10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-13677

MID PENN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania	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)

Registrant’s telephone number, including area code 1.866.642.7736

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.

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

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 November 6, 2018, the registrant had 8,457,023 shares of common stock outstanding.

MID PENN BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART 1 – FINANCIAL INFORMATION			2
	Item 1 – Financial Statements		2
		Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 (Unaudited)	2
		Consolidated Statements of Income for the Three and  Nine Months Ended September 30, 2018 and September 30, 2017 (Unaudited)	3
		Consolidated Statements of Comprehensive Income (Loss) for the Three and  Nine Months Ended September 30, 2018 and September 30, 2017 (Unaudited)	4
		Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2018 and September 30, 2017 (Unaudited)	5
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and September 30, 2017 (Unaudited)	6
		Notes to Consolidated Financial Statements (Unaudited)	8
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk		60
	Item 4 – Controls and Procedures		60
PART II – OTHER INFORMATION			61
	Item 1 – Legal Proceedings		61
	Item 1A – Risk Factors		61
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		62
	Item 3 – Defaults upon Senior Securities		62
	Item 4 – Mine Safety Disclosures		62
	Item 5 – Other Information		62
	Item 6 – Exhibits		62
	Signatures		63

Unless the context otherwise requires, the terms “Mid Penn”, “we”, “us”, and “our” refer to Mid Penn Bancorp, Inc. and its consolidated subsidiaries.

1

MID PENN BANCORP, INC.

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share data)	September 30, 2018			December 31, 2017
ASSETS
Cash and due from banks	$	31,110		$	19,795
Interest-bearing balances with other financial institutions		5,241			3,028
Federal funds sold		25,734			691
Total cash and cash equivalents		62,085			23,514
Investment securities available for sale, at fair value		110,527			93,465
Investment securities held to maturity, at amortized cost (fair value $167,120 and $100,483)		171,521			101,356
Loans held for sale		3,181			1,040
Loans and leases, net of unearned interest		1,567,286			910,404
Less:  Allowance for loan and lease losses		(8,229	)		(7,606	)
Net loans and leases		1,559,057			902,798
Bank premises and equipment, net		25,467			16,168
Cash surrender value of life insurance		16,610			13,042
Restricted investment in bank stocks		3,373			4,384
Foreclosed assets held for sale		1,101			189
Accrued interest receivable		7,491			4,564
Deferred income taxes		4,432			1,888
Goodwill		62,767			3,918
Core deposit and other intangibles, net		7,708			434
Other assets		8,960			3,594
Total Assets	$	2,044,280		$	1,170,354
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	271,142		$	163,714
Interest-bearing demand		438,928			349,241
Money Market		356,729			246,220
Savings		224,746			62,770
Time		470,920			201,623
Total Deposits		1,762,465			1,023,568
Short-term borrowings		1,771			34,611
Long-term debt		18,064			12,352
Subordinated debt		27,088			17,338
Accrued interest payable		2,262			645
Other liabilities		10,795			6,137
Total Liabilities		1,822,445			1,094,651
Shareholders' Equity:
Series D preferred stock, par value $1.00; liquidation value $1,000; authorized 3,404 shares;
9% cumulative dividend; 3,404 and 0 shares issued and outstanding at September 30, 2018
and December 31, 2017, respectively		3,404			—
Common stock, par value $1.00; authorized 10,000,000 shares; 8,457,023 and 4,246,216
shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		8,457			4,242
Additional paid-in capital		177,421			40,970
Retained earnings		36,244			32,565
Accumulated other comprehensive loss		(3,691	)		(2,074	)
Total Shareholders’ Equity		221,835			75,703
Total Liabilities and Shareholders' Equity	$	2,044,280		$	1,170,354

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

2

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2018		2017
INTEREST INCOME
Interest and fees on loans and leases	$	17,715	$	10,213	$	41,125	$	29,864
Interest on interest-bearing balances		26		5		52		12
Interest on federal funds sold		78		23		399		97
Interest and dividends on investment securities:
U.S. Treasury and government agencies		965		617		2,601		1,636
State and political subdivision obligations, tax-exempt		636		240		1,695		820
Other securities		163		52		411		159
Total Interest Income		19,583		11,150		46,283		32,588
INTEREST EXPENSE
Interest on deposits		3,183		1,425		6,960		3,906
Interest on short-term borrowings		38		30		50		43
Interest on long-term and subordinated debt		451		179		1,070		538
Total Interest Expense		3,672		1,634		8,080		4,487
Net Interest Income		15,911		9,516		38,203		28,101
PROVISION FOR LOAN AND LEASE LOSSES		100		—		225		225
Net Interest Income After Provision for Loan and Lease Losses		15,811		9,516		37,978		27,876
NONINTEREST INCOME
Income from fiduciary activities		325		217		851		613
Service charges on deposits		242		175		667		554
Net gain on sales of investment securities		30		22		132		42
Earnings from cash surrender value of life insurance		76		65		205		196
Mortgage banking income		197		230		558		646
ATM debit card interchange income		317		233		908		689
Merchant services income		90		84		261		250
Net gain on sales of SBA loans		68		262		477		703
Other income		820		276		1,312		669
Total Noninterest Income		2,165		1,564		5,371		4,362
NONINTEREST EXPENSE
Salaries and employee benefits		6,680		4,277		16,286		12,666
Occupancy expense, net		1,063		631		2,730		1,872
Equipment expense		579		398		1,531		1,149
Pennsylvania bank shares tax expense		131		170		473		500
FDIC Assessment		187		197		508		585
Legal and professional fees		272		218		752		584
Marketing and advertising expense		274		139		693		377
Software licensing		602		397		1,628		1,096
Telephone expense		177		120		480		379
Loss on sale or write-down of foreclosed assets		45		—		48		88
Intangible amortization		341		25		837		78
Merger and acquisition expense		3,039		243		4,955		467
Other expenses		1,874		1,145		5,268		3,479
Total Noninterest Expense		15,264		7,960		36,189		23,320
INCOME BEFORE PROVISION FOR INCOME TAXES		2,712		3,120		7,160		8,918
Provision for income taxes		548		871		1,213		2,330
NET INCOME	$	2,164	$	2,249	$	5,947	$	6,588
Series D preferred stock dividends		38		—		38		—
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	2,126	$	2,249	$	5,909	$	6,588
PER COMMON SHARE DATA:
Basic and Diluted Earnings Per Common Share	$	0.28	$	0.53	$	0.89	$	1.56
Cash Dividends Paid	$	0.15	$	0.13	$	0.55	$	0.49

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

3

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in thousands)	Three Months Ended September 30,
	2018			2017
Net income	$	2,164		$	2,249
Other comprehensive (loss) income:
Unrealized losses arising during the period on available-for-sale
securities, net of income taxes of ($157) and ($1), respectively		(589	)		(1	)
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($6) and ($7), respectively  (a)		(23	)		(15	)
Change in defined benefit plans, net of income taxes of $66 and ($2), respectively  (b)		247			(3	)
Reclassification adjustment for settlement gains on benefit plans, net of income taxes
of ($25) and $0, respectively   (c)		(92	)		—
Total other comprehensive (loss)		(457	)		(19	)
Total comprehensive income	$	1,707		$	2,230

(Dollars in thousands)	Nine Months Ended September 30,
	2018			2017
Net income	$	5,947		$	6,588
Other comprehensive (loss) income:
Unrealized (losses) gains arising during the period on available-for-sale
securities, net of income tax impact of ($730) and $956, respectively		(2,746	)		1,858
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income tax impact of $(28) and $(14), respectively  (a)		(104	)		(28	)
Change in defined benefit plans, net of income tax impact of $423 and ($2), respectively  (b)		1,591			(7	)
Reclassification adjustment for settlement gains on benefit plans, net of income taxes
of ($104) and $0, respectively   (c)		(393	)		—
Total other comprehensive (loss) income		(1,652	)		1,823
Total comprehensive income	$	4,295		$	8,411

(a) Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate element within total noninterest income.

(b) The change in defined benefit plans includes several components of net periodic benefit costs, including service costs,interest costs, expected return on plan assets, and amortization of prior service costs.  Please reference Note 9 – Defined Benefit Plans, for the classification of these components on Consolidated Statements of Income.

(c) Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.

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

4

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

For the Nine Months Ended September 30, 2018 and 2017

(Dollars in thousands)										Accumulated
					Additional					Other			Total
	Preferred		Common		Paid-in		Retained			Comprehensive			Shareholders'
	Stock		Stock		Capital		Earnings			Loss			Equity
Balance, January 1, 2018	$	—	$	4,242	$	40,970	$	32,565		$	(2,074	)	$	75,703
Impact of adoption of new accounting standard (a)		—		—		—		(44	)		35			(9	)
Balance at January 1, 2018, adjusted		—		4,242		40,970		32,521			(2,039	)		75,694
Net income		—		—		—		5,947			—			5,947
Total other comprehensive loss, net of taxes		—		—		—		—			(1,652	)		(1,652	)
Series D preferred stock issued in connection with the First Priority acquisition		3,404		—		—		—			—			3,404
Series D preferred stock dividends		—		—		—		(38	)					(38	)
Common stock dividends declared		—		—		—		(2,186	)		—			(2,186	)
Common stock issued to Scottdale shareholders (1,878,827 shares) (b)		—		1,879		62,302		—			—			64,181
Common stock issued to First Priority shareholders (2,320,800 shares) (c)		—		2,321		73,801		—			—			76,122
Employee Stock Purchase Plan (2,640 shares)		—		2		82		—			—			84
Director Stock Purchase Plan (2,893 shares)				3		89		—			—			92
Restricted stock activity (9,647 shares)		—		10		177		—			—			187
Balance, September 30, 2018	$	3,404	$	8,457	$	177,421	$	36,244		$	(3,691	)	$	221,835
Balance, January 1, 2017	$	—	$	4,233	$	40,688	$	28,399		$	(2,853	)	$	70,467
Net income		—		—		—		6,588			—			6,588
Total other comprehensive income, net of taxes		—		—		—		—			1,823			1,823
Common stock dividends declared		—		—		—		(1,653	)		—			(1,653	)
Employee Stock Purchase Plan (2,747 shares)		—		3		73		—			—			76
Director Stock Purchase Plan (714 shares)				1		20		—			—			21
Restricted stock activity (3,996 shares)		—		4		65		—			—			69
Balance, September 30, 2017	$	—	$	4,241	$	40,846	$	33,334		$	(1,030	)	$	77,391

(a) Represents the impact of adopting Accounting Standard Update ASU 2016-01. See Note 4 to the consolidated financial statements for more information.

(b) Shares issued on January 8, 2018 as a result of the acquisition of The Scottdale Bank & Trust Company (“Scottdale”).  See Note 3 to the consolidated financial statements for more information.

(c) Shares issued on July 31, 2018 as a result of the acquisition of First Priority Financial Corp. (“First Priority”).  See Note 2 to the consolidated financial statements for more information.

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

5

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)	Nine Months Ended September 30,
		2018			2017
Operating Activities:
Net Income	$	5,947		$	6,588
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		225			225
Depreciation		1,671			1,075
Amortization of intangibles		837			78
Net amortization (accretion) of security discounts/premiums		308			(770	)
Gain on sales of investment securities		(132	)		(42	)
Earnings on cash surrender value of life insurance		(205	)		(196	)
Mortgage loans originated for sale		(35,437	)		(33,500	)
Proceeds from sales of mortgage loans originated for sale		33,854			34,327
Gain on sale of mortgage loans		(558	)		(646	)
SBA loans originated for sale		(6,061	)		(8,902	)
Proceeds from sales of SBA loans originated for sale		6,539			9,604
Gain on sale of SBA loans		(477	)		(703	)
Loss (gain) on disposal of property, plant, and equipment		70			(10	)
Loss on sale or write-down of foreclosed assets		48			88
Stock compensation expense		187			69
Deferred income tax benefit		3,526			1,016
Decrease (increase) in accrued interest receivable		355			(231	)
Increase in other assets		(4,400	)		(1,311	)
Increase in accrued interest payable		528			425
(Decrease) increase in other liabilities		(535	)		2,288
Net Cash Provided By Operating Activities		6,290			9,472
Investing Activities:
Proceeds from the sale of available-for-sale securities		155,626			52,314
Proceeds from the maturity or call of available-for-sale securities		15,483			7,046
Purchases of available-for-sale securities		(21,142	)		(15,196	)
Proceeds from the maturity or call of held-to-maturity securities		8,961			—
Purchases of held-to-maturity securities		(72,877	)		(86,092	)
Net cash received from acquisitions		72,616			—
Redemptions (purchases) of restricted investment in bank stock		3,345			(1,292	)
Net increase in loans and leases		(75,111	)		(63,400	)
Proceeds from the sale of bank premises and equipment held for sale		—			2,201
Purchases of bank premises and equipment		(8,397	)		(4,558	)
Proceeds from the sale of foreclosed assets		194			136
Net Cash Provided by (Used In) Investing Activities		78,698			(108,841	)
Financing Activities:
Net increase in deposits		23,970			91,302
Net (decrease) increase in short-term borrowings		(67,165	)		20,000
Common stock dividends paid		(3,246	)		(1,653	)
Employee Stock Purchase Plan		84			76
Director Stock Purchase Plan		92			21
Long-term debt repayment		(152	)		(166	)
Net Cash (Used In) Provided By Financing Activities		(46,417	)		109,580
Net increase in cash and cash equivalents		38,571			10,211
Cash and cash equivalents, beginning of period		23,514			45,973
Cash and cash equivalents, end of period	$	62,085		$	56,184

6

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

(Dollars in thousands)	Nine Months Ended September 30,
		2018		2017
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	6,463	$	4,062
Income taxes paid	$	225	$	3,165
Supplemental Noncash Disclosures:
Loan transfers to foreclosed assets held for sale	$	1,018	$	33

Assets, Liabilities, and Equity in Connection with Mergers (a):
(Dollars in thousands)	Nine Months Ended September 30,
		2018		2017
Assets Acquired:
Securities	$	177,016	$	—
Loans		582,392		—
Restricted stock		2,334		—
Property and equipment		2,643		—
Foreclosed assets		136		—
Deferred income taxes		4,168		—
Accrued interest receivable		3,282		—
Core deposit intangible		7,976		—
Cash surrender value of life insurance		3,363
Other assets		1,100		—
	$	784,410	$	—
Liabilities Assumed:
Deposits	$	714,927	$	—
Borrowings	$	49,939
Accrued interest payable		1,089		—
Other liabilities		6,213		—
	$	772,168	$	—
Equity Assumed:
Preferred stock	$	3,404	$	—
	$	3,404	$	—

(a) This disclosure includes the impact of both the acquisition of The Scottdale Bank and Trust Company, effective January 8, 2018, and the acquisition of First Priority Financial Corp., effective July 31, 2018.  Please reference Notes 2 and 3 for more information.

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

7

MID PENN BANCORP, INC.

(1) Basis of Presentation

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. (“Mid Penn” or the “Company”) and its wholly-owned subsidiary, Mid Penn Bank (the “Bank”). 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 September 30, 2017 and December 31, 2017 balances have been reclassified, when, and if necessary, to conform to the 2018 presentation.  Such reclassifications had no impact on net income. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.  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 Company’s Annual Report on Form 10-K for the year ended December 31, 2017.  

On July 31, 2018, Mid Penn completed its acquisition of First Priority Financial Corp. (“First Priority”), pursuant to the previously announced Agreement and Plan of Merger dated as of January 16, 2018. First Priority was merged with and into Mid Penn, with Mid Penn being the surviving corporation. Refer to Note 2, Acquisition of First Priority Financial Corp., as well as the Company’s Current Report on Form 8-K filed on August 1, 2018, for more information.

On January 8, 2018, Mid Penn completed its acquisition of The Scottdale Bank & Trust Company (“Scottdale”), a Pennsylvania bank and trust company, through the merger of Scottdale with and into Mid Penn Bank pursuant to the previously announced Agreement and Plan of Merger, dated as of March 29, 2017, among Mid Penn, Mid Penn Bank and Scottdale.  Refer to Note 3, Acquisition of The Scottdale Bank & Trust Company, as well as the Company’s Current Report on Form 8-K filed on January 8, 2018, for more information.

The comparability of the financial condition and results of operations as of and for the three and nine months ended September 30, 2018 and 2017, in general, have been materially impacted by the acquisitions of First Priority and Scottdale.  

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2018, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.

(2) Acquisition of First Priority Financial Corp.

On July 31, 2018, Mid Penn completed its acquisition of First Priority Financial Corp., through the merger of First Priority with and into Mid Penn.   In connection with this acquisition, First Priority Bank, First Priority’s wholly owned bank subsidiary, was merged with and into Mid Penn Bank.  

Pursuant to the merger agreement between Mid Penn and First Priority, the common shareholders of First Priority received 0.3481 shares of Mid Penn common stock for each share of First Priority common stock owned.  Additionally, outstanding options to purchase First Priority common stock at the time of the merger were converted into the right to receive cash at a per-option value of $11.07 less the applicable exercise price, without interest.  As a result of the acquisition, Mid Penn’s fulfillment of the merger consideration requirements resulted in (i) the issuance of 2,320,800 shares of Mid Penn common stock, (ii) the payment $3,801,000 related to cashing out the stock options, and (iii) cash paid of $6,000 in lieu of fractional shares, resulting in a combined fair value of total consideration paid of $79,929,000.

The assets and liabilities of First Priority were recorded on the consolidated balance sheet of the Company at their estimated fair value as of July 31, 2018, and their results of operations have been included in the consolidated income statement of the Company since such date.  First Priority has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of First Priority included in the consolidated income statement since the acquisition date is impracticable to provide.

Included in the purchase price was $39,659,000 of goodwill, a core deposit intangible of $2,832,000, and a trade name intangible of $205,000.  The core deposit intangible will be amortized over a ten-year period using a sum of the years’ digits basis.  The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require.  Core deposit intangible amortization expense related to the First Priority acquisition for the five years beginning 2018 through 2022 is estimated to be $215,000, $493,000, $442,000, $390,000, and $339,000 per year, respectively, and $953,000 in total for the five years after 2022.

8

MID PENN BANCORP, INC.

The allocation of the purchase price is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	11,398
Investment securities		62,977
Restricted stock		2,237
Loans		511,623
Goodwill		39,659
Core deposit intangible		2,832
Trade name intangible		205
Premises and equipment		1,147
Foreclosed assets		125
Deferred income taxes		3,118
Accrued interest receivable		2,293
Other assets		4,197
Total assets acquired		641,811
Liabilities assumed:
Deposits		504,946
Borrowings		49,939
Accrued interest payable		1,073
Other liabilities		2,520
Total liabilities assumed		558,478
Equity acquired:
Preferred stock		3,404
Total equity acquired and liabilities assumed		561,882
Consideration paid	$	79,929
Cash paid	$	3,807
Fair value of common stock issued		76,122

Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, allows for adjustments to goodwill for a period of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date.  The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities and equity assumed in the First Priority transaction.

(Dollars in thousands)
Total purchase price (consideration paid)	$	79,929
Net assets acquired:
Cash and cash equivalents		11,398
Investment securities		62,977
Restricted stock		2,237
Loans		511,623
Core deposit intangible		2,832
Trade name intangible		205
Premises and equipment		1,147
Foreclosed assets		125
Deferred income taxes		3,118
Accrued interest receivable		2,293
Other assets		4,197
Deposits		(504,946	)
Borrowings		(49,939	)
Accrued interest payable		(1,073	)
Other liabilities		(2,520	)
Preferred stock		(3,404	)
		40,270
Goodwill	$	39,659

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MID PENN BANCORP, INC.

In general, factors contributing to goodwill recognized as a result of the First Priority acquisition include expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of short-term investments into higher-yielding loans.  The goodwill acquired as a result of the First Priority acquisition is not tax deductible.

The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $511,623,000.  The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

(Dollars in thousands)
Gross amortized cost basis at January 8, 2018	$	521,644
Market rate adjustment		(3,023	)
Credit fair value adjustment on pools of homogeneous loans		(6,742	)
Credit fair value adjustment on impaired loans		(256	)
Fair value of purchased loans at January 8, 2018	$	511,623

The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans.  The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date.  The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan.

The information about the acquired First Priority impaired loan portfolio as of July 31, 2018 is as follows:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	1,855
Contractual cash flows not expected to be collected (nonaccretable discount)		(858	)
Expected cash flows at acquisition		997
Interest component of expected cash flows (accretable discount)		(125	)
Fair value of acquired loans	$	872

The following table presents pro forma information as if the merger between Mid Penn and First Priority had been completed on January 1, 2017.  The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with First Priority at the beginning of 2017.  The supplemental pro forma earnings for nine months ended September 30, 2018 excludes $3,661,000 of merger related costs related to the First Priority acquisition, which included approximately $1,475,000 of severance and retention bonus expenses. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.

(Dollars in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net interest income after loan loss provision	$	17,373	$	11,089	$	48,914	$	41,480
Noninterest income		2,220		1,688		5,754		5,000
Noninterest expense		13,543		10,677		41,532		37,757
Net income		5,502		1,533		10,995		6,368
Net income per common share		0.70		0.25		1.49		0.97

10

MID PENN BANCORP, INC.

(3) Acquisition of The Scottdale Bank and Trust Company

On January 8, 2018, The Scottdale Bank & Trust Company (“Scottdale”) merged with and into Mid Penn Bank, with Mid Penn Bank continuing as the surviving entity.  

Pursuant to the merger agreement, each share of Scottdale common stock issued and outstanding immediately prior to January 8, 2018 converted into the right to receive (i) $1,166 in cash without interest or (ii) 38.88 shares of Mid Penn common stock.  As a result, Mid Penn issued 1,878,827 shares of Mid Penn common stock with an acquisition date fair value of approximately $64,181,000, based on the closing stock price of Mid Penn’s common stock on January 8, 2018 of $34.16, and cash of $2,792,000.  Including an insignificant amount of cash paid in lieu of fractional shares, the fair value of total consideration paid was $66,973,000.

The assets and liabilities of Scottdale were recorded on the consolidated balance sheet of the Company at their estimated fair value as of January 8, 2018, and their results of operations have been included in the consolidated income statement of the Company since such date.  Scottdale has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of Scottdale included in the consolidated

income statement since the acquisition date is impracticable to provide.

Included in the purchase price was goodwill of $19,189,000 and a core deposit intangible of $4,940,000.  The core deposit intangible will be amortized over a ten-year period using a sum of the years’ digits basis.  The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require.  Core deposit intangible amortization expense related to the Scottdale acquisition for the five years beginning 2018 through 2022 is estimated to be $898,000, $808,000, $719,000, $629,000, and $539,000 per year, respectively, and $1,347,000 in total for the five years after 2022.

The allocation of the purchase price is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	67,817
Investment securities		114,039
Restricted stock		97
Loans		70,769
Goodwill		19,189
Core deposit intangible		4,940
Premises and equipment		1,496
Foreclosed assets		11
Deferred income taxes		1,050
Accrued interest receivable		989
Other assets		266
Total assets acquired		280,663
Liabilities assumed:
Deposits		209,981
Accrued interest payable		16
Other liabilities		3,693
Total liabilities assumed		213,690
Consideration paid	$	66,973
Cash paid	$	2,792
Fair value of common stock issued		64,181

Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, allows for adjustments to goodwill for a period of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date.  

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MID PENN BANCORP, INC.

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities and equity assumed in the Scottdale transaction.

(Dollars in thousands)
Total purchase price (consideration paid)	$	66,973
Net assets acquired:
Cash and cash equivalents		67,817
Investment securities		114,039
Restricted stock		97
Loans		70,769
Core deposit intangible		4,940
Premises and equipment		1,496
Foreclosed assets		11
Deferred income taxes		1,050
Accrued interest receivable		989
Other assets		266
Deposits		(209,981	)
Accrued interest payable		(16	)
Other liabilities		(3,693	)
		47,784
Goodwill	$	19,189

In general, factors contributing to goodwill recognized as a result of the Scottdale acquisition include expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of short-term investments into higher-yielding loans.  The goodwill acquired as a result of the Scottdale acquisition is not tax deductible.

The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $70,769,000.  The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

(Dollars in thousands)
Gross amortized cost basis at January 8, 2018	$	71,809
Market rate adjustment		601
Credit fair value adjustment on pools of homogeneous loans		(995	)
Credit fair value adjustment on impaired loans		(646	)
Fair value of purchased loans at January 8, 2018	$	70,769

The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans.  The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date.  The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan.

The information about the acquired Scottdale impaired loan portfolio as of January 8, 2018 is as follows:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	2,586
Contractual cash flows not expected to be collected (nonaccretable discount)		(1,010	)
Expected cash flows at acquisition		1,576
Interest component of expected cash flows (accretable discount)		(305	)
Fair value of acquired loans	$	1,271

12

MID PENN BANCORP, INC.

The following table presents pro forma information as if the merger between Mid Penn Bank and Scottdale had been completed on January 1, 2017.  The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn Bank merged with Scottdale at the beginning of 2017.  The supplemental pro forma earnings for the nine months ended September 30, 2018 exclude both (i) adjustments to estimate the eight day impact of Scottdale due to immateriality and impracticality and (ii) $1,294,000 of merger related costs incurred in 2018 related to the Scottdale acquisition, which included approximately $518,000 of severance and retention bonus expenses. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.

(Dollars in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net interest income after loan loss provision	$	15,811	$	11,074	$	37,978	$	32,455
Noninterest income		2,165		1,658		5,371		4,729
Noninterest expense		15,232		9,411		34,895		28,759
Net income		2,196		2,424		7,109		6,150
Net income per common share		0.29		0.40		1.16		1.01

(4) Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available-for-sale and carried at fair value.  Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, pledging requirements, 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 net proceeds and the amortized cost of the securities sold, using the specific identification method.  Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through Mid Penn’s consolidated statements 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 entity will recover the cost basis of the investment.

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

Mid Penn had no securities considered by management to be other-than-temporarily impaired as of September 30, 2018,  December 31, 2017, or September 30, 2017, and did not record any securities impairment charges in the respective periods ended on these dates.  Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to relate to changes in interest rates, and not erosion of credit quality.

Beginning January 1, 2018, upon adoption of ASU 2016-01, equity securities with readily determinable fair values are stated at fair value within other assets on the balance sheet, with realized and unrealized gains and losses reported in other expense on the income statement. For periods prior to January 1, 2018, equity securities were classified as available-for-sale and stated at fair value within investment securities available-for-sale on the balance sheet, with unrealized gains and losses reported as a separate component of accumulated other comprehensive loss, net of tax. Equity securities without readily determinable fair values are recorded at cost less any impairment.

13

MID PENN BANCORP, INC.

The amortized cost, fair value, and unrealized gains and losses oninvestment securities at September 30, 2018 andDecember 31, 2017 are as follows:

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2018
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	$	40,590	$	—	$	2,640	$	37,950
Mortgage-backed U.S. government agencies		41,677		-		1,490		40,187
State and political subdivision obligations		33,306		54		2,213		31,147
Corporate debt securities		1,250		-		7		1,243
Total available-for-sale debt securities		116,823		54		6,350		110,527
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies		16,480		5		261		16,224
Mortgage-backed U.S. government agencies		69,344		2		1,998		67,348
State and political subdivision obligations		84,154		19		2,157		82,016
Corporate debt securities		1,543		—		11		1,532
Total held-to-maturity debt securities		171,521		26		4,427		167,120
Total	$	288,344	$	80	$	10,777	$	277,647

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2017
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	$	40,125	$	—	$	1,395	$	38,730
Mortgage-backed U.S. government agencies		26,398		2		569		25,831
State and political subdivision obligations		27,775		7		739		27,043
Corporate debt securities		1,350		5		—		1,355
Total available-for-sale debt securities		95,648		14		2,703		92,959
Available-for-sale equity securities:
Equity securities		550		—		44		506
Total available-for-sale equity securities		550		—		44		506
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies		10,984		—		90		10,894
Mortgage-backed U.S. government agencies		53,472		—		523		52,949
State and political subdivision obligations		36,900		41		301		36,640
Total held-to-maturity debt securities		101,356		41		914		100,483
Total	$	197,554	$	55	$	3,661	$	193,948

Estimated fair values of debt securities are based on quoted market prices, where applicable.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued.  Please refer to Note 5, Fair Value Measurement, for more information on the fair value of investment securities.

Equity securities consist of Community Reinvestment Act funds and, as of September 30, 2018 and December 31, 2017, Mid Penn had $488,000 and $506,000, respectively, in equity securities recorded at fair value. Prior to January 1, 2018, equity securities were stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive loss, net of tax.  At December 31, 2017, net unrealized gains of $44,000 had been recognized in accumulated other comprehensive loss. On January 1, 2018, with the adoption of ASU 2016-01, these unrealized gains and losses were reclassified out of accumulated other comprehensive loss and into retained earnings and subsequent changes in fair value are now recognized in net income and the fair value of securities is presented in other assets.  No equity securities were sold during the three and nine months ended September 30, 2018.

Investment securities having a fair value of $240,070,000 at September 30, 2018 and $141,465,000 at December 31, 2017 were pledged to secure public deposits, some trust account holdings, and certain other borrowings.

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MID PENN BANCORP, INC.

Gross realized gains and losses on sales of available-for-sale debt securities for the three and nine months ended September 30, 2018 and 2017 are shown in the table below.

(Dollars in thousands)	Three Months Ended September 30,							Nine Months Ended September 30,
	2018			2017				2018				2017
Realized gains		$	30		$	46			$	141		$	246
Realized losses			-			(24	)			(9	)		(204	)
Net gains		$	30		$	22			$	132		$	42

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 September 30, 2018 and December 31, 2017.

(Dollars in thousands)	Less Than 12 Months					12 Months or More						Total
	Number					Number						Number
	of	Fair		Unrealized		of		Fair		Unrealized		of	Fair		Unrealized
September 30, 2018	Securities	Value		Losses		Securities		Value		Losses		Securities	Value		Losses
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	1	$	484	$	4	21		$	37,466	$	2,636	22	$	37,950	$	2,640
Mortgage-backed U.S. government agencies	12		18,385		360	18			21,777		1,130	30		40,162		1,490
State and political subdivision obligations	14		7,144		285	45			20,283		1,928	59		27,427		2,213
Corporate debt securities	1		993		7		—		—		—	1		993		7
Total temporarily impaired available-for-sale debt securities	28		27,006		656	84			79,526		5,694	112		106,532		6,350
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	4		9,313		206	2			4,942		55	6		14,255		261
Mortgage-backed U.S. government agencies	35		49,974		1,279	12			16,406		719	47		66,380		1,998
State and political subdivision obligations	171		69,513		1,730	20			7,147		427	191		76,660		2,157
Corporate debt securities	1		1,532		11		—		—		—	1		1,532		11
Total temporarily impaired held-to-maturity debt securities	211		130,332		3,226	34			28,495		1,201	245		158,827		4,427
Total	239	$	157,338	$	3,882	118		$	108,021	$	6,895	357	$	265,359	$	10,777

15

MID PENN BANCORP, INC.

(Dollars in thousands)	Less Than 12 Months						12 Months or More						Total
	Number						Number						Number
	of		Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized
December 31, 2017	Securities		Value		Losses		Securities	Value		Losses			Securities	Value		Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	3		$	5,008	$	184	18	$	33,722		$	1,211	21	$	38,730	$	1,395
Mortgage-backed U.S. government agencies	4			5,267		75	15		20,497			494	19		25,764		569
State and political subdivision obligations	11			6,144		102	40		19,091			637	51		25,235		739
Equity securities		—		—		—	1		506			44	1		506		44
Total temporarily impaired available-for-sale securities	18		$	16,419	$	361	74	$	73,816		$	2,386	92	$	90,235	$	2,747
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies		—		—		—	4		10,894			90	4		10,894		90
Mortgage-backed U.S. government agencies		—		—		—	35		52,949			523	35		52,949		523
State and political subdivision obligations		—		—		—	77		29,976			301	77		29,976		301
Total temporarily impaired held to maturity securities	0			—		—	116		93,819			914	116		93,819		914
Total	18		$	16,419	$	361	190	$	167,635		$	3,300	208	$	184,054	$	3,661

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 has been less than amortized cost and the financial condition and near term prospects of the issuer.  In addition, for debt securities, Mid Penn considers (a) whether management has the intent to sell the security, (b) it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (c) whether management expects to recover the entire amortized cost basis.  For equity securities, management considers the intent and ability to hold securities until recovery of unrealized losses.

The majority of the investment portfolio is comprised of securities issued by U.S. government agencies and state and political subdivision obligations.  For the investment securities with an unrealized loss, Mid Penn has concluded that, based on its analysis, the unrealized losses were primarily caused by the movement of interest rates and not due to an erosion of credit quality of the underlying issuers.

At both September 30, 2018 and December 31, 2017, the majority of available-for-sale securities and held-to-maturity securities in an unrealized loss position were obligations of state and political subdivisions, U.S. Treasury and agency securities, and mortgage-backed U.S. government agencies.

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of September 30, 2018.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
September 30, 2018	Cost		Value		Cost		Value
Due in 1 year or less	$	-	$	-	$	3,084	$	3,080
Due after 1 year but within 5 years		19,586		18,828		15,466		15,163
Due after 5 years but within 10 years		43,451		40,271		82,415		80,337
Due after 10 years		12,109		11,241		1,212		1,192
		75,146		70,340		102,177		99,772
Mortgage-backed securities		41,677		40,187		69,344		67,348
	$	116,823	$	110,527	$	171,521	$	167,120

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MID PENN BANCORP, INC.

(5) Loans and Allowance for Loan and Lease Losses

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

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

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

Commercial and Industrial

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

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.

Residential Mortgage

Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction.  The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas.  Residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 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.

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The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, or Pennsylvania Housing Finance Agency standards, with the intention of selling the majority of residential mortgages originated into the secondary market.  In the event that the facts and circumstances surrounding a residential mortgage application do not meet all underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request.  In the event that the loan is held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

Consumer, Including Home Equity

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

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit.  Substantially all home equity loans and lines of credit are secured by 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.

Allowance for Loan and Lease Losses

The allowance for credit losses (“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 $171,000 at September 30, 2018 and $105,000 at December 31, 2017.  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, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  Because all identified losses are immediately charged off, no portion of the allowance 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.

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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 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 measureable 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.  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.

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 rated as substandard 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 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 rated as impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans.  An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value.  A specific allocation of allowance is made for any anticipated collateral shortfall. 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.  Consumer loans (including home equity loans and other consumer loans) are recommended for charge-off after reaching delinquency of 90 days and the loan is not 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 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 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.

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MID PENN BANCORP, INC.

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

For impaired loans with no valuation allowance required, Mid Penn’s practice of obtaining independent third party market valuations on the subject property 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 further segregation of loan classes into risk rating categories.  The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments.  Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss.  Loans criticized as special mention have potential weaknesses that deserve management’s close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.  Loans classified substandard have a well-defined weakness or 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.  Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Acquired Loans

Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the existing related allowance for loan losses.  Fair value of the 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 the 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.

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MID PENN BANCORP, INC.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Mid Penn expects to fully collect the new carrying value (i.e. fair value) of the loans.  As such, Mid Penn may no longer consider the loan to be nonaccrual or nonperforming 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.

The classes of the loan portfolio, summarized by the pass rating (net of deferred fees and costs of $443,000 as of September 30, 2018 and $464,000 as of December 31, 2017), and the classified ratings of special mention and substandard within Mid Penn’s internal risk rating system as of September 30, 2018 and December 31, 2017, are as follows:

(Dollars in thousands)			Special
September 30, 2018	Pass		Mention		Substandard		Total
Commercial and industrial	$	259,870	$	2,106	$	7,174	$	269,150
Commercial real estate		801,897		1,917		9,008		812,822
Commercial real estate - construction		145,001		—		367		145,368
Lease financing		132		—		—		132
Residential mortgage		252,997		148		2,241		255,386
Home equity		73,753		—		96		73,849
Consumer		10,579		—		—		10,579
	$	1,544,229	$	4,171	$	18,886	$	1,567,286

(Dollars in thousands)			Special
December 31, 2017	Pass		Mention		Substandard		Total
Commercial and industrial	$	182,168	$	453	$	5,412	$	188,033
Commercial real estate		505,397		1,435		8,180		515,012
Commercial real estate - construction		61,667		182		487		62,336
Lease financing		229		—		—		229
Residential mortgage		97,814		157		1,062		99,033
Home equity		41,479		105		309		41,893
Consumer		3,868		—		—		3,868
	$	892,622	$	2,332	$	15,450	$	910,404

Mid Penn had no loans classified as doubtful as of September 30, 2018 and December 31, 2017.

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MID PENN BANCORP, INC.

Impaired loans by loan portfolio class as of September 30, 2018 and December 31, 2017 are summarized as follows:

	September 30, 2018						December 31, 2017
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—	$	13	$	—
Commercial real estate		2,033		2,553		—		3,424		4,056		—
Commercial real estate - construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Residential mortgage		832		940		—		760		877		—
Home equity		25		126		—		260		295		—
Consumer		—		—		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	28	$	28	$	—	$	—	$	—	$	—
Commercial real estate		1,456		1,456		—		555		555		—
Commercial real estate - construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Residential mortgage		1,264		1,264		—		306		306		—
Home equity		4		4		—		—		—		—
Consumer		—		—		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,527	$	4,635	$	489	$	4,434	$	4,460	$	136
Commercial real estate		857		872		243		1,423		1,589		293
Commercial real estate - construction		367		370		38		487		492		100
Lease financing		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,555	$	4,663	$	489	$	4,434	$	4,473	$	136
Commercial real estate		4,346		4,881		243		5,402		6,200		293
Commercial real estate - construction		367		370		38		487		492		100
Lease financing		—		—		—		—		—		—
Residential mortgage		2,096		2,204		—		1,066		1,183		—
Home equity		29		130		—		260		295		—
Consumer		—		—		—		—		—		—

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The average recorded investment of impaired loans and related interest income recognized for the three and nine months ended September 30, 2018 and 2017 are summarized as follows:

	Three Months Ended
	September 30, 2018				September 30, 2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate		1,872		—		751		—
Commercial real estate - construction		—		—		42		—
Lease financing		—		—		—		—
Residential mortgage		780		11		847		—
Home equity		17		—		294		3
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	24	$	—	$	—	$	—
Commercial real estate		1,470		7		570		—
Commercial real estate - construction		—		—		—		—
Lease financing		—		—		—		—
Residential mortgage		677		—		318		—
Home equity		1		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,425	$	—	$	2,230	$	—
Commercial real estate		703		—		2,148		—
Commercial real estate - construction		367		—		487		—
Lease financing		—		—		—		—
Residential mortgage		—		—		66		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,449	$	—	$	2,230	$	—
Commercial real estate		4,045		7		3,469		—
Commercial real estate - construction		367		—		529		—
Lease financing		—		—		—		—
Residential mortgage		1,457		11		1,231		—
Home equity		18		—		294		3
Consumer		—		—		—		—

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	Nine Months Ended
	September 30, 2018				September 30, 2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	16	$	—
Commercial real estate		3,040		3		551		279
Commercial real estate - construction		—		—		164		—
Lease financing		—		—		—		—
Residential mortgage		769		27		852		18
Home equity		148		—		184		5
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	21	$	—	$	—	$	—
Commercial real estate		1,365		23		682		110
Commercial real estate - construction		—		—		—		—
Lease financing		—		—		—		—
Residential mortgage		726		—		339		—
Home equity		—		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,424	$	—	$	892	$	—
Commercial real estate		456		—		2,446		—
Commercial real estate - construction		367		—		390		—
Lease financing		—		—		—		—
Residential mortgage		—		—		53		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,445	$	—	$	908	$	—
Commercial real estate		4,861		26		3,679		389
Commercial real estate - construction		367		—		554		—
Lease financing		—		—		—		—
Residential mortgage		1,495		27		1,244		18
Home equity		148		—		184		5
Consumer		—		—		—		—

Nonaccrual loans by loan portfolio class as of September 30, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	September 30, 2018		December 31, 2017
Commercial and industrial	$	4,555	$	4,434
Commercial real estate		3,910		4,902
Commercial real estate - construction		367		487
Residential mortgage		1,490		492
Home equity		29		260
	$	10,351	$	10,575

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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.  As ofSeptember 30, 2018 and December 31, 2017, Mid Penn had no accruing loans past due greater than 90 days. The classes of the loan portfolio summarized by the past due status as of September 30, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	30-59		60-89		Greater
	Days Past		Days Past		than 90		Total Past
September 30, 2018	Due		Due		Days		Due		Current		Total Loans
Commercial and industrial	$	-	$	4	$	4,302	$	4,306	$	264,816	$	269,122
Commercial real estate		710		—		273		983		810,383		811,366
Commercial real estate - construction		—		—		367		367		145,001		145,368
Lease financing		—		—		—		—		132		132
Residential mortgage		409		—		290		699		253,423		254,122
Home equity		24		25		19		68		73,777		73,845
Consumer		—		18		—		18		10,561		10,579
Loans acquired with credit deterioration:
Commercial and industrial		—		23		—		23		5		28
Commercial real estate		—		—		991		991		465		1,456
Commercial real estate - construction		—		—		—		—		-		-
Lease financing		—		—		—		—		-		-
Residential mortgage		—		—		237		237		1,027		1,264
Home equity		—		—		4		4		-		4
Consumer		—		—		—		—		-		-
Total	$	1,143	$	70	$	6,483	$	7,696	$	1,559,590	$	1,567,286

(Dollars in thousands)	30-59		60-89		Greater
	Days Past		Days Past		than 90		Total Past
December 31, 2017	Due		Due		Days		Due		Current		Total Loans
Commercial and industrial	$	4,439	$	16	$	-	$	4,455	$	183,578	$	188,033
Commercial real estate		-		-		3,669		3,669		510,788		514,457
Commercial real estate - construction		-		-		487		487		61,849		62,336
Lease financing		-		-		-		-		229		229
Residential mortgage		310		467		177		954		97,773		98,727
Home equity		54		98		250		402		41,491		41,893
Consumer		3		-		-		3		3,865		3,868
Loans acquired with credit deterioration:
Commercial and industrial		-		-		-		-		-		-
Commercial real estate		500		-		55		555		-		555
Commercial real estate - construction		-		-		-		-		-		-
Lease financing		-		-		-		-		-		-
Residential mortgage		-		31		193		224		82		306
Home equity		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	5,306	$	612	$	4,831	$	10,749	$	899,655	$	910,404

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

(Dollars in thousands)
As of, and for the three months ended, September 30, 2018	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing		Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
July 1, 2018	$	2,120		$	4,723		$	146		$	-	$	441		$	420		$	4		$	335		$	8,189
Charge-offs		(12	)		(34	)		-			-		(10	)		-			(11	)		-			(67	)
Recoveries		-			2			-			-		-			-			5			-			7
Provisions		232			130			(12	)		-		38			16			7			(311	)		100
Ending balance,
September 30, 2018	$	2,340		$	4,821		$	134		$	-	$	469		$	436		$	5		$	24		$	8,229
(Dollars in thousands)
As of, and for the nine months ended, September 30, 2018	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing		Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2018	$	1,795		$	4,435		$	178		$	-	$	428		$	423		$	3		$	344		$	7,606
Charge-offs		(142	)		(34	)		(40	)		-		(14	)		(167	)		(21	)		-			(418	)
Recoveries		1			807			-			-		-			-			8			-			816
Provisions		686			(387	)		(4	)		-		55			180			15			(320	)		225
Ending balance,
September 30, 2018		2,340			4,821			134			-		469			436			5			24			8,229
Individually evaluated for impairment		489			243			38			-		-			-			-			-			770
Ending balance:
collectively evaluated for impairment	$	1,851		$	4,578		$	96		$	-	$	469		$	436		$	5		$	24		$	7,459
Loans receivables:
Ending balance	$	269,150		$	812,822		$	145,368		$	132	$	255,386		$	73,849		$	10,579		$	-		$	1,567,286
Ending balance: individually evaluated for impairment		4,527			2,890			367			-		832			25			-			-			8,641
Ending balance: acquired with credit deterioration		28			1,456			-			-		1,264			4			-			-			2,752
Ending balance: collectively evaluated for impairment	$	264,595		$	808,476		$	145,001		$	132	$	253,290		$	73,820		$	10,579		$	-		$	1,555,893

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MID PENN BANCORP, INC.

(Dollars in thousands)
December 31, 2017	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Lease financing		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2017	$	1,795	$	4,435	$	178	$	-	$	428	$	423	$	3	$	344	$	7,606
individually evaluated for impairment		136		293		100		-		-		-		-		-		529
Ending balance:
collectively evaluated for impairment	$	1,659	$	4,142	$	78	$	-	$	428	$	423	$	3	$	344	$	7,077
Loans receivable:
Beginning balance,
January 1, 2017	$	188,033	$	515,012	$	62,336	$	229	$	99,033	$	41,893	$	3,868	$	-	$	910,404
Individually evaluated for impairment		4,434		4,847		487		-		760		260		-		-		10,788
Acquired with credit deterioration		-		555		-		-		306		-		-		-		861
Ending balance:
collectively evaluated for impairment	$	183,599	$	509,610	$	61,849	$	229	$	97,967	$	41,633	$	3,868	$	-	$	898,755

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MID PENN BANCORP, INC.

(Dollars in thousands)
As of, and for the three months ended, September 30, 2017	Commercial and industrial			Commercial real estate			Commercial real estate - construction		Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
July 1, 2017	$	1,628		$	4,981		$	140	$	1		$	539		$	404		$	4		$	16		$	7,713
Charge-offs		-			(207	)		-		-			(7	)		(20	)		(5	)		-			(239	)
Recoveries		5			22			-		-			-			-			1			-			28
Provisions		166			(326	)		36		(1	)		7			53			5			60			-
Ending balance,
September 30, 2017	$	1,799		$	4,470		$	176	$	-		$	539		$	437		$	5		$	76		$	7,502
(Dollars in thousands)
As of, and for the nine months ended, September 30, 2017	Commercial and industrial			Commercial real estate			Commercial real estate - construction		Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2017	$	1,580		$	4,323		$	144	$	1		$	541		$	379		$	3		$	212		$	7,183
Charge-offs		(12	)		(237	)		-		-			(25	)		(20	)		(21	)		-			(315	)
Recoveries		11			383			-		-			4			5			6			-			409
Provisions		220			1			32		(1	)		19			73			17			(136	)		225
Ending balance,
September 30, 2017		1,799			4,470			176		-			539			437			5			76			7,502
Individually evaluated for impairment		150			375			100		-			66			-			-			-			691
Ending balance:
collectively evaluated for impairment	$	1,649		$	4,095		$	76	$	-		$	473		$	437		$	5		$	76		$	6,811
Loans receivables:
Ending balance	$	182,857		$	490,603		$	58,074	$	259		$	101,073		$	40,350		$	4,170		$	-		$	877,386
Ending balance: individually evaluated for impairment		4,460			2,148			487		-			856			261			-			-			8,212
Ending balance: acquired with credit deterioration		-			569			-		-			315			-			-			-			884
Ending balance: collectively evaluated for impairment	$	178,397		$	487,886		$	57,587	$	259		$	99,902		$	40,089		$	4,170		$	-		$	868,290

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MID PENN BANCORP, INC.

The recorded investments in troubled debt restructured loans at September 30, 2018 and December 31, 2017 are as follows:

(Dollars in thousands)	Pre-Modification		Post-Modification
September 30, 2018	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	4,110	$	4,460	$	4,303
Commercial real estate		2,940		2,841		2,229
Residential mortgage		677		675		522
Home equity		14		14		2
	$	7,741	$	7,990	$	7,056

(Dollars in thousands)	Pre-Modification		Post-Modification
December 31, 2017	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	4,110	$	4,460	$	4,434
Commercial real estate		5,735		5,581		4,593
Residential mortgage		677		675		540
Home equity		14		14		4
	$	10,536	$	10,730	$	9,571

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 whereby principal payments have been decreased, interest rates have been reduced and/or the loan will be repaid as collateral is sold.

Mid Penn’s troubled debt restructured loans at September 30, 2018 totaled $7,056,000, and included four loans totaling $524,000 representing accruing impaired loans to unrelated borrowers in compliance with the terms of the modification, with three loans being accruing impaired residential mortgages to unrelated borrowers totaling $522,000 and one loan being an accruing impaired home equity loan of $2,000.  The remaining $6,532,000 of troubled debt restructurings was attributable to ten loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  Two large relationships accounted for $5,463,000 of the total $6,532,000 in nonaccrual impaired troubled debt restructured loans.

At December 31, 2017, Mid Penn’s troubled debt restructured loans totaled $9,571,000, and included four loans totaling $544,000 representing accruing impaired loans in compliance with the terms of the modification, with three loans being accruing impaired residential mortgages to unrelated borrowers totaling $540,000, and one loan being an accruing impaired home equity loan of $4,000.  The remaining $9,027,000 of troubled debt restructured loans is attributable to fifteen loans among seven relationships, which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  Two large relationships accounted for $7,284,000 of the $9,027,000 in nonaccrual impaired troubled debt restructured loans.  As of December 31, 2017, there was $66,000 of charge-offs associated with troubled debt restructured loans while under a forbearance agreement.  As of December 31, 2017, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.  There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2017.  

One nonaccrual commercial real estate relationship was modified as a troubled debt restructured loan during the three and nine months ended September 30, 2018.  The pre-modification and post-modification recorded investment balances for this loan were $270,000. The loan was modified to require payments of interest only for a period of six months.  No charge-offs were taken at the time of modification, and the September 30, 2018 recorded investment balance of this loan was $270,000.  

Two troubled debt restructured loans were added during the three and nine months ended September 30, 2017.  One nonaccrual impaired commercial and industrial troubled debt restructured loan was added as a result of the consolidation of four existing Mid Penn Bank loans with a pre-modification outstanding recorded investment of $4,110,000, as well as other obligations of $350,000 with the same borrower.  This loan had a post-modification recorded investment of $4,460,000, and a September 30, 2017 recorded investment amount of $4,460,000.  No charge-offs were taken at the time of modification.  One nonaccrual impaired commercial real estate loan was added with a pre-modification outstanding recorded investment of $362,000, a post-modification recorded investment of $300,000, and a September 30, 2017 recorded investment amount of $299,000. This modification consolidated two existing Mid Penn Bank loans.  

As a result of management evaluations as of September 30, 2018, December 31, 2017, and September 30, 2017, any specific allocations and charge-offs have been taken as deemed appropriate. There were no charge-offs associated with existing troubled debt restructured loan relationships for the three or nine months ended September 30, 2018. There were no troubled debt restructured loans that defaulted within twelve months of restructure during the three and nine months ended September 30, 2018 and 2017.

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MID PENN BANCORP, INC.

As of September 30, 2018, Mid Penn had $1,027,000of residential real estate held in other real estate owned. There were four consumer mortgage loans secured by residential real estate properties totaling $193,000 for which formal foreclosure proceedings were in process.  As of December 31, 2017, Mid Penn had $42,000 of residential real estate held in other real estate owned, and $308,000 in loans for which formal foreclosure proceedings were in process.

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

(Dollars in thousands)
Accretable yield, July 1, 2018	$	300
Acquisition of impaired loans		125
Accretable yield amortized to interest income		(61	)
Reclassification from nonaccretable difference (a)		-
Accretable yield, September 30, 2018	$	364

(Dollars in thousands)
Accretable yield, January 1, 2018	$	67
Acquisition of impaired loans	$	430
Accretable yield amortized to interest income		(133	)
Reclassification from nonaccretable difference (a)		-
Accretable yield, September 30, 2018	$	364

(a) Reclassification from non-accretable difference represents an increase to the estimated cash flows to be collected on the underlying portfolio.

(6) Fair Value Measurement

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

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

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

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).

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MID PENN BANCORP, INC.

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

There were no transfers of assets between fair value Level 1 and Level 2 during the nine months ended September 30, 2018 or 2017.

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

			Fair value measurements at September 30, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2018		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	37,950	$	-	$	37,950	$	-
Mortgage-backed U.S. government agencies		40,187		-		40,187		-
State and political subdivision obligations		31,147		-		31,147		-
Corporate debt securities		1,243		-		1,243		-
Other assets:
Equity securities		488		488		-		-
Loans held for sale		3,181		3,181		-		-
Total	$	114,196	$	3,669	$	110,527	$	-

			Fair value measurements at December 31, 2017 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	38,730	$	-	$	38,730	$	-
Mortgage-backed U.S. government agencies		25,831		-		25,831		-
State and political subdivision obligations		27,043		-		27,043		-
Corporate debt securities		1,355		-		1,355		-
Other assets:
Equity securities		506		506		-		-
Loans held for sale		1,040		1,040		-		-
Total	$	94,505	$	1,546	$	92,959	$	-

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 September 30, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2018		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	4,995	$	-	$	-	$	4,995
Foreclosed Assets Held for Sale		581		-		-		581
Mortgage Servicing Rights		107		-		-		107

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MID PENN BANCORP, INC.

			Fair value measurements at December 31, 2017 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	6,090	$	-	$	-	$	6,090
Foreclosed Assets Held for Sale		-		-		-		-
Mortgage Servicing Rights		126		-		-		126

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
September 30, 2018	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	4,995	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	26% - 100%	36%
Foreclosed Assets Held for Sale		581	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	17% - 17%	17%
Mortgage Servicing Rights		107	Multiple of annual service fee	Estimated prepayment speed based on rate and term	70% - 100%	99%

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2017	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	6,090	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	6% - 51%	28%
Foreclosed Assets Held for Sale		-	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	0% - 0%	0%
Mortgage Servicing Rights		126	Multiple of annual service fee	Estimated prepayment speed based on rate and term	70% - 100%	98%

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

(b) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.  Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, or age of the appraisal.

(c) Includes qualitative adjustments by management and estimated liquidation expenses.

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

Cash and Cash Equivalents:

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

Interest-bearing Balances with other Financial Institutions:

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

Securities Available for Sale:

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

Held-to-Maturity Securities:

The fair values of held-to-maturity securities are based on a market approach using observable inputs such as benchmark yields and securities, reported trades, issuer spreads, current bids and offers, monthly payment information and collateral performance.

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MID PENN BANCORP, INC.

Loans Held for Sale:

The fair values of mortgage loans originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors.

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.

Loans:

Loan fair values as of September 30, 2018 are estimated using an exit price approach, which incorporates discounts for credit risk and prepayment risk and considers the value indicated by current market expectations in the estimated fair value of the loan portfolio.

Loan fair values as of December 31, 2017 were calculated using the entrance price approach.  Under this approach, variable rate loans that reprice frequently and which entail no significant changes in credit risk had a fair value approximating carrying value.  The fair value of other loans was estimated by calculating the present value of the cash flow difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.

Foreclosed Assets Held for Sale:

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

Accrued Interest Receivable and Payable:

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

Restricted Investment in Bank Stocks:

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

Mortgage Servicing Rights:

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

Deposits:

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

Short-term Borrowings:

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

Long-term and Subordinated Debt:

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

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MID PENN BANCORP, INC.

Commitments to Extend Credit and Letters of Credit:

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

The following table summarizes the carrying value and fair value of financial instruments at September 30, 2018 and December 31, 2017.

(Dollars in thousands)	September 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	62,085	$	62,085	$	23,514	$	23,514
Available-for-sale investment securities		110,527		110,527		93,465		93,465
Held-to-maturity investment securities		171,521		167,120		101,356		100,483
Loans held for sale		3,181		3,181		1,040		1,040
Net loans and leases		1,559,057		1,551,077		902,798		917,081
Restricted investment in bank stocks		3,373		3,373		4,384		4,384
Accrued interest receivable		7,491		7,491		4,564		4,564
Mortgage servicing rights		107		107		126		126
Financial liabilities:
Deposits	$	1,762,465	$	1,759,822	$	1,023,568	$	1,026,830
Short-term borrowings		1,771		1,771		34,611		34,611
Long-term debt		18,064		15,544		12,352		11,692
Subordinated debt		27,088		27,256		17,338		17,358
Accrued interest payable		2,262		2,262		645		645
Off-balance sheet financial instruments:
Commitments to extend credit	$	-	$	-	$	-	$	-
Financial standby letters of credit		-		-		-		-

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of September 30, 2018 and December 31, 2017.  Carrying values approximate fair values for cash and cash equivalents, interest-bearing time balances with other financial institutions, loans held for sale, restricted investment in bank stocks, mortgage servicing rights, accrued interest receivable and payable, and short-term borrowings.  Other than cash and cash equivalents, which are considered Level 1 Inputs and mortgage servicing rights, which are Level 3 Inputs, these instruments are Level 2 Inputs. These tables exclude financial instruments for which the carrying amount approximates fair value, not previously disclosed.

					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
September 30, 2018	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	171,521	$	167,120	$	-	$	167,120	$	-
Net loans and leases		1,559,057		1,551,077		-		-		1,551,077
Financial instruments -    liabilities
Deposits	$	1,762,465	$	1,759,822	$	-	$	1,759,822	$	-
Long-term debt		18,064		15,544		-		15,544		-
Subordinated debt		27,088		27,256		-		27,256		-

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					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
December 31, 2017	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	101,356	$	100,483	$	-	$	100,483	$	-
Net loans and leases		902,798		917,081		-		-		917,081
Financial instruments -    liabilities
Deposits	$	1,023,568	$	1,026,830	$	-	$	1,026,830	$	-
Long-term debt		12,352		11,692		-		11,692		-
Subordinated debt		17,338		17,358				17,358

(7) Guarantees and Commitments

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 $22,479,000 and $20,496,000 standby letters of credit outstanding as of September 30, 2018 and December 31, 2017, respectively.  Mid Penn does not anticipate any losses because of these transactions.  The amount of the liability as of September 30, 2018 and December 31, 2017 for payment under standby letters of credit issued was not material.

During the second quarter of 2018,Mid Penn entered into a commitment to purchase a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania.  All of the units are intended 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, which will be paid in installments over the course of construction of the low-income housing facilities.  The investment in the limited partnership will be reported in other assets on the Consolidated Balance Sheet and amortized over a ten year period.  The project has been conditionally awarded $861,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $8,613,000 to be awarded to Mid Penn over the ten year amortization period.  Mid Penn’s commitment to purchase the limited partnership interest is conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it may deem necessary. As of September 30, 2018, the total investment in the limited partnership was $1,472,000 and was reported in other assets on the Consolidated Balance Sheet.

(8) Subordinated Debt

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”).  In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000. The 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 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. 

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Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its 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 times be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any 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.  

Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025.  The 2015 Notes are treated as Tier 2 capital for regulatory capital purposes.

The 2015 Notes bear interest at a rate of 5.15% 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 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.

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 $151,000 at September 30, 2018 and $162,000 at December 31, 2017.

(9) Defined Benefit Plans

Mid Penn has an unfunded noncontributory defined benefit retirement plan for directors.  The plan provides defined benefits based on years of service.  Mid Penn also sponsors a defined benefit health care plan that provides post-retirement medical benefits and life insurance to qualifying full-time employees.  These health care 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 contributed $600,000 to the defined benefit pension plan during the three and nine months ended September 30, 2018.  A December 31 measurement date for the plan is used.

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

	Three Months Ended September 30,
(Dollars in thousands)	Pension Benefits					Other Benefits
	2018			2017		2018			2017
Service cost	$	82		$	9	$	1		$	1
Interest cost		107			11		4			5
Expected return on plan assets		(106	)		-		-			-
Amortization (accretion) of prior service cost		4			4		(5	)		(6	)
Settlement gain		(117	)		-		-			-
Net periodic benefit (income) expense	$	(30	)	$	24	$	-		$	-

	Nine Months Ended September 30,
(Dollars in thousands)	Pension Benefits					Other Benefits
	2018			2017		2018			2017
Service cost	$	242		$	26	$	3		$	3
Interest cost		322			32		13			15
Expected return on plan assets		(317	)		-		-			-
Amortization (accretion) of prior service cost		13			11		(15	)		(17	)
Settlement gain		(497	)		-		-			-
Net periodic benefit (income) expense	$	(237	)	$	69	$	1		$	1

For the three and nine months ended September 30, 2018, 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, amortization (accretion) of prior service cost, and settlement gain are reported as a component of other income.  For the three and nine months ended September 30, 2017, service costs were reported as a component of salaries and employee benefits, while interest costs and accretion of prior service costs were reported as a component of other expense.

(10) Accumulated Other Comprehensive Loss

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

(Dollars in thousands)	Unrealized Loss on Securities			Defined Benefit Plans		Accumulated Other Comprehensive Loss
Balance - September 30, 2018	$	(4,974	)	$	1,283	$	(3,691	)
Balance - December 31, 2017	$	(2,159	)	$	85	$	(2,074	)

(11) Preferred Stock

In accordance with the terms and conditions of the Agreement and Plan of Merger dated January 16, 2018 between Mid Penn and First Priority (the “Merger Agreement”), each share of First Priority Fixed Rate Cumulative Perpetual Preferred Stock, Series C (the “First Priority Preferred Stock”) outstanding as of July 31, 2018 was converted into the right to receive one share of Mid Penn Fixed Rate Cumulative Perpetual Preferred Stock, Series D, having a $1,000 liquidation preference per share (the “Mid Penn Preferred Stock”). In connection with the Merger, Mid Penn issued 3,404 shares of Mid Penn Preferred Stock.

The terms of the Mid Penn Preferred Stock are no less favorable than those of the First Priority Preferred Stock as in effect immediately prior to the Merger. Under the terms of the Mid Penn Preferred Stock, no repurchases may be effected, and no dividends may be declared or paid on preferred shares ranking pari passu with the Mid Penn Preferred Stock, junior preferred shares, or other junior securities (including the common stock) unless all accrued and unpaid dividends on the Mid Penn Preferred Stock for all past dividend periods are paid in full. The Mid Penn Preferred Stock may be redeemed at the option of Mid Penn, subject to the prior receipt of any requisite regulatory approval.

Dividends are payable quarterly on February 15, May 15, August 15 and November 15 of each year. The dividend rate on the Mid Penn Preferred Stock is fixed at 9%.

On November 5, 2018, the Federal Reserve Bank affirmed Mid Penn’s request to redeem the Mid Penn Preferred Stock.  Mid Penn intends to redeem all 3,404 of the issued and outstanding shares of Mid Penn Fixed Rate Cumulative Perpetual Preferred Stock, Series D during the fourth quarter of 2018.  Please reference Note 16 – Subsequent Event, for more information.  

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MID PENN BANCORP, INC.

(12) Restricted Common Stock

On May 6, 2014, Mid Penn shareholders approved the 2014 Restricted Stock Plan (the “Plan”), which authorizes the issuance of awards that shall not exceed, in the aggregate, 100,000 shares of common stock.  Awards under the Plan are limited to employees and directors of the Company and the Bank selected by the Compensation Committee of the Board of Directors, to advance the best interest of Mid Penn and its shareholders.  

Share-based compensation expense relating to restricted stock is recognized on a straight-line basis over the vesting periods of the awards and is a component of salaries and benefits expense.  As of September 30, 2018, a total of 38,109 restricted shares were granted under the Plan, with 16,633 of the granted shares being vested, while the remaining 21,476 granted shares remain unvested. During the nine months ended September 30, 2018, 490 shares were forfeited due to the voluntary termination of an employee. No shares were forfeited during the three months ended September 30, 2018, or the three and nine months ended September 30, 2017. The Plan shares granted and vested resulted in $74,000 in compensation expense for the three months ended September 30, 2018, while $30,000 of share-based compensation expense was recorded for the three months ended September 30, 2017.  Compensation expense related to the Plan was $187,000 for the nine months ended September 30, 2018, while it was $69,000 for the same period in 2017.  

(13) Revenue Recognition

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, 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.  ASU 2014-09 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.  

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit charge interchange income, merchant service fees and components of other income are within the scope of Topic 606.  Within these various non-interest income streams, Mid Penn enters into business contracts with customers to perform a variety of services. These services include, but are not limited to (i) agreed-upon tasks (e.g. initiating a wire transfer or trust and investment management services), (ii) service of standing ready to provide goods and services (e.g. letter of credit arrangements), and (iii) arranging for another party to transfer goods or services to a customer (e.g. check order fees).  Typically, contracts are approved in writing, but can also be approved in accordance with other customary business practices.  The majority of the performance obligations of Mid Penn are distinct and are satisfied at a point in time and typically the transaction prices are fixed and are documented in either a fee schedule, such as non-sufficient funds fees or wire fees, or calculated as a percentage of assets under management for trust and wealth management income streams.  The transaction price is not recognized in revenue until the service has occurred, or monthly in arrears for assets under management.  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.

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(14) Earnings per Common Share

Earnings per share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented.  The following data show the amounts used in computing basic earnings per common share.

(Dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018			2017	2018				2017
Net income	$	2,164	$	2,249	$	$	5,947	$	6,588
Less: Dividends on Series D preferred stock		38		-			38		-
Net income available to common shareholders	$	2,126	$	2,249		$	5,909	$	6,588
Weighted average common shares outstanding		7,695,469		4,237,965			6,604,027		4,236,604
Basic and diluted earnings per common share	$	0.28	$	0.53	$	$	0.89	$	1.56

Weighted average shares outstanding increased for the three and nine months ended September 30, 2018 when compared to the same periods in 2017 primarily as a result of both (i) the issuance of 1,878,827 shares of Mid Penn common stock on January 8, 2018 in connection with the Scottdale acquisition, and (ii) the issuance of 2,320,800 shares of Mid Penn common stock on July 31, 2018 in connection with the First Priority acquisition.  Mid Penn had no dilutive instruments outstanding during the periods ended September 30, 2018 and 2017.

(15) Recent Accounting Pronouncements

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

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.

The Update has tiered effective dates, with early adoption permitted for all entities as of the fiscal year beginning after December 15, 2018.  For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

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.

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MID PENN BANCORP, INC.

ASU 2016-02:  The FASB issued ASU 2016-02, Leases.

The new leases standard applies a right-of-use (“ROU”) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments.  For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability.  At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification.

The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to existing U.S. GAAP.  Classification depends on the same five criteria used by lessees plus certain additional factors.  The subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases, and operating leases.  However, the new standard updates certain aspects of the lessor accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic 606.

Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.  The new leases standard addresses other considerations including identification of a lease, separating lease and non-lease components of a contract, sale and leaseback transactions, modifications, combining contracts, reassessment of the lease term, and re-measurement of lease payments. It also contains comprehensive implementation guidance with practical examples.

On July 30, 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an option to apply the transition provisions of the new standard at the adoption date instead of the earliest comparative period presented.  Additionally, the ASU provides a practical expedient permitting lessors to not separate non-lease components from the associated lease component if certain conditions are met.

The amendments for both ASUs are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Specific transition requirements apply.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Specific transition requirements apply.

Mid Penn occupies certain offices under non-cancelable operating lease agreements, which currently are not reflected in its consolidated statement of condition.  Mid Penn expects to recognize lease liabilities and ROU assets associated with these lease agreements as required by the ASU; however, the extent of the prospective impact on Mid Penn’s consolidated financial statements and the materiality will be dependent upon the extent and type of lease arrangements involving Mid Penn at the time of the adoption of this standard. Mid Penn expects to adopt this standard by applying the transition provisions at the adoption date and utilize the practical expedients made available through ASU 2018-11.  Mid Penn is currently gathering the data and information required to adopt the standard effective January 1, 2019.

ASU 2018-07: The FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

The ASU makes certain changes to the accounting for nonemployee awards to align the accounting for share-based payment awards issued to employees and nonemployees.  The changes require that the compensation expense associated with nonemployee equity awards with performance conditions be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition.  Additionally, the new ASU requires that equity-classified share-based payment awards issued to nonemployees be measured on the grant date, versus the previous GAAP requirement to re-measure the awards through the performance completion date.  The current requirement to reassess the classification (equity or liability) for the nonemployee awards upon vesting will be eliminated.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted, including interim periods.

Mid Penn currently issues restricted stock awards to nonemployee directors through the 2014 Restricted Stock Plan (the “Plan”).  The single performance condition of the award is that the individual remain a director of Mid Penn through the duration of the vesting period. Mid Penn is currently evaluating the details of this ASU and expects that the adoption of this ASU will not have a material impact on our consolidated financial statements as the compensation expense related to nonemployee equity awards is immaterial to Mid Penn’s overall financial condition.

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MID PENN BANCORP, INC.

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.

The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted.

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 will be 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 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.

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 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.

(16) Subsequent Event

On November 5, 2018, the Federal Reserve Bank affirmed Mid Penn’s request to redeem all 3,404 shares of Mid Penn Fixed Rate Cumulative Perpetual Preferred Stock, Series D.  Mid Penn intends to redeem the preferred stock during the fourth quarter of 2018.  Please reference Note 11 – Preferred Stock, for more information.  

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

The following is Management’s Discussion of Consolidated Financial Condition as of September 30, 2018, compared to year-end 2017, and the Results of Operations for the three and nine months ended September 30, 2018, compared to the same period in 2017.  For comparative purposes, the September 30, 2018 and December 31, 2017 balances have been reclassified, when, and if necessary, to conform to the 2018 presentation.  Such reclassifications had no impact on net income.  This discussion should be read in conjunction with the financial tables, statistics, and the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report”).  The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.

Caution About Forward-Looking Statements

Forward-looking statements involve risks, uncertainties and assumptions.  Although Mid Penn generally does not make forward-looking statements unless Mid Penn’s management believes its management has a reasonable basis for doing so, Mid Penn cannot guarantee the accuracy of any forward-looking statements.  Actual results may differ materially from those expressed in any forward-looking statements due to a number of uncertainties and risks, including the risks described in this Quarterly Report on Form 10-Q, the 2017 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 effects of potentially slowing or volatile future economic conditions on Mid Penn and its customers;

• governmental monetary and fiscal policies, as well as legislative and regulatory changes;

• future actions or inactions of the United States government, including a failure to increase the government debt limit or a prolonged shutdown of the federal government;

• an increase in the Pennsylvania Bank Shares Tax to which Mid Penn Bank’s capital stock is currently subject, or imposition of any additional taxes on Mid Penn or Mid Penn Bank;

• impacts of the capital and liquidity requirements imposed by the Basel III standards and other regulatory pronouncements and rules;

• the effect of changes in accounting policies and practices, as may be adopted by the supervisory agencies, as well as the Public Company Accounting Oversight Board, Financial Accounting Standards Board, and other accounting standard setters;

• the risks of changes in interest rates on the level and composition of deposits and other funding sources, loan demand and yields, values of loan collateral, securities and yields, and interest rate protection agreements;

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

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

• technological changes;

• our ability to implement business strategies, including our acquisitions of First Priority and Scottdale, and other business acquisition activities and organic branch, product and service expansion strategies;

• our current and future acquisition strategies may not be successful in locating or acquiring advantageous targets at favorable prices;

• our ability to successfully integrate any banks, companies, assets, liabilities, customers, systems and management personnel we acquire into our operations, including those related to our acquisitions of First Priority and Scottdale, and our ability to realize related revenue synergies and cost savings within expected time frames;

• potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;

• our ability to attract and retain qualified management and personnel;

• our ability to maintain the value and image of our brand and protect our intellectual property rights;

• results of regulatory examination and supervision processes;

• our ability to maintain compliance with the exchange rules of The NASDAQ Stock Market LLC;

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

• acts of war or terrorism; disruptions due to flooding, severe weather, or other natural disasters or Acts of God; and

• volatility in the securities markets.

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.

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MID PENN BANCORP, INC.

Critical Accounting Estimates

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 Company considers the accounting judgments relating to the allowance, the evaluation of the Company’s investment securities for other-than-temporary impairment, the valuation of the Company’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.

Results of Operations

Overview

Net income available to common shareholders was $2,126,000 or $0.28 per common share, for the quarter ended September 30, 2018, compared to net income of $2,249,000 or $0.53 per common share, for the quarter ended September 30, 2017.  During the nine months ended September 30, 2018, net income available to common shareholders was $5,909,000 or $0.89 per common share, versus $6,588,000 or $1.56 per common share, for the nine months ended September 30, 2017.  

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Return on average assets		0.46	%		0.81	%		0.51	%		0.81	%
Return on average equity		4.34	%		11.75	%		4.94	%		11.94	%

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MID PENN BANCORP, INC.

The results for the three and nine months ended September 30, 2018 and 2017 included merger and acquisition expenses resulting from the acquisition of Scottdale, which was announced during the first quarter of 2017 and legally closed on January 8, 2018, and First Priority, which was announced on January 16, 2018 and legally closed on July 31, 2018.  Please refer to Notes 2 and 3 to the consolidated financial statements under Item 1 for more information on Mid Penn’s completed acquisitions of Scottdale and First Priority.  

Net Interest Income/Funding Sources

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 nine months ended September 30, 2018 and 34 percent for the three and nine months ended September 30, 2017.  The decrease in the statutory rate to 21 percent, which became effective January 1, 2018, was a result of the Tax Cuts and Jobs Act enacted December 22, 2017.

The following tables include average balances, amounts, and rates of interest income and expense, interest rate spread, and net interest margin for the three and nine months ended September 30, 2018 and 2017.

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MID PENN BANCORP, INC.

	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Three Months Ended
(Dollars in thousands)	September 30, 2018									September 30, 2017
	Average						Average			Average						Average
	Balance		Interest				Rates			Balance		Interest				Rates
ASSETS:
Interest Bearing Balances	$	6,432	$	26				1.60	%	$	2,751	$	5				0.72	%
Investment Securities:
Taxable		174,938		1,073				2.43	%		132,926		639				1.91	%
Tax-Exempt		109,627		805		(a)		2.91	%		46,903		363		(a)		3.07	%
Total Securities		284,565		1,878				2.62	%		179,829		1,002				2.21	%
Federal Funds Sold		15,413		78				2.01	%		7,998		23				1.14	%
Loans and Leases, Net		1,398,731		17,786		(b)		5.04	%		866,972		10,314		(b)		4.72	%
Restricted Investment in Bank Stocks		3,675		55				5.94	%		3,173		31				3.88	%
Total Earning Assets		1,708,816		19,823				4.60	%		1,060,723		11,375				4.25	%
Cash and Due from Banks		31,570									24,227
Other Assets		97,523									35,241
Total Assets	$	1,837,909								$	1,120,191
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest-bearing Demand	$	383,550		667				0.69	%	$	337,379		370				0.44	%
Money Market		333,777		836				0.99	%		242,485		364				0.60	%
Savings		209,673		179				0.34	%		63,159		9				0.06	%
Time		400,414		1,501				1.49	%		206,483		682				1.31	%
Total Interest-bearing Deposits		1,327,414		3,183				0.95	%		849,506		1,425				0.67	%
Short-term Borrowings		8,290		38				1.82	%		9,378		30				1.27	%
Long-term Debt		16,199		114				2.79	%		13,439		80				2.36	%
Subordinated Debt		23,537		337				5.68	%		7,420		99				5.29	%
Total Interest-bearing Liabilities		1,375,440		3,672				1.06	%		879,743		1,634				0.74	%
Noninterest-bearing Demand		256,917									156,274
Other Liabilities		11,339									7,348
Shareholders' Equity		194,213									76,826
Total Liabilities & Shareholders' Equity	$	1,837,909								$	1,120,191
Net Interest Income (taxable equivalent basis)			$	16,151								$	9,741
Taxable Equivalent Adjustment				(240	)								(225	)
Net Interest Income			$	15,911								$	9,516
Total Yield on Earning Assets								4.60	%								4.25	%
Rate on Supporting Liabilities								1.06	%								0.74	%
Average Interest Spread								3.54	%								3.51	%
Net Interest Margin								3.75	%								3.64	%

(a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $169,000 and $124,000 for the three months ended September 30, 2018 and 2017, respectively.  Tax-equivalent adjustments were calculated using statutory tax rates of 21% and 34% at September 30, 2018 and 2017, respectively.

(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $71,000 and $101,000 for the three months ended September 30, 2018 and 2017, respectively.  Tax-equivalent adjustments were calculated using statutory tax rates of 21% and 34% at September 30, 2018 and 2017, respectively.

45

MID PENN BANCORP, INC.

	Three months ended
	September 30, 2018 vs. 2017
(Dollars in thousands on a Taxable Equivalent Basis)	Increase (decrease)
	Volume			Rate			Net
INTEREST INCOME:
Interest Bearing Balances	$	7		$	14		$	21
Investment Securities:
Taxable		202			232			434
Tax-Exempt		485			(43	)		442
Total Securities		687			189			876
Federal Funds Sold		21			34			55
Loans and Leases, Net		6,326			1,146			7,472
Restricted Investment Bank Stocks		5			19			24
Total Interest Income		7,046			1,402			8,448
INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand		51			246			297
Money Market		137			335			472
Savings		21			149			170
Time		641			178			819
Total Interest Bearing Deposits		850			908			1,758
Short-term Borrowings		(3	)		11			8
Long-term Debt		16			18			34
Subordinated Debt		215			23			238
Total Interest Expense		1,078			960			2,038
NET INTEREST INCOME	$	5,968		$	442		$	6,410

Taxable-equivalent net interest income was $16,151,000 for the three months ended September 30, 2018, an increase of $6,410,000 or 66 percent compared to the three months ended September 30, 2017.  Net interest income in the third quarter of 2018 was positively impacted by the loans and investment securities acquired in the Scottdale and First Priority transactions.    

For the three months ended September 30, 2018, Mid Penn’s tax-equivalent net interest margin was 3.75% compared to 3.64% for the three months ended September 30, 2017, as increases in quarterly yields on earning assets, and increases in noninterest-bearing deposits, more than offset the impact of the rising cost of funds as a result of recent Federal Open Market Committee (“FOMC”) rate increases, and the costs associated with the assumption of some higher-cost wholesale funding sources in the First Priority transaction.

46

MID PENN BANCORP, INC.

	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Nine Months Ended
(Dollars in thousands)	September 30, 2018									September 30, 2017
	Average						Average			Average						Average
	Balance		Interest				Rates			Balance		Interest				Rates
ASSETS:
Interest Bearing Balances	$	4,993	$	52				1.39	%	$	2,559	$	12				0.63	%
Investment Securities:
Taxable		163,900		2,824				2.30	%		117,507		1,709				1.94	%
Tax-Exempt		100,305		2,145		(a)		2.86	%		50,621		1,242		(a)		3.28	%
Total Securities		264,205		4,969				2.51	%		168,128		2,951				2.35	%
Federal Funds Sold		31,327		399				1.70	%		13,288		97				0.98	%
Loans and Leases, Net		1,131,410		41,320		(b)		4.88	%		846,903		30,199		(b)		4.77	%
Restricted Investment in Bank Stocks		3,141		188				8.00	%		2,738		87				4.25	%
Total Earning Assets		1,435,076		46,928				4.37	%		1,033,616		33,346				4.31	%
Cash and Due from Banks		29,801									20,528
Other Assets		78,126									34,596
Total Assets	$	1,543,003								$	1,088,740
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest-bearing Demand	$	368,362		1,687				0.61	%	$	332,233		940				0.38	%
Money Market		288,064		1,917				0.89	%		247,730		1,069				0.58	%
Savings		183,617		329				0.24	%		62,693		27				0.06	%
Time		277,239		3,027				1.46	%		194,884		1,870				1.28	%
Total Interest-bearing Deposits		1,117,282		6,960				0.83	%		837,540		3,906				0.62	%
Short-term Borrowings		3,775		50				1.77	%		4,656		43				1.23	%
Long-term Debt		13,598		263				2.59	%		13,496		241				2.39	%
Subordinated Debt		19,403		807				5.56	%		7,417		297				5.35	%
Total Interest-bearing Liabilities		1,154,058		8,080				0.94	%		863,109		4,487				0.70	%
Noninterest-bearing Demand		216,037									141,506
Other Liabilities		12,849									10,095
Shareholders' Equity		160,059									74,030
Total Liabilities & Shareholders' Equity	$	1,543,003								$	1,088,740
Net Interest Income (taxable equivalent basis)			$	38,848								$	28,859
Taxable Equivalent Adjustment				(645	)								(758	)
Net Interest Income			$	38,203								$	28,101
Total Yield on Earning Assets								4.37	%								4.31	%
Rate on Supporting Liabilities								0.94	%								0.70	%
Average Interest Spread								3.44	%								3.61	%
Net Interest Margin								3.62	%								3.73	%

(a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $450,000 and $423,000 for the nine months ended September 30, 2018 and 2017, respectively.  Tax-equivalent adjustments were calculated using statutory tax rates of 21% and 34% at September 30, 2018 and 2017, respectively.

(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $195,000 and $335,000 for the nine months ended September 30, 2018 and 2017, respectively.  Tax-equivalent adjustments were calculated using statutory tax rates of 21% and 34% at September 30, 2018 and 2017, respectively.

47

MID PENN BANCORP, INC.

	Nine months ended
	September 30, 2018 vs. 2017
(Dollars in thousands on a Taxable Equivalent Basis)	Increase (decrease)
	Volume			Rate			Net
INTEREST INCOME:
Interest Bearing Balances	$	11		$	29		$	40
Investment Securities:
Taxable		675			440			1,115
Tax-Exempt		1,219			(316	)		903
Total Securities		1,894			124			2,018
Federal Funds Sold		132			170			302
Loans and Leases, Net		10,145			976			11,121
Restricted Investment Bank Stocks		13			88			101
Total Interest Income		12,195			1,387			13,582
INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand		102			645			747
Money Market		174			674			848
Savings		52			250			302
Time		790			367			1,157
Total Interest Bearing Deposits		1,118			1,936			3,054
Short-term Borrowings		(8	)		15			7
Long-term Debt		2			20			22
Subordinated Debt		480			30			510
Total Interest Expense		1,592			2,001			3,593
NET INTEREST INCOME	$	10,603		$	(614	)	$	9,989

During the nine months ended September 30, 2018, taxable-equivalent net interest income increased $9,989,000 or 35 percent to $38,848,000 from $28,859,000 during the nine months ended September 30, 2017.  Net interest income was positively impacted by the loans and investment securities acquired in the January 8, 2018 Scottdale acquisition, and the July 31, 2018 First Priority transaction.  

For the nine months ended September 30, 2018, Mid Penn’s tax-equivalent net interest margin was 3.62% versus 3.73% for the nine months ended September 30, 2017.  The decrease was attributed primarily to the increases in the cost of funds for the first half of 2018 being accelerated compared to the repricing of earning assets, though, as noted above, that trend changed favorably in the third quarter.

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.

Provision for Loan Losses

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 nine months of 2018, and shifting collateral values from December 31, 2017 to September 30, 2018.

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MID PENN BANCORP, INC.

Management performs a monthly evaluation of the adequacy of the loan and lease loss allowance, and based on these evaluations during the third quarter of 2018, a loan loss provision of $100,000 was recorded for the three months ended September 30, 2018.  No loan loss provision was recorded for the three months ended September 30, 2017. The provision for loan and lease losses was $225,000 for each of the nine months ended September 30, 2018 and 2017.  The allowance for loan and lease losses as a percentage of total loans was 0.53% at September 30, 2018, compared to 0.84% at December 31, 2017, and 0.86% at September 30, 2017. This ratio reflects the impact of the entire portfolio of Scottdale and First Priority loans being added at fair value with no accompanying loan and lease loss allowance in accordance with purchase accounting GAAP.For further discussion of factors affecting the provision for loan and lease losses, please see Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses in the Financial Condition section of this Management’s Discussion and Analysis.

Noninterest Income

During the three months ended September 30, 2018, noninterest income was $2,165,000, reflecting an increase of $601,000 or 38 percent compared to noninterest income of $1,564,000 for the three months ended September 30, 2017.  For the nine months ended September 30, 2018, noninterest income totaled $5,371,000, an increase of $1,009,000 or 23 percent, compared to noninterest income of $4,362,000 for the same period in 2017.  Several components of noninterest income increased as a result of higher account and transaction volume due to both the First Priority and Scottdale acquisitions and organic growth.

The following components of noninterest income showed significant changes:

(Dollars in Thousands)	Three Months Ended September 30,
	2018		2017		$ Variance			% Variance
Income from fiduciary activities	$	325	$	217	$	108			50	%
Service charges on deposits		242		175		67			38	%
Net gain on sales of investment securities		30		22		8			36	%
Mortgage banking income		197		230		(33	)		-14	%
ATM debit card interchange income		317		233		84			36	%
Net gain on sales of SBA loans		68		262		(194	)		-74	%
Other income		820		276		544			197	%

(Dollars in Thousands)	Nine Months Ended September 30,
	2018		2017		$ Variance			% Variance
Income from fiduciary activities	$	851	$	613	$	238			39	%
Service charges on deposits		667		554		113			20	%
Net gain on sales of investment securities		132		42		90			214	%
Mortgage banking income		558		646		(88	)		-14	%
ATM debit card interchange income		908		689		219			32	%
Net gain on sales of SBA loans		477		703		(226	)		-32	%
Other income		1,312		669		643			96	%

49

MID PENN BANCORP, INC.

Income from fiduciary activities was $851,000 for the nine months ended September 30, 2018, an increase of $238,000 or 39 percent compared to fiduciary income of $613,000 for the nine months ended September 30, 2017. These additional revenues were attributed to continued growth in trust assets under management, and increased sales of retail investment products, as a result of successful business development efforts by Mid Penn’s trust and wealth management team.

For the nine months ended September 30, 2018, service charges on deposits were $667,000, an increase of $113,000 or 20 percent, compared to service charges of $554,000 for the nine months ended September 30, 2017.  This increase was driven by an increase in collected charges on a higher volume of transactional deposit accounts, including deposit accounts assumed in both the Scottdale and First Priority acquisitions.

Net gains on sales of securities were $132,000 for the nine months ended September 30, 2018, an increase of $90,000 compared to net gains on sales of securities of $42,000 during the same period of 2017. Some investment securities acquired from Scottdale and First Priority were subsequently sold to ensure the overall portfolio was in greater alignment with Mid Penn’s investment management objectives.

ATM debit card interchange income was $908,000 for the nine months ended September 30, 2018, an increase of $219,000 or over 31 percent compared to interchange income of $689,000 for the same period in 2017. The additional income is a result of an increased volume of checking accounts, and an increase in Mid Penn Bank ATM and debit card activity, which included an increase in transaction volume resulting from accounts acquired in the Scottdale and First Priority transactions.

Other income was $1,312,000 for the nine months ended September 30, 2018, an increase of $643,000 compared to other income of $669,000 for the same period of 2017.  The increase in other income was primarily driven by $497,000 of settlement gains recognized in the first nine months of 2018 as a result of certain lump sum payouts to participants of the defined benefit pension plan assumed during the Scottdale acquisition.  Increases in letter of credit renewal fees and other service fees and commissions also contributed to the year-over-year growth in other income.

Mortgage banking income was $558,000 for the nine months ended September 30, 2018, a decrease of $88,000 or 14 percent compared to the nine months ended September 30, 2017. Rising longer-term interest rates have resulted in a lower volume of mortgage refinance activity in the first nine months of 2018 when compared to the same period in 2017.

Net gain on sales of SBA loans was $477,000 for the nine months ended September 30, 2018, a decrease of $226,000 when compared to the same period in 2017.  Tighter market pricing has resulted in lower levels of income realized on loan sales in 2018 versus the prior year.

Noninterest Expense

During the three months ended September 30, 2018, noninterest expenses totaled $15,264,000, an increase of $7,304,000 or 92 percent compared to noninterest expenses of $7,960,000 for the three months ended September 30, 2017.  Noninterest expense for the nine months ended September 30, 2018 totaled $36,189,000, an increase of $12,869,000 or 55 percent compared to noninterest expenses of $23,320,000 for the first nine months of 2017.  Noninterest expenses incurred as a result of franchise expansion through the First Priority and Scottdale acquisitions were the primary sources of the significant increase, with some expenses being incurred in connection with the opening of two new retail offices (Halifax, PA and Pillow, PA) after September 2017.

The changes were primarily a result of the following components of noninterest expense, which had notable variances when comparing results for periods ending in 2018 versus the similar period in 2017:

(Dollars in Thousands)	Three Months Ended September 30,
	2018		2017		$ Variance			% Variance
Salaries and employee benefits	$	6,680	$	4,277	$	2,403			56	%
Occupancy expense, net		1,063		631		432			68	%
Equipment expense		579		398		181			45	%
FDIC Assessment		187		197		(10	)		-5	%
Legal and professional fees		272		218		54			25	%
Marketing and advertising expense		274		139		135			97	%
Software licensing		602		397		205			52	%
Telephone expense		177		120		57			48	%
Intangible amortization		341		25		316			1264	%
Merger and acquisition expense		3,039		243		2,796			1151	%
Other expenses		1,874		1,145		729			64	%

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MID PENN BANCORP, INC.

(Dollars in Thousands)	Nine Months Ended September 30,
	2018		2017		$ Variance			% Variance
Salaries and employee benefits	$	16,286	$	12,666	$	3,620			29	%
Occupancy expense, net		2,730		1,872		858			46	%
Equipment expense		1,531		1,149		382			33	%
FDIC Assessment		508		585		(77	)		-13	%
Legal and professional fees		752		584		168			29	%
Marketing and advertising expense		693		377		316			84	%
Software licensing		1,628		1,096		532			49	%
Telephone expense		480		379		101			27	%
Intangible amortization		837		78		759			973	%
Merger and acquisition expense		4,955		467		4,488			961	%
Other expenses		5,268		3,479		1,789			51	%

During the nine months ended September 30, 2018, merger and acquisition expenses were $4,955,000 and included investment banking fees, merger-related legal expenses, professional fees related to the preparation and filing of merger documents, severance costs, and information technology conversion/termination costs incurred in connection with (i) the acquisition of First Priority effective on July 31, 2018, and (ii) the acquisition of Scottdale effective on January 8, 2018.  Merger and acquisition expenses of $467,000 recorded during the nine months ended September 30, 2017 consisted primarily of investment banking fees and legal fees, as well as professional fees related to the preparation and filing of merger documents, related to the Scottdale acquisition.

Salaries and employee benefits expense increased $3,620,000 or 29 percent during the nine months ended September 30, 2018, versus the same period in 2017, with the increase attributable to (i) the retail staff additions at the five retail locations added through the Scottdale acquisition and the opening of the Halifax, PA branch, all effective January 8, 2018, (ii) the retail staff additions at the eight retail locations added through the First Priority acquisition, effective July 31, 2018, (iii) the retail staff additions as a result of the opening of the Pillow, PA branch, effective September 10, 2018, and (iv) the addition of commercial lending and credit administration personnel and other staff additions in alignment with Mid Penn’s core banking growth.

Occupancy expenses increased $858,000 or 46 percent during the first nine months of 2018 compared to the same period in 2017.  Similarly, equipment expense increased $382,000 or 33 percent during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.  These increases were driven by (i) the facility operating costs and increased depreciation expense for building, furniture, and equipment associated with the addition of the above-noted Scottdale market, First Priority market, and Halifax and Pillow branch offices, and (ii) depreciation and occupancy costs related to Mid Penn’s addition of  certain facilities in the Capital Region to increase administrative and operations support services for the growing franchise.  

FDIC assessment expense was $508,000 for the nine months ended September 30, 2018, a decrease of $77,000 or 13 percent compared to $585,000 for the nine months ended September 30, 2017.  As a result of the acquisitions, the favorable asset quality of both legacy portfolio loan assets and acquired portfolios, and successful workouts of non-performing assets, Mid Penn has reported more favorable capital and asset quality ratios, resulting in a lower overall FDIC assessment rate for 2018.

Legal and professional fees for the nine months ended September 30, 2018 increased by $168,000 or 29 percent compared to the same period in 2017 due to increased third-party services for wealth management, audit, and public relations activities given the expanded franchise operating profile.

Marketing and advertising expense increased 84 percent, from $377,000 for the nine months ended September 30, 2017 to $693,000 for the same period in 2018.  The increased costs were a result of marketing and branding initiatives implemented at the recently acquired Scottdale and First Priority locations, and market-specific business development promotions across Mid Penn’s footprint.  

Software licensing costs were $1,628,000 during the nine months ended September 30, 2018, an increase of $532,000 or 49 percent compared to $1,096,000 for the nine months ended September 30, 2017. The increase is a result of additional costs to license (i) all of the Scottdale and First Priority locations and the new Halifax and Pillow branches, (ii) upgrades to internal systems to enhance data management and storage capabilities given the larger company profile, and (iii) increases in certain core processing fees as our customer base and transaction volume continue to grow.

Intangible amortization increased from $78,000 during the nine months ended September 30, 2017 to $837,000 during the same period in 2018. In the first quarter of 2018, Mid Penn recorded a core deposit intangible (CDI) asset related to the Scottdale acquisition of $4,940,000.  On July 31, 2018, Mid Penn recorded an additional CDI asset of $2,832,000 as a result of the First Priority acquisition.  These CDI assets will amortize using the sum of the years’ digit method over a ten year period. During the nine months ended September 30, 2018, the CDI amortization recorded related to the Scottdale and First Priority acquisitions totaled $759,000, of which $673,000 was related to the amortization of the Scottdale CDI and $86,000 was related to the amortization of the First Priority CDI.

Other expense was $5,268,000 during the nine months ended September 30, 2018, an increase of $1,789,000 or 51 percent compared to other expense of $3,479,000 for the same period in 2017.  As both the Scottdale and First Priority acquisitions and organic growth have increased the organization’s geographic profile and employee base, several categories within other expense experienced increases, including insurance costs, stationary and supplies, printing, postage, loan collection costs and foreclosed real estate expenses, and employee travel costs.

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MID PENN BANCORP, INC.

Income Taxes

The provision for income taxes was $548,000 for the three months ended September 30, 2018 compared to $871,000 for the three months ended September 30, 2017.  The effective tax rate for the three months ended September 30, 2018 was 20.2 percent compared to 27.9 percent for the three months ended September 30, 2017.   The provision for income taxes was $1,213,000 for the nine months ended September 30, 2018 compared to $2,330,000 for the nine months ended September 30, 2017.  The effective tax rate for the nine months ended September 30, 2018 was 16.9 percent compared to 26.1 percent for the nine months ended September 30, 2017.   The decrease in the provision for income taxes was largely driven by the decrease in the statutory tax rate from 34 percent to 21 percent as a result of the Tax Cuts and Jobs Act enacted December 22, 2017.  The statutory rate change was effective January 1, 2018.  Contributing to the decrease in the provision for income taxes was a one-time income tax benefit of $92,000 recorded in the second quarter of 2018 as a result of amended 2014 through 2016 tax returns, as corrected K-1 statements were received related to Mid Penn’s investment in a limited partnership which provides low-income housing in Enola, Pennsylvania.

Generally, Mid Penn’s effective tax rate is below the statutory rate due to earnings on tax-exempt loans, investments, and BOLI, as well as the impact of tax credits.  The realization of Mid Penn’s deferred tax assets is dependent on future earnings.  Mid Penn currently anticipates that future earnings will be adequate to fully realize the currently recorded deferred tax assets.

Financial Condition

Overview

Mid Penn’s total assets were $2,044,280,000 as of September 30, 2018, reflecting an increase of $873,926,000 or 75 percent compared to total assets of $1,170,354,000 as of December 31, 2017.  Asset growth during the nine months ended September 30, 2018 includes the acquired loans, investments, cash, facilities, goodwill and core deposit intangibles recorded from the legal closing of the Scottdale and First Priority transactions, as well as organic growth from our legacy markets.

Loans

Totalloans at September 30, 2018 were $1,567,286,000 compared to $910,404,000 at December 31, 2017, an increase of $656,882,000 or over 72 percent since year-end 2017.  A large portion of this increase was from loans acquired during 2018.  As of September 30, 2018, including the impact of the fair value acquisition adjustments, the outstanding balances of First Priority and Scottdale acquired loans combined were $570,720,000.  The majority of Mid Penn’s $86,162,000 of organic loan growth year to date continues to be commercial loans, including both commercial and industrial financing, and commercial real estate credits.

(Dollars in thousands)	September 30, 2018					December 31, 2017
	Amount		%			Amount		%
Commercial and industrial	$	269,150		17.2	%	$	188,033		20.7	%
Commercial real estate		812,822		51.9	%		515,012		56.6	%
Commercial real estate - construction		145,368		9.3	%		62,336		6.8	%
Lease financing		132		0.0	%		229		0.0	%
Residential mortgage		255,386		16.3	%		99,033		10.9	%
Home equity		73,849		4.7	%		41,893		4.6	%
Consumer		10,579		0.7	%		3,868		0.3	%
	$	1,567,286		100.0	%	$	910,404		100.0	%

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

For the nine months ended September 30, 2018, Mid Penn had net recoveries of $398,000 compared to net recoveries of $94,000 during the same period of 2017.  The primary reason for the favorable net recovery amount through the first nine months of 2018 was Mid Penn’s workout and recovery of $777,000 of principal from a commercial real estate relationship that was subject to a restructuring and partial charge-off in 2009.  During the first nine months of 2017, Mid Penn’s net recovery position was attributed to the recovery of $318,000 of principal from the successful workout of a different commercial real estate relationship that was partially charged-off in 2010.  

Loans charged off during the first nine months of 2018 totaled $418,000 and included two home equity loans for $167,000, two commercial and industrial loans for $142,000, one commercial real estate (construction) loan for $40,000, three commercial real estate loans for $34,000, two residential mortgage loans for $14,000, three consumer loans for $11,000, and $10,000 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.

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Changes in the allowance for the nine months ended September 30, 2018 and 2017 are summarized as follows:

(Dollars in thousands)	Nine Months Ended September 30,
	2018			2017
Balance, beginning of period	$	7,606		$	7,183
Loans charged off during period		(418	)		(315	)
Recoveries of loans previously charged off		816			409
Net recoveries		398			94
Provision for loan and lease losses		225			225
Balance, end of period	$	8,229		$	7,502
Ratio of net loans recovered to average loans outstanding, annualized		-0.05	%		-0.01	%
Ratio of allowance for loan losses to net loans at end of period		0.53	%		0.86	%

Other than as described herein, 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.  Further, based on known information, Mid Penn believes that the effects of current and past economic conditions and other unfavorable business conditions may influence certain borrowers’ abilities to comply with their repayment terms.  Mid Penn continues to monitor closely the financial strength of these borrowers.  Mid Penn does not engage in practices which may be used to artificially shield certain borrowers from the negative economic or business cycle effects that may compromise their ability to repay.  Mid Penn does not normally structure construction loans with interest reserve components.  Mid Penn has not in the past performed any commercial real estate or other type 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 September 30, 2018, December 31, 2017, and September 30, 2017.

(Dollars in thousands)
	September 30, 2018			December 31, 2017			September 30, 2017
Nonperforming Assets:
Nonaccrual loans	$	10,351		$	10,575		$	7,939
Accruing troubled debt restructured loans		524			544			551
Total nonperforming loans		10,875			11,119			8,490
Foreclosed real estate		1,101			189			33
Total non-performing assets		11,976			11,308			8,523
Accruing loans 90 days or more past due		-			-			56
Total risk elements	$	11,976		$	11,308		$	8,579
Nonperforming loans as a % of total
loans outstanding		0.69	%		1.22	%		0.97	%
Nonperforming assets as a % of total
loans outstanding and other real estate		0.76	%		1.24	%		0.97	%
Ratio of allowance for loan losses
to nonperforming loans		75.67	%		68.41	%		88.36	%

In the table above, troubled debt restructured loans that are no longer accruing interest are included in nonaccrual loans.  The decrease in nonperforming loans is primarily due to (i) the successful workout of one nonaccrual loan relationship during the second quarter which decreased the total nonaccrual loan pool by $1,094,000 and (ii) the sale of some collateral in an existing nonaccrual loan relationship resulting in total principal pay-down of $1,393,000.  The favorable pay-downs were partially offset by the addition of approximately $1,915,000 of nonaccrual loans added during the third quarter of 2018.  Two loan relationships which account for $5,725,000 of the non-performing loan balance are discussed in more detail below.

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Loan relationship no. 1 – At September 30, 2018, the contractual outstandingprincipal balance of this loan relationship was $4,302,000.  A $264,000 specific allowance allocation was assigned to this relationship. As part of the workout process, this loan was modified as a troubled debt restructured loan during 2017.  Management is pursuing diligent workout efforts, including proceeds from the sale of pledged collateral not associated with the primary operation of the business, to restore the loan to current status and to collect the remaining outstanding balance.

Loan relationship no. 2 – At September 30, 2018, the contractual outstanding principal balance of this loan relationship was $1,423,000 and was comprised of four loans collateralized primarily by commercial real estate, as well as certain machinery and equipment.  As part of the workout process, the loans in this relationship were modified as a troubled debt restructured loans during 2017.  During the second quarter of 2018, certain commercial real estate collateral was sold resulting in the principal payoff of three loans within this loan relationship totaling $1,393,000.  Given that the fair value of the remaining collateral exceeds the outstanding principal balance, no specific allowance allocation has been assigned to this relationship.  Management expects to recover the remaining outstanding balance through the sale of real estate collateral pledged in support of the loans.

The increase in foreclosed real estate was primarily driven by several residential mortgage loans which were transferred to foreclosed real estate since December 31, 2017.

Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to charging down or charging off the loan.  Once the charge down is taken, the remaining balance remains a nonperforming loan with the original terms and interest rate intact and is not treated as a restructured credit.  The following table provides additional analysis of partially charged-off loans.

(Dollars in thousands)
	September 30, 2018			December 31, 2017
Period ending total loans outstanding	$	1,567,286		$	910,404
Allowance for loan and lease losses		8,229			7,606
Total Nonperforming loans		10,875			11,119
Nonperforming and impaired loans with partial charge-offs		285			1,701
Ratio of nonperforming loans with partial charge-offs
to total loans		0.02	%		0.19	%
Ratio of nonperforming loans with partial charge-offs
to total nonperforming loans		2.62	%		15.30	%
Coverage ratio net of nonperforming loans with
partial charge-offs		77.71	%		80.76	%
Ratio of total allowance to total loans less
nonperforming loans with partial charge-offs		0.53	%		0.84	%

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.

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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 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 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.

Mid Penn had loans with an aggregate balance of $11,393,000 deemed impaired at September 30, 2018.  Excluding $2,752,000 in loans acquired with credit deterioration in connection with the closing of the Phoenix Bancorp, Inc. (“Phoenix”) acquisition in 2015, and the Scottdale and First Priority acquisitions in 2018, Mid Penn had several loan relationships deemed impaired with an aggregate carrying balance of $8,641,000.  This pool of impaired loans was further broken down into a group of loans with an aggregate carrying balance of $5,751,000, for which specific allocations totaling $770,000 were included within the loan loss reserve for these loans.  The remaining $2,890,000 of loans required no specific allocation within the loan loss reserve.  Of the $8,641,000 of impaired loan relationships, excluding the loans acquired with credit deterioration from the Phoenix, Scottdale, and First Priority acquisitions, $4,527,000 were commercial and industrial relationships, $2,890,000 were commercial real estate relationships, $832,000 were residential relationships, $367,000 were commercial real estate – construction relationships, and $25,000 were home equity relationships.  There were specific loan loss reserve allocations of $489,000 against the commercial and industrial relationships, $243,000 against the commercial real estate relationships, and $38,000 against the commercial real estate – construction 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.

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MID PENN BANCORP, INC.

In addition, a portion of the allowance is established for losses inherent in the loan and lease portfolio which have not been identified by the quantitative processes described above.  This determination inherently involves a higher degree of subjectivity, and considers risk factors that may not have yet manifested themselves in historical loss experience.  These factors include:

• changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

• changes  in  the  volume  and  severity  of  past  due  loans,  the  volume  of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

• changes in the value of underlying collateral for collateral-dependent loans;

• changes in the experience, ability, and depth of lending management and other relevant staff;

• changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

• changes in the quality of the institution's loan review system;

• changes in the nature and volume of the portfolio and in the terms of loans;

• the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio; and

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

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 and 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, 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.  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 of $8,229,000 is adequate as of September 30, 2018 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.

Liquidity

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

• a growing core deposit base;

• proceeds from the sale or maturity of investment securities;

• proceeds from interest-bearing time deposits with other financial institutions;

• payments received on loans and mortgage-backed securities;

• overnight correspondent bank borrowings on various credit lines; and

• borrowing capacity available from the FHLB, the Federal Reserve Discount Window, and other lines of credit currently available to Mid Penn.

The major sources of cash received in the first nine months of 2018 came from the $155,626,000 in proceeds from the sales of available-for-sale investment securities and the $72,616,000 in net cash received from the acquisitions of Scottdale and First Priority.

Major uses of cash in the first nine months of 2018 were $94,019,000 for investment purchases, $75,268,000 to fund loan growth, and $67,165,000 to pay down short-term borrowings.

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, 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.

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MID PENN BANCORP, INC.

On 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 liquidity problem specific to Mid Penn.

Subordinated Debt

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”).  In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000. The 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 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. 

Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its 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 times be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any 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.  

Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025.  The 2015 Notes are treated as Tier 2 capital for regulatory capital purposes.

The 2015 Notes bear interest at a rate of 5.15% 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 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.

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MID PENN BANCORP, INC.

Regulatory Capital Changes

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.  The phase-in period for community banking organizations began January 1, 2016.  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 (when fully phased in) must be greater than 2.5% of total risk-weighted assets at January 1, 2019.  The phase-in period for the capital conservation and countercyclical capital buffers for all banking organizations began on January 1, 2016 at the initial rate of 0.625%.  

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

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%

Implementation of the deductions and other adjustments to common equity Tier 1 capital began on January 1, 2016 and will be phased-in over a three-year period.  The final rules called for the following minimum capital requirements to be considered “well-capitalized” (which include the impact of the capital conservation buffer that was effective January 1, 2016):

	As of January 1,
		2016			2017			2018			2019
Minimum common equity Tier 1 capital ratio			4.5	%		4.5	%		4.5	%		4.5	%
Common equity Tier 1 capital conservation buffer			0.625	%		1.25	%		1.875	%		2.5	%
Minimum common equity Tier 1 capital ratio plus capital conservation buffer			5.125	%		5.75	%		6.375	%		7.0	%
Phase-in of most deductions from common equity Tier 1 capital			60	%		80	%		100	%		100	%
Minimum Tier 1 capital ratio			6.0	%		6.0	%		6.0	%		6.0	%
Minimum Tier 1 capital ratio plus capital conservation buffer			6.625	%		7.25	%		7.875	%		8.5	%
Minimum total capital ratio			8.0	%		8.0	%		8.0	%		8.0	%
Minimum total capital ratio plus capital conservation buffer			8.625	%		9.25	%		9.875	%		10.5	%

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.

The final rules permanently grandfathered non-qualifying capital instruments (such as trust preferred securities and cumulative perpetual preferred stock) issued before May 19, 2010 for inclusion in the Tier 1 capital of banking organizations with total consolidated assets less than $15 billion as of December 31, 2009 and banking organizations that were mutual holding companies as of May 19, 2010.

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

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.

Capital Resources

Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets.  The greater a corporation’s capital resources, the more likely it is to meet its cash obligations and absorb unforeseen losses.  Too much capital, however, indicates that not enough of the corporation’s earnings have been invested in the continued growth of the business or paid to shareholders.  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 and capital management have been, and will continue to be, of paramount importance.

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MID PENN BANCORP, INC.

Shareholders’ equity more than doubled, from $75,703,000 at December 31, 2017 to $221,835,000 at September 30, 2018, primarily due to (i) the issuance of 1,878,827 shares of common stock on January 8, 2018 in connection with the acquisition of Scottdale; (ii) the issuance of 2,320,800 shares of Mid Penn common stock on July 31, 2018, in connection with the acquisition of First Priority; and  (iii) the issuance of 3,404 shares of Series D Mid Penn preferred stock ($1,000 per share liquidation value) which replaced the First Priority preferred stock outstanding as of July 31, 2018.  Additionally, shareholders’ equity reflects the growth in retained earnings through year-to-date net income available to common shareholders.  These increases were partially offset by other comprehensive losses, primarily due to the after-tax impact of the unrealized reduction in market value within the available-for-sale investment portfolio since December 31, 2017.  Regulatory capital ratios for both Mid Penn and the Bank exceeded regulatory “well-capitalized” levels at both September 30, 2018 and 2017.

Banks are evaluated for capital adequacy 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 September 30, 2018, 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 September 30, 2018 and December 31, 2017:

	Capital Adequacy
											To Be Well-Capitalized
(Dollars in thousands)											Under Prompt
						Minimum Capital					Corrective
	Actual:					Required:					Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Corporation
As of  September 30, 2018:
Tier 1 Capital (to Average Assets)	$	151,887		7.7	%	$	79,248		4.000	%	N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		151,887		10.1	%		96,245		6.375	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		151,887		10.1	%		118,891		7.875	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		187,375		12.4	%		149,086		9.875	%	N/A		N/A
Bank
As of  September 30, 2018:
Tier 1 Capital (to Average Assets)	$	168,612		8.5	%	$	79,016		4.000	%	$	98,770		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		168,612		11.2	%		96,227		6.375	%		98,114		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		168,612		11.2	%		118,869		7.875	%		120,756		8.0	%
Total Capital (to Risk Weighted Assets)		177,012		11.7	%		149,058		9.875	%		150,945		10.0	%
Corporation
As of  December 31, 2017:
Tier 1 Capital (to Average Assets)	$	74,417		6.5	%	$	45,857		4.000	%	N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		74,417		8.4	%		50,661		5.750	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		74,417		8.4	%		6,377		7.250	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		99,466		11.3	%		81,498		9.250	%	N/A		N/A
Bank
As of  December 31, 2017:
Tier 1 Capital (to Average Assets)	$	88,294		7.7	%	$	45,846		4.000	%	$	57,308		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		88,294		10.0	%		50,661		5.750	%		57,269		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		88,294		10.0	%		63,877		7.250	%		70,485		8.0	%
Total Capital (to Risk Weighted Assets)		96,005		10.9	%		81,498		9.250	%		88,106		10.0	%

(1) The minimum amounts and ratios as of September 30, 2018 include the third year phase in of the capital conservation buffer of 1.875% required by the Basel III framework.  At December 31, 2017, the minimum amounts and ratios included the second year phase in of the capital conservation buffer of 1.25 percent required by the Basel III framework.

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MID PENN BANCORP, INC.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 September 30, 2018, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy.

September 30, 2018			December 31, 2017
	% Change in			% Change in
Change in	Net Interest	Policy	Change in	Net Interest	Policy
Basis Points	Income	Risk Limit	Basis Points	Income	Risk Limit
300	10.60%	≥ -20%	300	7.83%	≥ -20%
200	7.01%	≥ -15%	200	5.12%	≥ -15%
100	3.44%	≥ -10%	100	2.41%	≥ -10%
0			0
(100)	-3.18%	≥ -10%	(100)	-1.49%	≥ -10%
(200)	-8.22%	≥ -15%	(200)	-6.19%	≥ -15%
(300)	-13.78%	≥ -20%	(300)	-11.37%	≥ -20%

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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 September 30, 2018, 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.

Changes in Internal Controls

During the three and nine months ended September 30, 2018, 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.

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MID PENN BANCORP, INC.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

There has been no change to the information disclosed in Item 1, Part II of Mid Penn’s Quarterly Report in Form 10-Q for the period ended June 30, 2018, which is incorporated by reference.  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.  In addition, management does not know of any material proceedings contemplated by governmental authorities against Mid Penn or any of its properties.

ITEM 1A – RISK FACTORS

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, 2017, to determine if there were material changes applicable to the nine months ended September 30, 2018.  In addition to the risk factors previously disclosed in the Annual Report on Form 10-K, investors should consider the following:

Mid Penn may be unable to successfully integrate First Priority’s operations and retain First Priority’s key employees. 

The acquisition of First Priority effective July 31, 2018 involved the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include, among other things: integrating personnel with diverse business backgrounds; combining different corporate cultures; and retaining key employees. 

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will require the experience and expertise of certain key employees of First Priority who are expected to be retained by Mid Penn. Mid Penn may not be successful in retaining these employees for the time period necessary to successfully integrate First Priority’s operations with those of Mid Penn. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of Mid Penn following the merger. 

Additionally, Mid Penn may not be able to successfully achieve the level of cost savings and other synergies that it expects, and may not be able to capitalize upon the existing customer relationships of First Priority to the extent anticipated, or it may take longer, or be more difficult or expensive than expected to achieve these goals. This could have an adverse effect on Mid Penn’s business, results of operation and stock price. 

The recently completed First Priority and Scottdale acquisitions may increase the risks associated with each of these mergers, as well as place a strain on Mid Penn’s financial and personnel resources that could adversely impact Mid Penn’s business.

On January 8, 2018, Mid Penn completed its acquisition of Scottdale and on July 31, 2018, Mid Penn completed its acquisition of First Priority. The recent completion mergers will cause Mid Penn to continue to incur significant expenditures and will require substantial attention and effort from Mid Penn’s management and other personnel. Mid Penn’s current and planned operations, personnel, facility size and configuration, systems and internal procedures and controls might be inefficient or inadequate to support these efforts at the same time. The increased risks and obligations associated with the mergers could place a strain on Mid Penn’s financial position and personnel resources, which may adversely affect Mid Penn’s stock price, revenues, results of operations and/or financial condition. 

We may fail to realize all of the anticipated benefits of the First Priority merger. 

The success of the First Priority merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining the businesses of Mid Penn and First Priority. However, to realize these anticipated benefits and cost savings, which include increased Mid Penn lending limits and access to stable core deposits, we must successfully combine the businesses of Mid Penn and First Priority. If we are not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully or at all, or may take longer to realize than expected. 

Another expected benefit from the merger is an expected increase in the revenues of the combined company from anticipated sales of Mid Penn’s greater variety of financial products, and from increased lending out of Mid Penn’s substantially larger capital base, to former First Priority customers and to new customers in First Priority’s market area who may be attracted by the combined company’s enhanced offerings. An inability to successfully market Mid Penn’s products to First Priority’s customer base could cause the earnings of the combined company to be less than anticipated. 

Unanticipated costs relating to the First Priority merger could reduce Mid Penn’s future earnings per share. 

Mid Penn believes that it has reasonably estimated the likely incremental costs of the combined operations of Mid Penn and First Priority following the merger. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as unanticipated costs to integrate the two businesses, increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, including negative changes in the value of the legacy First Priority loan portfolio, could have a material adverse effect on the results of operations and financial condition of Mid Penn following the merger. In addition, if actual costs are materially different than expected costs, the merger could have a significant dilutive effect on Mid Penn’s earnings per share. 

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MID PENN BANCORP, INC.

Pending litigation relating to the merger could require us to incur significant costs and suffer management distraction. 

Mid Penn is not currently able to predict the outcome of any suit arising out of or relating to the First Priority merger that is currently pending or may be filed in the future.

Mid Penn is currently, and could be subject to additional, demands or litigation related to the merger. Such actions may create additional uncertainty relating to the merger, and responding to such demands and defending such actions may be costly and distracting to management. Although there can be no assurance as to the ultimate outcome of any pending or threatened demand or litigation related to the First Priority merger, based on information available to Mid Penn management at this time, Mid Penn believes that the resolution of such demands or litigation will not have a material adverse effect on its respective financial position, results of operations or cash flows.  

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5 – OTHER INFORMATION

None

ITEM 6 – EXHIBITS

• Exhibit 3(i) – The Registrant’s amended Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to Registrant’s Registration Statement on Form S-4 (File No. 333-199740) filed with the SEC on October 31, 2014.)

• Exhibit 3(ii) – Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series D of Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report in Form 8-K filed with the SEC on August 1, 2018.)

• Exhibit 3(iii) – The Registrant’s By-laws (Incorporated by reference to Exhibit 3(ii) to Registrant’s Current Report on Form 8-K filed with the SEC on August 30, 2010.)

•Exhibit 10.1 – Form of Supplemental Executive Retirement Plan Agreement dated August 31, 2018 by and among Mid Penn Bank and each of Rory G. Ritrievi, Michael D. Peduzzi, Scott W. Micklewright, and Justin T. Webb (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 5, 2018.)

•Exhibit 10.2 – Amendment No. 1 to Employment Agreement, dated August 31, 2018, among Mid Penn Bancorp, Inc., Mid Penn Bank and Rory G. Ritrievi (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 5, 2018.)

•Exhibit 10.3– Form of Amendment No. 1 to Change in Control Severance Agreement of Messrs. Micklewright, Peduzzi, and Webb (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 5, 2018.)

• Exhibit 11 – Statement re:  Computation of Per Share Earnings.  (Incorporated by reference to Part I Item 1 of this Quarterly Report on Form 10-Q.)

• Exhibit 31.1 – Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section 302 of the Sarbanes-Oxley Act of 2002.

• Exhibit 31.2 - Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section 302 of the Sarbanes-Oxley Act of 2002.

• Exhibit 32 – Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002.

• Exhibit 101.INS – XBRL Instance Document

• Exhibit 101.SCH – XBRL Taxonomy Extension Schema

• Exhibit 101.CAL – XBRL Taxonomy Extension Calculation Linkbase

• Exhibit 101.DEF – XBRL Taxonomy Extension Definition Linkbase

• Exhibit 101.LAB – XBRL Taxonomy Extension Label Linkbase

• Exhibit 101.PRE – XBRL Taxonomy Extension Presentation Linkbase

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MID PENN BANCORP, INC.

SIGNATURES

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.

	Mid Penn Bancorp, Inc. (Registrant)
By:	/s/ Rory G. Ritrievi
	Rory G. Ritrievi
	President and CEO
	(Principal Executive Officer)
Date:	November 8, 2018
By:	/s/ Michael D. Peduzzi, CPA
	Michael D. Peduzzi, CPA
	Chief Financial Officer
Date:	November 8, 2018

63

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULES

13A-14(A)/15D-14(A) AS ADDED BY SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Rory G. Ritrievi, certify that:

1. I have reviewed this report on Form 10-Q of Mid Penn Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) Significant deficiencies and material weaknesses, if any, in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By:	/s/ Rory G. Ritrievi
	Rory G. Ritrievi
	President and CEO
Date:	November 8, 2018

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULES

13A-14(A)/15D-14(A) AS ADDED BY SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Michael D. Peduzzi, certify that:

1. I have reviewed this report on Form 10-Q of Mid Penn Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) Significant deficiencies and material weaknesses, if any, in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By:	/s/ Michael D. Peduzzi
	Michael D. Peduzzi, CPA
	Chief Financial Officer
Date:	November 8, 2018

EX-32

EXHIBIT 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADDED BY SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Mid Penn Bancorp, Inc. (the “Corporation”) on Form 10-Q for the period ending September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rory G. Ritrievi, President and CEO, and I, Michael D. Peduzzi, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as added pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

2. To my knowledge, the information contained in the Report fairly presents, in all material respects the financial condition and results of operations of Mid Penn Bancorp, Inc. as of the dates and for the periods expressed in the Report.

By:	/s/ Rory G. Ritrievi
	Rory G. Ritrievi
	President and CEO
Date:	November 8, 2018
By:	/s/ Michael D. Peduzzi
	Michael D. Peduzzi, CPA
	Chief Financial Officer
Date:	November 8, 2018

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	Sep. 30, 2018	Nov. 06, 2018
Document And Entity Information [Abstract]
Document Type	10-Q
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Document Period End Date	Sep. 30, 2018
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018
Trading Symbol	MPB
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Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		8,457,023

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Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
ASSETS
Cash and due from banks	$ 31,110	$ 19,795
Interest-bearing balances with other financial institutions	5,241	3,028
Federal funds sold	25,734	691
Total cash and cash equivalents	62,085	23,514
Available for sale debt securities, at fair value	110,527	92,959
Investment securities available for sale, at fair value		93,465
Investment securities held to maturity, at amortized cost (fair value $167,120 and $100,483)	171,521	101,356
Loans held for sale	3,181	1,040
Loans and leases, net of unearned interest	1,567,286	910,404
Less: Allowance for loan and lease losses	(8,229)	(7,606)
Net loans and leases	1,559,057	902,798
Bank premises and equipment, net	25,467	16,168
Cash surrender value of life insurance	16,610	13,042
Restricted investment in bank stocks	3,373	4,384
Foreclosed assets held for sale	1,101	189
Accrued interest receivable	7,491	4,564
Deferred income taxes	4,432	1,888
Goodwill	62,767	3,918
Core deposit and other intangibles, net	7,708	434
Other assets	8,960	3,594
Total Assets	2,044,280	1,170,354
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits: Noninterest-bearing demand	271,142	163,714
Deposits: Interest-bearing demand	438,928	349,241
Deposits: Money Market	356,729	246,220
Deposits: Savings	224,746	62,770
Deposits: Time	470,920	201,623
Total Deposits	1,762,465	1,023,568
Short-term borrowings	1,771	34,611
Long-term debt	18,064	12,352
Subordinated debt	27,088	17,338
Accrued interest payable	2,262	645
Other liabilities	10,795	6,137
Total Liabilities	1,822,445	1,094,651
Shareholders' Equity:
Series D preferred stock, par value $1.00; liquidation value $1,000; authorized 3,404 shares; 9% cumulative dividend; 3,404 and 0 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	3,404
Common stock, par value $1.00; authorized 10,000,000 shares; 6,124,517 and 4,242,216 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively	8,457	4,242
Additional paid-in capital	177,421	40,970
Retained earnings	36,244	32,565
Accumulated other comprehensive loss	(3,691)	(2,074)
Total Shareholders’ Equity	221,835	75,703
Total Liabilities and Shareholders' Equity	$ 2,044,280	$ 1,170,354

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Investment securities held-to-maturity, fair value	$ 167,120	$ 100,483
Common Stock, Par Value	$ 1.00	$ 1.00
Common Stock, Shares Authorized	10,000,000	10,000,000
Common Stock, Shares, Issued	8,457,023	4,246,216
Common Stock, Shares, Outstanding	8,457,023	4,246,216
Series D Preferred Stock, Par Value	$ 1.00	$ 1.00
Series D Preferred Stock, Liquidation Preference, Value	$ 1,000	$ 1,000
Series D Preferred Stock, Shares Authorized	3,404	3,404
Series D Preferred Stock, Cumulative Dividend	9.00%	9.00%
Series D Stock ,Shares, Issued	3,404	0
Series D Preferred Stock, Shares Outstanding	3,404	0

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
INTEREST INCOME
Interest and fees on loans and leases	$ 17,715	$ 10,213	$ 41,125	$ 29,864
Interest on interest-bearing balances	26	5	52	12
Interest on federal funds sold	78	23	399	97
Interest and dividends on investment securities:
U.S. Treasury and government agencies	965	617	2,601	1,636
State and political subdivision obligations, tax-exempt	636	240	1,695	820
Other securities	163	52	411	159
Total Interest Income	19,583	11,150	46,283	32,588
INTEREST EXPENSE
Interest on deposits	3,183	1,425	6,960	3,906
Interest on short-term borrowings	38	30	50	43
Interest on long-term and subordinated debt	451	179	1,070	538
Total Interest Expense	3,672	1,634	8,080	4,487
Net Interest Income	15,911	9,516	38,203	28,101
PROVISION FOR LOAN AND LEASE LOSSES	100		225	225
Net Interest Income After Provision for Loan and Lease Losses	15,811	9,516	37,978	27,876
NONINTEREST INCOME
Net gain on sales of investment securities	30	22	132	42
Earnings from cash surrender value of life insurance	76	65	205	196
Net gain on sales of SBA loans	68	262	477	703
Other income	820	276	1,312	669
Total Noninterest Income	2,165	1,564	5,371	4,362
NONINTEREST EXPENSE
Salaries and employee benefits	6,680	4,277	16,286	12,666
Occupancy expense, net	1,063	631	2,730	1,872
Equipment expense	579	398	1,531	1,149
Pennsylvania bank shares tax expense	131	170	473	500
FDIC Assessment	187	197	508	585
Legal and professional fees	272	218	752	584
Marketing and advertising expense	274	139	693	377
Software licensing	602	397	1,628	1,096
Telephone expense	177	120	480	379
Loss on sale or write-down of foreclosed assets	45		48	88
Intangible amortization	341	25	837	78
Merger and acquisition expense	3,039	243	4,955	467
Other expenses	1,874	1,145	5,268	3,479
Total Noninterest Expense	15,264	7,960	36,189	23,320
INCOME BEFORE PROVISION FOR INCOME TAXES	2,712	3,120	7,160	8,918
Provision for income taxes	548	871	1,213	2,330
NET INCOME	2,164	2,249	5,947	6,588
Series D preferred stock dividends	38		38
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$ 2,126	$ 2,249	$ 5,909	$ 6,588
PER COMMON SHARE DATA:
Basic and Diluted Earnings Per Common Share	$ 0.28	$ 0.53	$ 0.89	$ 1.56
Cash Dividends Paid	$ 0.15	$ 0.13	$ 0.55	$ 0.49
Income from Fiduciary Activities [Member]
NONINTEREST INCOME
Non-interest Income	$ 325	$ 217	$ 851	$ 613
Service Charges on Deposits [Member]
NONINTEREST INCOME
Non-interest Income	242	175	667	554
Mortgage Banking Income [Member]
NONINTEREST INCOME
Non-interest Income	197	230	558	646
ATM Debit Card Interchange Income [Member]
NONINTEREST INCOME
Non-interest Income	317	233	908	689
Merchant Services Income [Member]
NONINTEREST INCOME
Non-interest Income	$ 90	$ 84	$ 261	$ 250

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net income		$ 2,164	$ 2,249	$ 5,947	$ 6,588
Other comprehensive (loss) income:
Unrealized (losses) gains arising during the period on available-for-sale securities, net of income taxes impact, respectively		(589)	(1)	(2,746)	1,858
Reclassification adjustment for net gain on sales of available-for-sale securities included in net income, net of income taxes impact, respectively	[1]	(23)	(15)	(104)	(28)
Change in defined benefit plans, net of income taxes impact, respectively	[2]	247	(3)	1,591	(7)
Reclassification adjustment for settlement gains on benefit plans, net of income taxes	[3]	(92)		(393)
Total other comprehensive (loss) income		(457)	(19)	(1,652)	1,823
Total comprehensive income		$ 1,707	$ 2,230	$ 4,295	$ 8,411

[1] Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate element within total noninterest income.

[2] The change in defined benefit plans includes several components of net periodic benefit costs, including service costs, interest costs, expected return on plan assets, and amortization of prior service costs. Please reference Note 9 – Defined Benefit Plans, for the classification of these components on Consolidated Statements of Income.

[3] Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.

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Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]
Unrealized (losses) gains arising during the period on available for sale securities, tax	$ (157)	$ (1)	$ (730)	$ 956
Reclassification adjustment for net gain on sales of available for sale securities included in net income, tax	(6)	(7)	(28)	(14)
Change in defined benefit plans, tax	66	(2)	423	(2)
Reclassification adjustment for settlement gains on benefit plans, tax	$ (25)	$ 0	$ (104)	$ 0

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Consolidated Statements of Changes In Shareholders' Equity - USD ($) $ in Thousands	Total	First Priority Financial Corp. [Member]	Scottdale Bank and Trust Company [Member]	Series D [Member]	Series D [Member] First Priority Financial Corp. [Member]	Preferred Stock [Member]	Preferred Stock [Member] Series D [Member] First Priority Financial Corp. [Member]	Common Stock [Member]	Common Stock [Member] First Priority Financial Corp. [Member]	Common Stock [Member] Scottdale Bank and Trust Company [Member]	Additional Paid-in Capital [Member]	Additional Paid-in Capital [Member] First Priority Financial Corp. [Member]	Additional Paid-in Capital [Member] Scottdale Bank and Trust Company [Member]	Retained Earnings [Member]	Retained Earnings [Member] Series D [Member]	Accumulated Other Comprehensive Loss [Member]
Balance at Dec. 31, 2016	$ 70,467							$ 4,233			$ 40,688			$ 28,399		$ (2,853)
Net income	6,588													6,588
Total other comprehensive loss, net of taxes	1,823															1,823
Common stock dividends declared	(1,653)													(1,653)
Employee Stock Purchase Plan	76							3			73
Director Stock Purchase Plan	21							1			20
Restricted stock activity	69							4			65
Balance at Sep. 30, 2017	77,391							4,241			40,846			33,334		(1,030)
Balance at Dec. 31, 2017	75,703							4,242			40,970			32,565		(2,074)
Impact of adoption of new accounting standard (ASU 2016-01 [Member]) at Dec. 31, 2017	(9)													(44)		35
Balance at Dec. 31, 2017	75,694							4,242			40,970			32,521		(2,039)
Net income	5,947													5,947
Total other comprehensive loss, net of taxes	(1,652)															(1,652)
Stock issued to shareholders		$ 76,122	$ 64,181		$ 3,404		$ 3,404		$ 2,321	$ 1,879		$ 73,801	$ 62,302
Preferred stock dividends				$ (38)											$ (38)
Common stock dividends declared	(2,186)													(2,186)
Employee Stock Purchase Plan	84							2			82
Director Stock Purchase Plan	92							3			89
Restricted stock activity	187							10			177
Balance at Sep. 30, 2018	$ 221,835					$ 3,404		$ 8,457			$ 177,421			$ 36,244		$ (3,691)

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Consolidated Statements of Changes In Shareholders' Equity (Parenthetical) - shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Stock issued during period shares, Director Stock Purchase Plans	2,893	714
Stock issued during period shares, Restricted stock activity	9,647	3,996
Scottdale Bank and Trust Company [Member]
Stock issued during period, shares	1,878,827	1,878,827
First Priority Financial Corp. [Member]
Stock issued during period, shares	2,320,800	2,320,800
Common Stock [Member]
Stock issued during period, shares, Employee Stock Purchase Plans	2,640	2,747

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Operating Activities:
Net Income	$ 5,947	$ 6,588
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	225	225
Depreciation	1,671	1,075
Amortization of intangibles	837	78
Net amortization (accretion) of security discounts/premiums	308	(770)
Gain on sales of investment securities	(132)	(42)
Earnings on cash surrender value of life insurance	(205)	(196)
Mortgage loans originated for sale	(35,437)	(33,500)
Proceeds from sales of mortgage loans originated for sale	33,854	34,327
Gain on sale of mortgage loans	(558)	(646)
SBA loans originated for sale	(6,061)	(8,902)
Proceeds from sales of SBA loans originated for sale	6,539	9,604
Gain on sale of SBA loans	(477)	(703)
Loss (gain) on disposal of property, plant, and equipment	(70)	10
Loss on sale or write-down of foreclosed assets	48	88
Stock compensation expense	187	69
Deferred income tax benefit	3,526	1,016
Decrease (increase) in accrued interest receivable	355	(231)
Increase in other assets	(4,400)	(1,311)
Increase in accrued interest payable	528	425
(Decrease) increase in other liabilities	(535)	2,288
Net Cash Provided By Operating Activities	6,290	9,472
Investing Activities:
Proceeds from the sale of available-for-sale securities	155,626	52,314
Proceeds from the maturity or call of available-for-sale securities	15,483	7,046
Purchases of available-for-sale securities	(21,142)	(15,196)
Proceeds from the maturity or call of held-to-maturity securities	8,961
Purchases of held-to-maturity securities	(72,877)	(86,092)
Net cash received from acquisitions	72,616
Redemptions (purchases) of restricted investment in bank stock	3,345	(1,292)
Net increase in loans and leases	(75,111)	(63,400)
Proceeds from the sale of bank premises and equipment held for sale		2,201
Purchases of bank premises and equipment	(8,397)	(4,558)
Proceeds from the sale of foreclosed assets	194	136
Net Cash Provided by (Used In) Investing Activities	78,698	(108,841)
Financing Activities:
Net increase in deposits	23,970	91,302
Net (decrease) increase in short-term borrowings	(67,165)	20,000
Common stock dividends paid	(3,246)	(1,653)
Long-term debt repayment	(152)	(166)
Net Cash (Used In) Provided By Financing Activities	(46,417)	109,580
Net increase in cash and cash equivalents	38,571	10,211
Cash and cash equivalents, beginning of period	23,514	45,973
Cash and cash equivalents, end of period	62,085	56,184
Supplemental Disclosures of Cash Flow Information:
Interest paid	6,463	4,062
Income taxes paid	225	3,165
Supplemental Noncash Disclosures:
Loan transfers to foreclosed assets held for sale	1,018	33
Assets Acquired:
Securities	177,016
Loans	582,392
Restricted stock	2,334
Property and equipment	2,643
Foreclosed assets	136
Deferred income taxes	4,168
Accrued interest receivable	3,282
Core deposit intangible	7,976
Cash surrender value of life insurance	3,363
Other assets	1,100
Assets acquired	784,410
Liabilities Assumed:
Deposits	714,927
Borrowings	49,939
Accrued interest payable	1,089
Other liabilities	6,213
Liabilities assumed	772,168
Equity Assumed:
Preferred stock	3,404
Equity assumed	3,404
Employee [Member]
Financing Activities:
Stock Purchase Plan	84	76
Director [Member]
Financing Activities:
Stock Purchase Plan	$ 92	$ 21

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Basis of Presentation

9 Months Ended

Sep. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

(1) Basis of Presentation

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. (“Mid Penn” or the “Company”) and its wholly-owned subsidiary, Mid Penn Bank (the “Bank”). 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 September 30, 2017 and December 31, 2017 balances have been reclassified, when, and if necessary, to conform to the 2018 presentation.  Such reclassifications had no impact on net income. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.  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 Company’s Annual Report on Form 10-K for the year ended December 31, 2017.  

On July 31, 2018, Mid Penn completed its acquisition of First Priority Financial Corp. (“First Priority”), pursuant to the previously announced Agreement and Plan of Merger dated as of January 16, 2018. First Priority was merged with and into Mid Penn, with Mid Penn being the surviving corporation. Refer to Note 2, Acquisition of First Priority Financial Corp., as well as the Company’s Current Report on Form 8-K filed on August 1, 2018, for more information.

On January 8, 2018, Mid Penn completed its acquisition of The Scottdale Bank & Trust Company (“Scottdale”), a Pennsylvania bank and trust company, through the merger of Scottdale with and into Mid Penn Bank pursuant to the previously announced Agreement and Plan of Merger, dated as of March 29, 2017, among Mid Penn, Mid Penn Bank and Scottdale.  Refer to Note 3, Acquisition of The Scottdale Bank & Trust Company, as well as the Company’s Current Report on Form 8-K filed on January 8, 2018, for more information.

The comparability of the financial condition and results of operations as of and for the three and nine months ended September 30, 2018 and 2017, in general, have been materially impacted by the acquisitions of First Priority and Scottdale.  

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2018, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.

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Acquisition

9 Months Ended

Sep. 30, 2018

First Priority Financial Corp. [Member]

Acquisition

(2) Acquisition of First Priority Financial Corp.

On July 31, 2018, Mid Penn completed its acquisition of First Priority Financial Corp., through the merger of First Priority with and into Mid Penn.   In connection with this acquisition, First Priority Bank, First Priority’s wholly owned bank subsidiary, was merged with and into Mid Penn Bank.  

Pursuant to the merger agreement between Mid Penn and First Priority, the common shareholders of First Priority received 0.3481 shares of Mid Penn common stock for each share of First Priority common stock owned.  Additionally, outstanding options to purchase First Priority common stock at the time of the merger were converted into the right to receive cash at a per-option value of $11.07 less the applicable exercise price, without interest.  As a result of the acquisition, Mid Penn’s fulfillment of the merger consideration requirements resulted in (i) the issuance of 2,320,800 shares of Mid Penn common stock, (ii) the payment $3,801,000 related to cashing out the stock options, and (iii) cash paid of $6,000 in lieu of fractional shares, resulting in a combined fair value of total consideration paid of $79,929,000.

The assets and liabilities of First Priority were recorded on the consolidated balance sheet of the Company at their estimated fair value as of July 31, 2018, and their results of operations have been included in the consolidated income statement of the Company since such date.  First Priority has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of First Priority included in the consolidated income statement since the acquisition date is impracticable to provide.

Included in the purchase price was $39,659,000 of goodwill, a core deposit intangible of $2,832,000, and a trade name intangible of $205,000.  The core deposit intangible will be amortized over a ten-year period using a sum of the years’ digits basis.  The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require.  Core deposit intangible amortization expense related to the First Priority acquisition for the five years beginning 2018 through 2022 is estimated to be $215,000, $493,000, $442,000, $390,000, and $339,000 per year, respectively, and $953,000 in total for the five years after 2022.

The allocation of the purchase price is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	11,398
Investment securities		62,977
Restricted stock		2,237
Loans		511,623
Goodwill		39,659
Core deposit intangible		2,832
Trade name intangible		205
Premises and equipment		1,147
Foreclosed assets		125
Deferred income taxes		3,118
Accrued interest receivable		2,293
Other assets		4,197
Total assets acquired		641,811
Liabilities assumed:
Deposits		504,946
Borrowings		49,939
Accrued interest payable		1,073
Other liabilities		2,520
Total liabilities assumed		558,478
Equity acquired:
Preferred stock		3,404
Total equity acquired and liabilities assumed		561,882
Consideration paid	$	79,929
Cash paid	$	3,807
Fair value of common stock issued		76,122

Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, allows for adjustments to goodwill for a period of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date.  The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities and equity assumed in the First Priority transaction.

(Dollars in thousands)
Total purchase price (consideration paid)	$	79,929
Net assets acquired:
Cash and cash equivalents		11,398
Investment securities		62,977
Restricted stock		2,237
Loans		511,623
Core deposit intangible		2,832
Trade name intangible		205
Premises and equipment		1,147
Foreclosed assets		125
Deferred income taxes		3,118
Accrued interest receivable		2,293
Other assets		4,197
Deposits		(504,946	)
Borrowings		(49,939	)
Accrued interest payable		(1,073	)
Other liabilities		(2,520	)
Preferred stock		(3,404	)
		40,270
Goodwill	$	39,659

In general, factors contributing to goodwill recognized as a result of the First Priority acquisition include expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of short-term investments into higher-yielding loans.  The goodwill acquired as a result of the First Priority acquisition is not tax deductible.

The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $511,623,000.  The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

(Dollars in thousands)
Gross amortized cost basis at January 8, 2018	$	521,644
Market rate adjustment		(3,023	)
Credit fair value adjustment on pools of homogeneous loans		(6,742	)
Credit fair value adjustment on impaired loans		(256	)
Fair value of purchased loans at January 8, 2018	$	511,623

The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans.  The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date.  The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan.

The information about the acquired First Priority impaired loan portfolio as of July 31, 2018 is as follows:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	1,855
Contractual cash flows not expected to be collected (nonaccretable discount)		(858	)
Expected cash flows at acquisition		997
Interest component of expected cash flows (accretable discount)		(125	)
Fair value of acquired loans	$	872

The following table presents pro forma information as if the merger between Mid Penn and First Priority had been completed on January 1, 2017.  The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with First Priority at the beginning of 2017.  The supplemental pro forma earnings for nine months ended September 30, 2018 excludes $3,661,000 of merger related costs related to the First Priority acquisition, which included approximately $1,475,000 of severance and retention bonus expenses. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.

(Dollars in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net interest income after loan loss provision	$	17,373	$	11,089	$	48,914	$	41,480
Noninterest income		2,220		1,688		5,754		5,000
Noninterest expense		13,543		10,677		41,532		37,757
Net income		5,502		1,533		10,995		6,368
Net income per common share		0.70		0.25		1.49		0.97

Scottdale Bank and Trust Company [Member]

Acquisition

(3) Acquisition of The Scottdale Bank and Trust Company

On January 8, 2018, The Scottdale Bank & Trust Company (“Scottdale”) merged with and into Mid Penn Bank, with Mid Penn Bank continuing as the surviving entity.  

Pursuant to the merger agreement, each share of Scottdale common stock issued and outstanding immediately prior to January 8, 2018 converted into the right to receive (i) $1,166 in cash without interest or (ii) 38.88 shares of Mid Penn common stock.  As a result, Mid Penn issued 1,878,827 shares of Mid Penn common stock with an acquisition date fair value of approximately $64,181,000, based on the closing stock price of Mid Penn’s common stock on January 8, 2018 of $34.16, and cash of $2,792,000.  Including an insignificant amount of cash paid in lieu of fractional shares, the fair value of total consideration paid was $66,973,000.

The assets and liabilities of Scottdale were recorded on the consolidated balance sheet of the Company at their estimated fair value as of January 8, 2018, and their results of operations have been included in the consolidated income statement of the Company since such date.  Scottdale has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of Scottdale included in the consolidated

income statement since the acquisition date is impracticable to provide.

Included in the purchase price was goodwill of $19,189,000 and a core deposit intangible of $4,940,000.  The core deposit intangible will be amortized over a ten-year period using a sum of the years’ digits basis.  The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require.  Core deposit intangible amortization expense related to the Scottdale acquisition for the five years beginning 2018 through 2022 is estimated to be $898,000, $808,000, $719,000, $629,000, and $539,000 per year, respectively, and $1,347,000 in total for the five years after 2022.

The allocation of the purchase price is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	67,817
Investment securities		114,039
Restricted stock		97
Loans		70,769
Goodwill		19,189
Core deposit intangible		4,940
Premises and equipment		1,496
Foreclosed assets		11
Deferred income taxes		1,050
Accrued interest receivable		989
Other assets		266
Total assets acquired		280,663
Liabilities assumed:
Deposits		209,981
Accrued interest payable		16
Other liabilities		3,693
Total liabilities assumed		213,690
Consideration paid	$	66,973
Cash paid	$	2,792
Fair value of common stock issued		64,181

Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, allows for adjustments to goodwill for a period of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date.  

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities and equity assumed in the Scottdale transaction.

(Dollars in thousands)
Total purchase price (consideration paid)	$	66,973
Net assets acquired:
Cash and cash equivalents		67,817
Investment securities		114,039
Restricted stock		97
Loans		70,769
Core deposit intangible		4,940
Premises and equipment		1,496
Foreclosed assets		11
Deferred income taxes		1,050
Accrued interest receivable		989
Other assets		266
Deposits		(209,981	)
Accrued interest payable		(16	)
Other liabilities		(3,693	)
		47,784
Goodwill	$	19,189

In general, factors contributing to goodwill recognized as a result of the Scottdale acquisition include expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of short-term investments into higher-yielding loans.  The goodwill acquired as a result of the Scottdale acquisition is not tax deductible.

The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $70,769,000.  The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

(Dollars in thousands)
Gross amortized cost basis at January 8, 2018	$	71,809
Market rate adjustment		601
Credit fair value adjustment on pools of homogeneous loans		(995	)
Credit fair value adjustment on impaired loans		(646	)
Fair value of purchased loans at January 8, 2018	$	70,769

The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans.  The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date.  The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan.

The information about the acquired Scottdale impaired loan portfolio as of January 8, 2018 is as follows:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	2,586
Contractual cash flows not expected to be collected (nonaccretable discount)		(1,010	)
Expected cash flows at acquisition		1,576
Interest component of expected cash flows (accretable discount)		(305	)
Fair value of acquired loans	$	1,271

The following table presents pro forma information as if the merger between Mid Penn Bank and Scottdale had been completed on January 1, 2017.  The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn Bank merged with Scottdale at the beginning of 2017.  The supplemental pro forma earnings for the nine months ended September 30, 2018 exclude both (i) adjustments to estimate the eight day impact of Scottdale due to immateriality and impracticality and (ii) $1,294,000 of merger related costs incurred in 2018 related to the Scottdale acquisition, which included approximately $518,000 of severance and retention bonus expenses. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.

(Dollars in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net interest income after loan loss provision	$	15,811	$	11,074	$	37,978	$	32,455
Noninterest income		2,165		1,658		5,371		4,729
Noninterest expense		15,232		9,411		34,895		28,759
Net income		2,196		2,424		7,109		6,150
Net income per common share		0.29		0.40		1.16		1.01

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Investment Securities

9 Months Ended

Sep. 30, 2018

Securities Financing Transactions Disclosures [Abstract]

Investment Securities

(4) Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available-for-sale and carried at fair value.  Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, pledging requirements, 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 net proceeds and the amortized cost of the securities sold, using the specific identification method.  Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through Mid Penn’s consolidated statements 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 entity will recover the cost basis of the investment.

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

Mid Penn had no securities considered by management to be other-than-temporarily impaired as of September 30, 2018,  December 31, 2017, or September 30, 2017, and did not record any securities impairment charges in the respective periods ended on these dates.  Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to relate to changes in interest rates, and not erosion of credit quality.

Beginning January 1, 2018, upon adoption of ASU 2016-01, equity securities with readily determinable fair values are stated at fair value within other assets on the balance sheet, with realized and unrealized gains and losses reported in other expense on the income statement. For periods prior to January 1, 2018, equity securities were classified as available-for-sale and stated at fair value within investment securities available-for-sale on the balance sheet, with unrealized gains and losses reported as a separate component of accumulated other comprehensive loss, net of tax. Equity securities without readily determinable fair values are recorded at cost less any impairment.

The amortized cost, fair value, and unrealized gains and losses on investment securities at September 30, 2018 and December 31, 2017 are as follows:

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2018
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	$	40,590	$	—	$	2,640	$	37,950
Mortgage-backed U.S. government agencies		41,677		-		1,490		40,187
State and political subdivision obligations		33,306		54		2,213		31,147
Corporate debt securities		1,250		-		7		1,243
Total available-for-sale debt securities		116,823		54		6,350		110,527
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies		16,480		5		261		16,224
Mortgage-backed U.S. government agencies		69,344		2		1,998		67,348
State and political subdivision obligations		84,154		19		2,157		82,016
Corporate debt securities		1,543		—		11		1,532
Total held-to-maturity debt securities		171,521		26		4,427		167,120
Total	$	288,344	$	80	$	10,777	$	277,647

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2017
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	$	40,125	$	—	$	1,395	$	38,730
Mortgage-backed U.S. government agencies		26,398		2		569		25,831
State and political subdivision obligations		27,775		7		739		27,043
Corporate debt securities		1,350		5		—		1,355
Total available-for-sale debt securities		95,648		14		2,703		92,959
Available-for-sale equity securities:
Equity securities		550		—		44		506
Total available-for-sale equity securities		550		—		44		506
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies		10,984		—		90		10,894
Mortgage-backed U.S. government agencies		53,472		—		523		52,949
State and political subdivision obligations		36,900		41		301		36,640
Total held-to-maturity debt securities		101,356		41		914		100,483
Total	$	197,554	$	55	$	3,661	$	193,948

Estimated fair values of debt securities are based on quoted market prices, where applicable.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued.  Please refer to Note 5, Fair Value Measurement, for more information on the fair value of investment securities.

Equity securities consist of Community Reinvestment Act funds and, as of September 30, 2018 and December 31, 2017, Mid Penn had $488,000 and $506,000, respectively, in equity securities recorded at fair value. Prior to January 1, 2018, equity securities were stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive loss, net of tax.  At December 31, 2017, net unrealized gains of $44,000 had been recognized in accumulated other comprehensive loss. On January 1, 2018, with the adoption of ASU 2016-01, these unrealized gains and losses were reclassified out of accumulated other comprehensive loss and into retained earnings and subsequent changes in fair value are now recognized in net income and the fair value of securities is presented in other assets.  No equity securities were sold during the three and nine months ended September 30, 2018.

Investment securities having a fair value of $240,070,000 at September 30, 2018 and $141,465,000 at December 31, 2017 were pledged to secure public deposits, some trust account holdings, and certain other borrowings.

Gross realized gains and losses on sales of available-for-sale debt securities for the three and nine months ended September 30, 2018 and 2017 are shown in the table below.

(Dollars in thousands)	Three Months Ended September 30,							Nine Months Ended September 30,
	2018			2017				2018				2017
Realized gains		$	30		$	46			$	141		$	246
Realized losses			-			(24	)			(9	)		(204	)
Net gains		$	30		$	22			$	132		$	42

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 September 30, 2018 and December 31, 2017.

(Dollars in thousands)	Less Than 12 Months					12 Months or More						Total
	Number					Number						Number
	of	Fair		Unrealized		of		Fair		Unrealized		of	Fair		Unrealized
September 30, 2018	Securities	Value		Losses		Securities		Value		Losses		Securities	Value		Losses
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	1	$	484	$	4	21		$	37,466	$	2,636	22	$	37,950	$	2,640
Mortgage-backed U.S. government agencies	12		18,385		360	18			21,777		1,130	30		40,162		1,490
State and political subdivision obligations	14		7,144		285	45			20,283		1,928	59		27,427		2,213
Corporate debt securities	1		993		7		—		—		—	1		993		7
Total temporarily impaired available-for-sale debt securities	28		27,006		656	84			79,526		5,694	112		106,532		6,350
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	4		9,313		206	2			4,942		55	6		14,255		261
Mortgage-backed U.S. government agencies	35		49,974		1,279	12			16,406		719	47		66,380		1,998
State and political subdivision obligations	171		69,513		1,730	20			7,147		427	191		76,660		2,157
Corporate debt securities	1		1,532		11		—		—		—	1		1,532		11
Total temporarily impaired held-to-maturity debt securities	211		130,332		3,226	34			28,495		1,201	245		158,827		4,427
Total	239	$	157,338	$	3,882	118		$	108,021	$	6,895	357	$	265,359	$	10,777

(Dollars in thousands)	Less Than 12 Months						12 Months or More						Total
	Number						Number						Number
	of		Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized
December 31, 2017	Securities		Value		Losses		Securities	Value		Losses			Securities	Value		Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	3		$	5,008	$	184	18	$	33,722		$	1,211	21	$	38,730	$	1,395
Mortgage-backed U.S. government agencies	4			5,267		75	15		20,497			494	19		25,764		569
State and political subdivision obligations	11			6,144		102	40		19,091			637	51		25,235		739
Equity securities		—		—		—	1		506			44	1		506		44
Total temporarily impaired available-for-sale securities	18		$	16,419	$	361	74	$	73,816		$	2,386	92	$	90,235	$	2,747
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies		—		—		—	4		10,894			90	4		10,894		90
Mortgage-backed U.S. government agencies		—		—		—	35		52,949			523	35		52,949		523
State and political subdivision obligations		—		—		—	77		29,976			301	77		29,976		301
Total temporarily impaired held to maturity securities	0			—		—	116		93,819			914	116		93,819		914
Total	18		$	16,419	$	361	190	$	167,635		$	3,300	208	$	184,054	$	3,661

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 has been less than amortized cost and the financial condition and near term prospects of the issuer.  In addition, for debt securities, Mid Penn considers (a) whether management has the intent to sell the security, (b) it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (c) whether management expects to recover the entire amortized cost basis.  For equity securities, management considers the intent and ability to hold securities until recovery of unrealized losses.

The majority of the investment portfolio is comprised of securities issued by U.S. government agencies and state and political subdivision obligations.  For the investment securities with an unrealized loss, Mid Penn has concluded that, based on its analysis, the unrealized losses were primarily caused by the movement of interest rates and not due to an erosion of credit quality of the underlying issuers.

At both September 30, 2018 and December 31, 2017, the majority of available-for-sale securities and held-to-maturity securities in an unrealized loss position were obligations of state and political subdivisions, U.S. Treasury and agency securities, and mortgage-backed U.S. government agencies.

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of September 30, 2018.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
September 30, 2018	Cost		Value		Cost		Value
Due in 1 year or less	$	-	$	-	$	3,084	$	3,080
Due after 1 year but within 5 years		19,586		18,828		15,466		15,163
Due after 5 years but within 10 years		43,451		40,271		82,415		80,337
Due after 10 years		12,109		11,241		1,212		1,192
		75,146		70,340		102,177		99,772
Mortgage-backed securities		41,677		40,187		69,344		67,348
	$	116,823	$	110,527	$	171,521	$	167,120

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Loans and Allowance for Loan and Lease Losses

9 Months Ended

Sep. 30, 2018

Accounts Notes Loans And Financing Receivable Gross Allowance And Net [Abstract]

Loans and Allowance for Loan and Lease Losses

(5) Loans and Allowance for Loan and Lease Losses

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

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

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

Commercial and Industrial

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

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.

Residential Mortgage

Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction.  The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas.  Residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 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, or Pennsylvania Housing Finance Agency standards, with the intention of selling the majority of residential mortgages originated into the secondary market.  In the event that the facts and circumstances surrounding a residential mortgage application do not meet all underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request.  In the event that the loan is held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

Consumer, Including Home Equity

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

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit.  Substantially all home equity loans and lines of credit are secured by 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.

Allowance for Loan and Lease Losses

The allowance for credit losses (“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 $171,000 at September 30, 2018 and $105,000 at December 31, 2017.  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, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  Because all identified losses are immediately charged off, no portion of the allowance 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 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 measureable 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.  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.

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 rated as substandard 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 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 rated as impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans.  An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value.  A specific allocation of allowance is made for any anticipated collateral shortfall. 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.  Consumer loans (including home equity loans and other consumer loans) are recommended for charge-off after reaching delinquency of 90 days and the loan is not 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 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 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 sales or private sales.  Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, Mid Penn’s practice of obtaining independent third party market valuations on the subject property 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 further segregation of loan classes into risk rating categories.  The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments.  Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss.  Loans criticized as special mention have potential weaknesses that deserve management’s close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.  Loans classified substandard have a well-defined weakness or 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.  Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Acquired Loans

Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the existing related allowance for loan losses.  Fair value of the 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 the 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 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.

The classes of the loan portfolio, summarized by the pass rating (net of deferred fees and costs of $443,000 as of September 30, 2018 and $464,000 as of December 31, 2017), and the classified ratings of special mention and substandard within Mid Penn’s internal risk rating system as of September 30, 2018 and December 31, 2017, are as follows:

(Dollars in thousands)			Special
September 30, 2018	Pass		Mention		Substandard		Total
Commercial and industrial	$	259,870	$	2,106	$	7,174	$	269,150
Commercial real estate		801,897		1,917		9,008		812,822
Commercial real estate - construction		145,001		—		367		145,368
Lease financing		132		—		—		132
Residential mortgage		252,997		148		2,241		255,386
Home equity		73,753		—		96		73,849
Consumer		10,579		—		—		10,579
	$	1,544,229	$	4,171	$	18,886	$	1,567,286

(Dollars in thousands)			Special
December 31, 2017	Pass		Mention		Substandard		Total
Commercial and industrial	$	182,168	$	453	$	5,412	$	188,033
Commercial real estate		505,397		1,435		8,180		515,012
Commercial real estate - construction		61,667		182		487		62,336
Lease financing		229		—		—		229
Residential mortgage		97,814		157		1,062		99,033
Home equity		41,479		105		309		41,893
Consumer		3,868		—		—		3,868
	$	892,622	$	2,332	$	15,450	$	910,404

Mid Penn had no loans classified as doubtful as of September 30, 2018 and December 31, 2017.

Impaired loans by loan portfolio class as of September 30, 2018 and December 31, 2017 are summarized as follows:

	September 30, 2018						December 31, 2017
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—	$	13	$	—
Commercial real estate		2,033		2,553		—		3,424		4,056		—
Commercial real estate - construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Residential mortgage		832		940		—		760		877		—
Home equity		25		126		—		260		295		—
Consumer		—		—		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	28	$	28	$	—	$	—	$	—	$	—
Commercial real estate		1,456		1,456		—		555		555		—
Commercial real estate - construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Residential mortgage		1,264		1,264		—		306		306		—
Home equity		4		4		—		—		—		—
Consumer		—		—		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,527	$	4,635	$	489	$	4,434	$	4,460	$	136
Commercial real estate		857		872		243		1,423		1,589		293
Commercial real estate - construction		367		370		38		487		492		100
Lease financing		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,555	$	4,663	$	489	$	4,434	$	4,473	$	136
Commercial real estate		4,346		4,881		243		5,402		6,200		293
Commercial real estate - construction		367		370		38		487		492		100
Lease financing		—		—		—		—		—		—
Residential mortgage		2,096		2,204		—		1,066		1,183		—
Home equity		29		130		—		260		295		—
Consumer		—		—		—		—		—		—

The average recorded investment of impaired loans and related interest income recognized for the three and nine months ended September 30, 2018 and 2017 are summarized as follows:

	Three Months Ended
	September 30, 2018				September 30, 2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate		1,872		—		751		—
Commercial real estate - construction		—		—		42		—
Lease financing		—		—		—		—
Residential mortgage		780		11		847		—
Home equity		17		—		294		3
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	24	$	—	$	—	$	—
Commercial real estate		1,470		7		570		—
Commercial real estate - construction		—		—		—		—
Lease financing		—		—		—		—
Residential mortgage		677		—		318		—
Home equity		1		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,425	$	—	$	2,230	$	—
Commercial real estate		703		—		2,148		—
Commercial real estate - construction		367		—		487		—
Lease financing		—		—		—		—
Residential mortgage		—		—		66		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,449	$	—	$	2,230	$	—
Commercial real estate		4,045		7		3,469		—
Commercial real estate - construction		367		—		529		—
Lease financing		—		—		—		—
Residential mortgage		1,457		11		1,231		—
Home equity		18		—		294		3
Consumer		—		—		—		—

	Nine Months Ended
	September 30, 2018				September 30, 2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	16	$	—
Commercial real estate		3,040		3		551		279
Commercial real estate - construction		—		—		164		—
Lease financing		—		—		—		—
Residential mortgage		769		27		852		18
Home equity		148		—		184		5
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	21	$	—	$	—	$	—
Commercial real estate		1,365		23		682		110
Commercial real estate - construction		—		—		—		—
Lease financing		—		—		—		—
Residential mortgage		726		—		339		—
Home equity		—		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,424	$	—	$	892	$	—
Commercial real estate		456		—		2,446		—
Commercial real estate - construction		367		—		390		—
Lease financing		—		—		—		—
Residential mortgage		—		—		53		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,445	$	—	$	908	$	—
Commercial real estate		4,861		26		3,679		389
Commercial real estate - construction		367		—		554		—
Lease financing		—		—		—		—
Residential mortgage		1,495		27		1,244		18
Home equity		148		—		184		5
Consumer		—		—		—		—

Nonaccrual loans by loan portfolio class as of September 30, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	September 30, 2018		December 31, 2017
Commercial and industrial	$	4,555	$	4,434
Commercial real estate		3,910		4,902
Commercial real estate - construction		367		487
Residential mortgage		1,490		492
Home equity		29		260
	$	10,351	$	10,575

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.  As of September 30, 2018 and December 31, 2017, Mid Penn had no accruing loans past due greater than 90 days. The classes of the loan portfolio summarized by the past due status as of September 30, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	30-59		60-89		Greater
	Days Past		Days Past		than 90		Total Past
September 30, 2018	Due		Due		Days		Due		Current		Total Loans
Commercial and industrial	$	-	$	4	$	4,302	$	4,306	$	264,816	$	269,122
Commercial real estate		710		—		273		983		810,383		811,366
Commercial real estate - construction		—		—		367		367		145,001		145,368
Lease financing		—		—		—		—		132		132
Residential mortgage		409		—		290		699		253,423		254,122
Home equity		24		25		19		68		73,777		73,845
Consumer		—		18		—		18		10,561		10,579
Loans acquired with credit deterioration:
Commercial and industrial		—		23		—		23		5		28
Commercial real estate		—		—		991		991		465		1,456
Commercial real estate - construction		—		—		—		—		-		-
Lease financing		—		—		—		—		-		-
Residential mortgage		—		—		237		237		1,027		1,264
Home equity		—		—		4		4		-		4
Consumer		—		—		—		—		-		-
Total	$	1,143	$	70	$	6,483	$	7,696	$	1,559,590	$	1,567,286

(Dollars in thousands)	30-59		60-89		Greater
	Days Past		Days Past		than 90		Total Past
December 31, 2017	Due		Due		Days		Due		Current		Total Loans
Commercial and industrial	$	4,439	$	16	$	-	$	4,455	$	183,578	$	188,033
Commercial real estate		-		-		3,669		3,669		510,788		514,457
Commercial real estate - construction		-		-		487		487		61,849		62,336
Lease financing		-		-		-		-		229		229
Residential mortgage		310		467		177		954		97,773		98,727
Home equity		54		98		250		402		41,491		41,893
Consumer		3		-		-		3		3,865		3,868
Loans acquired with credit deterioration:
Commercial and industrial		-		-		-		-		-		-
Commercial real estate		500		-		55		555		-		555
Commercial real estate - construction		-		-		-		-		-		-
Lease financing		-		-		-		-		-		-
Residential mortgage		-		31		193		224		82		306
Home equity		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	5,306	$	612	$	4,831	$	10,749	$	899,655	$	910,404

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

(Dollars in thousands)
As of, and for the three months ended, September 30, 2018	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing		Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
July 1, 2018	$	2,120		$	4,723		$	146		$	-	$	441		$	420		$	4		$	335		$	8,189
Charge-offs		(12	)		(34	)		-			-		(10	)		-			(11	)		-			(67	)
Recoveries		-			2			-			-		-			-			5			-			7
Provisions		232			130			(12	)		-		38			16			7			(311	)		100
Ending balance,
September 30, 2018	$	2,340		$	4,821		$	134		$	-	$	469		$	436		$	5		$	24		$	8,229
(Dollars in thousands)
As of, and for the nine months ended, September 30, 2018	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing		Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2018	$	1,795		$	4,435		$	178		$	-	$	428		$	423		$	3		$	344		$	7,606
Charge-offs		(142	)		(34	)		(40	)		-		(14	)		(167	)		(21	)		-			(418	)
Recoveries		1			807			-			-		-			-			8			-			816
Provisions		686			(387	)		(4	)		-		55			180			15			(320	)		225
Ending balance,
September 30, 2018		2,340			4,821			134			-		469			436			5			24			8,229
Individually evaluated for impairment		489			243			38			-		-			-			-			-			770
Ending balance:
collectively evaluated for impairment	$	1,851		$	4,578		$	96		$	-	$	469		$	436		$	5		$	24		$	7,459
Loans receivables:
Ending balance	$	269,150		$	812,822		$	145,368		$	132	$	255,386		$	73,849		$	10,579		$	-		$	1,567,286
Ending balance: individually evaluated for impairment		4,527			2,890			367			-		832			25			-			-			8,641
Ending balance: acquired with credit deterioration		28			1,456			-			-		1,264			4			-			-			2,752
Ending balance: collectively evaluated for impairment	$	264,595		$	808,476		$	145,001		$	132	$	253,290		$	73,820		$	10,579		$	-		$	1,555,893

(Dollars in thousands)
December 31, 2017	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Lease financing		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2017	$	1,795	$	4,435	$	178	$	-	$	428	$	423	$	3	$	344	$	7,606
individually evaluated for impairment		136		293		100		-		-		-		-		-		529
Ending balance:
collectively evaluated for impairment	$	1,659	$	4,142	$	78	$	-	$	428	$	423	$	3	$	344	$	7,077
Loans receivable:
Beginning balance,
January 1, 2017	$	188,033	$	515,012	$	62,336	$	229	$	99,033	$	41,893	$	3,868	$	-	$	910,404
Individually evaluated for impairment		4,434		4,847		487		-		760		260		-		-		10,788
Acquired with credit deterioration		-		555		-		-		306		-		-		-		861
Ending balance:
collectively evaluated for impairment	$	183,599	$	509,610	$	61,849	$	229	$	97,967	$	41,633	$	3,868	$	-	$	898,755

(Dollars in thousands)
As of, and for the three months ended, September 30, 2017	Commercial and industrial			Commercial real estate			Commercial real estate - construction		Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
July 1, 2017	$	1,628		$	4,981		$	140	$	1		$	539		$	404		$	4		$	16		$	7,713
Charge-offs		-			(207	)		-		-			(7	)		(20	)		(5	)		-			(239	)
Recoveries		5			22			-		-			-			-			1			-			28
Provisions		166			(326	)		36		(1	)		7			53			5			60			-
Ending balance,
September 30, 2017	$	1,799		$	4,470		$	176	$	-		$	539		$	437		$	5		$	76		$	7,502
(Dollars in thousands)
As of, and for the nine months ended, September 30, 2017	Commercial and industrial			Commercial real estate			Commercial real estate - construction		Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2017	$	1,580		$	4,323		$	144	$	1		$	541		$	379		$	3		$	212		$	7,183
Charge-offs		(12	)		(237	)		-		-			(25	)		(20	)		(21	)		-			(315	)
Recoveries		11			383			-		-			4			5			6			-			409
Provisions		220			1			32		(1	)		19			73			17			(136	)		225
Ending balance,
September 30, 2017		1,799			4,470			176		-			539			437			5			76			7,502
Individually evaluated for impairment		150			375			100		-			66			-			-			-			691
Ending balance:
collectively evaluated for impairment	$	1,649		$	4,095		$	76	$	-		$	473		$	437		$	5		$	76		$	6,811
Loans receivables:
Ending balance	$	182,857		$	490,603		$	58,074	$	259		$	101,073		$	40,350		$	4,170		$	-		$	877,386
Ending balance: individually evaluated for impairment		4,460			2,148			487		-			856			261			-			-			8,212
Ending balance: acquired with credit deterioration		-			569			-		-			315			-			-			-			884
Ending balance: collectively evaluated for impairment	$	178,397		$	487,886		$	57,587	$	259		$	99,902		$	40,089		$	4,170		$	-		$	868,290

The recorded investments in troubled debt restructured loans at September 30, 2018 and December 31, 2017 are as follows:

(Dollars in thousands)	Pre-Modification		Post-Modification
September 30, 2018	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	4,110	$	4,460	$	4,303
Commercial real estate		2,940		2,841		2,229
Residential mortgage		677		675		522
Home equity		14		14		2
	$	7,741	$	7,990	$	7,056

(Dollars in thousands)	Pre-Modification		Post-Modification
December 31, 2017	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	4,110	$	4,460	$	4,434
Commercial real estate		5,735		5,581		4,593
Residential mortgage		677		675		540
Home equity		14		14		4
	$	10,536	$	10,730	$	9,571

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 whereby principal payments have been decreased, interest rates have been reduced and/or the loan will be repaid as collateral is sold.

Mid Penn’s troubled debt restructured loans at September 30, 2018 totaled $7,056,000, and included four loans totaling $524,000 representing accruing impaired loans to unrelated borrowers in compliance with the terms of the modification, with three loans being accruing impaired residential mortgages to unrelated borrowers totaling $522,000 and one loan being an accruing impaired home equity loan of $2,000.  The remaining $6,532,000 of troubled debt restructurings was attributable to ten loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  Two large relationships accounted for $5,463,000 of the total $6,532,000 in nonaccrual impaired troubled debt restructured loans.

At December 31, 2017, Mid Penn’s troubled debt restructured loans totaled $9,571,000, and included four loans totaling $544,000 representing accruing impaired loans in compliance with the terms of the modification, with three loans being accruing impaired residential mortgages to unrelated borrowers totaling $540,000, and one loan being an accruing impaired home equity loan of $4,000.  The remaining $9,027,000 of troubled debt restructured loans is attributable to fifteen loans among seven relationships, which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  Two large relationships accounted for $7,284,000 of the $9,027,000 in nonaccrual impaired troubled debt restructured loans.  As of December 31, 2017, there was $66,000 of charge-offs associated with troubled debt restructured loans while under a forbearance agreement.  As of December 31, 2017, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.  There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2017.  

One nonaccrual commercial real estate relationship was modified as a troubled debt restructured loan during the three and nine months ended September 30, 2018.  The pre-modification and post-modification recorded investment balances for this loan were $270,000. The loan was modified to require payments of interest only for a period of six months.  No charge-offs were taken at the time of modification, and the September 30, 2018 recorded investment balance of this loan was $270,000.  

Two troubled debt restructured loans were added during the three and nine months ended September 30, 2017.  One nonaccrual impaired commercial and industrial troubled debt restructured loan was added as a result of the consolidation of four existing Mid Penn Bank loans with a pre-modification outstanding recorded investment of $4,110,000, as well as other obligations of $350,000 with the same borrower.  This loan had a post-modification recorded investment of $4,460,000, and a September 30, 2017 recorded investment amount of $4,460,000.  No charge-offs were taken at the time of modification.  One nonaccrual impaired commercial real estate loan was added with a pre-modification outstanding recorded investment of $362,000, a post-modification recorded investment of $300,000, and a September 30, 2017 recorded investment amount of $299,000. This modification consolidated two existing Mid Penn Bank loans.  

As a result of management evaluations as of September 30, 2018, December 31, 2017, and September 30, 2017, any specific allocations and charge-offs have been taken as deemed appropriate. There were no charge-offs associated with existing troubled debt restructured loan relationships for the three or nine months ended September 30, 2018. There were no troubled debt restructured loans that defaulted within twelve months of restructure during the three and nine months ended September 30, 2018 and 2017.

As of September 30, 2018, Mid Penn had $1,027,000 of residential real estate held in other real estate owned. There were four consumer mortgage loans secured by residential real estate properties totaling $193,000 for which formal foreclosure proceedings were in process.  As of December 31, 2017, Mid Penn had $42,000 of residential real estate held in other real estate owned, and $308,000 in loans for which formal foreclosure proceedings were in process.

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

(Dollars in thousands)
Accretable yield, July 1, 2018	$	300
Acquisition of impaired loans		125
Accretable yield amortized to interest income		(61	)
Reclassification from nonaccretable difference (a)		-
Accretable yield, September 30, 2018	$	364

(Dollars in thousands)
Accretable yield, January 1, 2018	$	67
Acquisition of impaired loans	$	430
Accretable yield amortized to interest income		(133	)
Reclassification from nonaccretable difference (a)		-
Accretable yield, September 30, 2018	$	364

(a) Reclassification from non-accretable difference represents an increase to the estimated cash flows to be collected on the underlying portfolio.

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Fair Value Measurement

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurement

(6) Fair Value Measurement

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

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

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

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 nine months ended September 30, 2018 or 2017.

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

			Fair value measurements at September 30, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2018		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	37,950	$	-	$	37,950	$	-
Mortgage-backed U.S. government agencies		40,187		-		40,187		-
State and political subdivision obligations		31,147		-		31,147		-
Corporate debt securities		1,243		-		1,243		-
Other assets:
Equity securities		488		488		-		-
Loans held for sale		3,181		3,181		-		-
Total	$	114,196	$	3,669	$	110,527	$	-

			Fair value measurements at December 31, 2017 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	38,730	$	-	$	38,730	$	-
Mortgage-backed U.S. government agencies		25,831		-		25,831		-
State and political subdivision obligations		27,043		-		27,043		-
Corporate debt securities		1,355		-		1,355		-
Other assets:
Equity securities		506		506		-		-
Loans held for sale		1,040		1,040		-		-
Total	$	94,505	$	1,546	$	92,959	$	-

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 September 30, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2018		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	4,995	$	-	$	-	$	4,995
Foreclosed Assets Held for Sale		581		-		-		581
Mortgage Servicing Rights		107		-		-		107

			Fair value measurements at December 31, 2017 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	6,090	$	-	$	-	$	6,090
Foreclosed Assets Held for Sale		-		-		-		-
Mortgage Servicing Rights		126		-		-		126

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
September 30, 2018	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	4,995	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	26% - 100%	36%
Foreclosed Assets Held for Sale		581	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	17% - 17%	17%
Mortgage Servicing Rights		107	Multiple of annual service fee	Estimated prepayment speed based on rate and term	70% - 100%	99%

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2017	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	6,090	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	6% - 51%	28%
Foreclosed Assets Held for Sale		-	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	0% - 0%	0%
Mortgage Servicing Rights		126	Multiple of annual service fee	Estimated prepayment speed based on rate and term	70% - 100%	98%

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

(b) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.  Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, or age of the appraisal.

(c) Includes qualitative adjustments by management and estimated liquidation expenses.

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

Cash and Cash Equivalents:

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

Interest-bearing Balances with other Financial Institutions:

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

Securities Available for Sale:

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

Held-to-Maturity Securities:

The fair values of held-to-maturity securities are based on a market approach using observable inputs such as benchmark yields and securities, reported trades, issuer spreads, current bids and offers, monthly payment information and collateral performance.

Loans Held for Sale:

The fair values of mortgage loans originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors.

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.

Loans:

Loan fair values as of September 30, 2018 are estimated using an exit price approach, which incorporates discounts for credit risk and prepayment risk and considers the value indicated by current market expectations in the estimated fair value of the loan portfolio.

Loan fair values as of December 31, 2017 were calculated using the entrance price approach.  Under this approach, variable rate loans that reprice frequently and which entail no significant changes in credit risk had a fair value approximating carrying value.  The fair value of other loans was estimated by calculating the present value of the cash flow difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.

Foreclosed Assets Held for Sale:

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

Accrued Interest Receivable and Payable:

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

Restricted Investment in Bank Stocks:

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

Mortgage Servicing Rights:

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

Deposits:

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

Short-term Borrowings:

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

Long-term and Subordinated Debt:

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

Commitments to Extend Credit and Letters of Credit:

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

The following table summarizes the carrying value and fair value of financial instruments at September 30, 2018 and December 31, 2017.

(Dollars in thousands)	September 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	62,085	$	62,085	$	23,514	$	23,514
Available-for-sale investment securities		110,527		110,527		93,465		93,465
Held-to-maturity investment securities		171,521		167,120		101,356		100,483
Loans held for sale		3,181		3,181		1,040		1,040
Net loans and leases		1,559,057		1,551,077		902,798		917,081
Restricted investment in bank stocks		3,373		3,373		4,384		4,384
Accrued interest receivable		7,491		7,491		4,564		4,564
Mortgage servicing rights		107		107		126		126
Financial liabilities:
Deposits	$	1,762,465	$	1,759,822	$	1,023,568	$	1,026,830
Short-term borrowings		1,771		1,771		34,611		34,611
Long-term debt		18,064		15,544		12,352		11,692
Subordinated debt		27,088		27,256		17,338		17,358
Accrued interest payable		2,262		2,262		645		645
Off-balance sheet financial instruments:
Commitments to extend credit	$	-	$	-	$	-	$	-
Financial standby letters of credit		-		-		-		-

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of September 30, 2018 and December 31, 2017.  Carrying values approximate fair values for cash and cash equivalents, interest-bearing time balances with other financial institutions, loans held for sale, restricted investment in bank stocks, mortgage servicing rights, accrued interest receivable and payable, and short-term borrowings.  Other than cash and cash equivalents, which are considered Level 1 Inputs and mortgage servicing rights, which are Level 3 Inputs, these instruments are Level 2 Inputs. These tables exclude financial instruments for which the carrying amount approximates fair value, not previously disclosed.

					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
September 30, 2018	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	171,521	$	167,120	$	-	$	167,120	$	-
Net loans and leases		1,559,057		1,551,077		-		-		1,551,077
Financial instruments -    liabilities
Deposits	$	1,762,465	$	1,759,822	$	-	$	1,759,822	$	-
Long-term debt		18,064		15,544		-		15,544		-
Subordinated debt		27,088		27,256		-		27,256		-

					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
December 31, 2017	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	101,356	$	100,483	$	-	$	100,483	$	-
Net loans and leases		902,798		917,081		-		-		917,081
Financial instruments -    liabilities
Deposits	$	1,023,568	$	1,026,830	$	-	$	1,026,830	$	-
Long-term debt		12,352		11,692		-		11,692		-
Subordinated debt		17,338		17,358				17,358

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Guarantees and Commitments

9 Months Ended

Sep. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Guarantees and Commitments

(7) Guarantees and Commitments

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 $22,479,000 and $20,496,000 standby letters of credit outstanding as of September 30, 2018 and December 31, 2017, respectively.  Mid Penn does not anticipate any losses because of these transactions.  The amount of the liability as of September 30, 2018 and December 31, 2017 for payment under standby letters of credit issued was not material.

During the second quarter of 2018,Mid Penn entered into a commitment to purchase a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania.  All of the units are intended 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, which will be paid in installments over the course of construction of the low-income housing facilities.  The investment in the limited partnership will be reported in other assets on the Consolidated Balance Sheet and amortized over a ten year period.  The project has been conditionally awarded $861,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $8,613,000 to be awarded to Mid Penn over the ten year amortization period.  Mid Penn’s commitment to purchase the limited partnership interest is conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it may deem necessary. As of September 30, 2018, the total investment in the limited partnership was $1,472,000 and was reported in other assets on the Consolidated Balance Sheet.

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Subordinated Debt

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Subordinated Debt

(8) Subordinated Debt

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”).  In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000. The 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 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. 

Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its 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 times be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any 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.  

Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025.  The 2015 Notes are treated as Tier 2 capital for regulatory capital purposes.

The 2015 Notes bear interest at a rate of 5.15% 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 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.

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 $151,000 at September 30, 2018 and $162,000 at December 31, 2017.

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Defined Benefit Plans

9 Months Ended

Sep. 30, 2018

Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]

Defined Benefit Plans

(9) Defined Benefit Plans

Mid Penn has an unfunded noncontributory defined benefit retirement plan for directors.  The plan provides defined benefits based on years of service.  Mid Penn also sponsors a defined benefit health care plan that provides post-retirement medical benefits and life insurance to qualifying full-time employees.  These health care 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 contributed $600,000 to the defined benefit pension plan during the three and nine months ended September 30, 2018.  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 September 30,
(Dollars in thousands)	Pension Benefits					Other Benefits
	2018			2017		2018			2017
Service cost	$	82		$	9	$	1		$	1
Interest cost		107			11		4			5
Expected return on plan assets		(106	)		-		-			-
Amortization (accretion) of prior service cost		4			4		(5	)		(6	)
Settlement gain		(117	)		-		-			-
Net periodic benefit (income) expense	$	(30	)	$	24	$	-		$	-

	Nine Months Ended September 30,
(Dollars in thousands)	Pension Benefits					Other Benefits
	2018			2017		2018			2017
Service cost	$	242		$	26	$	3		$	3
Interest cost		322			32		13			15
Expected return on plan assets		(317	)		-		-			-
Amortization (accretion) of prior service cost		13			11		(15	)		(17	)
Settlement gain		(497	)		-		-			-
Net periodic benefit (income) expense	$	(237	)	$	69	$	1		$	1

For the three and nine months ended September 30, 2018, 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, amortization (accretion) of prior service cost, and settlement gain are reported as a component of other income.  For the three and nine months ended September 30, 2017, service costs were reported as a component of salaries and employee benefits, while interest costs and accretion of prior service costs were reported as a component of other expense.

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Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 2018

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Accumulated Other Comprehensive Loss

(10) Accumulated Other Comprehensive Loss

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

(Dollars in thousands)	Unrealized Loss on Securities			Defined Benefit Plans		Accumulated Other Comprehensive Loss
Balance - September 30, 2018	$	(4,974	)	$	1,283	$	(3,691	)
Balance - December 31, 2017	$	(2,159	)	$	85	$	(2,074	)

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Preferred Stock

9 Months Ended

Sep. 30, 2018

Class Of Stock Disclosures [Abstract]

Preferred Stock

(11) Preferred Stock

In accordance with the terms and conditions of the Agreement and Plan of Merger dated January 16, 2018 between Mid Penn and First Priority (the “Merger Agreement”), each share of First Priority Fixed Rate Cumulative Perpetual Preferred Stock, Series C (the “First Priority Preferred Stock”) outstanding as of July 31, 2018 was converted into the right to receive one share of Mid Penn Fixed Rate Cumulative Perpetual Preferred Stock, Series D, having a $1,000 liquidation preference per share (the “Mid Penn Preferred Stock”). In connection with the Merger, Mid Penn issued 3,404 shares of Mid Penn Preferred Stock.

The terms of the Mid Penn Preferred Stock are no less favorable than those of the First Priority Preferred Stock as in effect immediately prior to the Merger. Under the terms of the Mid Penn Preferred Stock, no repurchases may be effected, and no dividends may be declared or paid on preferred shares ranking pari passu with the Mid Penn Preferred Stock, junior preferred shares, or other junior securities (including the common stock) unless all accrued and unpaid dividends on the Mid Penn Preferred Stock for all past dividend periods are paid in full. The Mid Penn Preferred Stock may be redeemed at the option of Mid Penn, subject to the prior receipt of any requisite regulatory approval.

Dividends are payable quarterly on February 15, May 15, August 15 and November 15 of each year. The dividend rate on the Mid Penn Preferred Stock is fixed at 9%.

On November 5, 2018, the Federal Reserve Bank affirmed Mid Penn’s request to redeem the Mid Penn Preferred Stock.  Mid Penn intends to redeem all 3,404 of the issued and outstanding shares of Mid Penn Fixed Rate Cumulative Perpetual Preferred Stock, Series D during the fourth quarter of 2018.  Please reference Note 16 – Subsequent Event, for more information.  

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Restricted Common Stock

9 Months Ended

Sep. 30, 2018

Common Stock Number Of Shares Par Value And Other Disclosures [Abstract]

Restricted Common Stock

(12) Restricted Common Stock

On May 6, 2014, Mid Penn shareholders approved the 2014 Restricted Stock Plan (the “Plan”), which authorizes the issuance of awards that shall not exceed, in the aggregate, 100,000 shares of common stock.  Awards under the Plan are limited to employees and directors of the Company and the Bank selected by the Compensation Committee of the Board of Directors, to advance the best interest of Mid Penn and its shareholders.  

Share-based compensation expense relating to restricted stock is recognized on a straight-line basis over the vesting periods of the awards and is a component of salaries and benefits expense.  As of September 30, 2018, a total of 38,109 restricted shares were granted under the Plan, with 16,633 of the granted shares being vested, while the remaining 21,476 granted shares remain unvested. During the nine months ended September 30, 2018, 490 shares were forfeited due to the voluntary termination of an employee. No shares were forfeited during the three months ended September 30, 2018, or the three and nine months ended September 30, 2017. The Plan shares granted and vested resulted in $74,000 in compensation expense for the three months ended September 30, 2018, while $30,000 of share-based compensation expense was recorded for the three months ended September 30, 2017.  Compensation expense related to the Plan was $187,000 for the nine months ended September 30, 2018, while it was $69,000 for the same period in 2017.  

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Revenue Recognition

9 Months Ended

Sep. 30, 2018

Revenue From Contract With Customer [Abstract]

Revenue Recognition

(13) Revenue Recognition

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, 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.  ASU 2014-09 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.  

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit charge interchange income, merchant service fees and components of other income are within the scope of Topic 606.  Within these various non-interest income streams, Mid Penn enters into business contracts with customers to perform a variety of services. These services include, but are not limited to (i) agreed-upon tasks (e.g. initiating a wire transfer or trust and investment management services), (ii) service of standing ready to provide goods and services (e.g. letter of credit arrangements), and (iii) arranging for another party to transfer goods or services to a customer (e.g. check order fees).  Typically, contracts are approved in writing, but can also be approved in accordance with other customary business practices.  The majority of the performance obligations of Mid Penn are distinct and are satisfied at a point in time and typically the transaction prices are fixed and are documented in either a fee schedule, such as non-sufficient funds fees or wire fees, or calculated as a percentage of assets under management for trust and wealth management income streams.  The transaction price is not recognized in revenue until the service has occurred, or monthly in arrears for assets under management.  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.

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Earnings per Common Share

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Earnings per Common Share

(14) Earnings per Common Share

Earnings per share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented.  The following data show the amounts used in computing basic earnings per common share.

(Dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018			2017	2018				2017
Net income	$	2,164	$	2,249	$	$	5,947	$	6,588
Less: Dividends on Series D preferred stock		38		-			38		-
Net income available to common shareholders	$	2,126	$	2,249		$	5,909	$	6,588
Weighted average common shares outstanding		7,695,469		4,237,965			6,604,027		4,236,604
Basic and diluted earnings per common share	$	0.28	$	0.53	$	$	0.89	$	1.56

Weighted average shares outstanding increased for the three and nine months ended September 30, 2018 when compared to the same periods in 2017 primarily as a result of both (i) the issuance of 1,878,827 shares of Mid Penn common stock on January 8, 2018 in connection with the Scottdale acquisition, and (ii) the issuance of 2,320,800 shares of Mid Penn common stock on July 31, 2018 in connection with the First Priority acquisition.  Mid Penn had no dilutive instruments outstanding during the periods ended September 30, 2018 and 2017.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2018

New Accounting Pronouncement Or Change In Accounting Principle Retrospective Adjustments [Abstract]

Recent Accounting Pronouncements

(15) Recent Accounting Pronouncements

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

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.

The Update has tiered effective dates, with early adoption permitted for all entities as of the fiscal year beginning after December 15, 2018.  For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

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.

ASU 2016-02:  The FASB issued ASU 2016-02, Leases.

The new leases standard applies a right-of-use (“ROU”) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments.  For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability.  At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification.

The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to existing U.S. GAAP.  Classification depends on the same five criteria used by lessees plus certain additional factors.  The subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases, and operating leases.  However, the new standard updates certain aspects of the lessor accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic 606.

Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.  The new leases standard addresses other considerations including identification of a lease, separating lease and non-lease components of a contract, sale and leaseback transactions, modifications, combining contracts, reassessment of the lease term, and re-measurement of lease payments. It also contains comprehensive implementation guidance with practical examples.

On July 30, 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an option to apply the transition provisions of the new standard at the adoption date instead of the earliest comparative period presented.  Additionally, the ASU provides a practical expedient permitting lessors to not separate non-lease components from the associated lease component if certain conditions are met.

The amendments for both ASUs are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Specific transition requirements apply.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Specific transition requirements apply.

Mid Penn occupies certain offices under non-cancelable operating lease agreements, which currently are not reflected in its consolidated statement of condition.  Mid Penn expects to recognize lease liabilities and ROU assets associated with these lease agreements as required by the ASU; however, the extent of the prospective impact on Mid Penn’s consolidated financial statements and the materiality will be dependent upon the extent and type of lease arrangements involving Mid Penn at the time of the adoption of this standard. Mid Penn expects to adopt this standard by applying the transition provisions at the adoption date and utilize the practical expedients made available through ASU 2018-11.  Mid Penn is currently gathering the data and information required to adopt the standard effective January 1, 2019.

ASU 2018-07: The FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

The ASU makes certain changes to the accounting for nonemployee awards to align the accounting for share-based payment awards issued to employees and nonemployees.  The changes require that the compensation expense associated with nonemployee equity awards with performance conditions be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition.  Additionally, the new ASU requires that equity-classified share-based payment awards issued to nonemployees be measured on the grant date, versus the previous GAAP requirement to re-measure the awards through the performance completion date.  The current requirement to reassess the classification (equity or liability) for the nonemployee awards upon vesting will be eliminated.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted, including interim periods.

Mid Penn currently issues restricted stock awards to nonemployee directors through the 2014 Restricted Stock Plan (the “Plan”).  The single performance condition of the award is that the individual remain a director of Mid Penn through the duration of the vesting period.  Mid Penn is currently evaluating the details of this ASU and expects that the adoption of this ASU will not have a material impact on our consolidated financial statements as the compensation expense related to nonemployee equity awards is immaterial to Mid Penn’s overall financial condition.

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.

The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted.

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 will be 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 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.

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 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.

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Subsequent Event

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Event

(16) Subsequent Event

On November 5, 2018, the Federal Reserve Bank affirmed Mid Penn’s request to redeem all 3,404 shares of Mid Penn Fixed Rate Cumulative Perpetual Preferred Stock, Series D.  Mid Penn intends to redeem the preferred stock during the fourth quarter of 2018.  Please reference Note 11 – Preferred Stock, for more information.  

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Revenue Recognition (Policies)

9 Months Ended

Sep. 30, 2018

Revenue From Contract With Customer [Abstract]

Revenue Recognition

Revenue Recognition

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, 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.  ASU 2014-09 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.  

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit charge interchange income, merchant service fees and components of other income are within the scope of Topic 606.  Within these various non-interest income streams, Mid Penn enters into business contracts with customers to perform a variety of services. These services include, but are not limited to (i) agreed-upon tasks (e.g. initiating a wire transfer or trust and investment management services), (ii) service of standing ready to provide goods and services (e.g. letter of credit arrangements), and (iii) arranging for another party to transfer goods or services to a customer (e.g. check order fees).  Typically, contracts are approved in writing, but can also be approved in accordance with other customary business practices.  The majority of the performance obligations of Mid Penn are distinct and are satisfied at a point in time and typically the transaction prices are fixed and are documented in either a fee schedule, such as non-sufficient funds fees or wire fees, or calculated as a percentage of assets under management for trust and wealth management income streams.  The transaction price is not recognized in revenue until the service has occurred, or monthly in arrears for assets under management.  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.

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Acquisition (Tables)

9 Months Ended

Sep. 30, 2018

First Priority Financial Corp. [Member]

Allocation of the Purchase Price

The allocation of the purchase price is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	11,398
Investment securities		62,977
Restricted stock		2,237
Loans		511,623
Goodwill		39,659
Core deposit intangible		2,832
Trade name intangible		205
Premises and equipment		1,147
Foreclosed assets		125
Deferred income taxes		3,118
Accrued interest receivable		2,293
Other assets		4,197
Total assets acquired		641,811
Liabilities assumed:
Deposits		504,946
Borrowings		49,939
Accrued interest payable		1,073
Other liabilities		2,520
Total liabilities assumed		558,478
Equity acquired:
Preferred stock		3,404
Total equity acquired and liabilities assumed		561,882
Consideration paid	$	79,929
Cash paid	$	3,807
Fair value of common stock issued		76,122

Summary of the Preliminary Estimated Fair Value of the Assets Acquired and Liabilities and Equity Assumed

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities and equity assumed in the First Priority transaction.

(Dollars in thousands)
Total purchase price (consideration paid)	$	79,929
Net assets acquired:
Cash and cash equivalents		11,398
Investment securities		62,977
Restricted stock		2,237
Loans		511,623
Core deposit intangible		2,832
Trade name intangible		205
Premises and equipment		1,147
Foreclosed assets		125
Deferred income taxes		3,118
Accrued interest receivable		2,293
Other assets		4,197
Deposits		(504,946	)
Borrowings		(49,939	)
Accrued interest payable		(1,073	)
Other liabilities		(2,520	)
Preferred stock		(3,404	)
		40,270
Goodwill	$	39,659

Fair Value Adjustments Made to the Amortized Cost Basis, Presented at the Fair Value of Loans Acquired

The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

(Dollars in thousands)
Gross amortized cost basis at January 8, 2018	$	521,644
Market rate adjustment		(3,023	)
Credit fair value adjustment on pools of homogeneous loans		(6,742	)
Credit fair value adjustment on impaired loans		(256	)
Fair value of purchased loans at January 8, 2018	$	511,623

Fair Value of the Loans Acquired

The information about the acquired First Priority impaired loan portfolio as of July 31, 2018 is as follows:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	1,855
Contractual cash flows not expected to be collected (nonaccretable discount)		(858	)
Expected cash flows at acquisition		997
Interest component of expected cash flows (accretable discount)		(125	)
Fair value of acquired loans	$	872

Pro Forma Information

The following table presents pro forma information as if the merger between Mid Penn and First Priority had been completed on January 1, 2017.

(Dollars in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net interest income after loan loss provision	$	17,373	$	11,089	$	48,914	$	41,480
Noninterest income		2,220		1,688		5,754		5,000
Noninterest expense		13,543		10,677		41,532		37,757
Net income		5,502		1,533		10,995		6,368
Net income per common share		0.70		0.25		1.49		0.97

Scottdale Bank and Trust Company [Member]

Allocation of the Purchase Price

The allocation of the purchase price is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	67,817
Investment securities		114,039
Restricted stock		97
Loans		70,769
Goodwill		19,189
Core deposit intangible		4,940
Premises and equipment		1,496
Foreclosed assets		11
Deferred income taxes		1,050
Accrued interest receivable		989
Other assets		266
Total assets acquired		280,663
Liabilities assumed:
Deposits		209,981
Accrued interest payable		16
Other liabilities		3,693
Total liabilities assumed		213,690
Consideration paid	$	66,973
Cash paid	$	2,792
Fair value of common stock issued		64,181

Summary of the Preliminary Estimated Fair Value of the Assets Acquired and Liabilities and Equity Assumed

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities and equity assumed in the Scottdale transaction.

(Dollars in thousands)
Total purchase price (consideration paid)	$	66,973
Net assets acquired:
Cash and cash equivalents		67,817
Investment securities		114,039
Restricted stock		97
Loans		70,769
Core deposit intangible		4,940
Premises and equipment		1,496
Foreclosed assets		11
Deferred income taxes		1,050
Accrued interest receivable		989
Other assets		266
Deposits		(209,981	)
Accrued interest payable		(16	)
Other liabilities		(3,693	)
		47,784
Goodwill	$	19,189

Fair Value Adjustments Made to the Amortized Cost Basis, Presented at the Fair Value of Loans Acquired

The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

(Dollars in thousands)
Gross amortized cost basis at January 8, 2018	$	71,809
Market rate adjustment		601
Credit fair value adjustment on pools of homogeneous loans		(995	)
Credit fair value adjustment on impaired loans		(646	)
Fair value of purchased loans at January 8, 2018	$	70,769

Fair Value of the Loans Acquired

The information about the acquired Scottdale impaired loan portfolio as of January 8, 2018 is as follows:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	2,586
Contractual cash flows not expected to be collected (nonaccretable discount)		(1,010	)
Expected cash flows at acquisition		1,576
Interest component of expected cash flows (accretable discount)		(305	)
Fair value of acquired loans	$	1,271

Pro Forma Information

The following table presents pro forma information as if the merger between Mid Penn Bank and Scottdale had been completed on January 1, 2017.

(Dollars in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net interest income after loan loss provision	$	15,811	$	11,074	$	37,978	$	32,455
Noninterest income		2,165		1,658		5,371		4,729
Noninterest expense		15,232		9,411		34,895		28,759
Net income		2,196		2,424		7,109		6,150
Net income per common share		0.29		0.40		1.16		1.01

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2018

Securities Financing Transactions Disclosures [Abstract]

Unrealized Gain (Loss) on Investments

The amortized cost, fair value, and unrealized gains and losses on investment securities at September 30, 2018 and December 31, 2017 are as follows:

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2018
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	$	40,590	$	—	$	2,640	$	37,950
Mortgage-backed U.S. government agencies		41,677		-		1,490		40,187
State and political subdivision obligations		33,306		54		2,213		31,147
Corporate debt securities		1,250		-		7		1,243
Total available-for-sale debt securities		116,823		54		6,350		110,527
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies		16,480		5		261		16,224
Mortgage-backed U.S. government agencies		69,344		2		1,998		67,348
State and political subdivision obligations		84,154		19		2,157		82,016
Corporate debt securities		1,543		—		11		1,532
Total held-to-maturity debt securities		171,521		26		4,427		167,120
Total	$	288,344	$	80	$	10,777	$	277,647

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2017
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	$	40,125	$	—	$	1,395	$	38,730
Mortgage-backed U.S. government agencies		26,398		2		569		25,831
State and political subdivision obligations		27,775		7		739		27,043
Corporate debt securities		1,350		5		—		1,355
Total available-for-sale debt securities		95,648		14		2,703		92,959
Available-for-sale equity securities:
Equity securities		550		—		44		506
Total available-for-sale equity securities		550		—		44		506
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies		10,984		—		90		10,894
Mortgage-backed U.S. government agencies		53,472		—		523		52,949
State and political subdivision obligations		36,900		41		301		36,640
Total held-to-maturity debt securities		101,356		41		914		100,483
Total	$	197,554	$	55	$	3,661	$	193,948

Schedule of Gross Realized Gains (Losses) on Sales of Available-For-Sale Securities

Gross realized gains and losses on sales of available-for-sale debt securities for the three and nine months ended September 30, 2018 and 2017 are shown in the table below.

(Dollars in thousands)	Three Months Ended September 30,							Nine Months Ended September 30,
	2018			2017				2018				2017
Realized gains		$	30		$	46			$	141		$	246
Realized losses			-			(24	)			(9	)		(204	)
Net gains		$	30		$	22			$	132		$	42

Schedule of Fair Value and Unrealized Loss on Investments in a Continuous Unrealized Loss Position

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 September 30, 2018 and December 31, 2017.

(Dollars in thousands)	Less Than 12 Months					12 Months or More						Total
	Number					Number						Number
	of	Fair		Unrealized		of		Fair		Unrealized		of	Fair		Unrealized
September 30, 2018	Securities	Value		Losses		Securities		Value		Losses		Securities	Value		Losses
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	1	$	484	$	4	21		$	37,466	$	2,636	22	$	37,950	$	2,640
Mortgage-backed U.S. government agencies	12		18,385		360	18			21,777		1,130	30		40,162		1,490
State and political subdivision obligations	14		7,144		285	45			20,283		1,928	59		27,427		2,213
Corporate debt securities	1		993		7		—		—		—	1		993		7
Total temporarily impaired available-for-sale debt securities	28		27,006		656	84			79,526		5,694	112		106,532		6,350
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	4		9,313		206	2			4,942		55	6		14,255		261
Mortgage-backed U.S. government agencies	35		49,974		1,279	12			16,406		719	47		66,380		1,998
State and political subdivision obligations	171		69,513		1,730	20			7,147		427	191		76,660		2,157
Corporate debt securities	1		1,532		11		—		—		—	1		1,532		11
Total temporarily impaired held-to-maturity debt securities	211		130,332		3,226	34			28,495		1,201	245		158,827		4,427
Total	239	$	157,338	$	3,882	118		$	108,021	$	6,895	357	$	265,359	$	10,777

(Dollars in thousands)	Less Than 12 Months						12 Months or More						Total
	Number						Number						Number
	of		Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized
December 31, 2017	Securities		Value		Losses		Securities	Value		Losses			Securities	Value		Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	3		$	5,008	$	184	18	$	33,722		$	1,211	21	$	38,730	$	1,395
Mortgage-backed U.S. government agencies	4			5,267		75	15		20,497			494	19		25,764		569
State and political subdivision obligations	11			6,144		102	40		19,091			637	51		25,235		739
Equity securities		—		—		—	1		506			44	1		506		44
Total temporarily impaired available-for-sale securities	18		$	16,419	$	361	74	$	73,816		$	2,386	92	$	90,235	$	2,747
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies		—		—		—	4		10,894			90	4		10,894		90
Mortgage-backed U.S. government agencies		—		—		—	35		52,949			523	35		52,949		523
State and political subdivision obligations		—		—		—	77		29,976			301	77		29,976		301
Total temporarily impaired held to maturity securities	0			—		—	116		93,819			914	116		93,819		914
Total	18		$	16,419	$	361	190	$	167,635		$	3,300	208	$	184,054	$	3,661

Investments Classified by Contractual Maturity Date

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of September 30, 2018.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
September 30, 2018	Cost		Value		Cost		Value
Due in 1 year or less	$	-	$	-	$	3,084	$	3,080
Due after 1 year but within 5 years		19,586		18,828		15,466		15,163
Due after 5 years but within 10 years		43,451		40,271		82,415		80,337
Due after 10 years		12,109		11,241		1,212		1,192
		75,146		70,340		102,177		99,772
Mortgage-backed securities		41,677		40,187		69,344		67,348
	$	116,823	$	110,527	$	171,521	$	167,120

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Loans and Allowance for Loan and Lease Losses (Tables)

9 Months Ended

Sep. 30, 2018

Accounts Notes Loans And Financing Receivable Gross Allowance And Net [Abstract]

Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating

The classes of the loan portfolio, summarized by the pass rating (net of deferred fees and costs of $443,000 as of September 30, 2018 and $464,000 as of December 31, 2017), and the classified ratings of special mention and substandard within Mid Penn’s internal risk rating system as of September 30, 2018 and December 31, 2017, are as follows:

(Dollars in thousands)			Special
September 30, 2018	Pass		Mention		Substandard		Total
Commercial and industrial	$	259,870	$	2,106	$	7,174	$	269,150
Commercial real estate		801,897		1,917		9,008		812,822
Commercial real estate - construction		145,001		—		367		145,368
Lease financing		132		—		—		132
Residential mortgage		252,997		148		2,241		255,386
Home equity		73,753		—		96		73,849
Consumer		10,579		—		—		10,579
	$	1,544,229	$	4,171	$	18,886	$	1,567,286

(Dollars in thousands)			Special
December 31, 2017	Pass		Mention		Substandard		Total
Commercial and industrial	$	182,168	$	453	$	5,412	$	188,033
Commercial real estate		505,397		1,435		8,180		515,012
Commercial real estate - construction		61,667		182		487		62,336
Lease financing		229		—		—		229
Residential mortgage		97,814		157		1,062		99,033
Home equity		41,479		105		309		41,893
Consumer		3,868		—		—		3,868
	$	892,622	$	2,332	$	15,450	$	910,404

Impaired Loans by Loan Portfolio Class

Impaired loans by loan portfolio class as of September 30, 2018 and December 31, 2017 are summarized as follows:

	September 30, 2018						December 31, 2017
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—	$	13	$	—
Commercial real estate		2,033		2,553		—		3,424		4,056		—
Commercial real estate - construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Residential mortgage		832		940		—		760		877		—
Home equity		25		126		—		260		295		—
Consumer		—		—		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	28	$	28	$	—	$	—	$	—	$	—
Commercial real estate		1,456		1,456		—		555		555		—
Commercial real estate - construction		—		—		—		—		—		—
Lease financing		—		—		—		—		—		—
Residential mortgage		1,264		1,264		—		306		306		—
Home equity		4		4		—		—		—		—
Consumer		—		—		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,527	$	4,635	$	489	$	4,434	$	4,460	$	136
Commercial real estate		857		872		243		1,423		1,589		293
Commercial real estate - construction		367		370		38		487		492		100
Lease financing		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,555	$	4,663	$	489	$	4,434	$	4,473	$	136
Commercial real estate		4,346		4,881		243		5,402		6,200		293
Commercial real estate - construction		367		370		38		487		492		100
Lease financing		—		—		—		—		—		—
Residential mortgage		2,096		2,204		—		1,066		1,183		—
Home equity		29		130		—		260		295		—
Consumer		—		—		—		—		—		—

Average Recorded Investment Of Impaired Loans And Related Interest Income By Loan Portfolio Class

The average recorded investment of impaired loans and related interest income recognized for the three and nine months ended September 30, 2018 and 2017 are summarized as follows:

	Three Months Ended
	September 30, 2018				September 30, 2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate		1,872		—		751		—
Commercial real estate - construction		—		—		42		—
Lease financing		—		—		—		—
Residential mortgage		780		11		847		—
Home equity		17		—		294		3
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	24	$	—	$	—	$	—
Commercial real estate		1,470		7		570		—
Commercial real estate - construction		—		—		—		—
Lease financing		—		—		—		—
Residential mortgage		677		—		318		—
Home equity		1		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,425	$	—	$	2,230	$	—
Commercial real estate		703		—		2,148		—
Commercial real estate - construction		367		—		487		—
Lease financing		—		—		—		—
Residential mortgage		—		—		66		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,449	$	—	$	2,230	$	—
Commercial real estate		4,045		7		3,469		—
Commercial real estate - construction		367		—		529		—
Lease financing		—		—		—		—
Residential mortgage		1,457		11		1,231		—
Home equity		18		—		294		3
Consumer		—		—		—		—

	Nine Months Ended
	September 30, 2018				September 30, 2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	—	$	—	$	16	$	—
Commercial real estate		3,040		3		551		279
Commercial real estate - construction		—		—		164		—
Lease financing		—		—		—		—
Residential mortgage		769		27		852		18
Home equity		148		—		184		5
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	21	$	—	$	—	$	—
Commercial real estate		1,365		23		682		110
Commercial real estate - construction		—		—		—		—
Lease financing		—		—		—		—
Residential mortgage		726		—		339		—
Home equity		—		—		—		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	4,424	$	—	$	892	$	—
Commercial real estate		456		—		2,446		—
Commercial real estate - construction		367		—		390		—
Lease financing		—		—		—		—
Residential mortgage		—		—		53		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	4,445	$	—	$	908	$	—
Commercial real estate		4,861		26		3,679		389
Commercial real estate - construction		367		—		554		—
Lease financing		—		—		—		—
Residential mortgage		1,495		27		1,244		18
Home equity		148		—		184		5
Consumer		—		—		—		—

Non-accrual Loans by Classes of the Loan Portfolio

Nonaccrual loans by loan portfolio class as of September 30, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	September 30, 2018		December 31, 2017
Commercial and industrial	$	4,555	$	4,434
Commercial real estate		3,910		4,902
Commercial real estate - construction		367		487
Residential mortgage		1,490		492
Home equity		29		260
	$	10,351	$	10,575

Loan Portfolio Summarized by the Past Due Status

The classes of the loan portfolio summarized by the past due status as of September 30, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	30-59		60-89		Greater
	Days Past		Days Past		than 90		Total Past
September 30, 2018	Due		Due		Days		Due		Current		Total Loans
Commercial and industrial	$	-	$	4	$	4,302	$	4,306	$	264,816	$	269,122
Commercial real estate		710		—		273		983		810,383		811,366
Commercial real estate - construction		—		—		367		367		145,001		145,368
Lease financing		—		—		—		—		132		132
Residential mortgage		409		—		290		699		253,423		254,122
Home equity		24		25		19		68		73,777		73,845
Consumer		—		18		—		18		10,561		10,579
Loans acquired with credit deterioration:
Commercial and industrial		—		23		—		23		5		28
Commercial real estate		—		—		991		991		465		1,456
Commercial real estate - construction		—		—		—		—		-		-
Lease financing		—		—		—		—		-		-
Residential mortgage		—		—		237		237		1,027		1,264
Home equity		—		—		4		4		-		4
Consumer		—		—		—		—		-		-
Total	$	1,143	$	70	$	6,483	$	7,696	$	1,559,590	$	1,567,286

(Dollars in thousands)	30-59		60-89		Greater
	Days Past		Days Past		than 90		Total Past
December 31, 2017	Due		Due		Days		Due		Current		Total Loans
Commercial and industrial	$	4,439	$	16	$	-	$	4,455	$	183,578	$	188,033
Commercial real estate		-		-		3,669		3,669		510,788		514,457
Commercial real estate - construction		-		-		487		487		61,849		62,336
Lease financing		-		-		-		-		229		229
Residential mortgage		310		467		177		954		97,773		98,727
Home equity		54		98		250		402		41,491		41,893
Consumer		3		-		-		3		3,865		3,868
Loans acquired with credit deterioration:
Commercial and industrial		-		-		-		-		-		-
Commercial real estate		500		-		55		555		-		555
Commercial real estate - construction		-		-		-		-		-		-
Lease financing		-		-		-		-		-		-
Residential mortgage		-		31		193		224		82		306
Home equity		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	5,306	$	612	$	4,831	$	10,749	$	899,655	$	910,404

Allowance and Recorded Investment in Financing Receivables

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

(Dollars in thousands)
As of, and for the three months ended, September 30, 2018	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing		Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
July 1, 2018	$	2,120		$	4,723		$	146		$	-	$	441		$	420		$	4		$	335		$	8,189
Charge-offs		(12	)		(34	)		-			-		(10	)		-			(11	)		-			(67	)
Recoveries		-			2			-			-		-			-			5			-			7
Provisions		232			130			(12	)		-		38			16			7			(311	)		100
Ending balance,
September 30, 2018	$	2,340		$	4,821		$	134		$	-	$	469		$	436		$	5		$	24		$	8,229
(Dollars in thousands)
As of, and for the nine months ended, September 30, 2018	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Lease financing		Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2018	$	1,795		$	4,435		$	178		$	-	$	428		$	423		$	3		$	344		$	7,606
Charge-offs		(142	)		(34	)		(40	)		-		(14	)		(167	)		(21	)		-			(418	)
Recoveries		1			807			-			-		-			-			8			-			816
Provisions		686			(387	)		(4	)		-		55			180			15			(320	)		225
Ending balance,
September 30, 2018		2,340			4,821			134			-		469			436			5			24			8,229
Individually evaluated for impairment		489			243			38			-		-			-			-			-			770
Ending balance:
collectively evaluated for impairment	$	1,851		$	4,578		$	96		$	-	$	469		$	436		$	5		$	24		$	7,459
Loans receivables:
Ending balance	$	269,150		$	812,822		$	145,368		$	132	$	255,386		$	73,849		$	10,579		$	-		$	1,567,286
Ending balance: individually evaluated for impairment		4,527			2,890			367			-		832			25			-			-			8,641
Ending balance: acquired with credit deterioration		28			1,456			-			-		1,264			4			-			-			2,752
Ending balance: collectively evaluated for impairment	$	264,595		$	808,476		$	145,001		$	132	$	253,290		$	73,820		$	10,579		$	-		$	1,555,893

(Dollars in thousands)
December 31, 2017	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Lease financing		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2017	$	1,795	$	4,435	$	178	$	-	$	428	$	423	$	3	$	344	$	7,606
individually evaluated for impairment		136		293		100		-		-		-		-		-		529
Ending balance:
collectively evaluated for impairment	$	1,659	$	4,142	$	78	$	-	$	428	$	423	$	3	$	344	$	7,077
Loans receivable:
Beginning balance,
January 1, 2017	$	188,033	$	515,012	$	62,336	$	229	$	99,033	$	41,893	$	3,868	$	-	$	910,404
Individually evaluated for impairment		4,434		4,847		487		-		760		260		-		-		10,788
Acquired with credit deterioration		-		555		-		-		306		-		-		-		861
Ending balance:
collectively evaluated for impairment	$	183,599	$	509,610	$	61,849	$	229	$	97,967	$	41,633	$	3,868	$	-	$	898,755

(Dollars in thousands)
As of, and for the three months ended, September 30, 2017	Commercial and industrial			Commercial real estate			Commercial real estate - construction		Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
July 1, 2017	$	1,628		$	4,981		$	140	$	1		$	539		$	404		$	4		$	16		$	7,713
Charge-offs		-			(207	)		-		-			(7	)		(20	)		(5	)		-			(239	)
Recoveries		5			22			-		-			-			-			1			-			28
Provisions		166			(326	)		36		(1	)		7			53			5			60			-
Ending balance,
September 30, 2017	$	1,799		$	4,470		$	176	$	-		$	539		$	437		$	5		$	76		$	7,502
(Dollars in thousands)
As of, and for the nine months ended, September 30, 2017	Commercial and industrial			Commercial real estate			Commercial real estate - construction		Lease financing			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2017	$	1,580		$	4,323		$	144	$	1		$	541		$	379		$	3		$	212		$	7,183
Charge-offs		(12	)		(237	)		-		-			(25	)		(20	)		(21	)		-			(315	)
Recoveries		11			383			-		-			4			5			6			-			409
Provisions		220			1			32		(1	)		19			73			17			(136	)		225
Ending balance,
September 30, 2017		1,799			4,470			176		-			539			437			5			76			7,502
Individually evaluated for impairment		150			375			100		-			66			-			-			-			691
Ending balance:
collectively evaluated for impairment	$	1,649		$	4,095		$	76	$	-		$	473		$	437		$	5		$	76		$	6,811
Loans receivables:
Ending balance	$	182,857		$	490,603		$	58,074	$	259		$	101,073		$	40,350		$	4,170		$	-		$	877,386
Ending balance: individually evaluated for impairment		4,460			2,148			487		-			856			261			-			-			8,212
Ending balance: acquired with credit deterioration		-			569			-		-			315			-			-			-			884
Ending balance: collectively evaluated for impairment	$	178,397		$	487,886		$	57,587	$	259		$	99,902		$	40,089		$	4,170		$	-		$	868,290

Troubled Debt Restructurings

The recorded investments in troubled debt restructured loans at September 30, 2018 and December 31, 2017 are as follows:

(Dollars in thousands)	Pre-Modification		Post-Modification
September 30, 2018	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	4,110	$	4,460	$	4,303
Commercial real estate		2,940		2,841		2,229
Residential mortgage		677		675		522
Home equity		14		14		2
	$	7,741	$	7,990	$	7,056

(Dollars in thousands)	Pre-Modification		Post-Modification
December 31, 2017	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	4,110	$	4,460	$	4,434
Commercial real estate		5,735		5,581		4,593
Residential mortgage		677		675		540
Home equity		14		14		4
	$	10,536	$	10,730	$	9,571

Schedule of Accretion of Purchased Impaired Loan

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

(Dollars in thousands)
Accretable yield, July 1, 2018	$	300
Acquisition of impaired loans		125
Accretable yield amortized to interest income		(61	)
Reclassification from nonaccretable difference (a)		-
Accretable yield, September 30, 2018	$	364

(Dollars in thousands)
Accretable yield, January 1, 2018	$	67
Acquisition of impaired loans	$	430
Accretable yield amortized to interest income		(133	)
Reclassification from nonaccretable difference (a)		-
Accretable yield, September 30, 2018	$	364

(a) Reclassification from non-accretable difference represents an increase to the estimated cash flows to be collected on the underlying portfolio.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Assets Measured at Fair Value on a Recurring Basis

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

			Fair value measurements at September 30, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2018		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	37,950	$	-	$	37,950	$	-
Mortgage-backed U.S. government agencies		40,187		-		40,187		-
State and political subdivision obligations		31,147		-		31,147		-
Corporate debt securities		1,243		-		1,243		-
Other assets:
Equity securities		488		488		-		-
Loans held for sale		3,181		3,181		-		-
Total	$	114,196	$	3,669	$	110,527	$	-

			Fair value measurements at December 31, 2017 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	38,730	$	-	$	38,730	$	-
Mortgage-backed U.S. government agencies		25,831		-		25,831		-
State and political subdivision obligations		27,043		-		27,043		-
Corporate debt securities		1,355		-		1,355		-
Other assets:
Equity securities		506		506		-		-
Loans held for sale		1,040		1,040		-		-
Total	$	94,505	$	1,546	$	92,959	$	-

Fair Value Measurements, Nonrecurring

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

			Fair value measurements at September 30, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2018		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	4,995	$	-	$	-	$	4,995
Foreclosed Assets Held for Sale		581		-		-		581
Mortgage Servicing Rights		107		-		-		107

			Fair value measurements at December 31, 2017 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	6,090	$	-	$	-	$	6,090
Foreclosed Assets Held for Sale		-		-		-		-
Mortgage Servicing Rights		126		-		-		126

Fair Value Measurement Inputs and Valuation Techniques

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
September 30, 2018	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	4,995	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	26% - 100%	36%
Foreclosed Assets Held for Sale		581	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	17% - 17%	17%
Mortgage Servicing Rights		107	Multiple of annual service fee	Estimated prepayment speed based on rate and term	70% - 100%	99%

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2017	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	6,090	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	6% - 51%	28%
Foreclosed Assets Held for Sale		-	Appraisal of collateral (a), (c)	Appraisal adjustments (b)	0% - 0%	0%
Mortgage Servicing Rights		126	Multiple of annual service fee	Estimated prepayment speed based on rate and term	70% - 100%	98%

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

(b) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.  Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, or age of the appraisal.

(c) Includes qualitative adjustments by management and estimated liquidation expenses.

Fair Value, by Balance Sheet Grouping

The following table summarizes the carrying value and fair value of financial instruments at September 30, 2018 and December 31, 2017.

(Dollars in thousands)	September 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	62,085	$	62,085	$	23,514	$	23,514
Available-for-sale investment securities		110,527		110,527		93,465		93,465
Held-to-maturity investment securities		171,521		167,120		101,356		100,483
Loans held for sale		3,181		3,181		1,040		1,040
Net loans and leases		1,559,057		1,551,077		902,798		917,081
Restricted investment in bank stocks		3,373		3,373		4,384		4,384
Accrued interest receivable		7,491		7,491		4,564		4,564
Mortgage servicing rights		107		107		126		126
Financial liabilities:
Deposits	$	1,762,465	$	1,759,822	$	1,023,568	$	1,026,830
Short-term borrowings		1,771		1,771		34,611		34,611
Long-term debt		18,064		15,544		12,352		11,692
Subordinated debt		27,088		27,256		17,338		17,358
Accrued interest payable		2,262		2,262		645		645
Off-balance sheet financial instruments:
Commitments to extend credit	$	-	$	-	$	-	$	-
Financial standby letters of credit		-		-		-		-

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of September 30, 2018 and December 31, 2017.  Carrying values approximate fair values for cash and cash equivalents, interest-bearing time balances with other financial institutions, loans held for sale, restricted investment in bank stocks, mortgage servicing rights, accrued interest receivable and payable, and short-term borrowings.  Other than cash and cash equivalents, which are considered Level 1 Inputs and mortgage servicing rights, which are Level 3 Inputs, these instruments are Level 2 Inputs. These tables exclude financial instruments for which the carrying amount approximates fair value, not previously disclosed.

					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
September 30, 2018	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	171,521	$	167,120	$	-	$	167,120	$	-
Net loans and leases		1,559,057		1,551,077		-		-		1,551,077
Financial instruments -    liabilities
Deposits	$	1,762,465	$	1,759,822	$	-	$	1,759,822	$	-
Long-term debt		18,064		15,544		-		15,544		-
Subordinated debt		27,088		27,256		-		27,256		-

					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
December 31, 2017	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	101,356	$	100,483	$	-	$	100,483	$	-
Net loans and leases		902,798		917,081		-		-		917,081
Financial instruments -    liabilities
Deposits	$	1,023,568	$	1,026,830	$	-	$	1,026,830	$	-
Long-term debt		12,352		11,692		-		11,692		-
Subordinated debt		17,338		17,358				17,358

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Defined Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2018

Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]

Schedule of Net Periodic Benefit Costs

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

	Three Months Ended September 30,
(Dollars in thousands)	Pension Benefits					Other Benefits
	2018			2017		2018			2017
Service cost	$	82		$	9	$	1		$	1
Interest cost		107			11		4			5
Expected return on plan assets		(106	)		-		-			-
Amortization (accretion) of prior service cost		4			4		(5	)		(6	)
Settlement gain		(117	)		-		-			-
Net periodic benefit (income) expense	$	(30	)	$	24	$	-		$	-

	Nine Months Ended September 30,
(Dollars in thousands)	Pension Benefits					Other Benefits
	2018			2017		2018			2017
Service cost	$	242		$	26	$	3		$	3
Interest cost		322			32		13			15
Expected return on plan assets		(317	)		-		-			-
Amortization (accretion) of prior service cost		13			11		(15	)		(17	)
Settlement gain		(497	)		-		-			-
Net periodic benefit (income) expense	$	(237	)	$	69	$	1		$	1

For the three and nine months ended September 30, 2018, 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, amortization (accretion) of prior service cost, and settlement gain are reported as a component of other income.  For the three and nine months ended September 30, 2017, service costs were reported as a component of salaries and employee benefits, while interest costs and accretion of prior service costs were reported as a component of other expense.

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 2018

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Components of Accumulated Other Comprehensive Loss, Net of Taxes

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

(Dollars in thousands)	Unrealized Loss on Securities			Defined Benefit Plans		Accumulated Other Comprehensive Loss
Balance - September 30, 2018	$	(4,974	)	$	1,283	$	(3,691	)
Balance - December 31, 2017	$	(2,159	)	$	85	$	(2,074	)

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Earnings per Common Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Basic Earnings (Loss) Per Share

(Dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018			2017	2018				2017
Net income	$	2,164	$	2,249	$	$	5,947	$	6,588
Less: Dividends on Series D preferred stock		38		-			38		-
Net income available to common shareholders	$	2,126	$	2,249		$	5,909	$	6,588
Weighted average common shares outstanding		7,695,469		4,237,965			6,604,027		4,236,604
Basic and diluted earnings per common share	$	0.28	$	0.53	$	$	0.89	$	1.56

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Acquisition of First Priority Financial Corp. (Narrative) (Details) - USD ($)		3 Months Ended		9 Months Ended
	Jul. 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jan. 08, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Goodwill		$ 62,767,000		$ 62,767,000			$ 3,918,000
First Priority Financial Corp. [Member]
Business Acquisition [Line Items]
Acquisition completion date	Jul. 31, 2018
Shares of acquirer ratio of common stock	34.81%
Per share price	$ 11.07
Common stock shares issued to acquire the company	2,320,800
Payments to acquire businesses gross	$ 3,807,000
Business combination consideration transferred	79,929,000
Goodwill	39,659,000
Intangible assets acquired (finite lived)	2,832,000
Intangible assets acquired (indefinite lived)	$ 205,000
Intangible assets, amortization period	10 years
Core deposit intangible amortization expense related to acquisition for year one	$ 215,000
Core deposit intangible amortization expense related to acquisition for year two	493,000
Core deposit intangible amortization expense related to acquisition for year three	442,000
Core deposit intangible amortization expense related to acquisition for year four	390,000
Core deposit intangible amortization expense related to acquisition for year five	339,000
Core deposit intangible amortization expense related to acquisition for after year five	953,000
Fair value of purchased loans	511,623,000					$ 511,623,000
Pro Forma Earnings		$ 5,502,000	$ 1,533,000	10,995,000	$ 6,368,000
Severance and retention bonus expenses				1,475,000
First Priority Financial Corp. [Member] | Excluded Acquisition-related Costs [Member]
Business Acquisition [Line Items]
Pro Forma Earnings				$ 3,661,000
First Priority Financial Corp. [Member] | Stock Options [Member]
Business Acquisition [Line Items]
Payments to acquire businesses gross	3,801,000
First Priority Financial Corp. [Member] | Fractional Shares [Member]
Business Acquisition [Line Items]
Payments to acquire businesses gross	$ 6,000

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Acquisition of First Priority Financial Corp. (Allocation of Purchase Price) (Details) - USD ($)	Jul. 31, 2018	Sep. 30, 2018	Jan. 08, 2018	Dec. 31, 2017
Assets acquired:
Goodwill		$ 62,767,000		$ 3,918,000
First Priority Financial Corp. [Member]
Assets acquired:
Cash and cash equivalents	$ 11,398,000
Investment securities	62,977,000
Restricted stock	2,237,000
Loans	511,623,000		$ 511,623,000
Goodwill	39,659,000
Core deposit intangible	2,832,000
Trade name intangible	205,000
Premises and equipment	1,147,000
Foreclosed assets	125,000
Deferred income taxes	3,118,000
Accrued interest receivable	2,293,000
Other assets	4,197,000
Total assets acquired	641,811,000
Liabilities assumed:
Deposits	504,946,000
Borrowings	49,939,000
Accrued interest payable	1,073,000
Other liabilities	2,520,000
Total liabilities assumed	558,478,000
Equity acquired:
Preferred stock	3,404,000
Total equity acquired and liabilities assumed	561,882,000
Consideration paid	79,929,000
Cash paid	3,807,000
Fair value of common stock issued	$ 76,122,000

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Acquisition of First Priority Financial Corp. (Preliminary Estimated Fair Value of Assets Acquired) (Details) - USD ($)	Jul. 31, 2018	Sep. 30, 2018	Jan. 08, 2018	Dec. 31, 2017
Net assets acquired:
Goodwill		$ 62,767,000		$ 3,918,000
First Priority Financial Corp. [Member]
Business Acquisition [Line Items]
Total purchase price (consideration paid)	$ 79,929,000
Net assets acquired:
Cash and cash equivalents	11,398,000
Investment securities	62,977,000
Restricted stock	2,237,000
Loans	511,623,000		$ 511,623,000
Core deposit intangible	2,832,000
Trade name intangible	205,000
Premises and equipment	1,147,000
Foreclosed assets	125,000
Deferred income taxes	3,118,000
Accrued interest receivable	2,293,000
Other assets	4,197,000
Deposits	(504,946,000)
Borrowings	(49,939,000)
Accrued interest payable	(1,073,000)
Other liabilities	(2,520,000)
Preferred stock	(3,404,000)
Total net assets acquired	40,270,000
Goodwill	$ 39,659,000

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Acquisition of First Priority Financial Corp. (Fair Value Adjustments) (Details) - First Priority Financial Corp. [Member] - USD ($)	Jan. 08, 2018	Jul. 31, 2018
Business Acquisition [Line Items]
Gross amortized cost basis at January 8, 2018	$ 521,644,000
Market rate adjustment	(3,023,000)
Credit fair value adjustment on pools of homogeneous loans	(6,742,000)
Credit fair value adjustment on impaired loans	(256,000)
Fair value of purchased loans at January 8, 2018	$ 511,623,000	$ 511,623,000

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Acquisition of First Priority Financial Corp. (Fair Value of Loans Acquired) (Details) - First Priority Financial Corp. [Member] $ in Thousands	Jul. 31, 2018 USD ($)
Business Acquisition [Line Items]
Contractually required principal and interest at acquisition	$ 1,855
Contractual cash flows not expected to be collected (nonaccretable discount)	(858)
Expected cash flows at acquisition	997
Interest component of expected cash flows (accretable discount)	(125)
Fair value of acquired loans	$ 872

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Acquisition of First Priority Financial Corp. (Pro Forma Information) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Business Acquisition [Line Items]
Net interest income after loan loss provision	$ 15,811	$ 9,516	$ 37,978	$ 27,876
Noninterest income	2,165	1,564	5,371	4,362
Noninterest expense	15,264	7,960	36,189	23,320
First Priority Financial Corp. [Member]
Business Acquisition [Line Items]
Net interest income after loan loss provision	17,373	11,089	48,914	41,480
Noninterest income	2,220	1,688	5,754	5,000
Noninterest expense	13,543	10,677	41,532	37,757
Net income	$ 5,502	$ 1,533	$ 10,995	$ 6,368
Net income per common share	$ 0.70	$ 0.25	$ 1.49	$ 0.97

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Acquisition of The Scottdale Bank and Trust Company (Narrative) (Details) - USD ($)		3 Months Ended		9 Months Ended
	Jan. 08, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jan. 07, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Goodwill		$ 62,767,000		$ 62,767,000			$ 3,918,000
Scottdale Bank and Trust Company [Member]
Business Acquisition [Line Items]
Date of acquisition	Jan. 08, 2018
Per share price	$ 34.16					$ 1,166
Ratio of conversion of acquiree's shares to entity's shares	38.88%
Common stock shares issued to acquire the company	1,878,827
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable	$ 64,181,000
Payments to acquire businesses gross	2,792,000
Business combination consideration transferred	66,973,000
Goodwill	19,189,000
Finite-lived Intangible Assets Acquired	$ 4,940,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	10 years
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months	$ 898,000
Finite-Lived Intangible Assets, Amortization Expense, Year Two	808,000
Finite-Lived Intangible Assets, Amortization Expense, Year Three	719,000
Finite-Lived Intangible Assets, Amortization Expense, Year Four	629,000
Finite-Lived Intangible Assets, Amortization Expense, Year Five	539,000
Finite-Lived Intangible Assets, Amortization Expense, after Year Five	1,347,000
Fair value of purchased loans	$ 70,769,000
Pro Forma Earnings		$ 2,196,000	$ 2,424,000	7,109,000	$ 6,150,000
Severance and retention bonus expenses				518,000
Scottdale Bank and Trust Company [Member] | Excluded Acquisition-related Costs [Member]
Business Acquisition [Line Items]
Pro Forma Earnings				$ 1,294,000

XML

Acquisition of The Scottdale Bank and Trust Company (Allocation of the Purchase Price) (Details) - USD ($)	Jan. 08, 2018	Sep. 30, 2018	Dec. 31, 2017
Assets acquired:
Goodwill		$ 62,767,000	$ 3,918,000
Scottdale Bank and Trust Company [Member]
Assets acquired:
Cash and cash equivalents	$ 67,817,000
Investment securities	114,039,000
Restricted stock	97,000
Loans	70,769,000
Goodwill	19,189,000
Core deposit intangible	4,940,000
Premises and equipment	1,496,000
Foreclosed assets	11,000
Deferred income taxes	1,050,000
Accrued interest receivable	989,000
Other assets	266,000
Total assets acquired	280,663,000
Liabilities assumed:
Deposits	209,981,000
Accrued interest payable	16,000
Other liabilities	3,693,000
Total liabilities assumed	213,690,000
Consideration paid	66,973,000
Cash paid	2,792,000
Fair value of common stock issued	$ 64,181,000

XML

Acquisition of The Scottdale Bank and Trust Company (Preliminary Estimated Fair Value of Assets Acquired) (Details) - USD ($)	Jan. 08, 2018	Sep. 30, 2018	Dec. 31, 2017
Net assets acquired:
Goodwill		$ 62,767,000	$ 3,918,000
Scottdale Bank and Trust Company [Member]
Business Acquisition [Line Items]
Total purchase price (consideration paid)	$ 66,973,000
Net assets acquired:
Cash and cash equivalents	67,817,000
Investment securities	114,039,000
Restricted stock	97,000
Loans	70,769,000
Core deposit intangible	4,940,000
Premises and equipment	1,496,000
Foreclosed assets	11,000
Deferred income taxes	1,050,000
Accrued interest receivable	989,000
Other assets	266,000
Deposits	(209,981,000)
Accrued interest payable	(16,000)
Other liabilities	(3,693,000)
Total net assets acquired	47,784,000
Goodwill	$ 19,189,000

XML

Acquisition of The Scottdale Bank and Trust Company (Fair Value Adjustments) (Details) - Scottdale Bank and Trust Company [Member]	Jan. 08, 2018 USD ($)
Business Acquisition [Line Items]
Gross amortized cost basis at January 8, 2018	$ 71,809,000
Market rate adjustment	601,000
Credit fair value adjustment on pools of homogeneous loans	(995,000)
Credit fair value adjustment on impaired loans	(646,000)
Fair value of purchased loans at January 8, 2018	$ 70,769,000

XML

Acquisition of The Scottdale Bank and Trust Company (Fair Value of Loans Acquired) (Details) - Scottdale Bank and Trust Company [Member] $ in Thousands	Jan. 08, 2018 USD ($)
Business Acquisition [Line Items]
Contractually required principal and interest at acquisition	$ 2,586
Contractual cash flows not expected to be collected (nonaccretable discount)	(1,010)
Expected cash flows at acquisition	1,576
Interest component of expected cash flows (accretable discount)	(305)
Fair value of acquired loans	$ 1,271

XML

Acquisition of The Scottdale Bank and Trust Company (Pro Forma Information) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Business Acquisition [Line Items]
Net interest income after loan loss provision	$ 15,811	$ 9,516	$ 37,978	$ 27,876
Noninterest income	2,165	1,564	5,371	4,362
Noninterest expense	15,264	7,960	36,189	23,320
Scottdale Bank and Trust Company [Member]
Business Acquisition [Line Items]
Net interest income after loan loss provision	15,811	11,074	37,978	32,455
Noninterest income	2,165	1,658	5,371	4,729
Noninterest expense	15,232	9,411	34,895	28,759
Net income	$ 2,196	$ 2,424	$ 7,109	$ 6,150
Net income per common share	$ 0.29	$ 0.40	$ 1.16	$ 1.01

XML

Investment Securities (Unrealized Gain (Loss) on Investments) (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	$ 116,823,000	$ 95,648,000
Available-for-sale debt securities, Unrealized Gains	54,000	14,000
Available-for-sale debt securities, Unrealized Losses	6,350,000	2,703,000
Available for sale debt securities, Fair Value	110,527,000	92,959,000
Held-to-maturity debt securities, Amortized Cost	171,521,000	101,356,000
Held-to-maturity debt securities, Unrealized Gains	26,000	41,000
Held-to-maturity debt securities, Unrealized Losses	4,427,000	914,000
Held-to-maturity debt securities, Fair Value	167,120,000	100,483,000
Available-for-sale securities and Held-to-maturity debt securities, Amortized Cost	288,344,000	197,554,000
Available-for-sale securities and Held-to-maturity debt securities, Unrealized Gains	80,000	55,000
Available-for-sale securities and Held-to-maturity debt securities, Unrealized Losses	10,777,000	3,661,000
Available-for-sale securities and Held-to-maturity debt securities, Fair Value	277,647,000	193,948,000
Available-for-sale equity securities, Amortized Cost		550,000
Available-for-sale equity securities, Unrealized Losses		44,000
Available for sale equity securities, Fair Value	488,000	506,000
U.S. Treasury and U.S. government agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	40,590,000	40,125,000
Available-for-sale debt securities, Unrealized Losses	2,640,000	1,395,000
Available for sale debt securities, Fair Value	37,950,000	38,730,000
Held-to-maturity debt securities, Amortized Cost	16,480,000	10,984,000
Held-to-maturity debt securities, Unrealized Gains	5,000
Held-to-maturity debt securities, Unrealized Losses	261,000	90,000
Held-to-maturity debt securities, Fair Value	16,224,000	10,894,000
Mortgage-backed U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	41,677,000	26,398,000
Available-for-sale debt securities, Unrealized Gains		2,000
Available-for-sale debt securities, Unrealized Losses	1,490,000	569,000
Available for sale debt securities, Fair Value	40,187,000	25,831,000
Held-to-maturity debt securities, Amortized Cost	69,344,000	53,472,000
Held-to-maturity debt securities, Unrealized Gains	2,000
Held-to-maturity debt securities, Unrealized Losses	1,998,000	523,000
Held-to-maturity debt securities, Fair Value	67,348,000	52,949,000
State and political subdivision obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	33,306,000	27,775,000
Available-for-sale debt securities, Unrealized Gains	54,000	7,000
Available-for-sale debt securities, Unrealized Losses	2,213,000	739,000
Available for sale debt securities, Fair Value	31,147,000	27,043,000
Held-to-maturity debt securities, Amortized Cost	84,154,000	36,900,000
Held-to-maturity debt securities, Unrealized Gains	19,000	41,000
Held-to-maturity debt securities, Unrealized Losses	2,157,000	301,000
Held-to-maturity debt securities, Fair Value	82,016,000	36,640,000
Corporate debt securities [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	1,250,000	1,350,000
Available-for-sale debt securities, Unrealized Gains		5,000
Available-for-sale debt securities, Unrealized Losses	7,000
Available for sale debt securities, Fair Value	1,243,000	1,355,000
Held-to-maturity debt securities, Amortized Cost	1,543,000
Held-to-maturity debt securities, Unrealized Losses	11,000
Held-to-maturity debt securities, Fair Value	1,532,000
Equity Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale equity securities, Amortized Cost		550,000
Available-for-sale equity securities, Unrealized Losses		44,000
Available for sale equity securities, Fair Value	$ 488,000	$ 506,000

XML

Investment Securities (Narrative) (Details) - USD ($)	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Sep. 30, 2018	Dec. 31, 2017
Schedule of Investments [Line Items]
Equity securities, fair value	$ 488,000	$ 488,000	$ 506,000
Equity securities sold	0	0
Available-for-sale Securities Pledged as Collateral	$ 240,070,000	$ 240,070,000	$ 141,465,000
Debt Securities, Available-for-sale, Restriction Type [Extensible List]	us-gaap:CollateralPledgedMember	us-gaap:CollateralPledgedMember	us-gaap:CollateralPledgedMember
Equity Securities [Member]
Schedule of Investments [Line Items]
Equity securities, fair value	$ 488,000	$ 488,000	$ 506,000
Accumulated Other Comprehensive Loss [Member] | Equity Securities [Member]
Schedule of Investments [Line Items]
Net unrealized gains recongized			$ 44,000,000

XML

Investment Securities (Schedule of Gross Realized Gains (Losses) on Sales of Available-For-Sale Securities) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Securities Financing Transactions Disclosures [Abstract]
Realized gains	$ 30	$ 46	$ 141	$ 246
Realized losses		(24)	(9)	(204)
Net gains	$ 30	$ 22	$ 132	$ 42

XML

Investment Securities (Schedule of Fair Value and Unrealized Loss on Investments in a Continuous Unrealized Loss Position) (Details) $ in Thousands	Sep. 30, 2018 USD ($) security	Dec. 31, 2017 USD ($) security
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security	28	18
Available-for-sale securities, Less than 12 Months: Fair Value	$ 27,006	$ 16,419
Available-for-sale securities, Less than 12 Months: Unrealized Losses	$ 656	$ 361
Available-for-sale securities, 12 Months or More: Number of Securities | security	84	74
Available-for-sale securities, 12 Months or More: Fair Value	$ 79,526	$ 73,816
Available-for-sale securities, 12 Months or More: Unrealized Losses	$ 5,694	$ 2,386
Available-for-sale securities, Total: Number of Securities | security	112	92
Available-for-sale securities, Total: Fair Value	$ 106,532	$ 90,235
Available-for-sale securities, Total: Unrealized Losses	$ 6,350	$ 2,747
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	211	0
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 130,332
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 3,226
Held-to-maturity securities, 12 Months or More: Number of Securities | security	34	116
Held-to-maturity securities, 12 Months or More: Fair Value	$ 28,495	$ 93,819
Held-to-maturity securities, 12 Months or More: Unrealized Losses	$ 1,201	$ 914
Held-to-maturity securities, Total: Number of Securities | security	245	116
Held-to-maturity securities, Total: Fair Value	$ 158,827	$ 93,819
Held-to-maturity securities, Total: Unrealized Losses	$ 4,427	$ 914
Available-for-sale securities and Held-to-maturity securities, Less than 12 Months: Number of Securities | security	239	18
Available-for-sale securities and Held-to-maturity securities, Less than 12 Months: Fair Value	$ 157,338	$ 16,419
Available-for-sale securities and Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 3,882	$ 361
Available-for-sale securities and Held-to-maturity securities,, 12 Months or More: Number of Securities | security	118	190
Available-for-sale securities and Held-to-maturity securities, 12 Months or More: Fair Value	$ 108,021	$ 167,635
Available-for-sale securities and Held-to-maturity securities, 12 Months or More: Unrealized Losses	$ 6,895	$ 3,300
Available-for-sale securities and Held-to-maturity securities, Total: Number of Securities | security	357	208
Available-for-sale securities and Held-to-maturity securities, Total: Fair Value	$ 265,359	$ 184,054
Available-for-sale securities and Held-to-maturity securities, Total: Unrealized Losses	$ 10,777	$ 3,661
U.S. Treasury and U.S. government agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security	1	3
Available-for-sale securities, Less than 12 Months: Fair Value	$ 484	$ 5,008
Available-for-sale securities, Less than 12 Months: Unrealized Losses	$ 4	$ 184
Available-for-sale securities, 12 Months or More: Number of Securities | security	21	18
Available-for-sale securities, 12 Months or More: Fair Value	$ 37,466	$ 33,722
Available-for-sale securities, 12 Months or More: Unrealized Losses	$ 2,636	$ 1,211
Available-for-sale securities, Total: Number of Securities | security	22	21
Available-for-sale securities, Total: Fair Value	$ 37,950	$ 38,730
Available-for-sale securities, Total: Unrealized Losses	$ 2,640	$ 1,395
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	4
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 9,313
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 206
Held-to-maturity securities, 12 Months or More: Number of Securities | security	2	4
Held-to-maturity securities, 12 Months or More: Fair Value	$ 4,942	$ 10,894
Held-to-maturity securities, 12 Months or More: Unrealized Losses	$ 55	$ 90
Held-to-maturity securities, Total: Number of Securities | security	6	4
Held-to-maturity securities, Total: Fair Value	$ 14,255	$ 10,894
Held-to-maturity securities, Total: Unrealized Losses	$ 261	$ 90
Mortgage-backed U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security	12	4
Available-for-sale securities, Less than 12 Months: Fair Value	$ 18,385	$ 5,267
Available-for-sale securities, Less than 12 Months: Unrealized Losses	$ 360	$ 75
Available-for-sale securities, 12 Months or More: Number of Securities | security	18	15
Available-for-sale securities, 12 Months or More: Fair Value	$ 21,777	$ 20,497
Available-for-sale securities, 12 Months or More: Unrealized Losses	$ 1,130	$ 494
Available-for-sale securities, Total: Number of Securities | security	30	19
Available-for-sale securities, Total: Fair Value	$ 40,162	$ 25,764
Available-for-sale securities, Total: Unrealized Losses	$ 1,490	$ 569
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	35
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 49,974
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 1,279
Held-to-maturity securities, 12 Months or More: Number of Securities | security	12	35
Held-to-maturity securities, 12 Months or More: Fair Value	$ 16,406	$ 52,949
Held-to-maturity securities, 12 Months or More: Unrealized Losses	$ 719	$ 523
Held-to-maturity securities, Total: Number of Securities | security	47	35
Held-to-maturity securities, Total: Fair Value	$ 66,380	$ 52,949
Held-to-maturity securities, Total: Unrealized Losses	$ 1,998	$ 523
State and political subdivision obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security	14	11
Available-for-sale securities, Less than 12 Months: Fair Value	$ 7,144	$ 6,144
Available-for-sale securities, Less than 12 Months: Unrealized Losses	$ 285	$ 102
Available-for-sale securities, 12 Months or More: Number of Securities | security	45	40
Available-for-sale securities, 12 Months or More: Fair Value	$ 20,283	$ 19,091
Available-for-sale securities, 12 Months or More: Unrealized Losses	$ 1,928	$ 637
Available-for-sale securities, Total: Number of Securities | security	59	51
Available-for-sale securities, Total: Fair Value	$ 27,427	$ 25,235
Available-for-sale securities, Total: Unrealized Losses	$ 2,213	$ 739
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	171
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 69,513
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 1,730
Held-to-maturity securities, 12 Months or More: Number of Securities | security	20	77
Held-to-maturity securities, 12 Months or More: Fair Value	$ 7,147	$ 29,976
Held-to-maturity securities, 12 Months or More: Unrealized Losses	$ 427	$ 301
Held-to-maturity securities, Total: Number of Securities | security	191	77
Held-to-maturity securities, Total: Fair Value	$ 76,660	$ 29,976
Held-to-maturity securities, Total: Unrealized Losses	$ 2,157	$ 301
Equity Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, 12 Months or More: Number of Securities | security		1
Available-for-sale securities, 12 Months or More: Fair Value		$ 506
Available-for-sale securities, 12 Months or More: Unrealized Losses		$ 44
Available-for-sale securities, Total: Number of Securities | security		1
Available-for-sale securities, Total: Fair Value		$ 506
Available-for-sale securities, Total: Unrealized Losses		$ 44
Corporate debt securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security	1
Available-for-sale securities, Less than 12 Months: Fair Value	$ 993
Available-for-sale securities, Less than 12 Months: Unrealized Losses	$ 7
Available-for-sale securities, Total: Number of Securities | security	1
Available-for-sale securities, Total: Fair Value	$ 993
Available-for-sale securities, Total: Unrealized Losses	$ 7
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	1
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 1,532
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 11
Held-to-maturity securities, Total: Number of Securities | security	1
Held-to-maturity securities, Total: Fair Value	$ 1,532
Held-to-maturity securities, Total: Unrealized Losses	$ 11

XML

Investment Securities (Investments Classified by Contractual Maturity Date) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Schedule of Investments [Line Items]
Available for sale Securities, Amortized Cost, Due after 1 year but within 5 years	$ 19,586
Available for sale Securities, Amortized Cost, Due after 5 years but within 10 years	43,451
Available for sale Securities, Amortized Cost, Due after 10 years	12,109
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis, Total	75,146
Available-for-sale securities, Amortized Cost	116,823
Available for sale Securities, Fair Value, Due after 1 year but within 5 years	18,828
Available for sale Securities, Fair Value, Due after 5 years but within 10 years	40,271
Available for sale Securities, Fair Value, Due after 10 years	11,241
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Fair Value, Total	70,340
Available for sale Securities, Fair Value	110,527	$ 92,959
Held-to-maturity, Due in 1 year or less, Amortized Cost	3,084
Held-to-maturity, Due after 1 year through 5 years, Amortized Cost	15,466
Held-to-maturity, Due after 5 years through 10 years, Amortized Cost	82,415
Held-to-maturity, Due after 10 years, Amortized Cost	1,212
Held-to-maturity Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis	102,177
Held-to-maturity debt securities, Amortized Cost	171,521	101,356
Held-to-maturity, Due in 1 year or less, Fair Value	3,080
Held-to-maturity, Due after 1 year through 5, Fair Value	15,163
Held-to-maturity, Due after 5 years through 10 years, Fair Value	80,337
Held-to-maturity, Due after 10 years, Fair Value	1,192
Held-to-maturity Securities, Debt Maturities, Single Maturity Date, Fair Value	99,772
Held-to-maturity, Fair Value	167,120	$ 100,483
Mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Available for sale Securities without a Single Maturity Date, Amortized Cost	41,677
Available for sale securities without a Single Maturity Date, Fair Value	40,187
Held-to-maturity without Single Maturity Date, Amortized Cost	69,344
Held-to-maturity without Single Maturity Date, Fair Value	$ 67,348

XML

Loans and Allowance for Loan and Lease Losses (Narrative) (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018 USD ($) Loan	Sep. 30, 2017 USD ($) Loan	Sep. 30, 2018 USD ($) Loan	Sep. 30, 2017 USD ($) Loan	Dec. 31, 2017 USD ($) Loan
Financing Receivable, Allowance for Credit Losses [Line Items]
Contractual payment of principal or interest past due period for discontinuing accrual of interest			90 days
Financing Receivable Deferred Fees And Costs	$ 443,000		$ 443,000		$ 464,000
Past Due	7,696,000		7,696,000		10,749,000
Financing Receivable, Modifications, Recorded Investment	7,056,000		7,056,000		9,571,000
Charge-offs associated with troubled debt restructured loans	$ 0	$ 0	$ 0	$ 0	$ 66,000
Number of troubled debt restructured loans, defaulted | Loan	0	0	0	0	0
Number of troubled debt restructured loans | Loan	0	0	0	0
Number of additional troubled debt restructured loans | Loan		2		2
Financing Receivable, Modifications, Pre-Modification Recorded Investment			$ 7,741,000		$ 10,536,000
Financing Receivable, Modifications, Post-Modification Recorded Investment			7,990,000		10,730,000
Other Real Estate	$ 1,027,000		$ 1,027,000		42,000
Number of consumer mortgage loans foreclosure proceedings in process | Loan			4
Loans for which formal foreclosure proceedings are in process	193,000		$ 193,000		308,000
Home Equity Loan [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	$ 2,000		2,000		4,000
Financing Receivable, Modifications, Pre-Modification Recorded Investment			14,000		14,000
Financing Receivable, Modifications, Post-Modification Recorded Investment			$ 14,000		14,000
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Number of troubled debt restructured loans | Loan	1		1
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Past Due	$ 6,483,000		$ 6,483,000		4,831,000
Accruing [Member] | Four Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	524,000		524,000		544,000
Accruing [Member] | Home Equity Loan [Member] | Other Borrower
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	2,000		2,000		4,000
Accruing [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Past Due	0		0		0
Nonaccruing [Member] | Nine Loans With Five Relationships [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	6,532,000		6,532,000
Nonaccruing [Member] | Two Large Relationships [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	5,463,000		5,463,000		7,284,000
Nonaccruing [Member] | Fifteen Loans With Five Relationships
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	6,532,000		6,532,000
Nonaccruing [Member] | Fifteen Loans With Seven Relationships [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment					9,027,000
Nonaccruing [Member] | Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	270,000	$ 4,460,000	270,000	$ 4,460,000
Pre-modification and post-modification recorded investment balances			270,000
Charge-offs associated with troubled debt restructured loans at the time of modification			0	$ 0
Number of existing troubled debt restructured loans | Loan				4
Financing Receivable, Modifications, Pre-Modification Recorded Investment				$ 4,110,000
Financing Receivable, Modifications, Post-Modification Recorded Investment				4,460,000
Financing receivable, other obligations		350,000		350,000
Nonaccruing [Member] | Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment		$ 299,000		$ 299,000
Number of existing troubled debt restructured loans | Loan				2
Financing Receivable, Modifications, Pre-Modification Recorded Investment				$ 362,000
Financing Receivable, Modifications, Post-Modification Recorded Investment				$ 300,000
Reserve for Off-balance Sheet Activities [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Valuation Allowances and Reserves, Balance	$ 171,000		$ 171,000		105,000
Maximum [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Non-residential consumer loans charged off on contractual basis in event of bankruptcy, in period			120 days
Maximum [Member] | Home equity lines of credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan Terms			20 years
Loan To Value Ratio	85.00%		85.00%
Maximum [Member] | Home Equity Lines Of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan Terms			5 years
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan Terms			1 year
Loan To Value Ratio	80.00%		80.00%
Commercial [Member] | Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	$ 4,303,000		$ 4,303,000		4,434,000
Financing Receivable, Modifications, Pre-Modification Recorded Investment			4,110,000		4,110,000
Financing Receivable, Modifications, Post-Modification Recorded Investment			4,460,000		4,460,000
Commercial [Member] | Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	2,229,000		2,229,000		4,593,000
Financing Receivable, Modifications, Pre-Modification Recorded Investment			2,940,000		5,735,000
Financing Receivable, Modifications, Post-Modification Recorded Investment			2,841,000		5,581,000
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	522,000		522,000		540,000
Financing Receivable, Modifications, Pre-Modification Recorded Investment			677,000		677,000
Financing Receivable, Modifications, Post-Modification Recorded Investment			675,000		675,000
Residential Portfolio [Member] | Residential Mortgage [Member] | Accruing [Member] | Three Unrelated Borrowers
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Modifications, Recorded Investment	$ 522,000		$ 522,000		$ 540,000
Residential Portfolio [Member] | Maximum [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan Terms			30 years
Loan To Value Ratio	100.00%		100.00%
Loan To Value Ratio, Exposure After Private Mortgage Insurance			85.00%

XML

Loans and Allowance for Loan and Lease Losses (Classes Of The Loan Portfolio Summarized By The Aggregate Risk Rating) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 1,567,286	$ 910,404	$ 877,386
Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	73,849	41,893	40,350
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,544,229	892,622
Pass [Member] | Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	73,753	41,479
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	4,171	2,332
Special Mention [Member] | Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		105
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	18,886	15,450
Substandard [Member] | Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	96	309
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	269,150	188,033	182,857
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	812,822	515,012	490,603
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	145,368	62,336	58,074
Commercial Portfolio [Member] | Lease Financing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	132	229	259
Commercial Portfolio [Member] | Pass [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	259,870	182,168
Commercial Portfolio [Member] | Pass [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	801,897	505,397
Commercial Portfolio [Member] | Pass [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	145,001	61,667
Commercial Portfolio [Member] | Special Mention [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,106	453
Commercial Portfolio [Member] | Special Mention [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,917	1,435
Commercial Portfolio [Member] | Special Mention [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		182
Commercial Portfolio [Member] | Substandard [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7,174	5,412
Commercial Portfolio [Member] | Substandard [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	9,008	8,180
Commercial Portfolio [Member] | Substandard [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	367	487
Finance Leases Portfolio [Member] | Lease Financing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	132	229
Finance Leases Portfolio [Member] | Pass [Member] | Lease Financing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	132	229
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	255,386	99,033	101,073
Residential Portfolio [Member] | Pass [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	252,997	97,814
Residential Portfolio [Member] | Special Mention [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	148	157
Residential Portfolio [Member] | Substandard [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,241	1,062
Consumer Portfolio [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,579	3,868	$ 4,170
Consumer Portfolio [Member] | Pass [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 10,579	$ 3,868

XML

Loans and Allowance for Loan and Lease Losses (Impaired Loans by Loan Portfolio Class) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	$ 25	$ 260
Impaired Loans with No Allowance: Unpaid Principal Balance	126	295
Impaired Loans: Total Recorded Investment	29	260
Impaired Loans: Total Unpaid Principal Balance	130	295
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	4
Impaired Loans with No Allowance: Unpaid Principal Balance	4
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Unpaid Principal Balance		13
Impaired Loans with Allowance: Recorded Investment	4,527	4,434
Impaired Loans with Allowance: Unpaid Principal Balance	4,635	4,460
Impaired Loans with Allowance: Related Allowance	489	136
Impaired Loans: Total Recorded Investment	4,555	4,434
Impaired Loans: Total Unpaid Principal Balance	4,663	4,473
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	28
Impaired Loans with No Allowance: Unpaid Principal Balance	28
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	2,033	3,424
Impaired Loans with No Allowance: Unpaid Principal Balance	2,553	4,056
Impaired Loans with Allowance: Recorded Investment	857	1,423
Impaired Loans with Allowance: Unpaid Principal Balance	872	1,589
Impaired Loans with Allowance: Related Allowance	243	293
Impaired Loans: Total Recorded Investment	4,346	5,402
Impaired Loans: Total Unpaid Principal Balance	4,881	6,200
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	1,456	555
Impaired Loans with No Allowance: Unpaid Principal Balance	1,456	555
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Recorded Investment	367	487
Impaired Loans with Allowance: Unpaid Principal Balance	370	492
Impaired Loans with Allowance: Related Allowance	38	100
Impaired Loans: Total Recorded Investment	367	487
Impaired Loans: Total Unpaid Principal Balance	370	492
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	832	760
Impaired Loans with No Allowance: Unpaid Principal Balance	940	877
Impaired Loans: Total Recorded Investment	2,096	1,066
Impaired Loans: Total Unpaid Principal Balance	2,204	1,183
Residential Portfolio [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	1,264	306
Impaired Loans with No Allowance: Unpaid Principal Balance	$ 1,264	$ 306

XML

Loans and Allowance for Loan and Lease Losses (Average Recorded Investment Of Impaired Loans And Related Interest Income By Loan Portfolio Class) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	$ 17	$ 294	$ 148	$ 184
Impaired Loans with No Allowance: Interest Income Recognized		3		5
Impaired Financing Receivable, Average Recorded Investment, Total	18	294	148	184
Impaired Financing Receivable, Interest Income Recognized, Total		3		5
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	1
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment				16
Impaired Loans with Allowance: Average Recorded Investment	4,425	2,230	4,424	892
Impaired Financing Receivable, Average Recorded Investment, Total	4,449	2,230	4,445	908
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	24		21
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment		42		164
Impaired Loans with Allowance: Average Recorded Investment	367	487	367	390
Impaired Financing Receivable, Average Recorded Investment, Total	367	529	367	554
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	1,872	751	3,040	551
Impaired Loans with No Allowance: Interest Income Recognized			3	279
Impaired Loans with Allowance: Average Recorded Investment	703	2,148	456	2,446
Impaired Financing Receivable, Average Recorded Investment, Total	4,045	3,469	4,861	3,679
Impaired Financing Receivable, Interest Income Recognized, Total	7		26	389
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	1,470	570	1,365	682
Impaired Loans with No Allowance: Interest Income Recognized	7		23	110
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	780	847	769	852
Impaired Loans with No Allowance: Interest Income Recognized	11		27	18
Impaired Loans with Allowance: Average Recorded Investment		66		53
Impaired Financing Receivable, Average Recorded Investment, Total	1,457	1,231	1,495	1,244
Impaired Financing Receivable, Interest Income Recognized, Total	11		27	18
Residential Portfolio [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	$ 677	$ 318	$ 726	$ 339

XML

Loans and Allowance for Loan and Lease Losses (Nonaccrual Loans By Classes Of The Loan Portfolio) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 10,351	$ 10,575
Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	29	260
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	4,555	4,434
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	3,910	4,902
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	367	487
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 1,490	$ 492

XML

Loans and Allowance for Loan and Lease Losses (Loan Portfolio Summarized By The Past Due Status) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	$ 7,696	$ 10,749
Financing Receivable, Recorded Investment, Current	1,559,590	899,655
Total Loans	1,567,286	910,404	$ 877,386
Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	2,752	861	884
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,143	5,306
Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	70	612
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	6,483	4,831
Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	73,849	41,893	40,350
Home Equity [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	68	402
Financing Receivable, Recorded Investment, Current	73,777	41,491
Total Loans	73,845	41,893
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4
Total Loans	4
Home Equity [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	24	54
Home Equity [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	25	98
Home Equity [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	19	250
Home Equity [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	269,150	188,033	182,857
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4,306	4,455
Financing Receivable, Recorded Investment, Current	264,816	183,578
Total Loans	269,122	188,033
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	23
Financing Receivable, Recorded Investment, Current	5
Total Loans	28
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		4,439
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4	16
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	23
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4,302
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	812,822	515,012	490,603
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	983	3,669
Financing Receivable, Recorded Investment, Current	810,383	510,788
Total Loans	811,366	514,457
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	991	555
Financing Receivable, Recorded Investment, Current	465
Total Loans	1,456	555	569
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	710
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		500
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	273	3,669
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	991	55
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	145,368	62,336	58,074
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	367	487
Financing Receivable, Recorded Investment, Current	145,001	61,849
Total Loans	145,368	62,336
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	367	487
Commercial Portfolio [Member] | Lease Financing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	132	229	259
Commercial Portfolio [Member] | Lease Financing [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	132	229
Total Loans	132	229
Consumer Portfolio [Member] | Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	10,579	3,868	4,170
Consumer Portfolio [Member] | Consumer [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	18	3
Financing Receivable, Recorded Investment, Current	10,561	3,865
Total Loans	10,579	3,868
Consumer Portfolio [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Consumer [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		3
Consumer Portfolio [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Consumer [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	18
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	255,386	99,033	101,073
Residential Portfolio [Member] | Residential Mortgage [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	699	954
Financing Receivable, Recorded Investment, Current	253,423	97,773
Total Loans	254,122	98,727
Residential Portfolio [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	237	224
Financing Receivable, Recorded Investment, Current	1,027	82
Total Loans	1,264	306	$ 315
Residential Portfolio [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Residential Mortgage [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	409	310
Residential Portfolio [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Mortgage [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		467
Residential Portfolio [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		31
Residential Portfolio [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Mortgage [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	290	177
Residential Portfolio [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	$ 237	$ 193

XML

Loans and Allowance for Loan and Lease Losses (Allowance And Recorded Investment In Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	$ 8,189	$ 7,713	$ 7,606	$ 7,183
Charge-offs	(67)	(239)	(418)	(315)
Recoveries	7	28	816	409
Provisions	100		225	225
Allowance for Loan Losses, Ending Balance	8,229	7,502	8,229	7,502
Allowance for loan losses: Ending balance: individually evaluated for impairment	770	691	770	691	$ 529
Allowance for loan losses: Ending balance: collectively evaluated for impairment	7,459	6,811	7,459	6,811	7,077
Loans receivables, Ending Balance	1,567,286	877,386	1,567,286	877,386	910,404
Loans receivables: Ending balance: individually evaluated for impairment	8,641	8,212	8,641	8,212	10,788
Loans Receivable: Ending balance: collectively evaluated for impairment	1,555,893	868,290	1,555,893	868,290	898,755
Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending Balance	2,752	884	2,752	884	861
Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	420	404	423	379
Charge-offs		(20)	(167)	(20)
Recoveries				5
Provisions	16	53	180	73
Allowance for Loan Losses, Ending Balance	436	437	436	437
Allowance for loan losses: Ending balance: collectively evaluated for impairment	436	437	436	437	423
Loans receivables, Ending Balance	73,849	40,350	73,849	40,350	41,893
Loans receivables: Ending balance: individually evaluated for impairment	25	261	25	261	260
Loans Receivable: Ending balance: collectively evaluated for impairment	73,820	40,089	73,820	40,089	41,633
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending Balance	4		4
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	2,120	1,628	1,795	1,580
Charge-offs	(12)		(142)	(12)
Recoveries		5	1	11
Provisions	232	166	686	220
Allowance for Loan Losses, Ending Balance	2,340	1,799	2,340	1,799
Allowance for loan losses: Ending balance: individually evaluated for impairment	489	150	489	150	136
Allowance for loan losses: Ending balance: collectively evaluated for impairment	1,851	1,649	1,851	1,649	1,659
Loans receivables, Ending Balance	269,150	182,857	269,150	182,857	188,033
Loans receivables: Ending balance: individually evaluated for impairment	4,527	4,460	4,527	4,460	4,434
Loans Receivable: Ending balance: collectively evaluated for impairment	264,595	178,397	264,595	178,397	183,599
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending Balance	28		28
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	4,723	4,981	4,435	4,323
Charge-offs	(34)	(207)	(34)	(237)
Recoveries	2	22	807	383
Provisions	130	(326)	(387)	1
Allowance for Loan Losses, Ending Balance	4,821	4,470	4,821	4,470
Allowance for loan losses: Ending balance: individually evaluated for impairment	243	375	243	375	293
Allowance for loan losses: Ending balance: collectively evaluated for impairment	4,578	4,095	4,578	4,095	4,142
Loans receivables, Ending Balance	812,822	490,603	812,822	490,603	515,012
Loans receivables: Ending balance: individually evaluated for impairment	2,890	2,148	2,890	2,148	4,847
Loans Receivable: Ending balance: collectively evaluated for impairment	808,476	487,886	808,476	487,886	509,610
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending Balance	1,456	569	1,456	569	555
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	146	140	178	144
Charge-offs			(40)
Provisions	(12)	36	(4)	32
Allowance for Loan Losses, Ending Balance	134	176	134	176
Allowance for loan losses: Ending balance: individually evaluated for impairment	38	100	38	100	100
Allowance for loan losses: Ending balance: collectively evaluated for impairment	96	76	96	76	78
Loans receivables, Ending Balance	145,368	58,074	145,368	58,074	62,336
Loans receivables: Ending balance: individually evaluated for impairment	367	487	367	487	487
Loans Receivable: Ending balance: collectively evaluated for impairment	145,001	57,587	145,001	57,587	61,849
Commercial Portfolio [Member] | Lease Financing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance		1		1
Provisions		(1)		(1)
Loans receivables, Ending Balance	132	259	132	259	229
Loans Receivable: Ending balance: collectively evaluated for impairment	132	259	132	259	229
Consumer Portfolio [Member] | Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	4	4	3	3
Charge-offs	(11)	(5)	(21)	(21)
Recoveries	5	1	8	6
Provisions	7	5	15	17
Allowance for Loan Losses, Ending Balance	5	5	5	5
Allowance for loan losses: Ending balance: collectively evaluated for impairment	5	5	5	5	3
Loans receivables, Ending Balance	10,579	4,170	10,579	4,170	3,868
Loans Receivable: Ending balance: collectively evaluated for impairment	10,579	4,170	10,579	4,170	3,868
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	441	539	428	541
Charge-offs	(10)	(7)	(14)	(25)
Recoveries				4
Provisions	38	7	55	19
Allowance for Loan Losses, Ending Balance	469	539	469	539
Allowance for loan losses: Ending balance: individually evaluated for impairment		66		66
Allowance for loan losses: Ending balance: collectively evaluated for impairment	469	473	469	473	428
Loans receivables, Ending Balance	255,386	101,073	255,386	101,073	99,033
Loans receivables: Ending balance: individually evaluated for impairment	832	856	832	856	760
Loans Receivable: Ending balance: collectively evaluated for impairment	253,290	99,902	253,290	99,902	97,967
Residential Portfolio [Member] | Financial Asset Acquired with Credit Deterioration [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending Balance	1,264	315	1,264	315	306
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning Balance	335	16	344	212
Provisions	(311)	60	(320)	(136)
Allowance for Loan Losses, Ending Balance	24	76	24	76
Allowance for loan losses: Ending balance: collectively evaluated for impairment	$ 24	$ 76	$ 24	$ 76	$ 344

XML

Loans and Allowance for Loan and Lease Losses (Troubled Debt Restructurings) (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	$ 7,741,000	$ 10,536,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	7,990,000	10,730,000
Financing Receivable, Modifications, Recorded Investment	7,056,000	9,571,000
Home Equity [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	14,000	14,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	14,000	14,000
Financing Receivable, Modifications, Recorded Investment	2,000	4,000
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	4,110,000	4,110,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	4,460,000	4,460,000
Financing Receivable, Modifications, Recorded Investment	4,303,000	4,434,000
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	2,940,000	5,735,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	2,841,000	5,581,000
Financing Receivable, Modifications, Recorded Investment	2,229,000	4,593,000
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	677,000	677,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	675,000	675,000
Financing Receivable, Modifications, Recorded Investment	$ 522,000	$ 540,000

XML

Loans and Allowance for Loan and Lease Losses (Schedule of Accretion of Purchased Impaired Loan) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018
Accounts Notes Loans And Financing Receivable Gross Allowance And Net [Abstract]
Accretable yield, beginning balance	$ 300	$ 67
Acquisition of impaired loans	125	430
Accretable yield amortized to interest income	(61)	(133)
Accretable yield, ending balance	$ 364	$ 364

XML

Fair Value Measurement (Assets Measured at Fair Value on Recurring Basis) (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	$ 110,527,000	$ 92,959,000
Available-for-sale equity securities	488,000	506,000
Loans held for sale	3,181,000	1,040,000
Available-for-sale securities	114,196,000	94,505,000
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loans held for sale	3,181,000	1,040,000
Available-for-sale securities	3,669,000	1,546,000
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	110,527,000	92,959,000
U.S. Treasury and U.S. government agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	37,950,000	38,730,000
U.S. Treasury and U.S. government agencies [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	37,950,000	38,730,000
Mortgage-backed U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	40,187,000	25,831,000
Mortgage-backed U.S. Government Agencies [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	40,187,000	25,831,000
State and political subdivision obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	31,147,000	27,043,000
State and political subdivision obligations [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	31,147,000	27,043,000
Corporate debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	1,243,000	1,355,000
Corporate debt securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	1,243,000	1,355,000
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale equity securities	488,000	506,000
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale equity securities	$ 488,000	$ 506,000

XML

Fair Value Measurement (Fair Value Measurements, Nonrecurring) (Details) - Nonrecurring [Member] - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Impaired Loan [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 4,995	$ 6,090
Foreclosed Assets Held for Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	581
Mortgage Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	107	126
Level 3 [Member] | Impaired Loan [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	4,995	6,090
Level 3 [Member] | Foreclosed Assets Held for Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	581
Level 3 [Member] | Mortgage Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 107	$ 126

XML

Fair Value Measurement (Fair Value Inputs, Assets, Quantitative Information) (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Impaired Loan [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques	Appraisal of collateral	Appraisal of collateral
Fair Value Disclosure, Unobservable Input Range	Appraisal adjustments	Appraisal adjustments
Impaired Loan [Member] | Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 4,995	$ 6,090
Impaired Loan [Member] | Nonrecurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 4,995	$ 6,090
Foreclosed Assets Held for Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques	Appraisal of collateral	Appraisal of collateral
Fair Value Disclosure, Unobservable Input Range	Appraisal adjustments	Appraisal adjustments
Foreclosed Assets Held for Sale [Member] | Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 581
Foreclosed Assets Held for Sale [Member] | Nonrecurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 581
Mortgage Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques	Multiple of annual service fee	Multiple of annual service fee
Fair Value Disclosure, Unobservable Input Range	Estimated prepayment speed based on rate and term	Estimated prepayment speed based on rate and term
Mortgage Servicing Rights [Member] | Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 107	$ 126
Mortgage Servicing Rights [Member] | Nonrecurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 107	$ 126
Minimum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Impaired Loan [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	26.00%	6.00%
Minimum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Foreclosed Assets Held for Sale [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	17.00%	0.00%
Minimum [Member] | Prepayment Rate [Member] | Multiple of Annual Service [Member] | Mortgage Servicing Rights [Member] | Unobservable Input Estimated Prepayment Speed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	70.00%	70.00%
Maximum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Impaired Loan [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	100.00%	51.00%
Maximum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Foreclosed Assets Held for Sale [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	17.00%	0.00%
Maximum [Member] | Prepayment Rate [Member] | Multiple of Annual Service [Member] | Mortgage Servicing Rights [Member] | Unobservable Input Estimated Prepayment Speed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	100.00%	100.00%
Weighted Average [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Impaired Loan [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	36.00%	28.00%
Weighted Average [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Foreclosed Assets Held for Sale [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	17.00%	0.00%
Weighted Average [Member] | Prepayment Rate [Member] | Multiple of Annual Service [Member] | Mortgage Servicing Rights [Member] | Unobservable Input Estimated Prepayment Speed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	99.00%	98.00%

XML

Fair Value Measurement (Fair Value, by Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale investment securities		$ 93,465
Held-to-maturity investment securities	$ 167,120	100,483
Carrying Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	62,085	23,514
Available-for-sale investment securities	110,527	93,465
Held-to-maturity investment securities	171,521	101,356
Loans held for sale	3,181	1,040
Net loans and leases	1,559,057	902,798
Restricted investment in bank stocks	3,373	4,384
Accrued interest receivable	7,491	4,564
Mortgage servicing rights	107	126
Deposits	1,762,465	1,023,568
Short-term borrowings	1,771	34,611
Long-term debt	18,064	12,352
Subordinated debt	27,088	17,338
Accrued interest payable	2,262	645
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	62,085	23,514
Available-for-sale investment securities	110,527	93,465
Held-to-maturity investment securities	167,120	100,483
Loans held for sale	3,181	1,040
Net loans and leases	1,551,077	917,081
Restricted investment in bank stocks	3,373	4,384
Accrued interest receivable	7,491	4,564
Mortgage servicing rights	107	126
Deposits	1,759,822	1,026,830
Short-term borrowings	1,771	34,611
Long-term debt	15,544	11,692
Subordinated debt	27,256	17,358
Accrued interest payable	$ 2,262	$ 645

XML

Fair Value Measurements (Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities	$ 167,120	$ 100,483
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities	167,120	100,483
Deposits	1,759,822	1,026,830
Long-term debt	15,544	11,692
Subordinated debt	27,256	17,358
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net loans and leases	1,551,077	917,081
Carrying Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities	171,521	101,356
Net loans and leases	1,559,057	902,798
Deposits	1,762,465	1,023,568
Long-term debt	18,064	12,352
Subordinated debt	27,088	17,338
Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities	167,120	100,483
Net loans and leases	1,551,077	917,081
Deposits	1,759,822	1,026,830
Long-term debt	15,544	11,692
Subordinated debt	$ 27,256	$ 17,358

XML

Guarantees and Commitments (Narrative) (Details)	3 Months Ended	9 Months Ended	12 Months Ended
	Jun. 30, 2018 USD ($) Apartment	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Commitments, Contingencies and Guarantees [Line Items]
Number of apartments under the project | Apartment	37
Limited partner capital contribution commitment	$ 7,579,000
Project investment amortization period	10 years
Annual LIHTCs mount awarded for the project	$ 861,000
Total anticipated LIHTCs amount under the housing project	$ 8,613,000
Other Assets [Member]
Commitments, Contingencies and Guarantees [Line Items]
Total investment in limited partnership		$ 1,472,000
Financial Standby Letters of Credit [Member]
Commitments, Contingencies and Guarantees [Line Items]
Concentration Risk, Credit Risk, Financial Instrument, Maximum Exposure		$ 22,479,000	$ 20,496,000

XML

Subordinated Debt (Narrative) (Details) - Subordinated Debt [Member] - USD ($)			1 Months Ended	9 Months Ended
	Dec. 19, 2017	Dec. 09, 2015	Sep. 30, 2018	Sep. 30, 2018	Jul. 31, 2018	Dec. 31, 2017
Subordinated Notes Due 2025 [Member]
Subordinated debt issuance		$ 7,500,000
Debt instrument, maturity date				Dec. 09, 2025
Debt Instrumen term				2015 Notes bear interest at a rate of 5.15% 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 4.0%.
Debt instrument, interest rate, effective percentage		5.15%
Debt Instrument, Payment Terms				Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016.
Debt Instrument, Redemption, Description				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.
Unamortized debt issuance cost			$ 151,000	$ 151,000		$ 162,000
Subordinated Notes Due 2025 [Member] | WSJ Prime Rate [Member]
Debt instrument, interest rate, effective percentage		4.00%
Debt Instrument, Basis Spread on Variable Rate		0.50%
Subordinated Notes Due 2025 [Member] | First Priority Financial Corp. [Member]
Subordinated debt acquired					$ 9,500,000
Subordinated debt fair value premium					$ 247,000
Debt Instrument, Issuance Date			Nov. 13, 2015
Subordinated debt issuance			$ 9,500,000
Debt instrument, maturity date			Nov. 30, 2025
Debt instrument, interest rate, effective percentage			7.00%	7.00%
Debt instrument non-callable period			5 years
Debt Instrumen term				The 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
Subordinated Notes Due 2025 [Member] | First Priority Financial Corp. [Member] | Maximum [Member]
Debt instrument redemption price percentage			101.50%
Subordinated Notes Due 2025 [Member] | First Priority Financial Corp. [Member] | Minimum [Member]
Debt instrument redemption price percentage			100.50%
Subordinated Notes Due 2028 [Member]
Subordinated debt issuance	$ 10,000,000
Debt instrument, maturity date				Jan. 01, 2028
Debt Instrumen term				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 times be less than 5.0%.
Debt instrument, interest rate, effective percentage	5.25%
Debt Instrument, Payment Terms				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.
Debt Instrument, Redemption, Description				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.
Unamortized debt issuance cost			$ 151,000	$ 151,000		$ 162,000
Subordinated Notes Due 2028 [Member] | WSJ Prime Rate [Member]
Debt instrument, interest rate, effective percentage	5.00%
Debt Instrument, Basis Spread on Variable Rate	0.50%

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Defined Benefit Plans (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018
Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]
Contributions by employer to defined benefit plan	$ 600,000	$ 600,000

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Defined Benefit Plans (Net Periodic Benefit Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Pension Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 82	$ 9	$ 242	$ 26
Interest cost	107	11	322	32
Expected return on plan assets	(106)		(317)
Amortization (accretion) of prior service cost	4	4	13	11
Settlement gain	(117)		(497)
Net periodic benefit (income) expense	(30)	24	(237)	69
Other Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	1	1	3	3
Interest cost	4	5	13	15
Amortization (accretion) of prior service cost	$ (5)	$ (6)	(15)	(17)
Net periodic benefit (income) expense			$ 1	$ 1

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Accumulated Other Comprehensive Loss (Components of Accumulated Other Comprehensive Loss, Net of Taxes) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]
Unrealized Loss on Securities	$ (4,974)	$ (2,159)
Defined Benefit Plans	1,283	85
Accumulated Other Comprehensive Loss	$ (3,691)	$ (2,074)

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Preferred Stock (Narrative) (Details) - $ / shares	9 Months Ended
	Sep. 30, 2018	Nov. 05, 2018	Dec. 31, 2017
Class of Stock [Line Items]
Series D Preferred Stock, Shares Outstanding	3,404		0
Redeemable Preferred Stock [Member] | Subsequent Event [Member]
Class of Stock [Line Items]
Series D Preferred Stock, Shares Outstanding		3,404
Preferred Stock [Member]
Class of Stock [Line Items]
Number of rights to receive cumulative preferred stock upon conversion of fixed rate cumulative perpetual preferred stock	1
Preferred stock, liquidation preference per share	$ 1,000
Stock issued during period, shares, new issues	3,404
Preferred Stock, Dividend Payment Terms	Dividends are payable quarterly on February 15, May 15, August 15 and November 15 of each year. The dividend rate on the Mid Penn Preferred Stock is fixed at 9%.
Preferred Stock Dividend Rate Percentage	9.00%

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Restricted Common Stock (Details) - 2014 Restricted Stock Plan [Member] - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	May 06, 2014
Class of Stock [Line Items]
Shares authorized per plan					100,000
Shares granted			38,109
Allocated share-based compensation expense	$ 74,000	$ 30,000	$ 187,000	$ 69,000
Restricted shares vested during period			16,633
Granted shares unvested	21,476		21,476
Shares forfeited, due to voluntary termination of an employee	0	0	490	0

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Earnings per Common Share (Basic Earnings (Loss) Per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Earnings Per Share [Abstract]
Net income	$ 2,164	$ 2,249	$ 5,947	$ 6,588
Less: Dividends on Series D preferred stock	38		38
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$ 2,126	$ 2,249	$ 5,909	$ 6,588
Weighted average common shares outstanding	7,695,469	4,237,965	6,604,027	4,236,604
Basic and diluted earnings per common share	$ 0.28	$ 0.53	$ 0.89	$ 1.56

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Earnings per Common Share (Basic Earnings (Loss) Per Share) (Narrative) (Details) - shares			9 Months Ended
	Jul. 31, 2018	Jan. 08, 2018	Sep. 30, 2018	Sep. 30, 2017
Earnings Per Share Basic [Line Items]
Class of warrant or right, outstanding			0	0
Scottdale Acquisition [Member]
Earnings Per Share Basic [Line Items]
Issuance of common stock in connection with acquisition		1,878,827	1,878,827	1,878,827
First Priority Acquisition [Member]
Earnings Per Share Basic [Line Items]
Issuance of common stock in connection with acquisition	2,320,800		2,320,800	2,320,800

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Subsequent Event (Narrative) (Details) - shares	Nov. 05, 2018	Sep. 30, 2018	Dec. 31, 2017
Subsequent Event [Line Items]
Series D Preferred Stock, Shares Outstanding		3,404	0
Redeemable Preferred Stock [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Series D Preferred Stock, Shares Outstanding	3,404