn include: (i) a new common equity Tier I capital ratio of
4.5%; (ii) a Tier I capital ratio of 6.0% (increased from 4.0 %); (iii) a Total Capital ratio of 8.0% (unchanged from prior rules);
and (iv) a Tier I leverage ratio of 4.0% for all institutions. The amended rules also established a "capital conservation buffer" of
2.5% above the revised regulatory minimum capital ratios, which result in the following minimum ratios: (i) a common equity
Tier I capital ratio of 7.0%; (ii) a Tier I capital ratio of 8.5%; and (iii) a Total Capital ratio of 10.5%. The new capital
conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased each
year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in
share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will
establish a maximum percentage of eligible retained income that could be utilized for such actions.
d
ff
The final rules allowed community banks to make a one-time election not to include the additional components of accumulated
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:179)(cid:36)(cid:50)(cid:38)(cid:44)(cid:180)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:72)(cid:68)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)-based
capital rules that excludes most AOCI components from regulatory capital. Mid Penn made the election not to include the
additional components of AOCI in regulatory capital.
The final rules permanently grandfathered non-qualifying capital instruments (such as trust preferred securities and cumulative
perpetual preferred stock) issued before May 19, 2010 for inclusion in the Tier 1 capital of banking organizations with total
consolidated assets less than $15 billion as of December 31, 2009 and banking organizations that were mutual holding
companies as of May 19, 2010.
Consistent with the Dodd-Frank Act, the new rules replaced the ratings-based approach to securitization exposures, which is
based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk
weights for these exposures. Alternatively, banking organizations may use the existing gross-ups approach to assign
securitization exposures to a risk weight category or choose to assign such exposures a 1,250% risk weight.
n
(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:68)(cid:91)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:11)(cid:179)(cid:39)(cid:55)(cid:36)(cid:86)(cid:180)(cid:12)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:85)(cid:3)
(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:81)(cid:72)(cid:90)(cid:3) (cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3) (cid:80)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:11)(cid:179)(cid:48)(cid:54)(cid:36)(cid:86)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:85)(cid:85)
limitations than those applicable under the current general risk-based capital rule. The new rules also increase the risk weights
for past-due loans, certain risk weights and credit conversion factors.
Mid Penn has implemented these changes in determining and reporting the regulatory ratios of Mid Penn and the Bank, and has
concluded that the new rules did (cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)
(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)
(cid:87)
126
MID PENN BANCORP, INC.
Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends,
loans, or advances. The amount of dividends that may be paid from the Bank to the Corporation in any calendar year is limited
to the B(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:70)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:41)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)
December 31, 2020, $22,434(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:82)(cid:73)(cid:3) (cid:88)(cid:81)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3) (cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
balance, was available for distribution to the Corporation as dividends without prior regulatory approval, subject to regulatory rr
capital requirements below.
Mid Penn maintained the following regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31,
2020, and December 31, 2019:
(Dollars in thousands)
Capital Adequacy
Actual
Minimum Capital
Required (1)
Amount
Ratio
Amount
Ratio
To Be
Well-Capitalized
Under Prompt
Corrective
Action Provisions
Ratio
Amount
$
188,501
6.8 % $ 111,201
4.00 % $
N/A
188,501
188,501
246,529
137,351
9.6 %
9.6 % 166,783
12.6% 206,026
7.00 %
8.50 %
10.50 %
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$
218,676
7.9 % $ 111,166
4.00 % $
138,958
5.0 %
218,676
218,676
232,124
11.1% 137,288
11.1% 166,707
11.8% 205,933
7.00 %
8.50 %
10.50 %
127,482
156,901
196,126
6.5 %
8.0 %
10.0%
$
168,146
7.8 % $ 86,773
4.00 % $
N/A
168,146
168,146
204,811
9.8 % 120,020
9.8 % 145,738
11.9% 180,030
7.000 %
8.500 %
10.500 %
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$
185,101
8.5 % $ 86,760
4.00 % $
108,450
5.0 %
185,101
185,101
204,196
10.8% 119,995
10.8% 145,708
11.9% 179,992
7.000 %
8.500 %
10.500 %
111,424
137,137
171,421
6.5 %
8.0 %
10.0%
p,
Mid Penn Bancorp, Inc.
As of December 31, 2020
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
Mid Penn Bank
As of December 31, 2020
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
p,
Mid Penn Bancorp, Inc.
As of December 31, 2019
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
Mid Penn Bank
As of December 31, 2019
Tier 1 Capital (to Average Assets)
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Tier 1 Capital (to Risk Weighted Assets)
Total Capital (to Risk Weighted Assets)
(1) The minimum amounts and ratios as of December 31, 2020 and December 31, 2019 include the full phase in of the capital
conservation buffer of 2.5 percent required by the Basel III framework.
127
MID PENN BANCORP, INC.
(20) Concentration of Risk and Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held
varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial
tt
other party to the financial instrument for
properties. The Bank's exposure to credit loss in the event of nonperformance by the
actual amount of those instruments.
commitments to extend credit and standby letters of credit written is represented by the contr
The Bank uses the same credit policies in making commitments and conditional obligati
ons as it does for direct, funded loans.
n
aa
ff
t
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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers. The term of these standby letters of credit is generally one year or less. The amount of the liability as of December m
31, 2020 and 2019 for guarantees under letters of credit issued is not considered material.
As of December 31, 2020, commitments to extend credit amounted to $654,977,000 and standby letters of credit amounted to
$39,468,000. As of December 31, 2019, commitments to extend credit amounted to $435,553,000 and standby letters of credit
amounted to $26,574,000.
Additionall(cid:92)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:43)(cid:47)(cid:37)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:51)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:11)(cid:179)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:180)). Under
the terms of the Program, there is limited recourse back to Mid Penn for loans that do not perform in accordance with the terms
of the loan agree(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:40)(cid:68)(cid:70)(cid:75)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:76)(cid:86)(cid:3)(cid:179)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:180)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:86)
(cid:85)(cid:68)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:179)(cid:37)(cid:37)(cid:37)(cid:180)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:43)(cid:47)(cid:37)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:43)(cid:47)(cid:37)(cid:3)(cid:82)(cid:85)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:15)(cid:3)
by giving notice to the other party. The FHLB has no obligation to commit to purchase any mortgage through, or from, Mid
Penn. The total balance of loans sold under the Program was $290,000 and $4,610,000 for the years ended December 31, 2020
and 2019, respectively.
(cid:68)(cid:68)
Significant concentration of credit risk may occur when obligations of parties engaged in similar activities occur and accumulate
in significant amounts.
In analyzing the Bank's exposure to significant concentration of credit risk, management set a parameter of 10% or more of the
Bank's total net loans outstanding as the threshold in determining whether the obligations of the same or affiliated parties would
be classified as significant concentration of credit risk. Concentrations by industry, product line, type of collateral, etc., are also
considered. U.S. Treasury securities, obligations of U.S. government agencies and corporations, and any assets collateralized by
the same were excluded.
As of December 31, 2020, commercial real estate financing was the only similar activity that met the requirements to be
classified as a significant concentration of credit risk. However, there is a geographical concentration in that most of the Bank's
business activity is with customers located in twelve counties in Pennsylvania.
The Bank's highest industry concentration within the loan portfolio is in commercial real estate financing, which was 56.6 %
and 63.0% as of December 31, 2020 and 2019, respectively.
128
MID PENN BANCORP, INC.
(21) Commitments and Contingencies
g
Commitments
Mid Penn owns a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common
amenities in Dauphin County, Pennsylvania. The total investment in this limited partnership, net of amortization, was
$6,682,000 and $7,249,000 on December 31, 2020 and December 31, 2019, 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
(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:86)(cid:3) (cid:11)(cid:179)(cid:47)(cid:44)(cid:43)(cid:55)(cid:38)(cid:86)(cid:180)(cid:12)(cid:3) (cid:68)(cid:86)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:76)(cid:81)(cid:3) (cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:23)(cid:21)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3) (cid:38)(cid:82)(cid:71)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:20)(cid:28)(cid:27)(cid:25)(cid:15)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:17)(cid:3) (cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)
partner capital contribution commitment is $7,579,000. Investments made to date, and any future payments under this
commitment, are paid in installments over the course of the construction and completion phases of the low-income housing
(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3) (cid:3) (cid:40)(cid:68)(cid:70)(cid:75)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:76)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:69)(cid:82)(cid:87)(cid:75)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:68)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
certificate and continued compliance with the terms of the original partnership agreement. 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, as the
facilities became operational and began to be occupied beginning in December 2019. The project has been conditionally
awarded $8,613,000 in total LIHTCs by the Pennsylvania Housing Finance Agency, with an annual LIHTC amount of
approximately $861,000 to be awarded to Mid Penn in the year-ended December 31, 2020 and each full year thereafter during
the ten-(cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:17)(cid:3) (cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3)
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 deemed necessary.
All such initial conditions were satisfied and Mid Penn began funding the investment during 2018, and the investment is
expected to be fully funded in 2021. Similar to the recognition period of the tax credits, Mid Penn intends to amortize this low-
income housing investment using the cost amortization method over a ten-year period.
ff
r
Contingencies
As of December 31, 2020, Mid Penn had received a total of $20,883,000 of nonrefundable loan processing fees related to the
(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:37)(cid:36)(cid:182)(cid:86)(cid:3)(cid:51)(cid:68)(cid:92)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3)(cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:36)(cid:53)(cid:40)(cid:54)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)
law on March 27, 2020. These fees, and any offsetting loan origination costs, were deferred in accordance with FASB ASC
310-20, Receivables(cid:178)Nonrefundable Fees and Other Costs,
and have since been and will continue to be amortized to interest
and fees on loans and leases on the Consolidated Statements of Income over the life of the respective loans.
(cid:178)
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
eff
harbor date, (ii) the PPP loan is cancelled, terminated, or repaid after disbursement (and after the borrower certification saf
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.
f
r
t
As of December 31, 2020, Mid Penn is not aware of any PPP loans outstanding, or for which fees have been received from the
SBA, that have been cancelled, terminated, or repaid due to a borrower being determined to be ineligible for a PPP loan.
Litigation
Mid Penn is subject to lawsuits and claims arising out of its normal conduct of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the
consolidated financial condition of Mid Penn.
129
MID PENN BANCORP, INC.
(22) Common Stock
p
Treasury Stock Repurchase Program
y
g
During 2020, Mid Penn announced the adoption of a treasury stock repurchase program authorizing the repurchase of up to
(cid:7)(cid:20)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)s outstanding common stock, which represents approximately 8.0% of the issued shares based on Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)
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 became effective March 19, 2020 and is authorized to continue
through March 19, 2021, unless otherwise extended by Mid Pen
(cid:81)(cid:182)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3)
tt
(cid:55)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:80)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:15)(cid:3)(cid:86)(cid:88)(cid:86)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:85)(cid:72)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)
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.
(cid:87)
As of December 31, 2020, Mid Penn had repurchased 92,652 shares of common stock at an average price of $19.37 per share
under the treasury stock repurchase program.
Authorized Shares
At the May 14, 2019 annual shareholder meeting, Mid Penn shareholders approved an amendment to the Articles of
Incorporation to increase the number of authorized shares of common stock from 10,000,000 shares to 20,000,000 shares.
Dividend Reinvestment Plan
(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:179)(cid:39)(cid:53)(cid:44)(cid:51)(cid:180)(cid:12)(cid:15)(cid:3)(cid:22)(cid:22)(cid:19)(cid:15)(cid:26)(cid:24)(cid:19)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)
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.
(cid:68)(cid:68)
Restricted Stock Plan
(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)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
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:86)(cid:3) (cid:90)(cid:75)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72) (cid:68)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:69)(cid:92)
allowing them to acquire an ownership interest in Mid Penn and thereby encouraging them to contribute to the success of the
company. As of December 31, 2020, 85,914 shares have been granted under the Plan, of which 2,446 shares were forfeited and
available for reissuance. During 2020, Mid Penn granted 28,259 restricted shares, 19,759 of which were granted to employees,
while 8,500 were granted to directors. As of December 31, 2019, 57,655 shares have been granted under the Plan, of which
2,346 shares were forfeited and available for reissuance. During 2019, Mid Penn granted 18,450 restricted shares, 11,650 of
which were granted to employees, while 6,800 were granted to directors. Mid Penn granted 12,250 restricted shares in 2018,
7,450 of which were granted to employees, while 4,800 were granted to directors. During 2020, 100 shares were forfeited to
Mid Penn due to the termination of employment of one plan participant. No restricted shares were forfeited in 2019. In 2018,
1,876 granted shares were forfeited to Mid Penn due to the termination of employment of three plan participants.
f
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. Generally, restricted shares granted to employees vest in equal
amounts on the anniversary of the grant date over a four-year vesting period, and the expense is a component of salaries and
benefits expense on the Consolidated Statements of Income. Restricted shares granted to directors have a twelve-month vesting
(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)
Statements of Income.
d
t
130
MID PENN BANCORP, INC.
The following table presents compensation expense and related tax benefits for restricted stock awards recognized on the
consolidated statements of income.
(Dollars in thousands)
(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)
(cid:55)(cid:68)(cid:91)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)
(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)
(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)
(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)
(cid:3)(cid:3)$ 414 $ 346 $ 267
(cid:11)(cid:24)(cid:25)(cid:12)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:7)(cid:3) (cid:22)(cid:21)(cid:26)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:7)(cid:3) (cid:21)(cid:26)(cid:22)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:7)(cid:3) (cid:21)(cid:20)(cid:20)(cid:3)
(cid:11)(cid:26)(cid:22)(cid:12)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:11)(cid:27)(cid:26)(cid:12)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
At December 31, 2020 there was $726,000 of unrecognized compensation cost related to all non-vested share-based
compensation awards. This cost is expected to be recognized through July 2024 with a weighted average recognition period of
related to all non-vested share-based
2.6 years. At December 31, 2019, there wa
d
compensation awards. This cost was expected to be recogn
ed average recognition period
g
t
of 2.9 years. Mid Penn recognizes the impact
of 2.9 years.
At December 31, 2019, there was $630,000 of unrecognized compensation cost
ized through July 2023 with a weight
the forfeiture date.
of forfeitures as of
g
g
g
y
g
ff
The following table presents information regarding the non-vested restricted stock f
or the years ended December 31, 2020 and
2019.
aa
Non-vested at January 1, 2020
Vested
Forfeited
Granted
Non-vested at December 31, 2020
Non-vested at January 1, 2019
Vested
Forfeited
Granted
Non-vested at December 31, 2019
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16)(cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)
(cid:42)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:39)(cid:68)(cid:87)(cid:72)(cid:3)(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:57)(cid:68)(cid:79)(cid:88)(cid:72) (cid:3)(cid:3)
(cid:21)(cid:26)(cid:17)(cid:19)(cid:24)(cid:3)(cid:3)(cid:3)
(cid:21)(cid:24)(cid:17)(cid:27)(cid:28)(cid:3)(cid:3)(cid:3)
26.06
(cid:20)(cid:28)(cid:17)(cid:21)(cid:27)(cid:3)(cid:3)(cid:3)
(cid:21)(cid:21)(cid:17)(cid:19)(cid:27)(cid:3)
(cid:21)(cid:27)(cid:15)(cid:19)(cid:22)(cid:28)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:7)(cid:3)
(cid:11)(cid:20)(cid:23)(cid:15)(cid:26)(cid:26)(cid:20)(cid:3)(cid:12)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)
(100) (cid:3)(cid:3)
(cid:21)(cid:27)(cid:15)(cid:21)(cid:24)(cid:28)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
(cid:23)(cid:20)(cid:15)(cid:23)(cid:21)(cid:26)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16)(cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)
(cid:42)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:39)(cid:68)(cid:87)(cid:72)(cid:3)(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:57)(cid:68)(cid:79)(cid:88)(cid:72) (cid:3)(cid:3)
(cid:21)(cid:27)(cid:17)(cid:26)(cid:25)(cid:3)(cid:3)(cid:3)
(cid:21)(cid:27)(cid:17)(cid:21)(cid:20)(cid:3)(cid:3)(cid:3)
(cid:178)(cid:178)
(cid:21)(cid:25)(cid:17)(cid:19)(cid:25)(cid:3)(cid:3)(cid:3)
(cid:21)(cid:26)(cid:17)(cid:19)(cid:24)(cid:3)
(cid:21)(cid:19)(cid:15)(cid:21)(cid:21)(cid:25)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:7)(cid:3)
(cid:3)
(cid:11)(cid:20)(cid:19)(cid:15)(cid:25)(cid:22)(cid:26)(cid:3)(cid:12)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
(cid:178)(cid:178) (cid:3)(cid:3)
(cid:20)(cid:27)(cid:15)(cid:23)(cid:24)(cid:19)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
(cid:21)(cid:27)(cid:15)(cid:19)(cid:22)(cid:28)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
(23) Preferred Stock
In accordance with the terms and conditions of the Agreement and Plan of Merger dated January 16, 2018 between Mid Penn
(cid:68)(cid:81)(cid:71)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:48)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:41)(cid:76)(cid:91)(cid:72)(cid:71)(cid:3) (cid:53)(cid:68)(cid:87)(cid:72)(cid:3) (cid:38)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:51)(cid:72)(cid:85)(cid:83)(cid:72)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)
Series C (the (cid:179)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:12)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92) 31, 2018 was converted into the right to receive one share
of Mid Penn Fixed Rate Cumulative Perpetual Preferred Stock, Series D, having a $1,000 liquidation preference per share (the
(cid:179)(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:12)(cid:17) In connection with the Merger, Mid Penn issued 3,404 shares of Mid Penn Preferred Stock
totaling $3,404,000.
The terms of the Mid Penn Preferred Stock were no less favorable than those of the First Priority Preferred Stock as in effect
immediately prior to the Merger. The Mid Penn Preferred Stock was redeemable at the option of Mid Penn, subject to the prior
receipt of any requisite regulatory approval.
Dividends were payable quarterly on February 15, May 15, August 15 and November 15 of each year. The dividend rate on the
Mid Penn Preferred Stock was fixed at 9%.
(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:22)(cid:15)(cid:23)(cid:19)(cid:23)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:48)(cid:76)(cid:71)
Penn Preferred Stock at the $1,000 liquidation value. The redemption of the $3,404,000 of the Mid Penn Preferred Stock was
completed and final dividend payment made on December 14, 2018. Accordingly, no preferred stock was outstanding at
December 31, 2020 and December 31, 2019, and no preferred dividends were paid during 2020 or 2019, while preferred
dividends of $102,000 were paid in 2018.
131
December 31,
2020
2019
$
$
$
$
$
14,247
286,545
268
301,060 $
44,580 $
792
255,688
301,060 $
426
254,829
357
255,612
17,735
3
237,874
255,612
For Years Ended December 31,
2019
2018
2020
$
$
7,537 $
13
7,550
7,189 $
(cid:178)(cid:178)
7,189
(3,715)
(3,715)
(2,495)
(2,495)
3,835
21,616
25,451
758
26,209
(cid:178)(cid:178)
26,209 $
$
25,809
4,694
12,486
17,180
521
17,701
(cid:178)(cid:178)
17,701 $
$
20,422
$
$
10,837
(cid:178)(cid:178)
10,837
(5,668)
(5,668)
5,169
4,207
9,376
1,220
10,596
102
10,494
10,257
MID PENN BANCORP, INC.
(24) Parent Company Statements
p y
CONDENSED BALANCE SHEETS
(Dollars in thousands)
ASSETS
Cash and cash equivalents
Investment in subsidiaries
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Subordinated debt
Other liabilities
Shareholders' equity
Total liabilities and shareholders' equity
CONDENSED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(Dollars in thousands)
Income
Dividends from subsidiaries
Other income
Total Income
Expense
Other expenses
Total Expense
Income before income tax and equity in undistributed earnings (loss) of
subsidiaries
Equity in undistributed earnings (loss) of subsidiaries
Income before income tax
Income tax benefit
Net income
Series D preferred stock dividends
Net income available to common shareholders
Comprehensive income
132
MID PENN BANCORP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Equity in undistributed (earnings) loss of subsidiaries
rr
Other, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition
Investment in subsidiary
Purchases of premises and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid
Series D preferred stock dividends
Series D preferred stock redemption
Employee Stock Purchase Plan stock issuance
Director Stock Purchase Plan stock issuance
Treasury stock purchased
Subordinated debt issuance
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(25) Recent Accounting Pronouncements
g
Accounting Standards Adopted in 2020
For Years Ended December 31,
2019
2018
2020
$
26,209 $
(21,616)
582
5,175
17,701 $
(12,486)
139
5,354
(cid:178)(cid:178)
(10,500)
(cid:178)(cid:178)
(10,500)
(6,504)
(cid:178)(cid:178)
(cid:178)(cid:178)
147
148
(1,795)
27,150
19,146
13,821
426
14,247 $
(cid:178)(cid:178)
(cid:178)(cid:178)
(81)
(81)
(6,688)
(cid:178)(cid:178)
(cid:178)(cid:178)
134
135
(cid:178)(cid:178)
(cid:178)(cid:178)
(6,419)
(1,146)
1,572
426 $
$
10,596
(4,207)
1,071
7,460
(2,798)
(cid:178)(cid:178)
(cid:178)(cid:178)
(2,798)
(4,513)
(102)
(3,404)
119
124
(cid:178)(cid:178)
(cid:178)(cid:178)
(7,776)
(3,114)
4,686
1,572
—
ASU 2018-15: The FASB issued ASU 2018-15, Intangibles—Goodwill and Other—rr
40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract
Internal-Use Software (Subtopic 350-
This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow
the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense
as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts
prepaid for the hosted service, if any (generally as a(cid:81)(cid:3)(cid:179)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)
the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees
paid for the hosted service. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15,
2019; early adoption is permitted. Mid Penn adopted ASU 2018-15 effective January 1, 2020 on a prospective basis. ASU
2018-15 did not have a material impact on the results of operations.
(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:71)
ASU 2018-13: The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to
the Disclosure Requirements for Fair Value Measurement
–
ness of disclosures in financial
(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:36)(cid:54)(cid:56)(cid:15)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:182)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:73)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)
statements, amends the disclosure requirements related to recurring and nonrecurring fair value measurements by removing,
modifying, and adding certain disclosures.
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(cid:82)
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MID PENN BANCORP, INC.
As a result of this ASU, several disclosures were removed from Topic 820, including: (i) disclosure of the valuation process
for Level 3 fair value measurements, and (ii) amounts of and reasons for transfers between Level 1 and Level 2 of the fair
value hierarchy. However, some additional disclosures are required as a result of this ASU, including the requirement to
disclose the changes in unrealized gains and losses included in other comprehensive income for the period related to Level 3
recurring fair value measurements, as well as the range and weighted average of significant unobservable inputs used to
develop Level 3 fair value measurements. Mid Penn adopted ASU 2018-13 effective January 1, 2020 on a prospective
basis. The adoption of this ASU resulted in disclosure changes only and (cid:71)(cid:76)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
condition.
aa
Accounting Standards Adopted in 2019
ASU 2019-04: The FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments
Losses, Topic 815, Derivatives and Hedgi gng, and Topic 825, Financial Instruments
o
g
—Credit
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. With respect to Topic 815, Derivatives
and Hedging, ASU 2019-04 clarifies that the reclassification of a debt security from held-to-maturity to available-for-sale
under the transition guidance in ASU 2017-12 would not (1) call into question the classification of other HTM securities, (2)
be required to actually designate any reclassified security in a last-of-layer hedge, or (3) be restricted from selling any
n
reclassified security. As part of the transition of ASU 2019-04, entities may reclassify securities that would qualify for
designation as the hedged item in a last-of-layer hedging relationship from held-to-maturity to available-for-sale; however,
entities that already made such a reclassification upon their adoption of ASU 2017-12 are precluded from reclassifying
additional securities. The Company did not reclassify any securities from HTM to AFS upon adoption of ASU 2017-12.
y
y
y
As previously reported on a Form 8-K filed on November 20, 2019, Mid Penn early adopted ASU 2019-04, and as part of the
adoption, reclassified 113 held-to-maturity debt securities consisting primarily of state and political subdivision obligations
and mortgage-backed U.S. government agencies with an aggregate amortized cost of $67,096,000 to the available-for-sale
category. All 113 securities were subsequently sold during the fourth quarter of 2019, and Mid Penn realized a pre-tax gain
on the sales of $1,779,000. Proceeds from the sales are primarily intended to fund future loan growth or repay wholesale
borrowings.
ASU 2016-02: The FASB issued ASU 2016-02, Leases.
The new leases standard applies a right-of-(cid:88)(cid:86)(cid:72)(cid:3)(cid:11)(cid:179)(cid:53)(cid:50)(cid:56)(cid:180)(cid:12)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)
of more than 12 months, an asset representing its right to use
to make lease payments. For
the underlying asset and a liability
y
leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying
asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or
operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of
expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the
lease classification.
y g
g
g
y
The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to
existing U.S. GAAP. Classification depends on the same five criteria used by lessees plus certain additional factors. The
subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type
leases, direct financing leases, and operating leases. However, the new standard updates certain aspects of the lessor
accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic
606.
Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial
statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new leases standard
and non-lease components of a contract,
addresses other considerations including identification of a lease, separating lease
sale and leaseback transactions, modifications, combining contracts, reassessment of the lease term, and re-measurement of
lease payments. It also contains comprehensive
implementation guidance with practical examples.
y
g
ff
On July 30, 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an option to
apply the transition provisions of the new standard at the adoption date instead of the earliest comparative period presented.
Additionally, the ASU provides a practical expedient permitting lessors to not separate non-lease components from the
f
associated lease component if certain conditions are met.
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MID PENN BANCORP, INC.
The amendments for both ASUs are effective for public business entities for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early
y
adoption is permitted. Specific transition requirements apply.
g
y
y
Mid Penn adopted this standard in the first quarter of 2019 using the option to apply the transition provisions of the new
standard at the adoption date instead of the earliest period presented as provided in ASU 2018-11. Additionally, Mid Penn
elected to apply all practical expedients as provided in ASU 2016-02, with the exception of the hindsight practical expedient,
which was not elected. As a result of the adoption of this standard on January 1, 2019, Mid Penn recognized (i) an operating
lease ROU asset of $11,661,000, (ii) an operating lease liability of $12,866,000, and (iii) an opening adjustment to retaining
earnings of $316,000 to eliminate the remaining balance of the deferred sale/leaseback gain on two retail branch locations
which had originally been recorded in 2016. The operating lease liability represents the present value of future payments on
twenty-four leased properties within the Mid Penn footprint as of the January 1, 2019 adoption date, while the ROU asset
reflects the lease liability, adjusted for deferred/accrued rent balances and the b
alance of acquisition accounting fair value
jadjustments of the respective properties as
of the adoption date of January 1, 2019.
d
y
ff
Subsequent to the adoption of Topic 842, Mid Penn entered into a lease agreement for one facility under a non-cancelable
finance lease which commenced March 1, 2019. Mid Penn recognized a finance lease ROU asset of $3,597,000 and a
t
finance lease liability of $3,597,000 included in the reported amount
of long-term debt as of the lease commencement date.
y
g
The adoption of this standard did not have a material impact on the Consolidated Statements of Income or the Consolidated
Statements of Cash Flow. See Note 9, Leases for more information.
In March 2019, the FASB issued ASU No. 2019-01, “Leases: Codification Improvements.” This ASU (1) states that for
lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade
(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:81)(cid:182)(cid:87)(cid:3)(cid:68)(cid:3)significant amount of time between acquisition of the asset and lease commencement; (2)
clarifies that lessors in the scope of ASC 842 (such as Mid Penn
) must classify principal payments received from sales-type
and direct financing leases in investing activities in the statement of cash flows; and (3) clarifies the transition guidance
related to certain interim disclosures provided in the year of adoption. To coincide with the adoption of ASU No. 2016-02,
19. The adoption of this ASU did not have a material impact
t
Mid Penn elected to early adopt ASU 2019-01 on January 1, 20
on (cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) Consolidated Financial Statements.
ASU 2018-07: The FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic
Nonemployee Share-Based Payment Accounting
g
–
y
y
718): Improvements to
This ASU makes certain changes to the accounting for nonemployee awards to align the accounting for share-based payment
awards issued to employees and nonemployees. The changes require that the compensation expense associated with
nonemployee equity awards with performance conditions be recognized when the achievement of the performance condition
is probable, rather than upon achievement of the performance condition. Additionally, the new ASU requires that equity-
classified share-based payment awards issued to nonemployees be measured on the grant date, versus the previous GAAP
requirement to re-measure the awards through the performance completion date. The current requirement to reassess the
classification (equity or liabil y
upon vesting will be eliminated.
ity) for the nonemployee awards
y
y
g
The amendments are effective for public business entities for fiscal years beginning af
ff
ter December 15, 2018, including
interim periods within those fiscal years. Early
y
adoption is permitted, including interim periods.
y
g
ff
Mid Penn currently issues restricted stock awards to nonemployee directors through the 2014 Restricted Stock Plan (the
(cid:179)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:3) (cid:68)(cid:86)(cid:3) (cid:80)(cid:82)(cid:85)(cid:72)(cid:3) (cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3) (cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72) 22, Common Stock. The single performance condition of the award is that the
individual remain a director of Mid Penn through the duration of the vesting period. Mid Penn adopted this standard on
January 1, 2019 and the adoption of this ASU did not have a material impact on our consolidated financial statements as the
compensation expens
(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:81)(cid:82)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:80)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
(cid:92)
(cid:92)
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MID PENN BANCORP, INC.
Accounting Standards Adopted in 2018
g
p
ASU 2016-01: The FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities.
This ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income,
counting. The ASU allows
d
excluding equity investments that are consolidated or accounted for under the equity method of ac
equity investments without readily determinable fair values to be measured at cost minus impairment, with a qualitative
assessment required to identify impairment. The ASU also requires public companies to use exit prices to measure the fair
value of financial instruments, eliminates the disclosure requirements related to measurement assumptions for the fair value
of instruments measured at amortized cost, and requires separate presentation of financial assets and liabilities based on form
and measurement category. In addition, for liabilities measured at fair value under the fair value
option, the changes in fair
value due to changes in instrument-specific credit risk should be recognized in OCI.
r
This ASU is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and
was adopted by Mid Penn effective January 1, 2018. The adoption of this ASU resulted in the reclassification of equity
securities to other assets (equity securities had previously been classified as available-for-sale investment securities). Also,
related to this reclassification, a one-time cumulative-effect adjustment was recorded on January 1, 2018 that decreased
t
retained earnings by $44,000, increased accumulated other comprehensive loss by $35,000, and decreased the deferred tax
asset by $9,000. The impact on net income as a result of the adoption of this standard was immaterial for the year ended
December 31, 2018.
d
Additionally, the adoption of this ASU resulted in the refinement of our loan fair value calculation to comply with the exit
price measurement requirement. The adoption of the exit price measurement requirement portion of this ASU did not have a
material (cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:17)
f
In February 2018, the FASB issued ASU 2018-03, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities, which clarifies certain amendments included in ASU 2016-01
primarily related to measurement of equity securities without a readily determinable fair value and financial liabilities for
which the fair value option was elected. This ASU was effective for fiscal years beginning after December 15, 2017, and
(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:76)(cid:80)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3) (cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:27)(cid:17)(cid:3) (cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)
securities have a determinable fair value and, as of December 31, 2018, we do not have any financial liabilities for which the
fair value option was elected; therefore, the adoption of this ASU did not have a material impact on the results of operations.
Accounting Standards Pending Adoption
ASU 2018-14: The FASB issued ASU 2018-14, Compensation –
–
–
(Subtopic 715-20): Disclosure Framework –
Changes to the Disclosure Requir
Retirement Benefits
–
–
f
–
– General
ements for Defined Benefit Plans
Defined Benefit Plans
g
f
f
f
f
f
inancial
(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:36)(cid:54)(cid:56)(cid:15)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:182)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:73)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)
(cid:73)(cid:73)
statements, amends the disclosure requirements related to defined benefit pension and other postretirement plans by removing
and adding certain disclosures.
g
(cid:82)
The ASU is effective for public business entities for fiscal years ending after December 15, 2020. Early adoption is
permitted.
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 is currently evaluating the impact of this
ASU on our current disclosures. The adoption of this standard will result in disclosure changes only and will not impact Mid
(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)
136
MID PENN BANCORP, INC.
ASU 2016-13: The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
Losses on Financial Instruments, as further amended.
–
: Measurement of Credit
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 mode(cid:79)(cid:3)(cid:11)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:11)(cid:179)(cid:38)(cid:40)(cid:38)(cid:47)(cid:180)(cid:12)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:12)(cid:17)(cid:3)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)
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 initia
l recognition of that instrument.
g
rr
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-(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:51)(cid:38)(cid:39)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:180)(cid:12)(cid:3)
should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon
initial recogni(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:11)(cid:179)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:88)(cid:83)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:68)(cid:70)(cid:75)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)
basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
g
(cid:68)(cid:68)
t
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, and ASU 2019-11 and ASU
2020-02 to clarify, improve, or defer the adoption of ASU 2016-13.
y
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 qualified as an SRC as of the date this guidance was issued; therefore, Mid Penn has chosen to
delay the adoption of ASU 2016-13.
y
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:36)(cid:54)(cid:56)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:88)(cid:76)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
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 a y
a
ny, resulting from the new guidance will be
g
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 to perform the calculation in
advance of the January 1, 2023 adoption date.
y
g
g
a
.
137
MID PENN BANCORP, INC.
)
(26) Summary of Quarterly Consolidated Financial Data (Unaudited)
y Q
y
(
The following table presents summarized quarterly financial data for 2020 and 2019. Due to the methodology and rounding of
quarterly earnings per share versus full-year earnings per share calculations, the quarterly measures may not equal the full-year
(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)
(Dollars in thousands, except per share data)
2020 Quarter Ended
March 31
June 30
$
Interest Income
Interest Expense
Net Interest Income
Provision for Loan and Lease Losses
Net Interest Income After Provision
for Loan Losses
Noninterest Income
Noninterest Expense
Income Before Provision for Income
Taxes
Provision for Income Taxes
Net Income
Per Share Data:
$
23,699 $
6,034
17,665
550
17,115
2,934
15,581
4,468
650
3,818 $
Basic Earnings Per Common
Share
Diluted Earnings Per Common
Share
Cash Dividends Declared
$
$
0.45 $
0.81 $
0.78 $
0.45 $
0.23
0.81 $
0.18
0.78 $
0.18
(Dollars in thousands, except per share data)
2019 Quarter Ended
March 31
June 30
September 30 December 31
31,926
4,137
27,789
1,500
26,122 $
4,714
21,408
1,100
26,188 $
4,842
21,346
1,050
20,296
3,622
15,403
8,515
1,682
6,833 $
20,308
5,302
18,174
7,436
889
6,547 $
26,289
6,050
21,419
10,920
1,909
9,011
1.07
1.06
0.23
September 30 December 31
23,935
6,630
17,305
235
24,513 $
6,746
17,767
565
23,998 $
6,228
17,770
465
17,305
2,874
14,796
5,383
980
4,403 $
17,202
3,003
14,683
5,522
709
4,813 $
17,070
4,695
16,171
5,594
1,186
4,408
$
Interest Income
Interest Expense
Net Interest Income
Provision for Loan and Lease Losses
Net Interest Income After Provision
for Loan Losses
Noninterest Income
Noninterest Expense
Income Before Provision for Income
Taxes
Provision for Income Taxes
Net Income
Per Share Data:
$
22,866 $
5,560
17,306
125
17,181
2,049
14,303
4,927
850
4,077 $
Basic and Diluted Earnings Per
Common Share
Cash Dividends Declared
$
0.48 $
0.25
0.52 $
0.18
0.57 $
0.18
0.52
0.18
138
MID PENN BANCORP, INC.
(27) COVID-19 Pandemic Implications
p
(cid:50)(cid:81)(cid:3) (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:22)(cid:19)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:58)(cid:82)(cid:85)(cid:79)(cid:71)(cid:3) (cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3) (cid:50)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:58)(cid:43)(cid:50)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3) (cid:68)(cid:3) (cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3) (cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3) (cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3) (cid:71)(cid:88)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:49)(cid:82)(cid:89)(cid:72)(cid:79)
(cid:38)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3) (cid:11)(cid:179)(cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-(cid:20)(cid:28)(cid:180)(cid:12)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:20)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:58)(cid:43)(cid:50)(cid:3) (cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-19 as a pandemic based on the rapid
increase in exposure globally.
t
To curtail the spread of the virus, beginning March 17, 2020, Mid Penn temporarily closed all bank branch lobbies, and the
branch lobbies have remained closed through December 31, 2020. Our retail employees
continue to work providing access to
customers through drive-through banking services and night depositories. Services that cannot be performed through drive-
through (i.e. business cash orders, loan closings and new account openings) are accommodated in the branches by
appointment. We are continuously cleaning bank facilities during business hours with disinfecting wipes to sanitize all
(cid:73)(cid:68)(cid:70)(cid:72)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:82)(cid:82)(cid:85)(cid:3)(cid:75)(cid:68)(cid:81)(cid:71)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:36)(cid:55)(cid:48)(cid:182)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)ve mandated that all
employees who handle cash use latex gloves when doing so, and we are requiring all employees to use hand sanitizer after
each transaction and wash their hands with soap and hot water several times every hour. Additionally, employees having
face-to-face interaction with customers are required to wear a mask. Importantly, we maintain appropriate social distancing
standards when individuals are required by their job duties to be in the same location.
r
Mid Penn has been (cid:68)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:51)(cid:68)(cid:92)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3)(cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:11)(cid:179)(cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:38)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3) (cid:36)(cid:76)(cid:71)(cid:15)(cid:3) (cid:53)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:11)(cid:179)(cid:38)(cid:36)(cid:53)(cid:40)(cid:54)(cid:180)(cid:12)(cid:3) (cid:36)(cid:70)(cid:87)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:87)(cid:82)(cid:3) (cid:79)(cid:68)(cid:90)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:21)(cid:26)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:69)(cid:92)(cid:3) (cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)
Trump. Asset growth during the year ended December 31, 2020 included a significant volume of PPP loans processed by
Mid Penn, with $388,313,000 of PPP loans still outstanding, net of deferred fees, as of December 31, 2020. The Paycheck
Protection Program permitted eligible business entities to apply for loans through a participating financial institution to cover
payroll, rent, and other business expenses during the COVID-19 pandemic. 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
(cid:87)(cid:72)(cid:85)(cid:80)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:86)(cid:87)(cid:3)(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:51)(cid:51)(cid:51)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:87)(cid:90)(cid:82)-year term to maturity. The SBA may forgive the PPP loans if,
among other criteria, at least 60 percent of the proceeds are used for payroll costs. Also, the
borrowers will not have to make
d
any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during
the deferment period.
The SBA provided a processing fee per loan ranging from 1 percent to 5 percent to financial institutions who participated in
the PPP, with the amount of such fee pre-determined by the SBA dependent upon the size of each credit. As of December
31, 2020, Mid Penn had received $20,883,000 of nonrefundable loan processing fees related to the loans disbursed as a result
(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:51)(cid:51)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:85)(cid:72) deferred
in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs
. The PPP loan processing fees will be
amortized over the life of the respective loans. During the twelve months ended December 31, 2020, Mid Penn recognized
$13,137,000 of PPP processing fees within interest and fees on loans and leases on the Consolidated Statements of Income.
As of December 31, 2020, the balance of deferred PPP processing fees totaled $7,746,000 and are offset against gross PPP
loans outstanding of $396,059,000 which are included in Loans and leases, net of unearned interest on the Consolidated
Balance Sheet.
—
d
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 were granted
(cid:73)(cid:82)(cid:85)(cid:3) (cid:68)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3) (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86)(cid:15)(cid:3) (cid:69)(cid:88)(cid:87)(cid:3) (cid:86)(cid:82)(cid:80)(cid:72)(cid:3) (cid:68)(cid:86)(cid:3) (cid:79)(cid:82)(cid:81)(cid:74)(cid:3) (cid:68)(cid:86)(cid:3) (cid:86)(cid:76)(cid:91)(cid:3) (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86)(cid:15)(cid:3) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3) (cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)
(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:17) Interest has and will continue to accrue on loans modified under the CARES Act during the
deferral period. During 2020, Mid Penn had provided loan modifications meeting the CARES Act qualifications to over
1,000 borrowers. Mid Penn remains in communication with each of these borrowers to assess the ongoing credit status of the
(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:87)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:76)(cid:73)(cid:3)(cid:90)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)
situation. As of December 31, 2020, the principal balance of loans remaining in this CARES Act qualifying deferment
status totaled $11,681,000, or less than 1 percent of the total loan portfolio, a reduction compared to September 30, 2020,
when $32,851,000 of loans, representing 1 percent of the total loan portfolio, were in this deferment status. Most borrowers
granted a CARES Act deferral have returned to regular payment status. As more borrowers completed their deferral period
subsequent to year-end 2020, the remaining balances outstanding in deferment under the CARES Act qualifications as of
January 26, 2021 decreased to $8,126,000 of principal.
139
MID PENN BANCORP, INC.
On February 22, 2021, on a Form 8-(cid:46)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)
through February 18, 2021 it had received 2021 Paycheck Prot(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:11)(cid:179)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:51)(cid:51)(cid:51)(cid:180)(cid:12)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:68)(cid:79)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:80)(cid:68)(cid:79)(cid:79)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:37)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:71)(cid:76)(cid:86)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:15)(cid:19)(cid:23)(cid:26)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)
more than $290 million in loans. These businesses collectively employ more than 26,000 individuals. The 2021 PPP
application window remains open as of the date of this report, and Mid Penn is continuing to process existing applications for
loans that have not yet been approved or disbursed, and is continuing to receive new applications for submission to the SBA
for additional PPP loan support of customers. Based upon the 2021 PPP loans originated through Mid Penn Bank through the
date of this report, the Corporation expects to realize $12.8 million of processing fees. Additional fees will be realized for
PPP loans approved and disbursed subsequent to the date of this filing.
The full impact of the coronavirus continues to evolve as of the date of this report. As such, it is uncertain as to the full
magnitude that the pandemic (cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:15) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)
of operations. In addition, the adverse economic effects of the coronavirus may lead to an increase in credit risk on the
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:86)(cid:76)(cid:71)ential 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.
d
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
ff
position, or liquidity for fiscal year 2021.
140
MID PENN BANCORP, INC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Mid Penn carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15 as of December 31, 2020. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded, as of December 31, 2020(cid:15)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3) (cid:90)(cid:72)(cid:85)(cid:72)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3)
recording, processing, summarizing, and reporting information required to be disclosed by Mid Penn within the time periods specified
(cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:40)(cid:38)(cid:182)(cid:86)(cid:3) (cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:73)orms, and such information is accumulated and commun
icated to management to allow timely decisions
regarding required disclosures.
(cid:73)(cid:73)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:86)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:3)57 of this report, and is incorporated herein by
reference.
Our independent registered public accounting firm, RSM US LLP, also attested to, and reported on, the effectiveness of Mid Pe
(cid:81)(cid:81)(cid:182)(cid:86)
(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3) (cid:3) (cid:53)(cid:54)(cid:48)(cid:3) (cid:56)(cid:54)(cid:3) (cid:47)(cid:47)(cid:51)(cid:182)(cid:86)(cid:3) (cid:68)(cid:87)(cid:87)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) appears in Part II, Item 8,
(cid:179)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:39)(cid:68)(cid:87)(cid:68)(cid:17)(cid:180)
d
Changes in Internal Controls over Financial Reporting
(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:69)(cid:72)(cid:72)(cid:81)(cid:3) (cid:81)(cid:82)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3) (cid:82)(cid:73)(cid:3) (cid:21)(cid:19)20 that have
m(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:17)
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
,
The information required by this Item, relating to directors, executive officers, and control persons is set forth under the captions
(cid:179)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:180)(cid:15)(cid:3) (cid:179)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:53)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3) (cid:49)(cid:82)(cid:80)(cid:76)(cid:81)(cid:72)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:15)(cid:3) (cid:179)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:20)(cid:25)(cid:11)(cid:68)(cid:12)(cid:3) (cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:50)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)
(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:180)(cid:15)(cid:3)(cid:179)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:180)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
to be used in connection with the 2021 Annual Meeting of Shareholders, which pages are incorporated herein by reference.
aa
The Corporation has adopted a Code of Ethics that applies to directors, officers and employees of the Corporation and the Bank. The
Corporation amended the Code of Ethics on March 28, 2018. A copy is posted under Governance Documents in the Corporate
Information section under the Inves(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:79)(cid:76)(cid:81)(cid:78)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:90)(cid:72)(cid:69)(cid:86)(cid:76)(cid:87)(cid:72)(cid:15)(cid:3) (cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:76)(cid:71)(cid:83)(cid:72)(cid:81)(cid:81)(cid:69)(cid:68)(cid:81)(cid:78)(cid:17)(cid:70)(cid:82)(cid:80)(cid:17)(cid:3) (cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3) (cid:38)(cid:82)(cid:71)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3)
Ethics may be viewed on the Mid Penn website at www.midpennbank.com or requested from the Corporate Secretary by telephone
at 1-866-642-7736.
y
ITEM 11. EXECUTIVE COMPENSATION
(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:15)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)ussion
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1 Annual Meeting of
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(cid:87)
Shareholders, which pages are incorporated herein by reference.
141
MID PENN BANCORP, INC.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:15)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86) common stock, is set forth under the caption
(cid:179)(cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:50)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:182)(cid:86)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:43)(cid:72)(cid:79)(cid:71)(cid:3) (cid:37)(cid:92)(cid:3) (cid:51)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:3) (cid:82)(cid:73)(cid:3) (cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3) (cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
proxy statement to be used in connection with the 2021 Annual Meeting of Shareholders, which pages are incorporated herein by
reference.
The following table provides information related to equity compensation plans as of December 31, 2020:
Plan Category
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights
(a)
Weighted-
average Exercise
Price of Outstanding
Options, Warrants, and
Rights
(b)
Number of Securities
Remaining for Future
Issuance Under Equity
Compensation Plans
(excluding securities
reflected in column (a))
(c)
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security holders
Total
41,427
(cid:178)(cid:178)
41,427
(cid:178)(cid:178) (1)
116,532
(cid:178)(cid:178)
(cid:178)(cid:178)
(cid:178)(cid:178)
116,532
(1)
All awards under the Mid Penn Bancorp, Inc. 2014 Restricted Stock Plan are in the form of restricted stock. Accordingly, they were not included in calculating
the weighted-average exercise price because the shares of common stock will be issued for no consideration.
tt
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
,
The information required by this Item, relating to transactions with management and others, certain business relationships and
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(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)1 Annual Meeting of Shareholders, which
pages are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
forth under
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(cid:71)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:179)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:51)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:68)(cid:79)(cid:3)(cid:49)(cid:82)(cid:17) 3: Ratification of the Appointment of RSM US, LLP as the Corpor
(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)
Independent Registered Public Accounting Firm for 2021(cid:180)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
2021 Annual Meeting of Shareholders, which pages are incorporated herein by reference.
tt
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial statements are incorporated by reference in Part II, Item 8 hereof.
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) The financial statement schedules, required by Regulation S-X, are omitted because the information is either not applicable or is
included elsewhere in the consolidated financial statements.
142
MID PENN BANCORP, INC.
(c) The following Exhibits are filed as part of this filing on Form 10-K, or incorporated by reference hereto:
2.1
2.2
3(i)
3(ii)
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
21
Agreement and Plan of Merger, dated as of March 29, 2017, by and among Mid Penn Bancorp, Inc., Mid Penn Bank, and
The Scottdale Bank and Trust Company (Inco(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:21)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)
8-K filed on March 30, 2017.)
Agreement and Plan of Merger, dated as of January 16, 2018, by and between First Priority Financial Corp. and Mid Penn
Bancorp, Inc. (Incorporated by refere(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:21)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on January 16,
2018.)
(cid:55)(cid:75)(cid:72)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:36)(cid:85)(cid:87)(cid:76)(cid:70)(cid:79)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3) (cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3) (cid:22)(cid:11)(cid:76)(cid:12)(cid:3) (cid:87)(cid:82)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:52)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)
Report on Form 10-Q filed for the quarterly period ended June 30, 2019).
(cid:55)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:37)(cid:92)-(cid:79)(cid:68)(cid:90)(cid:86)(cid:17)(cid:3)(cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:22)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81) Form 8-K filed with
the SEC on August 30, 2010.)
(cid:55)(cid:75)(cid:72)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3) (cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:17)(cid:3) (cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3) (cid:28)(cid:28)(cid:17)(cid:20)(cid:3) (cid:82)(cid:73)(cid:3)
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)on Form S-3, filed with the SEC on October 12, 2005.)
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:36)(cid:83)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:91)(cid:3)(cid:36)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)
Proxy Statement on Schedule 14A as filed with the SEC on March 27, 2014.)
Form of Mid Penn Bancorp, Inc. Restricted Stock Agreement. (cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:23)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)
Annual Report on Form 10-K filed with the SEC on March 12, 2018.)
Form of Change in Control Severance Agreement between Mid Penn Bank and the Named Executive Officers,
(cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on November 4, 2016.)
(cid:48)(cid:76)(cid:71)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:3) (cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:15)(cid:3) (cid:44)(cid:81)(cid:70)(cid:17)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3) (cid:28)(cid:28)(cid:17)(cid:20)(cid:3) (cid:82)(cid:73)(cid:3) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)
Registration Statement on Form S-8, filed with the SEC on June 8, 2017.)
Employment Agreement, dated November 3, 2016, among Mid Penn Bancorp, Inc., Mid Penn Bank and Rory G. Ritrievi.
(cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:21)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on November 4, 2016.)
Form of Supplemental Executive Retirement Plan Agreement dated August 31, 2018 by and among Mid Penn Bank and
each of Rory G. Ritrievi, Michael D. Peduzzi, Scott W. Micklewright, and Justin T. Webb (Incorporated by reference to
(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)t Report on Form 8-K, filed with the Commission on September 5, 2018.)
Amendment No. 1 to Employment Agreement, dated August 31, 2018, among Mid Penn Bancorp, Inc., Mid Penn Bank,
and Rory G. Ritrievi (Incorporated by referenc(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:21)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K, filed with
the Commission on September 5, 2018.)
Form of Amendment No. 1 to Change in Control Severance Agreement of Messrs. Micklewright, Peduzzi, and Webb
(Incorporated by reference to Exhibit 10.3 to t(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K, filed with the Commission on
September 5, 2018.)
Form of Amendment No. 2 to Change in Control Severance Agreements of Messrs. Micklewright, Peduzzi, and Webb
(Incorporated by reference to Exhibit 10.2 to Regist(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on May 24, 2019.)
Form of Amendment No. 1 to Change in Control Severance Agreement of Rory G. Ritrievi (Incorporated by reference to
Exhibit 10.3 (cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on May 24, 2019.)
Form of Amendment No. 1 to Supplemental Executive Retirement Plan of Messrs. Ritrievi, Micklewright, Peduzzi, and
Webb (Incorporated by reference to Exhibit 10.1 (cid:87)(cid:82)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on January 4, 2021.)
Form of Director Deferred Fee Agreement
Director Retirement Plan
Subsidiaries of Registrant
Consents of Independent Registered Public Accounting Firms
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.
(cid:51)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:134)(cid:20)(cid:22)(cid:24)(cid:19)(cid:3)Certifications.
Listing of Mid-Atlantic Custom Peer Group Banks.
23
31.1
31.2
32
99.1
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)
ITEM 16. FORM 10-K SUMMARY
None.
143
MID PENN BANCORP, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MID PENN BANCORP, INC.
(Registrant)
By:
/s/ Rory G. Ritrievi
Rory G. Ritrievi
President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 15, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been sign
behalf of the Registrant and in the capacities and on the dates indicated.
f
ed below by the following persons on
By: /s/ Rory G. Ritrievi
Rory G. Ritrievi
President, Chief Executive Officer and
Director (Principal Executive Officer)
By: /s/ Michael D. Peduzzi, CPA
Michael D. Peduzzi, CPA
Sr. Executive Vice President and
Chief Financial Officer
By: /s/ Robert A. Abel
Robert A. Abel, Director
By: /s/ Kimberly J. Brumbaugh
Kimberly J. Brumbaugh, Director
By: /s/ Matthew G. DeSoto
Matthew G. DeSoto, Director
By: /s/ Robert C. Grubic
Robert C. Grubic, Director
By: /s/ Brian A. Hudson, Sr.
Brian A. Hudson, Sr., Director
By: /s/ Gregory M. Kerwin
Gregory M. Kerwin, Director
By: /s/ Donald F. Kiefer
Donald F. Kiefer, Director
By: /s/ Theodore W. Mowery
Theodore W. Mowery, Director
By: /s/ John E. Noone
John E. Noone, Director
By: /s/ Noble C. Quandel, Jr.
Noble C. Quandel, Jr., Director
By: /s/ David E. Sparks
David E. Sparks, Director
By: /s/ William A. Specht, III
William A. Specht, Director
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
144
(cid:48)(cid:44)(cid:39)(cid:3)(cid:51)(cid:40)(cid:49)(cid:49)(cid:3)(cid:37)(cid:36)(cid:49)(cid:38)(cid:50)(cid:53)(cid:51)(cid:15)(cid:3)(cid:44)(cid:49)(cid:38)(cid:17)
(cid:49)(cid:68)(cid:80)(cid:72)
(cid:48)(cid:76)(cid:71)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)
(cid:78)
(cid:48)(cid:51)(cid:37)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:47)(cid:47)(cid:38)(cid:3)
(cid:48)(cid:51)(cid:37)(cid:3)(cid:58)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:47)(cid:47)(cid:38)
(cid:48)(cid:51)(cid:37)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:47)(cid:47)(cid:38)
(cid:54)(cid:56)(cid:37)(cid:54)(cid:44)(cid:39)(cid:44)(cid:36)(cid:53)(cid:44)(cid:40)(cid:54)(cid:3)(cid:50)(cid:41)(cid:3)(cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:49)(cid:55)
(cid:40)(cid:59)(cid:43)(cid:44)(cid:37)(cid:44)(cid:55)(cid:3)(cid:21)(cid:20)
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:83)
(cid:51)
(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)
(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)
(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)
(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-248442, 333-218592, 333-
197024, and 333-170833) and Forms S-3 (No. 333-128958 and 333-233146) of Mid Penn Bancorp, Inc. of our report dated March 15,
2021, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting of Mid Penn
f
Bancorp, Inc., appearing in this Annual Report on Form 10-K of Mid Penn Bancorp, Inc. for the year ended December 31, 2020.
f
/s/ RSM US LLP
Philadelphia, Pennsylvania
March 15, 2021
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-248442, 333-218592, 333-
197024, and 333-170833) and Form S-3 (Nos. 333-128958 and 333-233146) of Mid Penn Bancorp, Inc. of our report dated March 13,
2020, relating to the consolidated financial statements of Mid Penn Bancorp, Inc., which appears in this Form 10-K.
f
/s/ BDO USA, LLP
Philadelphia, Pennsylvania
March 15, 2021
MID PENN BANCORP, INC.
I, Rory G. Ritrievi, certify that:
CERTIFICATION
EXHIBIT 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Mid Penn Bancorp, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report.
r
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85) certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with ge
nerally accepted accounting principles;
rr
(c) Evaluated the effectiveness of the registrant's disclosure controls and pr
ocedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this
report based on such evaluation; and
f
(d) (cid:39)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:68)(cid:81)(cid:92)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)
(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3) (cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:86)(cid:72)(cid:3) of an annual report) that has
(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3) (cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3) (cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74);
and
5.
(cid:55)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:44)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:15)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:72)(cid:89)(cid:68)luation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportin
g
(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:15)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
information; and
f
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
By:
/s/ Rory G. Ritrievi
President and CEO
Date: March 15, 2021
MID PENN BANCORP, INC.
CERTIFICATION
EXHIBIT 31.2
I, Michael D. Peduzzi, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Mid Penn Bancorp, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report.
r
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85) certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with ge
nerally accepted accounting principles;
rr
(c) Evaluated the effectiveness of the registrant's disclosure controls and pr
ocedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this
report based on such evaluation; and
f
(d) (cid:39)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:68)(cid:81)(cid:92)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)
(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3) (cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:86)(cid:72)(cid:3) of an annual report) that has
(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3) (cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3) (cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74);
and
5.
(cid:55)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:44)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:15)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:72)(cid:89)(cid:68)luation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportin
g
(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:15)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
information; and
f
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
By:
/s/ Michael D. Peduzzi, CPA
Chief Financial Officer
Date: March 15, 2021
MID PENN BANCORP, INC.
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADDED BY SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 32
In connection with the annual report of Mid Penn (cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K for the period ending December
31, 2020(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:75)(cid:72)(cid:85)(cid:72)(cid:82)(cid:73)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3)(cid:44)(cid:15)(cid:3)(cid:53)(cid:82)(cid:85)(cid:92)(cid:3)(cid:42)(cid:17)(cid:3)(cid:53)(cid:76)(cid:87)(cid:85)(cid:76)(cid:72)(cid:89)(cid:76)(cid:15)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
CEO, and I, Michael D. Peduzzi, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as added pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
To my knowledge, the information contained in the Report fairly presents, in all material respects the financial condition
f
and results of operations of Mid Penn Bancorp, Inc. as of the dates and for the periods expressed in the Report.
By:
/s/ Rory G. Ritrievi
President and CEO
Date: March 15, 2021
By:
/s/ Michael D. Peduzzi, CPA
Chief Financial Officer
Date: March 15, 2021
MID PENN BANCORP, INC.
ACNB Corporation
Arrow Financial Corporation
BCB Bancorp, Inc.
Canandaigua National Corporation
Chemung Financial Corporation
Citizens & Northern Corporation
Codorus Valley Bancorp, Inc.
Community Financial Corporation
Evans Bancorp, Inc.
First Bank
Howard Bancorp, Inc.
Mid Penn Bancorp, Inc.
Orrstown Financial Services, Inc.
Parke Bancorp, Inc.
Peoples Financial Services Corp.
Mid-Atlantic Custom Peer Group
Company
City
State
Exhibit 99.1
Gettysburg
Glens Falls
Bayonne
Canandaigua
Elmira
Wellsboro
York
Waldorf
Williamsville
Hamilton
Baltimore
Millersburg
Shippensburg
Sewell
Scranton
PA
NY
NJ
NY
NY
PA
PA
MD
NY
NJ
MD
PA
PA
NJ
PA
[THIS PAGE INTENTIONALLY LEFT BLANK]
COMMUNITY GIVING
Mid Penn Bank is dedicated to supporting charitable community organizations through
corporate donations, employee volunteerism and fundraising. In 2020, we increased our
corporate contributions by 20% and our employees demonstrated their commitment to our
communities by personally giving 38% more than in 2019.
2020 GIVING HIGHLIGHTS
$1.59 MILLION
EITC & COMMUNITY
CONTRIBUTIONS
203
$116,000
COMMUNITY ORGANIZATIONS
SUPPORTED
RAISED BY EMPLOYEES FOR
CHARITABLE CAUSES
20% INCREASE
OVER 2019
25 NEW
ORGANIZATIONS ASSISTED
38% INCREASE
OVER 2019
MID PENN BANK CELEBRITY
GOLF TOURNAMENT
Despite the uncertainty surrounding public
gatherings in 2020, the generosity of Mid
Penn Bank customers, vendors, employees
and celebrity partners endured. Together
we raised $75,000 for the Pennsylvania
Breast Cancer Coalition.
NO SHAVE NOVEMBER
Since 2016, Mid Penn Bank and Penn State Cancer Institute have joined forces during the month
of November to raise funds for prostate cancer research to help fight this formidable disease that
affects one in nine men. The No Shave November campaign raised more than $100,000
in 2020 and encouraged men to take a break from shaving and grow beards as a way of
starting conversations around prostate health.
CAMP CURTIN YMCA
Mid Penn Bank proudly supported the Harrisburg Area YMCA Association through
financial contributions, volunteerism, and event sponsorship. In 2020, the Camp Curtin
YMCA in Uptown Harrisburg met the pandemic challenges head-on by establishing a virtual
learning program, Cornerstone Academy. Students enrolled in Cornerstone Academy can complete
online and out-of-school assignments with tutors and certified educators while parents work. At the
start of the 2020-2021 school year, Mid Penn Bank presented the Academy with Chromebooks to
ensure that students had the technology necessary to succeed in a virtual learning environment.
PAYCHECK
PROTECTION
PROGRAM
2020 PPP HIGHLIGHTS
Natalie Falatek, Director of SBA/Guaranteed Lending,
receiving the 2020 PPP Lender of the Year award.
4,100+
PPP LOANS DELIVERED
TO SMALL BUSINESSES
$630 MILLION
IN PPP LOANS
FUNDED
55,000+
PAYCHECKS
PROTECTED
“Just a quick thank you note - I know you and your
team have worked tirelessly in this chapter, and it is
much appreciated. Mid Penn has done nothing but
validate our banking decision which we made
three years ago already, and I know I speak for
our Chairman as well. I know there has been a lot
of extra hours - thanks! And Happy Easter - here’s
hoping there’s at least time for dinner on Sunday!”
“This is the biggest challenge my business (and industry) has ever
faced, and I can’t tell you how your team has helped, and how
thankful I am. Your culture is amazing, and the level of caring
demonstrated by everyone I have met or spoken with is unsurpassed.
I look forward to a long-term relationship with your bank, and
also to meeting you live and in person (not that I don’t love
your YouTube videos). I also look forward to continue telling
my story, and recommending First Priority and Mid Penn.”
“We became fans of your organization when we
watched the YouTube videos while working to apply
for the loan. It is clear that the Bank’s leadership
and organization understand what it means to
“Make a Difference.” The team was outstanding,
and every person’s “get it done” attitude showed
through. Also, being able to call and talk with
people was incredible.”
“While most of your competitors and the larger banks were
dragging their feet and generally looking for reasons to delay
initiating the PPP loan program, you and your team were out
in front contacting your customers, educating them about the
program, encouraging them to apply for loans and providing
them with the assistance they needed to do so. This occurred
across the entire spectrum from your most significant clients
to my own church in Millersburg. I also understand that in
certain instances when requested, you provided the same
assistance to businesses having no other relationship with
the bank. I believe in doing so you have performed a great
service to the community, protected your banking clients
and created a wealth of good will for your bank.”
“Hope all is well. We worked with Mid Penn on
our PPP and were very impressed with your ability
to get things done quickly and efficiently (our own
bank wasn’t ready to move quickly enough!).
Please pass along my gratitude to Rory, and
let him know that I will look for additional
opportunities to send business your way!”
“I just wanted to let you know that phone call you made to me 8
months ago and the support you showed in getting me the PPP money
was a game changer and one of the best things to happen to me in
2020. Thanks for the support. You are one of the main reasons
my company will survive this pandemic and be stronger when
we are on the other side.”
“How you helped us and our business back in
PPP round 1 was simply amazing. It saved our
company and kept our employees working. The
way you have prepared and are handling round
2 is simply amazing. I have my app fully submitted
and the thought of receiving another forgivable 6
figure loan literately brings tears to my eyes. I’m not
sure if you all fully understand how impactful
what your doing is for us business owners. It
is saving jobs and the company my wife and I
have killed ourselves for, for the past 15 years.
Thank you to all your team for the tireless
work they are doing. We are with you and
eternally grateful for all your help, support and
guidance. Thank you, thank you, thank you.”
“I just want to thank you and the amazing staff at Mid Penn Bank for
your extraordinary service to our businesses. Rory’s video messages are
terrific. Your service has been nothing short of spectacular. I have been
working with several banks on PPPs for various enterprises in
West Virginia. No other bank holds a candle to Mid Penn Bank.
You are a true partner in support of our businesses. Please send
my greetings and heartfelt thanks to Rory.”
“The word is out! You guys hit this out of the ballpark! Why would
anyone in the Central PA area choose any other bank? TRULY
RELATIONSHIP BANKING!! Congratulations on the job you
did for you and your customers!!”
“I wanted to send a quick note to commend you for the extremely efficient and professional manner in which Mid Penn Bank has handled
the application process for the PPP. I applied for my loan and had the funds in my account in six days! I was kept updated by the branch
in Conyngham, PA, as well as through your YouTube videos. I could not be more pleased with how expeditiously my application
was processed and funded. I have spoken to many other State Farm Agents throughout the country as well as numerous
other small business owners, and many, many of these business owners did not have very favorable experiences with
this program. This is certainly the case with those who applied through the large national banks as opposed to the small
community lenders. I appreciate Mid Penn Bank’s efforts very much and plan to be a long-time customer.”
“What you did for us you went above and beyond
and you have a customer for life.”
“Thank you all for the hard work. I am glad all my
business is with you guys. After watching all these
videos, I know I am with the right bank and I
know that when times like this come around I
can count on you guys.”
“I wanted to take a minute and thank you for the superior customer
service Mid Penn provided with regard to the PPP loan process.
Waking up this morning to see the funds sitting in my account allows
me to breathe a little easier. Our experience with your team was
nothing but positive. You proactively provided guidance to make the
process both efficient and effective. You were quick to respond
and found new ways to do so. At every point, I knew what
was going on. Mid Penn has been a great partner to my
business over the years both in good times and in bad. This
latest challenge has given me yet another reason to be glad I
bank with such a great team.”
Officers
RORY G. RITRIEVI
President and CEO
MICHAEL D. PEDUZZI
Chief Financial Officer
Executive Team
RORY G. RITRIEVI
President and CEO
MICHAEL D. PEDUZZI
Chief Financial Officer
SCOTT W. MICKLEWRIGHT
Chief Revenue Officer
JUSTIN T. WEBB
Chief Operating Officer
JOAN E. DICKINSON
Chief of Staff
JOSEPH L. PAESE
Director of Trust and Wealth Management
ROBERT C. GRUBIC
Chairman, Mid Penn Bancorp, Inc.
and Mid Penn Bank; Chairman and CEO
Herbert, Rowland & Grubic, Inc.
WILLIAM A. SPECHT, III
Vice Chairman, Mid Penn Bancorp, Inc.
and Mid Penn Bank; President and CEO
Seal Glove Mfg. & Ark Safety
RORY G. RITRIEVI
President and CEO, Mid Penn Bancorp, Inc.
and Mid Penn Bank
ROBERT A. ABEL
Principal and Shareholder
Brown Schultz Sheridan & Fritz
KIMBERLY J. BRUMBAUGH
Founder and CEO
Brumbaugh Wealth Management, LLC
MATTHEW G. DESOTO
President and CEO
MI Windows and Doors, LLC
Board of Directors
BRIAN A. HUDSON, SR.
Former Executive Director and CEO
Pennsylvania Housing Finance Agency
GREGORY M. KERWIN
Senior Partner, Kerwin & Kerwin, LLP
DONALD F. KIEFER
Former Chairman, President and CEO
The Scottdale Bank & Trust Company;
Partner, Lawrence Keister & Co.
THEODORE W. MOWERY
Founding Partner, Gunn Mowery, LLC
JOHN E. NOONE
President, Shamrock Investments, LLC
NOBLE C. QUANDEL, JR.
Executive Chairman
Quandel Enterprises, Inc.
DAVID E. SPARKS
Founder, Former Chairman and CEO
First Priority Financial Corp.
and First Priority Bank
MISSION:
TO REWARD ALL OF OUR SHAREHOLDERS, SERVE ALL OF
OUR CUSTOMERS, VALUE ALL OF OUR EMPLOYEES AND
SUPPORT ALL OF OUR COMMUNITIES.
Mid Penn Bank is committed to creating an environment for all employees
that is diverse, equitable, and inclusive.
349 Union Street, Millersburg, PA 17061 | 1-866-642-7736
MIDPENNBANK.COM