Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August ~~6, 2020,~~5, 2021, the registrant had ~~8,420,624~~11,426,736 shares of common stock outstanding.

Unless the context otherwise requires, the terms “Mid Penn”, “Corporation” “we”, “us”, and “our” refer to Mid Penn Bancorp, Inc. and its consolidated wholly-owned banking subsidiary and ~~its~~ nonbank subsidiaries.

(Dollars in thousands, except share data)	June 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020
ASSETS
Cash and due from banks	$	33,495		$	25,746		$	35,815		$	31,284
Interest-bearing balances with other financial institutions		3,322			4,657			1,234			1,541
Federal funds sold		106,938			108,627			599,298			270,899
Total cash and cash equivalents		143,755			139,030			636,347			303,724

Investment securities held to maturity, at amortized cost (fair value $156,579 and $132,794)								153,032			128,292
Investment securities available for sale, at fair value		23,492			37,009			8,162			5,748
Investment securities held to maturity, at amortized cost (fair value $139,491 and $137,476)		135,387			136,477
Equity securities available for sale, at fair value								508			515
Loans held for sale		21,812			8,422			24,202			25,506
Loans and leases, net of unearned interest		2,445,765			1,762,756			2,495,192			2,384,041
Less: Allowance for loan and lease losses		(11,067	)		(9,515	)		(14,716	)		(13,382	)
Net loans and leases		2,434,698			1,753,241			2,480,476			2,370,659

Bank premises and equipment, net		26,038			24,937			24,758			24,886
Operating lease right of use asset		10,587			11,442			10,364			10,157
Finance lease right of use asset		3,357			3,447			3,177			3,267
Cash surrender value of life insurance		17,033			16,881			17,332			17,183
Restricted investment in bank stocks		7,079			4,902			6,816			7,594
Accrued interest receivable		12,743			7,964			10,638			12,971
Deferred income taxes		1,533			2,810			5,465			3,619
Goodwill		62,840			62,840			62,840			62,840
Core deposit and other intangibles, net		5,108			5,758			3,804			4,360
Foreclosed assets held for sale		1,718			196			11			134
Other assets		15,185			15,819			13,860			17,493
Total Assets	$	2,922,365		$	2,231,175		$	3,461,792		$	2,998,948

LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	564,834		$	310,036		$	692,016		$	536,224
Interest-bearing demand		518,857			458,451			629,375			605,567
Money Market		632,439			488,748			810,067			720,506
Savings		189,465			177,737			206,724			195,038
Time		420,718			477,422			443,942			417,245
Total Deposits		2,326,313			1,912,394			2,782,124			2,474,580

Short-term borrowings		203,937			—			196,889			125,617
Long-term debt		85,282			32,903			74,944			75,115
Subordinated debt		42,009			27,070			44,593			44,580
Operating lease liability		11,643			12,544			11,387			11,200
Accrued interest payable		2,590			2,208			2,122			2,007
Other liabilities		7,246			6,182			8,164			10,161
Total Liabilities		2,679,020			1,993,301			3,120,223			2,743,260

Shareholders' Equity:
Common stock, par value $1.00 per share; 20,000,000 shares authorized; Shares issued: 8,488,924 at June 30, 2020 and 8,480,938 at December 31, 2019; and shares outstanding: 8,408,401 at June 30, 2020 and 8,480,938 at December 31, 2019		8,489			8,481
Common stock, par value $1.00 per share; 20,000,000 shares authorized; Shares issued: 11,507,164 at June 30, 2021 and 8,511,835 at December 31, 2020; Shares outstanding: 11,408,712 at June 30, 2021 and 8,419,183 at December 31, 2020								11,507			8,512
Additional paid-in capital		178,497			178,159			246,546			178,853
Retained earnings		58,069			50,891			85,220			70,175
Accumulated other comprehensive (loss) income		(150	)		343
Treasury stock, at cost; 80,523 shares at June 30, 2020		(1,560	)		—
Accumulated other comprehensive income (loss)								219			(57	)
Treasury stock, at cost; 98,452 shares at June 30, 2021 and 92,652 shares at December 31, 2020								(1,923	)		(1,795	)
Total Shareholders’ Equity		243,345			237,874			341,569			255,688
Total Liabilities and Shareholders' Equity	$	2,922,365		$	2,231,175		$	3,461,792		$	2,998,948

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


(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
		2020		2019		2020		2019		2021			2020		2021			2020
INTEREST INCOME
Interest and fees on loans and leases	$	25,116	$	22,214	$	47,365	$	43,292	$	29,835		$	25,116	$	58,165		$	47,365
Interest on interest-bearing balances		18		27		33		57
Interest on federal funds sold		23		130		413		198
Interest and dividends on investment securities:
U.S. Treasury and government agencies		460		839		1,131		1,732		225			460		403			1,131
State and political subdivision obligations, tax-exempt		248		584		469		1,203		278			248		555			469
Other securities		323		204		476		382		291			323		593			476
Total interest and dividends on investment securities										794			1,031		1,551			2,076

Interest on other interest-bearing balances										2			18		4			33
Interest on federal funds sold										98			23		177			413
Total Interest Income		26,188		23,998		49,887		46,864		30,729			26,188		59,897			49,887
INTEREST EXPENSE
Interest on deposits		4,009		5,276		9,389		9,862		2,916			4,009		5,882			9,389
Interest on short-term borrowings		45		157		45		389		232			45		406			45
Interest on long-term and subordinated debt		788		795		1,442		1,537		704			788		1,407			1,442
Total Interest Expense		4,842		6,228		10,876		11,788		3,852			4,842		7,695			10,876
Net Interest Income		21,346		17,770		39,011		35,076		26,877			21,346		52,202			39,011
PROVISION FOR LOAN AND LEASE LOSSES		1,050		465		1,600		590		1,150			1,050		2,150			1,600
Net Interest Income After Provision for Loan and Lease Losses		20,296		17,305		37,411		34,486		25,727			20,296		50,052			37,411
NONINTEREST INCOME
Mortgage banking income										2,841			1,638		5,220			2,820
Income from fiduciary and wealth management activities		421		347		805		706		542			421		1,098			805
Service charges on deposits		115		218		320		435		177			115		329			320
ATM debit card interchange income		475		380		891		714		656			475		1,224			891
Mortgage banking income		1,638		1,077		2,820		1,514
Net gain on sales of SBA loans		178		233		262		435		355			178		455			262
Merchant services income		98		104		181		189		209			98		301			181
Earnings from cash surrender value of life insurance		76		79		152		157		75			76		149			152
Net gain on sales of investment securities		111		17		243		24		—			111		—			243
Other income		510		419		882		749		797			510		1,588			882
Total Noninterest Income		3,622		2,874		6,556		4,923		5,652			3,622		10,364			6,556
NONINTEREST EXPENSE
Salaries and employee benefits		7,986		7,786		16,267		15,545		9,933			7,986		19,531			16,267
Occupancy expense, net		1,333		1,344		2,772		2,745		1,317			1,333		2,797			2,772
Equipment expense		722		658		1,435		1,285		741			722		1,492			1,435
Software licensing and utilization										1,497			1,297		2,942			2,518
Pennsylvania bank shares tax expense		55		245		460		381		224			55		524			460
FDIC Assessment		357		314		669		673		433			357		903			669
Legal and professional fees		349		471		701		893		555			349		981			701
Charitable contributions qualifying for State tax credits										365			510		635			545
Mortgage banking profit-sharing expense										745			150		865			150
Marketing and advertising expense		98		226		302		405		157			98		292			302
Software licensing and utilization		1,297		1,111		2,518		2,132
Telephone expense		137		161		271		315		139			137		275			271
Loss on sale or write-down of foreclosed assets, net		—		18		—		14
Gain on sale or write-down of foreclosed assets, net										(19	)		—		(19	)		—
Intangible amortization		326		360		649		723		276			326		557			649
Merger and acquisition expense										522			—		522			—
Other expenses		2,743		2,102		4,940		3,988		2,571			2,083		4,717			4,245
Total Noninterest Expense		15,403		14,796		30,984		29,099		19,456			15,403		37,014			30,984
INCOME BEFORE PROVISION FOR INCOME TAXES		8,515		5,383		12,983		10,310		11,923			8,515		23,402			12,983
Provision for income taxes		1,682		980		2,332		1,830		2,310			1,682		4,477			2,332
NET INCOME		6,833		4,403		10,651		8,480	$	9,613		$	6,833	$	18,925		$	10,651

PER COMMON SHARE DATA:
Basic and Diluted Earnings Per Common Share	$	0.81	$	0.52	$	1.26	$	1.00
Cash Dividends Paid	$	0.18	$	0.18	$	0.41	$	0.43
Basic Earnings Per Common Share									$	0.93		$	0.81	$	2.02		$	1.26
Diluted Earnings Per Common Share									$	0.93		$	0.81	$	2.02		$	1.26
Cash Dividends Declared									$	0.20		$	0.18	$	0.39		$	0.41

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

(Dollars in thousands)

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Treasury

Shareholders'

Stock

Capital

Earnings

Income (Loss)

Stock

Equity

Balance, January 1, 2020

$
8,481

$
178,159

$
50,891

$
343

$
—

$
237,874

Net income

—

—

3,818

—

—

3,818

Total other comprehensive loss, net of taxes

—

—

—

(395
)

—

(395
)
Common stock dividends declared

—

—

(1,950
)

—

—

(1,950
)
Employee Stock Purchase Plan (1,647 shares)

1

32

—

—

—

33

Director Stock Purchase Plan (1,743 shares)

2

33

—

—

—

35

Restricted stock activity

—

96

—

—

—

96

Balance, March 31, 2020

$
8,484

$
178,320

$
52,759

$
(52
)

$
—

$
239,511

Net income

—

—

6,833

—

—

6,833

Total other comprehensive loss, net of taxes

—

—

—

(98
)

—

(98
)
Common stock dividends declared

—

—

(1,523
)

—

—

(1,523
)
Repurchased stock (80,523 shares)

—

—

—

—

(1,560
)

(1,560
)
Employee Stock Purchase Plan (2,365 shares)

3

42

—

—

—

45

Director Stock Purchase Plan (2,231 shares)

2

39

—

—

—

41

Restricted stock activity

—

96

—

—

—

96

Balance, June 30, 2020

$
8,489

$
178,497

$
58,069

$
(150
)

$
(1,560
)

$
243,345

Balance, January 1, 2019

$
8,460

$
177,565

$
39,562

$
(2,378
)

$
—

$
223,209

Impact of adoption of new accounting standard (a)

—

—

316

—

—

316

Balance at January 1, 2019, adjusted

8,460

177,565

39,878

(2,378
)

—

223,525

Net income

—

—

4,077

—

—

4,077

Total other comprehensive income, net of taxes

—

—

—

1,807

—

1,807

Common stock dividends declared

—

—

(2,113
)

—

—

(2,113
)
Employee Stock Purchase Plan (1,152 shares)

1

27

—

—

—

28

Director Stock Purchase Plan (1,361 shares)

1

32

—

—

—

33

Restricted stock activity

—

80

—

—

—

80

Balance, March 31, 2019

$
8,462

$
177,704

$
41,842

$
(571
)

$
—

$
227,437

Net income

—

—

4,403

—

—

4,403

Total other comprehensive income, net of taxes

—

—

—

797

—

797

Common stock dividends declared

—

—

(1,524
)

-

—

(1,524
)
Employee Stock Purchase Plan (1,411 shares)

2

34

—

—

—

36

Director Stock Purchase Plan (1,336 shares)

1

32

—

—

—

33

Restricted stock activity

—

80

—

—

—

80

Balance, June 30, 2019

$
8,465

$
177,850

$
44,721

$
226

$
—

$
231,262

(Dollars in thousands)								Accumulated
			Additional					Other						Total
	Common		Paid-in		Retained			Comprehensive			Treasury			Shareholders'
	Stock		Capital		Earnings			Income (Loss)			Stock			Equity
Balance, January 1, 2021	$	8,512	$	178,853	$	70,175		$	(57	)	$	(1,795	)	$	255,688
Net income		—		—		9,312			—			—			9,312
Total other comprehensive income, net of taxes		—		—		—			558			—			558
Common stock dividends declared		—		—		(1,599	)		—			—			(1,599	)
Repurchased stock (5,800 shares)		—		—		—			—			(128	)		(128	)
Employee Stock Purchase Plan (1,459 shares)		2		38		—			—			—			40
Director Stock Purchase Plan (1,253 shares)		1		32		—			—			—			33
Restricted stock activity		—		132		—			—			—			132
Balance, March 31, 2021	$	8,515	$	179,055	$	77,888		$	501		$	(1,923	)	$	264,036

Net income		—		—		9,613			—			—			9,613
Total other comprehensive loss, net of taxes		—		—		—			(282	)		—			(282	)
Common stock dividends declared		—		—		(2,281	)		—			—			(2,281	)
Common shares issued through follow-on public offering (2,990,000 shares), net of underwriting discounts and offering expenses		2,990		67,248		—			—			—			70,238
Employee Stock Purchase Plan (1,388 shares)		1		37		—			—			—			38
Director Stock Purchase Plan (1,229 shares)		1		33		—			—			—			34
Restricted stock activity		—		173		—			—			—			173
Balance, June 30, 2021	$	11,507	$	246,546	$	85,220		$	219		$	(1,923	)	$	341,569

~~(a)~~

~~Represents the impact of adopting Accounting Standard Update ASU 2016-02,~~ ~~Leases. See Note 2 to the consolidated financial statements for more information.~~


Balance, January 1, 2020	$	8,481	$	178,159	$	50,891		$	343		$	—		$	237,874
Net income		—		—		3,818			—			—			3,818
Total other comprehensive loss, net of taxes		—		—		—			(395	)		—			(395	)
Common stock dividends declared		—		—		(1,950	)		—			—			(1,950	)
Employee Stock Purchase Plan (1,647 shares)		1		32		—			—			—			33
Director Stock Purchase Plan (1,743 shares)		2		33		—			—			—			35
Restricted stock activity		—		96		—			—			—			96
Balance, March 31, 2020	$	8,484	$	178,320	$	52,759		$	(52	)	$	—		$	239,511

Net income		—		—		6,833			—			—			6,833
Total other comprehensive loss, net of taxes		—		—		—			(98	)		—			(98	)
Common stock dividends declared		—		—		(1,523	)		—			—			(1,523	)
Repurchased stock (80,523 shares)		—		—		—			—			(1,560	)		(1,560	)
Employee Stock Purchase Plan (2,365 shares)		3		42		—			—			—			45
Director Stock Purchase Plan (2,231 shares)		2		39		—			—			—			41
Restricted stock activity		—		96		—			—			—			96
Balance, June 30, 2020	$	8,489	$	178,497	$	58,069		$	(150	)	$	(1,560	)	$	243,345

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

(Dollars in thousands)	Six Months Ended June 30,						Six Months Ended June 30,
		2020			2019			2021			2020
Operating Activities:
Net Income	$	10,651		$	8,480		$	18,925		$	10,651
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan and lease losses		1,600			590			2,150			1,600
Depreciation		1,576			1,398			1,639			1,576
Amortization of intangibles		649			723			557			649
Net amortization of security discounts/premiums		362			196			326			362
Amortization of operating lease right of use assets		855			826			857			855
Amortization of finance lease right of use asset		90			60			90			90
Gain on sales of investment securities		(243	)		(24	)		—			(243	)
Earnings on cash surrender value of life insurance		(152	)		(174	)		(149	)		(152	)
Mortgage loans originated for sale		(114,714	)		(65,989	)		(178,492	)		(114,714	)
Proceeds from sales of mortgage loans originated for sale		104,144			61,066			185,016			104,144
Gain on sale of mortgage loans		(2,820	)		(1,514	)		(5,220	)		(2,820	)
SBA loans originated for sale		(2,446	)		(7,109	)		(4,894	)		(2,446	)
Proceeds from sales of SBA loans originated for sale		2,708			7,544			5,349			2,708
Gain on sale of SBA loans		(262	)		(435	)		(455	)		(262	)
Loss on write-down or disposal of property, plant, and equipment		10			163
Loss on sale or write-down of foreclosed assets		—			14
(Gain) loss on disposal or write-down of property, plant, and equipment								(25	)		10
Gain on sale or write-down of foreclosed assets								(19	)		—
Stock compensation expense		192			160			305			192
Deferred income tax expense (benefit)		611			(388	)
Increase in accrued interest receivable		(4,779	)		(639	)
Decrease (increase) in other assets		353			(4,296	)
Deferred income tax (benefit) expense								(1,597	)		611
Decrease (increase) in accrued interest receivable								2,333			(4,779	)
Decrease in other assets								3,633			353
Increase in accrued interest payable		382			434			115			382
Net change in operating lease liability		(901	)		(883	)		(877	)		(901	)
Increase (decrease) in other liabilities		1,065			(81	)
Net Cash (Used In) Provided By Operating Activities		(1,069	)		122
(Decrease) increase in other liabilities								(1,570	)		1,065
Net Cash Provided By (Used In) Operating Activities								27,997			(1,069	)

Investing Activities:
Proceeds from the sale of available-for-sale securities		68,811			40,455			—			68,811
Proceeds from the maturity or call of available-for-sale securities		8,513			3,436			2,500			8,513
Purchases of available-for-sale securities		(63,503	)		(11,556	)		(4,892	)		(63,503	)
Proceeds from the maturity or call of held-to-maturity securities		82,001			10,968			22,757			82,001
Purchases of held-to-maturity securities		(80,880	)		(2,997	)		(47,818	)		(80,880	)
(Purchases) redemptions of restricted investment in bank stock		(2,177	)		166
Redemptions (purchases) of restricted investment in bank stock								778			(2,177	)
Net increase in loans and leases		(684,579	)		(64,616	)		(111,987	)		(684,579	)
Proceeds from bank owned life insurance		—			140
Purchases of bank premises and equipment		(2,687	)		(1,115	)		(1,515	)		(2,687	)
Proceeds from the sale of bank premises and equipment								29			—
Proceeds from the sale of foreclosed assets		—			907			162			—
Net Cash Used In Investing Activities		(674,501	)		(24,212	)		(139,986	)		(674,501	)

Financing Activities:
Net increase in deposits		413,919			52,375			307,544			413,919
Net increase (decrease) in short-term borrowings		203,937			(30,100	)
Net increase in short-term borrowings								71,272			203,937
Common stock dividends paid		(3,473	)		(3,637	)		(4,301	)		(3,473	)
Proceeds from Employee Stock Purchase Plan stock issuance		78			63			78			78
Proceeds from Director Stock Purchase Plan stock issuance		76			67			67			76
Proceeds from follow-on common stock public offering								70,238			—
Treasury stock purchased		(1,560	)		—			(128	)		(1,560	)
Net change in finance lease liability		(41	)		(6	)		(43	)		(41	)
Proceeds from the issuance of subordinated debt		15,000			—			—			15,000
Issuance of long-term debt		70,000			13,500			—			70,000
Long-term debt repayment		(17,641	)		(92	)		(115	)		(17,641	)
Net Cash Provided By Financing Activities		680,295			32,170			444,612			680,295

Net increase in cash and cash equivalents		4,725			8,080			332,623			4,725
Cash and cash equivalents, beginning of period		139,030			40,065			303,724			139,030
Cash and cash equivalents, end of period	$	143,755		$	48,145		$	636,347		$	143,755

(Dollars in thousands)	Six Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2021		2020
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	10,494	$	11,354	$	7,580	$	10,494
Cash paid for income taxes		1,060		2,200		5,820		1,060

Supplemental Noncash Disclosures:
Recognition of operating lease right of use assets	$	—	$	11,661	$	1,064	$	—
Recognition of operating lease liabilities		—		12,866		1,064		—
Recognition of finance lease right of use asset		—		3,597
Recognition of finance lease liability		—		3,597
Asset transferred to bank premises and equipment held for sale		—		1,274
Loans transferred to foreclosed assets held for sale		1,522		294		20		1,522

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

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. (“Mid Penn” or the “Corporation”) ~~and~~, its wholly-owned subsidiary, Mid Penn Bank (the “Bank”)~~. During the first six months of~~, and non-bank subsidiaries which were established during 2020, ~~Mid Penn established a non-bank subsidiary,~~including MPB Financial Services, LLC, under which two additional non-bank subsidiaries have been established: (i) MPB Wealth Management, LLC, created to expand the wealth management ~~function~~services of the Corporation, and (ii) MPB Risk Services, LLC, created to fulfill the insurance needs of both existing and potential customers of the Corporation. As of June 30, ~~2020,~~2021, the accounts and activities of these ~~three new~~ non-bank subsidiaries established in 2020 were not material to warrant separate disclosure or segment reporting. All material intercompany accounts and transactions have been eliminated in consolidation.

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Mid Penn believes the information presented is not misleading, and the disclosures are adequate. For comparative purposes, the ~~period~~balances for the periods ending June 30, ~~2019~~2020 and December 31, ~~2019 balances~~2020 have been reclassified, when necessary, to conform to the ~~2020~~2021 presentation. Such reclassifications had no impact on net ~~income.~~income or total shareholders’ equity. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year. Except for adjustments made related to the adoption of new accounting standards, in the opinion of management, all adjustments necessary for fair presentation of the periods presented have been reflected in the accompanying consolidated financial statements. All such adjustments are of a normal, recurring nature. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~ 2020.

On June 30, 2021, Mid Penn entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Riverview Financial Corporation (“Riverview”) pursuant to which Riverview will merge with and into Mid Penn (the “Merger”), with Mid Penn being the surviving corporation in the Merger. Refer to (i) Note 15, Agreement and Plan of Merger; (ii) Part II, Item 1A “Risk Factors”, and (iii) the Form 8-K filed on June 30, 2021, for more information and considerations regarding the proposed Merger.

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, ~~2020,~~2021, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the issuance date of these consolidated financial statements.

The accounting and reporting policies of Mid Penn conform with accounting principles as required under GAAP and general practices within the financial industry. The following is a description of the more significant accounting policies.

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

For available-for-sale debt securities, realized gains and losses on dispositions are based on the difference between net proceeds and the amortized cost of the securities sold, using the specific identification method. Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income on an after-tax basis, whereas realized gains and losses flow through Mid Penn’s consolidated statement of income for the respective period.

ASC Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess, in addition to the credit condition of the underlying issuer, whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the Corporation will recover the cost basis of the investment.

In instances when a determination is made that an other-than-temporary impairment of a debt security exists but the Corporation does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss), and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

In accordance with ASC Topic 825, Financial ~~Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~Instruments, Mid Penn reports its equity securities with readily determinable fair values at fair value ~~within other assets~~ on the ~~balance sheet,~~Consolidated Balance Sheets, with realized and unrealized gains and losses reported in other expense on the ~~income statement.~~Consolidated Statements of Income. Mid Penn’s equity securities consisted of Community Reinvestment Act (“CRA”) funds with a fair value totaling ~~$518,000~~$508,000 and ~~$507,000~~$515,000 as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. NaN equity securities were sold during the three or six months ended June 30, ~~2020~~2021 or June 30, ~~2019.~~2020.

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans, generally being amortized over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

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

For all classes of loans, the accrual of interest generally is discontinued when the contractual payment of principal or interest has become 90 days or more past due, or management has serious doubts about further collectability of principal or interest even though the loan is currently performing. A loan past due 90 days or more may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest is credited to income. Interest received on nonaccrual loans, including impaired loans, is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Nonaccrual loans may be restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally, at least nine consecutive months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

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

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

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

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

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

The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, Federal Home Loan Bank, or Pennsylvania Housing Finance Agency standards, with the intention of selling the

majority of residential mortgages originated into the secondary market. In the event that the facts and circumstances surrounding a residential mortgage application do not meet the required underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request. In the event that the loan is funded and held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

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

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit. Substantially all home equity loans and lines of credit are secured by junior lien mortgages on principal residences. The Bank will lend amounts, which, together with all prior liens, typically may be up to 85 percent of the appraised value of the property securing the loan. Home equity term loans may have maximum terms up to 20 years, while home equity lines of credit generally have maximum terms of 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.

Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt. Generally, foreclosure actions could become more prevalent if the real estate market weakens and property values deteriorate.

~~On March 27,~~Included in total loans as of June 30, 2021, within the commercial and industrial loan portfolio classification, are $391,826,000 of Paycheck Protection Program (“PPP”) loans, net of deferred fees, with this total being comprised of (i) $317,428,000 of PPP 2021 loans, net of deferred fees, originated during the first six months of 2021; and (ii) $74,398,000 of PPP 2020 ~~in response to~~loans, net of deferred fees, originated during 2020 which, as of June 30, 2021, were still outstanding as the ~~novel coronavirus~~Small Business Administration (“~~COVID-19”~~SBA”) ~~pandemic,~~had not yet completed the loan forgiveness and repayment processing. Comparatively, as of December 31, 2020, Mid Penn had $388,313,000 of PPP 2020 loans outstanding, net of deferred fees. Mid Penn has been a significant participating lender under the PPP, which was originally created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, and extended by ~~President Donald Trump. This legislation created~~ the ~~federal Paycheck Protection Program (“PPP”) which permitted eligible business entities~~signing of the Consolidated Appropriations Act, 2021 into law on December 27, 2020, and further extended to ~~apply for loans through a participating financial institution to cover payroll, rent, and other business expenses during~~May 31, 2021 by the ~~COVID-19 pandemic.~~PPP Extension Act of 2021. The PPP loans, which are 100 percent guaranteed by the ~~Small Business Administration (“SBA”),~~SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term. ~~The vast majority of Mid Penn’s PPP loans have a~~ ~~two-year~~ term to maturity. The SBA may forgive the PPP loans if at least 60 percent of the proceeds are used for payroll costs. Also, the borrowers will not have to make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the deferment period.

The SBA also provided a processing fee per loan to financial institutions who participated in the PPP, with the amount of such fee generally ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective credit. As of June 30, ~~2020,~~2021, Mid Penn had received ~~$20,329,000~~$38,880,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP ~~initiative. These~~initiative, consisting of (i) $20,883,000 of loan processing fees ~~are offset against~~received related to PPP loans funded during the year ended December 31, 2020, and (ii) $17,997,000 of loan processing fees received related to PPP loans funded during the six months ended June 30, 2021. In addition to receiving and deferring the processing fees, Mid Penn recorded and deferred related loan origination costs, and ~~are deferred~~ in accordance with ~~FASB~~ ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, the processing fees and ~~will be~~loan origination costs are being amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of each respective loan. As of June 30, 2021, Mid Penn had $14,472,000 of PPP deferred loan processing fees not yet realized as income, consisting of (i) $872,000 of loan processing fees received related to PPP loans funded during the ~~loan. During~~year ended December 31, 2020, and (ii) $13,600,000 of loan processing fees received related to PPP loans funded during the ~~three and~~ six months ended June 30, 2021. Comparatively, as of December 31, 2020, Mid Penn had $7,746,000 of PPP deferred loan processing fees not yet realized as income, all resulting from PPP loans funded during the year ended December 31, 2020. Mid Penn recognized $6,244,000 of PPP processing fees during the quarter ended June 30, 2021, compared to $2,731,000 of PPP processing fees for the same period of 2020. During the six months ended June 30, 2021 and 2020, Mid Penn recognized $11,291,000 and $2,371,000 of PPP processing fees, respectively. PPP processing fees are reflected within interest and fees on loans and leases on the Consolidated Statements of Income.

As of June 30, 2020, Mid Penn had $588,667,000 of PPP loans outstanding, net of deferred PPP processing fees of $17,958,000 with all of these loans being recorded in the commercial and industrial loan portfolio classification.

The allowance for credit losses (“allowance”) and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not required to adopted the current expected credit loss (“CECL”) accounting standard until January 1, ~~2023.~~2023, and Mid Penn has not elected to early adopt CECL. The allowance consists of (i) the allowance for loan and lease losses, and (ii) the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The reserve for unfunded lending commitments was ~~$77,000~~$68,000 at June 30, ~~2020~~2021 and ~~$80,000~~$66,000 at December 31, ~~2019.~~2020.

The allowance is increased by the provision for loan and lease losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance. The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in collateral values, changes in the experience of the lending staff and loan review systems, changes in lending policies and procedures (including underwriting standards), changes in the mix and volume of loans originated, the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio, shifting industry or portfolio concentrations, and other relevant factors.

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

The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific and general components. For example, at times Mid Penn could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as ~~collateral.~~collateral, or unforeseeable effects on the portfolio from other influences, inducing the long-term impact of the pandemic. Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan ~~losses, including~~losses. This includes, but is not limited to, (i) the unpredictable timing and amounts of charge-offs, (ii) the fact that historical loss averages don’t necessarily correlate to future loss trends, (iii) data and trends supporting qualitative factor judgements may not be indicative of the true nature of future period risks, and (iv) unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors.

Mid Penn generally considers a commercial loan (consisting of commercial and industrial, commercial real estate, commercial real estate-construction, and lease financing loan classes) to be impaired when it becomes 90 days or more past due and not in the process of collection, or sooner when it is probable that Mid Penn will be unable to collect all contractual principal and interest due. This methodology assumes the borrower cannot or will not continue to make additional payments. At that time, the loan would generally be considered collateral dependent as the discounted cash flow method would generally indicate no operating income available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

In addition, Mid Penn’s rating system assumes any loans classified as nonaccrual, included in the substandard rating, to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans classified as substandard nonaccrual, doubtful, having probable loss will first have a collateral evaluation completed in accordance with the guidance on impaired loans. Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. Commercial real estate loans determined to be impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans. An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). The process of charging off a residential mortgage loan begins when a loan becomes delinquent for 90 days and is not in the process of collection. The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible. The collateral shortfall of the consumer loan is recommended for charge-off at this point.

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

It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation, Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation. The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no material time lapses noted with the above processes.

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

For impaired loans with no valuation allowance required, the independent third party market valuations on the subject property obtained by Mid Penn as soon as practically possible following the credit being placed on nonaccrual status sometimes indicates that the loan-to-value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a case by case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

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

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

The allowance calculation methodology includes segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Any loans not classified as noted above are rated pass.

In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. No such additions were required from any recent examinations.

Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

~~As of June 30, 2020,~~ Mid Penn had ~~$588,667,000~~$391,826,000 and $388,313,000 of PPP loans outstanding, net of deferred fees, as of June 30, 2021 and December 31, 2020, respectively, which though they are classified as commercial and industrial credits, the PPP loans are guaranteed by the Small Business Administration and, thus, have 0 loss reserve allocated to ~~that pool.~~them.

Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses. ~~The balance of loans~~Loans acquired at fair value and included in the balance of loans and leases, net of unearned interest on the Consolidated Balance Sheets totaled ~~$324,159,000~~$228,620,000 and ~~$414,498,000~~$276,701,000 as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans, and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. These loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require Mid Penn to evaluate the need for an additional allowance. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which Mid Penn will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows. To the extent that the expected cash flows of a loan have decreased due to credit deterioration, Mid Penn establishes an allowance.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20. These loans are initially recorded at fair value, and include credit and interest rate marks associated with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Mid Penn expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, Mid Penn may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Beginning during the second quarter of 2020, Mid Penn entered into loan-level interest rate swaps (“swaps”) to facilitate certain customer transactions and meet their financing needs. These swaps qualify as derivatives, but are not designated as hedging instruments. A loan-level interest rate swap is a contract in which the series of interest rate flows (fixed and variable) are exchanged over the term of a loan with certain qualifying commercial loan customers, and Mid Penn simultaneously enters into an interest rate swap with a dealer counterparty with identical notional amounts and terms. The net result of these swaps is that the customer pays a fixed interest rate and Mid Penn receives a floating interest rate. The swap positions with customers are equally offset with the dealer counterparties to minimize the potential impact on Mid Penn’s financial statements.

Pursuant to our agreements with the dealer counterparties, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, including the possibility that we will incur a loss because a party to the agreements, which may be a dealer counterparty or a customer, fails to meet its contractual obligations. Derivative contracts may only be executed with dealer counterparties as approved by our Board of Directors. Similarly, derivatives with customers may only be executed with customers within credit exposure limits as approved by our Board of Directors. Loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

Bank premises and equipment designated as held for sale are carried at the lower of cost or market ~~value.~~value, and, at June 30, 2021 and December 31, 2020, consisted of one former retail banking property which was closed and listed for sale on December 31, 2020 totaling $210,000 and in included in other assets on the Consolidated Balance Sheets. There were 0 premises and equipment classified as held for sale as of June 30, 2020 or December 31, 2019. During 2019, Mid Penn sold the land and facility formerly used as a full-service retail banking property. An impairment charge of $105,000 was recorded during the first six months of 2019 related to this property and is included in other expenses on the Consolidated Statement of Income. Similar impairment charges ~~were 0t~~ recorded during the six months ended June 30, 2021 or 2020.

Foreclosed assets held for sale consist primarily of real estate acquired through, or in lieu of, foreclosure in settlement of debt, and are recorded at fair value less the selling costs at the date of transfer, establishing a new cost basis. Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses. Subsequent to acquisition, foreclosed assets are carried at fair value less estimated costs of disposal, based upon periodic evaluations that consider changes in market conditions and development and disposal costs. Operating results from assets acquired in satisfaction of debt, including rental income less operating costs and gains or losses on the sale of, or the periodic evaluation of foreclosed assets, are recorded in noninterest expense.

As of June 30, ~~2020,~~2021, Mid Penn had ~~$135,000 of~~0 residential real estate held in other real estate owned and ~~$90,000 in~~0 loans for which formal foreclosure proceedings were in process. As of December 31, ~~2019,~~2020, Mid Penn had ~~$78,000~~$134,000 of residential real estate held in other real estate owned and ~~$84,000~~$13,000 in loans for which formal foreclosure proceedings were in process.

Mid Penn leases certain premises and equipment and, as of January 1, 2019, for all leases in effect upon adoption of Accounting Standards Update 2016-02, Leases (Topic 842), as well as any leases commencing thereafter, Mid Penn has recognized a right-of-use asset and a related lease liability for each distinct lease agreement. The lease right-of-use asset consists of the amount of the initial measurement of the lease liability, adjusted for (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and (ii) any initial direct costs incurred by the lessee (defined as costs of a lease that would not have been incurred had the lease not been executed). The related lease liability is equal to the present value of the future lease payments, discounted using the rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Given that the rate implicit in the lease is rarely available, all lease liability amounts were calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. As a result of the adoption of this standard, effective January 1, 2019, Mid Penn recognized (i) an operating lease ROU asset of $11,661,000, (ii) an operating lease liability of $12,866,000, and (iii) an opening adjustment to retained earnings of $316,000 to eliminate the remaining balance of the deferred sale/leaseback gain on 2 retail branch locations which had originally been recorded in 2016.

Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis. Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the right-of-use asset. Finance lease expense consists of the amortization of the right-of-use asset, recognized as a component of occupancy expense on the Consolidated Statements of Income, and interest expense on the lease liability, which is recorded as a component of other interest expense on the Consolidated Statements of Income.

In assessing whether a contract contains a lease, Mid Penn reviews third-party agreements to determine if the contract conveys the right to control the use of identified property, plant, or equipment (defined as an identified asset by Topic 842) for a period of time in exchange for consideration, and grants Mid Penn the right to both (i) obtain substantially all of the economic benefits from the identified asset’s use, and (ii) direct the use of the identified asset throughout the term of the agreement.

Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the (i) lease components, consisting of consideration paid to transfer a good or service to Mid Penn, and (ii) non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance.

Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term. These renewal and extension options were not included in the calculation of the right-of-use assets and lease liabilities as Mid Penn is not reasonably certain that these renewals and extensions will be utilized. Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of right-of-use assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred.

None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments. Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations.

Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania. The carrying value of Mid Penn’s investment in the limited partnership was ~~$168,000~~$124,000 at June 30, ~~2020,~~2021, and ~~$190,000~~$146,000 at December 31, ~~2019,~~2020, net of amortization, using the straight-line method. The investment in this limited partnership is reported in other assets on the Consolidated Balance Sheets, and Mid Penn’s maximum exposure to loss is limited to the carrying value of the investment.

Mid Penn also has a limited partnership interest in a low-income housing project ~~to construct~~with NaN apartments and common amenities in Dauphin County, Pennsylvania. The total investment in this limited partnership, net of amortization to date, was ~~$7,061,000~~$6,338,000 and ~~$7,249,000~~$6,682,000 on June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units ~~are intended to qualify~~qualified for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution ~~commitment is $7,579,000. Investments made to date,~~totaled $7,506,000 and ~~future payments under this commitment are paid~~the investment was fully funded within a three-year period beginning in ~~installments over~~2018 and ending during the ~~course~~first quarter of construction of the low-income housing facilities. Each installment payment is conditional upon both Mid Penn’s review and approval of the installment payment certificate and continued compliance with the terms of the original partnership agreement.2021. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period asusing the ~~facilities became operational and~~cost amortization method which began ~~to be occupied beginning~~upon commencement of operations of the facility in December 2019. The project ~~has been conditionally~~was formally awarded ~~$861,000~~$8,530,000 in ~~annual~~total LIHTCs by the Pennsylvania Housing Finance Agency, which will be recognized over the ten-year period from December 2019 through November 2029, with ~~a total anticipated~~an annual LIHTC amount of ~~$8,613,000~~approximately $853,000 to be awarded to Mid Penn ~~over the~~ ~~ten-year~~ ~~amortization period. Mid Penn’s commitment to initiate investments~~ in the limited partnership interest was conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it deemed necessary. All such initial conditions were satisfied and Mid Penn began funding the investment during 2018 and the investment is expected to be fully funded in 2020. Mid Penn recognizes the related amortization and tax credits using the cost amortization method over a ten-year period.year-ended December 31, 2021.

Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The carrying amount of core deposit intangible was ~~$4,907,000~~$3,768,000 and ~~$5,526,000~~$4,311,000 at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Core deposit amortization expense is reflected in the Consolidated Statements of Income in intangible amortization and was ~~$619,000~~$543,000 and ~~$695,000~~$619,000 for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Core deposit amortization ~~expense~~ was ~~$309,000~~$271,000 and ~~$347,000~~$309,000 for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The core deposit intangible ~~for each respective acquisition (Phoenix in March 2015; Scottdale in January 2018; and First Priority in July 2018)~~ is being amortized over a ten-year period starting at ~~the~~each respective acquisition date and using athe sum-of-the-year’s digits ~~basis.~~amortization method. The current balance of the core deposit intangible includes unamortized assets from (i) the Phoenix Bancorp, Inc. acquisition (“Phoenix”) in March 2015 (ii) The Scottdale Bank and Trust Company acquisition (“Scottdale”) in January 2018, and (iii) the First Priority Financial Corp. acquisition (“First Priority) in July 2018. Core deposit intangible assets are subject to impairment testing whenever events or changes in circumstances indicate the need for such evaluation. ~~During~~For much of the ~~first quarter of~~year ended December 31, 2020, and ~~continuing~~ through the ~~period subsequent to~~six months ended June 30, ~~2020,~~2021, the novel coronavirus (“COVID-19”) global pandemic ~~impacted~~has continued to impact the United States including the State of Pennsylvania and Mid Penn’s market area and communities and customers. Accordingly, Mid Penn management evaluated whether this ongoing COVID-19 ~~event~~pandemic resulted in any impairment to Mid Penn’s business and the value of its acquired consumer demand and savings deposit base. Management’s determination was that there was 0 impairment to its core deposit intangible to date as a result of the pandemic or related factors. Supporting this assertion, and as reflected in the Consolidated Balance Sheets as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Mid Penn has recognized substantial total deposit growth of ~~$413,919,000~~$307,544,000 or ~~over 21~~12 percent (25 percent annualized) during the first six months of 2021, and total deposit growth of $562,186,000 or 29 percent during the year ended December 31, 2020, with none of this growth attributable to brokered deposits. Subsequent to June 30, ~~2020,~~2021, and through the date of this filing, these increased deposit levels were sustained and continued to reflect no evidence of core deposit intangible impairment.

Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with past business acquisitions. The goodwill balance was $62,840,000 at both June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, and was comprised of (i) $39,744,000 related to the July 31, 2018 First Priority acquisition, (ii) $19,178,000 related to the January 8, 2018 Scottdale acquisition and (iii) $3,918,000 recorded as a result of the Phoenix acquisition in 2015. Goodwill is evaluated annually for impairment; however, if certain events occur which indicate goodwill might be impaired between annual tests, goodwill would be tested for impairment when such events occur. In making a potential impairment assessment of goodwill, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc. There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of goodwill impairment. Mid Penn did 0t identify any impairment on its outstanding goodwill from its most recent comprehensive impairment evaluation which was performed as of October 31, ~~2019 using a qualitative analysis. Changes in economic~~2020 and ~~operating conditions could result in goodwill~~has been evaluated regularly for impairment ~~in future periods. During~~given the ~~first half of 2020,~~ongoing pandemic.

For the prior year second quarter and six-month reporting periods, and in support of ~~its March 31, 2020~~the related Corporation and Bank financial reports, Mid Penn management performed a “Step One” goodwill analysis to determine whether the current or expected impact from the COVID-19 global pandemic resulted in any impairment to Mid Penn’s business and the recorded value of its goodwill intangible asset. Based upon this goodwill analysis, Mid Penn management determined that there was 0 impairment to its ~~goodwill. A subsequent “Step One”~~ goodwill ~~analysis was not performed as of June 30, 2020; however,~~ in ~~response to~~ the ~~continued presence of~~interim 2020 periods. Changes in economic and operating conditions, including those resulting from the continuing COVID-19 pandemic event and its impacts on the capital markets and the economy, management reviewed the criteria supporting the “Step One” assessment performed for the first quarter of 2020, including economic projections, anticipated cash flows, and current market data. Mid Penn management determined there were no adverse changes to key considerations from this previous assessment, or additional events that occurred since this previous assessment, and affirmed its determination that there is no impairment to its goodwill as of June 30, 2020. As the COVID-19 event continues and its implications to the country, the economy, and specifically Mid Penn continue to evolve, ~~management will perform additional~~could result in goodwill ~~evaluations as necessary.~~impairment in future periods.

Mid Penn recognizes revenues when earned based upon (i) contractual terms as transactions occur, or (ii) as related services are provided and collectability is reasonably assured. The largest source of revenue for Mid Penn is interest income, which is primarily recognized on an accrual basis according to a written contract, such as loan and lease agreements or investment securities contracts. Mid Penn earns noninterest income through a variety of financial and transactional services such as trust and wealth management services, deposit account transaction fees, ATM debit card fees, and mortgage banking fees. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed. In certain circumstances, noninterest income is reported net of associated expenses.

On January 1, 2018, Mid Penn adopted FASB ~~ASU 2014-09,~~Topic 606, Revenue from Contracts with Customers~~(Topic 606)~~. This ASU establishes principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods and services to customers. Topic 606 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit card interchange income, merchant service fees and certain components of other income are within the scope of Topic 606 and are discussed in greater detail below.

Income from fiduciary and wealth management activities consist of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income. Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned. Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur. Payment is typically received in the following month. Estate fee income is recognized as services are performed over the service period, generally eighteen months.

Service charges on deposits consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts. Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs and the related service charge is subsequently processed. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts.

ATM debit card interchange income consists of interchange fees earned when Mid Penn’s debit cards are processed through card payments networks. The interchange fee is calculated as a percentage of the total electronic funds transfer (EFT) transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT transaction, and the type of business at which the transaction was processed. Revenue is recognized daily as transactions occur and interchange fees are subsequently processed. Payment for most interchange activity is received daily, while some fees are aggregated and payment is received in the following month.

Merchant services income is processed through third party providers with whom Mid Penn has partnered to provide merchant services to its business customers. Fees are charged to merchants to process their debit card transactions, cash advance services, and other related products. Mid Penn receives a percentage of the revenue generated from each joint customer relationship after the respective third-party provider has collected the fee income from the merchant. Payment is primarily received in the following month.

Certain aspects of other income, such as credit card royalties, check orders, and letter of credit fees, are within the scope of Topic 606. These fees are primarily transactional, and revenue is recognized when transactions occur and the related services are subsequently processed. Payment is primarily received immediately or in the following month.

Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied. Mid Penn has not recognized any assets from the costs to obtain or fulfill a contract with customers for revenue streams that fall within the guidance of Topic 606.

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income. Mid Penn also recognizes other comprehensive income (loss) from an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees. These plans utilize assumptions and methods to calculate the fair value of plan assets and Mid Penn recognizes the overfunded and underfunded status of the plans on its consolidated balance sheet. Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment.

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

During the six months ended June 30, 2020, the fair value of plan assets in Mid Penn’s defined benefit pension plan was impacted by the economic implications of the COVID-19 pandemic, resulting in a decrease in the fair value of the plan assets and a corresponding decrease in accumulated other comprehensive (loss) income, net of taxes, of $620,000 when comparing December 31, 2019 to June 30, 2020.

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus common shares that would have been outstanding if dilutive potential common shares, consisting of unvested restricted stock, had been issued. The effect of dilutive unvested restricted stock was not material and did not result in a difference, when rounded to the whole cent, between the basic earnings per share compared to the diluted earnings per share for any of the periods presented.

As previously announced on a Form 8-K on May 4, 2021, Mid Penn completed an underwritten public offering of 2,990,000 shares of common stock at a price of $25.00 per share, with the aggregate gross proceeds of the offering totaling $74,750,000 before underwriting discounts and offering expenses. The net proceeds of the offering after deducting the underwriting discount and other offering expenses were $70,238,000. The additional shares issued on May 4, 2021 significantly impacted the weighted average number of shares outstanding used for both the second quarter of 2021 and year-to-date 2021 earnings per share calculations.

The following data shows the amounts used in computing basic and diluted earnings per common share.

(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2020			2019	2020				2019	2021			2020	2021				2020
Net income	$	6,833	$	4,403		$	10,651	$	8,480	$	9,613	$	6,833		$	18,925	$	10,651

Weighted average common shares outstanding (basic)		8,446,377		8,462,522			8,463,676		8,461,269		10,321,838		8,446,377			9,373,978		8,463,676
Effect of dilutive unvested restricted stock grants		3,973		5,689			4,528		4,015		15,942		3,973			6,479		4,528
Weighted average common shares outstanding (diluted)		8,450,350		8,468,211			8,468,204		8,465,284		10,337,780		8,450,350			9,380,457		8,468,204

Basic earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00	$	0.93	$	0.81		$	2.02	$	1.26
Diluted earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00	$	0.93	$	0.81		$	2.02	$	1.26

There were 0 antidilutive ~~shares~~instruments at June 30, ~~2020~~2021 and ~~2019.~~2020.

The majority of the investment portfolio is comprised of securities issued by U.S. Treasury and government agencies, and state and political subdivision obligations. The amortized cost, fair value, and unrealized gains and losses on investment securities at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
June 30, 2020
June 30, 2021
Available-for-sale debt securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	—	$	2	$	2	$	—	$	—	$	2
State and political subdivision obligations		7,014		36		—		7,050
Corporate debt securities		16,464		42		66		16,440		8,136		24		—		8,160
Total available-for-sale debt securities		23,480		78		66		23,492		8,138		24		—		8,162
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	24,004	$	228	$	—	$	24,232	$	42,166	$	59	$	150	$	42,075
Mortgage-backed U.S. government agencies		41,312		1,072		4		42,380		31,210		775		1		31,984
State and political subdivision obligations		60,525		2,642		23		63,144		67,142		2,774		21		69,895
Corporate debt securities		9,546		205		16		9,735		12,514		180		69		12,625
Total held-to-maturity debt securities		135,387		4,147		43		139,491		153,032		3,788		241		156,579
Total	$	158,867	$	4,225	$	109	$	162,983	$	161,170	$	3,812	$	241	$	164,741

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
December 31, 2019
December 31, 2020
Available-for-sale debt securities:
U.S. government agencies	$	22,894	$	6	$	70	$	22,830
Mortgage-backed U.S. government agencies		12,996		7		113		12,890	$	2	$	—	$	—	$	2
State and political subdivision obligations		30		—		—		30
Corporate debt securities		1,250		9		—		1,259		5,750		—		4		5,746
Total available-for-sale debt securities		37,170		22		183		37,009		5,752		—		4		5,748
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	50,210	$	46	$	220	$	50,036	$	11,511	$	66	$	—	$	11,577
Mortgage-backed U.S. government agencies		42,098		95		102		42,091		40,810		948		15		41,743
State and political subdivision obligations		44,169		1,193		13		45,349		65,449		3,295		6		68,738
Corporate debt securities										10,522		215		1		10,736
Total held-to-maturity debt securities		136,477		1,334		335		137,476		128,292		4,524		22		132,794
Total	$	173,647	$	1,356	$	518	$	174,485	$	134,044	$	4,524	$	26	$	138,542

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 of a similar type, credit quality and structure, adjusted for differences between the quoted instruments and the instruments being valued. Please refer to Note 7, Fair Value Measurement, for more information on the fair value of investment securities.

Investment securities having a fair value of ~~$128,301,000~~$123,437,000 at June 30, ~~2020~~2021 and ~~$147,283,000~~$102,959,000 at December 31, ~~2019~~2020 were pledged to secure public deposits, some ~~trust account holdings,~~Trust department deposit accounts, and certain other borrowings. In accordance with legal provisions for alternatives other than pledging of investments, Mid Penn also obtains letters of credit from the Federal Home Loan Bank of Pittsburgh (“FHLB”) to secure certain public deposits. These FHLB letter of credit commitments totaled ~~$212,401,000~~$265,320,000 as of June 30, ~~2020~~2021 and ~~$169,051,000~~$288,950,000 as of December 31, ~~2019.~~2020.

The following tables present gross unrealized losses and fair value of debt security investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. As of June 30, 2021, Mid Penn held 0 available-for-sale securities in an unrealized loss position.

(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Number					Number					Number					Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
June 30, 2020	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Available-for-sale debt securities:
Corporate debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66
Total temporarily impaired available-for-sale debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66

June 30, 2021																Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies																7	$	9,595	$	150	0	$	—	$	—	7	$	9,595	$	150
Mortgage-backed U.S. government agencies	1	$	1,135	$	4	0	$	—	$	—	1	$	1,135	$	4	2		735		1	0		—		—	2		735		1
State and political subdivision obligations	2		2,668		23	0		—		—	2		2,668		23	10		2,426		21	0		—		—	10		2,426		21
Corporate debt securities	2		1,983		16	0		—		—	2		1,983		16	6		6,930		69	0		—		—	6		6,930		69
Total temporarily impaired held-to-maturity debt securities	5	$	5,786	$	43	0	$	—	$	—	5	$	5,786	$	43	25	$	19,686	$	241	0	$	—	$	—	25	$	19,686	$	241
Total	10	$	15,681	$	109	0	$	—	$	—	10	$	15,681	$	109	25	$	19,686	$	241	0	$	—	$	—	25	$	19,686	$	241

(Dollars in thousands)	Less Than 12 Months					12 Months or More						Total					Less Than 12 Months					12 Months or More						Total
	Number					Number						Number					Number					Number						Number
	of	Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized
December 31, 2019	Securities	Value		Losses		Securities	Value		Losses			Securities	Value		Losses
December 31, 2020																	Securities	Value		Losses		Securities	Value		Losses			Securities	Value		Losses
Available-for-sale securities:
U.S. government agencies	4	$	4,652	$	24	7	$	11,982		$	46	11	$	16,634	$	70
Mortgage-backed U.S. government agencies	1		1,643		4	14		10,603			109	15		12,246		113
Corporate debt securities																	2	$	3,497	$	4	0	$	—		$	—	2	$	3,497	$	4
Total temporarily impaired available-for-sale securities	5	$	6,295	$	28	21	$	22,585		$	155	26	$	28,880	$	183	2	$	3,497	$	4	0	$	—		$	—	2	$	3,497	$	4

Held-to-maturity securities:
U.S. Treasury and U.S. government agencies	18	$	29,024	$	219	1	$	2,999		$	1	19	$	32,023	$	220
Mortgage-backed U.S. government agencies	6		8,445		35	13		11,050			67	19		19,495		102	8	$	5,336	$	15	0	$	—		$	—	8	$	5,336	$	15
State and political subdivision obligations	3		1,383		13	0		—			—	3		1,383		13	2		801		6	0		—			—	2		801		6
Corporate debt securities																	1		449		1	0		—			—	1		449		1
Total temporarily impaired held to maturity securities	27	$	38,852	$	267	14	$	14,049		$	68	41	$	52,901	$	335	11	$	6,586	$	22	0	$	—		$	—	11	$	6,586	$	22
Total	32	$	45,147	$	295	35	$	36,634		$	223	67	$	81,781	$	518	13	$	10,083	$	26	0	$	—		$	—	13	$	10,083	$	26

Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such additional evaluation. Consideration is given to the length of time and the extent to which the fair value of the security has been less than amortized cost, as well as the overall financial condition of the issuer. In addition, for debt securities, Mid Penn considers (i) whether management has the intent to sell the security, (ii) whether it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (iii) whether management expects to recover the entire amortized cost basis. At ~~both~~ June 30, ~~2020 and December 31, 2019,~~2021, the majority of ~~available-for-sale securities and held-to-maturity~~ securities in an unrealized loss position were ~~corporate debt~~U.S. government agency securities and state and political subdivision obligations. At December 31, 2020, the majority of securities in an unrealized loss position were U.S. government agency and mortgage-back U.S. government agency securities.

Mid Penn had no securities considered by management to be other-than-temporarily impaired as of June 30, ~~2020,~~2021, December 31, ~~2019,~~2020, or June 30, ~~2019,~~2020, and did not record any securities impairment charges in the respective periods ended on these dates. This determination reflects management’s assessment that no securities in its portfolio were impaired as a result of any COVID-19 pandemic impacts, to date, to the repayment ability of the underlying issuers of securities. Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality.

Gross realized gains and losses on sales of available-for-sale debt securities for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 are shown in the table below. NaN sales of available-for-sale securities were executed during the three and six months ended June 30, 2021.

(Dollars in thousands)	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,							Six Months Ended June 30,

	2020				2019				2020				2019				2021			2020				2021			2020
Realized gains		$	118			$	43			$	255			$	69			$	—		$	118			$	—		$	255
Realized losses			(7	)			(26	)			(12	)			(45	)			—			(7	)			—			(12	)
Net gains		$	111			$	17			$	243			$	24			$	—		$	111			$	—		$	243

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of June 30, ~~2020.~~2021.

(Dollars in thousands)	Available-for-sale				Held-to-maturity				Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
June 30, 2020	Cost		Value		Cost		Value
June 30, 2021									Cost		Value		Cost		Value
Due in 1 year or less	$	—	$	—	$	3,162	$	3,191	$	—	$	—	$	3,888	$	3,934
Due after 1 year but within 5 years		2,975		2,994		19,478		20,195		3,250		3,252		38,391		40,096
Due after 5 years but within 10 years		17,679		17,667		67,984		70,266		4,886		4,908		79,543		80,564
Due after 10 years		2,824		2,829		3,451		3,459		—		—		—		—
		23,478		23,490		94,075		97,111		8,136		8,160		121,822		124,594

Mortgage-backed securities		2		2		41,312		42,380		2		2		31,210		31,985
	$	23,480	$	23,492	$	135,387	$	139,491	$	8,138	$	8,162	$	153,032	$	156,579

~~The~~As of June 30, 2021 and December 31, 2020, the types of loans in Mid Penn’s portfolio, summarized byusing Mid Penn’s internal risk rating system between those rated as “pass” (net of deferred fees and costs of ~~$18,066,000~~$16,554,000 as of June 30, ~~2020~~2021 and ~~$1,081,000~~$9,084,000 as of December 31, ~~2019)~~2020), which comprise the vast majority of the portfolio, and ~~the loans~~those classified as “special mention” and “substandard” ~~within Mid Penn’s internal risk rating system as of June 30, 2020 and December 31, 2019,~~, are as follows:

(Dollars in thousands)			Special								Special
June 30, 2020	Pass		Mention		Substandard		Total
June 30, 2021									Pass		Mention		Substandard		Total
Commercial and industrial	$	916,886	$	9,712	$	2,792	$	929,390	$	770,859	$	10,014	$	2,233	$	783,106
Commercial real estate		983,198		2,752		12,723		998,673		1,131,528		7,123		8,438		1,147,089
Commercial real estate - construction		224,325		—		32		224,357		282,753		—		23		282,776
Residential mortgage		216,948		54		1,350		218,352		195,489		51		1,151		196,691
Home equity		65,744		7		2,414		68,165		74,933		—		2,339		77,272
Consumer		6,828		—		—		6,828		8,258		—		—		8,258
	$	2,413,929	$	12,525	$	19,311	$	2,445,765	$	2,463,820	$	17,188	$	14,184	$	2,495,192

(Dollars in thousands)			Special								Special
December 31, 2019	Pass		Mention		Substandard		Total
December 31, 2020									Pass		Mention		Substandard		Total
Commercial and industrial	$	326,573	$	9,558	$	3,016	$	339,147	$	739,306	$	9,928	$	3,120	$	752,354
Commercial real estate		913,001		2,426		13,711		929,138		1,084,123		1,708		13,825		1,099,656
Commercial real estate - construction		181,650		—		40		181,690		248,882		—		31		248,913
Residential mortgage		235,252		55		1,417		236,724		200,544		53		1,244		201,841
Home equity		68,224		—		47		68,271		71,856		3		2,365		74,224
Consumer		7,786		—		—		7,786		7,053		—		—		7,053
	$	1,732,486	$	12,039	$	18,231	$	1,762,756	$	2,351,764	$	11,692	$	20,585	$	2,384,041

The increase in deferred fees and costs from December 31, ~~2019~~2020 to June 30, ~~2020~~2021 was the result of collected but unearned PPP loan processing fees related to the PPP 2021 loans, which Mid Penn processed and disbursed during the ~~second quarter~~first half of ~~2020.~~2021. All PPP loans, whether disbursed in 2020 or 2021, are included in commercial and industrial loans and are fully guaranteed by the ~~SBA,~~SBA; therefore, all PPP loans outstanding (net of the related deferred PPP fees) are classified as “pass” within Mid Penn’s internal risk rating system as of June 30, ~~2020.~~ 2021.

Mid Penn had no loans classified as ~~doubtful~~“doubtful” as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Impaired loans by loan portfolio class as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized as follows:

	June 30, 2020						December 31, 2019						June 30, 2021						December 31, 2020
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	1,012	$	1,061	$	—	$	890	$	890	$	—	$	—	$	31	$	—	$	899	$	931	$	—
Commercial real estate		7,126		7,465		—		7,973		8,366		—		961		1,340		—		8,215		8,574		—
Commercial real estate - construction		32		34		—		40		61		—		23		27		—		31		34		—
Residential mortgage		776		798		—		817		838		—		759		791		—		818		842		—
Home equity		2,406		2,436		—		25		27		—		2,339		2,341		—		2,365		2,395		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—

With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	—	$	3	$	68	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate		1,430		1,700		—		1,423		1,708		—		1,381		1,687		—		1,419		1,693		—
Commercial real estate - construction		—		—		—		—		—		—		—		—		—		—		—		—
Residential mortgage		354		494		—		381		578		—		289		538		—		323		568		—
Home equity		1		4		—		1		5		—		—		12		—		—		13		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—

With an allowance recorded:
Commercial and industrial	$	198	$	198	$	53	$	—	$	—	$	—	$	218	$	249	$	62	$	553	$	574	$	533
Commercial real estate		902		944		190		338		380		166		2,712		2,768		1,332		887		994		274
Commercial real estate - construction		—		—		—		—		—		—		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—

Total Impaired Loans:
Commercial and industrial	$	1,210	$	1,259	$	53	$	893	$	958	$	—	$	218	$	280	$	62	$	1,452	$	1,505	$	533
Commercial real estate		9,458		10,109		190		9,734		10,454		166		5,054		5,795		1,332		10,521		11,261		274
Commercial real estate - construction		32		34		—		40		61		—		23		27		—		31		34		—
Residential mortgage		1,130		1,292		—		1,198		1,416		—		1,048		1,329		—		1,141		1,410		—
Home equity		2,407		2,440		—		26		32		—		2,339		2,353		—		2,365		2,408		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—

The average recorded investment of impaired loans and related interest income recognized for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 are summarized as follows:

	Three Months Ended								Three Months Ended
	June 30, 2020				June 30, 2019				June 30, 2021				June 30, 2020
(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
With no related allowance recorded:
Commercial and industrial	$	955	$	—	$	—	$	—	$	72	$	—	$	955	$	—
Commercial real estate		7,004		—		2,273		—		778		1		7,004		—
Commercial real estate - construction		36		—		40		—		26		—		36		—
Residential mortgage		762		6		880		7		759		6		762		6
Home equity		1,215		—		29		—		2,336		—		1,215		—
Consumer		—		—		—		—		—		—		—		—

With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	29	$	—	$	—	$	—	$	—	$	—
Commercial real estate		1,423		—		1,602		—		1,398		—		1,423		—
Commercial real estate - construction		—		—		—		—		—		—		—		—
Residential mortgage		360		—		1,222		—		300		—		360		—
Home equity		1		—		4		—		—		—		1		—
Consumer		—		—		—		—		—		—		—		—

With an allowance recorded:
Commercial and industrial	$	99	$	—	$	140	$	—	$	221	$	—	$	99	$	—
Commercial real estate		835		—		513		—		1,793		—		835		—
Commercial real estate - construction		—		—		183		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—

Total Impaired Loans:
Commercial and industrial	$	1,054	$	—	$	169	$	—	$	293	$	—	$	1,054	$	—
Commercial real estate		9,262		—		4,388		—		3,969		1		9,262		—
Commercial real estate - construction		36		—		223		—		26		—		36		—
Residential mortgage		1,122		6		2,102		7		1,059		6		1,122		6
Home equity		1,216		—		33		—		2,336		—		1,216		—
Consumer		—		—		—		—		—		—		—		—

Six Months Ended

June 30, 2020

June 30, 2019

(Dollars in thousands)

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

With no related allowance recorded:

Commercial and industrial

$
933

$
—

$
—

$
—

Commercial real estate

7,362

—

2,289

—

Commercial real estate - construction

37

—

27

—

Residential mortgage

780

13

857

14

Home equity

818

—

29

—

Consumer

—

—

—

—

With no related allowance recorded and acquired with credit deterioration:

Commercial and industrial

$
1

$
—

$
29

$
—

Commercial real estate

1,421

—

1,589

—

Commercial real estate - construction

—

—

—

—

Residential mortgage

367

—

1,219

—

Home equity

1

—

4

—

Consumer

—

—

—

—

With an allowance recorded:

Commercial and industrial

$
66

$
—

$
1,603

$
3

Commercial real estate

634

—

477

—

Commercial real estate - construction

—

—

245

—

Residential mortgage

—

—

—

—

Home equity

—

—

—

—

Consumer

—

—

—

—

Total Impaired Loans:

Commercial and industrial

$
1,000

$
—

$
1,632

$
3

Commercial real estate

9,417

—

4,355

—

Commercial real estate - construction

37

—

272

—

Residential mortgage

1,147

13

2,076

14

Home equity

819

—

33

—

Consumer

—

—

—

—

~~MID PENN BANCORP, INC.~~

	Six Months Ended
	June 30, 2021				June 30, 2020
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	502	$	—	$	933	$	—
Commercial real estate		3,257		1		7,362		—
Commercial real estate - construction		28		—		37		—
Residential mortgage		778		14		780		13
Home equity		2,346		—		818		—
Consumer		—		—		—		—

With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	1	$	—
Commercial real estate		1,406		—		1,421		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		309		—		367		—
Home equity		—		—		1		—
Consumer		—		—		—		—

With an allowance recorded:
Commercial and industrial	$	177	$	—	$	66	$	—
Commercial real estate		1,491		—		634		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—

Total Impaired Loans:
Commercial and industrial	$	679	$	—	$	1,000	$	—
Commercial real estate		6,154		1		9,417		—
Commercial real estate - construction		28		—		37		—
Residential mortgage		1,087		14		1,147		13
Home equity		2,346		—		819		—
Consumer		—		—		—		—

Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized as follows:

(Dollars in thousands)	June 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
Commercial and industrial	$	1,210	$	894	$	324	$	1,452
Commercial real estate		9,458		9,800		4,948		10,520
Commercial real estate - construction		32		40		23		31
Residential mortgage		697		711		599		679
Home equity		2,407		26		2,339		2,365
Consumer		—		—
	$	13,804	$	11,471	$	8,233	$	15,047

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The classes of the loan portfolio summarized by the past due status as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized as follows:

													Loans														Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >		30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and		Days Past		Days Past		than 90		Total Past						90 Days and
June 30, 2020	Due		Due		Days		Due		Current		Total Loans		Accruing
June 30, 2021															Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	859	$	233	$	953	$	2,045	$	927,345	$	929,390	$	800	$	—	$	1,003	$	192	$	1,195	$	781,911	$	783,106	$	—
Commercial real estate		325		146		7,519		7,990		989,253		997,243		—		80		—		1,358		1,438		1,144,270		1,145,708		—
Commercial real estate - construction		—		—		—		—		224,357		224,357		—		—		—		—		—		282,776		282,776		—
Residential mortgage		99		49		250		398		217,600		217,998		—		13		1		272		286		196,116		196,402		—
Home equity		254		7		2,406		2,667		65,497		68,164		—		—		255		2,338		2,593		74,679		77,272		—
Consumer		4		—		—		4		6,824		6,828		—		—		—		—		—		8,258		8,258		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Commercial real estate		—		—		1,419		1,419		11		1,430		—		6		—		1,371		1,377		4		1,381		—
Commercial real estate - construction		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Residential mortgage		—		—		189		189		165		354		—		—		—		145		145		144		289		—
Home equity		—		—		—		—		1		1		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	1,541	$	435	$	12,736	$	14,712	$	2,431,053	$	2,445,765	$	800	$	99	$	1,259	$	5,676	$	7,034	$	2,488,158	$	2,495,192	$	—

													Loans														Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >		30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and		Days Past		Days Past		than 90		Total Past						90 Days and
December 31, 2019	Due		Due		Days		Due		Current		Total Loans		Accruing
December 31, 2020															Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	—	$	1,059	$	890	$	1,949	$	337,195	$	339,144	$	—	$	365	$	1,017	$	1,377	$	2,759	$	749,595	$	752,354	$	—
Commercial real estate		1,298		11		7,819		9,128		918,587		927,715		—		1,096		—		7,668		8,764		1,089,473		1,098,237		—
Commercial real estate - construction		—		—		—		—		181,690		181,690		—		—		—		—		—		248,913		248,913		—
Residential mortgage		145		—		326		471		235,872		236,343		—		126		—		282		408		201,110		201,518		—
Home equity		34		—		—		34		68,236		68,270		—		71		22		2,343		2,436		71,788		74,224		—
Consumer		5		3		—		8		7,778		7,786		—		—		6		—		6		7,047		7,053		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		3		3		—		3		—		—		—		—		—		—		—		—
Commercial real estate		16		473		934		1,423		—		1,423		—		9		—		1,402		1,411		8		1,419		—
Commercial real estate - construction		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Residential mortgage		5		—		203		208		173		381		—		—		—		168		168		155		323		—
Home equity		—		—		—		—		1		1		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	1,503	$	1,546	$	10,175	$	13,224	$	1,749,532	$	1,762,756	$	—	$	1,667	$	1,045	$	13,240	$	15,952	$	2,368,089	$	2,384,041	$	—

The allowance for loan losses and the related loan loss provision for the periods presented reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, ~~2023.~~2023, and Mid Penn has not elected to early adopt CECL. PPP loans, both those disbursed in 2020 and those disbursed in 2021, are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the Small Business Administration, 0 allowance for loan losses was recorded against the ~~$588,667,000~~$391,826,000 balance of PPP loans outstanding (net of related deferred PPP fees) as of June 30, ~~2020.~~2021.

The following tables summarize the allowance and recorded investments in loans receivable.

(Dollars in thousands)
As of, and for the three months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
As of, and for the three months ended, June 30, 2021																						Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2020	$	2,427		$	6,630	$	57		$	436		$	448	$	2		$	14	$	10,014
April 1, 2021																						$	2,988		$	8,944	$	122		$	438		$	528	$	1		$	570		$	13,591
Charge-offs		(1	)		—		(7	)		—			—		(4	)		—		(12	)		—			—		(23	)		(7	)		—		(9	)		—			(39	)
Recoveries		2			—		2			—			1		10			—		15			1			10		—			1			—		2			—			14
Provisions		358			611		13			(9	)		68		(6	)		15		1,050
Provisions (credits)																							176			1,023		31			67			60		8			(215	)		1,150
Ending balance,
June 30, 2020	$	2,786		$	7,241	$	65		$	427		$	517	$	2		$	29	$	11,067
June 30, 2021																						$	3,165		$	9,977	$	130		$	499		$	588	$	2		$	355		$	14,716

(Dollars in thousands)
As of, and for the six months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
As of, and for the six months ended, June 30, 2021																						Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2020	$	2,341		$	6,259	$	51		$	417		$	442	$	2		$	3	$	9,515
January 1, 2021																						$	3,066		$	8,655	$	134		$	429		$	507	$	1		$	590		$	13,382
Charge-offs		(45	)		—		(7	)		—			—		(18	)		—		(70	)		(859	)		—		(23	)		(11	)		—		(12	)		—			(905	)
Recoveries		2			1		2			3			1		13			—		22			1			66		—			11			—		11			—			89
Provisions		488			981		19			7			74		5			26		1,600
Provisions (credits)																							957			1,256		19			70			81		2			(235	)		2,150
Ending balance,
June 30, 2020		2,786			7,241		65			427			517		2			29		11,067
June 30, 2021																							3,165			9,977		130			499			588		2			355			14,716
Individually evaluated for impairment		53			190		—			—			—		—			—		243			62			1,332		—			—			—		—			—			1,394
Ending balance:
collectively evaluated for impairment	$	2,733		$	7,051	$	65		$	427		$	517	$	2		$	29	$	10,824
Collectively evaluated for impairment																						$	3,103		$	8,645	$	130		$	499		$	588	$	2		$	355		$	13,322

Loans receivables:
Ending balance	$	929,390		$	998,673	$	224,357		$	218,352		$	68,165	$	6,828		$	—	$	2,445,765		$	783,106		$	1,147,089	$	282,776		$	196,691		$	77,272	$	8,258		$	—		$	2,495,192
Ending balance: individually evaluated for impairment		1,210			8,028		32			776			2,406		—			—		12,452			218			3,673		23			759			2,339		—			—			7,012
Ending balance: acquired with credit deterioration		—			1,430		—			354			1		—			—		1,785			—			1,381		—			289			—		—			—			1,670
Ending balance: collectively evaluated for impairment	$	928,180		$	989,215	$	224,325		$	217,222		$	65,758	$	6,828		$	—	$	2,431,528		$	782,888		$	1,142,035	$	282,753		$	195,643		$	74,933	$	8,258		$	—		$	2,486,510

(Dollars in thousands)
December 31, 2019	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Residential mortgage		Home equity		Consumer		Unallocated		Total
December 31, 2020																	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Ending balance	$	2,341	$	6,259	$	51	$	417	$	442	$	2	$	3	$	9,515	$	3,066	$	8,655	$	134	$	429	$	507	$	1	$	590	$	13,382
Ending balance: individually evaluated for impairment		—		166		—		—		—		—		—		166		533		274		—		—		—		—		—		807
Ending balance: collectively evaluated for impairment	$	2,341	$	6,093	$	51	$	417	$	442	$	2	$	3	$	9,349	$	2,533	$	8,381	$	134	$	429	$	507	$	1	$	590	$	12,575

Loans receivable:
Ending balance	$	339,147	$	929,138	$	181,690	$	236,724	$	68,271	$	7,786	$	—	$	1,762,756	$	752,354	$	1,099,656	$	248,913	$	201,841	$	74,224	$	7,053	$	—	$	2,384,041
Ending balance: individually evaluated for impairment		890		8,311		40		817		25		—		—		10,083		1,452		9,102		31		818		2,365		—		—		13,768
Ending balance: acquired with credit deterioration		3		1,423		—		381		1		—		—		1,808		—		1,419		—		323		—		—		—		1,742
Ending balance: collectively evaluated for impairment	$	338,254	$	919,404	$	181,650	$	235,526	$	68,245	$	7,786	$	—	$	1,750,865	$	750,902	$	1,089,135	$	248,882	$	200,700	$	71,859	$	7,053	$	—	$	2,368,531

(Dollars in thousands)
As of, and for the three months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
As of, and for the three months ended, June 30, 2020																									Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2019	$	2,443		$	5,031		$	81		$	477		$	450		$	6		$	14		$	8,502
April 1, 2020																									$	2,427		$	6,630	$	57		$	436		$	448	$	2		$	14	$	10,014
Charge-offs		(205	)		—			(20	)		—			—			(38	)		—			(263	)		(1	)		—		(7	)		—			—		(4	)		—		(12	)
Recoveries		42			15			—			—			1			9			—			67			2			—		2			—			1		10			—		15
Provisions		168			266			(16	)		(1	)		31			30			(13	)		465
Provisions (credits)																										358			611		13			(9	)		68		(6	)		15		1,050
Ending balance,
June 30, 2019	$	2,448		$	5,312		$	45		$	476		$	482		$	7		$	1		$	8,771
June 30, 2020																									$	2,786		$	7,241	$	65		$	427		$	517	$	2		$	29	$	11,067

(Dollars in thousands)
As of, and for the six months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
As of, and for the six months ended, June 30, 2020																									Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2019		2,391			4,703			75			453			528			7			240		$	8,397
January 1, 2020																										2,341			6,259		51			417			442		2			3	$	9,515
Charge-offs		(205	)		(12	)		(40	)		—			—			(47	)		—			(304	)		(45	)		—		(7	)		—			—		(18	)		—		(70	)
Recoveries		43			33			—			—			1			11			—			88			2			1		2			3			1		13			—		22
Provisions		219			588			10			23			(47	)		36			(239	)		590
Provisions (credits)																										488			981		19			7			74		5			26		1,600
Ending balance,
June 30, 2019		2,448			5,312			45			476			482			7			1			8,771
June 30, 2020																										2,786			7,241		65			427			517		2			29		11,067
Individually evaluated for impairment		13			243			—			—			—			—			—			256			53			190		—			—			—		—			—		243
Ending balance:
collectively evaluated for impairment	$	2,435		$	5,069		$	45		$	476		$	482		$	7		$	1		$	8,515		$	2,733		$	7,051	$	65		$	427		$	517	$	2		$	29	$	10,824

Loans receivables:
Ending balance	$	301,271		$	883,317		$	173,900		$	249,114		$	70,442		$	10,129		$	—		$	1,688,173		$	929,390		$	998,673	$	224,357		$	218,352		$	68,165	$	6,828		$	—	$	2,445,765
Ending balance: individually evaluated for impairment		76			2,745			40			897			28			—			—			3,786			1,210			8,028		32			776			2,406		—			—		12,452
Ending balance: acquired with credit deterioration		29			1,616			—			1,234			4			—			—			2,883			—			1,430		—			354			1		—			—		1,785
Ending balance: collectively evaluated for impairment	$	301,166		$	878,956		$	173,860		$	246,983		$	70,410		$	10,129		$	—		$	1,681,504		$	928,180		$	989,215	$	224,325		$	217,222		$	65,758	$	6,828		$	—	$	2,431,528

Mid Penn entered into forbearance or modification 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 and generally involve modifications from the original loan agreements, including either a reduction in the amount of principal payments for certain or extended periods, interest rate reductions, and/or the intent for the loan to be repaid as collateral is sold.

Mid Penn’s troubled debt restructured loans at June 30, ~~2020~~2021 totaled ~~$948,000~~$1,412,000 and ~~included~~included: (i) three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling ~~$477,000. The remaining $471,000~~$449,000, and (ii) $963,000 of troubled debt restructurings ~~was~~ attributable to ~~seven~~nine loans among ~~five~~seven relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. The balance of these nonaccrual impaired troubled debt restructured loans as of June 30, ~~2020~~2021 was comprised of ~~$420,000~~$893,000 in commercial real estate loans amongst ~~two borrowers,~~three borrowers; one commercial real estate construction loan for ~~$32,000, one~~$23,000, two residential mortgage ~~loan~~loans for ~~$11,000,~~$41,000, and one commercial and industrial loan for ~~$7,000.~~$6,000. As of June 30, ~~2020,~~2021, there were 0 defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements. ~~There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2020.~~

Mid Penn’s troubled debt restructured loans at December 31, ~~2019~~2020 totaled ~~$2,238,000,~~$1,480,000, and ~~included~~included: (i) three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling ~~$490,000. The remaining $1,748,000~~$463,000, and (ii) $1,017,000 of troubled debt restructurings ~~was~~ attributable to ~~eight~~nine loans among ~~five~~seven relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. One large commercial real estate relationship accounted for ~~$1,252,000~~$535,000 of the total ~~$1,748,000~~$1,017,000 in nonaccrual impaired troubled debt restructured ~~loans.~~loans, with the remainder consisting of (i) four commercial real estate loans totaling $398,000 among two relationships, (ii) one commercial real estate – construction loan totaling $31,000, (iii) one commercial and industrial loan totaling $6,000, and (iv) two unrelated residential mortgage loans totaling $47,000. As of December 31, ~~2019,~~2020, there were 0no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements. There were also no0 defaults on troubled debt restructured loans within twelve months of restructure during ~~2019.~~2020.

The recorded investments in troubled debt restructured loans at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

(Dollars in thousands)	Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
June 30, 2020	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment

June 30, 2021							Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	8	$	8	$	7	$	8	$	8	$	6
Commercial real estate		1,214		1,115		420		1,806		1,707		893
Commercial real estate - construction		40		40		32		40		40		23
Residential mortgage		689		687		489		728		725		490
	$	1,951	$	1,850	$	948	$	2,582	$	2,480	$	1,412

(Dollars in thousands)	Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
December 31, 2019	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
December 31, 2020							Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	3	$	3	$	3	$	8	$	8	$	6
Commercial real estate		2,562		2,463		1,705		1,806		1,707		933
Commercial real estate - construction		40		40		40		40		40		31
Residential mortgage		677		675		490		728		725		510
	$	3,282	$	3,181	$	2,238	$	2,582	$	2,480	$	1,480

The ~~Coronavirus Aid, Relief, and Economic Security (“CARES”)~~CARES Act, ~~provided~~along with a joint agency statement issued by banking agencies, provides that ~~qualifying~~ short-term modifications made in response to COVID-19 do not need to be accounted for as troubled debt restructurings. The federal financial institution regulatory agencies, in consultation with state financial regulators, affirmed the CARES Act provisions in a revised interagency statement issued on April 7, 2020. As of June 30, 2020, Mid Penn had provided loan modifications meeting the CARES Act qualifications to 1,019 borrowers with aggregate loans outstanding of $444,886,000. Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications ~~range~~ranged from deferrals of both principal and interest payments, ~~for three to six months, or~~with some borrowers reverting to interest-only ~~payments~~payments. The majority of the deferrals granted by Mid Penn were for a period of three tomonths, but some as long as six ~~months.~~months, depending upon management’s specific evaluation of each borrower’s circumstances. Interest ~~will~~does continue to accrue on loans modified under the CARES Act during the deferral period. As of June 30, 2021, the principal balance of loans remaining in a CARES Act qualifying deferment status totaled $314,000, or less than 1 percent of the total loan portfolio, a reduction compared to December 31, 2020, when $11,681,000 of loans, also representing less than 1 percent of the total loan portfolio, were in this deferment status. Most borrowers who were granted a CARES Act deferral have returned to regular payment status. Mid Penn remains in communication with each of ~~these~~the borrowers still in deferral status to assess the ongoing credit ~~status~~standing of the borrowers, and may make further adjustments to a borrower’s ~~modification~~relationship at some future time if warranted for the specific situation.

The following tables provide activity for the accretable yield of acquired impaired loans from the Phoenix ~~Bancorp, Inc.~~ (March 2015), Scottdale (January 2018), and First Priority (July 2018) acquisitions for the three and six months ended June 30, 2021 and 2020.

(Dollars in thousands)
	Three Months Ended June 30,						Three Months Ended June 30,
	2020			2019			2021		2020
Accretable yield, beginning of period	$	72		$	254		$	40	$	72
Accretable yield amortized to interest income		(16	)		(57	)		0		(16	)
Accretable yield, end of period	$	56		$	197		$	40	$	56

(Dollars in thousands)	Six Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2021		2020

Accretable yield, beginning of period	$	89		$	309		$	40	$	89
Accretable yield amortized to interest income		(33	)		(112	)		0		(33	)
Accretable yield, end of period	$	56		$	197		$	40	$	56

On January 1, 2019, Mid Penn adopted ~~ASU No. 2016-02,~~FASB Topic 842, Leases ~~(Topic 842)~~, and all subsequent ASUs that modified Topic 842, which primarily affected the accounting treatment for operating lease agreements in which Mid Penn is the lessee. As of the January 1, 2019 adoption date, Mid Penn leased twenty-four branch locations under non-cancelable operating leases, which expire at various dates through the year ending December 31, 2035. Three of Mid Penn’s operating leases are with related parties. Subsequent to the adoption of Topic 842, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039.

In 2016, Mid Penn entered into ~~two~~a subleasing ~~agreements~~agreement with an unrelated ~~parties~~party on one of its properties under an operating lease. ~~Both subleases~~The sublease included an escalation ~~clauses.~~clause. The ~~first~~initial term of the sublease agreement began on ~~April~~July 1, 2016 ~~while the second sublease began on July 1, 2016. One sublease was terminated during the first quarter of 2019 due to the bankruptcy of the tenant. The remaining sublease ends~~and ended on March 31, ~~2021.~~2021, and was extended for an additional one-year term ending March 31, 2022.

Operating and finance lease right-of-use assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt. Mid Penn has elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) or equipment leases (deemed immaterial) on the Consolidated Balance ~~Sheet.~~Sheets.

There were 0 sale and leaseback transactions, leveraged leases, or leases that had not commenced as of June 30, ~~2020.~~2021.

Below is a summary of the operating and finance lease right-of-use assets and related lease liabilities, as well as the weighted average lease term (in years) and weighted average discount rate for each of the lease classifications as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

(Dollars in thousands)	June 30, 2020						December 31, 2019						June 30, 2021						December 31, 2020
	Operating Leases			Finance Lease			Operating Leases			Finance Lease			Operating Leases			Finance Lease			Operating Leases			Finance Lease
Right of use asset	$	10,587		$	3,357		$	11,442		$	3,447		$	10,364		$	3,177		$	10,157		$	3,267
Lease liability	$	11,643		$	3,509		$	12,544		$	3,551		$	11,387		$	3,424		$	11,200		$	3,467
Weighted average remaining lease term (in years)		8.44			18.67			8.64			19.17			7.65			17.67			8.05			18.17
Weighted average discount rate		3.34	%		3.81	%		3.33	%		3.81	%		3.16	%		3.81	%		3.30	%		3.81	%

A summary of lease costs during the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 are presented below. Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income.

(Dollars in thousands)		Three Months Ended						Six Months Ended						Three Months Ended June 30,						Six Months Ended June 30,
	��	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			2021			2020			2021			2020
Finance lease cost:
Amortization of right-of-use asset		$	45		$	45		$	90		$	60		$	45		$	45		$	90		$	90
Interest expense on lease liability			33			35			67			46			32			33			65			67
Total finance lease cost			78			80			157			106			77			78			155			157
Operating lease cost			505			515			1,033			1,030			511			505			1,027			1,033
Short-term and equipment lease cost			12			3			21			31			7			12			17			21
Variable lease cost			—			—			—			—			—			—			—			—
Sublease income			(4	)		(7	)		(10	)		(12	)		(6	)		(4	)		(15	)		(10	)
Total lease costs		$	591		$	591		$	1,201		$	1,155		$	589		$	591		$	1,184		$	1,201

A summary of cash paid for amounts included in the measurement of lease liabilities is presented below.

(Dollars in thousands)	Six Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2021		June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	67	$	46	$	65	$	67
Operating cash flows from operating leases		1,064		1,087		1,048		1,064
Financing cash flows from finance leases		41		6		43		41

A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below.

The fair value, notional amount, and collateral posted related to loan-level interest rate swaps are presented below.


(Dollars in thousands)	June 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
Interest Rate Swap Contracts - Commercial Loans:
Gross Fair Value (a)	$	239	$	—
Fair Value (a)					$	560	$	489
Notional Amount		8,907		—		77,754		22,331
Cash Collateral Posted (b)		250		—		500		500

The gross amounts of commercial loan swap derivatives, the amounts offset and the carrying values in the Consolidated Balance Sheets, and the collateral pledged to support such agreements are presented below.

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased. Information on identifying circumstances when a transaction may not be considered orderly is also included within the guidance.

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

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

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

Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

There were no transfers of assets between fair value Level 1 and Level 2 during the six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

The following tables illustrate the assets measured at fair value on a recurring basis segregated by hierarchy fair value levels.

			Fair value measurements at June 30, 2020 using:								Fair value measurements at June 30, 2021 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)		June 30, 2021		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	2	$	—	$	2	$	—	$	2	$	—
State and political subdivision obligations		7,050		—		7,050		—
Corporate debt securities		16,440		—		16,440		—		8,160		—		8,160		—
Other assets:
Equity securities		518		518		—		—		508		508		—		—
Interest rate swap agreements		239		—		239		—
Total	$	24,249	$	518	$	23,731	$	—	$	8,670	$	508	$	8,162	$	—

			Fair value measurements at December 31, 2019 using:								Fair value measurements at December 31, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)		December 31, 2020		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. government agencies	$	22,830	$	—	$	22,830	$	—	$	2	$	—	$	2	$	—
Mortgage-backed U.S. government agencies		12,890		—		12,890		—
State and political subdivision obligations		30		—		30		—
Corporate debt securities		1,259		—		1,259		—		5,746		—		5,746		—
Other assets:
Equity securities		507		507		—		—		515		515		—		—
Interest rate swap agreements										489		—		489		—
Total	$	37,516	$	507	$	37,009	$	—	$	6,752	$	515	$	6,237	$	—

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

The following tables illustrate the assets measured at fair value on a nonrecurring basis segregated by hierarchy fair value levels.

			Fair value measurements at June 30, 2020 using:								Fair value measurements at June 30, 2021 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)		June 30, 2021		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	812	$	—	$	—	$	812	$	1,649	$	—	$	—	$	1,649

			Fair value measurements at December 31, 2019 using:								Fair value measurements at December 31, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)		December 31, 2020		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	271	$	—	$	—	$	271	$	800	$	—	$	—	$	800
Foreclosed Assets Held for Sale		122		—		—		122		77		—		—		77

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

June 30, 2020

Fair Value Estimate

Valuation Technique

Unobservable Input

Range

Weighted Average

June 30, 2021

Fair Value Estimate

Valuation Technique

Unobservable Input

Range

Weighted Average

Impaired Loans

812

Appraisal of collateral (a), (b)

Appraisal adjustments (b)

26% - 100%

32%

1,649

Appraisal of collateral (a), (b)

Appraisal adjustments (b)

24% - 95%

52%

There were no changes in unrealized gains and losses included in other comprehensive income ~~for~~during the six months ended June 30, 2021 or 2020 related to Level 3 recurring fair value measurements as Mid Penn has no assets measured at fair value on a Level 3 recurring basis.

Mid Penn uses the following methodologies and assumptions to estimate the fair value of certain assets and liabilities.

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

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.

Impaired Loans (included in “Net Loans and Leases” in the following tables):

All performing troubled debt restructured loans and loans classified as nonaccrual are deemed to be impaired, and all of these loans are considered collateral dependent; therefore, all of Mid Penn’s impaired loans, whether reporting a specific allowance allocation or not, are considered collateral dependent.

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 substandard nonaccrual. Prior to receipt of the updated real estate valuation, Mid Penn will use existing real estate valuations to determine any potential allowance for loan loss issues, and will update the allowance impact calculation upon receipt of the updated real estate valuation.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary. Mid Penn considers the estimates used in its impairment analysis to be Level 3 inputs.

Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values, either in a positive or negative way, due to the passage of time or some other change in one or more valuation inputs. Collateral values for impaired loans will be reassessed by management at least every 12 months for possible revaluation by an independent third party.

Certain assets included in foreclosed assets held for sale are carried at fair value and accordingly is presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.

The following table summarizes the carrying value and fair value of financial instruments at June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

(Dollars in thousands)	June 30, 2020				December 31, 2019				June 30, 2021				December 31, 2020
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying			Fair
	Value		Value		Value		Value		Value		Value		Value			Value
Financial assets:
Cash and cash equivalents	$	143,755	$	143,755	$	139,030	$	139,030	$	636,347	$	636,347	$	303,724		$	303,724
Available-for-sale investment securities		23,492		23,492		37,009		37,009		8,162		8,162		5,748			5,748
Held-to-maturity investment securities		135,387		139,491		136,477		137,476		153,032		156,579		128,292			132,794
Equity securities		518		518		507		507		508		508		515			515
Loans held for sale		21,812		22,120		8,422		8,630		24,202		24,690		25,506			26,262
Net loans and leases		2,434,698		2,522,315		1,753,241		1,789,402		2,480,476		2,570,478		2,370,659			2,444,105
Restricted investment in bank stocks		7,079		7,079		4,902		4,902		6,816		6,816		7,594			7,594
Accrued interest receivable		12,743		12,743		2,810		2,810		10,638		10,638		3,619	��		3,619
Interest rate swap agreements		239		239		—		—		—		—		489			489

Financial liabilities:
Deposits	$	2,326,313		2,336,221	$	1,912,394	$	1,916,624	$	2,782,124		2,785,202	$	2,474,580		$	2,496,799
Short-term borrowings		203,937		203,937		—		—		196,889		196,889		125,617			125,617
Long-term debt (a)		81,773		81,686		29,352		30,216		71,520		71,496		71,648			70,498
Subordinated debt		42,009		40,439		27,070		25,273		44,593		46,291		44,580			43,098
Accrued interest payable		2,590		2,590		2,208		2,208		2,122		2,122		2,007			2,007
Interest rate swap agreements										560		560		—			—

The Bank’s outstanding and unfunded credit commitments and financial standby letters of credit were deemed to have no significant fair value as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Carrying values approximate fair values for cash and cash equivalents, restricted investment in bank stocks, accrued interest receivable and payable, and short-term borrowings. Other than cash and cash equivalents, which are considered Level 1 Inputs and mortgage servicing rights, which are Level 3 Inputs, these instruments are Level 2 Inputs. These tables exclude financial instruments for which the carrying amount approximates fair value, not previously disclosed.

					Fair Value Measurements										Fair Value Measurements
					Quoted Prices										Quoted Prices
					in Active Markets				Significant						in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable						for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs		Carrying				or Liabilities		Observable Inputs		Inputs
June 30, 2020	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2021											Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment securities	$	135,387	$	139,491	$	—	$	139,491	$	—	$	153,032	$	156,579	$	—	$	156,579	$	—
Loans held for sale		21,812		22,120		—		22,120		—		24,202		24,690		—		24,690		—
Net loans and leases		2,434,698		2,522,315		—		—		2,522,315		2,480,476		2,570,478		—		—		2,570,478

Financial instruments - liabilities
Deposits	$	2,326,313	$	2,336,221	$	—	$	2,336,221	$	—	$	2,782,124	$	2,785,202	$	—	$	2,785,202	$	—
Long-term debt (a)		81,773		81,686		—		81,686		—		71,520		71,496		—		71,496		—
Subordinated debt		42,009		40,439		—		40,439		—		44,593		46,291		—		46,291		—

					Fair Value Measurements										Fair Value Measurements
					Quoted Prices										Quoted Prices
					in Active Markets				Significant						in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable						for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs		Carrying				or Liabilities		Observable Inputs		Inputs
December 31, 2019	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2020											Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment securities	$	136,477	$	137,476	$	—	$	137,476	$	—	$	128,292	$	132,794	$	—	$	132,794	$	—
Loans held for sale		8,422		8,630		—		8,630		—		25,506		26,262		—		26,262		—
Net loans and leases		1,753,241		1,789,402		—		—		1,789,402		2,370,659		2,444,105		—		—		2,444,105

Financial instruments - liabilities
Deposits	$	1,912,394	$	1,916,624	$	—	$	1,916,624	$	—	$	2,474,580	$	2,496,799	$	—	$	2,496,799	$	—
Long-term debt (a)		29,352		30,216		—		30,216		—		71,648		70,498		—		70,498		—
Subordinated debt		27,070		25,273		—		25,273		—		44,580		43,098		—		43,098		—

In the normal course of business, Mid Penn makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying consolidated financial statements. The commitments include various guarantees and commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Mid Penn evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer. Standby letters of credit and financial guarantees written are conditional commitments to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Mid Penn had ~~$28,589,000~~$44,249,000 and ~~$26,574,000~~$39,468,000 of standby letters of credit outstanding as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Mid Penn does not anticipate any losses because of these transactions. The amount of the liability as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 for payment under standby letters of credit issued was not considered material.

As of June 30, 2021, Mid Penn’s Board of Directors had approved Mid Penn ~~also has~~Bank to enter into a commitment to purchase a limited partnership interest in a low-income housing project to construct NaN apartments and common amenities in ~~Dauphin~~Cumberland County, Pennsylvania. The total investment in this limited partnership, net of amortization, was $7,061,000 and $7,249,000 on June 30, 2020 and December 31, 2019, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units are ~~intended~~expected to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment is ~~$7,579,000. Investments made~~expected to ~~date, and future payments under this commitment are~~be $10,805,000 which will be paid in installments over the course of construction of the low-income housing facilities. ~~Each installment payment is conditional upon both Mid Penn’s review and approval of the installment payment certificate and continued compliance with the terms of the original partnership agreement.~~ The investment in the limited partnership iswill be reported in other assets on the ~~Consolidated Balance Sheet~~balance sheet and ~~is being~~ amortized over a ten-year ~~period as the facilities became operational and began to be occupied beginning in December 2019.~~period. The project has been conditionally awarded ~~$861,000~~$1,205,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of ~~$8,613,000~~$12,046,000 to be ~~awarded to~~received by Mid Penn over the ten-year amortization period. Mid Penn’s commitment to ~~initiate investments in~~purchase the limited partnership interest ~~was~~is conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it ~~deemed~~may deem necessary. All such initial conditions were satisfied and Mid Penn began funding the investment during 2018 and the investment is expected to be fully funded in 2020. Mid Penn recognizes the related amortization and tax credits using the cost amortization method over a ~~ten-year~~ ~~period.~~

As of June 30, ~~2020,~~2021, Mid Penn had received ~~$20,329,000~~$38,880,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the SBA’s ~~Paycheck~~Payroll Protection Program (“PPP”) ~~created when~~, consisting of (i) $20,883,000 of loan processing fees received related to PPP loans funded during the ~~CARES Act was signed into law on March 27, 2020.~~year ended December 31, 2020, and (ii) $17,997,000 of loan processing fees received related to PPP loans funded during the six months ended June 30, 2021. These PPP loan processing fees, ~~are offset against~~and any offsetting loan origination costs, ~~and are~~were deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, and have been, and will continue to be, amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the ~~loan.~~respective loans.

The processing fees received from the SBA for administering the application for, and disbursing of, the PPP loans may be subject to clawback (or if the SBA has not yet paid the fee, the fee may not be paid), after full disbursement of a PPP loan if (i) the PPP loan is cancelled or voluntarily terminated and repaid after disbursement but before the borrower certification safe harbor date, (ii) the PPP loan is cancelled, terminated, or repaid after disbursement (and after the borrower certification safe harbor date) because the SBA conducted a loan review and determined that the borrower was ineligible for a PPP loan, or (iii) the lender has not fulfilled its obligations under the PPP regulations.

As of June 30, ~~2020,~~2021, Mid Penn is not aware of any PPP 2020 or 2021 loans outstanding ~~or for~~(for which fees have been received from the ~~SBA,~~SBA), that have been cancelled, terminated, or repaid due to a borrower being determined to be ineligible for a PPP loan.

Mid Penn is subject to lawsuits and claims arising out of its normal conduct of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of Mid Penn.

Short-term borrowings generally consist of federal funds purchased and advances from the FHLB with an original maturity of less than a year. Federal funds purchased from correspondent banks mature in one business day and reprice daily based on the Federal Funds rate. Advances from the FHLB are collateralized by ~~our~~Mid Penn’s investment in the common stock of the FHLB and by a blanket lien on selected loan receivables comprised principally of real estate secured loans within the Bank’s portfolio totaling ~~$1,168,684,000~~$1,332,405,000 at June 30, ~~2020.~~2021. The Bank had short-term borrowing capacity from the FHLB as of June 30, 2021 up to the Bank’s unused borrowing capacity of ~~$814,982,000 at June 30, 2020~~$590,981,000 (equal to $929,518,000 of maximum borrowing capacity, less the aggregate amount of FHLB letter of credits securing public funds deposits, and other FHLB advances and obligations outstanding) upon satisfaction of any stock purchase requirements of the FHLB. NaN draws were outstanding on short-term FHLB or correspondent bank borrowings as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The Bank also has unused overnight lines of credit with other correspondent banks amounting to $35,000,000 at June 30, ~~2020.~~2021. NaN draws have been made on these lines of credit and accordingly the balance was 0 on both June 30, ~~2020~~2021 and December 31, ~~2019, the balance was 0.~~2020.

The entire balance of short-term borrowings of ~~$203,937,000~~$196,889,000 and $125,617,000 at June 30, 2021 and December 31, 2020, respectively, consisted of funding obtained from the Federal Reserve through the Paycheck Protection Program Liquidity Facility (“PPPLF”). The PPPLF allows banks to pledge PPP loans as collateral to borrow funds for up to a term of ~~two~~five years (to match the term of the respective PPP loans) at an interest rate of 0.35%. ~~Draws of~~ PPPLF ~~funds~~draws must be repaid to the Federal Reserve immediately after the specific PPP loans collateralizing the related draws are repaid to the Bank. ~~Mid Penn had 0 short-term PPPLF borrowings as of December 31, 2019.~~

As of June 30, 2021, and December 31, 2020, the Bank had long-term debt outstanding in the amount of $74,944,000 and $75,115,000, respectively, consisting primarily of FHLB fixed rate instruments, as well as one finance lease obligation.

As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity. ~~As of June 30, 2020, and December 31, 2019, the Bank had long-term debt outstanding in the amount of $85,282,000 and $32,903,000, respectively, consisting of~~The FHLB fixed rate instruments ~~and a finance lease obligation executed during~~obtained by the ~~first quarter of 2019.~~

~~The FHLB fixed rate instruments~~Bank are secured under the terms of a blanket collateral agreement with the FHLB consisting of FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans. Mid Penn also obtains letters of credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of ~~credit.~~credit as a legally allowable alternative to investment pledging. These FHLB letter of credit commitments totaled ~~$212,401,000~~$265,320,000 as of June 30, ~~2020~~2021 and ~~$169,051,000~~$288,950,000 as of December 31, ~~2019.~~2020.

The following table presents a summary of long-term debt as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Mid Penn did not prepay any long-term debt instruments during the six months ended June 30, 2021. As part of asset/liability and interest rate risk management strategies, during the six months ended June 30, 2020, Mid Penn prepaid $17,500,000 of FHLB fixed rate instruments originally due at various times in 2020, and recognized prepayment penalties of $76,000 for the three months ended June 30, 2020, and $139,000 for the six months ended June 30, 2020. Prepayment penalties are included in other expenses ~~on the Consolidated Statement of Income. NaN prepayment penalties were recognized during~~for the three and six months ended June 30, ~~2019.~~2020 on the Consolidated Statement of Income.

On December 22, 2020, Mid Penn Bancorp, Inc. entered into agreements for and sold, at 100% of their principal amount, an aggregate of $12,150,000 of its Subordinated Notes due December 2030 (the “December 2020 Notes”) on a private placement basis to accredited investors. The December 2020 Notes are treated as Tier 2 capital for regulatory capital purposes.

The December 2020 Notes bear interest at a rate of 4.5% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the December 2020 Notes are floating will at no time be less than 4.5%. Interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on March 31, 2021. The December 2020 Notes will mature on December 31, 2030 and are redeemable, in whole or in part, without premium or penalty, on any interest payment date on or after December 31, 2025 and prior to December 31, 2030, subject to any required regulatory approvals. Additionally, if (i) all or any portion of the December 2020 Notes cease to be deemed Tier 2 Capital, (ii) interest on the December 2020 Notes fails to be deductible for United States federal income tax purposes or (iii) Mid Penn will be considered an “investment company,” Mid Penn may redeem the December 2020 Notes, in whole but not in part, by giving 10 days’ notice to the holders of the December 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the December 2020 Notes at 100% of the principal amount of the December 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the December 2020 Notes may not accelerate the maturity of the December 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $750,000 of the December 2020 Notes as of June 30, 2021 and December 31, 2020.

On March 20, 2020, Mid Penn Bancorp, Inc. entered into agreements with accredited investors who purchased $15,000,000 aggregate principal amount of Mid Penn Subordinated Notes due 2030 (the ~~“2020~~“March 2020 Notes”). The March 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

The March 2020 Notes bear interest at a rate of 4.0% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the March 2020 Notes are floating will at no time be less than 4.25%. Interest ~~will be~~is payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30. The March 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030. Additionally, if all or any portion of the March 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the March 2020 Notes at 100% of the principal amount of the March 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the March 2020 Notes may not accelerate the maturity of the March 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $1,700,000 of the March 2020 Notes as of June 30, ~~2020.~~

~~On July~~2021 and December 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”). In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000, which is amortized through interest expense until the maturity date of November 30, 2025. The First Priority Notes are intended to be treated as Tier 2 capital for regulatory reporting purposes.

The First Priority Notes agreements were entered into by First Priority, on November 13, 2015, with five accredited investors pursuant to which First Priority issued subordinated notes totaling $9,500,000. The First Priority Notes have a maturity date of November 30, 2025, and bear interest at a fixed rate of 7.00% per annum. The First Priority Notes are non-callable for an initial period of five years and include provisions for redemption pricing between 101.5% and 100.5% of the liquidation value if called after five years but prior to the stated maturity date. 2020.

On December 19, 2017, Mid Penn Bancorp, Inc. entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its Subordinated Notes due 2028 (the “2017 Notes”). The 2017 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The offering closed in December 2017.

The 2017 Notes bear interest at a rate of 5.25% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2017 Notes may not accelerate the maturity of the 2017 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $1,450,000 of the 2017 Notes as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

On December 9, 2015, Mid Penn Bancorp, Inc. sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025. ~~The~~Given that the 2015 Notes are in the sixth year since issuance, eighty-percent of the principal balance of the notes is treated as Tier 2 capital for regulatory capital ~~purposes.~~purposes as of June 30, 2021.

The 2015 Notes ~~bear~~paid interest at a rate of 5.15% per year for the first five years ~~and then float~~outstanding, including the three months ended March 31, 2020. Beginning January 1, 2021, the 2015 Notes bear interest at a floating rate based on the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0%. Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025. Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2015 Notes may not accelerate the maturity of the 2015 Notes, except upon Mid Penn’s or Mid Penn Bank’s bankruptcy, insolvency, liquidation, receivership or similar event. Related parties held $1,930,000 of the 2015 Notes as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

ASC Subtopic 835-30, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability. The unamortized debt issuance costs associated with the 2015 Notes and the 2017 Notes were collectively ~~$84,000~~$57,000 at June 30, ~~2020~~2021 and ~~$103,000~~$70,000 at December 31, ~~2019.~~2020.

On December 18, 2020, Mid Penn redeemed the full $9,500,000 of the First Priority Subordinated Debt Notes that were assumed by Mid Penn when it completed its acquisition of First Priority on July 31, 2018. Mid Penn redeemed these notes promptly following the expiration of the noncallable period and upon receipt of the required regulatory approval to redeem the Tier 2 capital qualifying debt. Mid Penn fully recognized the related redemption pricing fees of $143,000 in the fourth quarter of 2020.

Mid Penn has an unfunded noncontributory defined benefit retirement plan for directors. The plan provides defined benefits based on years of service. Mid Penn also sponsors a defined benefit healthcare plan that provides post-retirement medical benefits and life insurance to qualifying full-time employees. These healthcare and life insurance plans are noncontributory and each plan uses a December 31 measurement date.

As a result of the acquisition of Scottdale on January 8, 2018, Mid Penn ~~has~~ assumed a noncontributory defined benefit pension plan covering certain former employees of Scottdale. Mid Penn ~~estimates that it will contribute $200,000~~contributed $285,000 to the defined benefit ~~pension~~ plan during ~~2020.~~the second quarter of 2021, and 0 additional contributions are expected through the remainder of 2021. A December 31 measurement date for the plan is used.

The components of net periodic benefit costs from these defined benefit plans are as follows:

	Three Months Ended June 30,												Three Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	2020			2019			2020			2019			2021			2020			2021			2020
Service cost	$	45		$	36		$	1		$	1		$	33		$	45		$	—		$	1
Interest cost		60			65			6			4			40			60			2			6
Expected return on plan assets		(68	)		(63	)		—			—			(57	)		(68	)		—			—
Accretion of prior service cost		—			—			(5	)		(5	)		—			—			(5	)		(5	)
Amortization of net gain		—			(15	)		—			(1	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	59		$	(14	)	$	2		$	(1	)
Amortization of net loss														—			—			4			—
Settlement loss														—			22			—			—
Net periodic benefit expense													$	16		$	59		$	1		$	2



	Six Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	2020			2019			2020			2019			2021			2020			2021			2020
Service cost	$	64		$	72		$	1		$	2		$	65		$	64		$	1		$	1
Interest cost		105			129			6			8			80			105			4			6
Expected return on plan assets		(136	)		(127	)		—			—			(113	)		(136	)		—			—
Accretion of prior service cost		—			—			(10	)		(10	)		—			—			(10	)		(10	)
Amortization of net gain		—			(30	)		—			(2	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	55		$	7		$	(3	)	$	(2	)
Amortization of net loss														—			—			4			—
Settlement (gain) loss														(49	)		22			—			—
Net periodic benefit (income) expense													$	(17	)	$	55		$	(1	)	$	(3	)

Service costs are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets and amortization (accretion) of prior service cost ~~and amortization of (gain) loss~~ are reported as a component of other income.

~~During the first quarter of 2020,~~ Mid Penn ~~announced the adoption of~~adopted a treasury stock repurchase program ~~authorizing~~initially effective March 19, 2020, and the buyback remains available as it was extended through March 19, 2022 by Mid Penn’s Board of Directors on April 28, 2021. The treasury stock repurchase program authorized the repurchase of up to $15,000,000 of Mid Penn’s outstanding common stock, which represents approximately ~~9.6%~~4.7% of the issued shares based on Mid Penn’s closing stock price and shares issued as of June 30, ~~2020.~~2021. Under the ~~treasury stock purchase~~ program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase. ~~The repurchase plan became effective March 19, 2020 and is authorized to continue through March 19, 2021, unless otherwise extended by Mid Penn’s Board of Directors.~~

The repurchase plan may be modified, suspended or terminated at any time, in Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate. The repurchase program does not obligate Mid Penn to repurchase any shares.

As of June 30, 2021, Mid Penn had repurchased 98,452 shares of common stock at an average price of $19.53 per share under the treasury stock repurchase program. As of December 31, 2020, Mid Penn had repurchased ~~80,523~~92,652 shares of common stock at an average price of $19.37 per share under the treasury stock repurchase program.

~~At the~~As previously announced on a Form 8-K on May ~~14, 2019 annual shareholder meeting,~~4, 2021, Mid Penn ~~shareholders approved~~completed an ~~amendment to the Articles~~underwritten public offering of ~~Incorporation to increase the number of authorized~~2,990,000 shares of common stock ~~from 10,000,000~~at a price of $25.00 per share, with the aggregate gross proceeds of the offering totaling $74,750,000 before underwriting discounts and offering expenses. The net proceeds of the offering, after deducting $4,512,000 of combined underwriting discounts and other offering expenses, were $70,238,000. The additional shares issued on May 4, 2021 significantly impacted the weighted average number of shares outstanding used for both the second quarter of 2021 and year-to-date 2021 earnings per share calculations.

Under Mid Penn’s amended and restated dividend reinvestment plan (“DRIP”), 330,750 shares of Mid Penn’s authorized but unissued common stock are reserved for issuance. The DRIP also allows for voluntary cash payments, within specified limits, to ~~20,000,000~~be used for the purchase of additional shares.

~~On May 6, 2014,~~Under Mid ~~Penn shareholders approved the~~Penn’s 2014 Restricted Stock Plan, ~~(the “Plan”),~~ which ~~authorizes the issuance of~~was amended in 2020, Mid Penn may grant awards ~~that shall~~ not ~~exceed,~~exceeding, in the aggregate, ~~100,000~~200,000 shares of common stock. ~~Awards under the~~The Plan ~~are limited to~~was established for employees and directors of ~~the Corporation,~~Mid Penn and the ~~recipients are~~Bank, selected by the Compensation Committee of the Board of Directors, to ~~advance~~align the ~~best~~ interest of plan participants with those of Mid Penn’s shareholders. The plan provides those persons who have a responsibility for its growth with additional incentives by allowing them to acquire an ownership interest in Mid Penn and ~~its shareholders.~~

~~Share-based compensation expense relating~~thereby encouraging them to ~~restricted stock is recognized on a straight-line basis over~~contribute to the ~~vesting periods~~success of the ~~awards and is a component of salaries and benefits expense.~~ company.

As of June 30, ~~2020,~~2021, a total of ~~57,655~~117,069 restricted shares were granted under the Plan, of which 2,446 shares were forfeited and available for reissuance, ~~27,271~~42,041 shares were vested, and the remaining ~~27,938~~72,582 shares were unvested. NaN shares were forfeited during the six months ended June 30, 2021, while 1 hundred shares were forfeited due to a voluntary termination of an employee during the ~~six months ended June 30, 2020, while 0 shares were forfeited during the six months ended June 30, 2019.~~same period in 2020. The Plan shares granted and vested resulted in ~~$96,000~~$173,000 in share-based compensation expense for the three months ended June 30, ~~2020,~~2021, while ~~$80,000~~$96,000 of share-based compensation expense was recorded for the three months ended June 30, ~~2019.~~2020. Compensation expense related to the Plan was ~~$192,000~~$305,000 for the six months ended June 30, ~~2020~~2021 and ~~$160,000~~$192,000 for the same period in ~~2019.~~2020.

Share-based compensation expense relating to restricted stock is calculated using grant date fair value and is recognized on a straight-line basis over the vesting periods of the awards. Restricted shares granted to employees vest in equal amounts on the anniversary of the grant date over the vesting period and the expense is a component of salaries and benefits expense on the Consolidated Statements of Income. The employee grant vesting period is determined by the terms of each respective grant, with vesting periods generally between one and four years. Restricted shares granted to directors have a twelve-month vesting period, and the expense is a component of directors’ fees and benefits within the other expense line item on the Consolidated Statements of Income.

ASU 2018-14: The FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to defined benefit pension and other postretirement plans by removing and adding certain disclosures.

The ASU was effective for public business entities for fiscal years ending after December 15, 2020 and Mid Penn adopted this standard effective January 1, 2021 on a prospective basis.

As a result of this ASU, several disclosures were removed from Topic 715, including: (i) disclosures of the amounts in accumulated comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and (ii) the effects of a one-percentage point change in the assumed health care cost trend rates on the aggregate of service and interest cost components of net periodic postretirement health care benefit costs. However, some additional disclosures will be required as a result of this ASU, including the requirement to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period. Mid Penn discloses condensed information related to its defined benefit plans in interim periods, therefore, the prospective adoption of this ASU will result in disclosure changes only to Mid Penn’s Annual Report on Form 10-K for the year ended December 31, 2021 when expanded disclosures are made. The adoption of this standard did not impact Mid Penn’s overall financial condition.

This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to (i) the approach for intra-period tax allocation, (ii) the methodology for calculating income taxes in an interim period, and (iii) the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Finally, it clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020. ASU 2019-12 did not have a material impact on Mid Penn’s overall financial condition.

ASU 2018-15: The FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Mid Penn adopted ASU 2018-15 effective January 1, 2020 on a prospective basis. ASU 2018-15 did not have a material impact on the results of operations.

ASU 2018-13: The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures.

As a result of this ASU, several disclosures were removed from Topic 820, including: (i) disclosure of the valuation process for Level 3 fair value measurements, and (ii) amounts of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. However, some additional disclosures are required as a result of this ASU, including the requirement to disclose the changes in unrealized gains and losses included in other comprehensive income for the period related to Level 3 recurring fair value measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Mid Penn adopted ASU 2018-13 effective January 1, 2020 on a prospective basis. The adoption of this ASU resulted in disclosure changes only and did not impact Mid Penn’s overall financial condition.

ASU 2016-13: The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further amended.

The ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”) should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. Certain incremental disclosures are required.

Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU ~~2019-11~~2020-02 to clarify, improve, or defer the adoption of ASU 2016-13.

In October 2019, the FASB issued ASU 2019-10 which deferred the implementation date of ASU 2016-13 for smaller reporting companies (SRCs) until January 1, 2023. The effective date for larger SEC filers would remain unchanged at January 1, 2020. Mid Penn qualifies as an SRC as of the most recent measurement date of ~~June~~September 30, 2019; therefore, Mid Penn has chosen to delay the adoption of ASU 2016-13.

Mid Penn is currently evaluating the details of this ASU and the impact the guidance will have on Mid Penn’s consolidated financial statements. Mid Penn expects that it is possible that the ASU may result in an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities. The amount of the change in the allowance for credit losses, if any, resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption. Mid Penn will continue to collect the required data elements needed ~~to perform~~implement the ~~calculation~~CECL model in advance of the January 1, 2023 adoption date.

~~ASU 2018-14:~~ ~~The FASB issued ASU 2018-14,~~ ~~Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans~~

~~The ASU is effective for public business entities for fiscal years ending after December 15, 2020. Early adoption is permitted.~~

As a result of this ASU, several disclosures were removed from Topic 715, including: (i) disclosures of the amounts in accumulated comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and (ii) the effects of a one-percentage point change in the assumed health care cost trend rates on the aggregate of service and interest cost components of net periodic postretirement health care benefit costs. However, some additional disclosures will be required as a result of this ASU, including the requirement to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period. Mid Penn is currently evaluating the impact of this ASU on our current disclosures. The adoption of this standard will result in disclosure changes only and will not impact Mid Penn’s overall financial condition.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due the Novel Coronavirus (“COVID-19”), and on March 11, 2020, the WHO classified COVID-19 as a pandemic based on the rapid increase in exposure globally.

ToAfter closing its branch lobbies beginning March 17, 2020 to curtail the spread of the virus, ~~beginning March 17, 2020,~~ Mid Penn ~~temporarily closed all bank~~reopened its branch lobbies effective April 19, 2021 given the extensive measures taken to ensure the safety of the Bank’s customers and the branch lobbies have remained closed through June 30, 2020 with no targeted time frame for reopening them. Our retail employees continue to work providing access to customers through drive-through banking services and night depositories. Services that cannot be performed through drive-through (i.e. business cash orders, loan closings and new account openings) are accommodated in the branches by appointment.employees. We are continuously cleaning ~~bank~~Bank facilities during business hours with disinfecting wipes to sanitize all facets of our common areas, including door handles, work stations, ATM’s and service counters. We have mandated that all employees who handle cash use latex gloves when doing so, and we are requiring all employees to use hand sanitizer after each transaction and wash their hands with soap and hot water several times every hour. Additionally, employees having face-to-face interaction with customers are required to wear a mask. Importantly, we maintain appropriate social distancing standards when individuals are required by their job duties to be in the same location.

Mid Penn ~~was~~has been a significant participating lender under the ~~federal~~ Paycheck Protection Program (“PPP”) which was created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, by President Trump. Asset growth during the second quarter of 2020 included the significant volume of $588,667,000 of PPP loans still outstanding, net of deferred fees, as of June 30, 2020. The Paycheck Protection Program permitted eligible business entities to apply for loans through a participating financial institution to cover payroll, rent, and other business expenses during the COVID-19 pandemic.Program. The PPP loans, which are 100 percent guaranteed by the SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term. The ~~vast majority of Mid Penn’s PPP loans have a~~ ~~two-year~~ ~~term to maturity. The~~ SBA may forgive the PPP loans if at least 60 percent of the proceeds are used for payroll costs. Also, the borrowers will not have to make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the deferment period.

~~The SBA~~also provided a processing fee per loan to financial institutions who participated in the PPP, with the amount of such fee generally ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective credit. As of June 30, ~~2020,~~2021, Mid Penn had received ~~$20,329,000~~$38,880,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP ~~initiative. These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs. The PPP~~initiative, consisting of (i) $20,883,000 of loan processing fees ~~will be amortized over~~received related to PPP loans funded during the ~~life~~year ended December 31, 2020, and (ii) $17,997,000 of loan processing fees received related to PPP loans funded during the ~~loan. During the three and~~ six months ended June 30, 2021. In addition to receiving and deferring the processing fees, Mid Penn recorded and deferred related loan origination costs, and in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, the processing fees and loan origination costs are being amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of each respective loan. As of June 30, 2021, Mid Penn had $14,472,000 of PPP deferred loan processing fees not yet realized as income, consisting of (i) $872,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $13,600,000 of loan processing fees received related to PPP loans funded during the six months ended June 30, 2021. Comparatively, as of December 31, 2020, Mid Penn had $7,746,000 of PPP deferred loan processing fees not yet realized as income, all resulting from PPP loans funded during the year ended December 31, 2020. Mid Penn recognized $6,244,000 of PPP processing fees during the quarter ended June 30, 2021, compared to $2,731,000 of PPP processing fees for the same period of 2020. During the six months ended June 30, 2021 and 2020, Mid Penn recognized $11,291,000 and $2,371,000 of PPP processing fees, respectively, within interest and fees on loans and leases on the Consolidated Statements of Income. As of June 30, 2020, the balance of deferred PPP processing fees totaled $17,958,000 and are offset against loan origination costs as a component of Loans and leases, net of unearned interest on the Consolidated Balance Sheet.

~~On March 22, 2020, the federal financial institution regulatory agencies and the state banking regulators~~The CARES Act, along with a joint agency statement issued ~~an interagency statement encouraging financial institutions to work constructively with borrowers affected~~ by COVID-19 and providing additional information regarding loan modifications. Concurrently, the Financial Accounting Standards Board (FASB) released a statement indicating that the interagency guidance was developed in consultation with the FASB staff. The banking agencies, ~~encouraged financial institutions~~provides that short-term modifications made in response to ~~work with borrowers, and indicated that they will~~COVID-19 do not ~~criticize institutions~~need to be accounted for ~~doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications~~ as troubled debt restructurings (TDRs). The statement indicated that the agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk. Prior to this interagency guidance being issued, Mid Penn had proactively reached out to its borrowers to assess how the COVID-19 situation was impacting them, and was evaluating taking similar forbearance and payment deferral measures. In response to these customer outreaches and respectful of the interagency guidance, Mid Penn has provided related loan modifications to over 1,000 borrowers, and as of June 30, 2020, the amount of loans outstanding which had such a deferral totaled $444,886,000.restructurings. Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications ~~range~~ranged from deferrals of both principal and interest payments ~~for three to six months, or~~with some borrowers reverting to interest-only ~~payments~~payments. The majority of the deferrals granted by Mid Penn were for a period of three tomonths, but some as long as six ~~months.~~months, depending upon management’s specific evaluation of each borrower’s circumstances. Interest ~~will continue~~continues to accrue on loans modified under the CARES Act during the deferral period. As of June 30, 2021, the principal balance of loans remaining in a CARES Act qualifying deferment status totaled $314,000, or less than 1 percent of the total loan portfolio, a reduction compared to December 31, 2020, when $11,681,000 of loans, also representing less than 1 percent of the total loan portfolio, were in this deferment status. Most borrowers granted a CARES Act deferral have returned to regular payment status. Mid Penn remains in communication with each of ~~these~~the borrowers still in deferral status to assess the ongoing credit ~~status~~standing of the borrowers, and may make further adjustments to a borrower’s ~~modification~~relationship at some future time if warranted for the specific situation.

The full impact of the coronavirus and its variants continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Corporation’s financial condition, liquidity, capital position, and future results of operations. In addition, the adverse economic effects of the coronavirus may lead to an increase in credit risk on the Corporation’s commercial and residential loan portfolios. Also, the Corporation is also monitoring the fluctuations in the markets as it pertains to interest rates and the fair value of our investments, as well as the impact of the pandemic of underlying bond issuers and the potential for OTTI.

Management is actively monitoring the global situation on its financial condition, liquidity, capital position, operations, industry, and workforce. Given the daily evolution of the coronavirus and the global responses to curb its spread, the Corporation is not able to estimate the effects of the coronavirus on its results of operations, financial condition, capital position, or liquidity for fiscal year ~~2020.~~2021.

On June 30, 2021, and as announced on a Form 8-K including related disclosures, Mid Penn entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Riverview Financial Corporation (“Riverview”) pursuant to which Riverview will merge with and into Mid Penn (the “Merger”), with Mid Penn being the surviving corporation in the Merger. Pending required bank regulatory agency and shareholder approvals, upon consummation of the Merger, Riverview Bank, a wholly-owned subsidiary of Riverview, will be merged with and into Mid Penn Bank (the “Bank Merger”), a wholly-owned subsidiary of Mid Penn, with Mid Penn Bank being the surviving bank in the Bank Merger. The Merger Agreement was unanimously approved by the boards of directors of Mid Penn and Riverview.

Under the terms of the Merger Agreement, shareholders of Riverview will have the right to receive 0.4833 shares of Mid Penn common stock for each share of Riverview common stock they own. It is expected that the Merger will be completed in the fourth quarter of 2021 pending required approvals.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is Management’s Discussion and Analysis of Consolidated Financial Condition as of June 30, ~~2020,~~2021, compared to year-end ~~2019,~~2020, and the Results of Operations for the three and six months ended June 30, ~~2020,~~2021, compared to the same periods in ~~2019.~~2020. For comparative purposes, the June 30, 2020 and December 31, ~~2019~~2020 balances have been reclassified when, and if necessary, to conform to the ~~2020~~2021 presentation. Such reclassifications had no impact on net ~~income.~~income or shareholders’ equity. This discussion should be read in conjunction with the financial tables, statistics, and the audited financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Annual Report”). The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.

Forward-looking statements involve risks, uncertainties and assumptions. Although Mid Penn generally does not make forward-looking statements unless Mid Penn’s management believes its management has a reasonable basis for doing so, Mid Penn cannot guarantee the accuracy of any forward-looking statements. Actual results may differ materially from those expressed in any forward-looking statements due to a number of uncertainties and risks, including the risks described in this Quarterly Report on Form 10-Q, the ~~2019~~2020 Annual Report, and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on Mid Penn’s website or otherwise, and Mid Penn undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mid Penn to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect”, “anticipates”, “intend”, “plan”, “believe”, “estimate”, and similar expressions are intended to identify such forward-looking statements. Mid Penn’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

The above list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with this understanding of inherent uncertainty.

Mid Penn’s consolidated financial statements are prepared in accordance with generally accepted accounting principles 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 also 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, the evaluation of the Corporation’s investment securities for other-than-temporary impairment, the valuation of the Corporation’s goodwill and other merger-related intangible assets for impairment, and the valuation of assets acquired and liabilities assumed in business combinations, to be the accounting areas that require the most subjective and complex judgments.

The allowance represents management’s estimate of probable incurred credit losses inherent in the loan and lease portfolio. Determining the amount of the allowance is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, 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.

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 securities 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 income.

Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment. Goodwill is tested annually for impairment, and if certain events occur which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. In making this assessment, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc. Similarly, the amortized basis of the core deposit intangible asset and trade name intangible are periodically assessed for impairment. There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of core deposit intangible, trade name intangible, and goodwill impairment. Changes in economic and operating conditions could result in goodwill or core deposit intangible or trade name intangible impairment in future periods.

Valuations of assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In many cases, determining the fair value of the assets acquired and liabilities assumed requires Mid Penn to estimate cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.

Net income available to common shareholders was $9,613,000 or $0.93 per common share basic and diluted for the quarter ended June 30, 2021, compared to net income of $6,833,000 or $0.81 per common share basic and diluted for the quarter ended June 30, ~~2020, compared to net income of $4,403,000 or $0.52 per common share for the quarter ended June 30, 2019.~~2020. During the six months ended June 30, ~~2020,~~2021, net income available was $18,925,000 or $2.02 per common share basic and diluted, versus $10,651,000 or $1.26 per common share ~~versus $8,480,000 or $1.00 per common share~~basic and diluted for the six months ended June 30, ~~2019.~~2020.

Net income as a percent of average assets (return on average assets, or “ROA”) and net income as a percentage of shareholders' equity (return on average equity, or “ROE”) were as follows (calculated and reported on an annualized basis):

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Return on average assets		0.99	%		0.83	%		0.85	%		0.81	%		1.12	%		0.99	%		1.15	%		0.85	%
Return on average equity		11.41	%		7.71	%		8.93	%		7.54	%		12.36	%		11.41	%		13.36	%		8.93	%

Net interest income, Mid Penn’s primary source of revenue, is the amount by which interest income on loans and investments exceeds interest incurred on deposits and borrowings. The amount of net interest income is affected by changes in interest rates and changes in the volume and mix of interest-sensitive assets and liabilities. Net interest income and corresponding yields are presented in the analysis below on a taxable-equivalent basis. Income from tax-exempt assets, primarily loans to or securities issued by state and local governments, is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 21 percent for the three and six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

The following tables include average balances, amounts, and rates of interest income and expense, interest rate spread, and net interest margin for the three months ended June 30, ~~2020~~2021 and ~~2019.~~2020.


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis																		Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Three Months Ended																		For the Three Months Ended
(Dollars in thousands)	June 30, 2020									June 30, 2019									June 30, 2021									June 30, 2020
	Average						Average			Average						Average			Average						Average			Average						Average
	Balance		Interest				Rates			Balance		Interest				Rates			Balance		Interest				Rates			Balance		Interest				Rates
ASSETS:
Interest Bearing Balances	$	6,307	$	18				1.15	%	$	5,030	$	27				2.15	%	$	1,284	$	2				0.62	%	$	6,307	$	18				1.15	%
Investment Securities:
Taxable		124,524		749				2.42	%		159,252		938				2.36	%		93,161		430				1.85	%		124,524		749				2.42	%
Tax-Exempt		48,734		314		(a)		2.59	%		101,088		739		(a)		2.93	%		55,811		352		(a)		2.53	%		48,734		314		(a)		2.59	%
Total Securities		173,258		1,063				2.47	%		260,340		1,677				2.58	%		148,972		782				2.11	%		173,258		1,063				2.47	%

Federal Funds Sold		90,013		23				0.10	%		21,554		130				2.42	%		477,001		98				0.08	%		90,013		23				0.10	%
Loans and Leases, Net		2,287,260		25,207		(b)		4.43	%		1,665,568		22,292		(b)		5.37	%		2,609,803		29,908		(b)		4.60	%		2,287,260		25,207		(b)		4.43	%
Restricted Investment in Bank Stocks		7,039		34				1.94	%		5,996		105				7.02	%		6,865		86				5.02	%		7,039		34				1.94	%
Total Earning Assets		2,563,877		26,345				4.13	%		1,958,488		24,231				4.96	%		3,243,925		30,876				3.82	%		2,563,877		26,345				4.13	%

Cash and Due from Banks		28,417									27,202									34,683									28,417
Other Assets		174,467									148,054									159,084									174,467
Total Assets	$	2,766,761								$	2,133,744								$	3,437,692								$	2,766,761

LIABILITIES & SHAREHOLDERS' EQUITY:
Interest-bearing Demand	$	512,592		787				0.62	%	$	399,187		984				0.99	%	$	614,435	$	579				0.38	%	$	512,592	$	787				0.62	%
Money Market		575,195		881				0.62	%		429,180		1,897				1.77	%		791,498		819				0.42	%		575,195		881				0.62	%
Savings		184,680		79				0.17	%		190,031		161				0.34	%		203,468		58				0.11	%		184,680		79				0.17	%
Time		451,410		2,262				2.02	%		471,025		2,234				1.90	%		432,739		1,460				1.35	%		451,410		2,262				2.02	%
Total Interest-bearing Deposits		1,723,877		4,009				0.94	%		1,489,423		5,276				1.42	%		2,042,140		2,916				0.57	%		1,723,877		4,009				0.94	%

Short-term Borrowings		52,293		45				0.35	%		21,320		157				2.95	%		264,661		232				0.35	%		52,293		45				0.35	%
Long-term Debt		81,487		281				1.39	%		56,153		407				2.91	%		74,976		204				1.09	%		81,487		281				1.39	%
Subordinated Debt		42,031		507				4.85	%		27,074		388				5.75	%		44,589		500				4.50	%		42,031		507				4.85	%
Total Interest-bearing Liabilities		1,899,688		4,842				1.03	%		1,593,970		6,228				1.57	%		2,426,366		3,852				0.64	%		1,899,688		4,842				1.03	%

Noninterest-bearing Demand		601,650									288,268									673,735									601,650
Other Liabilities		24,632									22,625									25,585									24,632
Shareholders' Equity		240,791									228,881									312,006									240,791
Total Liabilities & Shareholders' Equity	$	2,766,761								$	2,133,744								$	3,437,692								$	2,766,761

Net Interest Income (taxable equivalent basis)			$	21,503								$	18,003								$	27,024								$	21,503
Taxable Equivalent Adjustment				(157	)								(233	)								(147	)								(157	)
Net Interest Income			$	21,346								$	17,770								$	26,877								$	21,346

Total Yield on Earning Assets								4.13	%								4.96	%								3.82	%								4.13	%
Rate on Supporting Liabilities								1.03	%								1.57	%								0.64	%								1.03	%
Average Interest Spread								3.11	%								3.40	%								3.18	%								3.11	%
Net Interest Margin								3.37	%								3.69	%								3.34	%								3.37	%

	Three months ended									Three months ended
	June 30, 2020 vs. 2019									June 30, 2021 vs. June 30, 2020
(Dollars in thousands on a Taxable Equivalent Basis)	Increase (decrease)									Increase (decrease)
	Volume			Rate			Net			Volume			Rate			Net
INTEREST INCOME:
Interest Bearing Balances	$	7		$	(16	)	$	(9	)	$	(14	)	$	(2	)	$	(16	)
Investment Securities:
Taxable		(204	)		15			(189	)		(189	)		(130	)		(319	)
Tax-Exempt		(382	)		(43	)		(425	)		46			(8	)		38
Total Securities		(586	)		(28	)		(614	)		(143	)		(138	)		(281	)

Federal Funds Sold		412			(519	)		(107	)		99			(24	)		75
Loans and Leases, Net		8,298			(5,383	)		2,915			3,564			1,137			4,701
Restricted Investment Bank Stocks		18			(89	)		(71	)		(1	)		53			52
Total Interest Income		8,149			(6,035	)		2,114			3,505			1,026			4,531

INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand		279			(476	)		(197	)		157			(365	)		(208	)
Money Market		644			(1,660	)		(1,016	)		332			(394	)		(62	)
Savings		(5	)		(77	)		(82	)		8			(29	)		(21	)
Time		(93	)		121			28			(94	)		(708	)		(802	)
Total Interest Bearing Deposits		825			(2,092	)		(1,267	)		403			(1,496	)		(1,093	)

Short-term Borrowings		227			(339	)		(112	)		183			4			187
Long-term Debt		183			(309	)		(126	)		(23	)		(54	)		(77	)
Subordinated Debt		214			(95	)		119			31			(38	)		(7	)
Total Interest Expense		1,449			(2,835	)		(1,386	)		594			(1,584	)		(990	)

NET INTEREST INCOME	$	6,700		$	(3,200	)	$	3,500		$	2,911		$	2,610		$	5,521

Taxable-equivalent net interest income was ~~$21,503,000~~$27,024,000 for the three months ended June 30, ~~2020,~~2021, an increase of ~~$3,500,000~~$5,521,000 or 1926 percent compared to the three months ended June 30, ~~2019.~~ 2020. The year-over-year increase included the recognition of $6,254,000 of PPP loan processing fees generated as a result of Mid Penn’s participation in the PPP program compared to the $2,371,000 of PPP loan processing fees recognized during the second quarter of 2020. These PPP fees are recognized into interest income over the term of the respective loan, or sooner if the loans are forgiven by the SBA, or the borrowers otherwise pay down principal prior to a loan’s stated maturity. Also contributing to the net interest income increase were the interest and fees from core loan growth since June 30, 2020 and the reduced interest expense due to the lower cost of deposits in the second quarter of 2021 compared to the same period in 2020.

~~For~~Mid Penn’s tax-equivalent net interest margin for the three months ended June 30, ~~2020, Mid Penn’s tax-equivalent~~2021 was 3.34 percent and comparable to the 3.37 percent net interest margin ~~was 3.37%~~for the three months ended June 30, 2020. The yield on interest-earning assets decreased from 4.13 percent for the second quarter of 2020 ~~compared~~ to ~~3.69%~~3.82 percent for the ~~second~~first quarter of ~~2019.~~ 2021. Though the quarterly average balance of interest-earning assets increased year over year, the yields on ~~interest earning~~interest-earning assets declined due to both ~~(i)~~the reduction in rates, as well as the significant average balance of PPP loans outstanding ~~totaling $480,409,000 during~~in the ~~three months ended June 30, 2020~~second quarter of 2021, which earn interest at a rate of 1 percent ~~and (ii) reductions~~while outstanding. The decrease in the yield ~~curve subsequent to June 2019, including the impact of the three rate decreases approved~~on interest-earning assets was substantially offset by the Federal Open Market Committee (“FOMC”), for 0.75% combined during the latter half of 2019, and the 1.50% of combined rate cuts, during March 2020 in response to the COVID-19 pandemic. Decreasesa favorable decrease in the ~~yields on interest earning assets were partially offset by~~cost of funds, as the ~~recognition of $2,371,000 of PPP loan processing fees in total interest income. The~~ total cost of deposits for the three months ended June 30, ~~2020~~2021 favorably decreased to 0.57 percent compared to 0.94 percent for the ~~same periods~~three months ended June 30, 2020. The reduction in ~~2019 as a result~~the cost of funds reflects both the aforementioned ~~yield curve reductions~~growth in noninterest-bearing deposits, and ~~FOMC~~deposit rate decreases, many of which resulted in response to market rate cuts ~~providing for management to significantly reduce deposit account rates while still maintaining and growing core deposit balances.~~from the COVID-19 pandemic.

The following tables include average balances, amounts, and rates of interest income and expense, interest rate spread, and net interest margin for the six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis																		Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Six Months Ended																		For the Six Months Ended
(Dollars in thousands)	June 30, 2020									June 30, 2019									June 30, 2021									June 30, 2020
	Average						Average			Average						Average			Average						Average			Average						Average
	Balance		Interest				Rates			Balance		Interest				Rates			Balance		Interest				Rates			Balance		Interest				Rates
ASSETS:
Interest Bearing Balances	$	5,414	$	33				1.23	%	$	5,592	$	57				2.06	%	$	1,342	$	4	��			0.60	%	$	5,414	$	33				1.23	%
Investment Securities:
Taxable		129,035		1,489				2.32	%		162,339		1,927				2.39	%		85,849		815				1.91	%		129,035		1,489				2.32	%
Tax-Exempt		45,749		594		(a)		2.61	%		104,385		1,523		(a)		2.94	%		55,377		702		(a)		2.56	%		45,749		594		(a)		2.61	%
Total Securities		174,784		2,083				2.40	%		266,724		3,450				2.61	%		141,226		1,517				2.17	%		174,784		2,083				2.40	%

Federal Funds Sold		106,324		413				0.78	%		16,452		198				2.43	%		396,041		177				0.09	%		106,324		413				0.78	%
Loans and Leases, Net		2,029,352		47,548		(b)		4.71	%		1,647,624		43,454		(b)		5.32	%		2,571,075		58,314		(b)		4.57	%		2,029,352		47,548		(b)		4.71	%
Restricted Investment in Bank Stocks		5,850		118				4.06	%		5,992		187				6.29	%		6,958		181				5.25	%		5,850		118				4.06	%
Total Earning Assets		2,321,724		50,195				4.35	%		1,942,384		47,346				4.92	%		3,116,642		60,193				3.89	%		2,321,724		50,195				4.35	%

Cash and Due from Banks		29,478									27,687									34,363									29,478
Other Assets		160,755									143,124									161,661									160,755
Total Assets	$	2,511,957								$	2,113,195								$	3,312,666								$	2,511,957

LIABILITIES & SHAREHOLDERS' EQUITY:
Interest-bearing Demand	$	484,139		1,959				0.81	%	$	390,879		1,837				0.95	%	$	608,259	$	1,157				0.38	%	$	484,139	$	1,959				0.81	%
Money Market		539,060		2,478				0.92	%		408,468		3,360				1.66	%		767,877		1,597				0.42	%		539,060		2,478				0.92	%
Savings		180,302		199				0.22	%		195,343		337				0.35	%		200,686		122				0.12	%		180,302		199				0.22	%
Time		465,863		4,753				2.05	%		479,250		4,328				1.82	%		423,259		3,006				1.43	%		465,863		4,753				2.05	%
Total Interest-bearing Deposits		1,669,364		9,389				1.13	%		1,473,940		9,862				1.35	%		2,000,081		5,882				0.59	%		1,669,364		9,389				1.13	%

Short-term Borrowings		26,146		45				0.35	%		27,869		389				2.81	%		234,258		406				0.35	%		26,146		45				0.35	%
Long-term Debt		55,135		533				1.94	%		52,161		761				2.94	%		75,019		408				1.10	%		55,135		533				1.94	%
Subordinated Debt		35,539		909				5.14	%		27,077		776				5.78	%		44,586		999				4.52	%		35,539		909				5.14	%
Total Interest-bearing Liabilities		1,786,184		10,876				1.22	%		1,581,047		11,788				1.50	%		2,353,944		7,695				0.66	%		1,786,184		10,876				1.22	%

Noninterest-bearing Demand		461,083									282,503									648,537									461,083
Other Liabilities		24,860									22,740									24,529									24,860
Shareholders' Equity		239,830									226,905									285,656									239,830
Total Liabilities & Shareholders' Equity	$	2,511,957								$	2,113,195								$	3,312,666								$	2,511,957

Net Interest Income (taxable equivalent basis)			$	39,319								$	35,558								$	52,498								$	39,319
Taxable Equivalent Adjustment				(308	)								(482	)								(296	)								(308	)
Net Interest Income			$	39,011								$	35,076								$	52,202								$	39,011

Total Yield on Earning Assets								4.35	%								4.92	%								3.89	%								4.35	%
Rate on Supporting Liabilities								1.22	%								1.50	%								0.66	%						��		1.22	%
Average Interest Spread								3.12	%								3.41	%								3.24	%								3.12	%
Net Interest Margin								3.41	%								3.69	%								3.40	%								3.41	%

	Six months ended									Six months ended
	June 30, 2020 vs. 2019									June 30, 2021 vs. June 30, 2020
(Dollars in thousands on a Taxable Equivalent Basis)	Increase (decrease)									Increase (decrease)
	Volume			Rate			Net			Volume			Rate			Net
INTEREST INCOME:
Interest Bearing Balances	$	(2	)	$	(22	)	$	(24	)	$	(25	)	$	(4	)	$	(29	)
Investment Securities:
Taxable		(396	)		(42	)		(438	)		(497	)		(177	)		(674	)
Tax-Exempt		(858	)		(71	)		(929	)		125			(17	)		108
Total Securities		(1,254	)		(113	)		(1,367	)		(372	)		(194	)		(566	)

Federal Funds Sold		1,085			(870	)		215			1,122			(1,358	)		(236	)
Loans and Leases, Net		10,096			(6,002	)		4,094			12,657			(1,891	)		10,766
Restricted Investment Bank Stocks		(4	)		(65	)		(69	)		22			41			63
Total Interest Income		9,921			(7,072	)		2,849			13,404			(3,406	)		9,998

INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand		440			(318	)		122			501			(1,303	)		(802	)
Money Market		1,077			(1,959	)		(882	)		1,049			(1,930	)		(881	)
Savings		(26	)		(112	)		(138	)		22			(99	)		(77	)
Time		(121	)		546			425			(433	)		(1,314	)		(1,747	)
Total Interest Bearing Deposits		1,370			(1,843	)		(473	)		1,139			(4,646	)		(3,507	)

Short-term Borrowings		(24	)		(320	)		(344	)		357			4			361
Long-term Debt		44			(272	)		(228	)		192			(317	)		(125	)
Subordinated Debt		243			(110	)		133			231			(141	)		90
Total Interest Expense		1,633			(2,545	)		(912	)		1,919			(5,100	)		(3,181	)

NET INTEREST INCOME	$	8,288		$	(4,527	)	$	3,761		$	11,485		$	1,694		$	13,179

Taxable-equivalent net interest income was ~~$39,319,000~~$52,498,000 for the six months ended June 30, ~~2020,~~2021, an increase of ~~$3,761,000~~$13,179,000 or 1134 percent compared to $39,319,000 of taxable-equivalent net interest income for the six months ended June 30, ~~2019.~~ 2020.

The year-over-year increase in earnings for the first six months was primarily the result of Mid Penn’s continued participation in the PPP program, as the six months ended June 30, 2021 included the recognition of $11,291,000 of PPP loan processing fees, an increase of $8,920,000 compared to $2,371,000 of PPP loan processing fees recognized during the same period in 2020. The PPP fees recognized in the first half of 2021 included both 2020 round 1 and 2021 round 2 loan forgiveness, while the first half of 2020 included only amortized 2020 round 1 fees. These PPP fees are recognized within interest income over the term of the respective loan, or sooner if the loans are forgiven by the SBA, or the borrowers otherwise pay down principal prior to a loan’s stated maturity. Also contributing to the net interest income increase were the interest and fees from core loan growth since June 30, 2020 and the reduced interest expense due to the lower cost of deposits in the first six months of 2021 compared to the same period in 2020.

For the six months ended June 30, ~~2020,~~2021, Mid Penn’s tax-equivalent net interest ~~margin~~ was ~~3.41% compared to 3.69%~~3.40 percent versus 3.41 percent for the ~~same period in 2019.~~ six months ended June 30, 2020. Though the year-to-date and quarterly average balance of interest-earning assets increased year over year, the yields on ~~interest earning~~interest-earning assets declined due to both (i) the full impact in 2021 of the reduction in rates due to the Federal Open Market Committee (“FOMC”) rate cuts initiated during March 2020 in response to the COVID-19 pandemic, and (ii) the significant average balance of PPP loans outstanding ~~totaling $240,204,000~~ during both the six ~~months~~and three month periods ended June 30, 2021 comprised of PPP loans originated in both 2020 and 2021, which earn interest at a rate of 1 percent ~~and (ii) reductions~~while outstanding. The decrease in the yield ~~curve subsequent to June 2019, including the impact of the three rate decreases approved~~on interest-earning assets was substantially offset by the Federal Open Market Committee (“FOMC”), for 0.75% combined during the latter half of 2019, and the 1.50% of combined rate cuts, during March 2020 in response to the COVID-19 pandemic. Decreasesa favorable decrease in the ~~yields on interest earning assets were partially offset by~~cost of funds, as the ~~recognition of $2,371,000 of PPP loan processing fees in total interest income. The~~ total cost of deposits for the three months ended June 30, 2021 favorably decreased to 0.57 percent compared to 0.94 percent for the three months ended June 30, 2020, and favorably decreased to 0.59 percent compared to 1.13 percent for the six months ended June 30, ~~2020 favorably decreased compared~~2021. The reduction in the cost of funds reflects both the aforementioned growth in noninterest-bearing deposits, and deposit rate decreases, many of which resulted from both management-initiated and market rate cuts due to ~~the same periods in 2019 as a result~~impact of the ~~aforementioned yield curve reductions and FOMC rate cuts providing for management to significantly reduce deposit account rates while still maintaining and growing core deposit balances.~~COVID-19 pandemic.

Although the effective interest rate impact on earning assets and funding sources can be reasonably estimated at current interest rate levels, the interest-bearing product and pricing options selected by customers, and the future mix of the loan, investment, and deposit products in the Bank's portfolios, may significantly change the estimates used in Mid Penn’s asset and liability management and related interest rate risk simulation models. In addition, our net interest income may be impacted by further interest rate actions of ~~FOMC.~~the Federal Reserve’s Federal Open Market Committee (“FOMC”).

The provision for loan and lease losses is the expense necessary to maintain the allowance 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 Mid Penn serves.

Mid Penn has maintained the allowance in accordance with Mid Penn’s assessment process, which takes into consideration, among other relevant factors, the risk characteristics of the loan portfolio, the growth in the loan portfolio during the first six months of ~~2020,~~2021, economic and external factor changes, and shifting collateral values from December 31, ~~2019~~2020 to June 30, ~~2020.~~2021.

Management performed a current evaluation of the adequacy of the loan and lease loss allowance and, based on this evaluation, a loan loss provision of ~~$1,050,000~~$1,150,000 and ~~$465,000~~$1,050,000 was recorded for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. During the six months ended June 30, ~~2020,~~2021, the provision for the loan and lease losses was ~~$1,600,000~~$2,150,000 compared to ~~$590,000~~$1,600,000 for the six months ended June 30, ~~2019.~~2020. The allowance for loan losses and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not yet required to adopt the current expected credit loss (“CECL”) accounting ~~standard until January 1, 2023.~~standard. The increase in the loan loss reserves and the ~~quarterly~~ provision was primarily the result of (i) providing for core loan growth during the six months ended June 30, 2021, (ii) increases in certain specific reserve allocations on nonperforming loans, and (iii) an increase in qualitative factors related to economic and external conditions when compared to prior periods, with such changes driven by the ~~potential~~possibility for ongoing financial implications from the COVID-19 pandemic on Mid Penn’s customers and market area. Mid Penn’s allowance and other asset quality measures did not reflect any new impaired assets or specific reserve allocations related to the early impact of the COVID-19 pandemic, though Bank management is continuously and closely monitoring and evaluating the impact of the COVID-19 situation on the portfolio.

~~During~~For the three months ended June 30, ~~2020,~~2021, noninterest income totaled ~~$3,622,000,~~$5,652,000, an increase of ~~$748,000~~$2,030,000 or 2656 percent, compared to noninterest income of ~~$2,874,000~~$3,622,000 for the three months ended June 30, ~~2019.~~2020. For the six months ended June 30, ~~2020,~~2021, noninterest income totaled ~~$6,556,000,~~$10,364,000, an increase of ~~$1,633,000~~$3,808,000 or 3358 percent, compared to noninterest income of ~~$4,923,000~~$6,556,000 for the same period ~~2019.~~in 2020.

(Dollars in Thousands)	Three Months Ended June 30,										Three Months Ended June 30,
	2020		2019		$ Variance			% Variance			2021		2020		$ Variance			% Variance
Mortgage banking income											$	2,841	$	1,638	$	1,203			73	%
Income from fiduciary and wealth management activities	$	421	$	347	$	74			21	%		542		421		121			29	%
Service charges on deposits		115		218		(103	)		-47	%
ATM debit card interchange income		475		380		95			25	%		656		475		181			38	%
Mortgage banking income		1,638		1,077		561			52	%
Merchant services income												209		98		111			113	%
Net gain on sales of SBA loans		178		233		(55	)		-24	%		355		178		177			99	%
Net gain on sales of investment securities		111		17		94			553	%		—		111		(111	)		-100	%
Other income		510		419		91			22	%		797		510		287			56	%

(Dollars in Thousands)	Six Months Ended June 30,										Six Months Ended June 30,
	2020		2019		$ Variance			% Variance			2021		2020		$ Variance			% Variance
Mortgage banking income											$	5,220	$	2,820	$	2,400			85	%
Income from fiduciary and wealth management activities	$	805	$	706	$	99			14	%		1,098		805		293			36	%
Service charges on deposits		320		435		(115	)		-26	%
ATM debit card interchange income		891		714		177			25	%		1,224		891		333			37	%
Mortgage banking income		2,820		1,514		1,306			86	%
Merchant services income												301		181		120			66	%
Net gain on sales of SBA loans		262		435		(173	)		-40	%		455		262		193			74	%
Net gain on sales of investment securities		243		24		219			913	%		—		243		(243	)		-100	%
Other income		882		749		133			18	%		1,588		882		706			80	%

Mortgage banking income was $5,220,000 for the six months ended June 30, 2021, an increase of $2,400,000 or nearly double the mortgage banking income of $2,820,000 recorded during the six months ended June 30, 2020. Mid Penn significantly increased residential mortgage originations (both purchase and refinance activity) and secondary-market loan sales and gains when comparing the first six months of 2021 to the same period last year, as mortgage interest rates declined as a result of responses to the pandemic, and remained low in the twelve months since June 30, 2020, resulting in significantly increased mortgage loan production for both home purchasing and refinancing activity.

Income from fiduciary and wealth management activities was ~~$805,000~~$1,098,000 for the six months ended June 30, ~~2020,~~2021, an increase of ~~$99,000~~$293,000 or 1436 percent, compared to fiduciary income of ~~$706,000~~$805,000 for the same period in ~~2019.~~2020. These additional revenues were attributed to favorable growth in trust assets under management and increased sales of retail investment ~~products, as well as additional fee income from Mid Penn’s expanded wealth management team.~~

Mortgage banking income was $2,820,000 for the six months ended June 30, 2020, an increase of $1,306,000 or 86 percent compared to mortgage banking income of $1,514,000 for the six months ended June 30, 2019. Longer-term mortgage interest rates have declined significantly over the past twelve months, resulting in a higher level of mortgage originations (both purchase and refinance activity) and secondary-market loan sales when comparing the first six months of 2020 to the same period in 2019.products.

ATM debit card interchange income was $1,224,000 for the six months ended June 30, 2021, an increase of $333,000 or 37 percent compared to interchange income of $891,000 for the six months ended June 30, ~~2020, an increase of $177,000 or 25 percent compared to interchange income of $714,000 for the six months ended June 30, 2019.~~2020. The increase resulted from increasing card-based transaction usage across our expanding ~~transactional~~checking account customer base.

Net gains on sales of securities were $243,000 for the six months ended June 30, 2020, an increase of $219,000 compared to net gains on sales of securities of $24,000 for the six months ended June 30, 2019. Sales volume and gains were driven by the implementation of asset/liability management strategies, which vary from quarter to quarter based upon market conditions and related yield curve and valuation changes.

Service charges on deposits were $320,000 for the six months ended June 30, 2020, a decrease of $115,000 or 26 percent compared to service charges on deposits of $435,000 for the six months ended June 30, 2019. The decrease is due to lower non-sufficient funds fees incurred through the first half of 2020 when compared to the same period in 2019.

Net gains on sales of SBA loans were ~~$262,000~~$455,000 for the six months ended June 30, ~~2020, a decrease~~2021, an increase of ~~$173,000~~$193,000 or 4074 percent compared to net gains on sales of SBA loans of ~~$435,000~~$262,000 during the same period of ~~2019. Much~~2020. During the first six months of 2020, much of the ~~decrease is due to the shift~~focus of the SBA lending function was on the PPP loan program, resulting in a lower volume of traditional SBA loans being originated in 2020, while the volume of traditional SBA loan originations and sales have generally returned to ~~documenting, processing, and funding PPP loans~~pre-pandemic levels during the ~~second quarter~~first six months of 2021.

Merchant services income was $301,000 for the six months ended June 30, 2021, an increase of $120,000 or 66 percent compared to merchant services income of $181,000 during the same period in 2020. The increase was primarily attributable to new and expanded cash management relationships, including those from new PPP customers.

Other income was $1,588,000 for the six months ended June 30, 2021, an increase of $706,000 compared to other income of $882,000 for the six months ended June 30, ~~2020, an increase of $133,000 compared to other income of $749,000 for the six months ended June 30, 2019.~~2020. The increase in other income was primarily driven by higher volumes of fee-based income, including fees from new loan-level swaps, wire transfer fees, letter of credit fees, and credit card program referrals and royalties.

Mid Penn recorded no net gains on sales of investment securities during the six months ended June 30, 2021, compared to net gains on sales of securities of $243,000 for the six months ended June 30, 2020. Sale volume and gains vary from period to period based upon market conditions, as well as investment portfolio and interest rate risk management activities.

For the three months ended June 30, ~~2020,~~2021, noninterest expense totaled ~~$15,403,000,~~$19,456,000, an increase of ~~$607,000~~$4,053,000 or 426 percent, compared to noninterest expense of ~~$14,796,000~~$15,403,000 for the three months ended June 30, ~~2019.~~2020. For the six months ended June 30, ~~2020,~~2021, noninterest expense totaled ~~$30,984,000, reflecting~~$37,014,000, an increase of ~~$1,885,000~~$6,030,000 or 620 percent, compared to noninterest expense of ~~$29,099,000~~$30,984,000 for the six months ended June 30, 2019. The year-over-year increase in quarterly noninterest expense was attributable to both (i) growth-related business development officer additions since June 30, 2019, including those in Mid Penn’s expanded wealth management services, and (ii) increases across other expense categories reflective of the overall growth of the organization, including software licensing and utilization, Pennsylvania bank shares tax, and occupancy and equipment expenses. Also, other expenses for the first two quarters of 2020 included approximately $138,000 of non-recurring FHLB prepayment costs resulting from Mid Penn’s early redemption of $17,500,000 of higher-cost term advances. No FHLB borrowing prepayments occurred during the first six months of 2019.2020.

The changes were primarily a result of the following components of noninterest expense, which had significant variances when comparing results for periods ending in ~~2020~~2021 versus the corresponding period in ~~2019:~~2020:

(Dollars in Thousands)	Three Months Ended June 30,										Three Months Ended June 30,
	2020		2019		$ Variance			% Variance			2021		2020		$ Variance			% Variance
Salaries and employee benefits	$	7,986	$	7,786	$	200			3	%	$	9,933	$	7,986	$	1,947			24	%
Equipment expense		722		658		64			10	%
Software licensing and utilization												1,497		1,297		200			15	%
Pennsylvania bank shares tax expense		55		245		(190	)		-78	%		224		55		169			307	%
FDIC Assessment												433		357		76			21	%
Legal and professional fees		349		471		(122	)		-26	%		555		349		206			59	%
Marketing and advertising expense		98		226		(128	)		-57	%
Software licensing and utilization		1,297		1,111		186			17	%
Intangible amortization		326		360		(34	)		-9	%
Charitable contributions qualifying for state tax credits												365		510		(145	)		-28	%
Mortgage banking profit-sharing expense												745		150		595			397	%
Merger and acquisition expense												522		—		522			100	%
Other expenses		2,743		2,102		641			30	%		2,571		2,083		488			23	%

(Dollars in Thousands)	Six Months Ended June 30,										Six Months Ended June 30,
	2020		2019		$ Variance			% Variance			2021		2020		$ Variance		% Variance
Salaries and employee benefits	$	16,267	$	15,545	$	722			5	%	$	19,531	$	16,267	$	3,264		20	%
Equipment expense		1,435		1,285		150			12	%
Software licensing and utilization												2,942		2,518		424		17	%
Pennsylvania bank shares tax expense		460		381		79			21	%		524		460		64		14	%
FDIC Assessment												903		669		234		35	%
Legal and professional fees		701		893		(192	)		-22	%		981		701		280		40	%
Marketing and advertising expense		302		405		(103	)		-25	%
Software licensing and utilization		2,518		2,132		386			18	%
Intangible amortization		649		723		(74	)		-10	%
Charitable contributions qualifying for state tax credits												635		545		90		17	%
Mortgage banking profit-sharing expense												865		150		715		477	%
Merger and acquisition expense												522		—		522		100	%
Other expenses		4,940		3,988		952			24	%		4,717		4,245		472		11	%

Salaries and employee benefits were $16,267,000 for the six months ended June 30, 2020, an increase of $722,000 or 5 percent, versus the same period in 2019, with the increase primarily attributable to (i) retail staff added as part of the new Hazle Township branch location opened during the fourth quarter of 2019, (ii) the addition of private banking and insurance business development professionals to enhance our wealth management and insurance activities, (iii) increased commissions commensurate with the successes of the mortgage banking group, and (iv) increased expense for the substantial time and effort devoted to business development activities by many of our staff members during the second quarter of 2020.

Equipment expense increased $150,000 or 12 percent during the six months ended June 30, 2020 compared to the same period in 2019, and related to the expansion of the corporate administrative facilities to centralize back-office functions, as well as additional hardware and software enhancements placed in service to improve operations and efficiencies across the Mid Penn footprint.

Pennsylvania bank shares tax expense was $460,000 for the six months ended June 30, 2020, an increase of $79,000 or 20 percent compared to $381,000 for the six months ended June 30, 2019. The increase in shares tax expense generally reflects the organic growth in the past year of the total shareholder equity balance upon which the tax is based, with some of the increase offset by non-recurring tax-credit-generating donations made during the second quarter of 2020.

Salaries and employee benefits were $19,531,000 for the six months ended June 30, 2021, an increase of $3,264,000 or 20 percent, versus the same period in 2020, with the increase primarily attributable to increased mortgage commissions expense commensurate with the significant increases in mortgage loan originations and secondary market sales gains from the mortgage banking group.

Software licensing and utilization costs were $2,942,000 for the six months ended June 30, 2021, an increase of $424,000 or 17 percent compared to $2,518,000 for the six months ended June 30, ~~2020, an~~2020. Mid Penn continues to invest in upgrades to internal systems, networks, storage capabilities, cybersecurity management, and data security mechanisms to enhance data management and security capabilities responsive to both the larger company profile and the increasing complexity of information technology management. This increase ~~of $386,000 or 18 percent compared to $2,132,000 for the six months ended June 30, 2019. This increase~~also reflects the additional costs from both transaction volume-based charges, and licensing fees related to the addition of new staff ~~and locations~~ added since June 30, ~~2019, as well as costs associated~~2020.

FDIC assessment expense was $903,000 for the six months ended June 30, 2021, an increase of $234,000 or 35 percent compared to $669,000 for the six months ended June 30, 2020. The increased FDIC assessment aligns with ~~ensuring remote connectivity~~the year-over-year growth of the average assets of the Bank on which the assessment is based.

Community and charitable contributions which qualified for State tax credits totaled $635,000 for the six months ended June 30, 2021, compared to similar program contributions of $545,000 for the six months ended June 30, 2020. This variance reflects the timing of certain tax-credit-qualifying donations made to participants within Pennsylvania’s Department of Community and Economic Development (“DCED”) Educational Improvement Tax Credit Program (“EITC”), and to moderate-to-low-income housing projects in the DCED’s Neighborhood Assistance Program (“NAP”) which have been approved by the Commonwealth of Pennsylvania. These EITC and NAP contributions generated tax credits totaling $480,000 and $415,000 during the periods ended June 30, 2021 and 2020, respectively, to be applied to and reduce Mid Penn’s Pennsylvania bank shares tax liability. These contributions and programs are also key elements of Mid Penn’s Community Reinvestment Act compliance activities.

Pennsylvania bank shares tax expense was $524,000 for the six months ended June 30, 2021, an ~~increased volume~~increase of ~~employees~~$64,000 or 14 percent compared to $460,000 for the six months ended June 30, 2020. The increase in ~~response~~shares tax expense generally reflects an increase in total shareholder’s equity upon which the tax is based, net of the impact of any state tax credits generated by the Bank.

Mortgage banking profit-sharing expense totaled $865,000 for the six months ended June 30, 2021 compared to the COVID-19 work-from-home restrictions. Additionally, Mid Penn continued to invest in upgrades to internal systems, networks, storage capabilities, and data security mechanisms to enhance data management and security capabilities responsive to both the larger company profile and increasing complexity of information technology management.

~~Legal and professional fees~~$150,000 for the six months ended June 30, 2020 ~~decreased by $192,000~~and, for both periods, related to payments to third-party principals within the Southeastern Pennsylvania mortgage banking group at Mid Penn. The increase for 2021 reflects the substantial increase in the revenues and profits of the mortgage banking group year over year.

Merger-related expenses totaled $522,000 for the six months ended June 30, 2021 and consisted of legal and professional fees associated with the due diligence, fairness opinion, and other costs related to the planned Riverview acquisition announced on June 30, 2021.

Legal and professional fees were $981,000 for the six months ended June 30, 2021, an increase of $280,000 or 2240 percent compared to the same period in 2019, due primarily to the first six months of 2019 including additional services supporting a new third-party loan review service, as well as costs associated with supporting both trust and wealth management activities, and the update and revision of Mid Penn’s corporate governance and Board structure.

~~Marketing and advertising expense was $302,000~~$701,000 for the six months ended June 30, 2020, ~~a decrease of $103,000 or 25 percent compared~~with this increase being attributable to ~~$405,000 during the first six months of 2019. The first six months of 2019 reflected additional advertising expense~~consulting expenses related to strengthening and ~~promotional items expense to increase recognition and knowledge of~~enhancing Mid Penn’s ~~Southeastern Pennsylvania mortgage origination team. Similar~~commercial online banking facility, as well as other information technology and cybersecurity management activities.

~~Intangible amortization decreased~~increased $472,000 from ~~$723,000 during the six months ended June 30, 2019 to $649,000~~$4,245,000 during the six months ended June 30, 2020 asto $4,717,000 for the ~~core deposit intangible (“CDI”) amortization from the 2018 acquisitions~~same period in 2021 due to organizational growth resulting in increases across several components of ~~both (i) the Scottdale Bank~~other expense, including insurance, correspondent service fees, investor relations, miscellaneous loan fees, loan collection costs, and Trust on January 8, 2018, and (ii) First Priority Bancorp on July 31, 2018 continues to decrease as it is amortized using the sum-of-the-years digits method over a ten year term (which results in decreasing expense recognized in each year following the respective acquisition).directors’ fees.

The provision for income taxes was $1,682,000 during the three months ended June 30, 2020, an increase of $700,000 or 72 percent compared to $980,000 for the same period in 2019. The provision for income taxes for the three months ended June 30, 2020 reflects an effective tax rate of 19.8%, compared to an effective tax rate of 18.2% for the three months ended June 30, 2019. The provision for income taxes was $2,332,000$4,477,000 during the six months ended June 30, ~~2020, an increase of $502,000 or 27 percent~~2021, compared to ~~$1,830,000~~$2,332,000 of income tax provision recorded for the same period in ~~2019.~~2020. The provision for income taxes for the six months ended June 30, ~~2020~~2021 reflects ana combined Federal and State effective tax rate of ~~18.0%,~~19.1 percent compared to ~~an effective tax rate of 17.8%~~18.0 percent for the six months ended June 30, ~~2019.~~2020. The increase in the effective tax rate ~~for 2020~~ reflects both (i) ~~the additional~~higher pre-tax income ~~generated year-to-date~~ when compared to ~~2019,~~the first six months of 2020, (ii) less tax-exempt ~~income generated in 2020~~interest recognized due to ~~strategic reductions~~less tax-exempt securities being held in the ~~tax-exempt~~ investment security portfolio when compared to the prior year, and (iii) ~~an increase~~the impact of certain merger-related expenses incurred in ~~the expected tax liability~~2021 which are nondeductible for ~~New Jersey taxes in 2020. Some of the increase was offset by~~ federal tax ~~credits recognized related~~purposes. In addition to Mid Penn’s investment in a low-income housing project in Dauphin County, Pennsylvania. The units were substantially completed and met the occupancy requirements necessary to begin recognizing the related amortization andfederal tax ~~credits during the fourth quarter of 2019. Similar credits were not recognized during~~expense, for the six months ended June 30, ~~2019.~~2021 and 2020, the income tax provision includes $152,000 and $60,000, respectively, of state income tax expense that Mid Penn pays to the states of New Jersey, Maryland, and Delaware for revenues sourced in those respective states.

Generally, Mid Penn’s effective tax rate is below the federal statutory rate due to earnings on tax-exempt loans, investments, and earnings from the cash surrender value of life insurance, as well as the impact of federal income tax ~~credits.~~credits, including those awarded from Mid Penn’s low-income housing investments. The realization of Mid Penn’s deferred tax assets is dependent on future earnings. Mid Penn currently anticipates that future earnings will be adequate to fully realize the currently recorded deferred tax assets.

Mid Penn’s total assets were ~~$2,922,365,000~~$3,461,792,000 as of June 30, ~~2020,~~2021, reflecting an increase of ~~$691,190,000~~$462,844,000 or 3115 percent compared to total assets of ~~$2,231,175,00~~$2,998,948,000 as of December 31, ~~2019, and an increase of $786,243,000 or 37 percent compared to~~2020. Included in total assets ~~of $2,136,122,000~~ as of June 30, ~~2019. Asset growth~~2021 are $391,826,000 of Paycheck Protection Program (“PPP”) loans, net of deferred fees, with this total being comprised of (i) $317,428,000 of PPP 2021 loans, net of deferred fees, originated during the ~~second quarter~~first two quarters of ~~2020 included the significant volume of $588,667,000~~2021; and (ii) $74,398,000 of PPP 2020 loans, net of deferred fees, originated during 2020 which, as of June 30, 2021, were still outstanding. Comparatively, as of December 31, 2020, Mid Penn had $388,313,000 of PPP 2020 loans outstanding, net of deferred fees. Mid Penn had $14,472,000 of PPP deferred loan processing fees not yet realized as income as of June 30, 2021, consisting of (i) $872,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $13,600,000 of loan processing fees received related to PPP loans funded during the six months ended June 30, 2021. Comparatively, as of December 31, 2020, Mid Penn had $7,746,000 of PPP deferred loan processing fees not yet realized as income, all resulting from to PPP loans funded during the year ended December 31, 2020. ~~Additionally, total~~Mid Penn was a significant participating lender under the PPP, which was originally created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, extended by the signing of the Consolidated Appropriations Act, 2021 into law on December 27, 2020, and further extended to May 31, 2021 by the PPP Extension Act of 2021.

Total core banking loans ~~(total~~(a non-GAAP measure that reflects the amount of total loans excluding both the PPP ~~portfolio~~loans outstanding, and residential mortgage loans held for sale) increased ~~to $1,857,098,000~~by $107,639,000 since year-end 2020 and totaled $2,103,366,000 as of June 30, ~~2020,~~2021, representing an annualized ~~core loan~~ growth rate of ~~over 10 percent~~11 percent. Please refer to the section included herein under the heading “Reconciliation of Non-GAAP Measures (Unaudited)” for a discussion of our use of non-GAAP adjusted financial information, which includes tables reconciling GAAP and non-GAAP adjusted financial measures for these and certain other periods ended from June 30, 2020 to June 30, 2021. Deposit growth since ~~the end of 2019. The asset growth was funded by both (i) $413,919,000 of deposit growth,~~year-end 2020 through June 30, 2021 totaled $307,544,000 representing an annualized deposit growth rate of 43over 25 percent, ~~with more than~~reflecting an increase of $155,792,000 in noninterest-bearing deposits, including some remaining proceeds deposited from PPP loan funding. Also, during the first half of ~~such growth favorably being in noninterest-bearing deposits; and (ii) a $256,316,000~~2021, the Bank obtained $71,272,000 of additional net ~~increase in wholesale borrowings, including $203,937,000 of~~ funding ~~obtained~~(draws less paydowns) from the Federal Reserve ~~PPPLF.~~ through the Paycheck Protection Program Liquidity Facility (“PPPLF”), with such funding used to support the PPP 2021 loan production. Under the PPPLF, the Federal Reserve supplies financing to the Bank at a rate of 35 basis points (0.35%) for a term and amount determined based on the principal amount of PPP loans fully and specifically pledged as collateral in support of the PPPLF borrowings. Draws of PPPLF funds must be repaid to the Federal Reserve immediately after the specific PPP loans collateralizing the related draws are repaid to the Bank.

Total loans at June 30, 2021 were $2,495,192,000 compared to $2,384,041,000 at December 31, 2020, an increase of $111,151,000 or over 5 percent since year-end 2020. The loan growth since December 31, 2020 reflects an increase of $107,639,000 in non-PPP core banking loans, primarily in commercial real estate credits, and commercial and industrial financing loans. The remaining increase of $3,512,000 is attributable to a net increase in the balance of PPP loans outstanding, reflecting the net impact of both new 2021 PPP round 2 loans funded, and any year-to-date PPP loans forgiven.

Total loans at June 30, 2020 were $2,445,765,000 compared to $1,762,756,000 at December 31, 2019, an increase of $683,009,000 or 39 percent since year-end 2019. Much of the growth is attributable to the funding of PPP loans during the second quarter of 2020, with $588,667,000 of PPP loans outstanding, net of deferred PPP processing fees of $17,958,000 as of June 30, 2020. The remaining increase of $94,342,000 (annualized growth rate of nearly 9 percent) was driven by organic growth, particularly within both commercial real estate credits, and commercial and industrial financing loans.

The allowance for loan losses and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023. Mid Penn’s allowance and other asset quality measures did not reflect any new impaired assets or specific reserve allocations related to the early impact of the COVID-19 pandemic, though Bank management is continuously and closely monitoring and evaluating the impact of the COVID-19 situation on the portfolio. Also, PPP loans, which are included in the commercial and industrial classification, are fully guaranteed by the Small Business Administration, and, as such, no allowance for loan losses was recorded against the ~~$588,667,000~~$391,826,000 balance of PPP loans outstanding (net of related deferred PPP fees) as of June 30, ~~2020.~~2021.

For the six months ended June 30, ~~2020,~~2021, Mid Penn had net loan charge-offs of ~~$48,000~~$816,000 compared to net charge-offs of ~~$216,000~~$48,000 during the same period in ~~2019.~~2020, with the increase largely attributable to the workout of two larger nonperforming loans during the first quarter of 2021. None of the charge offs induring the ~~first~~ six months ofended June 30, 2021 or 2020 were a result of the COVID-19 pandemic. Loans charged off during the first six months of ~~2020~~2021 totaled ~~$70,000~~$905,000 and included three commercial and industrial loans for ~~$45,000, one~~$859,000, two commercial real estate ~~(construction) loan~~construction loans for ~~$7,000, one~~$23,000, two residential mortgage loans for $11,000, three consumer ~~loan~~loans for ~~$5,000,~~$8,000, and ~~$13,000~~$4,000 in deposit account charge-offs. Mid Penn may need to make future adjustments to the allowance and the provision for loan and lease losses if economic conditions or loan credit 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.

Changes in the allowance for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 are summarized as follows:

(Dollars in thousands)	Six Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2021			2020
Balance, beginning of period	$	9,515		$	8,397		$	13,382		$	9,515

Loans charged off during period		(70	)		(304	)		(905	)		(70	)
Recoveries of loans previously charged off		22			88			89			22
Net charge-offs		(48	)		(216	)		(816	)		(48	)

Provision for loan and lease losses		1,600			590			2,150			1,600
Balance, end of period	$	11,067		$	8,771		$	14,716		$	11,067

Ratio of net loan charge-offs to average loans outstanding, annualized		0.01	%		0.00	%		0.06	%		0.01	%

Ratio of allowance for loan losses to net loans at end of period		0.45	%		0.52	%		0.59	%		0.45	%

Improvements in the ratio of allowance for loan losses to net loans since December reflect the substantial increase in outstanding loans due to Mid Penn’s participation in the PPP program. The allowance for loan and lease losses as a percentage of loans, excludingExcluding PPP loans, which are guaranteed by the SBA and have no associated loss allowance, the allowance for loan and lease losses as a percentage of core loans (a non-GAAP financial measure) was ~~0.60%~~0.70 percent as of June 30, 2021 compared to 0.67 percent as of December 31, 2020 and 0.60 percent as of June 30, 2020.

Other than as described herein, including the disclosures in previous sections regarding the continued impact of the COVID-19 pandemic, Mid Penn does not believe there are any trends or events at this time that are reasonably expected to have a material impact on future results of operations, liquidity, or capital resources. Based on known information, Mid Penn believes that the effects of current and past economic conditions and other unfavorable business conditions, including those related to COVID-19, may eventually impact some borrowers’ abilities to comply with their repayment terms. Accordingly, Mid Penn ~~increased~~has adjusted its qualitative factors for economic and external conditions as part of its general component ~~determination.~~determination primarily in response to the economic conditions resulting from the pandemic. Mid Penn continues to monitor closely the financial strength of ~~these~~ borrowers and the economic conditions impacting them, including ~~the~~those with a higher risk of impacts from the COVID-19 pandemic.

Mid Penn does not ordinarily 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 of loan workouts whereby an existing loan was restructured into multiple new loans. Also, Mid Penn does not extend loans at maturity solely due to the existence of guarantees, without recognizing the credit as impaired. While the existence of a guarantee may be a mitigating factor in determining the proper level of allowance once impairment has been identified, the guarantee does not affect the impairment analysis.

The following table presents the change in nonperforming asset categories as of June 30, ~~2020,~~2021, December 31, ~~2019,~~2020, and June 30, ~~2019.~~2020.

(Dollars in thousands)
	June 30, 2020			December 31, 2019			June 30, 2019			June 30, 2021			December 31, 2020			June 30, 2020
Nonperforming Assets:
Nonaccrual loans	$	13,804		$	11,471		$	6,165		$	8,233		$	15,047		$	13,804
Accruing troubled debt restructured loans		477			490			503			449			463			477
Total nonperforming loans		14,281			11,961			6,668			8,682			15,510			14,281

Foreclosed real estate		1,718			196			390			11			134			1,718
Total non-performing assets		15,999			12,157			7,058			8,693			15,644			15,999

Accruing loans 90 days or more past due		800			—			—			—			—			800
Total risk elements	$	16,799		$	12,157		$	7,058		$	8,693		$	15,644		$	16,799

Nonperforming loans as a % of total
loans outstanding		0.58	%		0.68	%		0.39	%		0.35	%		0.65	%		0.58	%

Nonperforming assets as a % of total
loans outstanding and other real estate		0.65	%		0.69	%		0.42	%		0.35	%		0.66	%		0.65	%

Ratio of allowance for loan losses
to nonperforming loans		77.49	%		79.55	%		131.54	%		169.50	%		86.28	%		77.49	%

In the table above, troubled debt restructured loans that are no longer accruing interest are included in nonaccrual loans.

~~Nonperforming loans increased from $11,961,000~~Total nonperforming assets were $8,693,000 at June 30, 2021, a substantial decrease compared to nonperforming assets of $15,644,000 at December 31, ~~2019 to $14,281,000~~2020 and $16,799,000 at June 30, 2020. The decrease in nonperforming assets was primarily the result of the successful workout of two nonaccrual commercial relationships totaling $9,123,000, occurring in the first half of 2021:

Given these large workouts, nonperforming assets were 0.35 percent of the total of loans plus other real estate assets as of June 30, 2021, a significant and favorable reduction compared to 0.66 percent at December 31, 2020 ~~primarily due~~and 0.65 percent as of June 30, 2020. Loan loss reserves as a percentage of nonperforming loans increased to ~~one home equity~~170 percent at June 30, 2021, compared to 84 percent at December 31, 2020 and 77 percent at June 30, 2020.

Two loan ~~relationship totaling $2,378,000 being designated as nonaccrual. One loan relationship~~relationships which ~~accounts~~account for ~~$7,385,000~~$4,141,000 of the nonperforming loan balance isas of June 30, 2021 are discussed in more detail below. None of the nonperforming assets were impaired as a result of the COVID-19 pandemic as the conditions resulting in the respective asset’s impairment preceded the pandemic. However, as Mid Penn pursues full collection of these assets, the timing or extent of resolution may ultimately be impacted if the pandemic persists.

Loan relationship no. 1 – At June 30, ~~2020,~~2021, the contractual outstanding principal balance of this loan relationship totaled $1,846,000 and was ~~$7,385,000~~comprised of three loans acquired in 2018. These loans were transferred from accrual to nonaccrual status during the second quarter of 2021 and a specific allowance allocation of $1,056,000 is assigned to this relationship. Management is pursuing diligent workout efforts, including proceeds from the sale of pledged collateral, to restore the loan to current status and to collect the remaining outstanding balance.

Loan relationship no. 2 - The contractual outstanding principal balance of this loan relationship was $2,295,000 at June 30, 2021 and was comprised of two ~~commercial and industrial~~ loans ~~and one~~acquired in 2018. These loans were transferred from accrual to nonaccrual status during the second quarter of 2020. These loans are collateralized primarily by commercial real estate, ~~credit acquired in 2018. Given~~and, given that the fair value of the remaining collateral ~~primarily comprised of a significant amount of commercial real estate,~~ exceeds the outstanding principal balance, no specific allowance allocation has been currently assigned to this relationship. Management ~~is diligently pursuing its full rights given its priority liens~~expects to ~~the collateral under the loan agreements to collect~~recover the remaining outstanding ~~balance.~~balance through the sale of real estate collateral pledged in support of the loans.

The ~~increase~~decrease in foreclosed real estate from ~~$196,000~~$134,000 at December 31, ~~2019~~2020 to ~~$1,718,000~~$11,000 at June 30, ~~2020~~2021 was ~~primarily~~ driven by the sale of three foreclosed real estate properties totaling $143,000 during the second quarter of 2021. These sales were partially offset by the transfer of ~~one loan relationship~~three small loans among two borrowers totaling ~~$1,465,000~~$20,000 from nonaccrual status to foreclosed real estate during the first ~~six months~~quarter of ~~2020, which is discussed in more detail below.~~ 2021.

Foreclosed real estate no. 1 – At June 30, 2020, this property consisted of a commercial property and was carried at a net realizable value of $1,465,000. Management has actively listed the property for sale and expects to recover its full investment in this property at the time of sale.

Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to writing down or charging off the loan. Once the write 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. The following table provides additional analysis of partially charged-off loans.

(Dollars in thousands)
	June 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020
Period ending total loans outstanding	$	2,445,765		$	1,762,756		$	2,495,192		$	2,384,041
Allowance for loan and lease losses		11,067			9,515			14,716			13,382
Total Nonperforming loans		14,281			11,961			8,682			15,510
Nonperforming and impaired loans with partial charge-offs		103			332			648			836

Ratio of nonperforming loans with partial charge-offs
to total loans		0.00	%		0.02	%		0.03	%		0.04	%

Ratio of nonperforming loans with partial charge-offs
to total nonperforming loans		0.72	%		2.78	%		7.46	%		5.39	%

Coverage ratio net of nonperforming loans with
partial charge-offs		78.06	%		81.82	%		183.17	%		91.20	%

Ratio of total allowance to total loans less
nonperforming loans with partial charge-offs		0.45	%		0.54	%		0.59	%		0.56	%

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 well-secured or otherwise not probable for 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 method indicates no operating income is available for evaluating the collateral position; therefore, most 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. The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. Commercial real estate loans rated as impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans. An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variation in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The balance 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 well-secured or otherwise not probable for collection. The collateral shortfall of the consumer loan is recommended for charge-off at this point.

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

Larger groups of small-balance loans, such as residential mortgages and consumer installment loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures unless such loans are the subject of a restructuring agreement.

Mid Penn’s rating system assumes any loans classified as substandard nonaccrual to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

It is Mid Penn’s policy to obtain updated third-party valuations on all impaired loans collateralized by real estate as soon as practically possible following the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation. The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no material time lapses noted with the above processes.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction 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~~third-party market valuations on the subject property as soon as practically possible of being placed on nonaccrual status sometimes indicates that the loan to value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a ~~case by case~~case-by-case analysis of the impaired loans.

Mid Penn had loans with an aggregate balance of ~~$14,237,000~~$8,682,000 which were deemed by management to be impaired at June 30, ~~2020,~~2021, including ~~$1,785,000~~$1,670,000 in loans acquired with credit deterioration in connection with the closing of the Phoenix acquisition in 2015 and the Scottdale and First Priority acquisitions in 2018. Of the ~~$12,452,000~~$7,012,000 of impaired loan relationships excluding the loans acquired with credit deterioration, ~~$1,210,000~~$218,000 were commercial and industrial relationships, ~~$8,028,000~~$3,673,000 were commercial real estate relationships, ~~$2,406,000~~$2,339,000 were home equity relationships, ~~$776,000~~$759,000 were residential relationships, and ~~$32,000~~$23,000 were commercial real estate – construction relationships. There were specific loan loss reserve allocations of ~~$190,000~~$1,332,000 against ~~$902,000~~$2,712,000 of commercial real estate loan relationships and ~~$53,000~~$62,000 of specific loan loss reserve allocations against ~~$198,000~~$218,000 of commercial and industrial loan relationships. Management currently believes that the specific reserves are adequate to cover probable future losses related to these relationships.

The allowance 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 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 as an integral part of the examination process. As part of the examination process, federal or state regulatory agencies may require Mid Penn to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

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.

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:

While the allowance is maintained at a level believed to be adequate by management to provide for probable losses inherent in the loan and lease portfolio, determination of the allowance is inherently subjective, as it requires estimates, all of which may be susceptible to significant change. The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific or general components. For example, we believe that we could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments and underlying data and evaluations, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral, including the prospective unknown impacts of the persisting COVID-19 pandemic. Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses, including the unpredictable timing and amounts of charge-offs, the fact that historical loss averages don’t necessarily correlate to future loss trends, and unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors. Changes from these various other uncertainties and considerations may impact the provisions charged to expense in future periods.

Management believes, based on information currently available, that the allowance for loan losses of ~~$11,067,000~~$14,716,000 is adequate as of June 30, ~~2020~~2021 to cover specifically identifiable loan losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable.

Mid Penn’s objective is to maintain adequate liquidity to meet funding needs at a reasonable cost and to provide contingency plans to meet unanticipated funding needs or a loss of funding sources, while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding corporate operations. Sources of liquidity are as follows:

The major sources of cash received in the first six months of ~~2020~~2021 were from the ~~$413,919,000~~$307,544,000 net increase in deposits, ~~$203,937,000 net increase in short-term borrowings, and $104,144,000~~$185,016,000 of proceeds from sales of mortgage loans originated for ~~sale.~~sale, $71,272,000 net increase in short-term borrowings (from the PPPLF), and $70,238,000 of net proceeds from a common stock public offering.

Major uses of cash in the first ~~six months~~half of ~~2020~~2021 were ~~$684,579,000 to fund portfolio loan growth (primarily PPP commercial loans), $114,714,000~~$178,492,000 to fund mortgage loans originated for sale, and ~~$80,880,000~~$111,987,000 to fund ~~the purchase of held-to-maturity investment securities.~~portfolio loan growth.

Mid Penn believes its core deposits are generally stable even in periods of changing interest rates. Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends. These measurements indicate that liquidity generally remains stable and exceeds our minimum defined levels of adequacy. Other than the trends of continued competitive pressures and volatile interest rates, and the uncertain impact of the persisting COVID-19 ~~event,~~pandemic, there are no known demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.

On at least a quarterly basis, a comprehensive liquidity analysis is reviewed by the Asset Liability Committee and Board of Directors. The analysis provides a summary of the current liquidity measurements, projections, and future liquidity positions given various levels of liquidity stress. Management also maintains a detailed Contingency Funding Plan designed to respond to overall stress in the financial condition of the banking industry or a prospective liquidity problem specific to Mid Penn.

On March 20, 2020, Mid Penn Bancorp, Inc. entered into agreements with accredited investors who purchased $15,000,000 aggregate principal amount of Mid ~~Penn’s~~Penn Subordinated Notes due 2030 (the ~~“2020~~“March 2020 Notes”)~~, on a private placement basis, to accredited investors.~~. The March 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”). In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000 which is being amortized through interest expense until the maturity date of November 30, 2025. The First Priority Notes are intended to be treated as Tier 2 capital for regulatory reporting purposes.

The First Priority Notes agreements were entered into by First Priority on November 13, 2015 with five accredited investors, pursuant to which First Priority issued subordinated notes totaling $9,500,000. The First Priority Notes have a maturity date of November 30, 2025, and bear interest at a fixed rate of 7.00% per annum. The First Priority Notes are non-callable for an initial period of five years and include provisions for redemption pricing between 101.5% and 100.5%Related parties held $1,700,000 of the ~~liquidation value, if called after five years but prior to the stated maturity date.~~ March 2020 Notes as of June 30, 2021 and December 31, 2020.

The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

ASC Subtopic 835-30, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability. The unamortized debt issuance costs associated with the 2015 Notes and the 2017 Notes were collectively $57,000 at June 30, 2021 and $70,000 at December 31, 2020.

On December 18, 2020, Mid Penn redeemed the full $9,500,000 of the First Priority subordinated debt notes assumed on July 31, 2018 with the First Priority acquisition. The redemption occurred promptly following the expiration of the Notes’ noncallable period and upon receipt of the required regulatory approval as the notes were Tier 2 qualifying capital. Mid Penn fully recognized the related redemption pricing fees of $143,000 in the fourth quarter of 2020.

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 final rules implemented higher minimum capital requirements, added a new common equity Tier 1 capital requirement, and established criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements, which amount must be greater than 2.5% of total risk-weighted assets.

A summary of the payout restrictions based on the capital conservation buffer is as follows:

The final rules allowed community banks to make a one-time election not to include the additional components of accumulated other comprehensive income (“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. Mid Penn made the election not to include the additional components of AOCI in regulatory capital.

Consistent with the Dodd-Frank Act, the new rules replaced the ratings-based approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-ups approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250% risk weight.

Under the new rules, mortgage servicing assets (“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 has implemented these changes in determining and reporting the regulatory ratios of Mid Penn and the Bank, and has concluded that the new rules do not have a material adverse effect on Mid Penn’s financial condition.

Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those ~~assets. The greater a corporation’s~~assets, and the desire to collectively maintain and enhance shareholders’ value, and satisfactorily address regulatory 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. An excess capital position may make it difficult for a corporation to offer a competitive return on the shareholders’ capital going forward. For these reasons capital adequacy andrequirements. Accordingly, capital management ~~have~~has been, and will continue to be, of paramount ~~importance.~~

Shareholders’ equity increased by ~~$5,471,000~~$85,881,000 or 234 percent from ~~$237,874,000~~$255,688,000 as of December 31, ~~2019~~2020 to ~~$243,345,000~~$341,569,000 as of June 30, ~~2020.~~2021. The increase in shareholders’ equity primarily reflects both (i) the impact of the common stock capital raise which resulted in the issuance of 2,990,000 shares of Mid Penn common stock and an increase of over $70 million in common stock capital, and (ii) growth in retained earnings through year-to-date net income, ~~net~~less dividends declared and paid through the first six months of ~~dividends paid. Some of the increase was offset by the initiation of Mid Penn’s treasury stock repurchase program, resulting in a treasury stock balance of $1,560,000 as of June 30, 2020.~~2021. Regulatory capital ratios for both Mid Penn and its banking subsidiary exceeded regulatory “well-capitalized” levels at both June 30, ~~2020~~2021 and December 31, ~~2019.~~

Banks are evaluated for capital adequacy by regulatory supervisory agencies based on the ratio of capital to risk-weighted assets and total assets. The minimum capital to risk-weighted assets requirements, including the capital conservation buffers, which became effective for Mid Penn and the Bank on January 1, 2016 are illustrated below. At June 30, ~~2020,~~2021, regulatory capital ratios for both Mid Penn and the Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action, and exceeded the minimum capital requirements under Basel III.

Mid Penn and Mid Penn Bank maintained the following regulatory capital levels, leverage ratios, and risk-based capital ratios as of June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

	Capital Adequacy															Capital Adequacy
											To Be Well-Capitalized															To Be Well-Capitalized
(Dollars in thousands)											Under Prompt										Minimum for					Under Prompt
						Minimum Capital					Corrective										Basel III Capital					Corrective
	Actual:					Required:					Action Provisions:					Actual					Adequacy (a)					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Mid Penn Bancorp, Inc.
As of June 30, 2020:
As of June 30, 2021:
Tier 1 Capital (to Average Assets)	$	174,941		6.6	%	$	105,830		4.0	%	N/A		N/A			$	274,676		8.8	%	$	124,254		4.0	%	N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		174,941		9.5	%		129,072		7.0	%	N/A		N/A				274,676		13.1	%		147,301		7.0	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		174,941		9.5	%		156,731		8.5	%	N/A		N/A				274,676		13.1	%		178,866		8.5	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		228,094		12.4	%		193,608		10.5	%	N/A		N/A				332,553		15.8	%		220,952		10.5	%	N/A		N/A

Mid Penn Bank
As of June 30, 2020:
As of June 30, 2021:
Tier 1 Capital (to Average Assets)	$	193,774		7.3	%	$	105,805		4.0	%	$	132,256		5.0	%	$	267,056		8.6	%	$	124,226		4.0	%	$	155,282		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		193,774		10.5	%		128,993		7.0	%		119,779		6.5	%		267,056		12.7	%		147,248		7.0	%		136,730		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		193,774		10.5	%		156,635		8.5	%		147,421		8.0	%		267,056		12.7	%		178,801		8.5	%		168,283		8.0	%
Total Capital (to Risk Weighted Assets)		214,418		11.6	%		193,490		10.5	%		184,276		10.0	%		281,840		13.4	%		220,872		10.5	%		210,354		10.0	%

Mid Penn Bancorp, Inc.
As of December 31, 2019:
As of December 31, 2020:
Tier 1 Capital (to Average Assets)	$	168,146		7.8	%	$	86,773		4.00	%	N/A		N/A			$	188,501		6.8	%	$	111,201		4.0	%	N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		168,146		9.8	%		120,020		7.00	%	N/A		N/A				188,501		9.6	%		137,351		7.0	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		168,146		9.8	%		145,738		8.50	%	N/A		N/A				188,501		9.6	%		166,783		8.5	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		204,811		11.9	%		180,030		10.50	%	N/A		N/A				246,529		12.6	%		206,026		10.5	%	N/A		N/A

Mid Penn Bank
As of December 31, 2019:
As of December 31, 2020:
Tier 1 Capital (to Average Assets)	$	185,101		8.5	%	$	86,760		4.00	%	$	108,450		5.0	%	$	218,676		7.9	%	$	111,166		4.0	%	$	138,958		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		185,101		10.8	%		119,995		7.00	%		111,424		6.5	%		218,676		11.1	%		137,288		7.0	%		127,482		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		185,101		10.8	%		145,708		8.50	%		137,137		8.0	%		218,676		11.1	%		166,707		8.5	%		156,901		8.0	%
Total Capital (to Risk Weighted Assets)		204,196		11.9	%		179,992		10.50	%		171,421		10.0	%		232,124		11.8	%		205,933		10.5	%		196,126		10.0	%

This Form 10-Q contains financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). Mid Penn believes that non-PPP core banking loans are useful to investors as they are indicative of portfolio loans and related growth from traditional bank activities, and excludes short-term or nonrecurring loans from special programs like the PPP. The ratio of the allowance for loan losses to non-PPP core banking loans is useful to investors as it highlights the true coverage ratio of the allowance excluding those loans that are 100 percent guaranteed by the SBA through the PPP and, therefore, do not require an allowance assessment. These non-GAAP disclosures have limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Mid Penn’s results and financial condition as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-GAAP supplemental information will be helpful in understanding Mid Penn’s ongoing operating results. This supplemental presentation should not be construed as an inference that Mid Penn’s future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

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 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 Mid Penn’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 the table below, indicate that Mid Penn would experience enhanced net interest income over a one-year time frame due to upward interest rate changes, while a reduction in interest rates would result in a decline in net interest income over a one-year time frame; however, actual results could vary significantly from the calculations prepared by management. At June 30, ~~2020,~~2021, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy.

June 30, 2020			December 31, 2019
June 30, 2021						June 30, 2021			December 31, 2020
	% Change in			% Change in			% Change in			% Change in
Change in	Net Interest	Policy	Change in	Net Interest	Policy		Net Interest	Policy	Change in	Net Interest	Policy
Basis Points	Income	Risk Limit	Basis Points	Income	Risk Limit		Income	Risk Limit	Basis Points	Income	Risk Limit
300	13.32%	≥ -20%	300	10.43%	≥ -20%		29.03%	≥ -20%	300	15.69%	≥ -20%
200	9.11%	≥ -15%	200	6.84%	≥ -15%		18.88%	≥ -15%	200	10.03%	≥ -15%
100	4.24%	≥ -10%	100	3.37%	≥ -10%		9.06%	≥ -10%	100	4.72%	≥ -10%
0			0						0
(100)	-4.30%	≥ -10%	(100)	-2.87%	≥ -10%		-4.00%	≥ -10%	(100)	-3.97%	≥ -10%
(200)	-9.39%	≥ -15%	(200)	-4.99%	≥ -15%		-9.39%	≥ -15%	(200)	-9.30%	≥ -15%
(300)	-14.46%	≥ -20%	(300)	-8.66%	≥ -20%		-14.79%	≥ -20%	(300)	-14.45%	≥ -20%

Mid Penn maintains controls and procedures designed to ensure that information required to be disclosed in the reports that Mid Penn files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures as of June 30, ~~2020,~~2021, Mid Penn’s management, with the participation of the Principal Executive Officer and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of such date.

There were no changes in Mid Penn’s internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, Mid Penn’s internal control over financial reporting during the six months ended June 30, ~~2020.~~2021.

Based on information currently available, management is not aware of any litigation that would reasonably be expected to have a material adverse effect on the consolidated financial position of Mid Penn or its subsidiaries taken as a whole. There are 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 any of its properties.

Management has reviewed the risk factors that were previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, to determine if there were material changes applicable to the three and six months ended June 30, ~~2020.~~2021. There are no material changes to such risk factors, other those described below relative to our announced acquisition of Riverview.

We are expected to incur substantial costs related to the Merger and integration.

We have incurred and expect to incur a number of non-recurring costs associated with the Merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, public company filing fees and other regulatory fees and financial printing and other related costs. Some of these costs are payable by us regardless of whether or not the Merger is completed.

The combined company is expected to incur substantial costs in connection with the related integration. There are a large number of processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits. While we have assumed that a certain level of costs will be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. These integration costs may result in the combined company taking charges against earnings following the completion of the Merger, and the amount and timing of such charges are uncertain at present.

Combining Mid Penn and Riverview may be more difficult, costly or time consuming than ~~as described below.~~expected and Mid Penn and Riverview may fail to realize the anticipated benefits of the Merger.

The success of the Merger will depend, in part, on the ability to realize the anticipated cost savings from ~~COVID-19 could negatively affect our net interest income, lending activities, deposits~~combining the businesses of Mid Penn and ~~profitability.~~

~~Our net interest income, lending activities, deposits~~Riverview. To realize the anticipated benefits and ~~profitability~~cost savings from the Merger, Mid Penn and Riverview must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized. If Mid Penn and Riverview are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the Merger could be ~~negatively~~less than anticipated, and integration may result in additional unforeseen expenses.

Mid Penn and Riverview have operated and, until the completion of the Merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. Integration efforts between the two companies may also divert management attention and resources. In addition, the impacts of the COVID-19 pandemic may make it more costly or more difficult to integrate the businesses of Mid Penn and Riverview, which, in turn, may make it more difficult for the combined company to realize anticipated synergies or cost savings in the amounts estimated or in the timeframe contemplated or at all. These integration matters could have an adverse effect on each of Mid Penn and Riverview during this transition period and for an undetermined period after completion of the Merger on the combined company.

The future results of the combined company following the Merger may suffer if the combined company does not effectively manage its expanded operations.

Following the Merger, the size of the business of the combined company will increase significantly beyond the current size of either Mid Penn’s or Riverview’s business. The combined company’s future success will depend, in part, upon its ability to manage this expanded business, which may pose challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. The combined company may also face increased scrutiny from governmental authorities as a result of the significant increase in the size of its business. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements or other benefits currently anticipated from the Merger.

The combined company may be unable to retain Mid Penn or Riverview personnel successfully while the Merger is pending or after the Merger is completed.

The success of the Merger will depend in part on the combined company’s ability to retain key employees currently employed by Mid Penn and Riverview. It is possible that these employees may decide not to remain with Mid Penn or Riverview, as applicable, while the Merger is pending or with the combined company after the Merger is consummated. If Mid Penn and Riverview are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, Mid Penn and Riverview could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In

addition, if key employees terminate their employment, the combined company’s business activities may be adversely affected ~~by volatility~~and management’s attention may be diverted from successfully integrating Mid Penn and Riverview to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, Mid Penn and Riverview may not be able to locate or retain suitable replacements for any key employees who leave either company.

The COVID-19 pandemic may delay and adversely affect the completion of the Merger.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, liquidity, capital and results of operations of Mid Penn and Riverview. If the effects of the COVID-19 pandemic cause continued or extended decline in ~~interest rates caused by uncertainties stemming from COVID-19. In March 2020,~~the economic environment and the financial results of Mid Penn or Riverview, or the business operations of Mid Penn or Riverview are further disrupted as a result of the COVID-19 pandemic, efforts to complete the Merger and integrate the businesses of Mid Penn and Riverview may also be delayed and adversely affected. Additional time may be required to obtain the requisite regulatory approvals, and the Federal Reserve, ~~lowered~~ the ~~target range for~~FDIC and/or other regulators may impose additional requirements on Mid Penn or Riverview that must be satisfied prior to completion of the ~~federal funds rate~~Merger, which could delay and adversely affect the completion of the Merger.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

Before the Merger and the Bank Merger may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve, the FDIC and other regulatory authorities. These approvals could be delayed or not obtained at all, including due to any or all of the following: an adverse development in either party’s regulatory standing, or any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; changes in legislation or the political environment, including as a ~~range~~result of changes of the U.S. executive administration, Congressional leadership and regulatory agency leadership; or impacts and disruptions resulting from 0the COVID-19 pandemic.

The approvals that are granted may impose terms and conditions, limitations, obligations or costs, require branch divestitures, or place restrictions on the conduct of the combined company’s business or require changes to ~~0.25 percent, citing concerns about~~ the ~~impact~~terms of ~~COVID-19~~the transactions contemplated by the Merger Agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions or that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on ~~markets and stress~~or materially limiting the revenues of the combined company following the Merger or will otherwise reduce the anticipated benefits of the Merger. In addition, there can be no assurance that any such conditions, limitations, obligations or restrictions will not result in the ~~energy sector. A prolonged period~~delay or abandonment of ~~extremely volatile~~the Merger. Additionally, the completion of the Merger is conditioned on the absence of certain orders, injunctions or decrees by any governmental entity of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the Merger Agreement.

Despite the parties’ commitments to use their reasonable best efforts to respond to any request for information and ~~unstable market conditions~~resolve any objection that may be asserted by any governmental entity with respect to the Merger Agreement, neither Mid Penn, Riverview nor their respective subsidiaries is required under the terms of the Merger Agreement to take any action, or commit to take any action, or agree to any condition or restriction in connection with obtaining these approvals, that would reasonably be likely ~~increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads~~ to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on ~~our net income, operating results,~~the combined company and its subsidiaries, taken as a whole, after giving effect to the Merger.

If the Merger is not completed for any reason, including as a result of Mid Penn shareholders or Riverview shareholders failing to approve the proposal for the Merger, there may be various adverse consequences and Mid Penn may experience negative reactions from the financial ~~condition.~~markets and from their customers and employees. For example, Mid Penn’s businesses may have been affected adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger.

Additionally, Mid Penn has incurred and will incur substantial expenses in connection with the negotiation and completion of ~~these~~the transactions contemplated by the Merger Agreement, including legal, accounting and financial advisory costs, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus for the Merger, and all filing and other ~~factors which~~fees paid to the SEC in connection with the Merger. If the Merger is not completed, Mid Penn would ~~affect our results, please see~~have to pay these expenses without realizing the expected benefits of the Merger.

Mid Penn will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on Mid Penn. These uncertainties may impair Mid Penn’s ~~filings~~ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with Mid Penn to seek to change existing business relationships with Mid Penn. In addition, subject to certain exceptions, Mid Penn has agreed to operate its business in the ordinary course prior to closing, and has agreed not to take certain actions, which could cause Mid Penn to be unable to pursue other beneficial opportunities that may arise prior to the completion of the Merger.

Shareholder litigation could prevent or delay the closing of the Merger or otherwise negatively affect the business and operations of Mid Penn.

Mid Penn may incur costs in connection with the ~~SEC, including those risk factors identified~~defense or settlement of any shareholder lawsuits filed in connection with the ~~"Risk Factors" section~~Merger. Such litigation could have an adverse effect on the financial condition and ~~elsewhere in our Annual Report~~results of operations of Mid Penn and could prevent or delay the consummation of the Merger.

The Merger Agreement subjects Mid Penn to certain restrictions on ~~Form 10-K~~its business activities prior to the effective time of the Merger.

The Merger Agreement subjects Mid Penn to certain restrictions on its business activities prior to the effective time of the Merger. Subject to certain specified exceptions, the Merger Agreement obligates Mid Penn to, and to cause each of its subsidiaries to, take no action that would reasonably be likely to adversely affect or delay the ability of either Mid Penn or Riverview to obtain any necessary approvals of any regulatory agency or other governmental entity required for the ~~year ended December 31, 2019~~transactions contemplated by the Merger Agreement or to perform its respective covenants and ~~subsequent filings.~~agreements under the Merger Agreement or to consummate the transactions contemplated by the Merger Agreement on a timely basis. These restrictions could prevent Mid Penn from pursuing certain business opportunities that arise prior to the effective time.

The COVID-19 pandemic’s impact on the combined company’s business and operations is uncertain.

The extent to which the COVID-19 pandemic will negatively affect the business, financial condition, liquidity, capital and results of operations of the combined company will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic, the direct and indirect impact of the COVID-19 pandemic on employees, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on the combined company’s business, and there is no guarantee that efforts by the combined company to address the adverse impacts of the COVID-19 pandemic will be effective.

Even after the COVID-19 pandemic has subsided, the combined company may continue to experience adverse impacts to its business as a result of the COVID-19 pandemic’s global economic impact, including reduced availability of credit, adverse impacts on liquidity and the negative financial effects from any recession or depression that may occur.

~~None~~Mid Penn adopted a treasury stock repurchase program initially effective March 19, 2020, and the buyback remains available as it was extended through March 19, 2022 by Mid Penn’s Board of Directors on April 28, 2021. The treasury stock repurchase program authorized the repurchase of up to $15,000,000 of Mid Penn’s outstanding common stock, which represents approximately 4.7% of the issued shares based on Mid Penn’s closing stock price and shares issued as of June 30, 2021. Under the program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase.

A summary of treasury stock activity during the six months ended June 30, 2021 is presented below.

Pursuant to the requirements 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.

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)


Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☒	Emerging growth company ☐

PART 1 – FINANCIAL INFORMATION			3

	Item 1 – Financial Statements		3

		Consolidated Balance Sheets as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (Unaudited)	3

		Consolidated Statements of Income for the Three and Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 (Unaudited)	4

		Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 (Unaudited)	5

		Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 (Unaudited)	6

		Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 (Unaudited)	7

		Notes to Consolidated Financial Statements (Unaudited)	9

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		4445

	Item 3 – Quantitative and Qualitative Disclosures about Market Risk		6164

	Item 4 – Controls and Procedures		6164

PART II – OTHER INFORMATION			6265

	Item 1 – Legal Proceedings		6265

	Item 1A – Risk Factors		6265

	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		6267

	Item 3 – Defaults upon Senior Securities		6267

	Item 4 – Mine Safety Disclosures		6267

	Item 5 – Other Information		6267

	Item 6 – Exhibits		6268

	Signatures		6369

(Dollars in thousands)	Six Months Ended June 30,
	2020			2019

Net income	$	10,651		$	8,480

Other comprehensive (loss) income:

Unrealized income arising during the period on available-for-sale
securities, net of income taxes of $87 and $796, respectively		329			2,998

Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($51) and ($5), respectively (a)		(192	)		(19	)

Change in defined benefit plans, net of income tax impact of ($170) and ($91), respectively (b)		(639	)		(346	)

Reclassification adjustment for settlement losses (gains) and activity related to benefit plans, net
of income taxes of $3 and ($8), respectively (c)		9			(29	)



Total other comprehensive (loss) income		(493	)		2,604

Total comprehensive income	$	10,158		$	11,084

(Dollars in thousands)	June 30, 2020
	Operating Leases			Finance Lease
Lease payments due:
Within one year	$	1,042		$	108
After one but within two years		1,868			216
After two but within three years		1,824			217
After three but within four years		1,572			217
After four but within five years		1,512			252
After five years		5,584			3,992
Total undiscounted cash flows		13,402			5,002
Discount on cash flows		(1,759	)		(1,493	)
Total lease liability	$	11,643		$	3,509

Balance, January 1, 2019	$	8,460	$	177,565	$	39,562		$	(2,378	)	$	—	$	223,209
Impact of adoption of new accounting standard (a)		—		—		316			—			—		316
Balance at January 1, 2019, adjusted		8,460		177,565		39,878			(2,378	)		—		223,525
Net income		—		—		4,077			—			—		4,077
Total other comprehensive income, net of taxes		—		—		—			1,807			—		1,807
Common stock dividends declared		—		—		(2,113	)		—			—		(2,113	)
Employee Stock Purchase Plan (1,152 shares)		1		27		—			—			—		28
Director Stock Purchase Plan (1,361 shares)		1		32		—			—			—		33
Restricted stock activity		—		80		—			—			—		80
Balance, March 31, 2019	$	8,462	$	177,704	$	41,842		$	(571	)	$	—	$	227,437

Net income		—		—		4,403			—			—		4,403
Total other comprehensive income, net of taxes		—		—		—			797			—		797
Common stock dividends declared		—		—		(1,524	)		-			—		(1,524	)
Employee Stock Purchase Plan (1,411 shares)		2		34		—			—			—		36
Director Stock Purchase Plan (1,336 shares)		1		32		—			—			—		33
Restricted stock activity		—		80		—			—			—		80
Balance, June 30, 2019	$	8,465	$	177,850	$	44,721		$	226		$	—	$	231,262

(Dollars in thousands)	Unrealized Gain (Loss) on Securities			Defined Benefit Plans			Accumulated Other Comprehensive (Loss) Income
Balance - June 30, 2020	$	9		$	(159	)	$	(150	)

Balance - December 31, 2019	$	(128	)	$	471		$	343

Capital Conservation Buffer (as a % of risk-weighted assets)		Maximum Payout (as a % of eligible retained income)
> 2.5%		No payout limitation applies
≤2.5% and >1.875%		60%
≤1.875% and >1.25%		40%
≤1.25% and >0.625%		20%
≤0.625%		0%


(Dollars in thousands)	June 30,			December 31,			June 30,
	2021			2020			2020
Loans and leases, net of unearned interest	$	2,495,192		$	2,384,041		$	2,445,765
Less: PPP loans, net of deferred fees		391,826			388,313			588,667
Non-PPP core banking loans		2,103,366			1,995,728			1,857,098

Allowance for loan and lease losses	$	14,716		$	13,382		$	11,067

Ratio of allowance for loan losses to net loans at end of period		0.59	%		0.56	%		0.45	%

Ratio of allowance for loan losses to non-PPP core banking loans at end of period		0.70	%		0.67	%		0.60	%

							Approximate Dollar
					Total Number of Shares		Value of Shares That
	Total Number		Average		Purchased as Part of		May Yet Be
	of Shares		Price		Publicly Announced		Purchased Under
Period	Purchased		Per Share		Plans or Programs		the Plans or Programs
January 1 - January 31, 2021		—	$	—		—	$	13,205,325
February 1 - February 28, 2021		5,800	$	22.09		98,452	$	13,077,211
March 1 - March 31, 2021		—	$	—		—	$	13,077,211
April 1 - April 30, 2021		—	$	—		—	$	13,077,211
May 1 - May 31, 2021		—	$	—		—	$	13,077,211
June 1 - June 30, 2021		—	$	—		—	$	13,077,211

		Mid Penn Bancorp, Inc. (Registrant)

By:		/s/ Rory G. Ritrievi
		Rory G. Ritrievi
		Chairman, President and CEO
		(Principal Executive Officer)

Date:		August ~~7, 2020~~6, 2021



By:		/s/ Michael D. Peduzzi, CPA
		Michael D. Peduzzi, CPA
		Senior Executive Vice President and Chief Financial Officer

Date:		August ~~7, 2020~~6, 2021


MID PENN BANCORP, INC.


MID PENN BANCORP, INC.