More specifically, under GLB, bank holding companies, such as Mid Penn, that meet certain management, capital, and Community Reinvestment Act standards, are permitted to become financial holding companies and, by doing so, to affiliate with securities firms and insurance companies and to engage in other activities that are financial in nature, incidental to such financial activities, or complementary to such activities. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the FDIC Improvement Act’s prompt corrective action provisions, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. The required filing is a declaration that the bank holding company wishes to become a financial holding company and meets all applicable requirements. Mid Penn has not elected to become a financial holding company at this time.

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 activities permitted under GLB. Activities cited by GLB as being financial in nature include:

In addition to permitting financial services providers to enter into new lines of business, the law allows firms the freedom to streamline existing operations and to potentially reduce costs. The Act may increase both opportunity as well as competition. Many community banks are less able to devote the capital and management resources needed to facilitate broad expansion of financial services including insurance and brokerage services.

On July 30, 2002, the Sarbanes-Oxley Act of 2002 was enacted. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, auditor independence and accounting standards, executive compensation, insider loans, whistleblower protection, and enhanced and timely disclosure of corporate information. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act established:

The SEC and NASDAQ have adopted numerous rules implementing the provisions of the Sarbanes-Oxley Act that affect Mid Penn. The changes are intended to allow shareholders to monitor more effectively the performance of companies and management.

The Bank, a Pennsylvania-chartered institution, is subject to supervision, regulation and examination by the Pennsylvania Department of Banking and Securities and the FDIC. The deposits of the Bank are insured by the FDIC to the extent provided by law. The FDIC assesses deposit insurance premiums the amount of which may, in the future, depend in part on the condition of the Bank. Moreover, the FDIC may terminate deposit insurance of the Bank under certain circumstances. The Bank 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 penalties, and to appoint a conservator or receiver if 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.

Banking regulations include, but are not limited to, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and the safety and soundness of banking practices.

Under risk-based capital requirements for 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 least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less goodwill (“Tier 1 Capital” and together with Tier 2 Capital, Total Capital”). The remainder may consist of subordinated debt, non-qualifying preferred stock and a limited amount of the loan loss allowance (“Tier 2 Capital”).

In addition, the Federal Reserve Board has established minimum leverage ratio requirements for bank holding companies. These requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted average quarterly assets (“leverage ratio”) equal to 3% 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%. 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 Board will continue to consider a “Tangible Tier 1 Leverage Ratio” (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised Mid Penn of any specific minimum Tier 1 leverage ratio.

The Bank is subject to similar capital requirements adopted by the FDIC. The FDIC has not advised the Bank of any specific minimum leverage ratios.

The capital ratios of Mid Penn and the Bank are described in Note 17 to Mid Penn’s Consolidated Financial Statements, which are incorporated herein by reference.

Banking regulators continue to indicate their desire to further develop capital requirements applicable to banking organizations. Changes to capital requirements could materially affect the profitability of Mid Penn or the fair value of Mid Penn stock.

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for community banking organizations begins January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) must begin compliance on January 1, 2014. The final rules call for the following capital requirements:

In addition, the final rules establishes a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will 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 will begin on January 1, 2016.

Under the proposed rules, accumulated other comprehensive income (AOCI) would have been included in a banking organization’s common equity tier 1 capital. The final rules allow community banks to make a one-time election not to include these additional components of AOCI in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. The opt-out election must be made in the first call report or FR Y-9 series report that is filed after the financial institution becomes subject to the final rule.

The final rules permanently grandfather 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.

The proposed rules would have modified the risk-weight framework applicable to residential mortgage exposures to require banking organizations to divide residential mortgage exposures into two categories in order to determine the applicable risk weight. In response to commenter concerns about the burden of calculating the risk weights and the potential negative effect on credit availability, the final rules do not adopt the proposed risk weights but retain the current risk weights for mortgage exposures under the general risk-based capital rules.

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% risk weight.

Under the new rules, mortgage servicing assts (MSAs) and certain deferred tax assets (DTAs) are subject to stricter 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 is in the process of assessing the impact of these changes on the regulatory ratios of Mid Penn and Mid Penn Bank on the capital, operations, liquidity and earnings of Mid Penn and Mid Penn Bank.

As a result of the FDIC Improvement Act of 1991, banks are subject to increased reporting requirements and more frequent examinations by the bank regulatory agencies. The agencies also have the authority to dictate certain key decisions that formerly were left to management, including compensation standards, loan underwriting standards, asset growth, and payment of dividends. Failure to comply with these standards, or failure to maintain capital above specified levels set by the regulators, could lead to the imposition of penalties or the forced resignation of management. If a bank becomes critically undercapitalized, the banking agencies have the authority to place an institution into receivership.

Pursuant to FDICIA, 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 internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit 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 the institution fails to submit an acceptable compliance plan or fails to implement an accepted plan, the agency must 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, and requiring an increase in the institution’s ratio of tangible equity to assets.

Mid Penn is a legal entity separate and distinct from its subsidiary, the Bank. There are various legal and regulatory limitations on the extent to which the Bank can, among other things, finance, or otherwise supply funds to, Mid Penn. Specifically, dividends from the Bank are the principal source of Mid Penn’s cash funds 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. The payment of dividends could, depending upon the financial condition of Mid Penn and the Bank, be deemed to constitute such an unsafe or unsound practice. Further, under the terms of the Capital Purchase Program (“CPP”), Mid Penn is restricted from increasing its dividends on its common stock above the last per share quarterly dividend declared prior to October 14, 2008 ($0.20 per share) without permission as long as the CPP preferred stock is outstanding.

In addition to the required minimum capital levels described above, federal law establishes a system of “prompt corrective actions” which Federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital 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, which is not adequately capitalized. Under the rules, an institution will be deemed to be “adequately capitalized” if it exceeds the minimum Federal regulatory capital requirements. However, it will be deemed “undercapitalized” if it fails to meet the minimum capital requirements, “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0%, or a leverage ratio that is less than 3.0%, and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with 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 limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person”. Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution’s ability to make acquisitions, 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 “critically undercapitalized” and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership.

The FDIC insures deposits of the Bank through the Deposit Insurance Fund (“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 balance of insured deposits as well as the degree of risk the institution poses to the insurance fund. The FDIC ~~recently increased the amount of~~insures deposits ~~it insures from $100,000~~up to $250,000. The Bank pays an insurance premium into the DIF based on the quarterly average daily deposit liabilities net of certain exclusions. 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. In 2009, the FDIC increased the amount assessed from financial institutions by increasing its risk-based deposit insurance assessment scale. The quarterly annualized assessment scale for 2009 ranged from twelve basis points of assessable deposits for the strongest institutions to 77.5 basis points for the weakest. In 2009, the FDIC also adopted a uniform special assessment rate for all institutions not to exceed 10 basis points on the individual bank’s assessment base. The total amount paid by the Bank for FDIC insurance for the year ended December 31, 2009 under these provisions was $1,163,000.

On November 12, 2009, the FDIC approved a rule to require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. An insured institution’s risk-based deposit insurance assessments will continue to be calculated on a quarterly basis, but will be paid from the amount the institution prepaid until the later of the date that amount is exhausted or June 30, 2013, at which point any remaining funds would be returned to the insured institution. Consequently, Mid Penn’s prepayment of DIF premiums made in December 2009 resulted in a prepaid asset of $2,719,000 at December 31, 2009. At December 31, 2010, 2011, and ~~2011,~~2012 the prepaid asset was $1,878,000, $871,000, and ~~$871,000,~~$12,000, respectively. At December 31, 2013, the prepaid asset was $0.

Beginning with the second quarter of 2011, as mandated by the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the assessment base that the FDIC will use to calculate assessment premiums will be a bank’s average assets minus average tangible equity. As the asset base of the banking industry is larger than the deposit base, the range of assessment rates will change to a low of 2.5 basis points through a high of 45 basis points, per $100 of assets; however, the dollar amount of total actual premiums is expected to be roughly the same.

The FDIC is required under the Dodd-Frank Act to establish assessment rates that will allow the Deposit Insurance Fund to achieve a reserve ratio of 1.35% of Insurance Fund insured deposits by September 2020. In addition, the FDIC has established a “designated reserve ratio” of 2.0%, 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% ratio, the FDIC is required to implement assessment formulas that charge banks over $10 billion in asset size more than banks under that size. Those new formulas began in the second quarter of 2011, but did not affect the Bank. Under the Dodd-Frank Act, the FDIC is authorized to make reimbursements from the insurance fund to banks if the reserve ratio exceeds 1.50%, but the FDIC has adopted the “designated reserve ratio” of 2.0% and has announced that any reimbursements from the fund are indefinitely suspended.

Management does not anticipate that compliance with environmental laws and regulations will have any material effect on Mid Penn’s capital, expenditures, earnings, or competitive position. However, environmentally related hazards have become a source of high risk and potentially unlimited liability for financial institutions.

In 1995, the Pennsylvania General Assembly enacted the Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act, which among other things, provides 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 regulated substance on or from the property, or known and willfully compelled the borrower to commit an action which caused such release or violate an environmental act. The Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act does not limit federal liability which still exists under certain circumstances.

A number of laws govern the relationship between the Bank and its customers. For example, the Community Reinvestment Act is designed to encourage lending by banks to persons in low and moderate income areas. The Home Mortgage Disclosure Act and the Equal Credit Opportunity Act attempt to minimize lending decisions based on impermissible criteria, such as 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 purchase of another banking product) further restrict the Bank’s relationships with its customers.

In 2000, the federal banking regulators issued final regulations implementing certain provisions of GLB governing the privacy of consumer financial information. The regulations limit the disclosure by financial institutions, such as Mid Penn and the 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:

In 2001, the federal banking regulators issued final regulations implementing the provisions of GLB relating to the protection of customer information. The regulations, applicable to Mid Penn and the Bank, relate to administrative, technical, and physical safeguards for customer records and information. These safeguards are intended to:

Transactions between Mid Penn and the Bank and its affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An “affiliate” of a bank or savings institution is any company or entity that 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 limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms that are consistent with safe and sound banking practices.

Effective April 1, 2003, Regulation W of the Federal Reserve comprehensively amended Sections 23A and 23B. The regulation unifies and updates staff interpretations issued over the years, incorporates several new interpretative proposals (such as to clarify when transactions with an unrelated third party will be attributed to an affiliate), and addresses new issues arising as a result of the expanded scope of non-banking activities engaged in by bank and bank holding companies in recent years and authorized for financial holding companies under the GLB.

In 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) was signed into law. The USA Patriot Act broadened the application of anti-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. The principal provisions of Title III of the USA Patriot Act require that regulated financial institutions, including state-chartered banks:

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 Patriot Act’s requirements could have serious legal and reputational consequences for the institution. 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.

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. Additional information-sharing among financial institutions, regulators, and law enforcement authorities is encouraged by the presence of an exemption from the privacy provisions of the GLB Act 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. 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.

In 2012, the Jumpstart Our Business Startups Act ~~of 2008~~(the “JOBS Act”) became law. The JOBS Act is aimed at facilitating capital raising by smaller companies and ~~Related Programs~~banks and bank holding companies by implementing the following changes:

While the JOBS Act is ~~subject~~not expected to have any immediate application to the Corporation, management will continue to monitor the implementation rules ~~and regulations promulgated under~~for potential effects which might benefit the Emergency Economic Stabilization Act of 2008 (“EESA”) and related legislation as a result of its sale of preferred stock to the U.S. Treasury under the U.S. Treasury’s Capital Purchase Program (“CPP”). Additional information relating to the CPP, including restrictions on dividends and redemptions of common stock, is included in the information set forth in Item 7 of this report under the caption, “Capital Purchase Program Participation.” Furthermore, under rules and regulations of EESA to which the Mid Penn is subject, no dividends may be declared or paid on Mid Penn’s common stock and Mid Penn may not repurchase or redeem any common stock unless dividends then due and payable with respect to Treasury’s preferred stock have been paid in full. Moreover, the consent of Treasury would be required for any increase in the per share dividend amount on the common stock beyond the per share dividend declared immediately prior to October 14, 2008 ($0.20 per share per quarter) until the third anniversary of the date of Treasury’s investment, unless prior to the third anniversary, Treasury’s preferred stock is redeemed in whole or Treasury has transferred all of its preferred shares to third parties. Because of Mid Penn’s participation in the CPP, Mid Penn is subject to certain restrictions on its executive compensation practices, which are discussed in Item 7 of this report under the caption, “Capital Purchase Program Participation.”Corporation.

The Dodd-Frank Act, which became law in July 2010, significantly changes regulation of financial institutions and the financial services industry, including: creating a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation; centralizing responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, which will be responsible for implementing, examining and enforcing compliance with federal consumer financial laws; permanently raising the current standard maximum deposit insurance amount to $250,000; establishing strengthened capital standards for banks, and disallowing certain trust preferred securities from qualifying as Tier 1 capital (subject to certain grandfather provisions for existing trust preferred securities); establishing new minimum mortgage underwriting standards; granting the Federal Reserve Board the power to regulate debit card interchange fees; and implementing corporate governance changes. Many aspects of the Dodd-Frank Act are subject to rulemaking that will take effect over several years, thus making it difficult to assess the impact of the statute on the financial industry, including Mid Penn, at this time.

It is difficult to predict at this time the specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on financial institutions’ operations is presently unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements.

Changes in regulations applicable to Mid Penn or the Bank, or shifts in monetary or other government policies, could have a material ~~affect~~effect on our business. Mid Penn’s and the Bank’s business is also affected by the state of the financial services industry in general. As a result of legal and industry changes, management believes that the industry will continue to experience an increased rate of change as the financial services industry strives for greater product offerings, market share and economies of scale.

From time to time, legislation is enacted that has the effect of increasing the cost of doing business, 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 and/or the Bank. Various congressional bills and other proposals have proposed a sweeping overhaul of the banking system, including provisions for: limitations on deposit insurance coverage; changing the timing and method financial institutions use to pay for deposit insurance; expanding the power of banks by removing the restrictions on bank underwriting activities; and tightening the regulation of bank derivatives activities; and allowing commercial enterprises to own banks.

Mid Penn’s earnings are, and will be affected by domestic economic 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, an impact on the operating results of commercial banks because of the Federal Reserve’s power to implement national monetary policy to, among other things, curb inflation or combat recession. The Federal Reserve has a major impact 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 predict the nature and impact of future changes in monetary and fiscal policies.

From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of Mid Penn and the Bank. As a consequence of the extensive regulation of commercial banking activities in the United States, the Bank’s business is particularly susceptible to being affected by federal legislation and regulations that may increase the costs of doing business. Congress is currently debating major legislation that may fundamentally change the regulatory oversight of banking institutions in the United States. Whether any legislation will be enacted or additional regulations will be adopted, and how they might impact Mid Penn cannot be determined at this time.

Mid Penn’s common stock is registered under Section 12(b) of the Securities Exchange Act of 1934 and is traded on the NASDAQ Stock Market 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 Securities and Exchange Commission. The reports, proxy statements and other information filed with the SEC are available for inspection and copying at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 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 SEC’s Internet site address is~~www.sec.gov~~. www.sec.gov.

Mid Penn’s headquarters are located at 349 Union Street, Millersburg, Pennsylvania 17061, and its telephone number is ~~(717) 692-2133.~~1-866-642-7736. Mid Penn’s Internet address is~~www.midpennbank.com~~. midpennbank.com. 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 reasonably practicable after filing with the Securities and Exchange Commission. Mid Penn has adopted a Code of Ethics that applies to all employees. This document is also available on Mid Penn’s website. The information included on our website is not a part of this document.

~~Future dividend payments and common stock repurchases are restricted by the terms of the U.S. Treasury’s equity investment in Mid Penn~~

Under the terms of the CPP, for so long as any preferred stock issued under the CPP remains outstanding, Mid Penn is prohibited from increasing dividends to holders of its common stock above the last per share quarterly amount in effect immediately prior to October 14, 2008 ($0.20 per share), and from making certain repurchases of equity securities, including our common stock, without the U.S. Treasury’s consent until the third anniversary of the U.S. Treasury’s investment or until the U.S. Treasury has transferred all of the preferred stock it purchased under the CPP to third parties. As long as the preferred stock issued to the U.S. Treasury is outstanding, dividend payments and repurchases or redemptions relating to certain equity securities, including Mid Penn’s common stock, are prohibited until all accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions.

Mid Penn’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference 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 Penn’s control, 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 Mid Penn receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) Mid Penn’s ability to originate loans and obtain deposits, (ii) the fair value of Mid Penn’s financial assets and liabilities, and (iii) the average duration of Mid Penn’s mortgage-backed securities portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, Mid Penn’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

Management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on Mid Penn’s results of operations. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on Mid Penn’s financial condition and results of operations.

As of December 31, ~~2011,~~2013, approximately ~~68.0%~~70.0% of Mid Penn’s loan portfolio consisted of commercial and industrial, construction and commercial real estate loans. These types of loans are generally viewed as having more risk of default than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real estate loans and consumer loans. Because Mid Penn’s loan portfolio contains a significant number of commercial and industrial, 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-performing loans. An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for possible loan and lease losses and an increase in loan charge-offs, all of which could have a material adverse effect on Mid Penn’s financial condition and results of operations.

Mid Penn maintains an allowance for possible loan and lease losses, which is a reserve established through provisions for possible losses charged to expense, that represents management’s best estimate 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 management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions 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, new information regarding existing loans, identification of additional problem credits and other factors, both within and outside of Mid Penn’s control, may require an increase in the allowance. In addition, bank regulatory agencies periodically review Mid Penn’s allowance for possible loan and lease losses and may require an increase in the provision 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 ~~will~~may need additional provisions to increase the allowance for possible loan and lease losses. Any increases in the allowance will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on Mid Penn’s financial condition and results of operations.

Competition from other financial institutions may adversely affect Mid Penn’s profitability

Mid Penn’s banking subsidiary faces substantial competition in originating both commercial and consumer loans. This competition comes principally from other banks, credit unions, savings institutions, mortgage banking companies and other lenders. Many of its competitors enjoy advantages, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce the Corporation’s net income by decreasing the number and size of loans that its banking subsidiary originates and the interest rates it may charge on these loans.

In attracting business and consumer deposits, its banking subsidiary faces substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of Mid Penn’s competitors enjoy advantages, 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 Mid Penn attracts or require Mid Penn to increase its rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect Mid Penn’s ability to generate the funds necessary 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.

Mid Penn’s banking subsidiary also competes with non-bank 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-bank competitors are not subject to the same extensive regulations that govern its banking operations. As a result, such non-bank competitors may have advantages over Mid Penn’s banking subsidiary in providing certain products and services. This competition may reduce or limit Mid Penn’s margins on banking services, reduce its market share and adversely affect its earnings and financial condition.

We have 5,000 shares of Series B Preferred Stock outstanding which have preference over the common stock as to dividends and liquidation distributions, among other preferential rights

As of the date hereof, we have issued and outstanding 5,000 shares of 7% Non-Cumulative, Non-Voting, Non-Convertible Perpetual Preferred Stock, Series B, par value $1.00 per share (the “Series B Preferred Stock”). The Series B Preferred Stock affords holders a preference to assets upon liquidation and an annual dividend which rights impact the outstanding shares of common stock.The Preferred Stock's right to annual dividends makes less likely the possibility that we will declare dividends on the common stock. In the event of a liquidation of the Corporation's assets, holders of Series B Preferred Stock will have a right to receive as a liquidation payment any remaining assets of the Corporation prior to any distributions to holders of the common stock and the holders of the Series B Preferred Stock may be able to block actions otherwise approved by the holders of the common stock if such action is adverse to their rights.

The Basel III capital requirements may require us to maintain higher levels of capital, which could reduce our profitability

Basel III targets higher levels of base capital, certain capital buffers and a migration toward common equity as the key source of regulatory capital. Although the new capital requirements are phased in over the next decade and may change substantially before final implementation, Basel III signals a growing effort by domestic and international bank regulatory agencies to require financial institutions, including depository institutions, to maintain higher levels of capital. The direction of the Basel III implementation activities or other regulatory viewpoints could require additional capital to support our business risk profile prior to final implementation of the Basel III standards. If Mid Penn is required to maintain higher levels of capital, Mid Penn may have fewer opportunities to invest capital into interest-earning assets, which could limit the profitable business operations available to Mid Penn and adversely impact our financial condition and results of operations.

Future credit downgrades of the United States Government due to issues relating to debt and the deficit may adversely affect the Mid Penn

As a result of failure of the federal government to reach agreement over federal debt and the ongoing issues connected with the debt ceiling, certain rating agencies placed the United States government’s long-term sovereign debt rating on their equivalent of negative watch and announced the possibility of a rating downgrade. The rating agencies, due to constraints related to the rating of the United States, also placed government-sponsored enterprises in which Mid Penn invests and receives lines of credit on negative watch and a downgrade of the United State’s credit rating would trigger a similar downgrade in the credit rating of these government sponsored enterprises. Furthermore, the credit rating of other entities, such as state and local governments, may also be downgraded should the United States credit rating be downgraded. The impact that a credit rating downgrade may have on the national and local economy could have an adverse effect on Mid Penn’s financial condition and results of operations.

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 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 failures or disruptions in Mid Penn’s customer relationship management, general ledger, deposit, loan and other systems. A breach of Mid Penn’s information security may result from fraudulent activity committed against Mid Penn or its clients, resulting in financial loss to Mid Penn or its clients, or privacy breaches against Mid Penn’s clients. Such fraudulent activity may consist of check fraud, electronic fraud, wire fraud, “phishing”, social engineering or other deceptive acts. The policies, procedures, 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 may be insufficient to prevent or remedy the effects of any such occurrences. The occurrence of any failures, interruptions, or security breaches of Mid Penn’s information systems could damage Mid Penn’s reputation, cause Mid Penn to incur additional expenses, result in online services or other businesses, subject Mid Penn to regulatory sanctions or additional regular scrutiny, or expose Mid Penn to civil litigation and possible financial liability, any of which could have a material adverse effect on Mid Penn’s financial condition and results of operations.

Management periodically reviews and updates Mid Penn’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of Mid Penn’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on Mid Penn’s business, results of operations, and financial condition.

Mid Penn’s ability to pay dividends depends primarily on dividends from its banking subsidiary, which is subject to regulatory limits

Mid Penn is a bank holding company and its operations are conducted by its subsidiaries. Its ability to pay dividends depends on its receipt of dividends from its subsidiaries. Dividend payments from its banking subsidiary are subject to legal and regulatory limitations, generally based on net profits, and retained earnings, imposed by the various banking regulatory agencies. The ability of Mid Penn’s subsidiaries to pay dividends is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements. There is no assurance that Mid Penn’s subsidiaries will be able to pay dividends in the future or that Mid Penn will generate adequate cash flow to pay dividends in the future. Federal Reserve Board policy, which applies to Mid Penn as a registered bank holding company, also provides that dividends by bank holding companies should generally be paid out of current earnings looking back over a one-year period. Mid Penn’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock.

Mid Penn’s profitability depends significantly on economic conditions in ~~the~~ central Pennsylvania

Mid Penn’s success is dependent to a significant degree on economic conditions in central Pennsylvania, especially in Dauphin, lower Northumberland, western Schuylkill and eastern Cumberland Counties, which Mid Penn defines as our primary market. The banking industry is affected by general economic conditions including the effects of inflation, recession, unemployment, real estate values, trends in the national and global economics, and other factors beyond our control. An economic recession or a delayed recovery over a prolonged period of time in ~~the~~

Central Pennsylvania area could cause an increase in the level of the Bank’s non-performing assets and loan and lease losses, thereby causing operating losses, impairing liquidity, and eroding capital. Mid Penn cannot assure you that adverse changes in the local economy would not have a material adverse effect on Mid Penn’s consolidated financial condition, results of operations, and cash flows.

Mid Penn’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by Mid Penn can be intense and Mid Penn may not be able to hire people or to retain them. The unexpected loss of services of one or more of Mid Penn’s key personnel could have a material adverse impact on Mid Penn’s business because of their skills, knowledge of Mid Penn’s market, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

Mid Penn is subject to claims and litigation pertaining to fiduciary responsibility

From time to time, customers make claims and take legal action pertaining to Mid Penn’s performance of its fiduciary responsibilities. Whether customer claims and legal action related to Mid Penn’s performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to Mid Penn they may result in significant financial 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 reputation damage could have a material adverse effect on Mid Penn’s business, which, in turn, could have a material adverse effect on Mid Penn’s financial condition and results of operations.

The trading volume in Mid Penn’s common stock is less than that of other larger financial services companies

Mid Penn’s common stock is listed for trading on NASDAQ; the trading volume in its common stock, however, is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of Mid Penn’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which Mid Penn has no control. Given the lower trading volume of Mid Penn’s common stock, significant sales of Mid Penn’s common stock, or the expectation of these sales, could cause Mid Penn’s stock price to fall.

Mid Penn operates in a highly regulated environment and may be adversely affected by changes in federal, state and local laws and regulations

Mid Penn is subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulations or federal, state or local legislation could have a substantial impact on Mid Penn and its operations. Additional legislation and regulations that could significantly affect Mid Penn’s powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on its financial condition and results of operations. Further, 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. The exercise of regulatory authority may have a negative impact on Mid Penn’s results of operations and financial condition.

In response to the financial crisis that commenced in 2008, Congress has taken actions that are intended to strengthen confidence and encourage liquidity in financial institutions, and the Federal Deposit Insurance Corporation has taken actions to increase insurance coverage on deposit accounts. The recently enacted Dodd-Frank Act provides for the creation of a consumer protection division at the Board of Governors of the

Federal Reserve System that will have broad authority to issue regulations governing the services and products we provide consumers. This additional regulation could increase our compliance costs and otherwise adversely impact our operations. That legislation also contains provisions that, over time, could result in higher regulatory capital requirements and loan loss provisions for the Bank, and may increase interest expense due to the ability in July 2011 to pay interest on all demand deposits. In addition, there have been proposals made by members of Congress and others that would reduce the amount delinquent borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. These proposals could result in credit losses or increased expense in pursuing our remedies as a creditor. Recent regulatory changes impose limits on our ability to charge overdraft fees, which may decrease our non-interest income as compared to more recent prior periods.

The potential exists for additional federal or state laws and regulations, or changes in policy, affecting many aspects of our operations, including capital levels, lending and funding practices, and liquidity standards. New laws and regulations may increase our costs of regulatory compliance and of doing business and otherwise affect our operations, and may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and our ongoing operations, costs and profitability.

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 in the event of a default by a counterparty or client. In addition, Mid Penn’s credit risk may be exacerbated when the collateral held by Mid Penn cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to Mid Penn. Any such losses could have a material adverse affect on the Mid Penn’s financial condition and results of operations.

Prior levels of market volatility ~~are~~were unprecedented and future volatility may have materially adverse effects on our liquidity and financial condition

In the recent past, the capital and credit markets ~~have been experiencing~~experienced extreme volatility and disruption for more than two years. In some cases, the markets ~~have~~ exerted downward pressure on stock prices, security prices, and credit availability for certain issuers without regard to their underlying financial strength. If ~~the current~~such levels of market disruption and volatility ~~continue or worsen,~~return, there can be no assurance that we will not experience adverse effects, which may be material, on our liquidity, financial condition, and profitability.

Mid Penn’s banking subsidiary may be required to pay higher FDIC insurance premiums or special assessments which may adversely affect its ~~earnings.~~earning

Poor economic conditions and the resulting bank failures have increased the costs of the FDIC and depleted its deposit insurance fund. Additional bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue special assessments. Mid Penn generally is unable to control the amount of premiums or special assessments that its subsidiary is required to pay for FDIC insurance. Any future changes in the calculation or assessment of FDIC insurance premiums may have a material adverse effect on our results of operations, financial condition, and our ability to continue to pay dividends on our common stock at the current rate or at all.

Pennsylvania Business Corporation Law and various anti-takeover provisions under our articles and bylaws could impede the takeover of Mid ~~Penn.~~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, we have various anti-takeover measures in place under our articles of incorporation and bylaws, including a supermajority vote requirement for mergers, a staggered board of directors, and the absence of cumulative voting. Any one or more of these measures may impede the takeover of Mid Penn without the approval of our board of directors and may prevent our shareholders from taking part in a transaction in which they could realize a premium over the current market price of our common stock.

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 ~~shareholders.~~shareholders

Federal banking regulators require Mid Penn and its subsidiary 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 levels are also determined by Mid Penn’s management and board of directors, based on capital levels that they believe are necessary to support Mid Penn’s business operations.

If Mid Penn raises capital 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 impact on Mid Penn’s stock price. New investors also may have rights, preferences and privileges senior to Mid Penn’s current shareholders, which may adversely impact its current shareholders.

Mid Penn’s ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside 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. Additionally, the inability to raise capital in sufficient amounts may adversely affect Mid Penn’s financial condition and results of operations and its ability to repurchase the preferred stock and the warrant to purchase shares of Mid Penn’s common stock issued under the CPP (see Item 7 of this report under the caption, “Capital Purchase Program Participation.”).operations.

Mid Penn’s profitability depends significantly on the economic conditions in the Commonwealth of Pennsylvania and the local region in which it does ~~business.~~business

Mid Penn’s profitability depends primarily on the general economic conditions of the Commonwealth of Pennsylvania and the specific markets in which Mid Penn operates. Unlike larger national or other regional banks that are more geographically diversified, Mid Penn provides banking and financial services to customers primarily in south central Pennsylvania. The local economic conditions in this area has a significant impact on the demand for Mid Penn’s products and services, as well as the ability of Mid Penn’s customers to repay loans, the value of collateral securing loans, and the stability of Mid Penn’s deposit funding sources. A significant decline in general economic conditions caused by inflation, recession, unemployment, changes in securities markets, or other factors could impact these local economic conditions and, consequently, have a material adverse effect on Mid Penn’s financial condition and results of operation.

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.~~earnings

We review our investment securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value. When the fair value off any of our investment securities has declined below its carrying value, we are required to assess whether the decline is other than temporary. If we conclude that the decline is other than temporary, we are 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 have resulted and may result in our concluding in future periods that there is additional impairment of these securities that 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 calculations and assumptions used in determining whether an asset is impaired, the impairment disclosed may not accurately reflect the actual impairment in the future.

Mid Penn’s operations of its business, including its interaction with customers, are increasingly done via electronic means, and this has increased its risks related to cyber security

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. Mid Penn has observed an increased level of attention in the industry 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, policies and procedures are 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 may have been 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; litigation; and reputational damage adversely affecting customer or investor confidence.

Mid Penn is Subject To Environmental Liability Risk Associated with Lending Activities

A significant portion of Mid Penn’s loan portfolio is secured by real property. During the ordinary course of business, Mid 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 reduce the affected property’s value or limit Mid Penn’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws, may increase Mid Penn’s exposure to environmental 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 other financial liabilities associated with an environmental hazard could have a material adverse effect on Mid Penn’s financial condition and results of operations.

Mid Penn’s financial performance may suffer if its information technology is unable to keep pace with its growth or industry ~~developments.~~developments

Effective and competitive delivery of Mid Penn’s products and services is increasingly dependent upon information technology resources and processes, both those provided internally as well as those provided through third party vendors. In addition to better serving customers, the effective use of technology increases efficiency and enables Mid Penn to reduce costs. Mid Penn’s future success will depend, in part, upon its ability to address the needs of its customers by using technology to provide products and services to enhance customer convenience, as well as to create additional efficiencies in its operations. Many of Mid Penn’s competitors have greater resources to invest in technological improvements. Additionally, as technology in the financial services industry changes and evolves, keeping pace becomes increasingly complex and expensive for Mid Penn. There can be no assurance that Mid Penn will be able to effectively implement new technology-driven products and services, which could reduce its ability to compete effectively.

~~There can be no assurance that Mid Penn will repurchase the preferred stock and warrant issued under the CPP or that its regulators would approve such repurchase.~~

To repurchase the preferred stock and the warrant to purchase shares of Mid Penn’s common stock issued under the CPP (see Item 7 of this report under the caption, “Capital Purchase Program Participation.”), Mid Penn must raise sufficient capital and obtain regulatory approval. There can be no assurance when or if the preferred stock or the warrant can be repurchased or what the redemption price for the warrant will be. Until such time as the preferred stock and the warrant are repurchased, Mid Penn will remain subject to the terms and conditions set forth in the purchase agreement with the U.S. Treasury, the preferred stock and the warrant, which, among other things impose restrictions on quarterly cash dividends on its common stock and, with some exceptions, on repurchases of its common stock. Further, Mid Penn’s continued participation in the CPP subjects it to increased regulatory and legislative oversight.

With the exception of the Market Square Office and Derry Street Loan Operations Center in Harrisburg, PA, the Bank owns its main office, Operations Center, and branch offices and certain parking facilities related to its banking offices, all of which are free and clear of any lien. The Bank’s main office and all branch offices are located in Pennsylvania. All of these properties are in good condition and are deemed by management to be adequate for the Bank’s purposes. The table below sets forth the location of each of the Bank’s properties.

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 or the Bank or any of its properties.

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Corporation’s common stock is traded on the NASDAQ Stock Market under the symbol MPB. The following table shows the range of high and low sale prices for the Corporation’s stock and cash dividends paid for the quarters indicated.

Transfer Agent: Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016. Phone: 1-800-368-5948.

Number of Shareholders: As of February ~~15, 2012,~~14, 2014, there were approximately ~~1,486~~1,471 shareholders of record of Mid Penn’s common stock.

Dividends: Cash dividends of $0.25 were paid in both 2013 and 2012, while $0.20 ~~per share~~in cash dividends were paid during 2011. There were no cash dividends paid during 2010. Cash dividends of $0.52 per share were paid during 2009. The quarterly dividend payment was suspended during the fourth quarter of 2009 consistent with the Federal Reserve Board policy that dividend payouts should not exceed net income for the previous four quarters, net of dividends previously paid during that period. Furthermore, Mid Penn is restricted from increasing its dividends on its common stock above the last per share quarterly dividend declared prior to October 14, 2008 ($0.20 per share) without prior regulatory approval as long as the Capital Purchase Plan preferred stock is outstanding. On January 25, 2012, Mid Penn declared a cash dividend of $0.05 per common share, payable on February 27, 2012 to shareholders of record as of February 8, 2012.

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 contributions may also be made under the Plan. For additional information about the Plan, contact the Transfer Agent.

Annual Meeting: The Annual Meeting of the Shareholders of Mid Penn will be held at 10:00 a.m. on Tuesday, May ~~1, 2012,~~6, 2014, at 349 Union Street, Millersburg, Pennsylvania.

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~~Penn's website:~~www.midpennbank.com~~. midpennbank.com.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

~~ITEM 6.~~

~~SELECTED FINANCIAL DATA~~

~~Summary of Selected Financial Data~~ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)
      2011 2010 2009 2008 2007
INCOME:

Total Interest Income
   $ 31,545    $ 30,148    $ 31,336    $ 31,856    $ 31,444
Total Interest Expense
   9,522    10,642    13,304    14,890    15,339
Net Interest Income
   22,023    19,506    18,032    16,966    16,105
Provision for Loan and Lease Losses
   1,205    2,635    9,520    1,230    925
Noninterest Income
   2,996    3,414    3,656    3,682    3,481
Noninterest Expense
   18,048    17,121    16,671    14,726    12,596
Income (Loss) Before Provision for (Benefit from) Income Taxes
   5,766    3,164    (4,503 ) 4,692    6,065
Provision for (Benefit from) Income Taxes
   1,223    416    (2,208 ) 1,104    1,394
Net Income (Loss)
   4,543    2,748    (2,295 ) 3,588    4,671
Preferred Stock Dividends and Discount Accretion
   514    514    514    16    —
Net Income (Loss) Available to Common Shareholders
   4,029    2,234    (2,809 ) 3,572    4,671
COMMON STOCK DATA PER SHARE:

Earnings (Loss) Per Common Share (Basic)
   $ 1.16    $ 0.64    $ (0.81 ) $ 1.03    $ 1.34
Earnings (Loss) Per Common Share (Fully Diluted)
   1.16    0.64    (0.81 ) 1.03    1.34
Cash Dividends
   0.20    —      0.52    0.80    0.80
Book Value Per Common Share
   12.47    10.98    10.55    11.75    11.56
Tangible Book Value Per Common Share
   12.10    10.58    10.15    11.34    11.03
AVERAGE SHARES OUTSTANDING (BASIC)
   3,481,414    3,479,780    3,479,780    3,483,097    3,497,806
AVERAGE SHARES OUTSTANDING (FULLY DILUTED)
   3,481,414    3,479,780    3,479,780    3,483,153    3,497,806
AT YEAR-END:

Investments
   $ 159,043    $ 70,702    $ 47,345    $ 52,739    $ 50,250
Loans and Leases, Net of Unearned Discount
   482,717    467,735    480,385    434,643    377,128
Allowance for Loan and Lease Losses
   6,772    7,061    7,686    5,505    4,790
Total Assets
   715,383    637,457    606,010    572,999    509,757
Total Deposits
   634,055    554,982    500,015    436,824    372,817
Short-term Borrowings
   —      1,561    16,044    23,977    37,349
Long-term Debt
   22,701    27,883    38,057    55,223    54,581
Shareholders’ Equity
   53,452    48,201    46,704    50,890    40,444
RATIOS:

Return on Average Assets
   0.66 % 0.44 % -0.39 % 0.67 % 0.94 %
Return on Average Shareholders’ Equity
   8.96 % 5.71 % -4.43 % 8.87 % 11.84 %
Cash Dividend Payout Ratio
   15.32 % 0.00 % -64.40 % 77.67 % 59.70 %
Allowance for Loan and Lease Losses to Loans and Leases
   1.40 % 1.51 % 1.60 % 1.27 % 1.27 %
Average Shareholders’ Equity to Average Assets
   7.37 % 7.73 % 8.88 % 7.55 % 7.82 %

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

~~ITEM 7.~~

~~MANAGEMENT’S DISCUSSION AND 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 to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” and similar expressions are intended to identify such forward-looking statements.

Mid Penn’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

~~The effects of economic deterioration~~
·
The effects of weak economic conditions on current customers, specifically the effect of the economy on loan customers’ ability to repay loans;

Governmental monetary and fiscal policies, as well as legislative and regulatory changes, including the effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act;

The effects of the failure of the federal government to reach a deal to raise the debt ceiling and the negative results on economic or business conditions resulting therefrom;

Possible impacts of the capital and liquidity requirements of Basel III standards and other regulatory pronouncements;

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, and other accounting standard setters;

The risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;

The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in Mid Penn’s market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;

The costs and effects of litigation and of unexpected or adverse outcomes in such litigation;

Technological changes;

Acquisitions and integration of acquired businesses;

The failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities;

Acts of war or terrorism;

Volatilities in the securities markets; and

Deteriorating economic conditions.

~~Governmental monetary and fiscal policies, as well as legislative and regulatory changes, including the effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act;~~

~~The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;~~

~~The costs and effects of litigation and of unexpected or adverse outcomes in such litigation;~~

~~Technological changes;~~

~~Acquisitions and integration of acquired businesses;~~

~~The failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities;~~

~~Acts of war or terrorism;~~

~~Volatilities in the securities markets; and~~

~~Deteriorating economic conditions.~~

All written or oral forward-looking statements attributable to Mid Penn are expressly qualified in their entirety by these cautionary statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of Mid Penn’s consolidated financial 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. Mid Penn is not aware of any known trends, events, uncertainties or of any current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on Mid Penn’s liquidity, capital resources or operations.

~~Financial Summary~~

~~The consolidated earnings of Mid Penn are derived primarily from the operations of its wholly owned subsidiary, Mid Penn Bank.~~

Mid Penn recorded net income available to common shareholders of $4,029,000 for the year 2011, compared to $2,234,000 in 2010, which was an increase of $1,795,000 or 80.3%. This represents net income in 2011 of $1.16 per common share compared to $0.64 per common share in 2010, and a net loss of ($0.81) per common share in 2009.

Total assets of Mid Penn continued to grow in 2011, reaching $715,383,000, an increase of $77,926,000, or 12.2% over $637,457,000 at year-end 2010. The majority of growth in assets came from increases in investments, which increased to $159,043,000 or 124.9% over $70,702,000 at the end of 2010. This growth was funded primarily through growth in deposits, which increased 14.2% to $634,055,000 from $554,982,000 at year-end 2010.

The continued soft economy was the major contributor to modest loan growth during 2011. Loan balances increased 3.2% to $482,717,000 from $467,735,000 in 2010. The modest growth numbers were a welcome improvement over the loan balance contraction experienced in 2010 from the end of 2009. Mid Penn experienced weak loan demand during 2011 despite a desire to sensibly lend to support creditworthy existing and new customers in the marketplace.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

Mid Penn’s return on average shareholders’ equity, (ROE), a widely recognized performance indicator in the financial industry, was 8.96% in 2011, 5.71% in 2010, and (4.43%) in 2009. Return on average assets (ROA), another performance indicator, was 0.66% in 2011, 0.44% in 2010, and (0.39%) in 2009.

Mid Penn’s performance during 2011 was a dramatic improvement over the results reported in 2010. This improvement was the result of reduced loan charge-offs and provision for loan and lease losses, improving cost of funds, consistent management of controllable expenses, and positive loan growth throughout 2011.

Net charge-offs decreased from $3,260,000 in 2010 to $1,494,000 during 2011. The reduction from 2010 allowed for a reduced provision for loan and lease losses from $2,635,000 in 2010 to $1,205,000 in 2011. The recession and problems in the commercial real estate sector of the economy continued to negatively impact a number of loans in the portfolio, causing continued elevation in the level of nonperforming loans from those experienced prior to 2009. Further discussion of these issues can be found in the Provision for Loan and Lease Losses section below.

Net interest margin improved to 3.52% in 2011 from 3.47% in 2010. This improvement was driven by a 40 basis point improvement in the rate on supporting liabilities from 2.08% in 2010 to 1.68% in 2011. This improvement allowed average interest spread to increase to 3.29% from 3.20% in 2010 and net interest income on a tax equivalent basis to increase from $20,468,000 in 2010 to $23,094,000 in 2011. This increase was achieved in spite of the substantial pool of nonperforming loans being carried on the balance sheet. The amount of interest income lost on this pool of troubled loans in 2011 amounted to $2,200,000. Further discussion of net interest margin can be found in the Net Interest Income section below.

FDIC insurance premiums increased in 2011 from 2010 and this expense remains at historically high levels as the FDIC continues its efforts to restore the Deposit Insurance Fund and keep it solvent to handle future bank failures should they occur. In addition to high deposit insurance premiums, the increasing regulatory and compliance burden necessitated the hiring of a dedicated compliance officer in 2010 to ensure Mid Penn’s continued compliance with current and anticipated future regulatory changes. This hiring was followed in 2011 with the addition of three additional positions dedicated to compliance with the Bank Secrecy Act, U.S. Patriot Act, and general regulatory compliance. Mid Penn was negatively impacted by recent regulatory changes governing overdraft charges, which has resulted in a reduction in NSF revenue of $425,000 during 2011.

In addition to the interest lost on nonperforming loans, this pool of troubled assets increases Mid Penn’s costs associated with the management and collection of this pool of assets. During 2011, the expenses associated with the increased collection and management efforts on troubled assets were $299,000 as compared to $307,000 in 2010. These expenses remain at historically high levels as Mid Penn resolves problems associated with the pool of troubled assets.

~~Mid Penn’s fundamental operating performance in 2011 was sound despite these issues and the general economic conditions and credit crisis issues experienced by the banking industry as a whole.~~

The Bank’s tier one capital (to risk weighted assets) of $50,265,000 or 10.4% and total capital (to risk weighted assets) of $56,327,000 or 11.6% at December 31, 2011, are above the regulatory requirements. Tier one capital consists primarily of the Bank’s shareholders’ equity. Total capital includes qualifying subordinated debt, if any, and the allowance for loan and lease losses, within permitted limits. Risk-weighted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet activities.

Critical Accounting Estimates

Mid Penn’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the banking industry. Application of these 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 that we used are based on historical experiences and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and estimates that we have 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 results of our operations.

Management of the Corporation considers the accounting judgments relating to the allowance for loan and lease losses, the evaluation of the Corporation’s investment securities for other-than-temporary impairment, the valuation of deferred tax assets, and the assessment of goodwill for impairment to be the accounting areas that require the most subjective and complex judgments.

The allowance for loan and lease losses represents management’s estimate of probable incurred credit losses inherent in the loan and 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

MID PENN BANCORP, INC.Management’s Discussion and Analysis

on pools of homogeneous loans based on historical loss experience, 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 report, the terms “loan” or “loans” refers to both loans and leases.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

Valuations for the investment portfolio are determined using quoted market prices, where available. If quoted market prices are not available, investment valuation is based on pricing models, quotes for similar investment securities, and observable yield curves and spreads. In addition to valuation, management must assess whether there are any declines in value below the carrying value of the investments that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of the loss in the consolidated statement of ~~operations.~~income.

Accounting Standards Codification (ASC) Topic 350,Intangibles-Goodwill and Other, requires that goodwill is not amortized to expense, but rather that it be tested for impairment at least annually. Impairment write-downs are charged to results of operations in the period in which the impairment is determined. The Corporation did not identify any impairment on its outstanding goodwill from its most recent testing, which was performed as of December 31, ~~2011.~~2013. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested when such events occur.

The Corporation recognizes deferred tax assets and liabilities for the future effects of temporary differences and tax credits. Enacted tax rates are applied to cumulative temporary differences based on expected taxable income in the periods in which the deferred tax asset or liability is anticipated to be realized. Future tax rate changes could occur that would require the recognition of income or expense in the consolidated statements of income in the period in which they are enacted. Deferred tax assets must be reduced by a valuation allowance if in management's judgment it is "more likely than not" that some portion of the asset will not be realized. Management may need to modify their judgments in this regard from one period to another should a material change occur in the business environment, tax legislation, or in any other business factor that could impair the Corporation's ability to benefit from the asset in the future.

Financial Summary

The consolidated earnings of Mid Penn are derived primarily from the operations of its wholly owned subsidiary, Mid Penn Bank.

2013 versus 2012

Mid Penn’s net income available to common shareholders of $4,616,000 for the year 2013 reflects an increase of $179,000, or 4.0%, over the $4,437,000 for the year 2012. This represents net income in 2013 of $1.32 per common share compared to $1.27 per common share in 2012.

Total assets of Mid Penn grew $7,925,000, or 1.1%, in 2013 to close the year at $713,125,000, compared to $705,200,000 at year-end 2012. The majority of the asset growth was centered in the loan portfolio, which increased $62,242,000, or 12.9%, to $546,462,000. This loan growth was supported by a decrease in investments, which fell to $122,803,000, or 20.4%, from $154,295,000 at the end of 2012.

Total deposits decreased $17,331,000, or 2.8%, from $625,461,000 at the end of 2012 to $608,130,000 at December 31, 2013. This was part of a comprehensive effort to improve Mid Penn’s overall funding mix by reducing reliance on higher-priced money market and certificate of deposit funds and placing greater emphasis on less expensive demand deposits and savings balances. As a result of these efforts, demand deposits and savings comprise 45.9% of total deposits at the end of 2013 versus 40.2% of total deposits at the end of 2012. Mid Penn also had shifted to a short-term borrowing position of $23,833,000 as part of its funding strategy by the end of 2013.

Mid Penn’s return on average shareholders’ equity, (ROE), a widely recognized performance indicator in the financial industry, was 9.37% in 2013 and 8.78% in 2012. Return on average assets (ROA), another performance indicator, was 0.71% in 2013 and 0.69% in 2012.

Mid Penn’s performance during 2013 improved over the results reported in 2012. This improvement was the result of increased loan production, improving cost of funds, improvement in nonperforming loans, and consistent management of controllable expenses throughout 2013.

Net interest margin improved to 3.80% in 2013 from 3.63% in 2012. This improvement was driven by a 34 basis point improvement in the rate on supporting liabilities to 0.86% in 2013 from 1.20% in 2012. This improvement allowed average interest spread to increase to 3.70% from 3.49% in 2012 and net interest income on a tax equivalent basis to increase to $25,250,000 in 2013 from $24,494,000 in 2012. This increase was achieved in spite of the substantial pool of nonperforming loans being carried on the balance sheet. The amount of interest income lost on this pool of troubled loans in 2013 amounted to $861,000. Further discussion of net interest margin can be found in the Net Interest Income section below.

Total nonperforming assets decreased $425,000 from $13,100,000 in 2012 to $12,675,000 at the end of 2013. Decreasing nonaccrual loans were the leading source of improvement in nonperforming assets. Further discussion of these components can be found in the Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses section below.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

Net charge-offs decreased to $877,000 in 2013 from $2,299,000 during 2012. Mid Penn increased provision for loan and lease losses from $1,036,000 in 2012 to $1,685,000 in 2013. This was largely driven by the increase in loans in the overall portfolio. Further discussion of these issues can be found in the Provision for Loan and Lease Losses section below.

The Bank’s tier one capital (to risk weighted assets) of $52,693,000, or 9.9%, and total capital (to risk weighted assets) of $59,100,000, or 11.1%, at December 31, 2013, are above the regulatory requirements. Tier one capital consists primarily of the Bank’s shareholders' equity and any qualifying preferred stock. Total capital also includes qualifying subordinated debt, if any, and the allowance for loan and lease losses, within permitted limits. Risk-weighted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet activities.

2012 versus 2011

Mid Penn recorded net income available to common shareholders of $4,437,000 for the year 2012, compared to $4,029,000 in 2011, which was an increase of $408,000 or 10.1%. This represents net income in 2012 of $1.27 per common share compared to $1.16 per common share in 2011.

Total assets of Mid Penn contracted in 2012, falling to $705,200,000, a decrease of $10,183,000, or 1.4% from $715,383,000 at year-end 2011. The majority of asset contraction came from a decrease in investments, which fell to $154,295,000 or 3.0% from $159,043,000 at the end of 2011. Federal funds sold also decreased, falling $3,439,000 or 53.4% from $6,439,000 at the end of 2011. These asset reductions were used to offset a reduction in deposits, which decreased 1.4% to $625,461,000 from $634,055,000 at year-end 2011. This deposit decrease was the result of the maturity of a $10,000,000 brokered certificate of deposit early in 2012.

The continued soft economy was the major contributor to modest loan growth during 2012. Loan balances increased 0.3% to $484,220,000 from $482,717,000 in 2011. Mid Penn experienced weak loan demand during 2012 despite a desire to sensibly lend to support creditworthy existing and new customers in the marketplace. Adding additional strain to weakened demand was the increase in unscheduled payoffs of large loans within the portfolio. The continued low interest rate environment and weak economy has increased the competitive pressure from other lending institutions to attract borrowers from other institutions as well as incenting borrowers to use surplus cash reserves to pay down debt rather than expand their operations.

Mid Penn’s return on average shareholders’ equity, (ROE), a widely recognized performance indicator in the financial industry, was 8.78% in 2012 and 8.96% in 2011. Return on average assets (ROA), another performance indicator, was 0.69% in 2012 and 0.66% in 2011.

Mid Penn’s performance during 2012 was a solid improvement over the results reported in 2011. This improvement was the result of reduced provision for loan and lease losses, improving cost of funds, consistent management of controllable expenses, and growth in noninterest income sources throughout 2012.

Net charge-offs increased from $1,494,000 in 2011 to $2,299,000 during 2012. Despite the increase in net charge-offs from 2011, Mid Penn was able to reduce provision for loan and lease losses from $1,205,000 in 2011 to $1,036,000 in 2012. This stemmed from the fact that $1,499,000 of the net charge-offs during 2012 had a previously recorded balance included in the allowance for loan and lease losses. As Mid Penn continues to work to resolve the elevated levels of nonperforming loans, the relationship between net charge-offs and provision for loan and lease losses may continue to have a more tenuous link. Further discussion of these issues can be found in the Provision for Loan and Lease Losses section below.

Net interest margin improved to 3.63% in 2012 from 3.52% in 2011. This improvement was driven by a 48 basis point improvement in the rate on supporting liabilities from 1.68% in 2011 to 1.20% in 2012. This improvement allowed average interest spread to increase to 3.49% from 3.29% in 2011 and net interest income on a tax equivalent basis to increase from $23,094,000 in 2011 to $24,494,000 in 2012. This increase was achieved in spite of the substantial pool of nonperforming loans being carried on the balance sheet. The amount of interest income lost on this pool of troubled loans in 2012 amounted to $2,974,000. Further discussion of net interest margin can be found in the Net Interest Income section below.

In addition to the interest lost on nonperforming loans, this pool of troubled assets increases Mid Penn’s costs associated with the management and collection of this pool of assets. During 2012, the expenses associated with the increased collection and management efforts on troubled assets were $369,000 as compared to $299,000 in 2011. These expenses remain at historically high levels as Mid Penn resolves problems associated with the pool of troubled assets.

Mid Penn’s fundamental operating performance in 2012 was sound despite these issues and the general economic conditions experienced by the banking industry as a whole.

The Bank’s tier one capital (to risk weighted assets) of $48,764,000, or 10.0%, and total capital (to risk weighted assets) of $54,363,000, or 11.1%, at December 31, 2012, are above the regulatory requirements. Tier one capital consists primarily of the Bank’s shareholders' equity and any qualifying preferred stock. Total capital also includes qualifying subordinated debt, if any, and the allowance for loan and lease losses,

MID PENN BANCORP, INC.Management’s Discussion and Analysis

within permitted limits. Risk-weighted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet activities.

Net Interest Income

Net interest income, Mid ~~Penn’s~~Penn's primary source of revenue, represents the difference between interest income and interest expense. Net interest income is affected by changes in interest rates and changes in average balances (volume) in the various interest-sensitive assets and liabilities.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS


Income and Rates on a Taxable Equivalent Basis for Years Ended

(Dollars in thousands)																						Income and Rates on a Taxable Equivalent Basis for Years Ended
	December 31, 2011							December 31, 2010							December 31, 2009							December 31, 2013					December 31, 2012					December 31, 2011
	Average				Average			Average				Average			Average				Average			Average				Average	Average				Average	Average				Average
	Balance		Interest		Rates			Balance		Interest		Rates			Balance		Interest		Rates			Balance		Interest		Rates	Balance		Interest		Rates	Balance		Interest		Rates
ASSETS:
Interest Earning Balances	$	50,458	$	520		1.03	%	$	45,244	$	818		1.81	%	$	41,925	$	1,460		3.48	%	$	14,818	$	109	0.74%	$	26,092	$	236	0.90%	$	50,458	$	520	1.03%
Investment Securities:
Taxable		81,017		1,632		2.01	%		31,981		800		2.50	%		18,829		665		3.53	%		68,524		617	0.90%		99,906		1,154	1.16%		81,017		1,632	2.01%
Tax-Exempt		35,238		2,015		5.72	%		26,254		1,679		6.40	%		25,188		1,774		7.04	%		66,147		2,911	4.40%		55,033		2,609	4.74%		35,238		2,015	5.72%

Total Securities		116,255							58,235							44,017							134,671					154,939					116,255

Federal Funds Sold		9,922		25		0.25	%		9,222		25		0.27	%		279		1		0.30	%		3,580		11	0.31%		6,197		16	0.26%		9,922		25	0.25%
Loans and Leases, Net:
Taxable		458,533		27,290		5.95	%		455,927		26,660		5.85	%		446,649		27,370		6.13	%
Tax-Exempt		17,144		1,134		6.61	%		16,655		1,128		6.77	%		17,504		1,013		5.79	%

Total Loans and Leases, Net		475,677							472,582							464,153
Restricted Investment in Bank Stocks		3,441		—		0.00	%		3,995		—		0.00	%		3,929		1		0.03	%

Loans and Leases, Net																							508,638		26,639	5.24%		483,977		27,599	5.70%		475,677		28,424	5.98%
Restricted Investment
in Bank Stocks																							2,545		20	0.79%		2,772		5	0.18%		3,441		-	0.00%
Total Earning Assets		655,753		32,616		4.97	%		589,278		31,110		5.28	%		554,303		32,284		5.82	%		664,252		30,307	4.56%		673,977		31,619	4.69%		655,753		32,616	4.97%

Cash and Due from Banks		7,941							7,466							6,795							8,156					8,057					7,941
Other Assets		24,756							26,330							22,071							25,472					24,422					24,756

Total Assets	$	688,450						$	623,074						$	583,169						$	697,880				$	706,456				$	688,450

LIABILITIES & SHAREHOLDERS’ EQUITY:
LIABILITIES &
SHAREHOLDERS' EQUITY:
Interest Bearing Deposits:
NOW	$	57,342		144		0.25	%	$	48,024		69		0.14	%	$	38,198		33		0.09	%	$	182,118		659	0.36%	$	126,171		458	0.36%	$	57,342		144	0.25%
Money Market		248,615		2,992		1.20	%		163,415		2,357		1.44	%		87,427		1,383		1.58	%		202,393		1,194	0.59%		236,434		1,992	0.84%		248,615		2,992	1.20%
Savings		27,801		15		0.05	%		26,585		16		0.06	%		26,241		17		0.06	%		29,597		15	0.05%		28,632		14	0.05%		27,801		15	0.05%
Time		209,574		5,358		2.56	%		239,761		6,877		2.87	%		255,123		9,293		3.64	%		148,863		2,568	1.73%		180,356		3,683	2.04%		209,574		5,358	2.56%
Short-term Borrowings		803		4		0.50	%		3,798		18		0.47	%		19,715		112		0.57	%		10,533		26	0.25%		1,044		3	0.29%		803		4	0.50%
Long-term Debt		23,394		1,009		4.31	%		28,860		1,305		4.52	%		47,241		2,466		5.22	%		16,268		595	3.66%		22,605		975	4.31%		23,394		1,009	4.31%

Total Interest Bearing Liabilities		567,529		9,522		1.68	%		510,443		10,642		2.08	%		473,945		13,304		2.81	%

Total Interest
Bearing Liabilities																							589,772		5,057	0.86%		595,242		7,125	1.20%		567,529		9,522	1.68%
Demand Deposits		63,484							58,480							51,464							49,318					47,670					63,484
Other Liabilities		6,722							6,010							5,985							6,051					7,184					6,722
Shareholders’ Equity		50,715							48,141							51,775

Total Liabilities and Shareholders’ Equity	$	688,450						$	623,074						$	583,169

Shareholders' Equity																							52,739					56,360					50,715
Total Liabilities and
Shareholders' Equity																						$	697,880				$	706,456				$	688,450
Net Interest Income			$	23,094						$	20,468						$	18,980						$	25,250				$	24,494				$	23,094


Net Yield on Interest Earning Assets:
Total Yield on Earning Assets						4.97	%						5.28	%						5.82	%					4.56%					4.69%					4.97%
Rate on Supporting Liabilities						1.68	%						2.08	%						2.81	%					0.86%					1.20%					1.68%
Average Interest Spread						3.29	%						3.20	%						3.01	%					3.70%					3.49%					3.29%
Net Interest Margin						3.52	%						3.47	%						3.42	%					3.80%					3.63%					3.52%

Interest and average rates are presented on a fully taxable equivalent basis, using an effective tax rate of 34%. For purposes of calculating loan yields, average loan balances include nonaccrual loans.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

Loan fees of ~~$701,000, $710,000,~~$1,020,000, $1,148,000, and ~~$683,000~~$635,000 are included with interest income in Table 1 for the years ~~2011, 2010~~2013, 2012 and ~~2009,~~2011, respectively.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

TABLE 2: VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(Dollars in thousands)    2011 Compared to 2010 2010 Compared to 2009
   Increase (Decrease) Due to Change In: Increase (Decrease) Due to Change In:
Taxable Equivalent Basis    Volume Rate Net Volume Rate Net
INTEREST INCOME:

Interest Bearing Balances
   $ 94    $ (392 ) $ (298 ) $ 116    $ (758 ) $ (642 )
Investment Securities:

Taxable
   1,227    (395 ) 832    465    (330 ) 135
Tax-Exempt
   575    (239 ) 336    75    (170 ) (95 )


Total Investment Securities
   1,801    (633 ) 1,168    540    (500 ) 40
Federal Funds Sold
   2    (2 ) —      27    (3 ) 24
Loans and Leases, Net
   186    450    636    519    (1,114 ) (595 )
Restricted Investment Bank Stocks
   —      —      —      —      (1 ) (1 )


Total Interest Income
   2,083    (577 ) 1,506    1,202    (2,376 ) (1,174 )


INTEREST EXPENSE:

Interest Bearing Deposits:

NOW
   13    62    75    8    28    36
Money Market
   1,229    (594 ) 635    1,202    (228 ) 974
Savings
   1    (2 ) (1 ) —      (1 ) (1 )
Time
   (866 ) (653 ) (1,519 ) (560 ) (1,856 ) (2,416 )


Total Interest Bearing Deposits
   376    (1,186 ) (810 ) 650    (2,057 ) (1,407 )
Short-term Borrowings
�� (14 ) —      (14 ) (90 ) (4 ) (94 )
Long-term Debt
   (247 ) (49 ) (296 ) (959 ) (202 ) (1,161 )


Total Interest Expense
   115    (1,235 ) (1,120 ) (400 ) (2,262 ) (2,662 )


NET INTEREST INCOME
   $ 1,968    $ 658    $ 2,626    $ 1,601    $ (113 ) $ 1,488



(Dollars in thousands)	2013 Compared to 2012						2012 Compared to 2011
	Increase (Decrease) Due to Change In:						Increase (Decrease) Due to Change In:

Taxable Equivalent Basis	Volume		Rate		Net		Volume		Rate		Net
INTEREST INCOME:
Interest Bearing Balances	$	(102)	$	(25)	$	(127)	$	(251)	$	(33)	$	(284)
Investment Securities:
Taxable		(363)		(174)		(537)		380		(858)		(478)
Tax-Exempt		527		(225)		302		1,132		(538)		594
Total Investment Securities		164		(399)		(235)		1,512		(1,396)		116

Federal Funds Sold		(7)		2		(5)		(9)		-		(9)
Loans and Leases, Net		1,406		(2,366)		(960)		496		(1,321)		(825)
Restricted Investment Bank Stocks		-		15		15		-		5		5
Total Interest Income		1,462		(2,774)		(1,312)		1,748		(2,745)		(997)

INTEREST EXPENSE:
Interest Bearing Deposits:
NOW		203		(2)		201		173		141		314
Money Market		(286)		(512)		(798)		(147)		(853)		(1,000)
Savings		-		1		1		-		(1)		(1)
Time		(643)		(472)		(1,115)		(747)		(928)		(1,675)
Total Interest Bearing Deposits		(726)		(985)		(1,711)		(721)		(1,642)		(2,362)

Short-term Borrowings		27		(4)		23		1		(2)		(1)
Long-term Debt		(273)		(107)		(380)		(34)		-		(34)
Total Interest Expense		(972)		(1,096)		(2,068)		(754)		(1,644)		(2,397)

NET INTEREST INCOME	$	2,434	$	(1,678)	$	756	$	2,502	$	(1,102)	$	1,400

The effect of changing volume and rate has been allocated entirely to the rate column. Tax-exempt income is shown on a tax equivalent basis assuming a federal income tax rate of 34%.

During ~~2011,~~2013, net interest income increased ~~$2,626,000~~$756,000, or ~~12.8%~~3.1%, as compared to an increase of ~~$1,488,000~~$1,400,000, or ~~7.8%~~6.1%, in ~~2010.~~2012. The average balances, effective interest differential, and interest yields for the years ended December 31, ~~2011, 2010,~~2013, 2012, and ~~2009~~2011 and the components of net interest income, are presented in Table 1. A comparative presentation of the changes in net interest income for ~~2011~~2013 compared to ~~2010,~~2012, and ~~2010~~2012 compared to ~~2009,~~2011, is provided in Table 2. This analysis indicates the changes in interest income and interest expense caused by the volume and rate components of interest earning assets and interest bearing liabilities.

The yield on earning assets decreased to ~~4.97%~~4.56% in ~~2011~~2013 from ~~5.28%~~4.69% in ~~2010.~~2012. The yield on earning assets for ~~2009~~2011 was ~~5.82%~~4.97%. The change in the yield on earning assets was due primarily to changes in market interest rates and extreme rate competition within our market. The average “prime rate” for ~~2011, 2010,~~2013, 2012, and ~~2009~~2011 was 3.25%. The yield on earning assets is also negatively impacted by the loss of interest on nonperforming loans. During ~~2011,~~2013, this loss of interest amounted to ~~$2,200,000.~~$861,000. Had this interest been included in Mid Penn’s earnings, the yield on earning assets would have increased by 3413 basis points.

Interest expense decreased by ~~$1,120,000,~~$2,068,000, or ~~10.5%~~29.0%, in ~~2011~~2013 as compared to a decrease of ~~$2,662,000,~~$2,397,000, or ~~20.0%~~25.2%, in ~~2010.~~2012. The cost of interest bearing liabilities decreased to ~~1.68%~~0.86% in ~~2011~~2013 from ~~2.08%~~1.20% in ~~2010.~~2012. The cost of interest bearing liabilities for ~~2009~~2011 was ~~2.81%~~1.68%. The reduction in the cost of interest bearing liabilities was due to changes in market interest rates and Mid Penn’s ability to ~~reduce the rates on Money Market accounts and Certificates of Deposit.~~replace higher-cost time deposits with lower-cost demand deposits.

Net interest margin, on a tax equivalent basis was 3.80% in 2013 compared to 3.63% in 2012 and 3.52% in ~~2011 compared to 3.47% in 2010 and 3.42% in 2009.~~2011. The interest rate impact of earning assets and funding sources due to changes in interest rates can be reasonably estimated at current interest rate levels, the options selected

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

by customers, and the future mix of the loan, investment, and deposit products in the ~~Bank’s~~Bank's portfolios, may significantly change the estimates used in the simulation models. In addition, our net interest income may be impacted by further interest rate actions of the Federal Reserve Bank. Management continues to monitor the net interest margin closely.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

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 to absorb management’s estimate of probable losses in the loan and lease portfolio. Mid Penn’s provision for loan and lease losses is based upon management’s monthly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans and leases, analyze delinquencies, ascertain loan and lease growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets we serve.

During ~~2011,~~2013, Mid Penn continued to experience a challenging economic and operating environment. Given the economic pressures that impact some borrowers, Mid Penn has maintained the allowance for loan and lease losses in accordance with Mid Penn’s assessment process, which took into consideration the risk characteristics of the loan and lease portfolio and shifting collateral values from December 31, ~~2010~~2012 to December 31, ~~2011.~~2013. For the year ended December 31, ~~2011,~~2013, the provision for loan and lease losses was ~~$1,205,000,~~$1,685,000, as compared to ~~$2,635,000~~$1,036,000 for the year ended December 31, ~~2010.~~2012.

For the year ended December 31, ~~2011,~~2013, Mid Penn had net charge-offs of ~~$1,494,000~~$877,000 compared to net charge-offs of ~~$3,260,000~~$2,299,000 during the year ended December 31, ~~2010.~~2012. Loans charged off during ~~2011~~2013 were comprised of 12 ~~residential real estate loans totaling $310,000, 9 commercial and industrial loans totaling $546,000, 8~~ commercial real estate loans totaling ~~$545,000,~~$936,000. Seven of these loans totaling $801,000 were to two borrowers with the remaining loans to unrelated borrowers. In addition, there were charge-offs for eight residential real estate loans to unrelated borrowers totaling $167,000, four commercial and ~~4 leases~~industrial loans to unrelated borrowers totaling $183,000, and one home equity loan representing ~~$44,000~~$91,000 of the total charged off during ~~2011.~~2013. The remaining ~~$142,000~~$96,000 was comprised ~~primarily~~ of various consumer ~~loans.~~ loans to unrelated borrowers.

During 2013, Mid Penn recovered $596,000 against loans previously charged off compared to $89,000 in 2012. The majority of the recoveries in 2013 were on six loans to unrelated borrowers totaling $531,000. Of these six loans, a total of $20,000 was recovered on two loans following regular repayment plans, $60,000 was recovered on a loan following the liquidation of collateral by the borrower on which the Bank could not establish a reliable value, and a $165,000 recovery was made on a charged off credit after a successful court challenge. Mid Penn recorded an additional $264,000 recovery following the sale of a large tract of land securing a charged down note and another $22,000 on a loan when the original borrower repurchased a property for more than the appraised value. The remaining $65,000 was recovered on a variety of loans to unrelated borrowers through ongoing collection efforts.

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 quality differs substantially from the assumptions used in making Mid Penn’s evaluation of the level of the allowance for loan losses as compared to the balance of outstanding loans.

Following its model for loan and lease loss allowance adequacy, management recorded a ~~$1,205,000~~$1,685,000 provision in ~~2011,~~2013, as well as a provision of ~~$2,635,000~~$1,036,000 in ~~2010,~~2012, and ~~$9,520,000~~$1,205,000 in ~~2009.~~2011. The allowance for loan and lease losses as a percentage of total loans was 1.16% at December 31, 2013, compared to 1.14% at December 31, 2012 and 1.40% at December 31, ~~2011, compared~~2011. Several factors contributed to ~~1.51%~~this increase in provision expense in 2013. First, the growth in the loan portfolio was substantial in 2013. This growth had a material impact on the amount of required reserves within the allowance for loan and lease losses from qualitative and quantitative factors. Secondly, total impaired loans increased $720,000, from $10,192,000 at December 31, ~~2010 and 1.60%~~2012 to $10,912,000 at December 31, ~~2009.~~

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~
2013. Specific reserves required on these impaired loans increased $550,000, from $1,383,000 at December 31, 2012 to $1,933,000 at December 31, 2013. Additionally, the qualitative segment of the allowance for loan and lease losses increased $415,000 to $3,682,000 at December 31, 2013, from $3,267,000 at December 31, 2012. This increase was primarily the result of the growth in the overall loan and lease portfolio. These increases were offset by a change in the mix of classified loans. Loans internally classified as special mention fell from $7,916,000 at December 31, 2012 to $4,214,000 at December 31, 2013, or a reduction of $3,702,000. Loans internally classified as substandard but not impaired decreased $6,168,000 from $10,726,000 at December 31, 2012 to $4,558,000 at December 31, 2013. Additionally during 2013, the historical loss experience within these segments of the portfolio continued to migrate downward as high levels of activity during 2009 and 2010 rolled out of the calculation and were replaced by more current experience. The combination of the shifting balances and migrating loss experience resulted in a decrease of $177,000 in required balances in the allowance for loan and lease losses.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

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)    Years ended December 31,
   2011 2010 2009 2008 2007
Balance, beginning of year
   $ 7,061    $ 7,686    $ 5,505    $ 4,790    $ 4,187
Loans and leases charged off:

Commercial real estate, construction and land development
   545    1,413    2,841    384    —
Commercial, industrial and agricultural
   546    787    4,158    70    100
Real estate - residential
   310    858    115    —      —
Consumer
   142    146    209    188    231
Leases
   44    230    108    5    129


Total loans and leases charged off
   1,587    3,434    7,431    647    460


Recoveries on loans and leases previously charged off:

Commercial real estate, construction and land development
   26    21    —      1    —
Commercial, industrial and agricultural
   10    3    16    20    5
Real estate - residential
   19    70    —      —      —
Consumer
   32    80    76    111    49
Leases
   6    —      —      —      84


Total loans and leases recovered
   93    174    92    132    138


Net charge-offs
   1,494    3,260    7,339    515    322


Provision for loan and lease losses
   1,205    2,635    9,520    1,230    925


Balance, end of year
   $ 6,772    $ 7,061    $ 7,686    $ 5,505    $ 4,790


   Years ended December 31,
   2011 2010 2009 2008 2007
Ratio of net charge-offs during the year to average loans and leases outstanding during the year, net of unearned discount
   0.31 % 0.69 % 1.58 % 0.13 % 0.09 %


Allowance for loan and lease losses as a percentage of total loans and leases at December 31
   1.40 % 1.51 % 1.60 % 1.27 % 1.27 %


Allowance for loan and lease losses as a percentage of non-performing assets at December 31
   50.91 % 35.05 % 48.33 % 96.92 % 97.68 %



(Dollars in thousands)	Years ended December 31,
	2013		2012		2011		2010		2009
Balance, beginning of year	$	5,509	$	6,772	$	7,061	$	7,686	$	5,505
Loans and leases charged off:
Commercial real estate, construction
and land development		936		499		545		1,413		2,841
Commercial, industrial and agricultural		183		834		546		787		4,158
Real estate - residential		167		195		310		858		115
Consumer		187		860		142		146		209
Leases		-		-		44		230		108
Total loans and leases charged off		1,473		2,388		1,587		3,434		7,431

Recoveries on loans and leases previously
charged off:
Commercial real estate, construction
and land development		286		15		26		21		-
Commercial, industrial and agricultural		193		31		10		3		16
Real estate - residential		23		-		19		70		-
Consumer		92		43		32		80		76
Leases		2		-		6		-		-
Total loans and leases recovered		596		89		93		174		92

Net charge-offs		877		2,299		1,494		3,260		7,339
Provision for loan and lease losses		1,685		1,036		1,205		2,635		9,520
Balance, end of year	$	6,317	$	5,509	$	6,772	$	7,061	$	7,686



	Years ended December 31,
	2013	2012	2011	2010	2009
Ratio of net charge-offs during the year
to average loans and leases outstanding during
the year, net of unearned discount	0.17%	0.48%	0.31%	0.69%	1.58%

Allowance for loan and lease losses as a percentage
of total loans and leases at December 31	1.16%	1.14%	1.40%	1.51%	1.60%

Allowance for loan and lease losses as a percentage
of non-performing assets at December 31	49.84%	42.05%	50.91%	35.05%	48.33%

Noninterest Income

~~A summary~~

2013 versus 2012

Income from fiduciary activities for 2013 was $492,000, an $83,000, or 14.4%, decrease from $575,000 in 2012. This revenue source is comprised of fees generated by Mid Penn’s Trust department and fees from the ~~major components~~sale of ~~noninterest~~third-party mutual funds and annuities to the Bank’s retail and commercial customers. Fees from third-party mutual fund and annuity sales were $267,000 in 2013 and $389,000 in 2012. This decline in fee revenue is responsible for the variance from 2012.

Mid Penn recognized gains on sale of investment securities in 2013 of $220,000 and $267,000 in 2012 as a result of efforts to position the portfolio to provide improved earnings and cash flow in support of future loan growth.

Mortgage banking income suffered from increasing mortgage rates earlier in the year, which effectively shut off the flow of customers seeking to refinance their existing mortgages from higher rates. Mortgage banking income for ~~the years ended December 31, 2011, 2010,~~2013 was $348,000, a decrease of $327,000, or 48.4%, from $675,000 in 2012.

MID PENN BANCORP, INC.Management’s Discussion and ~~2009 is found~~Analysis

Merchant services revenue increased to $330,000 in ~~Table 4. During 2011, Mid Penn earned $2,996,000 in noninterest income,~~2013, an increase of $74,000, or 28.9%, compared to ~~$3,414,000 earned~~$256,000 for 2012. Sales efforts in ~~2010~~this area were also very positive in 2013, adding to the enhanced revenue.

2012 versus 2011

Income from fiduciary activities for 2012 was $575,000, a $36,000, or 6.7%, increase from $539,000 in 2011. This revenue source is comprised of fees generated by Mid Penn’s Trust department and ~~$3,656,000 earned~~fees from the sale of third-party mutual funds and annuities to the Bank’s retail and commercial customers. Fees from third-party mutual fund and annuity sales were $389,000 in ~~2009.~~2012 and $354,000 in 2011.

Service charges on deposit accounts amounted to ~~$704,000~~$565,000 for ~~2011,~~2012, a decrease of ~~$435,000~~$139,000, or ~~38.2%~~19.7%, compared to ~~$1,139,000~~$704,000 for ~~2010, which was a decrease of $340,000 or 23.0% below 2009.~~2011. The decrease in service charges in ~~2011~~2012 occurred in spite of general growth in transaction accounts during ~~2011.~~2012. During this period of economic downturn, customers seem to have become more conscientious about their account balances and avoiding unnecessary charges related to insufficient funds. In addition to this behavioral change, Mid Penn was negatively impacted by regulatory changes contained in the Dodd-Frank Act governing overdraft charges, which has resulted in a reduction in NSF revenue.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

Income from fiduciary activities for 2011 was $539,000, a $108,000 or 25.1% increase from $431,000 in 2010, which was a $14,000 or 3.4% increase from $417,000 in 2009. This revenue source is comprised of fees generated by Mid ~~Penn’s Trust department and fees from the~~Penn recognized gains on sale of ~~third-party mutual funds~~investment securities in 2012 of $267,000 as a result of efforts to position the portfolio to provide improved earnings and ~~annuities to the Bank’s retail and commercial customers. Trust department income for 2011 was $185,000, a $15,000 or 7.5% decrease from $200,000~~cash flow in ~~2010, which was a $43,000 or 17.7% decrease from $243,000 in 2009. Trust Department income can fluctuate from year to year, due to the number~~support of ~~estates settled during the year. Fees from third-party mutual fund and annuity sales were $354,000 in 2011, $231,000 in 2010, and $174,000 in 2009.~~future loan growth.

Mortgage banking income remained robust during the year ended December 31, ~~2011.~~2012. Historically low long-term mortgage rates triggered a wave of refinancing and increasing purchase activity, generating robust fee income from this line of business. Mortgage banking income for 2012 was $675,000, an increase of $285,000, or 73.1%, over $390,000 in 2011.

Merchant services revenue increased to $256,000 in 2012, an increase of $91,000, or 55.2%, compared to $165,000 for 2011. During ~~2011,~~2012, Mid Penn ~~decided~~successfully renegotiated the revenue sharing contract with its vendor, significantly augmenting the revenue stream. Sales efforts in this area were also very positive in 2012, adding to the enhanced revenue.

TABLE 4: NONINTEREST INCOME



(Dollars in thousands)	Years ended December 31,
	2013		2012		2011
Income from fiduciary activities	$	492	$	575	$	539
Service charges on deposits		576		565		704
Net gain on sales of investment securities		220		267		-
Earnings from cash surrender value of life insurance		231		247		258
Mortgage banking income		348		675		390
ATM debit card interchange income		508		472		452
Merchant services revenue		330		256		165
Other income		585		626		488
Total Noninterest Income	$	3,290	$	3,683	$	2,996

Noninterest Expense

2013 versus 2012

Salaries and employee benefits represent the major component of noninterest expense. During 2013, increases in the workforce primarily included adding experienced team members to add ~~approximately $1,960,000 in secondary market qualified loans~~depth to the ~~loan portfolio.~~sales and support areas of Mid Penn. In 2013, Mid Penn also recognized a full year of salary and employee benefits expense from the 2012 additions within the support functions throughout the Corporation to enhance controls and support future growth. Commissions paid to employees in the retail investment and mortgage banking lines of business in 2013 were down $192,000 from 2012 due to reduced activity in both of these business lines.

FDIC Assessment decreased $548,000 to $486,000 in 2013. Prior to 2011, assessments were calculated based on the total deposits of a financial institution. Beginning in the second quarter of 2011, the assessment base was changed from deposits to average total assets less tangible equity. This resulted in significant savings for Mid Penn. In addition, 2013 reflects the recognition of a ~~slight decline~~refund of $139,000 in ~~mortgage banking income~~overbillings from the FDIC due to ~~$390,000~~an error by the FDIC in ~~2011~~Mid Penn’s assessment calculation.

Legal and professional fees increased to $705,000 in 2013 from ~~$423,000~~$604,000 in ~~2010.~~2012. This increase was primarily related to consultants used in the information technology area to improve the Bank’s network capabilities and successfully migrate to a service bureau processing environment.

Software licensing increased from $648,000 in 2012 to $947,000 in 2013. During 2013, Mid Penn ~~owns cash surrender value~~incurred one-time charges of ~~life insurance policies on~~$26,000 associated with the migration its ~~directors. The income on these policies amounted~~core banking data processing software from an in-house environment to ~~$258,000 during~~a service bureau hosted platform. This migration allowed for staffing reductions in the information technology and operations areas of $39,000 for part of the year ~~2011, $270,000~~ in ~~2010,~~2013. The

MID PENN BANCORP, INC.Management’s Discussion and ~~$280,000 in 2009. In addition~~Analysis

remaining increase is due to new service contracts on software to comply with various regulatory requirements and to expand the ~~income on these life insurance policies,~~ Bank’s online loan and deposit application capabilities.

Mid Penn recognized a gain on ~~life insurance proceeds~~sale or write-down on foreclosed assets of $302,000 in ~~2009~~2013. During 2013, Mid Penn recognized a gain of ~~$158,000 from~~$340,000 on the ~~death~~sale of a ~~retired director in February 2009.~~

~~Other income amounted~~repossessed property. This gain was offset by Mid Penn’s ongoing analysis of the carrying values of repossessed properties and the adjustment of their values to ~~$1,105,000 in 2011, $1,151,000 in 2010, and $1,198,000 in 2009.~~

~~TABLE 4: NONINTEREST INCOME~~current market rates.

(Dollars in thousands)    Years ended December 31,
   2011    2010    2009
Income from fiduciary activities
   $ 539       $ 431       $ 417
Service charges on deposits
   704       1,139       1,479
Investment securities gains, net
   —         —         —
Earnings from cash surrender value of life insurance
   258       270       280
Gain on life insurance proceeds
   —         —         158
Mortgage banking income
   390       423       124
Merchant services revenue
   165       141       128
ATM debit card interchange income
   452       408       341
Other income
   488       602       729






Total Noninterest Income
   $ 2,996       $ 3,414       $ 3,656

~~Noninterest Expense~~

~~A summary of the major components of noninterest expense for the years ended December 31, 2011, 2010, and 2009 is reflected~~Loan collection costs decreased to $214,000 in ~~Table 5. Noninterest~~2013 from $369,000 in 2012. OREO expense increased to ~~$18,048,000~~$290,000 in ~~2011~~2013 from ~~$17,121,000~~$253,000 in ~~2010~~2012. These items represent the costs associated with working through collection efforts on the pool of nonperforming assets within the loan portfolio. While decreasing in total during 2013, they continue to be at historically elevated levels due to the size and ~~$16,671,000~~nature of the nonperforming assets pool.

ATM debit card processing and internet banking expenses have both increased in ~~2009.~~recent years due to increasing customer demand for these banking services.

2012 versus 2011

The major component of noninterest expense is salaries and employee benefits. Increases in the ~~2011~~2012 workforce primarily included ~~additions~~adding experienced team members to ~~compliance~~add depth to the sales and operations support functions within Mid Penn, in order to provide enhanced controls and procedures to support a more sophisticated product line and customer base. The escalating compliance and regulatory burden experienced by banks throughout the industry necessitated the hiring of dedicated compliance staff as well as dedicating resources from support areas ~~throughout~~and bolster compliance functions of Mid ~~Penn to complying with the expanding regulatory changes.~~Penn. Mid Penn also recognized in ~~2011~~2012 a full year of salary and employee benefits expense from the ~~2010~~2011 additions within the support functions throughout the Corporation to enhance controls and support future growth. During ~~2011,~~2012, medical benefits increased ~~$126,000~~$184,000 from ~~2010 levels.~~2011 levels, primarily due to the increase in actual medical claims experienced from Mid Penn’s self-funded medical insurance plan. In addition, commission-based compensation paid to mortgage originators and retail investment representatives increased ~~$107,000~~$144,000 from ~~2010 levels.~~2011 levels and are reflective of the enhanced revenues generated from these lines of business.

~~Occupancy~~

Legal and ~~equipment expenses also~~professional fees increased from $444,000 in 2011 ~~primarily~~to $604,000 in ~~connection with utility and snow removal costs from the harsh winter months early in the year.~~

FDIC insurance expense increased in 2011, closing the year at $1,057,000 as compared to $897,000 during 2010. The historically high levels of FDIC insurance expense during 2009, 2010, and 2011 stem from the escalation in Deposit Insurance premiums assessed by the FDIC on all its member banks to restore the Deposit Insurance Fund and keep it solvent to handle future bank failures should they occur. Mid Penn’s premium level was also negatively impacted by the increase in assets used in the calculation of Deposit Insurance premiums.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

~~Computer expense increased from $578,000 in 2010 to $697,000 in 2011.~~2012. Mid Penn ~~has been making significant enhancements to technology platforms to enhance efficiencies within~~incurred elevated legal fees in 2012 stemming from coordination with the ~~support departments and enable updated products and services to customers. These charges reflect~~U.S. Treasury on the ~~ongoing service contracts for these enhancements.~~

Internet banking expense increased to $195,000 in 2011 from $138,000 in 2010. A major focus throughout 2010 was the implementation of an enhanced website and internet banking platform. The cost of providing enhanced functionality is reflected in this line item and is partrepayment of Mid Penn’s ~~efforts~~Capital Purchase Program funds and the buyout of the related warrants. In addition, Mid Penn engaged a computer consultant to ~~provide~~perform an evaluation of the core computer system and its ancillary programs as a ~~robust suite of technology-related products and services to the marketplace.~~resource in making future enhancement decisions.

~~The final significant item was the loss~~

Loss on sale or write-down on foreclosed assets ~~of ($20,000)~~increased to $96,000 in ~~2011 and $283,000 in 2010.~~2012. During ~~2010,~~2012, this item increased as a result of Mid Penn’s ongoing analysis of the carrying values of repossessed properties and the adjustment of their values to current market ~~rates~~rates.

Loan collection costs increased to $369,000 in 2012 from $299,000 in 2011. OREO expense increased to $253,000 in 2012 from $161,000 in 2011. These items have risen as Mid Penn continues to work through collection efforts on the ~~face~~pool of nonperforming assets within the ~~overall decline~~loan portfolio.

ATM debit card processing and internet banking expenses have both increased in ~~real estate values plaguing~~recent years due to increasing customer demand for these banking services.

During 2012, Mid Penn reached the ~~real estate market. In 2011,~~end of a three year contract for its insurance coverage and experienced an increase in premium costs upon renewal of its policies. Also during 2012, Mid Penn made increasing use of temporary employees to finalize the ~~carrying values on repossessed properties have stabilized~~conversion of loan and ~~some small gains have been realized~~credit documents from paper storage to an electronic storage mechanism, significantly reducing the ~~ongoing liquidation of~~need for floor space and fire protection safeguards for these ~~properties.~~documents.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

TABLE 5: NONINTEREST EXPENSE

(Dollars in thousands)    Years ended December 31,
   2011 2010    2009
Salaries and employee benefits
   $ 9,519    $ 8,760       $ 8,173
Occupancy expense, net
   1,075    916       844
Equipment expense
   1,292    1,361       1,170
Pennsylvania Bank Shares tax expense
   449    443       366
FDIC Assessment
   1,057    897       1,163
Legal and Professional fees
   444    529       814
Director fees and benefits expense
   304    303       291
Marketing and advertising expense
   354    308       679
Computer expense
   697    578       393
Telephone expense
   377    362       344
(Gain) loss / write-down on sale of foreclosed assets
   (20 ) 283       110
Core deposit intangible amortization
   65    65       65
Stationery and supplies expense
   166    156       151
Postage expense
   167    172       156
Courier expense
   30    60       96
Meals, travel, and lodging expense
   228    211       200
Correspondent service charge expense
   79    87       95
Contributions expense
   77    35       77
ATM debit card processing expense
   152    122       126
Internet banking expense
   195    138       88
Other expenses
   1,341    1,335       1,270




Total Noninterest Expense
   $ 18,048    $ 17,121       $ 16,671



(Dollars in thousands)	Years ended December 31,
	2013		2012		2011
Salaries and employee benefits	$	10,788	$	10,518	$	9,519
Occupancy expense, net		1,128		1,077		1,075
Equipment expense		1,299		1,234		1,292
Pennsylvania Bank Shares tax expense		464		462		449
FDIC Assessment		486		1,034		1,057
Legal and Professional fees		705		604		444
Director fees and benefits expense		319		335		304
Marketing and advertising expense		253		378		354
Software licensing		947		648		697
Telephone expense		436		411		377
(Gain) loss / write-down on sale of foreclosed assets		(302)		96		(20)
Intangible amortization		29		45		65
Loan collection costs		214		369		299
ATM debit card processing expense		202		171		152
Internet banking expense		252		240		195
Meals, travel, and lodging expense		271		266		228
Insurance		129		126		86
OREO expense		290		253		161
Investor services		68		76		72
Contract labor		55		42		-
Other expenses		1,358		1,308		1,242
Total Noninterest Expense	$	19,391	$	19,693	$	18,048

Investments

Mid Penn’s investment portfolio is utilized to provide liquidity and managed to maximize return within reasonable risk parameters.

Mid Penn’s entire portfolio of investment securities is considered available for sale. As such, the investments are recorded at fair value. Our investments are valued at a market price relative to investments of the same type with similar maturity dates. As the interest rate environment of these securities changes, the value of securities changes accordingly.

As of December 31, ~~2011,~~2013, the unrealized loss on investment securities resulted in a decrease in shareholders’ equity of $747,000 (unrealized loss on securities of $1,132,000 plus estimated income tax benefit of $385,000). At December 31, 2012, the unrealized gain on investment securities resulted in an increase in shareholders’ equity of ~~$2,044,000~~$2,432,000 (unrealized gain on securities of ~~$3,096,000~~$3,685,000 less estimated income tax expense of $1,052,000). At December 31, 2010, the unrealized gain on investment securities resulted in an increase in shareholders’ equity of $176,000 (unrealized gain on securities of $266,000 less estimated income tax expense of $90,000) compared to a December 31, 2009 increase in the unrealized gain included in other comprehensive income of $817,000 (unrealized gain on securities of $1,238,000 less estimated income tax expense of $421,000)$1,253,000). Mid Penn does not have any significant concentrations within its portfolio of investment securities. Table 6 provides a summary of our available for sale investment securities.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

TABLE 6: FAIR VALUE OF INVESTMENT SECURITIES

(Dollars in thousands)    December 31,
   2011    2010    2009
U.S. Treasury and U.S. government agencies
   $ 27,617       $ 17,394       $ 15,700
Mortgage-backed U.S. government agencies
   82,668       25,387       4,619
State and political subdivision obligations
   48,366       27,678       26,781
Equity securities
   392       243       245






   $ 159,043       $ 70,702       $ 47,345



(Dollars in thousands)	December 31,
	2013		2012		2011
U.S. Treasury and U.S. government agencies	$	12,834	$	17,740	$	27,617
Mortgage-backed U.S. government agencies		39,392		66,686		82,668
State and political subdivision obligations		69,038		69,479		48,366
Equity securities		1,539		390		392
	$	122,803	$	154,295	$	159,043

MID PENN BANCORP, INC.Management’s Discussion and Analysis

Maturity and yield information relating to the investment portfolio is shown in Table 7.

TABLE 7: INVESTMENT MATURITY AND YIELD

(Dollars in thousands)    After One After Five
As of December 31, 2011    One Year Year thru Years thru After Ten
   and Less Five Years Ten Years Years Total
U.S. Treasury and U.S. government agencies
   $ 2,011    $ 19,726    $ 5,880    $ —      $ 27,617
Mortgage-backed U.S. government agencies
   1    —      9,961    72,706    82,668
State and political subdivision obligations
   565    5,130    13,099    29,572    48,366
Equity securities
   —      —      —      392    392


   $ 2,577    $ 24,856    $ 28,940    $ 102,670    $ 159,043


   After One After Five
   One Year Year thru Years thru After Ten
   and Less Five Years Ten Years Years Total
Weighted Average Yields

U.S. Treasury and U.S. government agencies
   0.99 % 2.62 % 4.77 % —      2.96 %
Mortgage-backed U.S. government agencies
   5.51 % —      4.36 % 4.64 % 4.61 %
State and political subdivision obligations
   7.38 % 6.62 % 5.67 % 5.39 % 5.62 %
Equity securities
   —      —      —      3.46 % 3.46 %


   2.39 % 3.45 % 5.04 % 4.85 % 4.63 %



(Dollars in thousands)			After One		After Five
As of December 31, 2013	One Year		Year thru		Years thru		After Ten
	and Less		Five Years		Ten Years		Years		Total
U.S. Treasury and U.S. government agencies	$	-	$	12,834	$	-	$	-	$	12,834
Mortgage-backed U.S. government agencies		-		415		3,845		35,132		39,392
State and political subdivision obligations		-		6,977		26,596		35,465		69,038
Equity securities		-		1,020		-		519		1,539
	$	-	$	21,246	$	30,441	$	71,116	$	122,803



		After One	After Five
	One Year	Year thru	Years thru	After Ten
Weighted Average Yields	and Less	Five Years	Ten Years	Years	Total
U.S. Treasury and U.S. government agencies	-	3.44%	-	-	3.44%
Mortgage-backed U.S. government agencies	-	3.88%	4.06%	4.17%	4.16%
State and political subdivision obligations	-	5.52%	4.81%	4.90%	4.93%
Equity securities	-	6.38%	-	2.76%	5.16%
	-	4.27%	4.72%	4.52%	4.53%

Loans

At December 31, ~~2011,~~2013, loans and leases totaled ~~$482,717,000;~~$546,462,000, a ~~$14,982,000~~$62,242,000 or ~~3.2%~~12.9% increase from December 31, ~~2010.~~2012. During ~~2011,~~2013, Mid Penn experienced a net increase in commercial real estate, commercial/industrial, and ~~commercial/industrial~~residential real estate loans of approximately ~~$4,650,000.~~$64,060,000. This increase was attributed to the ~~result of an~~ increase in ~~business~~ lending opportunities to credit-worthy borrowers within the markets Mid Penn serves as well as enhancements to the lending sales team during the latter portion of 2011. Mid Penn also experienced an increase in residential real estate loans of approximately $10,798,000 during 2011 as real estate values stabilized and borrowers felt more comfortable refinancing higher-priced debt. Mid Penn added $7,143,000 in conventional residential mortgages within the loan portfolio as an alternative to purchasing lower-yielding investment securities as part of this increase.2013.

At December 31, ~~2011,~~2013, loans, net of unearned income, represented ~~71.0%~~80.2% of earning assets as compared to ~~78.3%~~72.4% on December 31, ~~2010,~~2012, and ~~84.8%~~71.0% on December 31, ~~2009.~~2011.

The ~~Bank’s~~Bank's loan portfolio is diversified among individuals and small and medium-sized businesses generally located within the ~~Bank’s~~Bank's trading area of Dauphin County, lower Northumberland County, western Schuylkill County and eastern Cumberland County. 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 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 concentration of credit to any one borrower. The Bank’s highest concentration of credit is in Commercial Real Estate financings.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

MID PENN BANCORP, INC.Management’s Discussion and Analysis

A distribution of the ~~Bank’s~~Bank's loan portfolio according to major loan classification is shown in Table 8.

TABLE 8: LOAN PORTFOLIO



(Dollars in thousands)	December 31,																									December 31,
	2011					2010					2009					2008					2007					2013			2012			2011			2010			2009
	Amount			%		Amount			%		Amount			%		Amount			%		Amount			%		Amount		%	Amount		%	Amount		%	Amount		%	Amount		%
Commercial real estate, construction and land development	$	249,204			51.6	$	252,915			54.0	$	253,878			52.8	$	234,762			53.9	$	197,192			52.1
Commercial, industrial and agricultural		78,656			16.3		70,295			15.0		85,795			17.8		71,385			16.4		65,421			17.3
Commercial real estate,
construction and land
development																										$	274,279	50.2	$	255,231	52.7	$	249,204	51.6	$	252,915	54.0	$	253,878	52.8
Commercial, industrial
and agricultural																											107,492	19.7		79,228	16.4		78,656	16.3		70,295	15.0		85,795	17.8
Real estate - residential		146,846			30.4		136,048			29.1		128,522			26.7		118,547			27.2		106,141			28.0		160,294	29.3		143,243	29.6		146,846	30.4		136,048	29.1		128,522	26.7
Consumer		8,327			1.7		8,922			1.9		12,884			2.7		11,103			2.5		9,987			2.6		4,646	0.8		6,770	1.4		8,327	1.7		8,922	1.9		12,884	2.7

Total Loans		483,033			100.0		468,180			100.0		481,079			100.0		435,797			100.0		378,741			100.0		546,711	100.0		484,472	100.0		483,033	100.0		468,180	100.0		481,079	100.0

Unearned income		(316	)				(445	)				(694	)				(1,154	)				(1,613	)				(249)			(252)			(316)			(445)			(694)

Loans net of unearned discount		482,717					467,735					480,385					434,643					377,128
Allowance for loan and lease losses		(6,772	)				(7,061	)				(7,686	)				(5,505	)				(4,790	)

Loans net of unearned
discount																											546,462			484,220			482,717			467,735			480,385
Allowance for loan and
lease losses																											(6,317)			(5,509)			(6,772)			(7,061)			(7,686)
Net loans	$	475,945				$	460,674				$	472,699				$	429,138				$	372,338				$	540,145		$	478,711		$	475,945		$	460,674		$	472,699

Mid Penn’s maturity and rate sensitivity information related to the loan portfolio is reflected in Table 9.

TABLE 9: LOAN MATURITY AND INTEREST SENSITIVITY

(Dollars in thousands)       After One
As of December 31, 2011    One Year    Year thru    After Five
   and Less    Five Years    Years    Total
Commercial real estate, construction and land development
   $ 20,911       $ 26,303       $ 201,990       $ 249,204
Commercial, industrial and agricultural
   $ 8,725       50,565       19,366       78,656
Real estate - residential mortgages
   13,830       35,070       97,946       146,846
Consumer
   2,785       3,543       1,683       8,011








   $ 46,251       $ 115,481       $ 320,985       $ 482,717








Rate Sensitivity

Predetermined rate
   $ 45,820       $ 109,446       $ 114,543       $ 269,809
Floating or adjustable rate
   431       6,035       206,442       212,908








   $ 46,251       $ 115,481       $ 320,985       $ 482,717

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~



(Dollars in thousands)			After One
As of December 31, 2013	One Year		Year thru		After Five
	and Less		Five Years		Years		Total
Commercial real estate, construction
and land development	$	18,323	$	44,063	$	211,893	$	274,279
Commercial, industrial and
agricultural		41,892		33,058		32,542		107,492
Real estate - residential mortgages		6,876		19,284		134,134		160,294
Consumer		1,150		2,392		855		4,397
	$	68,241	$	98,797	$	379,424	$	546,462



Rate Sensitivity
Predetermined rate	$	67,197	$	83,488	$	253,620	$	404,305
Floating or adjustable rate		1,044		15,309		125,804		142,157
	$	68,241	$	98,797	$	379,424	$	546,462

Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses

Other than as described herein, we do not believe there are any trends, events or uncertainties that are reasonably expected to have a material impact on future results of operations, liquidity, or capital resources. Further, based on known information, we believe that the effects of current and past economic conditions and other unfavorable business conditions may influence certain borrowers’ abilities to comply with their repayment terms. Mid Penn continues to monitor closely the financial strength of these borrowers. Mid Penn 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. Mid Penn has not in the past performed any commercial real estate or other type 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 mitigating factor in determining the proper level of allowance once impairment has been identified, the guarantee does not affect the impairment analysis.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

TABLE 10: NONPERFORMING ASSETS

(Dollars in thousands)    December 31,
   2011 2010 2009 2008 2007
Nonperforming Assets:

Nonaccrual loans
   $ 11,800    $ 17,228    $ 14,933    $ 4,113    $ 4,317
Loans renegotiated with borrowers
   571    2,323    308    51    —


Total nonperforming loans
   12,371    19,551    15,241    4,164    4,317
Foreclosed real estate
   931    596    663    1,516    528
Other repossessed property
   —      —      —      —      59


Total non-performing assets
   13,302    20,147    15,904    5,680    4,904
Accruing loans 90 days or more past due
   —      19    661    1,860    2,439


Total risk elements
   $ 13,302    $ 20,166    $ 16,565    $ 7,540    $ 7,343


Nonperforming loans as a % of total loans outstanding
   2.56 % 4.18 % 3.17 % 0.96 % 1.14 %
Nonperforming assets as a % of total loans outstanding and other real estate
   2.76 % 4.31 % 3.31 % 1.30 % 1.30 %
Ratio of allowance for loan losses to nonperforming loans
   54.74 % 36.12 % 50.43 % 132.20 % 110.96 %



(Dollars in thousands)	December 31,
	2013		2012		2011		2010		2009
Nonperforming Assets:
Nonaccrual loans	$	10,877	$	11,831	$	11,800	$	17,228	$	14,933
Accruing troubled debt restructured loans		833		426		571		2,323		308
Total nonperforming loans		11,710		12,257		12,371		19,551		15,241

Foreclosed real estate		965		843		931		596		663
Total nonperforming assets		12,675		13,100		13,302		20,147		15,904

Accruing loans 90 days or more past due		-		-		-		19		661
Total risk elements	$	12,675	$	13,100	$	13,302	$	20,166	$	16,565

Nonperforming loans as a % of total
loans outstanding		2.14%		2.53%		2.56%		4.18%		3.17%
Nonperforming assets as a % of total
loans outstanding and other real estate		2.32%		2.71%		2.76%		4.31%		3.31%
Ratio of allowance for loan losses
to nonperforming loans		53.94%		44.95%		54.74%		36.12%		50.43%

Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to charging down or charging off the loan. Once the charge down 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. During ~~2011,~~2013, nonperforming loans declined ~~$7,180,000~~$547,000 from ~~$19,551,000~~$12,257,000 at December 31, ~~2010.~~2012. This improvement has been the result of slight improvement in some sectors of the general economy and maintaining a close relationship with troubled borrowers as they navigate their plan toward a resolution of credit issues.

Mid Penn’s troubled debt restructured loans at December 31, ~~2011~~2013 totaled ~~$4,602,000,~~$7,765,000 of which, ~~$571,000~~$833,000 are accruing residential mortgages in compliance with the terms of the modification. $6,932,000 of the troubled debt restructured loans are included in nonaccrual loans. As a result of the evaluation, a specific allocation and, subsequently, charge offs have been taken as appropriate. Further discussion of troubled debt restructured loans can be found in Note 7 to Mid Penn’s Consolidated Financial Statements, which are ~~incorporated herein by reference.~~included in Item 8. As of December 31, ~~2011,~~2013, there were no defaulted troubled debt restructured loans as all troubled debt restructured loans were current with respect to their associated forbearance agreements.

Mid Penn entered into forbearance agreements on all loans currently classified as troubled debt restructures 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.

As a result of adopting the amendments in ASU No. 2011-02, Mid Penn reassessed all restructurings that occurred on or after the beginning of the current fiscal year (January 1, 2011) for identification as troubled debt restructurings. Mid Penn identified no loans for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology that are now considered troubled debt restructurings in accordance with ASU No. 2011-02.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

MID PENN BANCORP, INC.Management’s Discussion and Analysis

The following table provides additional analysis of partially charged-off loans:

TABLE 11: PARTIALLY CHARGED OFF LOANS

(Dollars in thousands)
   December 31, 2011 December 31, 2010
Period ending total loans outstanding (net of unearned income)
   $ 482,717    $ 467,735
Allowance for loan and lease losses
   6,772    7,061
Total Nonperforming loans
   12,371    19,551
Nonperforming and impaired loans with partial charge-offs
   4,505    7,487
Ratio of nonperforming loans with partial charge-offs to total loans
   0.93 % 1.60 %
Ratio of nonperforming loans with partial charge-offs to total nonperforming loans
   36.42 % 38.29 %
Coverage ratio net of nonperforming loans with partial charge-offs
   86.09 % 58.53 %
Ratio of total allowance to total loans less nonperforming loans with partial charge-offs
   1.42 % 1.53 %


(Dollars in thousands)
	December 31, 2013		December 31, 2012
Period ending total loans outstanding (net of unearned income)	$	546,462	$	484,220
Allowance for loan and lease losses		6,317		5,509
Total Nonperforming loans		11,710		12,257
Nonperforming and impaired loans with partial charge-offs		2,103		3,744

Ratio of nonperforming loans with partial charge-offs
to total loans		0.38%		0.77%

Ratio of nonperforming loans with partial charge-offs
to total nonperforming loans		17.96%		30.55%

Coverage ratio net of nonperforming loans with
partial charge-offs		65.75%		64.71%

Ratio of total allowance to total loans less
nonperforming loans with partial charge-offs		1.16%		1.15%

Mid Penn has not experienced any additional charge-offs on loans for which a partial charge-off had originally been taken.

Mid Penn considers a commercial loan or commercial real estate loan to be impaired when it becomes 90 days or more past due and not in the process of collection. This methodology assumes the borrower cannot or will not continue to make additional payments. At that time the loan would be considered collateral dependent as the discounted cash flow (“DCF”) method indicates no operating income is available for evaluating the collateral position; therefore, all impaired loans are deemed to be collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans 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. In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. If the loan is secured, it will undergo a 90 day waiting period to ensure the collateral shortfall identified in the evaluation is accurate and then charged down by the specific allocation. Once the charge down is taken, the remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). 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 variations in value. A specific allocation of allowance is made for any anticipated collateral shortfall and a 90-day waiting period begins to ensure the accuracy of the collateral shortfall. The loan is then charged down by the specific allocation. Once the charge down is taken, the remaining balance remains 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 reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Consumer loans are recommended for charge-off after reaching delinquency of 90 days and the loan is not in the process of collection. The entire balance 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 prior to charging down or charging off the loan. Once the charge down is taken, 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 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.

~~MID PENN BANCORP, INC.~~ ~~Management’s Discussion and Analysis~~

MID PENN BANCORP, INC.Management’s Discussion and Analysis

Mid Penn’s rating system assumes any loans classified as sub-standard non-accrual to be impaired, and all of these loans are considered collateral dependent; therefore, all of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

It is Mid Penn’s policy to obtain updated third party valuations on all impaired loans collateralized by real estate within 30 days of the credit being classified as sub-standard non-accrual. Prior to receipt of the updated real estate valuation Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however no allowance recommendation will be made until which time Mid Penn is in receipt of the updated valuation. The credit department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no significant time lapses noted with the above processes.

In some instances Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, Mid Penn’s practice of obtaining independent third party market valuations on the subject property within 30 days of being placed on non-accrual status sometimes indicates that the loan to value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a case by case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every 1812 months for possible revaluation by an independent third party.

Mid Penn does not currently, or plan in the future to, use automated valuation methodologies as a method of valuing real estate collateral.

As of December 31, ~~2011,~~2013, Mid Penn had several unrelated loan relationships, with an aggregate carrying balance of ~~$10,926,000,~~$10,912,000, deemed impaired. This pool of loans is further broken down into a group of loans with an aggregate carrying balance of ~~$5,155,000~~$7,838,000 for which specific allocations totaling ~~$1,846,000~~$1,933,000 have been included within the loan loss reserve for these loans. The remaining ~~$5,771,000~~$3,074,000 of loans requires no specific allocation within the loan loss reserve. The ~~$10,926,000~~$10,912,000 pool of impaired loan relationships is comprised of ~~$7,834,000~~$9,014,000 in real estate secured commercial relationships and ~~$3,092,000~~$1,898,000 in business relationships. There are specific allocations against the real estate secured pool totaling ~~$523,000,~~$1,343,000, spread among ~~seventeen~~thirteen relationships composed primarily of customers engaged in real estate investment activities. The group of impaired business relationships with specific allocations is made up of ~~eight~~four relationships and a specific allocation of ~~$1,323,000~~$590,000 has been set aside against these credits. ~~Seven small business relationships account for $451,000 of the specific allocations due to the negative effects of the economy on their businesses.~~ One ~~additional~~ large commercial participation loan in this pool has shown exceptional collateral devaluation and is responsible for a specific allocation of ~~$872,000~~$548,000 of the total pool attributable to this segment. Management currently believes that the specific reserves are adequate to cover probable future losses related to these relationships.

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 conjunction with an internal loan review function that operates independently of the lending function, management monitors the loan portfolio to identify risk on a monthly basis 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 an integral part of the examination process.

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 within certain components of the portfolio. These allocations may be modified if current conditions indicate that loan and lease losses may differ from historical experience.

MID PENN BANCORP, INC.Management’s Discussion and Analysis

In addition, a portion of the allowance is established for losses inherent in the loan and lease portfolio which have not been identified by the quantitative processes described above. 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:

Changes in local, regional, and national economic and business conditions affecting the collectability of the portfolio, the values of underlying collateral, and 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 loans.~~

~~Changes in the experience, ability, and depth of lending management and other relevant staff as well as the quality of the institution’s loan review system.~~

~~Changes in the nature and volume of the portfolio and the terms of loans generally offered.~~

~~The existence and effect of any concentrations of credit and changes in the level of such concentrations.~~

·
~~MID PENN BANCORP, INC.~~
~~Management’s Discussion~~
Changes in local, regional, and ~~Analysis~~national economic and business conditions affecting the collectability of the portfolio, the values of underlying collateral, and the condition of various market segments.

While the allowance for loan and lease losses is maintained at a level believed to be adequate by management for covering estimated losses in the loan and lease portfolio, determination of the allowance is inherently subjective, as it requires estimates, all of 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 ~~$6,772,000~~$6,317,000 is adequate as of December 31, ~~2011.~~2013.

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.

The ~~2011~~2013 provision of ~~$1,205,000~~$1,685,000 is ~~a decrease~~an increase of ~~$1,430,000~~$649,000 from the ~~$2,635,000~~$1,036,000 provision in ~~2010.~~2012. The ~~smaller provision is reflective of the aggressive loan charge-offs taken at the end of 2009 and in 2010, resulting from the deterioration~~growth in the overall quality of our loan portfolio caused by the recession and problems in the commercial real estate sector. The continued slowness in the economy and continuing credit quality concerns of Mid Penn’s loan portfolio during ~~2011~~2013, as well as increases in some specific reserves, necessitated a larger ~~than pre-2009~~ provision ~~levels, even though~~in 2013. See also the ~~amount was a reduction from 2010.~~discussion in the Provision for Loan and Lease Losses section.

The allowance for loan and lease losses at December 31, ~~2011~~2013 was ~~$6,772,000,~~$6,317,000, or ~~1.40%~~1.16%, of total loans less unearned discount as compared to ~~$7,061,000,~~$5,509,000, or ~~1.51%~~1.14%, at December 31, ~~2010~~2012 and ~~$7,686,000,~~$6,772,000, or ~~1.60%~~1.40%, at December 31, ~~2009.~~2011.

Mid ~~Penn’s~~Penn's primary source of funds are deposits. Total deposits at December 31, ~~2011, increased~~2013 decreased by ~~$79,073,000~~$17,331,000, or ~~14.2%~~2.8%, over December 31, ~~2010,~~2012, which ~~increased~~decreased by ~~$54,967,000~~$8,594,000, or ~~11.0%~~1.4%, over December 31, ~~2009.~~2011. Average balances and average interest rates applicable to the major classifications of deposits for the years ended December 31, ~~2011, 2010,~~2013, 2012, and ~~2009~~2011 are presented in Table 13.

Average short-term borrowings for ~~2011~~2013 were ~~$803,000~~$10,533,000 as compared to ~~$3,798,000~~$1,044,000 in ~~2010.~~2012. These borrowings ~~included customer repurchase agreements, treasury tax and loan note option borrowings and~~consisted of federal funds purchased. ~~One $5,000,000 long-term borrowing matured in 2011, while no new long-term borrowing arrangements were entered into during the year.~~

At December 31, ~~2011,~~2013, the Bank had ~~$13,354,000~~$2,750,000 in brokered ~~deposits.~~deposits, a decrease of $1,378,000, or 33.4%, over December 31, 2012, which decreased by $9,226,000, or 69.1%, over the same period in 2011. With ~~additional~~continued success in the local deposit environment, along with the maturity of a $10,000,000 brokered certificate of deposit in 2012, the Bank ~~reduced~~has virtually eliminated its brokered deposit ~~funding by $3,140,000 in 2011, after having reduced such funding by $11,395,000 in 2010.~~

The maturity distribution of time deposits of $100,000 or more is reflected in Table 14.

Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets. The detailed computation of the Bank’s regulatory capital ratios can be found in Note 17 of Item 8, Notes to Consolidated Financial Statements. The greater a corporation’s capital resources, the more likely it is to meet its cash obligations and absorb unforeseen losses. Too much capital, however, indicates that not enough of the corporation’s earnings have been invested in the continued growth of the business or paid to shareholders. The buildup makes it difficult for a corporation to offer a competitive return on the shareholders’ capital going forward. For these reasons capital adequacy has been, and will continue to be, of paramount importance.

Shareholders’ equity increased in 2013 by $696,000, or 1.3%, following a decrease in 2012 of $1,232,000, or 2.3%, and an increase in 2011 by $5,251,000, or 10.9%~~, following~~. Capital was positively impacted in 2013 by the net income available to common shareholders of $4,616,000; however, the increase was muted by an increase in ~~2010~~accumulated other comprehensive loss. Capital was negatively impacted in 2012 by the repayment and redemption of ~~$1,497,000 or 3.2%~~the $10,000,000 in the Series A preferred stock, but the impact was softened by the net income available to common shareholders of $4,437,000 and ~~a decrease~~the issuance of the $4,880,000 in ~~2009~~Series B preferred stock in 2012. Subsequently, the Series B preferred stock offering of ~~$4,186,000 or 8.2%.~~$5,000,000 was completed on January 3, 2013. Capital was positively impacted in 2011 by the net income available to common shareholders of $4,029,000 and the increase in other comprehensive income from the increase in value of the assets in the available for sale investment portfolio. Capital was positively impacted in 2010 by the net income of $2,234,000 and the continued suspension of the common dividend to shareholders. Capital was negatively impacted in 2009 by the net loss of $2,809,000 and the payment of cash dividends to common shareholders of $1,809,000.

Mid Penn’s normal intent for dividend payout is to provide quarterly cash returns to shareholders and earnings retention at a level sufficient to finance future growth. During the fourth quarter of 2009, Mid Penn suspended the quarterly cash dividend consistent with Federal Reserve Board policy that dividend payouts should not exceed net income for the previous four quarters, net of dividends paid during that period. Mid Penn continued the suspension of the quarterly cash dividend to shareholders throughout 2010, consistent with Federal Reserve Board policy. Mid Penn reinstated a dividend payout of $0.05 per common share during each of the calendar quarters in 2011. The dividends paid on common shares totaled $0.25 for the years ended December 31, 2013 and December 31, 2012, while $0.20 in dividends were paid for the year ended December 31, 2011. ~~On January 25, 2012, Mid Penn declared a cash dividend of $0.05 per common share, payable on February 27, 2012 to shareholders of record as of February 8, 2012.~~

The dividend payout ratio, which represents the percentage of annual net income returned to shareholders in the form of cash dividends, was ~~15.3%~~18.94% for ~~2011~~2013 and ~~0.0%~~19.69% for ~~2010.~~

Mid Penn maintained the following regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31, ~~2011,~~2013, and ~~2010,~~2012, as follows:

On December 19, 2008, Mid Penn ~~Bancorp, Inc. (the “Corporation”)~~ entered into anand closed a letter agreement ~~(including the Securities Purchase Agreement – Standard Terms) (the “Purchase Agreement”)~~ with the United States Department of the Treasury (the “Treasury”) pursuant to which the Treasury invested $10,000,000 in ~~the Corporation~~Mid Penn under the Treasury’s Capital Purchase Program (the “CPP”).

Under the ~~Purchase Agreement,~~letter agreement, the Treasury received (1) 10,000 shares of Series A Fixed Rate Cumulative Perpetual Preferred Stock, $1,000 liquidation preference (“Series A Preferred Stock”), and (2) ~~Warrants~~warrants to purchase up to 73,099 shares of the ~~Corporation’s~~Mid Penn common stock at an exercise price of $20.52 per ~~share.~~share (the “Warrants”).

On December 28, 2012, Mid Penn entered into a rate of 5% per annum for the first five years and 9% per annum thereafter. The preferred shares are non-voting, other than class voting rights on certain matters that could adversely affect the preferred shares. If dividends on the preferred shares have not been paid for an aggregate of six quarterly dividend periods or more, whether consecutive or not, the Corporation’s authorized number of directors will automatically be increased by two, and holders of the preferred stock, voting togetherletter agreement with holders of any then outstanding parity stock, will have the right to elect those directors at the Corporation’s next annual meeting of shareholders or special meeting of shareholders called for that purpose. These preferred share directors would be elected annually and serve until all accrued and unpaid dividends on the preferred shares have been paid.

~~Pursuant to the American Recovery and Reinvestment Act of 2009 (“ARRA”), the Secretary of~~ the Treasury ~~shall permit, subject~~pursuant to ~~consultation with~~which Mid Penn repurchased from the ~~appropriate Federal banking agency, the Corporation to redeem the Series A Preferred Stock. The Corporation may do so without regard to the source~~Treasury all 10,000 shares of ~~the funds to be used to redeem~~ the Series A Preferred Stock ~~or any minimum waiting period. If~~issued to the ~~Corporation elects to redeem~~Treasury, which constitutes all of the issued and outstanding shares of Series A Preferred Stock. Mid Penn repurchased the Series A Preferred Stock ~~prior~~for a purchase price equal to ~~February 15, 2012, and receives approval~~the aggregate liquidation amount of the Preferred Stock of $10,000,000, plus accrued but unpaid dividends of $59,722. All 10,000 shares of Series A Preferred Stock have subsequently been cancelled.

On January 23, 2013, Mid Penn entered into a letter agreement with the Treasury pursuant to which Mid Penn repurchased from the Treasury ~~and~~on that date the ~~Board of Governors~~Warrants for $58,479. The Warrants have subsequently been cancelled.

As of the ~~Federal Reserve System, it must redeem at least $2,500,000 of~~date hereof, Mid Penn has no further financial obligations under the Series A Preferred ~~Stock. Upon redemption of~~Stock, the ~~Series A Preferred Stock,~~


~~MID PENN BANCORP, INC.~~		~~Management’s Discussion and Analysis~~

Warrants, or the Treasury’s CPP.

the Secretary of the Treasury is required to liquidate the warrants associated with the Corporation’s participation in the CPP at the current market price. Any redemption is subject to the consent of the Board of Governors of the Federal Reserve System. Until December 19, 2011, or such earlier time as all preferred shares have been redeemed by the Corporation or transferred by Treasury to third parties that are not affiliated with Treasury, the Corporation may not, without Treasury’s consent, increase its dividend rate per share of common stock above the per share quarterly amount in effect immediately prior to October 14, 2008 ($0.20 per share) or, with certain limited exceptions, repurchase its common stock.

The warrants are immediately exercisable and have a 10-year term. The exercise price and number of shares subject to the warrants are both subject to anti-dilution adjustments. Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrants; however, this agreement not to vote the shares does not apply to any person who may acquire such shares.

The preferred shares and the warrants were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The Corporation has filed a shelf registration statement covering the preferred shares, the warrants, and the common stock underlying the warrants. Treasury and other future holders of the preferred shares, the warrants, or the common stock issued pursuant to the warrants also have piggyback and demand registration rights with respect to these securities. None of the preferred shares, the warrants, or the shares issuable upon exercise of the warrants are subject to any contractual restrictions on transfer.

In the Purchase Agreement, the Corporation agreed that, until such time as the Treasury ceases to own any securities acquired from Mid Penn pursuant to the Purchase Agreement, the Corporation will take all necessary action to ensure that benefit plans with respect to our senior executive officers comply with Section 111(b) of the Emergency Economic Stability Act of 2008 (the “EESA”) and applicable guidance or regulations issued by the Secretary of the Treasury. The applicable executive compensation requirements apply to the compensation of the Corporation’s Chief Executive Officer, Chief Financial Officer, and certain other highly compensated executive officers.

~~These requirements, the compliance of which must be annually certified by Mid Penn’s chief executive officer and chief financial officer, include:~~

In compliance with the EESA and ARRA, on February 27, 2009, Rory G. Ritrievi entered into a Capital Purchase Plan Executive Compensation Restriction Agreement with Mid Penn Bancorp, Inc. and Mid Penn Bank (the “Agreement”). The Agreement prohibits, during the period which any obligation to the Federal Government remains outstanding, any payment to Mr. Ritrievi (including bonus payments and payments upon a termination) which would violate the EESA and ARRA.

In addition to these requirements, Mid Penn must have in place a company-wide policy regarding excessive or luxury expenditures and must permit a separate nonbinding shareholder vote to approve the compensation of executives as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission. Mid Penn has adopted such a luxury and expense policy and it appears on the Corporation’s website at www.midpennbank.com.

Federal income tax expense for ~~2011~~2013 was ~~$1,223,000~~$1,201,000 compared to ~~$416,000~~$1,244,000 in ~~2010~~2012 and ~~a federal income tax benefit of $2,208,000~~$1,223,000 in ~~2009.~~2011. The effective tax rate was 20% for 2013 and 2012, and 21% for ~~2011, 13% for 2010,~~2011.

The tax expense in ~~2011~~2013 and ~~2010~~2012 resulted from net income generated in the normal course of business. ~~The tax benefit recorded in 2009 was related to a loss stemming from the increased provision for loan losses and increased noninterest expenses during 2009.~~ Generally, our effective tax rate is below the statutory rate due to earnings on tax-exempt loans, investments, and bank-owned life insurance, and the impact of tax credits. The realization of deferred tax assets is dependent on future earnings. As a result of Mid Penn’s adoption of ASC Topic 740,Income Taxes, no significant income tax uncertainties were identified; therefore, Mid Penn recognized no adjustment for unrealized income tax benefits for the periods ended December 31, ~~2011~~2013 and December 31, ~~2010.~~2012. We currently anticipate that future earnings will be adequate to fully utilize deferred tax assets.

Mid ~~Penn’s~~Penn's asset-liability management policy addresses the management of Mid ~~Penn’s~~Penn's liquidity position and its ability to raise sufficient funds to meet deposit withdrawals, fund loan growth and meet other operational needs. Mid Penn utilizes its investments as a source of liquidity, along with deposit growth and increases in repurchase agreements and borrowings. (See Deposits and Other Funding Sources which appears earlier in this discussion.) Liquidity from investments is provided primarily through investments and interest-bearing balances with maturities of one year or less. Funds are available to Mid Penn through loans from the Federal Home Loan Bank and established federal funds (overnight) lines of credit. Mid ~~Penn’s~~Penn's major source of funds is its core deposit base.

~~Major sources of cash in 2011 came from the net increase in deposits of $79,073,000, as well as the decrease in interest-bearing balances of $27,564,000.~~

~~The major uses of cash in 2011 were the net purchase of investment securities of $84,744,000 and the increase in loans and leases of $17,774,000.~~

Major sources of cash in ~~2010~~2013 came from the ~~net~~maturity of investment securities and interest-bearing time deposits totaling $53,151,000, the increase in short-term borrowings of $23,833,000, and the sale of investment securities of $15,118,000.

Major uses of cash in 2013 were the increase in net loans and leases of $65,896,000, the purchases of investment securities of $27,881,000 and decrease in time deposits of ~~$54,967,000, as well as the proceeds~~$31,280,000.

Major sources of cash in 2012 came from the maturity of investment securities of ~~$8,982,000~~$39,453,000, the sale of investment securities of $17,895,000, and the ~~decrease~~increase in ~~loans~~demand deposit and ~~leases~~savings accounts of ~~$8,690,000.~~$29,645,000.

Major uses of cash in ~~2010~~2012 were the ~~purchase~~purchases of investment securities of ~~$33,472,000 and~~$53,553,000, as well as the ~~reduction~~decrease in ~~short-term borrowings and long-term debt~~time deposits of ~~$14,483,000 and $10,174,000, respectively. Another major use of cash in 2010 was the increase in interest-bearing balances of $16,437,000.~~$38,239,000.

Table 15 represents Mid Penn’s on-and-off balance sheet aggregate contractual obligations to make future payments as of December 31, ~~2011:~~2013.

We are not aware of any other commitments or contingent liabilities which may have a material adverse impact on Mid Penn’s liquidity or capital resources.

A ~~bank’s~~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~~Penn's ability to manage the balance sheet sensitivity to changes in interest rates and, by such reaction, mitigate the inflationary impact on performance. Interest rates do not necessarily move in the same direction or at the same magnitude as the prices of other goods and services. As discussed previously, Management seeks to manage the relationship between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

Information shown elsewhere in this Annual Report will assist in the understanding of how Mid Penn is positioned to react to changing interest rates and inflationary trends. In particular, the summary of net liabilities, as well as the composition of loans, investments and deposits should be considered.

Mid Penn makes contractual commitments to extend credit and extends lines of credit, which are subject to Mid ~~Penn’s~~Penn's credit approval and monitoring procedures.

As of December 31, ~~2011,~~2013, commitments to extend credit amounted to ~~$91,619,000~~$141,616,000 as compared to ~~$86,141,000~~$99,958,000 as of December 31, ~~2010.~~2012.

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 decreased to ~~$7,320,000~~$8,458,000 at December 31, ~~2011,~~2013, from ~~$10,048,000~~$10,417,000 at December 31, ~~2010.~~

Comprehensive Income (Loss) is a measure of all changes in equity of a corporation, excluding transactions with owners in their capacity as owners (such as proceeds from issuances of stock and dividends). The difference between Net Income (Loss) and Comprehensive Income (Loss) is termed “Other Comprehensive Income (Loss).” For Mid Penn, Other Comprehensive Income (Loss) consists primarily of unrealized gains and losses on available for sale securities, net of deferred income tax. Other Comprehensive Income (Loss) also includes a pension component in accordance with ASC Topic 715. Comprehensive Income (Loss) should not be construed to be a measure of Net Income (Loss). The amount of unrealized gains or losses reflected in Comprehensive Income (Loss) may vary widely at statement dates depending on the markets as a whole and how interest rate movements affect the market value of the portfolio of available for sale securities. Other Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009 was $1,880,000, ($737,000), and $369,000, respectively.

As a financial institution, Mid Penn’s primary source of market risk is interest rate risk. Interest rate risk is the exposure to fluctuations in Mid Penn’s future earnings (earnings at risk) resulting from changes in interest rates. This exposure or sensitivity is a function of the repricing characteristics of Mid ~~Penn’s~~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.

Mid Penn utilizes an asset-liability management model to measure the impact of interest rate movements on its interest rate sensitivity position. Mid Penn’s management also reviews the traditional 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 the management of the Corporation’s profitability.

Modeling techniques and simulation analysis involve assumptions and estimates that inherently cannot be measured with complete precision. Key assumptions in the analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of Mid Penn’s interest rate risk position over time.

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 ~~there~~Mid Penn would ~~not be a significant variance in~~experience enhanced net interest income over a one-year time frame due to upward interest rate ~~changes;~~changes, while a reduction in interest rates would result in a less pronounced reduction 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, ~~2011,~~2013, all interest rate risk levels according to the model were within the tolerance limits of Board approved policy. ~~In addition, the table does not take into consideration changes, which Management would make to realign its portfolio in the event of a changing rate environment.~~

MID PENN BANCORP, INC.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~ITEM 8.~~

~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~

The following audited financial statements are set forth in this Annual Report of Form 10-K on the following pages:

~~Index to Financial Statements and Supplementary Data~~


~~Report~~Index to Financial Statements and Supplementary Data

	Reports of Independent Registered Public Accounting ~~Firm~~Firms		42	43

	Consolidated Balance Sheets		43	45

	Consolidated Statements of ~~Operations~~Income		44	46

	Consolidated Statements of Comprehensive Income	47

	Consolidated Statements of Changes in ~~Shareholders’~~Shareholders' Equity		45	48

	Consolidated Statements of Cash Flows		46	49

	Notes to Consolidated Financial Statements		47	50

Report of Independent Registered Public Accounting Firm

~~To the~~

Board of Directors and Shareholders

Mid Penn Bancorp, Inc.

Millersburg, Pennsylvania

We have audited the accompanying consolidated balance ~~sheets~~sheet of Mid Penn Bancorp, Inc. and subsidiaries, (the “Corporation”) as of December 31, ~~2011 and 2010,~~2013 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mid Penn Bancorp, Inc. and subsidiaries at December 31, 2013, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Harrisburg, Pennsylvania

March 21, 2014

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Mid Penn Bancorp, Inc.

We have audited the accompanying consolidated balance sheet of Mid Penn Bancorp, Inc. and subsidiaries (the “Corporation”) as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the ~~three-year~~two-year period ended December 31, ~~2011.~~2012. The Corporation’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. The Corporation is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, ~~2011 and 2010,~~2012, and the results of their operations and their cash flows for each of the years in the ~~three-year~~two-year period ended December 31, ~~2011~~2012 in conformity with accounting principles generally accepted in the United States of America.

/s/ ParenteBeard LLC

~~Harrisburg,~~

Pittsburgh, Pennsylvania

March ~~26, 2012~~25, 2013

~~MID PENN BANCORP, INC.~~ ~~Consolidated Balance Sheets~~

(Dollars in thousands, except per share data)
   December 31,2011 December 31,2010
ASSETS

Cash and due from banks
   $ 9,847    $ 6,779
Interest-bearing balances with other financial institutions
   1,555    884
Federal funds sold
   6,439    5,238


Total cash and cash equivalents
   17,841    12,901


Interest-bearing time deposits with other financial institutions
   27,477    55,041
Available for sale investment securities
   159,043    70,702
Loans and leases, net of unearned interest
   482,717    467,735
Less: Allowance for loan and lease losses
   (6,772 ) (7,061 )


Net loans and leases
   475,945    460,674


Bank premises and equipment, net
   13,324    13,185
Restricted investment in bank stocks
   3,120    3,828
Foreclosed assets held for sale
   931    596
Accrued interest receivable
   3,067    2,632
Deferred income taxes
   2,439    2,875
Goodwill
   1,016    1,016
Core deposit and other intangibles, net
   274    351
Cash surrender value of life insurance
   7,896    7,638
Other assets
   3,010    6,018


Total Assets
   $ 715,383    $ 637,457


LIABILITIES & SHAREHOLDERS’ EQUITY

Deposits:

Noninterest bearing demand
   $ 73,261    $ 60,228
Interest bearing demand
   59,403    44,578
Money Market
   271,521    209,936
Savings
   27,978    26,466
Time
   201,892    213,774


Total Deposits
   634,055    554,982
Short-term borrowings
   —      1,561
Long-term debt
   22,701    27,883
Accrued interest payable
   1,064    1,111
Other liabilities
   4,111    3,719


Total Liabilities
   661,931    589,256
Shareholders’ Equity:

Preferred stock, par value $1,000; authorized 10,000,000 shares; 5% cumulative dividend; 10,000 shares issued and outstanding at December 31, 2011 and December 31, 2010
   10,000    10,000
Common stock, par value $1 per share; 10,000,000 shares authorized; 3,484,509 shares issued and outstanding at December 31, 2011 and 3,479,780 at December 31, 2010
   3,484    3,480
Additional paid-in capital
   29,830    29,810
Retained earnings
   8,222    4,875
Accumulated other comprehensive income
   1,916    36


Total Shareholders’ Equity
   53,452    48,201


Total Liabilities and Shareholders’ Equity
   $ 715,383    $ 637,457

MID PENN BANCORP, INC.Consolidated Balance Sheets

(Dollars in thousands, except per share data)

December 31, 2013

December 31, 2012
ASSETS

Cash and due from banks
$
7,407

$
11,200
Interest-bearing balances with other financial institutions

1,216

1,273
Federal funds sold

-

3,000
   Total cash and cash equivalents

8,623

15,473
Interest-bearing time deposits with other financial institutions

7,513

23,563
Available for sale investment securities

122,803

154,295
Loans and leases, net of unearned interest

546,462

484,220
   Less:  Allowance for loan and lease losses

(6,317)

(5,509)
Net loans and leases

540,145

478,711
Bank premises and equipment, net

12,469

13,123
Restricted investment in bank stocks

2,969

2,503
Foreclosed assets held for sale

965

843
Accrued interest receivable

2,704

2,893
Deferred income taxes

3,235

1,789
Goodwill

1,016

1,016
Core deposit and other intangibles, net

249

288
Cash surrender value of life insurance

8,374

8,143
Other assets

2,060

2,560
      Total Assets
$
713,125

$
705,200
LIABILITIES & SHAREHOLDERS’ EQUITY

Deposits:

   Noninterest bearing demand
$
48,346

$
57,977
   Interest bearing demand

201,090

164,837
   Money Market

196,736

210,588
   Savings

29,585

28,406
   Time

132,373

163,653
       Total Deposits

608,130

625,461
Short-term borrowings

23,833

-
Long-term debt

23,145

22,510
Accrued interest payable

393

620
Other liabilities

4,708

4,389
     Total Liabilities

660,209

652,980
Shareholders' Equity:

   Series B Preferred stock, par value $1.00; liquidation value $1,000; authorized

       5,000 shares; 7% non-cumulative dividend; 5,000 shares issued and outstanding at

       December 31, 2013 and 4,880 shares issued and outstanding at December 31, 2012

5,000

4,880
   Common stock, par value $1.00; authorized 10,000,000 shares; 3,494,397 shares

       issued and outstanding at December 31, 2013 and 3,489,684 at December 31, 2012

3,494

3,490
   Additional paid-in capital

29,853

29,816
   Retained earnings

15,441

11,741
   Accumulated other comprehensive (loss) income

(872)

2,293
Total Shareholders’ Equity

52,916

52,220
       Total Liabilities and Shareholders' Equity
$
713,125

$
705,200

The accompanying notes are an integral part of these consolidated financial statements.

~~MID PENN BANCORP, INC.~~ ~~Consolidated Statements of Operations~~

(Dollars in thousands, except per share data)    Years Ended December 31,
   2011 2010    2009
INTEREST INCOME

Interest & fees on loans and leases
   $ 28,038    $ 27,397       $ 28,039
Interest on interest-bearing balances
   520    818       1,460
Interest and dividends on investment securities:

U.S. Treasury and government agencies
   1,619    788       652
State and political subdivision obligations, tax-exempt
   1,329    1,108       1,171
Other securities
   14    12       13
Interest on federal funds sold and securities purchased under agreements to resell
   25    25       1




Total Interest Income
   31,545    30,148       31,336




INTEREST EXPENSE

Interest on deposits
   8,509    9,319       10,726
Interest on short-term borrowings
   4    18       112
Interest on long-term debt
   1,009    1,305       2,466




Total Interest Expense
   9,522    10,642       13,304




Net Interest Income
   22,023    19,506       18,032
PROVISION FOR LOAN AND LEASE LOSSES
   1,205    2,635       9,520




Net Interest Income After Provision for Loan and Lease Losses
   20,818    16,871       8,512




NONINTEREST INCOME

Income from fiduciary activities
   539    431       417
Service charges on deposits
   704    1,139       1,479
Earnings from cash surrender value of life insurance
   258    270       280
Gain on life insurance proceeds
   —      —         158
Mortgage banking income
   390    423       124
Other income
   1,105    1,151       1,198




Total Noninterest Income
   2,996    3,414       3,656




NONINTEREST EXPENSE

Salaries and employee benefits
   9,519    8,760       8,173
Occupancy expense, net
   1,075    916       844
Equipment expense
   1,292    1,361       1,170
Pennsylvania Bank Shares tax expense
   449    443       366
FDIC Assessment
   1,057    897       1,163
Legal and professional fees
   444    529       814
Director fees and benefits expense
   304    303       291
Marketing and advertising expense
   354    308       679
Computer expense
   697    578       393
Telephone expense
   377    362       344
(Gain) loss on sale/write-down of foreclosed assets
   (20 ) 283       110
Core deposit intangible amortization
   65    65       65
Other expenses
   2,435    2,316       2,259




Total Noninterest Expense
   18,048    17,121       16,671




INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM)

INCOME TAXES
   5,766    3,164       (4,503 )
Provision for (benefit from) income taxes
   1,223    416       (2,208 )




NET INCOME (LOSS)
   4,543    2,748       (2,295 )
Preferred stock dividends and discount accretion
   514    514       514




NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
   $ 4,029    $ 2,234       $ (2,809 )




PER COMMON SHARE DATA:

Basic Earnings (Loss) Per Common Share
   $ 1.16    $ 0.64       $ (0.81 )
Diluted Earnings (Loss) Per Common Share
   1.16    0.64       (0.81 )
Cash Dividends
   0.20    0.00       0.52

MID PENN BANCORP, INC.Consolidated Statements of Income

(Dollars in thousands, except per share data)
Years Ended December 31,

2013

2012

2011
INTEREST INCOME

Interest & fees on loans and leases
$
26,305

$
27,233

$
28,038
Interest on interest-bearing balances

109

236

520
Interest and dividends on investment securities:

   U.S. Treasury and government agencies

591

1,137

1,619
   State and political subdivision obligations, tax-exempt

1,921

1,722

1,329
   Other securities

46

22

14
Interest on federal funds sold and securities purchased under agreements to resell

11

16

25
     Total Interest Income

28,983

30,366

31,545
INTEREST EXPENSE

Interest on deposits

4,436

6,147

8,509
Interest on short-term borrowings

26

3

4
Interest on long-term debt

595

975

1,009
     Total Interest Expense

5,057

7,125

9,522
     Net Interest Income

23,926

23,241

22,023
PROVISION FOR LOAN AND LEASE LOSSES

1,685

1,036

1,205
Net Interest Income After Provision for Loan and Lease Losses

22,241

22,205

20,818
NONINTEREST INCOME

Income from fiduciary activities

492

575

539
Service charges on deposits

576

565

704
Net gain on sales of investment securities

220

267

-
Earnings from cash surrender value of life insurance

231

247

258
Mortgage banking income

348

675

390
ATM debit card interchange income

508

472

452
Merchant services income

330

256

165
Other income

585

626

488
    Total Noninterest Income

3,290

3,683

2,996
NONINTEREST EXPENSE

Salaries and employee benefits

10,788

10,518

9,519
Occupancy expense, net

1,128

1,077

1,075
Equipment expense

1,299

1,234

1,292
Pennsylvania Bank Shares tax expense

464

462

449
FDIC Assessment

486

1,034

1,057
Legal and professional fees

705

604

444
Director fees and benefits expense

319

335

304
Marketing and advertising expense

253

378

354
Software licensing

947

648

697
Telephone expense

436

411

377
(Gain) loss on sale/write-down of foreclosed assets

(302)

96

(20)
Intangible amortization

29

45

65
Loan collection costs

214

369

299
Other expenses

2,625

2,482

2,136
    Total Noninterest Expense

19,391

19,693

18,048
INCOME BEFORE PROVISION FOR INCOME TAXES

6,140

6,195

5,766
Provision for income taxes

1,201

1,244

1,223
NET INCOME

4,939

4,951

4,543
Series A preferred stock dividends and discount accretion

14

514

514
Series B preferred stock dividends

309

-

-
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
$
4,616

$
4,437

$
4,029

PER COMMON SHARE DATA:

Basic Earnings Per Common Share
$
1.32

$
1.27

$
1.16
Diluted Earnings Per Common Share

1.32

1.27

1.16
Cash Dividends

0.25

0.25

0.20

The accompanying notes are an integral part of these consolidated financial statements.

MID PENN BANCORP, INC.Consolidated Statements of Comprehensive Income



(Dollars in thousands)	December 31,
	2013		2012		2011

Net income	$	4,939	$	4,951	$	4,543

Other comprehensive (loss) income:

Unrealized (losses) gains arising during the period on available for sale
securities, net of income taxes of ($1,563), $291, and $962, respectively		(3,033)		565		1,867

Reclassification adjustment for net gain on sales of available for sale
securities included in net income, net of income taxes of ($75), ($91),
and $0, respectively (1) (3)		(145)		(176)		-

Change in defined benefit plans, net of income taxes of $7, ($6), and $6,
respectively (2) (3)		13		(12)		13

Total other comprehensive (loss) income		(3,165)		377		1,880

Total comprehensive income	$	1,774	$	5,328	$	6,423

	(1)
~~MID PENN BANCORP, INC.~~		Amounts are included in net gain on sales of investment securities on the Consolidated Statements of ~~Changes~~Income as a separate component within total noninterest income

(2)

Amounts are included in ~~Shareholders’ Equity~~the computation of net periodic benefit cost and are included in salaries and employee benefits on the Consolidated Statements of Income as a separate element within total noninterest expense

~~FOR YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009~~

(3)

Income tax amounts are included in the provision for income taxes in the Consolidated Statements of Income

(Dollars in thousands, except share data)    Preferred
Stock    Common
Stock    Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Treasury
Stock    Total
Shareholders’
Equity
Balance, December 31, 2008
   $ 10,000       $ 3,480       $ 29,838    $ 7,168    $ 404    $ —         $ 50,890
Comprehensive loss:

Net loss
   —         —         —      (2,295 ) —      —         (2,295 )
Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effects
   —         —         —      —      263    —         263
Defined benefit plans, net of tax effects
   —         —         —      —      106    —         106


Total comprehensive loss
            (1,926 )


Cash dividends ($0.52 per share)
   —         —         —      (1,809 ) —      —         (1,809 )
Preferred dividends
   —         —         —      (437 ) —      —         (437 )
Amortization of warrant cost
   —         —         (14 ) —      —      —         (14 )








Balance, December 31, 2009
   10,000       3,480       29,824    2,627    773    —         46,704
Comprehensive income:

Net income
   —         —         —      2,748    —      —         2,748
Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effects
   —         —         —      —      (641 ) —         (641 )
Defined benefit plans, net of tax effects
   —         —         —      —      (96 ) —         (96 )


Total comprehensive income
            2,011


Preferred dividends
   —         —         —      (500 ) —      —         (500 )
Amortization of warrant cost
   —         —         (14 ) —      —      —         (14 )








Balance, December 31, 2010
   10,000       3,480       29,810    4,875    36    —         48,201
Comprehensive income:

Net income
   —         —         —      4,543    —      —         4,543
Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effects
   —         —         —      —      1,868    —         1,868
Defined benefit plans, net of tax effects
   —         —         —      —      12    —         12


Total comprehensive income
            6,423


Cash dividends
   —         —         —      (696 ) —      —         (696 )
Employee Stock Purchase Plan
   —         4       34    —      —      —         38
Preferred dividends
   —         —         —      (500 ) —      —         (500 )
Amortization of warrant cost
   —         —         (14 ) —      —      —         (14 )








Balance, December 31, 2011
   $ 10,000       $ 3,484       $ 29,830    $ 8,222    $ 1,916    $ —         $ 53,452

The accompanying notes are an integral part of these consolidated financial statements.

~~MID PENN BANCORP, INC.~~ ~~Consolidated Statements of Cash Flows~~

(Dollars in thousands)    Years Ended December 31,
   2011 2010 2009
Operating Activities:

Net Income (Loss)
   $ 4,543    $ 2,748    $ (2,295 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Provision for loan and lease losses
   1,205    2,635    9,520
Depreciation
   1,230    1,302    1,115
Amortization of intangibles
   77    18    37
Net (accretion) amortization of security (discounts) premiums
   (767 ) 162    (212 )
Earnings on cash surrender value of life insurance
   (258 ) (270 ) (280 )
Gain from life insurance proceeds
   —      —      (158 )
Loss on disposal of property, plant, and equipment
   46    4    5
(Gain) loss on sale / write-down of foreclosed assets
   (20 ) 283    110
Deferred income tax benefit
   (526 ) (288 ) (243 )
(Increase) decrease in accrued interest receivable
   (435 ) 149    (34 )
Decrease (increase) in other assets
   3,006    887    (4,593 )
Decrease in accrued interest payable
   (47 ) (639 ) (661 )
Increase (decrease) in other liabilities
   392    279    (218 )


Net Cash Provided By Operating Activities
   8,446    7,270    2,093


Investing Activities:

Net decrease (increase) in interest-bearing balances
   27,564    (16,437 ) 11,472
Proceeds from the maturity of investment securities
   26,413    8,982    15,360
Proceed from maturity of investment securities
   —      —      —
Purchases of investment securities
   (111,157 ) (33,472 ) (9,354 )
Redemptions (purchases) of restricted investment in bank stock
   708    201    (411 )
Net (increase) decrease in loans and leases
   (17,774 ) 8,690    (53,528 )
Purchases of bank premises and equipment
   (1,415 ) (1,587 ) (2,647 )
Proceeds from sale of foreclosed assets
   983    484    1,190
Proceeds from cash surrender value of life insurance
   —      —      507


Net Cash Used In Investing Activities
   (74,678 ) (33,139 ) (37,411 )


Financing Activities:

Net increase in demand deposits and savings accounts
   90,955    109,653    42,791
Net (decrease) increase in time deposits
   (11,882 ) (54,686 ) 20,400
Net decrease in short-term borrowings
   (1,561 ) (14,483 ) (7,933 )
Issued senior preferred stock
   —      —      —
Preferred stock dividend paid
   (500 ) (500 ) (453 )
Common stock dividend paid
   (696 ) —      (1,809 )
Employee Stock Purchase Plan
   38    —      —
Long-term debt repayment
   (5,182 ) (10,174 ) (17,166 )
Purchase of treasury stock
   —      —      —
Proceeds from long-term debt
   —      —      —


Net Cash Provided By Financing Activities
   71,172    29,810    35,830


Net increase in cash and cash equivalents
   4,940    3,941    512
Cash and cash equivalents, beginning of period
   12,901    8,960    8,448


Cash and cash equivalents, end of period
   $ 17,841    $ 12,901    $ 8,960


(Dollars in thousands)    Years Ended December 31,
   2011 2010 2009
Supplemental Disclosures of Cash Flow Information:

Interest paid
   $ 9,569    $ 11,281    $ 13,965
Income taxes paid
   $ 940    $ 510    $ 50
Supplemental Noncash Disclosures:

Loan transfers to foreclosed assets held for sale
   $ 1,298    $ 700    $ 447

MID PENN BANCORP, INC.Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands)

Accumulated

Additional

Other

Total

Preferred

Common

Paid-in

Retained

Comprehensive

Shareholders'

Stock

Stock

Capital

Earnings

(Loss) Income

Equity
Balance, January 1, 2011
$
10,000

$
3,480

$
29,810

$
4,875

$
36

$
48,201
   Net income

-

-

-

4,543

-

4,543
   Total other comprehensive income, net of taxes

-

-

-

-

1,880

1,880
   Common stock dividends

-

-

-

(696)

-

(696)
   Employee Stock Purchase Plan (4,729 shares)

-

4

34

-

-

38
   Series A Preferred stock dividends

-

-

-

(500)

-

(500)
   Amortization of warrant cost

-

-

(14)

-

-

(14)
Balance, December 31, 2011

10,000

3,484

29,830

8,222

1,916

53,452
   Net income

-

-

-

4,951

-

4,951
   Total other comprehensive income, net of taxes

-

-

-

-

377

377
   Common stock dividends

-

-

-

(872)

-

(872)
   Employee Stock Purchase Plan (5,175 shares)

-

6

50

-

-

56
   Series A Preferred stock redemption

(10,000)

-

-

-

-

(10,000)
   Series A Preferred stock dividends

-

-

-

(560)

-

(560)
   Series B Preferred stock issuance, net of costs

4,880

-

(50)

-

-

4,830
   Amortization of warrant cost

-

-

(14)

-

-

(14)
Balance, December 31, 2012

4,880

3,490

29,816

11,741

2,293

52,220
   Net income

-

-

-

4,939

-

4,939
   Total other comprehensive loss, net of taxes

-

-

-

-

(3,165)

(3,165)
   Common stock dividends

-

-

-

(872)

-

(872)
   Employee Stock Purchase Plan (4,713 shares)

-

4

51

-

-

55
   Series B Preferred stock issuance

120

-

-

-

-

120
   Series B Preferred stock dividends

-

-

-

(309)

-

(309)
   Amortization of warrant cost

-

-

(14)

-

-

(14)
   Warrant repurchase

-

-

-

(58)

-

(58)
Balance, December 31, 2013
$
5,000

$
3,494

$
29,853

$
15,441

$
(872)

$
52,916

The accompanying notes are an integral part of these consolidated financial statements.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(1)~~

~~Basis of Presentation~~

MID PENN BANCORP, INC.Consolidated Statements of Cash Flows



(Dollars in thousands)	Years Ended December 31,
	2013		2012		2011
Operating Activities:
Net Income	$	4,939	$	4,951	$	4,543
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses		1,685		1,036		1,205
Depreciation		1,250		1,153		1,230
Amortization (accretion) of intangibles		39		(14)		77
Net amortization (accretion) of security premiums (discounts)		2,557		1,809		(767)
Gain on sales of investment securities		(220)		(267)		-
Earnings on cash surrender value of life insurance		(231)		(247)		(258)
(Gain) loss on disposal of property, plant, and equipment		(8)		1		46
(Gain) loss on sale / write-down of foreclosed assets		(302)		96		(20)
Deferred income tax expense (benefit)		192		450		(526)
Decrease (increase) in accrued interest receivable		189		174		(435)
Decrease in other assets		500		424		3,006
Decrease in accrued interest payable		(227)		(444)		(47)
Increase in other liabilities		319		278		392
Net Cash Provided By Operating Activities		10,682		9,400		8,446
Investing Activities:
Net decrease in interest-bearing time deposits with other financial institutions		16,050		3,914		27,564
Proceeds from the maturity of investment securities		37,101		39,453		26,413
Proceeds from the sale of investment securities		15,118		17,895		-
Purchases of investment securities		(27,881)		(53,553)		(111,157)
(Purchases) redemptions of restricted investment in bank stock		(466)		617		708
Net increase in loans and leases		(65,896)		(6,389)		(17,774)
Purchases of bank premises and equipment		(588)		(995)		(1,415)
Proceeds from sale of bank premises and equipment		-		42		-
Proceeds from sale of foreclosed assets		2,957		2,579		983
Net Cash (Used In) Provided By Investing Activities		(23,605)		3,563		(74,678)
Financing Activities:
Net increase in demand deposits and savings accounts		13,949		29,645		90,955
Net decrease in time deposits		(31,280)		(38,239)		(11,882)
Net increase (decrease) in short-term borrowings		23,833		-		(1,561)
Series A preferred stock dividends paid		-		(560)		(500)
Series A preferred stock redemption		-		(10,000)		-
Series B preferred stock issuance, net of costs		120		4,830		-
Series B preferred stock dividends paid		(309)		-		-
Common stock dividends paid		(872)		(872)		(696)
Employee Stock Purchase Plan		55		56		38
Warrant Repurchase		(58)		-		-
Long-term debt repayment		(14,365)		(191)		(5,182)
Proceeds from long-term debt borrowings		15,000		-		-
Net Cash Provided By (Used In) Financing Activities		6,073		(15,331)		71,172
Net (decrease) increase in cash and cash equivalents		(6,850)		(2,368)		4,940
Cash and cash equivalents, beginning of year		15,473		17,841		12,901
Cash and cash equivalents, end of year	$	8,623	$	15,473	$	17,841



Supplemental Disclosures of Cash Flow Information:
Interest paid	$	5,284	$	7,569	$	9,569
Income taxes paid	$	775	$	1,700	$	940
Supplemental Noncash Disclosures:
Loan transfers to foreclosed assets held for sale	$	2,777	$	2,587	$	1,298

The accompanying notes are an integral part of these consolidated financial statements.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

(1) Basis of Presentation

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. and its wholly-owned ~~subsidiaries Mid Penn Investment Corporation, Mid Penn Insurance Services, LLC,~~subsidiary Mid Penn Bank (“Bank”), and the Bank’s wholly-owned subsidiary Mid Penn Insurance Services, LLC (collectively, “Mid Penn”). All material intercompany accounts and transactions have been eliminated in consolidation.

Each of Mid Penn’s lines of business are part of the same reporting segment, community banking, whose operating results are regularly reviewed and managed by a centralized executive management group. As a result, Mid Penn has only one reportable segment for financial reporting purposes.

For comparative purposes, the December 31, ~~2010~~2012 and December 31, ~~2009~~2011 balances have been reclassified to conform to the ~~2011~~2013 presentation. Such reclassifications had no impact on net income.

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, ~~2011,~~2013, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

~~(2)~~

~~Nature of Business~~

(2) Nature of Business

The Bank 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, installment loans, 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 services through its Trust Department. Deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law.

The financial services are provided to individuals, partnerships, non-profit organizations, and corporations through its fourteen offices located in Dauphin County, the southern portion of Northumberland County, the western portion of Schuylkill County and the eastern portion of Cumberland County.

~~A decision was made to close the Mid Penn Investment Corporation, effective August 31, 2010 due to a lack of activity within the subsidiary.~~

~~A decision was made to close Mid Penn Insurance Services, LLC, effective December 31, 2009 due to lack of activity within the subsidiary.~~

Mid Penn Insurance Services, LLC, ~~was revived in August of 2010 as~~ a wholly-owned subsidiary of the Bank, ~~to provide~~provides a wide array of personal and commercial insurance products. Income from Mid Penn Insurance Services, LLC is not material to Mid Penn.

~~(3)~~

~~Summary of Significant Accounting Policies~~

(3) Summary of Significant Accounting Policies

The accounting and reporting policies of Mid Penn conform with accounting principles generally accepted in the United States of America (“GAAP”) and to general practice within the financial industry. The following is a description of the more 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 valuation of deferred tax assets, the assessment of other-than-temporary impairment of investment securities, and core deposit intangible and goodwill ~~valuation, and the potential impairment of restricted stock.~~valuation.

(b)

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.

(c)

Investment Securities

Available for ~~Sale Securities~~ ~~– includes~~sale securities include debt and equity securities. Debt and equity securities are reported at fair value, with unrealized holding gains and losses excluded from earnings and reported, net of deferred income taxes, as a component of

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

accumulated other comprehensive income (loss) within shareholders’ equity. Realized gains and losses on sales of

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

investment securities are computed on the basis of specific identification of the cost of each security. Net gains on sales of investment securities were $220,000 in 2013, $267,000 in 2012, and $0 in 2011. Mid Penn had no ~~trading securities or~~ held to maturity securities in ~~2011 or 2010.~~2013 and 2012.

(d)

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. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. These amounts are generally being amortized over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loan portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: commercial and industrial, commercial real estate, commercial real estate-construction and lease financing. Consumer loans consist of the following classes: residential mortgage loans, home equity loans and other consumer loans.

For all classes of loans, the accrual of interest 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 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 credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan and lease losses. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are 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 six 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

Mid Penn originates commercial and industrial loans. Most of the Bank’s commercial and industrial loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory, and accounts receivable. Commercial loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Generally, the maximum term on non-mortgage lines of credit is one year. The loan-to-value ratio on such loans and lines of credit generally may not exceed 80% of the value of the collateral securing the loan. The Bank’s commercial business lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral as well as an evaluation of conditions affecting the borrower. Analysis of the borrower’s past, present, and future cash flows is also an important aspect of the Bank’s current credit analysis. Nonetheless, such loans are believed to carry higher credit risk than more traditional investments.

Commercial and industrial loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, which, in turn, is likely to be dependent upon the general economic environment. Mid Penn’s commercial and industrial loans are usually, but not always, secured by business assets and personal guarantees. However, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business.

Commercial real estate and commercial real estate –- construction

Commercial real estate and commercial real estate construction loans generally present a higher level of risk than loans secured by one to four family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. In addition, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Lease financing

Mid Penn originates leases for select commercial and state and municipal government lessees. The nature of the leased asset is often subject to rapid depreciation in salvage value over a relatively short time frame or may be of an industry specific nature, making appraisal or liquidation of the asset difficult. These factors have led the Bank to severely ~~curtain~~curtail the origination of new leases to state or municipal government agencies where default risk is extremely limited and to only the most credit-worthy commercial customers. These commercial customers are primarily leasing fleet vehicles for use in their primary line of business, mitigating some of the asset value concerns within the portfolio. Leasing has been a declining percentage of the Mid Penn’s portfolio since 2006, representing ~~0.36%~~0.25% of the portfolio at December 31, ~~2011.~~2013.

Residential mortgage

Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction. The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas. Residential mortgage loans have terms up to a maximum of 30 years and with loan to value ratios up to 100% of the lesser of the appraised value of the security property or the contract price. Private mortgage insurance is generally required in an amount sufficient to reduce the Bank’s exposure to at or below the 85% loan to value level. Residential mortgage loans generally do not include prepayment penalties.

In underwriting residential mortgage loans, the Bank evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan. Most properties securing real estate loans made by Mid Penn are appraised by independent fee appraisers. The Bank generally requires borrowers to obtain an attorney’s title opinion or title insurance and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a “due on sale” clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property.

The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, 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 residential mortgage in the Bank’s portfolio rather than rejecting the loan request. In the event that the loan is held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

Consumer, including home equity

Mid Penn offers a variety of secured consumer loans, including home equity, automobile, and deposit secured loans. In addition, the Bank offers other secured and unsecured consumer loans. Most consumer loans are originated in Mid Penn’s primary market and surrounding areas.

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit. Substantially all home equity loans and lines of credit are secured by second mortgages on principal residences. The Bank will lend amounts, which, together with all prior leins, typically may be up to 85% 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.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Allowance for Loan and Lease Losses

The allowance for credit losses consists of the allowance for loan and lease losses and the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance ~~sheet.~~sheet and was $90,000 at December 31, 2013 and 2012. The allowance for loan and lease losses is increased by the provision for loan and lease losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan and lease losses, 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, 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 for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance. The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in the experience of the lending staff and loan review systems, growth or changes in the mix of loans originated, and shifting industry or portfolio concentrations.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

Mid Penn 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. This methodology assumes the borrower cannot or will not continue to make additional payments. At that time the loan would be considered collateral dependent as the discounted cash flow (“DCF”) method indicates no operating income is available for evaluating the collateral position; therefore, all impaired loans are deemed to be collateral dependent.

In addition, Mid Penn’s rating system assumes any loans classified as sub-standard non-accrual to be impaired, and all of these loans are considered collateral dependent; therefore, all of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans 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. In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. If the loan is secured, it will undergo a 90 day waiting period to ensure the collateral shortfall identified in the evaluation is accurate and then charged down by the specific allocation. Once the charge down is taken, the remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). Commercial loans secured by real estate 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 variations in value. A specific allocation of allowance is made for any anticipated collateral shortfall and a 90 day waiting period begins to ensure the accuracy of the collateral shortfall. The loan is then charged down by the specific allocation. Once the charge down is taken, the remaining balance remains 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

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Consumer loans (including home equity loans and other consumer loans) are recommended for charge-off after reaching delinquency of 90 days and the loan is not in the process of collection. The entire balance of the consumer loan is recommended for charge-off at this point.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

As noted above, Mid Penn assesses a specific allocation for commercial loans prior to charging down or charging off the loan. Once the charge down is taken, the remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In addition, Mid Penn takes a preemptive step when any commercial loan becomes classified under its internal classification system. A preliminary collateral evaluation in accordance with the guidance on impaired loans is prepared using the existing collateral information in the loan file. This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation. This collateral evaluation is preliminary but allows Mid Penn to determine if any potential collateral shortfalls exist.

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 18 months for possible revaluation by an independent third party.

Mid Penn does not currently, or plan in the future to, use automated valuation methodologies as a method of valuing real estate collateral.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, Mid Penn does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

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.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

In addition, Federal and State regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan and lease losses and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

(e)

Bank Premises and Equipment

Land is carried at cost. Buildings, furniture, fixtures, equipment, land improvements, and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Building assets are depreciated using an estimated useful life of five to fifty years. Furniture, fixtures, and equipment are depreciated using an estimated useful life of three to ten years. Land improvements are depreciated over an estimated useful life of ten to twenty years. Leasehold improvements are depreciated using an estimated useful life that is the lesser of the remaining life of the lease or ten to thirty 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.

(f)

Restricted Investment in Federal Home Loan Bank Stock

The Bank owns restricted stock investments in the Federal Home Loan Bank (“FHLB”). Federal law requires a member institution of the FHLB to hold stock according to a predetermined formula. The stock is carried at cost. In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital ~~stock~~stock; however, the dividend was reinstated in February 2012. Total dividends received in 2013 and ~~as of December 31, 2011 has not changed its position regarding dividend payments.~~2012 totaled $20,000 and $5,000, respectively. During ~~2011~~2012 and 2013, the FHLB of Pittsburgh ~~did perform~~performed limited excess capital stock repurchases each calendar quarter. Any future capital stock repurchases will be made on a quarterly basis if conditions warrant such repurchases. ~~Further, in February 2012, the FHLB declared a dividend of 0.10% annualized, payable to FHLB shareholders on February 23, 2012.~~

Management evaluates the restricted stock for impairment on an annual basis. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB restricted stock as of December 31, ~~2011.~~2013 and 2012.

(g)

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, 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.

(h)

Mortgage Servicing Rights

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 other intangibles and are amortized over the estimated period of future

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

servicing income to be received on the underlying mortgage loans. The carrying amount of mortgage servicing rights was ~~$173,000~~$223,000 and ~~$185,000~~$233,000 at December 31, ~~2011~~2013 and ~~2010,~~2012, respectively. Amortization expense is netted against loan servicing fee income and is reflected in the Consolidated Statements of ~~Operations~~Income in mortgage banking income. Servicing rights are evaluated for impairment based upon estimated fair value as compared to unamortized book value.

	(i)
~~MID PENN BANCORP, INC.~~		~~Notes to Consolidated Financial Statements~~

~~(i)~~

Investment in Limited Partnership

Mid Penn invested as a limited partner in a partnership in September 2008 that provides low-income housing in Enola, Pennsylvania. The carrying value of Mid Penn’s investment in the limited partnership was ~~$540,000~~$452,000 at December 31, ~~2011~~2013 using the straight-line method. Mid Penn’s maximum exposure to loss is limited to the carrying value of its investment at year-end. The partnership anticipates receiving ~~$76,000~~$46,000 annually in low-income housing tax credits.

(j)

Income Taxes

Certain items of income and expense are recognized in different accounting periods for financial reporting purposes than for income tax purposes. Deferred income tax assets and liabilities are provided in recognition of these temporary differences at currently enacted income tax rates. As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for income taxes. Mid Penn recognizes interest and/or penalties related to income tax matters in income tax expense.

(k)

Core Deposit Intangible

Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The core deposit intangible is being amortized over an 8-year life on a straight-line basis. The core deposit intangible is subject to impairment testing whenever events or changes in circumstances indicate its carrying amount may not reflect benefit.

(l)

Goodwill

Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with 2004 and 2006 business acquisitions accounted for as purchases. Accounting Standards Codification (“ASC”) Topic 350,Intangibles, Goodwill and Other requires a two-step process for testing the impairment of goodwill on at least an annual basis. In 2010, Mid Penn changed the valuation methodology for evaluating goodwill impairment from using an internally prepared analysis based on Mid Penn’s stock price, to obtaining an independent valuation by a third party. This change in methodology did not have any effect on the results of operations of Mid Penn. Mid Penn did not identify any impairment on its outstanding goodwill from its most recent testing, which was performed as of December 31, ~~2011.~~2013. In addition, Mid Penn did not identify any impairment in ~~2010~~2012 or ~~2009.~~2011.

(m)

Bank Owned Life Insurance

Mid Penn is the owner and beneficiary of bank owned life insurance (“BOLI”) policies on current and former directors. 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.

GAAP requires Split-Dollar Life Insurance Arrangements to have a liability recognized related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement, and a liability for the future death benefit.

(n)

Marketing and Advertising Costs

Marketing and advertising costs are expensed as ~~incurred and were $354,000 in 2011, $308,000 in 2010, and $679,000 in 2009.~~incurred.

(o)

Postretirement Benefit Plans

Mid Penn follows the guidance in ASC Topic 715,Compensation-Retirement Benefitsrelated to postretirement benefit plans. This guidance requires additional disclosures about defined benefit pension plans and other postretirement defined benefit plans.

(p)

Other Benefit Plan

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.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

	(q)
~~MID PENN BANCORP, INC.~~		~~Notes to Consolidated Financial Statements~~

~~(q)~~

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 income is recognized on the cash basis, which is not materially different than if it were reported on the accrual basis.

(r)

Earnings ~~(Loss)~~ Per Share

Earnings ~~(Loss)~~ per share are computed by dividing net income ~~(loss)~~available to common shareholders by the weighted average number of common shares outstanding during each of the years presented. The following data show the amounts used in computing basic and diluted earnings ~~(loss)~~ per share. As shown in the table that follows, diluted earnings ~~(loss)~~ per share is computed using weighted average common shares outstanding, plus weighted average common shares available from the exercise of all dilutive stock warrants issued to the U.S. Treasury under the provisions of the Capital Purchase Program, based on the average share price of Mid Penn’s common stock during the period.

The computations of basic earnings ~~(loss)~~ per common share follow:

(Dollars in thousands, except per share data)
   2011 2010 2009
Net Income (Loss)
   $ 4,543    $ 2,748    $ (2,295 )
Less: Dividends on preferred stock
   (500 ) (500 ) (500 )
Accretion of preferred stock discount
   (14 ) (14 ) (14 )


Net income (loss) available to common shareholders
   $ 4,029    $ 2,234    $ (2,809 )
Weighted average common shares outstanding
   3,481,414    3,479,780    3,479,780
Basic earnings (loss) per common share
   $ 1.16    $ 0.64    $ (0.81 )


(Dollars in thousands, except per share data)
	2013		2012		2011
Net Income	$	4,939	$	4,951	$	4,543
Less: Dividends on Series A preferred stock		-		(500)		(500)
Accretion of Series A preferred stock discount		(14)		(14)		(14)
Dividends on Series B preferred stock		(309)		-		-
Net income available to common shareholders	$	4,616	$	4,437	$	4,029

Weighted average common shares outstanding		3,491,653		3,486,543		3,481,414
Basic earnings per common share	$	1.32	$	1.27	$	1.16

The computations of diluted earnings ~~(loss)~~ per common share follow:


(Dollars in thousands, except per share data)
	2011		2010		2009			2013		2012		2011
Net income (loss) available to common stockholders	$	4,029	$	2,234	$	(2,809	)
Net income available to common stockholders								$	4,616	$	4,437	$	4,029
Weighted average number of common shares outstanding		3,481,414		3,479,780		3,479,780			3,491,653		3,486,543		3,481,414
Dilutive effect of potential common stock arising from stock warrants:
Exercise of outstanding stock warrants issued to U.S. Treasury under the Capital Repurchase Program		—		—		—

Exercise of outstanding stock warrants issued to U.S. Treasury
under the Capital Repurchase Program									-		-		-
Adjusted weighted-average common shares outstanding		3,481,414		3,479,780		3,479,780			3,491,653		3,486,543		3,481,414
Diluted earnings (loss) per common share	$	1.16	$	0.64	$	(0.81	)
Diluted earnings per common share								$	1.32	$	1.27	$	1.16

Mid Penn repurchased all warrants in 2013; therefore, there were none remaining as of December 31, ~~2011, 2010, and 2009~~2013. Mid Penn had 73,099 warrants that were anti-dilutive because the fair value of the common stock was below the $20.52 exercise price of these ~~warrants.~~

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~
warrants as of December 31, 2012 and 2011.

(4)Accumulated Other Comprehensive (Loss) Income

~~Comprehensive Income (Loss)~~

GAAP requires that recognized revenue, expenses, gains, and losses be included in net income (loss). Changes in certain assets and liabilities such as unrealized gains on securities available for sale and the liability associated with defined benefit plans are reported as a separate component of the shareholders’ equity section of the balance sheet. Such items, along with net income (loss), are components of comprehensive income (loss). The components of other comprehensive income (loss), and the related tax effects, are as follows:

(Dollars in thousands)    Years Ended December 31,
   2011 2010 2009
Change in unrealized holding gains (losses) on available for sale securities
   $ 2,829    $ (971 ) $ 400
Less reclassification adjustment for gains realized in income
   —      —      —


Net unrealized gains (losses)
   2,829    (971 ) 400


Change in defined benefit plans
   19    (145 ) 161


Other comprehensive income (loss)
   2,848    (1,116 ) 561
Income tax (expense) benefit
   (968 ) 379    (192 )


Net of tax amount
   $ 1,880    $ (737 ) $ 369

The components of accumulated other comprehensive (loss) income, net of taxes, are as follows:

(Dollars in thousands)    Unrealized
Gain on
Securities    Defined Benefit
Plan Liability Accumulated
Other
Comprehensive
Income
Balance - December 31, 2010
   $ 176       $ (140 ) $ 36




Balance - December 31, 2011
   $ 2,044       $ (128 ) $ 1,916



(Dollars in thousands)	Unrealized Gain on Securities		Defined Benefit Plan Liability		Accumulated Other Comprehensive (Loss) Income

Balance - December 31, 2012	$	2,433	$	(140)	$	2,293

Balance - December 31, 2013	$	(745)	$	(127)	$	(872)

~~(5)~~

~~Restrictions on Cash and Due from Bank Accounts~~

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

(5) Restrictions on Cash and Due from Bank Accounts

The Bank is required to maintain reserve balances with the Federal Reserve Bank of Philadelphia. ~~The amounts of those~~There was no required reserve ~~balances were $254,000~~balance at December 31, ~~2011, and $173,000~~2013 because the Bank had sufficient vault cash available. The required reserve balance was $554,000 at December 31, ~~2010.~~2012.

~~(6)~~

~~Investment Securities~~

(6) Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available for sale and carried at fair value. Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, and other factors related to interest rate and resultant prepayment risk changes.

Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold, using the specific identification method. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to other comprehensive income (loss), whereas realized gains and losses flow through the Corporation’s ~~results~~consolidated statements of ~~operations.~~income.

ASC Topic 320,Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess 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 entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The ~~other-than-~~

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~temporary~~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.~~income (loss).

In assessing potential other-than-temporary impairment for equity securities, consideration is given to management’s intent and ability to hold the securities until recovery of unrealized losses.

At December 31, ~~2011~~2013 and ~~2010,~~2012, amortized cost, fair value, and unrealized gains and losses on investment securities are as follows:

(Dollars in thousands)
   Amortized
Cost    Unrealized
Gains    Unrealized
Losses    Fair
Value
December 31, 2011

Available for sale securities:

U.S. Treasury and U.S. government agencies
   $ 26,116       $ 1,501       $ —         $ 27,617
Mortgage-backed U.S. government agencies
   82,777       491       600       82,668
State and political subdivision obligations
   46,654       1,836       124       48,366
Equity securities
   400       —         8       392








   $ 155,947       $ 3,828       $ 732       $ 159,043


(Dollars in thousands)
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized		Unrealized		Unrealized		Fair
									Cost		Gains		Losses		Value
December 31, 2010
December 31, 2013
Available for sale securities:
U.S. Treasury and U.S. government agencies	$	16,726	$	668	$	—	$	17,394	$	12,134	$	700	$	-	$	12,834
Mortgage-backed U.S. government agencies		25,528		144		285		25,387		39,481		349		438		39,392
State and political subdivision obligations		27,932		481		735		27,678		70,770		744		2,476		69,038
Equity securities		250		—		7		243		1,550		20		31		1,539
									$	123,935	$	1,813	$	2,945	$	122,803
	$	70,436	$	1,293	$	1,027	$	70,702

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements


(Dollars in thousands)
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2012
Available for sale securities:
U.S. Treasury and U.S. government agencies	$	16,394	$	1,346	$	-	$	17,740
Mortgage-backed U.S. government agencies		66,783		393		490		66,686
State and political subdivision obligations		67,033		2,542		96		69,479
Equity securities		400		-		10		390
	$	150,610	$	4,281	$	596	$	154,295

Estimated fair values of debt securities are based on quoted market prices, where applicable. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued.

Included in equity securities is an investment in Access Capital Strategies, an equity fund that invests in low to moderate income financing projects. This initial investment was purchased in 2004 to help fulfill the Bank’s regulatory requirement of the Community Reinvestment Act and an additional investment was purchased in 2011. At December 31, ~~2010~~2013 and ~~2011,~~2012, the investment is reported at fair value.

Investment securities having a fair value of ~~$85,591,000~~$114,600,000 at December 31, ~~2011,~~2013, and ~~$37,259,000~~$96,124,000 at December 31, ~~2010,~~2012, were pledged to secure public deposits and other borrowings.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

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, ~~2011~~2013 and ~~2010.~~2012.

(Dollars in thousands)    Less Than 12 Months    12 Months or More    Total
December 31, 2011    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses
Available for sale securities:

Mortgage-backed U.S. government agencies
   $ 46,497       $ 593       $ 370       $ 7       $ 46,867       $ 600
State and political subdivision obligations
   4,371       49       1,169       75       5,540       124
Equity securities
   —         —         392       8       392       8












Total temporarily impaired available for sale securities
   $ 50,868       $ 642       $ 1,931       $ 90       $ 52,799       $ 732












(Dollars in thousands)    Less Than 12 Months    12 Months or More    Total
December 31, 2010    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses
Available for sale securities:

Mortgage-backed U.S. government agencies
   $ 13,032       $ 285       $ —         $ —         $ 13,032       $ 285
State and political subdivision obligations
   11,318       668       808       67       12,126       735
Equity securities
   —         —         243       7       243       7












Total temporarily impaired available for sale securities
   $ 24,350       $ 953       $ 1,051       $ 74       $ 25,401       $ 1,027



(Dollars in thousands)		Less Than 12 Months				12 Months or More				Total
December 31, 2013	Number of	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Securities	Value		Losses		Value		Losses		Value		Losses
Available for sale securities:
Mortgage-backed U.S. government agencies	29	$	9,799	$	182	$	9,866	$	256	$	19,665	$	438
State and political subdivision obligations	90		39,611		2,150		4,288		326		43,899		2,476
Equity securities	1		-		-		550		31		550		31
Total temporarily impaired
available for sale securities	120	$	49,410	$	2,332	$	14,704	$	613	$	64,114	$	2,945



(Dollars in thousands)		Less Than 12 Months				12 Months or More				Total
December 31, 2012	Number of	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Securities	Value		Losses		Value		Losses		Value		Losses
Available for sale securities:
Mortgage-backed U.S. government agencies	53	$	30,345	$	270	$	15,839	$	220	$	46,184	$	490
State and political subdivision obligations	20		9,389		66		1,231		30		10,620		96
Equity securities	1		-		-		390		10		390		10
Total temporarily impaired
available for sale securities	74	$	39,734	$	336	$	17,460	$	260	$	57,194	$	596

Management evaluates securities for other-than-temporary impairment at least on a 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, the Corporation considers (a) whether management has the intent to sell the security, (b) it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (c) whether management expects to recover the entire amortized cost basis. For equity securities, management considers the intent and ability to hold securities until recovery of unrealized losses.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The majority of the investment portfolio is comprised of mortgage-backed U.S. government agencies and state and political subdivision obligations. For the investment securities with an unrealized loss, Mid Penn has concluded, based on its analysis, that the unrealized losses in the investments are primarily caused by the movement of interest rates, and the contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.

At December 31, ~~2011,~~2013, Mid Penn had ~~45 debt~~120 securities with unrealized ~~losses. These securities have~~losses totaling $2,945,000 that depreciated ~~1.37%~~4.59% from their amortized cost basis. During this period, securities in an unrealized loss position for twelve months or longer totaled $613,000 of which the majority was attributed to mortgage-backed U.S. government agencies and state and political subdivision obligations with $256,000 and $326,000 in unrealized losses, respectively. At December 31, ~~2010, 30~~2012, 74 debt securities with unrealized losses ~~had~~totaling $596,000 that depreciated ~~3.60%~~1.04% from the amortized cost basis. ~~These~~During this period, securities ~~are issued by either~~in an unrealized loss position for twelve months or longer totaled $260,000 of which the majority was attributed to mortgage-backed U.S. ~~Government or other governmental agencies. These~~government agencies with $220,000 in unrealized losses.

Because Mid Penn does not intend to sell these investments and it is not likely it will be required to sell these investments before a recovery of fair value, which may be maturity, Mid Penn does not consider the securities with unrealized losses ~~were determined principally by reference~~for twelve months or longer to ~~current~~be other-than-temporarily impaired as losses relate to changes in interest rates ~~for similar types~~and not erosion of securities. In analyzing an issuer’s financial condition, management considers whether the U.S. Government or its agencies issued the securities, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. Based on the above conditions management has determined that no declines are deemed to be other-than-temporary.credit quality.

The table below is the maturity distribution of investment securities at amortized cost and fair value at December 31, ~~2011 and 2010:~~2013.



(Dollars in thousands)	December 31, 2013
	Amortized		Fair
	Cost		Value
Due in 1 year or less	$	-	$	-
Due after 1 year but within 5 years		18,937		19,811
Due after 5 years but within 10 years		26,813		26,596
Due after 10 years		37,154		35,465
		82,904		81,872
Mortgage-backed securities		39,481		39,392
Equity securities		1,550		1,539
	$	123,935	$	122,803

(Dollars in thousands)    December 31, 2011    December 31, 2010
   Amortized
Cost    Fair
Value    Amortized
Cost    Fair
Value
Due in 1 year or less
   $ 2,563       $ 2,576       $ 7,791       $ 7,825
Due after 1 year but within 5 years
   23,923       24,856       6,319       6,558
Due after 5 years but within 10 years
   17,626       18,979       15,245       16,014
Due after 10 years
   28,658       29,572       15,303       14,675








   72,770       75,983       44,658       45,072








Mortgage-backed securities
   82,777       82,668       25,528       25,387
Equity securities
   400       392       250       243








   $ 155,947       $ 159,043       $ 70,436       $ 70,702

Mortgage-backed securities at December 31, 2011, had an average life of 2.3 years compared to an average life of 3.7 years at December 31, 2010. New investment purchases in this category have shorter average lives than the portfolio at December 31, 2010.(7) Loans and Allowance for Loan and Lease Losses

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(7)~~

~~Loans and Allowance for Loan and Lease Losses~~

The Bank has granted loans to certain of its executive officers, directors, and their related interests. These loans were made on substantially the same basis, including interest rates and collateral as those prevailing for comparable transactions with other borrowers at the same time. The aggregate amount of these loans was ~~$6,807,000~~$8,402,000 and ~~$8,116,000~~$4,817,000 at December 31, ~~2011~~2013 and ~~2010,~~2012, respectively. During ~~2011, $12,324,000~~2013, $8,815,000 of new loans and advances were extended and repayments totaled ~~$13,633,000.~~$5,230,000. None of these loans were past due, in non-accrual status, or restructured at December 31, ~~2011.~~2013.

The classes of the loan portfolio, summarized by the aggregate pass rating and the classified ratings of special mention, substandard, and doubtful within Mid Penn’s internal risk rating system as of December 31, ~~2011~~2013 and ~~2010~~2012 are as follows:

(Dollars in thousands)
December 31, 2011
   Pass    Special
Mention    Substandard    Doubtful    Total
Commercial and industrial
   $ 68,775       $ 3,528       $ 4,627       $ —         $ 76,930
Commercial real estate
   271,551       6,530       14,815       —         292,896
Commercial real estate - construction
   29,706       445       584       —         30,735
Lease financing
   1,724       —         —         —         1,724
Residential mortgage
   48,270       —         —         —         48,270
Home equity
   23,248       218       683       —         24,149
Consumer
   7,705       308       —         —         8,013










   $ 450,979       $ 11,029       $ 20,709       $ —         $ 482,717










(Dollars in thousands)
December 31, 2010
   Pass    Special
Mention    Substandard    Doubtful    Total
Commercial and industrial
   $ 63,195       $ 1,830       $ 2,803       $ —         $ 67,828
Commercial real estate
   262,743       6,421       16,537       —         285,701
Commercial real estate - construction
   34,495       2,768       1,565       —         38,828
Lease financing
   2,177       —         277       —         2,454
Residential mortgage
   43,960       —         106       —         44,066
Home equity
   19,708       308       352       —         20,368
Consumer
   8,058       432       —         —         8,490










   $ 434,336       $ 11,759       $ 21,640       $ —         $ 467,735



(Dollars in thousands) December 31, 2013	Pass		Special Mention		Substandard		Doubtful		Total

Commercial and industrial	$	103,330	$	938	$	1,576	$	-	$	105,844
Commercial real estate		277,232		2,771		12,771		-		292,774
Commercial real estate - construction		45,265		382		-		-		45,647
Lease financing		1,356		-		-		-		1,356
Residential mortgage		69,447		27		356		-		69,830
Home equity		26,056		96		169		-		26,321
Consumer		4,690		-		-		-		4,690
	$	527,376	$	4,214	$	14,872	$	-	$	546,462

~~MID PENN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements~~

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

(Dollars in thousands) December 31, 2012	Pass		Special Mention		Substandard		Doubtful		Total

Commercial and industrial	$	74,763	$	1,651	$	1,469	$	-	$	77,883
Commercial real estate		260,941		5,375		18,551		-		284,867
Commercial real estate - construction		32,767		410		54		-		33,231
Lease financing		1,305		-		-		-		1,305
Residential mortgage		57,007		-		448		-		57,455
Home equity		22,336		188		396		-		22,920
Consumer		6,267		292		-		-		6,559
	$	455,386	$	7,916	$	20,918	$	-	$	484,220

Impaired loans by loan portfolio class as of December 31, ~~2011~~2013 and ~~2010~~2012 are summarized as follows:

   December 31, 2011    December 31, 2010
(Dollars in thousands)    Recorded
Investment    Unpaid
Principal
Balance    Related
Allowance    Recorded
Investment    Unpaid
Principal
Balance    Related
Allowance
With no related allowance recorded:
Commercial and industrial
   $ 463       $ 1,382       $ —         $ 766       $ 1,730       $ —
Commercial real estate
   4,473       6,543       —         7,414       10,642       —
Commercial real estate - construction
   584       592       —         1,565       1,957       —
Lease financing
   —         —         —         169       211       —
Residential mortgage
   —         —         —         96       99       —
Home equity
   251       386       —         113       516       —
With an allowance recorded:
Commercial and industrial
   $ 656       $ 792       $ 451       $ 896       $ 1,518       $ 685
Commercial real estate
   4,425       6,163       1,380       4,218       5,839       1,166
Residential mortgage
   —         —         —         10       10       10
Home equity
   74       77       15       22       113       22
Total:
Commercial and industrial
   $ 1,119       $ 2,174       $ 451       $ 1,662       $ 3,248       $ 685
Commercial real estate
   8,898       12,706       1,380       11,632       16,481       1,166
Commercial real estate - construction
   584       592       —         1,565       1,957       —
Lease financing
   —         —         —         169       211       —
Residential mortgage
   —         —         —         106       109       10
Home equity
   325       463       15       135       629       22



	December 31, 2013						December 31, 2012
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	185	$	671	$	-	$	192	$	870	$	-
Commercial real estate		2,596		5,898		-		6,570		10,773		-
Residential mortgage		266		282		-		448		459		-
Home equity		27		792		-		124		261		-

With an allowance recorded:
Commercial and industrial	$	115	$	243	$	42	$	223	$	351	$	111
Commercial real estate		7,649		7,972		1,860		2,514		2,672		1,200
Commercial real estate - construction		-		-		-		54		53		54
Residential mortgage		25		25		25		-		-		-
Home equity		49		49		6		67		71		18

Total:
Commercial and industrial	$	300	$	914	$	42	$	415	$	1,221	$	111
Commercial real estate		10,245		13,870		1,860		9,084		13,445		1,200
Commercial real estate - construction		-		-		-		54		53		54
Residential mortgage		291		307		25		448		459		-
Home equity		76		841		6		191		332		18

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Average recorded investment of impaired loans and related interest income recognized for the ~~year~~years ended December 31, ~~2011~~2013, 2012, and ~~2010~~2011 are summarized as follows:

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~



	December 31, 2011				December 31, 2010				December 31, 2013				December 31, 2012				December 31, 2011
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	752	$	84	$	1,222	$	11	$	186	$	-	$	462	$	1	$	752	$	84
Commercial real estate		4,712		278		9,317		—		2,920		187		7,329		21		6,000		278
Commercial real estate - construction		1,016		18		1,858		—		-		-		-		-		1,016		18
Lease financing		—		—		181		—
Residential mortgage		—		28		97		—		323		-		458		-		619		28
Home equity		266		—		283		—		30		-		179		4		266		-

With an allowance recorded:
Commercial and industrial	$	670	$	—	$	938	$	—	$	117	$	-	$	242	$	-	$	670	$	-
Commercial real estate		4,569		—		4,384		—		7,752		-		2,727		-		3,281		-
Commercial real estate - construction										-		-		54		-		-		-
Residential mortgage		—		—		10		—		25		-		-		-		-		-
Home equity		76		—		25		—		53		-		71		-		76		-

Total:
Commercial and industrial	$	1,422	$	84	$	2,160	$	11	$	303	$	-	$	704	$	1	$	1,422	$	84
Commercial real estate		9,281		278		13,701		—		10,672		187		10,056		21		9,281		278
Commercial real estate - construction		1,016		18		1,858		—		-		-		54		-		1,016		18
Lease financing		—		—		181		—
Residential mortgage		—		28		107		—		348		-		458		-		619		28
Home equity		342		—		308		—		83		-		250		4		342		-

Non-accrual loans by loan portfolio class as of December 31, ~~2011~~2013 and ~~2010~~2012 are summarized as follows:

(Dollars in thousands)    2011    2010
Commercial and industrial
   $ 1,117       $ 1,839
Commercial real estate
   8,899       11,878
Commercial real estate - construction
   584       1,565
Lease financing
   —         219
Residential mortgage
   703       1,376
Home equity
   496       320
Consumer
   1       31




   $ 11,800       $ 17,228

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~



(Dollars in thousands)	2013		2012

Commercial and industrial	$	300	$	264
Commercial real estate		9,648		10,785
Commercial real estate - construction		-		54
Residential mortgage		803		537
Home equity		126		191
	$	10,877	$	11,831

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The performance and credit quality of the loan portfolio is also monitored by the 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, ~~2011~~2013 and ~~2010~~2012 are summarized as follows:

(Dollars in thousands)
December 31, 2011
   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
   $ 141       $ 663       $ 1,052       $ 1,856       $ 75,074       $ 76,930       $ —
Commercial real estate
   1,037       909       6,204       8,150       284,746       292,896       —
Commercial real estate - construction
   6       —         584       590       30,145       30,735       —
Lease financing
   —         —         —         —         1,724       1,724       —
Residential mortgage
   410       11       691       1,112       47,158       48,270       —
Home equity
   111       —         428       539       23,610       24,149       —
Consumer
   15       3       1       19       7,994       8,013       —














Total
   $ 1,720       $ 1,586       $ 8,960       $ 12,266       $ 470,451       $ 482,717       $ —














(Dollars in thousands)
December 31, 2010
   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
   $ 112       $ 186       $ 1,652       $ 1,950       $ 65,878       $ 67,828       $ —
Commercial real estate
   1,670       469       4,954       7,093       278,608       285,701       —
Commercial real estate - construction
   —         —         931       931       37,897       38,828       —
Lease financing
   —         —         1       1       2,453       2,454       1
Residential mortgage
   823       133       870       1,826       42,240       44,066       —
Home equity
   330       —         238       568       19,800       20,368       —
Consumer
   369       11       49       429       8,061       8,490       18














Total
   $ 3,304       $ 799       $ 8,695       $ 12,798       $ 454,937       $ 467,735       $ 19

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~



(Dollars in thousands) December 31, 2013	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	$	291	$	38	$	300	$	629	$	105,215	$	105,844	$	-
Commercial real estate		1,472		570		8,241		10,283		282,491		292,774		-
Commercial real estate - construction		-		-		-		-		45,647		45,647		-
Lease financing		-		-		-		-		1,356		1,356		-
Residential mortgage		952		-		785		1,737		68,093		69,830		-
Home equity		9		50		99		158		26,163		26,321		-
Consumer		24		12		-		36		4,654		4,690		-
Total	$	2,748	$	670	$	9,425	$	12,843	$	533,619	$	546,462	$	-



(Dollars in thousands) December 31, 2012	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	$	123	$	361	$	234	$	718	$	77,165	$	77,883	$	-
Commercial real estate		1,785		5,618		8,248		15,651		269,216		284,867		-
Commercial real estate - construction		-		-		54		54		33,177		33,231		-
Lease financing		1				-		1		1,304		1,305		-
Residential mortgage		495		35		531		1,061		56,394		57,455		-
Home equity		96		-		147		243		22,677		22,920		-
Consumer		1		2		-		3		6,556		6,559		-
Total	$	2,501	$	6,016	$	9,214	$	17,731	$	466,489	$	484,220	$	-

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The allowance for loan and lease losses and recorded investment in financing receivables for the years ended December 31, ~~2011~~2013, 2012, and ~~2010~~2011, and as of December 31, ~~2011~~2013, 2012, and ~~2010~~2011 are as follows:


(Dollars in thousands) December 31, 2011	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total

(Dollars in thousands) December 31, 2013																												Commercial and industrial		Commercial real estate		Commercial real estate - construction		Lease financing		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Beginning balance	$	2,447		$	3,616		$	159		$	1		$	219		$	363		$	61		$	195		$	7,061		$	1,298	$	3,112	$	64	$	1	$	581	$	343	$	101	$	9	$	5,509
Charge-offs		(546	)		(545	)		—			(44	)		(310	)		(40	)		(102	)		—			(1,587	)		(183)		(919)		(17)		-		(167)		(91)		(96)		-		(1,473)
Recoveries		10			26			—			6			19			5			27			—			93			193		279		7		2		23		8		84		-		596
Provisions		363			447			(136	)		39			434			9			101			(52	)		1,205			(121)		1,534		(45)		(3)		144		181		(17)		12		1,685

Ending balance	$	2,274		$	3,544		$	23		$	2		$	362		$	337		$	87		$	143		$	6,772		$	1,187	$	4,006	$	9	$	-	$	581	$	441	$	72	$	21	$	6,317

Ending balance: individually evaluated for impairment	$	451		$	1,380		$	—		$	—		$	—		$	15		$	—		$	—		$	1,846		$	42	$	1,860	$	-	$	-	$	25	$	6	$	-	$	-	$	1,933

Ending balance: collectively evaluted for impairment	$	1,823		$	2,164		$	23		$	2		$	362		$	322		$	87		$	143		$	4,926

Ending balance: collectively evaluated for impairment																												$	1,145	$	2,146	$	9	$	-	$	556	$	435	$	72	$	21	$	4,384

Loans receivables:
Ending balance	$	76,930		$	292,896		$	30,735		$	1,724		$	48,270		$	24,149		$	8,013		$	—		$	482,717		$	105,844	$	292,774	$	45,647	$	1,356	$	69,830	$	26,321	$	4,690	$	-	$	546,462

Ending balance: individually evaluted for impairment	$	1,119		$	8,898		$	584		$	—		$	—		$	325		$	—		$	—		$	10,926

Ending balance: individually evaluated for impairment																												$	300	$	10,245	$	-	$	-	$	291		76	$	-	$	-	$	10,912
Ending balance: collectively evaluated for impairment	$	75,811		$	283,998		$	30,151		$	1,724		$	48,270		$	23,824		$	8,013		$	—		$	471,791		$	105,544	$	282,529	$	45,647	$	1,356	$	69,539	$	26,245	$	4,690	$	-	$	535,550


(Dollars in thousands) December 31, 2010	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Ending balance	$	2,447		$	3,616		$	159		$	1		$	219		$	363		$	61		$	195		$	7,061

Ending balance: individually evaluated for impairment	$	685		$	1,166		$	—		$	—		$	10		$	22		$	—		$	—		$	1,883

Ending balance: collectively evaluted for impairment	$	1,762		$	2,450		$	159		$	1		$	209		$	341		$	61		$	195		$	5,178


Loans receivables:
Ending balance	$	67,828		$	285,701		$	38,828		$	2,454		$	44,066		$	20,368		$	8,490		$	—		$	467,735

Ending balance: individually evaluted for impairment	$	1,662		$	11,632		$	1,565		$	169		$	106		$	135		$	—		$	—		$	15,269

Ending balance: collectively evaluated for impairment	$	66,166		$	274,069		$	37,263		$	2,285		$	43,960		$	20,233		$	8,490		$	—		$	452,466

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~



(Dollars in thousands) December 31, 2012	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Lease financing		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Beginning Balance	$	2,274	$	3,544	$	23	$	2	$	362	$	337	$	87	$	143	$	6,772
Charge-offs		(834)		(493)		(6)		-		(195)		(268)		(592)		-		(2,388)
Recoveries		31		13		2		-		-		10		33		-		89
Provisions		(173)		48		45		(1)		414		264		573		(134)		1,036
Ending balance	$	1,298	$	3,112	$	64	$	1	$	581	$	343	$	101	$	9	$	5,509
Ending balance: individually evaluated for impairment	$	111	$	1,200	$	54	$	-	$	-	$	18	$	-	$	-	$	1,383
Ending balance: collectively evaluated for impairment	$	1,187	$	1,912	$	10	$	1	$	581	$	325	$	101	$	9	$	4,126

Loans receivables:
Ending balance	$	77,883	$	284,867	$	33,231	$	1,305	$	57,455	$	22,920	$	6,559	$	-	$	484,220
Ending balance: individually evaluated for impairment	$	415	$	9,084	$	54	$	-	$	448		191	$	-	$	-	$	10,192
Ending balance: collectively evaluated for impairment	$	77,468	$	275,783	$	33,177	$	1,305	$	57,007	$	22,729	$	6,559	$	-	$	474,028

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements



(Dollars in thousands) December 31, 2011	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Lease financing		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Beginning Balance	$	2,447	$	3,616	$	159	$	1	$	219	$	363	$	61	$	195	$	7,061
Charge-offs		(546)		(545)		-		(44)		(310)		(40)		(102)		-		(1,587)
Recoveries		10		26		-		6		19		5		27		-		93
Provisions		363		447		(136)		39		434		9		101		(52)		1,205
Ending balance	$	2,274	$	3,544	$	23	$	2	$	362	$	337	$	87	$	143	$	6,772
Ending balance: individually evaluated for impairment	$	451	$	1,380	$	-	$	-	$	-	$	15	$	-	$	-	$	1,846
Ending balance: collectively evaluated for impairment	$	1,823	$	2,164	$	23	$	2	$	362	$	322	$	87	$	143	$	4,926

Loans receivables:
Ending balance	$	76,930	$	292,896	$	30,735	$	1,724	$	48,270	$	24,149	$	8,013	$	-	$	482,717
Ending balance: individually evaluated for impairment	$	1,119	$	8,898	$	584	$	-	$	599	$	325	$	-	$	-	$	11,525
Ending balance: collectively evaluated for impairment	$	75,811	$	283,998	$	30,151	$	1,724	$	47,671	$	23,824	$	8,013	$	-	$	471,192

The recorded investments in troubled debt restructured loans at December 31, ~~2011~~2013 and 2012 are as follows:

��



(Dollars in thousands)	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Recorded Investment		Pre-Modification		Post-Modification
December 31, 2013							Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	40	$	35	$	32	$	40	$	417	$	266
Commercial real estate		8,315		4,568		3,955		10,581		8,686		7,470
Residential mortgage		698		691		599		423		35		29
Home equity		29		28		16
							$	11,044	$	9,138	$	7,765
	$	9,082	$	5,322	$	4,602


(Dollars in thousands)	Pre-Modification		Post-Modification
December 31, 2012	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	40	$	35	$	30
Commercial real estate		7,326		3,748		2,916
Residential mortgage		558		552		448
	$	7,924	$	4,335	$	3,394

At December 31, 2013, Mid Penn’s troubled debt restructured loans totaled $7,765,000, of which, $833,000, representing five loans, are accruing mortgages in compliance with the terms of the modification. Of the $833,000, four are accruing residential mortgages totaling $235,000 and one is an accruing commercial real estate loan totaling $598,000. The remaining $6,932,000, representing 12 loans, are nonaccrual impaired loans, and resulted in a collateral evaluation in accordance with the guidance on impaired loans. Two large relationships account for $4,819,000 of the $6,932,000 nonaccrual impaired troubled debt restructured loan total. As a result of the evaluation, a specific allocation and, subsequently, charge offs have been taken as appropriate. As of December 31, 2013, charge offs associated with troubled debt restructured loans while under a forbearance agreement totaled $0. As of December 31, 2013, there were no defaulted troubled debt restructured loans as all troubled debt restructured loans were current with respect to their associated forbearance agreements. One forbearance agreement was negotiated during 2008, 10 forbearance agreements were negotiated during 2009, one was negotiated during 2010, and five were negotiated during 2013.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Mid Penn’s troubled debt restructured loans at December 31, ~~2011~~2012 totaled ~~$4,602,000,~~$3,394,000, of which, ~~$571,000,~~$426,000, representing ~~nine~~seven loans, are accruing residential mortgages in compliance with the terms of the modification. The remaining ~~$4,031,000,~~$2,968,000, representing 1510 loans, are nonaccrual impaired loans, and resulted in a collateral evaluation in accordance with the guidance on impaired loans. As a result of the evaluation, a specific allocation and, subsequently, charge offs have been taken as appropriate. As of December 31, ~~2011,~~2012, charge offs associated with troubled debt restructured loans while under a forbearance agreement totaled $0. As of December 31, ~~2011,~~2012, there were no defaulted troubled debt restructured loans as all troubled debt restructured loans were current with respect to their associated forbearance agreements. One forbearance agreement was negotiated during 2008, 1812 forbearance agreements were negotiated during 2009, while the remaining ~~five~~four were negotiated during 2010.

~~As a result of adopting the amendments~~

There were five loans modified in ~~ASU No. 2011-02, Mid Penn reassessed all restructurings~~2013 that occurred on or after the beginning of the current fiscal year for identification as troubled debt restructurings. Mid Penn identified no loans for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology that are now consideredresulted in troubled debt restructurings, while no loans were modified in ~~accordance with ASU No. 2011-02.~~

~~Changes~~2012. The following table summarizes the loans whose terms have been modified resulting in troubled debt restructurings during the ~~allowance for loan and lease losses for the years 2011, 2010 and 2009 are summarized as follows:~~

(Dollars in thousands)    2011 2010 2009
Balance, January 1
   $ 7,061    $ 7,686    $ 5,505
Provision for loan and lease losses
   1,205    2,635    9,520
Loans and leases charged off
   (1,587 ) (3,434 ) (7,431 )
Recoveries on loans and leases charged off
   93    174    92


Balance, December 31
   $ 6,772    $ 7,061    $ 7,686

The average balances of total impaired loans and leases amounted to $12,061,000, $18,315,000, and $13,293,000 for the years 2011, 2010, and 2009, respectively. The Bank applies payments on impaired loans on a principal first basis. Interest income is recognized on impaired loans and leases on a cash basis. The cash receipts recognized as interest income were $408,000, $11,000, and $982,000 for the yearsyear ended December 31, ~~2011, 2010, and 2009.~~2013.


(Dollars in thousands)		Pre-Modification		Post-Modification
December 31, 2013	Number of Contracts	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial real estate	3	$	6,091	$	5,588	$	5,417
Residential mortgage	2		74		74		28
	5	$	6,165	$	5,662	$	5,445

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 ~~$2,200,000, $5,203,000,~~$861,000, $774,000, and ~~$4,225,000~~$772,000, in the years ended December 31, ~~2011, 2010,~~2013, 2012, and ~~2009,~~2011, respectively. Mid Penn has no commitments to lend additional funds to borrowers with impaired or nonaccrual loans.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(8)~~

~~Bank Premises and Equipment~~

(8) Bank Premises and Equipment

At December 31, ~~2011~~2013 and ~~2010,~~2012, bank premises and equipment are as follows:

(Dollars in thousands)    2011 2010
Land
   $ 2,752    $ 2,752
Buildings
   10,478    10,362
Furniture, fixtures, and equipment
   7,946    9,235
Land and Leasehold improvements
   725    688
Construction in progress
   254    27


   22,155    23,064
Less accumulated depreciation
   (8,831 ) (9,879 )


   $ 13,324    $ 13,185



(Dollars in thousands)	2013		2012
Land	$	2,712	$	2,712
Buildings		10,087		10,007
Furniture, fixtures, and equipment		9,483		9,045
Leasehold improvements		828		828
Construction in progress		13		3
		23,123		22,595
Less accumulated depreciation		(10,654)		(9,472)
	$	12,469	$	13,123

Depreciation expense was $1,250,000 in 2013, $1,153,000 in 2012, and $1,230,000 in ~~2011, $1,302,000 in 2010, and $1,115,000 in 2009.~~2011.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

~~(9)~~

~~Deposits~~

(9) Deposits

At December 31, ~~2011~~2013 and ~~2010,~~2012, time deposits amounted to ~~$201,892,000~~$132,373,000 and ~~$213,774,000,~~$163,653,000, respectively. Interest expense on such certificates of deposit amounted to ~~$5,358,000, $6,877,000,~~$2,568,000, $3,683,000, and ~~$9,293,000~~$5,358,000 for the years ended December 31, 2013, 2012 and 2011, ~~2010 and 2009,~~ respectively.

These time deposits at December 31, ~~2011,~~2013, mature as follows:

(Dollars in thousands)    Time Deposits
   $100,000 or more    Less than $100,000
Maturing in 2012
   $ 64,368       $ 29,803
Maturing in 2013
   32,631       14,929
Maturing in 2014
   19,332       10,046
Maturing in 2015
   12,182       9,143
Maturing in 2016
   5,593       2,235
Maturing thereafter
   1,176       454




   $ 135,282       $ 66,610



(Dollars in thousands)	Time Deposits
		Less than $100,000		$100,000 or more
Maturing in 2014	$	38,290	$	21,716
Maturing in 2015		26,323		14,528
Maturing in 2016		12,956		5,389
Maturing in 2017		3,614		1,453
Maturing in 2018		4,428		1,956
Maturing thereafter		835		885
	$	86,446	$	45,927

Brokered deposits included in the deposit totals equaled ~~$13,354,000~~$2,750,000 at December 31, ~~2011~~2013 and ~~$16,494,000~~$4,128,000 at December 31, ~~2010.~~2012. Deposits and other funds from related parties held by Mid Penn at December 31, ~~2011~~2013 and ~~2010~~2012 amounted to ~~$9,201,000~~$9,010,000 and ~~$8,841,000,~~$6,804,000, respectively.

~~(10)~~

~~Short-term Borrowings~~

(10) Short-term Borrowings

As of December 31, 2013, short-term borrowings totaled $23,833,000. There were no short-term borrowings as of December 31, ~~2011 and 2010 consisted of:~~

(Dollars in thousands)    2011    2010
Repurchase agreements
   $ —         $ 578
Treasury, tax and loan notes
   —         983




   $ —         $ 1,561

~~The weighted average interest rate on total short-term borrowings outstanding was 0.47% at December 31, 2010.~~

~~Federal funds purchased represent overnight funds.~~2012. The Bank has a line of credit commitment from the Federal Home Loan Bank (“FHLB”) for overnight borrowings up to ~~$40,000,000 of which $0 was outstanding at December 31, 2011.~~$40,000,000. This line is collateralized by certain qualifying loans and investment securities of the Bank. Securities sold under repurchase agreements generally mature between one day and one year. Treasury, tax and loan notes are open-ended interest bearing notes payable to the U.S. Treasury upon call. All tax deposits accepted by the Bank are placed in the Treasury note account. The Bank also has unused lines of credit with a correspondent ~~bank~~banks amounting to ~~$7,500,000~~$12,500,000 at December 31, ~~2011.~~2013.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(11)~~

~~Long-term Debt~~

(11)Long-term Debt

The Bank is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”) and through its membership, the Bank can access a number of credit products, which are utilized to provide liquidity. The maximum borrowing capacity available to the Bank at the FHLB at December 31, ~~2011~~2013 was ~~$58,141,000,~~$259,179,000, which includes the line of credit commitment for overnight borrowings. As of December 31, ~~2011~~2013 and ~~2010,~~2012, the Bank had long-term debt in the amount of ~~$22,701,000~~$23,145,000 and ~~$27,883,000,~~$22,510,000, respectively, consisting of:

(Dollars in thousands)    At December 31,
   2011    2010
Loans maturing in 2011 at a rate of 5.13%
   $ —         $ 5,000
Loans maturing in 2013 with rates ranging from 3.24% to 4.75%
   14,213       14,236
Loans maturing in 2015 at a rate of 4.18%
   5,000       5,000
Loans maturing in 2026 at a rate of 4.80%
   3,409       3,565
Loans maturing in 2027 at a rate of 6.71%
   79       82




   $ 22,701       $ 27,883



(Dollars in thousands)	At December 31,
	2013		2012
Loans maturing in 2013 with rates ranging from 3.24% to 4.75%	$	-	$	14,189
Loans maturing in 2015 with rates ranging from 0.58% to 4.18%		15,000		5,000
Loans maturing in 2016 at a rate of 0.89%		5,000		-
Loans maturing in 2026 at a rate of 4.80%		3,073		3,245
Loans maturing in 2027 at a rate of 6.71%		72		76
	$	23,145	$	22,510

The aggregate amounts due on long-term debt subsequent to December 31, ~~2011~~2013 are ~~$191,000 (2012), $14,365,000 (2013),~~ $184,000 (2014), ~~$5,193,000~~$15,193,000 (2015), ~~$203,000~~$5,203,000 (2016), $213,000 (2017), $223,000 (2018), and ~~$2,565,000~~$2,129,000 thereafter. ~~$50,576,000 of the Bank’s investments and a portion of the Bank’s mortgage loan portfolio are pledged to secure FHLB borrowings.~~

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

(12) Fair Value Measurement

~~(12)~~

~~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 whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance.

This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available in the circumstances. Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:


~~Level 1 Inputs –~~ 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).		~~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).~~

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

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 year ended December 31, ~~2011.~~2013. The following table illustrates the assets measured at fair value on a recurring basis segregated by hierarchy fair value levels:



(Dollars in thousands)			Fair value measurements at December 31, 2011 using:								Fair value measurements at December 31, 2013 using:
									Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	Total carrying value at December 31, 2011		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		December 31, 2013		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury and U.S. government agencies	$	27,617	$	—	$	27,617	$	—	$	12,834	$	-	$	12,834	$	-
Mortgage-backed U.S. government agencies		82,668		—		82,668		—		39,392		-		39,392		-
State and political subdivision obligations		48,366		—		48,366		—		69,038		-		69,038		-
Equity securities		392		392		—		—		1,539		519		1,020		-
									$	122,803	$	519	$	122,284	$	-
	$	159,043	$	392	$	158,651	$	—

(Dollars in thousands)			Fair value measurements at December 31, 2010 using:
Assets:	Total carrying value at December 31, 2010		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
U.S. Treasury and U.S. government agencies	$	17,394	$	—	$	17,394	$	—
Mortgage-backed U.S. government agencies		25,387		—		25,387		—
State and political subdivision obligations		27,678		—		27,678		—
Equity securities		243		243		—		—

	$	70,702	$	243	$	70,459	$	—

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements



(Dollars in thousands)			Fair value measurements at December 31, 2012 using:
	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury and U.S. government agencies	$	17,740	$	-	$	17,740	$	-
Mortgage-backed U.S. government agencies		66,686		-		66,686		-
State and political subdivision obligations		69,479		-		69,479		-
Equity securities		390		390		-		-
	$	154,295	$	390	$	153,905	$	-

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following table illustrates the assets measured at fair value on a nonrecurring basis segregated by hierarchy fair value ~~levels:~~levels.



(Dollars in thousands)			Fair value measurements at December 31, 2011 using:								Fair value measurements at December 31, 2013 using:
									Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	Total carrying value at December 31, 2011		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	5,621	$	—	$	—	$	5,621	$	6,535	$	-	$	-	$	6,535
Foreclosed Assets Held for Sale		240		—		—		240		465		-		-		465

(Dollars in thousands)			Fair value measurements at December 31, 2010 using:
Assets:	Total carrying value at December 31, 2010		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Impaired Loans	$	6,542	$	—	$	—	$	6,542
Foreclosed Assets Held for Sale		299		—		—		299



(Dollars in thousands)			Fair value measurements at December 31, 2012 using:
	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	3,075	$	-	$	-	$	3,075
Foreclosed Assets Held for Sale		105		-		-		105

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Mid Penn has utilized Level 3 inputs to determine the fair value.



(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2013	Fair Value Estimate		Valuation Technique	Unobservable Input	Range Weighted Average
Impaired Loans	$	6,535	Appraisal of collateral (1)	Appraisal adjustments (2)	10% - 95% (25%)
Foreclosed Assets Held for Sale	$	465	Appraisal of collateral (1), (3)	Appraisal adjustments (2)	15% - 40% (24%)

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements



(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2012	Fair Value Estimate		Valuation Technique	Unobservable Input	Range Weighted Average
Impaired Loans	$	3,075	Appraisal of collateral (1)	Appraisal adjustments (2)	10% - 95% (28%)
Foreclosed Assets Held for Sale	$	105	Appraisal of collateral (1), (3)	Appraisal adjustments (2)	15% - 40% (24%)

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various level 3 inputs which are not observable.

(2)

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.

(3)

Includes qualitative adjustments by management and estimated liquidation expenses.

The following methodologies and assumptions were used to estimate the fair value of Mid Penn’s financial ~~instruments:~~instruments.

Cash and Cash Equivalents:

The carrying value of cash and cash equivalents is considered to be a reasonable estimate of fair value.

Interest-bearing Balances with other Financial Institutions:

The estimate of fair value was determined by comparing the present value of quoted interest rates on like deposits with the weighted average yield and weighted average maturity of the balances.

Securities Available for Sale:

The fair value of securities classified as available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted prices.

Impaired Loans:

Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every 18 months for possible revaluation by an independent third party.

Mid Penn does not currently, or plan to in the future, use automated valuation methodologies as a method of valuing real estate collateral.

Loans:

For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, carrying values approximated fair value. The fair value of other loans are estimated by calculating the present value of the cash flow difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Foreclosed Assets Held for Sale:

Assets included in foreclosed assets held for sale are carried at fair value, less costs to sell, 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.

Accrued Interest Receivable and Payable:

The carrying amount of accrued interest receivable and payable approximates their fair values.

Restricted Investment in Bank Stocks:

The carrying amount of required and restricted investment in correspondent bank stock approximates fair value, and considers the limited marketability of such securities.

Mortgage Servicing Rights:

The fair value of servicing rights is based on the present value of estimated future cash flows on pools of mortgages stratified by rate and maturity date.

Deposits:

The fair value for demand deposits (e.g., interest and noninterest checking, savings, and money market deposit accounts) is by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). Fair value for fixed-rate certificates of deposit was estimated using a discounted cash flow calculation by combining all fixed-rate certificates into a pool with a weighted average yield and a weighted average maturity for the pool and comparing the pool with interest rates currently being offered on a similar maturity.

Short-term Borrowings:

Because of time to maturity, the estimated fair value of short-term borrowings approximates the book value.

Long-term Debt:

The estimated fair values of long-term debt were determined using discounted cash flow analysis, based on currently available borrowing rates for similar types of borrowing arrangements.

Commitments to Extend Credit and Letters of Credit:

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit worthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

The following table summarizes the carrying value and fair value of financial instruments at December 31, ~~2011~~2013 and ~~2010.~~2012.

(Dollars in thousands)    December 31, 2011    December 31, 2010
   Carrying
Value    Fair
Value    Carrying
Value    Fair
Value
Financial assets:

Cash and cash equivalents
   $ 17,841       $ 17,841       $ 12,901       $ 12,901
Interest-bearing balances with other financial institutions
   27,477       27,477       55,041       55,041
Investment securities
   159,043       159,043       70,702       70,702
Net loans and leases
   475,945       498,029       460,674       481,248
Restricted investment in bank stocks
   3,120       3,120       3,828       3,828
Accrued interest receivable
   3,067       3,067       2,632       2,632
Mortgage servicing rights
   173       123       185       107
Financial liabilities:

Deposits
   $ 634,055       $ 644,474       $ 554,982       $ 560,843
Short-term borrowings
   —         —         1,561       1,561
Long-term debt
   22,701       24,609       27,883       28,318
Accrued interest payable
   1,064       1,064       1,111       1,111
Off-balance sheet financial instruments:

Commitments to extend credit
   $ —         $ —         $ —         $ —
Financial standby letters of credit
   —         —         —         —

~~(13)~~

~~Postretirement Benefit Plans~~



(Dollars in thousands)	December 31, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	8,623	$	8,623	$	15,473	$	15,473
Interest-bearing time balances with other financial institutions		7,513		7,513		23,563		23,563
Investment securities		122,803		122,803		154,295		154,295
Net loans and leases		540,145		548,923		478,711		495,181
Restricted investment in bank stocks		2,969		2,969		2,503		2,503
Accrued interest receivable		2,704		2,704		2,893		2,893
Mortgage servicing rights		223		223		233		233

Financial liabilities:
Deposits	$	608,130	$	610,419	$	625,461	$	629,096
Short-term borrowings		23,833		23,833		-		-
Long-term debt		23,145		22,988		22,510		23,240
Accrued interest payable		393		393		620		620

Off-balance sheet financial instruments:
Commitments to extend credit	$	-	$	-	$	-	$	-
Financial standby letters of credit		-		-		-		-

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of December 31, 2013 and 2012. Carrying values approximate fair values for cash and cash equivalents, interest-bearing time balances with other financial institutions, restricted investment in bank stocks, mortgage servicing rights, accrued interest receivable and payable, and short-term borrowings. Other than cash and cash equivalents, which are considered Level 1 Inputs, these instruments are Level 2 Inputs. The following tables exclude financial instruments for which the carrying amount approximates fair value.



					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
December 31, 2013	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Net loans and leases	$	540,145	$	548,923	$	-	$	-	$	548,923

Financial instruments - liabilities
Deposits	$	608,130	$	610,419	$	-	$	610,419	$	-
Long-term debt		23,145		22,988		-		22,988		-



					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
December 31, 2012	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Net loans and leases	$	478,711	$	495,181	$	-	$	-	$	495,181

Financial instruments - liabilities
Deposits	$	625,461	$	629,096	$	-	$	629,096	$	-
Long-term debt		22,510		23,240		-		23,240		-

(13) Postretirement Benefit Plans

Mid Penn has an unfunded noncontributory defined benefit ~~plan~~Plan for directors. The ~~plan~~Plan provides defined benefits based on years of service.

Mid Penn also has other postretirement benefit ~~plans~~Plans covering full-time employees. These health care and life insurance ~~plans~~Plans are noncontributory.

The significant aspects of each ~~plan~~Plan are as follows:

(a)

Health Insurance

For full-time employees who retire after at least 20 years of service, Mid Penn will pay premiums for major medical insurance (as provided to active employees) for a period ending on the earlier of the date the participant obtains other employment where major medical coverage is available or the date of the ~~participant’s~~participant's death; however, in all cases payment of medical premiums by Mid Penn will not exceed five years. If the retiree becomes eligible for Medicare within the five-year period beginning on his/her retirement date, the Bank may pay, at its discretion, premiums for 65 Special coverage or a similar supplemental coverage. After the five-year period has expired, all Mid Penn paid benefits cease; however, the retiree may continue coverage through the Bank at his/her own expense. This ~~plan~~Plan was amended in 2008 to encompass only those employees that had achieved ten years of full-time continuous service to Mid Penn as of January 1, 2008. Employees hired after that date and those that had not achieved the service requirements are not eligible for the ~~plan.~~Plan.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

(b)

Life Insurance

For full-time employees who retire after at least 20 years of service, Mid Penn will provide term life insurance. The amount of coverage prior to age 65 will be three times the ~~participant’s~~participant's annual salary at retirement or $50,000, whichever is less. After age 65, the life insurance coverage amount will decrease by 10% per year, subject to a minimum amount of $2,000.

(c)

Directors’ Retirement Plan

Mid Penn has an unfunded defined benefit retirement ~~plan~~Plan for directors with benefits based on years of service. The adoption of this ~~plan~~Plan generated unrecognized prior service cost of $274,000, which is being amortized over the expected future years of service of active directors. The unamortized balance at December 31, ~~2011,~~2013, was ~~$151,000.~~$108,000.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

Health and Life

The following tables provide a reconciliation of the changes in the ~~plan’s~~Plan’s health and life insurance benefit obligations and fair value of ~~plan~~Plan assets for the years ended December 31, ~~2011~~2013 and ~~2010,~~2012, and a statement of the funded status at December 31, ~~2011~~2013 and ~~2010:~~2012.

(Dollars in thousands)    December 31,
   2011 2010
Change in benefit obligations:

Benefit obligations, January 1
   $ 868    $ 633
Service cost
   22    22
Interest cost
   42    44
Actuarial (gain) loss
   (78 ) 150
Change in assumptions
   80    48
Benefit payments
   (30 ) (29 )


Benefit obligations, December 31
   $ 904    $ 868


Change in fair value of plan assets:

Fair value of plan assets, January 1
   $ —      $ —
Employer contributions
   30    29
Benefit payments
   (30 ) (29 )


Fair value of plan assets, December 31
   $ —      $ —
Funded status at year end
   $ (904 ) $ (868 )



(Dollars in thousands)	December 31,
Change in benefit obligations:	2013		2012
Benefit obligations, January 1	$	894	$	904
Service cost		17		21
Interest cost		34		37
Actuarial gain		(15)		(76)
Change in assumptions		(55)		38
Benefit payments		(39)		(30)
Benefit obligations, December 31	$	836	$	894

Change in fair value of plan assets:
Fair value of plan assets, January 1	$	-	$	-
Employer contributions		39		30
Benefit payments		(39)		(30)
Fair value of plan assets, December 31	$	-	$	-

Funded status at year end	$	(836)	$	(894)

The amount recognized in the consolidated balance sheet at December 31, ~~2011~~2013 and ~~2010,~~2012, is as follows:

(Dollars in thousands) 2011 2010
Accrued benefit liability
$ 904 $ 868


(Dollars in thousands)	2013		2012
Accrued benefit liability	$	836	$	894

The amounts recognized in accumulated other comprehensive (loss) income consist of:

(Dollars in thousands)    December 31,
   2011 2010
Net loss, pretax
   $ 74    $ 72
Prior service cost, pretax
   (3 ) (4 )


(Dollars in thousands)	December 31,
	2013		2012
Net (gain) loss, pretax	$	(33)	$	37
Prior service cost, pretax		(1)		(2)

The accumulated benefit obligation for health and life insurance plans was ~~$904,000~~$836,000 and ~~$868,000~~$894,000 at December 31, ~~2011~~2013 and ~~2010,~~2012, respectively.

The estimated prior service costs that will be amortized from accumulated other comprehensive ~~income (loss)~~loss into net periodic benefit cost during ~~2012~~2014 is ($~~1,053)~~1,052).

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The components of net periodic postretirement benefit cost for ~~2011, 2010~~2013, 2012 and ~~2009~~2011 are as follows:

(Dollars in thousands)    2011 2010 2009
Service cost
   $ 22    $ 22    $ 16
Interest cost
   42    44    32
Amortization of prior service cost
   (1 ) (1 ) (1 )
Amortization of net gain
   —      —      (10 )


Net periodic postretirement benefit cost
   $ 63    $ 65    $ 37


(Dollars in thousands)	2013		2012		2011
Service cost	$	17	$	21	$	22
Interest cost		34		37		42
Amortization of prior service cost		(1)		(1)		(1)
Net periodic postretirement benefit cost	$	50	$	57	$	63

Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31, ~~2011~~2013 and ~~2010~~2012 are as follows:

   2011 2010
Weighted-average assumptions:

Discount rate
   4.50 % 5.50 %
Rate of compensation increase
   3.50 % 4.50 %


Weighted-average assumptions:	2013	2012
Discount rate	4.75%	4.00%
Rate of compensation increase	3.75%	3.00%

Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31, ~~2011, 2010~~2013, 2012 and ~~2009~~2011 are as follows:

   2011 2010 2009
Weighted-average assumptions:

Discount rate
   4.50 % 5.50 % 5.75 %
Rate of compensation increase
   3.50 % 4.50 % 4.75 %


Weighted-average assumptions:	2013	2012	2011
Discount rate	4.00%	4.50%	5.50%
Rate of compensation increase	3.00%	3.50%	4.50%

Assumed health care cost trend rates at December 31, ~~2011, 2010~~2013, 2012 and ~~2009~~2011 are as follows:

   2011 2010 2009
Health care cost trend rate assumed for next year
   7.00 % 7.50 % 8.00 %
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
   5.50 % 5.50 % 5.50 %
Year that the rate reaches the ultimate trend rate
   2016    2016    2014


	2013	2012	2011
Health care cost trend rate assumed for next year	7.00%	7.50%	7.00%
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)	5.50%	5.50%	5.50%
Year that the rate reaches the ultimate trend rate	2016	2016	2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care ~~plans.~~Plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

(Dollars in thousands)    One-Percentage Point
   Increase    Decrease
Effect on total of service and interest cost
   $ 6       $ (5 )
Effect on accumulated postretirement benefit obligation
   76       (68 )


(Dollars in thousands)	One-Percentage Point
	Increase		Decrease
Effect on total of service and interest cost	$	53	$	4
Effect on accumulated postretirement benefit obligation		59		4

Mid Penn expects to contribute ~~$22,000~~$42,000 to its life and health benefit ~~plans~~Plans in ~~2012.~~2014. The following table shows the estimated benefit payments for future ~~periods:~~periods.

(Dollars in thousands)
1/1/2012 to 12/31/2012
   $ 22
1/1/2013 to 12/31/2013
   31
1/1/2014 to 12/31/2014
   45
1/1/2015 to 12/31/2015
   62
1/1/2016 to 12/31/2016
   75
1/1/2017 to 12/31/2021
   419


(Dollars in thousands)
1/1/2014 to 12/31/2014	$	42
1/1/2015 to 12/31/2015		60
1/1/2016 to 12/31/2016		70
1/1/2017 to 12/31/2017		71
1/1/2018 to 12/31/2018		71
1/1/2019 to 12/31/2023		355

Benefit obligations were measured as of December 31, ~~2011,~~2013, for the postretirement benefit ~~plan.~~Plan.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Retirement Plan

The following tables provide a reconciliation of the changes in the directors’ defined benefit ~~plan’s~~Plan’s benefit obligations and fair value of ~~plan~~Plan assets for the years ended December 31, ~~2011~~2013 and ~~2010~~2012 and a statement of the status at December 31, ~~2011~~2013 and ~~2010.~~2012. This ~~plan~~Plan is unfunded.

(Dollars in thousands)    December 31,
   2011 2010
Change in benefit obligations:

Benefit obligations, January 1
   $ 998    $ 975
Service cost
   24    23
Interest cost
   53    54
Actuarial loss (gain)
   3    (9 )
Change in assumptions
   51    12
Benefit payments
   (60 ) (57 )


Benefit obligations, December 31
   $ 1,069    $ 998


Change in fair value of plan assets:

Fair value of plan assets, January 1
   $ —      $ —
Employer contributions
   60    57
Benefit payments
   (60 ) (57 )


Fair value of plan assets, December 31
   $ —      $ —
Funded status at year end
   $ (1,069 ) $ (998 )



(Dollars in thousands)	December 31,
Change in benefit obligations:	2013		2012
Benefit obligations, January 1	$	1,139	$	1,069
Service cost		32		22
Interest cost		44		49
Actuarial loss		4		10
Change in assumptions		(5)		5
Change due to plan amendment		-		53
Benefit payments		(84)		(69)
Benefit obligations, December 31	$	1,130	$	1,139

Change in fair value of plan assets:
Fair value of plan assets, January 1	$	-	$	-
Employer contributions		84		69
Benefit payments		(84)		(69)
Fair value of plan assets, December 31	$	-	$	-

Funded status at year end	$	(1,130)	$	(1,139)

Amounts recognized in the consolidated balance sheet at December 31, ~~2011~~2013 and ~~2010~~2012 are as follows:

(Dollars in thousands) 2011 2010
Accrued benefit liability
$ 1,069 $ 998


(Dollars in thousands)	2013		2012
Accrued benefit liability	$	1,130	$	1,139

Amounts recognized in accumulated other comprehensive income consist of:

(Dollars in thousands)    December 31,
   2011    2010
Net prior service cost, pretax
   $ 151       $ 172
Net loss (gain), pretax
   26       (28 )


(Dollars in thousands)	December 31,
	2013		2012
Net prior service cost, pretax	$	108	$	129
Net loss, pretax		40		41

The accumulated benefit obligation for the retirement ~~plan~~Plan was ~~$1,069,000~~$1,130,000 at December 31, ~~2011~~2013 and ~~$998,000~~$1,139,000 at December 31, ~~2010.~~2012.

The estimated prior service costs that will be amortized from accumulated other comprehensive income ~~(loss)~~ into net periodic benefit cost during ~~2012~~2014 is ~~$21,525.~~$32,304.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

The components of net periodic retirement cost for ~~2011, 2010~~2013, 2012 and ~~2009~~2011 are as follows:


(Dollars in thousands)	2011		2010		2009		2013		2012		2011
Service cost	$	24	$	23	$	20	$	32	$	22	$	24
Interest cost		53		54		56		44		49		53
Amortization of prior-service cost		22		21		22		22		22		22

Net periodic retirement cost	$	99	$	98	$	98	$	98	$	93	$	99

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31, ~~2011~~2013 and ~~2010~~2012 are as follows:


	2011			2010
Weighted-average assumptions:							2013	2012
Discount rate		4.50	%		5.50	%	4.75%	4.00%
Change in consumer price index		2.50	%		3.00	%	2.75%	2.00%

Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31, ~~2011, 2010~~2013, 2012 and ~~2009~~2011 are as follows:

   2011 2010 2009
Weighted-average assumptions:

Discount rate
   4.50 % 5.50 % 5.75 %
Change in consumer price index
   2.50 % 3.00 % 3.25 %


Weighted-average assumptions:	2013	2012	2011
Discount rate	4.00%	4.50%	5.50%
Change in consumer price index	2.00%	2.50%	3.00%

Mid Penn expects to contribute ~~$81,000~~$91,000 to its retirement ~~plan~~Plan in ~~2012.~~2014. The following table shows the estimated benefit payments for future ~~periods:~~periods.

(Dollars in thousands)
1/1/2012 to 12/31/2012
   $ 81
1/1/2013 to 12/31/2013
   83
1/1/2014 to 12/31/2014
   86
1/1/2015 to 12/31/2015
   88
1/1/2016 to 12/31/2016
   91
1/1/2017 to 12/31/2021
   491


(Dollars in thousands)
1/1/2014 to 12/31/2014	$	91
1/1/2015 to 12/31/2015		94
1/1/2016 to 12/31/2016		96
1/1/2017 to 12/31/2017		99
1/1/2018 to 12/31/2018		103
1/1/2019 to 12/31/2023		529

Plan benefit obligations were measured as of December 31, ~~2011~~2013 for the directors’ defined benefit ~~plan.~~Plan.

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 ~~$3,408,000~~$3,609,000 and ~~$3,297,000~~$3,513,000 at December 31, ~~2011~~2013 and ~~2010,~~2012, respectively.

(14) Other Benefit Plans

~~(14)~~

~~Other Benefit Plans~~

(a)

Defined-Contribution Plan

~~(a)~~

~~Defined-Contribution Plan~~

The Bank has a funded contributory defined-contribution ~~plan~~Plan covering substantially all employees. The ~~Bank’s contribution~~Bank did not contribute to the ~~plan was $0 for 2011, 2010, and 2009.~~Plan in 2013, 2012, or 2011.

(b)

Deferred Compensation Plans

The Bank has an executive deferred compensation ~~plan,~~Plan, which allows an executive officer to defer compensation for a specified period in order to provide future retirement income. The only participant in this ~~plan~~Plan is a former executive officer. At both December 31, ~~2011~~2013 and ~~2010,~~2012, the Bank ~~had~~ accrued a liability of approximately ~~$181,000 and $174,000, respectively,~~$192,000 for this ~~plan.~~

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~
Plan.

The Bank also has a directors’ deferred compensation ~~plan,~~Plan, which allows directors to defer receipt of fees for a specified period in order to provide future retirement income. At December 31, ~~2011~~2013 and ~~2010,~~2012, the Bank ~~had~~ accrued a liability of approximately ~~$501,000~~$405,000 and $423,000, respectively, for this ~~plan.~~Plan.

(c)

Salary Continuation Agreement

The Bank maintains a Salary Continuation Agreement (“Agreement”) for a former executive officer. The Agreement 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, ~~2011~~2013 and ~~2010,~~2012, the Bank ~~has~~ accrued a liability of approximately ~~$179,000~~$206,000 and ~~$167,000,~~$192,000, respectively, for the Agreement. The expense related to the Agreement was $14,000 for 2013, $13,000 for 2012, and $12,000 for ~~2011, $11,000 for 2010, and $11,000 for 2009.~~2011.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The Bank is the owner and beneficiary of an insurance policy on the life of the participating former executive officer, which informally funds the benefit obligation. The aggregate cash surrender value of this policy was approximately ~~$1,107,000~~$1,178,000 and ~~$1,072,000~~$1,143,000 at December 31, ~~2011~~2013 and ~~2010,~~2012, respectively.

(d)

Employee Stock Ownership Plan

~~Mid Penn has an~~The Employee Stock Ownership Plan (“ESOP”) ~~covering substantially all employees. Contributions to the ESOP are made at the discretion of the Board of Directors.~~was terminated in 2013. Total expense related to Mid Penn’s contribution to the ESOP for ~~2011, 2010~~2013, 2012, and ~~2009~~2011 was $0, respectively. Contributions to the ESOP were made at the discretion of the Board of Directors. The ESOP held ~~41,873 and 42,271~~no common shares ~~of Mid Penn stock~~ as of December 31, ~~2011,~~2013, and 38,799 common shares as of December 31, ~~2010, respectively,~~2012, all of which were allocated to ~~plan~~Plan participants. The ESOP shares ~~are~~were valued using Level 1 inputs as there is an active market for identical assets at the measurement date. At December 31, ~~2011,~~2013, the total fair value of the ESOP was $0. At December 31, 2012, the fair value of Mid Penn stock on the NASDAQ Stock Market was ~~$7.54~~$11.19 per common share, resulting in a total fair value of the ESOP of ~~$316,000.~~$434,000. Shares held by the ESOP are considered outstanding for purposes of calculating earnings per share. Dividends paid on shares held by the ESOP are charged to retained earnings.

(e)

Split Dollar Life Insurance Arrangements

At December 31, ~~2011~~2013 and ~~2010,~~2012, the Bank had Split Dollar Life Insurance arrangements with two former executives for which the aggregate collateral assignment and cash surrender values are approximately ~~$1,661,000~~$1,739,000 and ~~$1,625,000,~~$1,694,000, respectively.

(f)

401(k) Plan

The Bank has a 401(k) ~~plan~~Plan that covers substantially all full-time employees. The ~~plan~~Plan allows employees to contribute a portion of their salaries and wages to the ~~plan.~~Plan. The ~~plan~~Plan provides for the Bank to match a portion of employee-elected salary deferrals, subject to certain percentage maximums of their salaries and wages. The Bank’s contribution to the ~~plan~~Plan was ~~$115,000, $90,000,~~$129,000, $111,000, and ~~$96,000~~$115,000 for the years ending December 31, ~~2011, 2010,~~2013, 2012, and ~~2009,~~2011, respectively.

(g)

Employee Stock Purchase Plan

Mid Penn has an Employee Stock Purchase Plan (“ESPP”) in which all employees are eligible to participate. The ~~plan~~Plan allows employees to use a portion of their salaries and wages to purchase common shares of Mid Penn stock at the market value of shares at the end of each calendar quarter.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

(15) Federal Income Taxes

~~(15)~~

~~Federal Income Taxes~~

The following temporary differences gave rise to the net deferred tax asset at December 31, ~~2011~~2013 and ~~2010:~~2012.



(Dollars in thousands)	2011			2010			2013		2012
Deferred tax assets:
Allowance for loan and lease losses	$	2,283		$	2,328		$	2,148	$	1,873
Loan fees		266			171			167		198
Benefit plans		1,082			1,072			976		974
Nonaccrual interest		882			379			895		1,204
Prepaid expenses		57			—
Unrealized loss on securities								385		-
AMT Credit Carryforward								-		333
Other		125			17			127		108

		4,695			3,967
								4,698		4,690

Deferred tax liabilities:
Depreciation		(897	)		(579	)		(945)		(1,109)
Bond accretion		(115	)		(115	)		(92)		(80)
Prepaid expenses		—			(135	)
Goodwill and intangibles		(191	)		(172	)		(254)		(234)
Unrealized gain on securities		(1,053	)		(91	)		-		(1,253)

		(2,256	)		(1,092	)
Prepaid expenses								(170)		(222)
Other								(2)		(3)
								(1,463)		(2,901)
Deferred tax asset, net	$	2,439		$	2,875		$	3,235	$	1,789

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

In assessing the ~~realizability~~realisability of federal or state deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent, feasible and permissible as well as available tax planning strategies in making this assessment. 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.

The provision for (benefit from) income taxes consists of the following:


(Dollars in thousands)	2011			2010			2009			2013		2012		2011
Current	$	1,749		$	704		$	(1,965	)	$	1,009	$	794	$	1,749
Deferred		(526	)		(288	)		(243	)		192		450		(526)

Total provision for (benefit from) income taxes	$	1,223		$	416		$	(2,208	)

Total provision for income taxes										$	1,201	$	1,244	$	1,223

A reconciliation of income tax at the statutory rate to Mid ~~Penn’s~~Penn's effective rate is as follows:


(Dollars in thousands)	2011			2010			2009			2013		2012		2011
Provision (benefit) at the expected statutory rate	$	1,960		$	1,076		$	(1,531	)
Provision at the expected statutory rate										$	2,088	$	2,106	$	1,960
Effect of tax-exempt income		(710	)		(635	)		(609	)		(873)		(827)		(710)
Effect of investment in life insurance		(88	)		(92	)		(149	)		(78)		(84)		(88)
Nondeductible interest		49			51			62			40		49		49
Other items		12			16			19			24		-		12

Provision for (benefit from) income taxes	$	1,223		$	416		$	(2,208	)

Provision for income taxes										$	1,201	$	1,244	$	1,223

Mid Penn has no unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. Mid Penn does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

No amounts for interest and penalties were recorded in income tax ~~(benefit)~~ expense in the consolidated statement of ~~operations~~income for the years ended December 31, ~~2011, 2010,~~2013, 2012, or ~~2009.~~2011. There were no amounts accrued for interest and penalties at December 31, ~~2011~~2013 or ~~2010.~~

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~
2012.

Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the state of Pennsylvania. Mid Penn is no longer subject to examination by taxing authorities for years before ~~2008.~~2010. Tax years ~~2008~~2010 through the present, with limited exception, remain open to examination.

~~(16)~~

~~Core Deposit Intangible~~

(16) Core Deposit Intangible

A summary of core deposit intangible is as follows at December 31, ~~2011.~~2013:

(Dollars in thousands)    2004 2006
   Acquisition Acquisition Total
Gross carrying amount
   $ 291    $ 232    $ 523
Less accumulated amortization
   (275 ) (147 ) (422 )


Net carrying amount
   $ 16    $ 85    $ 101



(Dollars in thousands)	2004		2006
	Acquisition		Acquisition		Total
Gross carrying amount	$	291	$	232	$	523
Less accumulated amortization		(291)		(205)		(496)
Net carrying amount	$	-	$	27	$	27

The core deposit intangibles for the acquisitions are being amortized over the weighted average useful life of 8 years, with no estimated residual value.

Amortization expense amounted to $29,000 in 2013, $45,000 in 2012, and $65,000 in ~~2011, 2010, and 2009.~~

2011. The estimated amortization ~~expenses~~expense of intangible assets ~~for each of the four succeeding fiscal years are as follows:~~is $27,000 in 2014.

(Dollars in thousands)
2012
   $ 45
2013
   29
2014
   27


   $ 101

~~(17)~~

~~Regulatory Matters~~

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

(17) Regulatory Matters

Mid Penn Bancorp, Inc., is a bank holding company and, as such, chooses to maintain a well-capitalized status 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, ~~2011~~2013 and December 31, ~~2010,~~2012, Mid Penn met all capital adequacy requirements to which the Bank is subject, and the Bank is considered “well-capitalized”. However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources.

The FDIC Board has adopted a restoration plan that raised assessment rates for deposit insurance premiums for 2009, and enacted a special emergency assessment that has significantly affected operating results for the Corporation. The assessment was 0.05% of total Bank Assets, less Tier 1 Capital as of June 30, 2009, and was paid on September 30, 2009. The special assessment for Mid Penn’s banking subsidiary was $265,000.

The FDIC has also adopted a prepayment of projected deposit insurance premiums for a three-year period that would be paid on December 30, 2009. The prepayment was approximately $2,719,000 for the Corporation. The prepayment will be carried as a prepaid expense in other assets on the balance sheet and amortized into expense in the operating period to which it applies. As of December 31, 2011, the unamortized balance was $871,000.

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 in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. At December 31, ~~2011, $0~~2013, $5,686,000 of undistributed earnings of the Bank included in the consolidated shareholders’ equity was available for distribution to the Corporation as dividends without prior regulatory approval, subject to regulatory capital requirements below. On January 25, 2012, Mid Penn declared a cash dividend of $0.05 per common share, payable on February 27, 2012 to shareholders of record as of February 8, 2011. This declaration and subsequent payout was made in compliance with Federal Reserve Board policy regarding dividends.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

Mid Penn maintained the following regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31, ~~2011,~~2013, and December 31, ~~2010,~~2012, as follows:



(Dollars in thousands)	Capital Adequacy															Capital Adequacy
	Actual:					Minimum Capital Required:					To Be Well-Capitalized Under Prompt Corrective Action Provisions:											To Be Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio									Under Prompt
																			Minimum Capital			Corrective
																Actual			Required			Action Provisions
																Amount		Ratio	Amount		Ratio	Amount		Ratio
Corporation
As of December 31, 2011:
As of December 31, 2013:
Tier 1 Capital (to Average Assets)	$	50,451		7.0	%	$	28,679		4.0	%		N/A		N/A		$	52,693	7.5%	$	28,031	4.0%	$	N/A	N/A
Tier 1 Capital (to Risk Weighted Assets)		50,451		10.3	%		19,566		4.0	%		N/A		N/A			52,693	9.9%		21,234	4.0%		N/A	N/A
Total Capital (to Risk Weighted Assets)		56,513		11.6	%		39,132		8.0	%		N/A		N/A			59,100	11.1%		42,467	8.0%		N/A	N/A

Bank
As of December 31, 2011:
As of December 31, 2013:
Tier 1 Capital (to Average Assets)	$	50,265		7.1	%	$	28,326		4.0	%	$	35,408		5.0	%	$	52,598	7.5%	$	28,041	4.0%	$	35,051	5.0%
Tier 1 Capital (to Risk Weighted Assets)		50,265		10.4	%		19,367		4.0	%		29,051		6.0	%		52,598	9.9%		21,234	4.0%		31,850	6.0%
Total Capital (to Risk Weighted Assets)		56,327		11.6	%		38,735		8.0	%		48,419		10.0	%		59,005	11.1%		42,467	8.0%		53,084	10.0%

Corporation
As of December 31, 2010:
As of December 31, 2012:
Tier 1 Capital (to Average Assets)	$	46,957		7.4	%	$	25,352		4.0	%		N/A		N/A		$	48,822	6.8%	$	28,530	4.0%	$	N/A	N/A
Tier 1 Capital (to Risk Weighted Assets)		46,957		10.2	%		18,501		4.0	%		N/A		N/A			48,822	10.0%		19,593	4.0%		N/A	N/A
Total Capital (to Risk Weighted Assets)		52,711		11.4	%		37,002		8.0	%		N/A		N/A			54,421	11.1%		39,185	8.0%		N/A	N/A

Bank
As of December 31, 2010:
As of December 31, 2012:
Tier 1 Capital (to Average Assets)	$	46,799		7.4	%	$	25,388		4.0	%	$	31,735		5.0	%	$	48,764	6.9%	$	28,111	4.0%	$	35,138	5.0%
Tier 1 Capital (to Risk Weighted Assets)		46,799		10.2	%		18,357		4.0	%		27,536		6.0	%		48,764	10.0%		19,593	4.0%		29,389	6.0%
Total Capital (to Risk Weighted Assets)		52,553		11.5	%		36,714		8.0	%		45,893		10.0	%		54,363	11.1%		39,185	8.0%		48,981	10.0%

~~(18)~~

~~Concentration of Risk and Off-Balance Sheet Risk~~

(18) 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.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The Bank evaluates each ~~customer’s~~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~~management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. The ~~Bank’s~~Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for direct, funded loans.

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.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~
The amount of the liability as of December 31, 2013 and 2012 for guarantees under letters of credit issued is not material.

As of December 31, ~~2011,~~2013, commitments to extend credit amounted to ~~$91,619,000~~$141,616,000 and standby letters of credit amounted to ~~$7,320,000.~~$8,458,000.

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~~Bank's exposure to significant concentration of credit risk, management set a parameter of 10% or more of the ~~Bank’s~~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, ~~2011,~~2013, 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~~Bank's business activity is with customers located in Central Pennsylvania, specifically within the ~~Bank’s~~Bank's trading area made up of Dauphin County, lower Northumberland County, western Schuylkill County and eastern Cumberland County.

The ~~Bank’s~~Bank's highest concentrations of credit within the loan portfolio are in the areas of Commercial Real Estate financing ~~(60.7%~~(50.2%) as of December 31, ~~2011.~~2013.

~~(19)~~

~~Commitments and Contingencies~~

(19) Commitments and Contingencies

Operating Leases:

In April 2005, Mid Penn entered into a non-cancelable operating lease agreement to lease approximately 2,500 square feet of office space in the downtown Harrisburg area, with the initial term extending through April 2010. Mid Penn has the option to renew this lease for two additional five-year periods and has exercised the first of these options, extending the term of the lease through April of 2015. Mid Penn also has entered into a non-cancelable lease on a drive-up ATM site in Halifax, PA. This lease was renewed in 2012 and runs through October of ~~2012.~~2015. In December 2011, Mid Penn entered into a non-cancelable operating lease agreement to lease approximately 5,900 square feet of office space on Derry St. in the Harrisburg area, with the initial term extending through November 2014. Mid Penn has the option to renew this lease for two additional three-year periods.

Minimum future rental payments under these operating leases as of December 31, ~~2011~~2013 are as follows:


(Dollars in thousands)

2012	$	109
2013		106
2014		105	$	113
2015		21		28
			$	141
	$	341

Mid Penn paid rent payments in 2013, 2012, and 2011 ~~2010,~~of $121,000, $120,000, and ~~2009 of~~ $79,000, ~~$90,000, and $97,000,~~ respectively.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

Litigation:

Mid Penn is subject to lawsuits and claims arising out of its 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.

~~(20)~~

~~Common Stock~~

(20) Common Stock

Mid Penn has reserved 50,000 of authorized, but unissued shares of its common stock for issuance under a Stock Bonus Plan (the “Plan”). Shares issued under the Plan are at the discretion of the Board of Directors.

Under Mid Penn’s amended and restated dividend reinvestment plan, (DRIP), 200,000 of Mid Penn’s authorized but unissued common stock are reserved for issuance. The DRIP also allows for voluntary cash payments within specified limits, for the purchase of additional shares.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(21)~~

~~Preferred Stock~~

(21) Preferred Stock

On December 19, 2008, Mid Penn entered into and closed a Letter Agreement with the United States Department of the Treasury (the “Treasury”) pursuant to which the Treasury invested $10,000,000 in the ~~Corporation~~Mid Penn Bank under the Treasury’s Capital Purchase Program (the “CPP”).

Under the ~~CPP,~~letter agreement, the Treasury received (1) 10,000 shares of Series A Fixed Rate Cumulative Perpetual Preferred Stock, $1,000 liquidation preference (“Series A Preferred Stock”), and (2) ~~Warrants~~warrants to purchase up to 73,099 shares of ~~the Corporation’s~~Mid Penn common stock at an exercise price of $20.52 per ~~share. The $10,000,000 in new capital is treated as Tier 1 Capital.~~share (the “Warrants”).

~~The Series A Preferred Stock pays cumulative dividends at~~

On December 28, 2012, Mid Penn entered into a ~~rate of 5% per annum for the first five years and 9% per annum thereafter. Pursuant to the American Recovery and Reinvestment Act of 2009, the Secretary of~~letter agreement with the Treasury ~~shall permit, subject~~pursuant to consultation with the appropriate Federal banking agency, the Corporation to redeem the Series A Preferred Stock. The Corporation may do so without regard to the source of the funds to be used to redeem the Series A Preferred Stock or any minimum waiting period. If the Corporation elects to redeem the Series A Preferred Stock prior to February 15, 2012, and receives approvalwhich Mid Penn repurchased from the Treasury ~~and the Board of Governors of the Federal Reserve System, it must redeem at least $2,500,000 of the Series A Preferred Stock. Upon redemption~~all 10,000 shares of the Series A Preferred Stock issued to the ~~Secretary~~Treasury which constitutes all of the ~~Treasury shall liquidate the warrants associated with the Corporation’s participation in the CPP at the current market price. Upon the appropriate approval, the Corporation may redeem~~issued and outstanding shares of Series A Preferred Stock. Mid Penn repurchased the Series A Preferred Stock atfor a purchase price equal to the ~~original purchase price~~aggregate liquidation amount of the Preferred Stock of $10,000,000, plus accrued but unpaid dividends ~~if any. The related Warrants expire in ten years and are immediately exercisable upon their issuance.~~of $59,722. All 10,000 shares of Series A Preferred Stock have subsequently been cancelled.

To participate in the program, the Corporation is required to meet certain standards, including; (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risk that threaten the value of the Corporation; (2) requiring

On January 23, 2013, Mid Penn entered into a clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibiting the Corporation from making any golden parachute payment to a senior executive based on applicable Internal Revenue Code provisions; and (4) agreeing not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

~~Based on the Program term sheet provided by~~letter agreement with the Treasury ~~the following are the effects on holders of common stock~~pursuant to which Mid Penn repurchased from the ~~issuance of Senior Preferred stock to~~Treasury on that date the ~~Treasury under the Program:~~Warrants for $58,479. The Warrants have subsequently been cancelled.

~~Restrictions on Dividends~~

For as long as any Senior Preferred shares are outstanding, no dividends can be declared or paid on common shares, nor can Mid Penn repurchase or redeem any common shares, unless all accrued and unpaid dividends for all past dividend periods on the Senior Preferred shares have been fully paid. In addition, the consent of the Treasury is required for any increase in the per share dividends on common shares until the third anniversaryAs of the date hereof, Mid Penn has no further financial obligations under the Series A Preferred Stock, the Warrants or the Treasury’s CPP.

(22) Stock Issued Under Private Placement Offering

On September 26, 2012, Mid Penn filed with the Pennsylvania Department of State a Statement with Respect to Shares which, effective upon filing, designated a series of preferred stock as “7% Non-Cumulative Non-Voting Non-Convertible Perpetual Preferred Stock, Series B” (“Series B Preferred Stock”), and set forth the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions of the ~~Senior~~Series B Preferred ~~investment unless prior~~Stock.

Sales of Preferred Stock

Mid Penn sold shares of its Non-Cumulative Non-Voting Non-Convertible Perpetual Preferred Stock, Series B (“Series B Preferred Stock”), in transactions exempt from registration under the Securities Act of 1933, pursuant to ~~such third anniversary, the Senior~~Section 4(2) thereof.

Between September 26, 2012, and December 31, 2012, Mid Penn sold 4,880 shares of its Series B Preferred ~~shares~~Stock for total gross proceeds of $4,880,000, which have been ~~redeemed~~offset by issuance costs of $50,000. On January 3, 2013, 120 additional shares were sold resulting in total gross proceeds of $5,000,000 for the Series B Preferred Stock offering.

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements

The following table summarizes the Series B Preferred Stock shares sold and the gross proceeds received through the private placement offering as of December 31, 2013:


(Dollars in thousands)

Period	Shares		Gross Proceeds
September 26, 2012 - September 30, 2012		345	$	345,000
October 1, 2012 - December 31, 2012		4,535		4,535,000
January 1, 2013 - December 31, 2013	120	120		120,000
Total		5,000	$	5,000,000

Terms of the Series B Preferred Stock

The annual dividend rate for the Series B Preferred Stock is 7% per annum of the liquidation preference of the Series B Preferred Stock or $70.00 per annum for each share of Series B Preferred Stock. The Board of Directors must approve each dividend payment from legally available funds. Dividends are payable to holders of record of the Series B Preferred Stock as they appear on our books on the record dates fixed by our Board of Directors. Dividends on any of Series B Preferred Stock are non-cumulative and we currently expect them to be declared quarterly for payment on February 15, May 15, August 15, and November 15 of each year. If a dividend payment date is not a business day, the dividend will be paid on the immediately preceding business day but no additional dividend payment will be prorated from the date of purchase to the first dividend payment date over a quarterly dividend period of 90 days.

Mid Penn may redeem shares of its Series B Preferred Stock at its option, in whole or ~~the Treasury has transferred all~~in part, at any time subject to prior approval of the ~~Senior~~Federal Reserve Board, if then required, at a redemption price of $1,020 per share of Series B Preferred ~~shares~~Stock plus an amount equal to ~~third parties.~~any declared but unpaid dividends and in accordance with the terms and conditions set forth in a Certificate of Designations for the Series B Preferred Stock as filed with the Pennsylvania Department of State.

~~Repurchases~~(23) Parent Company Statements

~~The Treasury’s consent would be required for any share repurchases (other than (1) repurchases of~~


CONDENSED BALANCE SHEETS
(Dollars in thousands)	December 31,
	2013		2012
ASSETS
Cash and cash equivalents	$	437	$	48
Investment in subsidiaries		52,821		52,162
Other assets		7		25
Total assets	$	53,265	$	52,235

LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities	$	349	$	15
Shareholders' equity		52,916		52,220
Total liabilities and shareholders' equity	$	53,265	$	52,235

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements


CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars in thousands)	For Years Ended December 31,
	2013		2012		2011
Income
Dividends from subsidiaries	$	1,237	$	6,628	$	1,246
Other income		-		4		-
Total Income		1,237		6,632		1,246

Expense
Other expenses		(184)		(217)		(153)
Total Expense		(184)		(217)		(153)


Income before income tax and equity in undistributed earnings (loss) of subsidiaries		1,053		6,415		1,093
Equity in undistributed earnings (loss) of subsidiaries		3,823		(1,538)		3,398

Income before income tax		4,876		4,877		4,491
Income tax benefit		63		74		52

Net income		4,939		4,951		4,543
Series A preferred stock dividends & discount accretion		14		514		514
Series B preferred stock dividends		309		-		-
Net income available to common shareholders	$	4,616	$	4,437	$	4,029
Comprehensive income	$	1,774	$	5,328	$	6,423


CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)	For Years Ended December 31,
	2013		2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,939	$	4,951	$	4,543
Equity in undistributed (earnings) loss of subsidiaries		(3,823)		1,538		(3,398)
Decrease (increase) in other assets		3		40		(52)
Increase in other liabilities		334		15		-
Net cash provided by operating activities		1,453		6,544		1,093

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(1,181)		(1,432)		(1,196)
Series A preferred stock redemption		-		(10,000)		-
Series B preferred stock issuance, net of costs		120		4,830		-
Employee Stock Purchase Plan		55		56		38
Warrant repurchase		(58)		-		-
Net cash used in financing activities		(1,064)		(6,546)		(1,158)
Net increase (decrease) in cash and cash equivalents		389		(2)		(65)
Cash and cash equivalents, beginning of year		48		50		115
Cash and cash equivalents, end of year	$	437	$	48	$	50

(24) Recent Accounting Pronouncements

There were no new accounting pronouncements affecting Mid Penn during the ~~Senior Preferred shares and (2) repurchases of common shares in connection with any benefit plan~~period that were not already incorporated in the ordinary course of business consistent with past practice) until the third anniversary of the date of this investment unless prior to such third anniversary the Senior Preferred shares had been redeemed in whole or the Treasury had transferred all of the Senior Preferred shares to third parties.disclosures. In addition, there ~~could be~~are no ~~share repurchases of common shares if prohibited as described under “Restrictions~~recently issued accounting standards that are expected to have a material impact on ~~Dividends” above.~~

~~Voting Rights~~

The Senior Preferred shares would be non-voting, other than class voting rights on (1) any authorization or issuance of shares ranking senior to the Senior Preferred shares, (2) any amendment to the rights of senior Preferred, or (3) any merger, exchange or similar transaction which would adversely affect the rights of the Senior Preferred. If dividends on the Senior Preferred shares were not paidMid Penn’s consolidated financial statements in full for six dividend periods, whether or not consecutive, the Senior Preferred shareholder(s) would have the right to elect two directors. The right to elect directors would end when full dividends had been paid for four consecutive dividendfuture periods.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(22)~~

~~Parent Company Statements~~

CONDENSED BALANCE SHEETS
(Dollars in thousands)    December 31,
   2011    2010
ASSETS

Cash and cash equivalents
   $ 50       $ 115
Investment in subsidiaries
   53,322       48,043
Prepaid expense
   —         1
Other assets
   80       42




Total assets
   $ 53,452       $ 48,201




LIABILITIES AND SHAREHOLDERS’ EQUITY

Shareholders’ equity
   $ 53,452       $ 48,201




Total shareholders’ equity
   $ 53,452       $ 48,201

CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)    For Years Ended December 31,
   2011 2010 2009
Dividends from subsidiaries
   $ 1,246    $ 575    $ 2,498
Undistributed earnings (loss) of subsidiaries
   3,398    2,301    (4,673 )
Other expenses
   (153 ) (193 ) (182 )
Income tax benefit
   52    65    62


Net income (loss)
   $ 4,543    $ 2,748    $ (2,295 )

CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)    For Years Ended December 31,
   2011 2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)
   $ 4,543    $ 2,748    $ (2,295 )
Undistributed (earnings) loss of subsidiaries
   (3,398 ) (2,301 ) 4,673
Decrease in other liabilities
   (52 ) —      —


Net cash provided by operating activities
   1,093    447    2,378


CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from the maturity of investment securities
   —      —      9,000


Net cash provided by investing activities
   —      —      9,000


CASH FLOWS FROM FINANCING ACTIVITIES

Investment in subsidiaries
   —      (5 ) (9,000 )
Dividends paid
   (1,196 ) (500 ) (2,262 )
Employee Stock Purchase Plan
   38    —      —


Net cash used in financing activities
   (1,158 ) (505 ) (11,262 )


Net (decrease) increase in cash and cash equivalents
   (65 ) (58 ) 116
Cash and cash equivalents at beginning of period
   115    173    57


Cash and cash equivalents at end of period
   $ 50    $ 115    $ 173

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(23)~~

~~Recent Accounting Pronouncements~~

~~ASU 2011-03:~~~~The FASB has issued this ASU~~MID PENN BANCORP, INC.Notes to ~~clarify the accounting principles applied to repurchase agreements, as set forth by FASB ASC Topic 860,~~~~Transfers and Servicing~~. This ASU, entitled Reconsideration of Effective Control for Repurchase Agreements, amends one of three criteria used to determine whether or not a transfer of assets may be treated as a sale by the transferor. Under Topic 860, the transferor may not maintain effective control over the transferred assets in order to qualify as a sale. This ASU eliminates the criteria under which the transferor must retain collateral sufficient to repurchase or redeem the collateral on substantially agreed upon terms as a method of maintaining effective control. This ASU is effective for both public and nonpublic entities for interim and annual reporting periods beginning on or after December 15, 2011, and requires prospective application to transactions or modifications of transactions which occur on or after the effective date. Early adoption is not permitted. The Corporation does not expect the adoption will have a significant impact on the Corporation’s financial condition or results of operations.Consolidated Financial Statements

~~ASU 2011-04:~~~~This ASU amends FASB ASC Topic 820,~~~~Fair Value Measurements~~, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The ASU clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholder’s equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The ASU also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The ASU also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. For nonpublic entities, the ASU is effective for annual periods beginning after December 15, 2011. Early adoption is not permitted. The Corporation does not expect the adoption will have a significant impact on the Corporation’s financial condition or results of operations.

~~ASU 2011-05:~~~~The provisions of this ASU amend FASB ASC Topic 220,~~~~Comprehensive Income~~, to facilitate the continued alignment of U.S. GAAP with International Accounting Standards. The ASU prohibits the presentation of the components of comprehensive income in the statement of stockholder’s equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate but consecutive statements of net income and other comprehensive income. Under previous GAAP, all 3 presentations were acceptable. Regardless of the presentation selected, the reporting entity is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements. The provisions of this ASU are effective for fiscal years and interim periods beginning after December 15, 2011 for public entities. For nonpublic entities, the provisions are effective for fiscal years ending after December 15, 2012, and for interim and annual periods thereafter. As the two remaining options for presentation existed prior to the issuance of this ASU, early adoption is permitted. The Corporation does not expect the adoption will have a significant impact on the Corporation’s financial condition or results of operations.

~~ASU 2011-08:~~ ~~In September, 2011, the FASB issued ASU 2011-08,~~~~Testing Goodwill for Impairment.~~~~The purpose of this ASU is to simplify how entities test goodwill for impairment by adding a new first step to the preexisting goodwill impairment test under ASC Topic 350,~~~~Intangibles – Goodwill and other.~~This amendment gives the entity the option to first assess a variety of qualitative factors such as economic conditions, cash flows, and competition to determine whether it was more likely than not that the fair value of goodwill has fallen below its carrying value. If the entity determines that it is not likely that the fair value has fallen below its carrying value, then the entity will not have to complete the original two-step test under Topic 350. The amendments in this ASU are effective for impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Corporation is evaluating the impact of this standard on its consolidated financial statements.

~~ASU 2011-10:~~~~In December, 2011, the FASB issued ASU 2011-10,~~~~Derecognition of in Substance Real Estate – a Scope Clarification.~~This ASU clarifies previous guidance for situations in which a reporting entity would relinquish control of the assets of a subsidiary in order to satisfy the nonrecourse debt of the subsidiary. The ASU concludes that if control of the assets has been transferred to the lender, but not legal ownership of the assets; then the reporting entity must continue to include the assets of the subsidiary in its consolidated financial statements. The amendments in this ASU are effective for public entities for annual and interim periods beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013. Early adoption is permitted. The Corporation is evaluating the impact of this standard on its consolidated financial statements.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~ASU 2011-11:~~~~In December, 2011, the FASB issued ASU 2011-11,~~~~Disclosures about Offsetting Assets and Liabilities,~~~~in an effort to improve comparability between U.S. GAAP and IFRS financial statements with regard to the presentation~~(25) Summary of offsetting assets and liabilities on the statement of financial position arising from financial and derivative instruments, and repurchase agreements. The ASU establishes additional disclosures presenting the gross amounts of recognized assets and liabilities, offsetting amounts, and the net balance reflected in the statement of financial position. Descriptive information regarding the nature and rights of the offset must also be disclosed. The Corporation is evaluating the impact of this standard on its consolidated financial statements.Quarterly Consolidated Financial Data (Unaudited)

~~ASU 2011-12:~~~~In December, 2011, the FASB issued ASU 2011-12,~~~~Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05.~~In response to stakeholder concerns regarding the operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration. The requirement in ASU 2011-05,~~Presentation of Comprehensive Income,~~ for the presentation of a combined statement of comprehensive income or separate, but consecutive, statements of net income and other comprehensive income is still effective for fiscal years and interim periods beginning after December 15, 2011 for public companies, and fiscal years ending after December 15, 2011 for nonpublic companies. The Corporation is evaluating the impact of this standard on its consolidated financial statements.

~~MID PENN BANCORP, INC.~~ ~~Notes to Consolidated Financial Statements~~

~~(24)~~

~~Summary of Quarterly Consolidated Financial Data (Unaudited)~~

The following table presents summarized quarterly financial data for ~~2011~~2013 and ~~2010.~~2012.



(Dollars in thousands, except per share data)	2011 Quarter Ended								2013 Quarter Ended
	March 31		June 30		September 30		December 31		March 31		June 30		September 30		December 31
Interest Income	$	7,453	$	8,075	$	7,994	$	8,023	$	6,902	$	7,153	$	7,633	$	7,295
Interest Expense		2,470		2,485		2,375		2,192		1,443		1,306		1,192		1,116

Net Interest Income		4,983		5,590		5,619		5,831		5,459		5,847		6,441		6,179
Provision for Loan and Lease Losses		200		550		405		50		495		415		575		200

Net Interest Income After Provision for Loan Losses		4,783		5,040		5,214		5,781		4,964		5,432		5,866		5,979
Noninterest Income		758		705		764		769		850		838		808		794
Noninterest Expense		4,300		4,408		4,534		4,806		5,037		4,612		4,746		4,996

Income Before Provision for Income Taxes		1,241		1,337		1,444		1,744		777		1,658		1,928		1,777
Provision for Income Taxes		241		278		312		392		92		292		440		377

Net Income		1,000		1,059		1,132		1,352		685		1,366		1,488		1,400
Preferred Stock Dividends and Discount Accretion		128		129		128		129		61		87		88		87

Net Income Available to Common Shareholders	$	872	$	930	$	1,004	$	1,223	$	624	$	1,279	$	1,400	$	1,313

Per Share Data:
Basic Earnings Per Share	$	0.25	$	0.27	$	0.29	$	0.35	$	0.18	$	0.37	$	0.40	$	0.37
Diluted Earnings Per Share	$	0.25	$	0.27	$	0.29	$	0.35		0.18		0.37		0.40		0.37
Cash Dividends		0.05		0.05		0.05		0.05		-		0.05		0.05		0.15



(Dollars in thousands, except per share data)	2010 Quarter Ended								2012 Quarter Ended
	March 31		June 30		September 30		December 31		March 31		June 30		September 30		December 31
Interest Income	$	7,354	$	7,685	$	7,554	$	7,555	$	7,710	$	7,885	$	7,458	$	7,313
Interest Expense		2,853		2,660		2,567		2,562		2,033		1,862		1,688		1,542

Net Interest Income		4,501		5,025		4,987		4,993		5,677		6,023		5,770		5,771
Provision for Loan and Lease Losses		160		925		975		575		300		225		150		361

Net Interest Income After Provision for Loan Losses		4,341		4,100		4,012		4,418		5,377		5,798		5,620		5,410
Noninterest Income		816		901		824		873		738		931		1,057		957
Noninterest Expense		4,269		4,052		4,352		4,448		4,738		4,947		5,082		4,926

Income Before Provision for Income Taxes		888		949		484		843		1,377		1,782		1,595		1,441
Provision for Income Taxes		153		158		4		101		243		422		329		250

Net Income		735		791		480		742		1,134		1,360		1,266		1,191
Preferred Stock Dividends and Discount Accretion		128		129		128		129		128		129		128		129

Net Income Available to Common Shareholders	$	607	$	662	$	352	$	613	$	1,006	$	1,231	$	1,138	$	1,062

Per Share Data:
Basic Earnings Per Share	$	0.17	$	0.19	$	0.11	$	0.17	$	0.29	$	0.35	$	0.33	$	0.30
Diluted Earnings Per Share	$	0.17	$	0.19	$	0.11	$	0.17		0.29		0.35		0.33		0.30
Cash Dividends		—		—		—		—		0.05		0.05		0.05		0.10

MID PENN BANCORP, INC.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

~~ITEM 9.~~

~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

None

~~ITEM 9A.~~

~~CONTROLS AND PROCEDURES~~

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 Treasurer, 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, ~~2011.~~2013. Based upon that evaluation, the Chief Executive Officer and Treasurer concluded, as of December 31, ~~2011,~~2013, that, Mid Penn’s disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed by Mid Penn, within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting

There have been no changes in Mid Penn’s internal control over financial reporting during the fourth quarter of ~~2011~~2013 that have materially affected, or are reasonably likely to materially affect, Mid Penn’s internal control over financial reporting.

Mid Penn Bancorp, Inc. Management Report on Internal Controls over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a and 15(d) – 15(f) under the Exchange Act of 1934 (“1934 Act”). The corporation’s internal control over financial reporting includes those policies and procedures that pertain to the corporation’s ability to record, process, summarize, and report reliable financial data. All internal control systems have inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

In order to ensure that the corporation’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for its financial reporting as of December 31, ~~2011.~~2013. This assessment was based on criteria for effective internal control over financial reporting described inInternal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management has concluded that Mid Penn’s internal control over financial reporting, as of December 31, ~~2011,~~2013, is effective based on those criteria.

This annual report does not include an attestation report of Mid Penn’s independent registered public accounting firm regarding internal control over financial reporting. Mid Penn’s internal control over financial reporting was not subject to attestation by Mid Penn’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit Mid Penn to provide only management’s report in this annual report.


/s/ Rory G. Ritrievi				/s/ Kevin W. Laudenslager

Rory G. Ritrievi				Kevin W. Laudenslager
President and				Vice President and
Chief Executive Officer				Treasurer

~~ITEM 9B.~~

~~OTHER INFORMATION~~

ITEM 9B.OTHER INFORMATION

None

MID PENN BANCORP, INC.

PART III

~~PART III~~ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

~~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 “Executive Officers”, “Information Regarding Director Nominees and Continuing Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Audit Committee Report”, and “Governance of the Corporation” in Mid Penn’s definitive proxy statement to be used in connection with the ~~2012~~2014 Annual Meeting of Shareholders, which pages are incorporated herein by reference.

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 ~~twice in 2005~~on March 17, 2013 and a copy ofis posted under the ~~Code of Ethics is included as Exhibit 14 to~~Corporate Governance section under the ~~Form 8-K filed with~~Investors link on the ~~Securities and Exchange Commission on March 9, 2005~~Corporation’s website, midpennbank.com. ~~A request for the~~ The Corporation’s Code of Ethics ~~can~~may be ~~made in writing to Kevin W. Laudenslager, 349 Union Street, Millersburg, PA 17061, by telephone at 717-692-2133, or through~~viewed on the Mid Penn website at~~www.midpennbank.com~~. midpennbank.com or requested from the Corporate Secretary by telephone at 1-866-642-7736.

~~ITEM 11.~~

~~EXECUTIVE COMPENSATION~~

ITEM 11.EXECUTIVE COMPENSATION

The information required by this Item, relating to executive compensation, is set forth under the captions “Compensation Discussion and Analysis”, “Executive Compensation”, “Potential Payments Upon Termination or Change In Control”, “Information Regarding Director Nominees and Continuing Directors”, “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” of Mid Penn’s definitive proxy statement to be used in connection with the ~~2012~~2014 Annual Meeting of Shareholders, which pages are incorporated herein by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required by this Item, relating to beneficial ownership of Mid Penn’s common stock, is set forth under the caption “Beneficial Ownership of Mid Penn Bancorp’s Stock Held By Principal Shareholders and Management” of Mid Penn’s definitive proxy statement to be used in connection with the ~~2012~~2014 Annual Meeting of Shareholders, which pages are incorporated herein by reference. Mid Penn does not maintain any equity compensation plans.

~~ITEM 13.~~

~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE~~

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 indebtedness of management, is set forth under the captions “Certain Relationships and Related Transactions” and “Governance of the Corporation” of Mid Penn’s definitive proxy statement to be used in connection with the ~~2012~~2014 Annual Meeting of Shareholders, which page is incorporated herein by reference.

~~ITEM 14.~~

~~PRINCIPAL ACCOUNTING FEES AND SERVICES~~

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item, relating to the fees and services provided by Mid Penn’s principal accountant, is set forth under the caption “Audit Committee Report” and “Proposal No. 3:4: Ratification of the Appointment of ~~ParenteBeard, LLC~~BDO USA, LLP as the Corporation’s Independent Registered Public Accounting firm for ~~2012”~~2014” of Mid Penn’s definitive proxy statement to be used in connection with the ~~2012~~2014 Annual Meeting of Shareholders, which page is incorporated herein by reference.

MID PENN BANCORP, INC.

PART IV

~~PART IV~~ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

~~ITEM 15.~~

~~EXHIBITS AND FINANCIAL STATEMENT SCHEDULES~~

1. Financial statements are incorporated by reference in Part II, Item 8 hereof.

1.	~~Financial statements are incorporated by reference in Part II, Item 8 hereof.~~

~~Report~~Reports of Independent Registered Public Accounting ~~Firm~~Firms

Consolidated Balance Sheets

Consolidated Statements of ~~Operations~~Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

2.	~~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.~~

2. 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.

3.	~~The following Exhibits are filed as part of this filing on Form 10-K, or incorporated by reference hereto:~~

3. The following Exhibits are filed as part of this filing on Form 10-K, or incorporated by reference hereto:



~~3(i)~~		The Registrant’s amended Articles of Incorporation. (Incorporated by reference to Exhibit 3(i) of Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2009.)

~~3(ii)~~		Statement with Respect to Shares for Series A Preferred Stock. (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on December 22, 2008.)

~~3(iii)~~		~~The Registrant’s By-laws. (Incorporated by reference to Exhibit 3(ii) of Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 30, 2010.)~~

~~4.1~~		Warrants for Purchase of Shares of Common Stock. (Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on December 22, 2008.)

~~10.1~~		Mid Penn Bank’s Retirement Plan. (Incorporated by reference to Exhibit 10.1 of Registrant’s Annual Report on form 10-K filed with the Securities and Exchange Commission on March 10, 2008.) *

~~10.2~~		Mid Penn Bank’s Employee Stock Ownership Plan. (Incorporated by reference to Exhibit 10.2 of Registrant’s Annual Report on form 10-K filed with the Securities and Exchange Commission on March 10, 2008.) *

~~10.3~~		~~The Registrant’s Dividend Reinvestment Plan, as amended and restated. (Incorporated by reference to Registrant’s Registration Statement on Form S-3, filed with the SEC on October 12, 2005.)~~

~~10.4~~		Split Dollar Agreement between Mid Penn Bank and Eugene F. Shaffer. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 14, 2005.) *

~~10.5~~		Death Benefit Plan and Agreement between Mid Penn Bank and the Trustee of the Eugene F. Shaffer Irrevocable Trust. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 14, 2005.) *

~~10.6~~		Severance Agreement dated as of November 26, 2008 between Mid Penn Bank and Alan W. Dakey. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on December 1, 2008.) *

~~10.7~~		Letter Agreement, dated as of December 19, 2008, Between Mid Penn Bancorp, Inc. and the United States Department of the Treasury, which includes the Securities Purchase Agreement – Standard Terms attached thereto, with respect to the issuance and sale of the Series A Preferred Stock and the Warrants. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on December 22, 2008.)

11		~~Statement re: Computation of Per Share Earnings. (Incorporated by reference to Part II, Item 8 of this Annual Report on Form 10-K.)~~

12		~~Statements re: Computation of Ratios. (Incorporated by reference to Part II, Item 8 of this Annual Report on Form 10-K.)~~

14		~~The Registrant’s Code of Ethics. (Incorporated by reference to Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 9, 2005.)~~

3(i)The Registrant’s amended Articles of Incorporation. (Incorporated by reference to Exhibit 3(i) of Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2009.)

3(ii)Statement with Respect to Shares for Series B Preferred Stock. (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on September 28, 2012.)

3(iii)The Registrant’s By-laws. (Incorporated by reference to Exhibit 3(ii) of Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 30, 2010.)

10.1Mid Penn Bank’s Retirement Plan. (Incorporated by reference to Exhibit 10.1 of Registrant’s Annual Report on form 10-K filed with the Securities and Exchange Commission on March 10, 2008.) *

10.2Mid Penn Bank’s Employee Stock Ownership Plan. (Incorporated by reference to Exhibit 10.2 of Registrant’s Annual Report on form 10-K filed with the Securities and Exchange Commission on March 10, 2008.) *

10.3The Registrant’s Dividend Reinvestment Plan, as amended and restated. (Incorporated by reference to Registrant’s

Registration Statement on Form S-3, filed with the SEC on October 12, 2005.)

10.4Split Dollar Agreement between Mid Penn Bank and Eugene F. Shaffer. (Incorporated by reference to Registrant’s Annual

Report on Form 10-K filed with the SEC on March 14, 2005.) *

10.5Death Benefit Plan and Agreement between Mid Penn Bank and the Trustee of the Eugene F. Shaffer Irrevocable Trust.

(Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 14, 2005.) *

11Statement re: Computation of Per Share Earnings. (Incorporated by reference to Part II, Item 8 of this Annual Report on Form 10-K.)

12Statements re: Computation of Ratios. (Incorporated by reference to Part II, Item 8 of this Annual Report on Form 10-K.)

21Subsidiaries of Registrant.

23Consent of BDO USA, LLP.

23.1Consent of ParenteBeard LLC.

31.1Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.

31.2Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.

32Principal Executive and Financial Officer’s §1350 Certifications.

99.1Listing of Mid-Atlantic Custom Peer Group Banks.

MID PENN BANCORP, INC.

101.LAB XBRL Taxonomy Extension Label Linkbase.


21		~~Subsidiaries of Registrant.~~

23		~~Consent of ParenteBeard LLC.~~

~~31.1~~		~~Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.~~

~~31.2~~		~~Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.~~

32		~~Principal Executive and Financial Officer’s §1350 Certifications.~~

~~99.1~~		~~Listing of Mid-Atlantic Custom Peer Group Banks.~~

~~99.2~~		~~Certification of Principal Executive Officer pursuant to the Economic Stabilization Act of 2008.~~

~~99.3~~		~~Certification of Principal Financial Officer pursuant to the Economic Stabilization Act of 2008.~~

~~101.LAB XBRL Taxonomy Extension Label Linkbase.~~

101.PRE XBRL Taxonomy Extension Presentation Linkbase.

~~101.INS XBRL Instance Document.~~

~~101.SCH XBRL Taxonomy Extension Schema.~~

~~101.CAL XBRL Taxonomy Extension Calculation Linkbase.~~

~~101.DEF XBRL Taxonomy Extension Definition Linkbase.~~

*	~~Denotes a management contract or compensatory plan or arrangement.~~

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema.

101.CAL XBRL Taxonomy Extension Calculation Linkbase.

101.DEF XBRL Taxonomy Extension Definition Linkbase.

*Denotes a management contract or compensatory plan or arrangement.

MID PENN BANCORP, INC.

SIGNATURES

Pursuant to the requirements of Section 12 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.


By:		/s/ Rory G. Ritrievi
		Rory G. Ritrievi
		President and
		Chief Executive Officer
		(Principal Executive Officer)

Date:		March ~~26, 2012~~21, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Arch 25, 2012
By:	~~/s/~~ /s/ Rory G. Ritrievi	~~March 26, 2012~~
	Rory G. Ritrievi President, Chief Executive Officer and Director (Principal Executive Officer)		March 21, 2014

By:	~~/s/~~ /s/ Kevin W. Laudenslager	~~March 26, 2012~~
	Kevin W. Laudenslager Vice President, Treasurer ~~(Principal~~ (Principal Financial Officer and Principal Accounting Officer)		March 21, 2014

By:	~~/s/~~ /s/ Robert A. Abel	~~March 26, 2012~~
	Robert A. Abel, Director		March 21, 2014

By:	~~/s/~~ /s/ Steven T. Boyer	~~March 26, 2012~~
	Steven T. Boyer, Director		March 21, 2014

By:	~~/s/ Jere M. Coxon~~	~~March 26, 2012~~
	~~Jere M. Coxon, Director~~

~~By:~~	~~/s/~~ /s/ Matthew G. DeSoto	~~March 26, 2012~~
	Matthew G. DeSoto, Director		March 21, 2014

By:	~~/s/~~ /s/ Robert C. Grubic	~~March 26, 2012~~
	Robert C. Grubic, Director		March 21, 2014

By:	~~/s/~~ /s/ Gregory M. Kerwin	~~March 26, 2012~~
	Gregory M. Kerwin, Director		March 21, 2014
By: /s/ Robert E. Klinger Robert E. Klinger, Director		March 21, 2014
By:	~~/s/~~ /s/ Theodore W. Mowery	~~March 26, 2012~~
	Theodore W. Mowery, Director		March 21, 2014
By: /s/ John E. Noone John E. Noone, Director		March 21, 2014
By:	~~/s/ Donald E. Sauve~~	~~March 26, 2012~~
	~~Donald E. Sauve, Director~~

~~By:~~	~~/s/ Edwin D. Schlegel~~	~~March 26, 2012~~
	~~Edwin D. Schlegel, Director~~

~~By:~~	~~/s/~~ /s/ William A. Specht, III	~~March 26, 2012~~
	William A. Specht, III, Director		March 21, 2014


~~Pennsylvania~~
Pennsylvania		25-1666413
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

349 Union Street Millersburg, Pennsylvania		17061
(Address of Principal Executive Offices)		(Zip Code)


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $1.00		The NASDAQ Stock Market, Inc.


Property Location	Description of Property	Property Location	Description of Property
Millersburg		Lykens Office
349 Union Street	~~Branch~~ Main Office &	550 Main Street	Branch Office
Millersburg, PA 17061	Branch Office	Lykens, PA 17048

Elizabethville Office		Allentown Boulevard Office
4642 State Route 209	Branch Office	5500 Allentown Boulevard	Branch Office
Elizabethville, PA 17023		Harrisburg, PA 17112

Dalmatia Office		Market Square Office
132 School House Road	Branch Office	17 N. Second Street	Branch Office
Dalmatia, PA 17017		Harrisburg, PA 17101

Carlisle Pike Office		Steelton Office
4622 Carlisle Pike	Branch Office	51 South Front Street	Branch Office
Mechanicsburg, PA 17050		Steelton, PA 17113

~~Derry Street Office~~		~~Middletown Office~~
~~4509 Derry Street~~	~~Branch Office~~	~~1100 Spring Garden Drive~~	~~Branch Office~~
~~Harrisburg, PA 17111~~		~~Middletown, PA 17057~~

~~Front Street Office~~		~~Camp Hill Office~~
~~2615 North Front Street~~	~~Branch Office~~	~~2101 Market Street~~	~~Branch Office~~
~~Harrisburg, PA 17110~~		~~Camp Hill, PA 17011~~

~~Tower City Office~~		~~Operations Center~~
~~545 East Grand Avenue~~	~~Branch Office~~	~~894 N. River Road~~	~~Operations Center~~
~~Tower City, PA 17980~~		~~Halifax, PA 17032~~

~~Dauphin Office~~ ~~1001 Peters Mountain Road~~	~~Branch Office~~	~~Derry Street~~ ~~Administrative Office~~	~~Administrative Office~~
~~Dauphin, PA 17018~~		~~4098 Derry Street~~
		~~Harrisburg, PA 17111~~

Derry Street ~~Loan~~Office		Middletown Office
4509 Derry Street	Branch Office	1100 Spring Garden Drive	Branch Office
Harrisburg, PA 17111		Middletown, PA 17057

Front Street Office		Camp Hill Office
2615 North Front Street	Branch Office	2101 Market Street	Branch Office
Harrisburg, PA 17110		Camp Hill, PA 17011

Tower City Office		Operations Center	~~Operations Center~~
545 East Grand Avenue	Branch Office	894 N. River Road	Operations Center
Tower City, PA 17980		Halifax, PA 17032

Dauphin Office 1001 Peters Mountain Road	Branch Office	Derry Street Loan Administrative Operations	Administrative Office
Dauphin, PA 17018		4099 Derry Street
		Harrisburg, PA 17111



	High		Low		Cash Dividends Paid
Quarter Ended:
March 31, 2013	$	11.60	$	10.15	$	-
June 30, 2013		11.34		9.80		0.05
September 30, 2013		12.70		10.80		0.05
December 31, 2013		14.85		11.38		0.15

March 31, 2012	$	11.43	$	6.09	$	0.05
June 30, 2012		11.50		9.45		0.05
September 30, 2012		10.95		8.97		0.05
December 31, 2012		11.19		9.75		0.10

x
X	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			~~PAGE~~

				PAGE
PART I
Item 1 -		Business			3

Item 1A -		Risk Factors			11	12

Item 1B -		Unresolved Staff Comments			15	17

Item 2 -		Properties			16	18

Item 3 -		Legal Proceedings			16	18

Item 4 -		Mine Safety Disclosures			16	18

PART II
Item 5 -		Market for Registrant’s Common Equity, Related Shareholder Matters And Issuer Purchases of Equity Securities			17	19

Item 6 -		Selected Financial Data			19	21

Item 7 -		Management’s Discussion and Analysis of Financial Condition and Results of Operations			20	22

Item 7A -		Quantitative and Qualitative Disclosure About Market Risk			40	41

Item 8 -		Financial Statements and Supplementary Data			41	42

Item 9 -		Changes In and Disagreements With Accountants on Accounting and Financial Disclosure			84	85

Item 9A -		Controls and Procedures			84	85

Item 9B -		Other Information			84	85

PART III
Item 10 -		Directors, Executive Officers and Corporate Governance			85	86

Item 11 -		Executive Compensation			85	86

Item 12 -		Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			85	86

Item 13 -		Certain Relationships and Related Transactions, and Director Independence			85	86

Item 14 -		Principal Accountant Fees and Services			85	86

PART IV
Item 15 -		Exhibits and Financial Statement Schedules			86	87

	~~Signatures~~			88

~~EXHIBITS~~		Signatures		89

EXHIBITS				90


	High		Low		Cash Dividends Paid
Quarter Ended:
March 31, 2011	$	12.33	$	7.10	$	0.05
June 30, 2011		9.75		8.10		0.05
September 30, 2011		8.97		7.20		0.05
December 31, 2011		8.50		6.60		0.05

March 31, 2010	$	10.60	$	9.05	$	—
June 30, 2010		10.60		9.10		—
September 30, 2010		9.81		5.93		—
December 31, 2010		8.00		6.35		—


	Period Ending
Index	12/31/08	12/31/09	12/31/10	12/31/11	12/31/12	12/31/13
Mid Penn Bancorp, Inc.	100.00	50.59	36.87	37.96	57.79	75.59
Russell 3000	100.00	128.34	150.07	151.61	176.49	235.71
Mid-Atlantic Custom Peer Group*	100.00	93.85	102.75	102.43	119.35	143.98

*Mid-Atlantic Custom Peer Group consists of Mid-Atlantic commercial banks with assets less than $1B.

Source : SNL Financial LC, Charlottesville, VA
© 2014
www.snl.com


	*Period Ending*
*Index*	12/31/2006		12/31/2007		12/31/2008		12/31/2009		12/31/2010		12/31/2011
Mid Penn Bancorp, Inc.		100.00		114.28		92.16		46.62		33.98		34.98
Russell 3000		100.00		105.14		65.92		84.60		98.92		99.93
Mid-Atlantic Custom Peer Group*		100.00		91.11		72.66		67.78		73.57		73.91


(Dollars in thousands)		2011 Compared to 2010									2010 Compared to 2009
		Increase (Decrease) Due to Change In:									Increase (Decrease) Due to Change In:
Taxable Equivalent Basis		Volume			Rate			Net			Volume			Rate			Net
INTEREST INCOME:
Interest Bearing Balances		$	94		$	(392	)	$	(298	)	$	116		$	(758	)	$	(642	)
Investment Securities:
Taxable			1,227			(395	)		832			465			(330	)		135
Tax-Exempt			575			(239	)		336			75			(170	)		(95	)

Total Investment Securities			1,801			(633	)		1,168			540			(500	)		40

Federal Funds Sold			2			(2	)		—			27			(3	)		24
Loans and Leases, Net			186			450			636			519			(1,114	)		(595	)
Restricted Investment Bank Stocks			—			—			—			—			(1	)		(1	)

Total Interest Income			2,083			(577	)		1,506			1,202			(2,376	)		(1,174	)


INTEREST EXPENSE:
Interest Bearing Deposits:
NOW			13			62			75			8			28			36
Money Market			1,229			(594	)		635			1,202			(228	)		974
Savings			1			(2	)		(1	)		—			(1	)		(1	)
Time			(866	)		(653	)		(1,519	)		(560	)		(1,856	)		(2,416	)

Total Interest Bearing Deposits			376			(1,186	)		(810	)		650			(2,057	)		(1,407	)

Short-term Borrowings	��		(14	)		—			(14	)		(90	)		(4	)		(94	)
Long-term Debt			(247	)		(49	)		(296	)		(959	)		(202	)		(1,161	)

Total Interest Expense			115			(1,235	)		(1,120	)		(400	)		(2,262	)		(2,662	)


NET INTEREST INCOME		$	1,968		$	658		$	2,626		$	1,601		$	(113	)	$	1,488


(Dollars in thousands)			After One
As of December 31, 2011	One Year		Year thru		After Five
	and Less		Five Years		Years		Total
Commercial real estate, construction and land development	$	20,911	$	26,303	$	201,990	$	249,204
Commercial, industrial and agricultural	$	8,725		50,565		19,366		78,656
Real estate - residential mortgages		13,830		35,070		97,946		146,846
Consumer		2,785		3,543		1,683		8,011

	$	46,251	$	115,481	$	320,985	$	482,717


Rate Sensitivity
Predetermined rate	$	45,820	$	109,446	$	114,543	$	269,809
Floating or adjustable rate		431		6,035		206,442		212,908

	$	46,251	$	115,481	$	320,985	$	482,717

	·
~~MID PENN BANCORP, INC.~~		~~Management’s Discussion~~ Changes in local, regional, and ~~Analysis~~national economic and business conditions affecting the collectability of the portfolio, the values of underlying collateral, and the condition of various market segments.


(Dollars in thousands)				Payments Due by Period
	Note Reference	Total		One Year or Less		One to Three Years		Three to Five Years		More than Five Years
Certificates of deposit	9	$	201,892	$	94,171	$	76,938	$	29,153	$	1,630
Long-term debt	11		22,701		—		14,213		5,000		3,488
Operating lease obligations	19		341		109		211		21		—
Payments under benefit plans	13		1,574		103		245		316		910

		$	226,508	$	94,383	$	91,607	$	34,490	$	6,028



(Dollars in thousands)				Payments Due by Period
	Note Reference	Total		One Year or Less		One to Three Years		Three to Five Years		More than Five Years
Certificates of deposit	9	$	132,373	$	60,006	$	59,196	$	11,451	$	1,720
Long-term debt	11		23,145		-		20,000		-		3,145
Operating lease obligations	19		141		113		28		-		-
Payments under benefit plans	13		1,681		133		320		344		884
		$	157,340	$	60,252	$	79,544	$	11,795	$	5,749


December 31, 2011							December 31, 2010
Change in Basis Points	% Change in Net Interest Income			Risk Limit			Change in Basis Points	% Change in Net Interest Income			Risk Limit
300		6.29	%		+/- 25	%	300		4.84	%		+/- 25	%
200		4.19	%		+/- 15	%	200		3.32	%		+/- 15	%
100		2.01	%		+/- 10	%	100		1.72	%		+/- 10	%
0							0
(100)		-3.36	%		+/- 10	%	(100)		-1.87	%		+/- 10	%
(200)		-4.73	%		+/- 15	%	(200)		-3.89	%		+/- 15	%
(300)		-7.02	%		+/- 25	%	(300)		-5.88	%		+/- 25	%



December 31, 2013			December 31, 2012
	% Change in			% Change in
Change in	Net Interest		Change in	Net Interest
Basis Points	Income	Risk Limit	Basis Points	Income	Risk Limit
300	22.98%	≥ -25%	300	23.42%	≥ -25%
200	15.20%	≥ -15%	200	15.49%	≥ -15%
100	7.21%	≥ -10%	100	7.32%	≥ -10%
0			0
(100)	-5.32%	≥ -10%	(100)	-5.03%	≥ -10%
(200)	-10.37%	≥ -15%	(200)	-9.86%	≥ -15%
(300)	-15.43%	≥ -25%	(300)	-14.72%	≥ -25%

~~Large accelerated filer~~

~~Accelerated Filer~~

~~Non-accelerated Filer~~

~~Smaller Reporting Company~~