10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended December 31, 2004

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 717.692.2133

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $1.00	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the closing price of the common equity of $27.90 per share, as reported by the AMEX, on June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter was approximately $76,426,000.

As of February 15, 2005, the registrant had 3,188,826 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Excerpts from the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2004 are incorporated herein by reference in response to Part II, hereof. Portions of the registrant’s definitive proxy statement to be used in connection with the 2005 Annual Meeting of Shareholders is incorporated herein by reference in partial response to Part III, hereof.

MID PENN BANCORP, INC.

FORM 10-K

TABLE OF CONTENTS

		PAGE
PART I
Item 1 -	Business	1
Item 2 -	Properties	12
Item 3 -	Legal Proceedings	14
Item 4 -	Submission of Matters to a Vote of Security Holders	14
PART II
Item 5 -	Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities	14
Item 6 -	Selected Financial Data	14
Item 7 -	Management’s Discussion and Analysis of Financial Condition and Results of Operation	14
Item 7A -	Quantitative and Qualitative Disclosure About Market Risk	15
Item 8 -	Financial Statements and Supplementary Data	15
Item 9 -	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	15
Item 9A -	Controls and Procedures	16
Item 9B-	Other Information	19
PART III
Item 10 -	Directors and Executive Officers of the Registrant	19
Item 11 -	Executive Compensation	19
Item 12 -	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	19
Item 13 -	Certain Relationships and Related Transactions	19
Item 14 -	Principal Accountant Fees and Services	20
PART IV
Item 15 -	Exhibits, Financial Statement Schedules	20
Signatures		22
EXHIBIT INDEX		24

PART I

ITEM 1. BUSINESS.

The disclosures set forth in this Item are qualified by the section captioned “Special Cautionary Notice Regarding Forward-Looking Statements” contained in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report.

Mid Penn Bancorp, Inc.

Mid Penn Bancorp, Inc. is a one bank holding company, incorporated in the Commonwealth of Pennsylvania in August 1991. On December 31, 1991, MPB acquired, as part of the holding company formation, all of the outstanding common stock of Mid Penn Bank, and the bank became a wholly-owned subsidiary of MPB. MPB’s other wholly-owned subsidiaries are Mid Penn Insurance Services, LLC which provides a range of personal and investment insurance products and Mid Penn Investment Corporation which is engaged in investing activities. Mid Penn Bancorp, Inc. and its wholly-owned subsidiaries are collectively referred to herein as “MPB” or the “Company.” MPB’s primary business is to supervise and coordinate the business of its subsidiaries and to provide them with capital and resources.

MPB’s consolidated financial condition and results of operations consist almost entirely of that of Mid Penn Bank which is managed as a single business segment. At December 31, 2004, MPB had total consolidated assets of $403,256,000 total deposits of $301,144,000 and total shareholders’ equity of $35,272,000.

As of December 31, 2004, Mid Penn Bancorp did not own or lease any properties. Mid Penn Bank owns the banking offices identified in Item 2. All MPB employees are employed by Mid Penn Bank, Mid Penn Insurance Services, LLC or Mid Penn Investment Corporation.

Mid Penn Bank

Millersburg Bank, the predecessor to Mid Penn Bank, was organized in 1868, and became a state chartered bank in 1931, obtaining trust powers in 1935, at which time its name was changed to Millersburg Trust Company. In 1962, the Lykens Valley Bank merged with and into Millersburg Trust Company. In 1971, Farmer’s State Bank of Dalmatia merged with Millersburg Trust Company and the resulting entity adopted the name “Mid Penn Bank.” In 1985, the bank acquired Tower City National Bank. In 1998, MPB acquired Miners Bank of Lykens, which was merged into Mid Penn Bank. The bank is supervised by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. MPB’s and the bank’s legal headquarters are located at 349 Union Street, Millersburg, Pennsylvania 17061. The bank presently has 12 offices located throughout Dauphin, Northumberland, Schuylkill, and Cumberland Counties, Pennsylvania.

MPB’s primary business consists of attracting deposits from its network of community banking offices operated by the bank. The bank engages in full-service commercial banking and trust business, making available to the community a wide range of financial services, including, but not limited to, installment loans, personal loans, mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines of credit, construction financing, farm loans, community development and local government loans and various types of time and demand deposits. Deposits of the bank are insured by the Bank Insurance Fund of the FDIC to the maximum extent provided by law. In addition, the bank provides a full range of trust services through its Trust Department. Mid Penn Bank also offers other services such as Internet banking, telephone banking, cash management services, automated teller services and safe deposit boxes.

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Business Strategy

Mid Penn Bank provides an array of sophisticated products typically found only in major regional banks. These services are provided to small to middle market businesses, high net worth individuals, and retail consumers through 12 full service banking facilities. Several banking locations have seasoned management with significant lending experience who are responsible for credit and pricing decisions, subject to loan committee approval for larger credits. This decentralized relationship management approach, coupled with the continuity of service by its banking officers, enables Mid Penn Bank to develop long-term customer relationships, maintain high quality service and provide quick responses to customer needs. MPB believes that its emphasis on local relationship banking, together with its conservative approach to lending and resultant strong asset quality, are important factors in the success and the growth of MPB.

Mid Penn Bank seeks credit opportunities of good quality within its target market that exhibit positive historical trends, stable cash flows and secondary sources of repayment from tangible collateral. Mid Penn Bank extends credit for the purpose of obtaining and continuing long-term relationships. Lenders are provided with detailed underwriting policies for all types of credit risks accepted by Mid Penn Bank and must obtain appropriate approvals for credit extensions in excess of conservatively assigned individual lending limits. The bank also maintains strict documentation requirements and extensive credit quality assurance practices in order to identify credit portfolio weaknesses as early as possible so any exposures that are discovered might be reduced.

At December 31, 2004, Mid Penn Bank had 107 full-time and 24 part-time employees. No employees are represented by a collective bargaining agent, and the bank believes it enjoys good relations with its personnel.

Lending Activities

Mid Penn Bank offers a variety of loan products to its customers, including loans secured by real estate, commercial and consumer loans. The bank’s lending objectives are as follows:

• to establish a diversified commercial loan portfolio;

• to provide a satisfactory return to MPB’s shareholders by properly pricing loans to include the cost of funds, administrative costs, bad debts, local economic conditions, competition, customer relationships, the term of the loan, credit risk, collateral quality and a reasonable profit margin.

Credit risk is managed through portfolio diversification, underwriting policies and procedures and loan monitoring practices. The bank generally secures its loans with real estate with such collateral values dependent and subject to change based on real estate market conditions within its market area. As of December 31, 2004, Mid Penn Bank’s highest concentrations of credit were in mobile home park land and commercial real estate office financings and most of the bank’s business activity with customers was located in Central Pennsylvania, specifically in Dauphin, lower Northumberland, Western Schuylkill, and Cumberland Counties.

Investment Activities

MPB’s investment portfolio is used to improve earnings through investments of funds in higher-yielding assets, while maintaining asset quality, which provide the necessary balance sheet liquidity for MPB. MPB does not have any significant concentrations of investment securities.

MPB’s entire portfolio of investment securities is considered available for sale. As such, the investments are recorded on the balance sheet at market value. MPB’s investments include US Treasury,

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agency and municipal securities that are given a market price relative to investments of the same type with similar maturity dates. As the interest rate environment of these securities changes, MPB’s existing securities are valued differently in comparison. This difference in value, or unrealized gain, amounted to $693,000, net of tax, as of December 31, 2004. A majority of the investments are high quality United States and municipal securities that if held to maturity are expected to yield no loss to the bank.

For additional information with respect to MPB’s business activities, see Part II, Item 7 of this report.

Sources of Funds

Mid Penn Bank primarily uses deposits and borrowings to finance lending and investment activities. Borrowing sources include advances from the Federal Home Loan Bank of Pittsburgh, reverse repurchase agreements with investment banks and overnight borrowings from Mid Penn Bank’s customers and correspondent bank. All borrowings, except for the line of credit with Mid Penn Bank’s correspondent bank, require collateral in the form of loans or securities. Borrowings are, therefore, limited by collateral levels and the available lines of credit extended by the bank’s creditors. As a result, deposits remain key to the future funding and growth of the business. Deposit growth within the banking industry has been generally slow due to strong competition from a variety of financial services companies. This competition may require financial institutions to adjust their product offerings and pricing to adequately grow deposits.

Competition

The banking business is highly competitive, and the profitability of MPB depends principally upon Mid Penn Bank’s ability to compete in its market area. Mid Penn Bank actively competes with other financial services companies for deposit and loan business. Competitors include other commercial banks, savings banks, savings and loan associations, insurance companies, securities brokerage firms, credit unions, finance companies, mutual funds, and money market funds. Financial institutions compete primarily on the quality of services rendered, interest rates on loans and deposits, service charges, the convenience of banking facilities, location and hours of operation and, in the case of loans to larger commercial borrowers, relative lending limits.

Many competitors are significantly larger than Mid Penn Bank and have significantly greater financial resources, personnel and locations from which to conduct business. In addition, the bank is subject to banking regulations while certain competitors may not be. There are relatively few barriers for companies wanting to enter into the financial services industry. For more information, see the “Supervision and Regulation” section below.

MPB has been able to compete effectively with other financial institutions by emphasizing technology and customer service, including local branch decision making on loans, establishing long-term customer relationships and building customer loyalty, and providing products and services designed to address the specific needs of its customers. The Gramm-Leach-Bliley Act (see discussion below), which breaks down many barriers between the banking, securities and insurance industries, may significantly affect the competitive environment in which MPB operates.

The growth of mutual funds over the past decade has made it increasingly difficult for financial institutions to attract deposits. The continued flow of cash into mutual funds, much of which is made through tax deferred investment vehicles such as 401(k) plans, and a generally strong economy, have, until recently, fueled high returns for these investments, in particular, certain equity funds. These returns perpetuated the flow of additional investment dollars into mutual funds and other products not traditionally offered by banks. In addition, insurance companies recently have become more significant competitors for deposits through their thrift subsidiaries.

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Further, MPB’s success is dependent to a significant degree on economic conditions in Central Pennsylvania, especially in Dauphin, lower Northumberland, Western Schuylkill and Cumberland Counties, which we define as our primary market. The banking industry is affected by general economic conditions including the effects of inflation, recession, unemployment, real estate values, trends in the national and global economics, and other factors beyond our control. An economic recession or a delayed recovery over a prolonged period of time in the Central Pennsylvania area could cause an increase in the level of the bank’s non-performing assets and loan losses, thereby causing operating losses, impairing liquidity and eroding capital. We cannot assure you that further adverse changes in the local economy would not have a material adverse effect on MPB’s consolidated financial condition, results of operations, and cash flows.

Supervision and Regulation

General

Bank holding companies and banks are extensively regulated under both Federal and state laws. The regulation and supervision of MPB and Mid Penn Bank are designed primarily for the protection of depositors, the FDIC, and the monetary system, and not MPB or its shareholders. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance on deposits, the imposition of civil money penalties and removal and prohibition orders. If any enforcement action is taken by a banking regulator, the value of an equity investment in MPB could be substantially reduced or eliminated.

Federal and state banking laws contain numerous provisions affecting various aspects of the business and operations of MPB and Mid Penn Bank. MPB is subject to, among others, the regulations of the Securities and Exchange Commission and the Federal Reserve Board and Mid Penn Bank is subject to, among others, the regulations of the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. The following descriptions of and references to applicable statutes and regulations are not intended to be complete descriptions of these provisions or their effects on MPB or Mid Penn Bank. They are summaries only and are qualified in their entirety by reference to such statutes and regulations.

Holding Company Regulation

MPB is a registered bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). As such, it is subject to the Bank Holding Company Act of 1956 (“BHCA”) and many of the Federal Reserve’s regulations promulgated thereunder. The Federal Reserve has broad enforcement powers over bank holding companies, including the power to impose substantial fines and civil penalties.

The Bank Holding Company Act requires MPB to file an annual report with the Federal Reserve regarding the holding company and its subsidiary bank. The Federal Reserve Board also makes examinations of the holding company. Mid Penn Bank is not a member of the Federal Reserve System; however, the Federal Reserve possesses cease-and-desist powers over bank holding companies and their subsidiaries where their actions would constitute an unsafe or unsound practice or violation of law.

The Bank Holding Company Act restricts a bank holding company’s ability to acquire control of additional banks. In addition, the Act restricts the activities in which bank holding companies may engage directly or through non-bank subsidiaries.

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Gramm-Leach-Bliley Financial Modernization Act

In 1999, the Gramm-Leach Bliley Act (“GLB Act”) was signed into law and it became effective on March 11, 2000. The primary purpose of GLB was to eliminate barriers between investment banking and commercial banking and to permit, within certain limitations, the affiliation of financial service providers. Generally, GLB

• repealed the historical restrictions against, and eliminated many federal and state law barriers to affiliations among banks, securities firms, insurance companies and other financial service providers,

• provided a uniform framework for the activities of banks, savings institutions and their holding companies,

• broadened the activities that may be conducted by and through national banks and other banking subsidiaries of bank holding companies,

• provided an enhanced framework for protecting the privacy of consumers’ information,

• adopted a number of provisions related to the capitalization, membership, corporate governance and other measures designed to modernize the Federal Home Loan Bank System,

• modified the laws governing the implementation of the Community Reinvestment Act, and

• addressed a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

More specifically, under GLB, bank holding companies, such as MPB, that meet certain management, capital, and Community Reinvestment Act standards, are permitted to become financial holding companies and, by doing so, to affiliate with securities firms and insurance companies and to engage in other activities that are financial in nature, incidental to such financial activities, or complementary to such activities. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the FDIC Improvement Acts prompt corrective action provisions, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. The required filing is a declaration that the bank holding company wishes to become a financial holding company and meets all applicable requirements.

No prior regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities permitted under GLB. Activities cited by GLB as being financial in nature include:

• securities underwriting, dealing and market making;

• sponsoring mutual funds and investment companies;

• insurance underwriting and agency;

• merchant banking activities; and

• activities that the Federal Reserve has determined to be closely related to banking.

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

Corporate Governance

On July 30, 2002, the Sarbanes-Oxley Act of 2002 was enacted. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, auditor independence and

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accounting standards, executive compensation, insider loans, whistleblower protection, and enhanced and timely disclosure of corporate information. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act established:

• new requirements for audit committees, including independence, expertise and responsibilities;

• additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company;

• new standards for auditors and regulation of audits;

• increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and

• new and increased civil and criminal penalties for violations of the securities laws.

The SEC and AMEX have adopted numerous rules implementing the provisions of the Sarbanes-Oxley Act that affect MPB. The changes are intended to allow shareholders to monitor more effectively the performance of companies and management. Among the many new changes this year are enhanced proxy statement disclosures on corporate governance, stricter independence requirements for the Board of Directors and its committees, and posting of various policies and SEC reports on our website. The full impact of the Sarbanes-Oxley Act and the increased costs related to MPB’s compliance are still uncertain and evolving.

Bank Regulation

Mid Penn Bank, a Pennsylvania-chartered institution, is subject to supervision, regulation and examination by the Pennsylvania Department of Banking and the FDIC. The deposits of the bank are insured by the FDIC to the extent provided by law. The FDIC assesses deposit insurance premiums the amount of which may, in the future, depend in part on the condition of the bank. Moreover, the FDIC may terminate deposit insurance of the bank under certain circumstances. The bank regulatory agencies have broad enforcement powers over depository institutions under their jurisdiction, including the power to terminate deposit insurance, to impose fines and other civil and criminal penalties, and to appoint a conservator or receiver if any of a number of conditions is met. In addition, the bank is subject to a variety of local, state and federal laws that affect its operations.

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

Capital Requirements

Under risk-based capital requirements for bank holding companies, MPB is required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) of eight percent. At least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less goodwill (“Tier 1 Capital” and together with Tier 2 Capital, Total Capital”). The remainder may consist of subordinated debt, non-qualifying preferred stock and a limited amount of the loan loss allowance (“Tier 2 Capital”).

In addition, the Federal Reserve Board has established minimum leverage ratio requirements for bank holding companies. These requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted average quarterly assets (“leverage ratio”) equal to 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of from at least 4-5%. The requirements

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also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the requirements indicate that the Federal Reserve Board will continue to consider a “Tangible Tier 1 Leverage Ratio” (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised MPB of any specific minimum tier 1 leverage ratio applicable to it.

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

The capital ratios of MPB and Mid Penn Bank are described in Note 16 to MPB’s Consolidated Financial Statements.

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

FDIC Improvement Act

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

Safety and Soundness Standards

Pursuant to FDICIA, the federal banking regulatory agencies have adopted a set of guidelines prescribing safety and soundness standards for depository institutions such as the bank. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the agencies adopted regulations that authorize an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If the institution fails to submit an acceptable compliance plan or fails to implement an accepted plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions be taken, including restricting asset growth, restricting interest rates paid on deposits, and requiring an increase in the institution’s ratio of tangible equity to assets.

Payment of Dividends and Other Restrictions

MPB is a legal entity separate and distinct from its subsidiary, Mid Penn Bank. There are various legal and regulatory limitations on the extent to which Mid Penn Bank can, among other things, finance, or otherwise supply funds to, MPB. Specifically, dividends from the bank are the principal source of

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MPB’s cash funds and there are certain legal restrictions under Pennsylvania law and Pennsylvania banking regulations on the payment of dividends by state-chartered banks. The relevant regulatory agencies also have authority to prohibit MPB and the bank from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound banking practice. The payment of dividends could, depending upon the financial condition of MPB and the bank, be deemed to constitute such an unsafe or unsound practice.

Prompt Corrective Action

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

The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a limitation on asset growth and expansion, in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person”. Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution’s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized” and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership.

Deposit Insurance

Deposits of the Bank are insured by the FDIC through the Bank Insurance Fund (“BIF”). The insurance assessments paid by an institution are to be based on the probability that the fund will incur a loss with respect to the institution. The FDIC has adopted deposit insurance regulations under which insured institutions are assigned to one of the following three capital groups based on their capital levels: “well-capitalized,” “adequately capitalized” and “undercapitalized.” Banks in each of these three groups are further classified into three subgroups based upon the level of supervisory concern with respect to each bank. The resulting matrix creates nine assessment risk classifications to which are assigned deposit insurance premiums ranging from 0.00% for the best capitalized, healthiest institutions, to 0.27% for undercapitalized institutions with substantial supervisory concerns.

The FDIC sets deposit insurance assessment rates on a semiannual basis and will increase deposit insurance assessments whenever the ratio of reserves to insured deposits in a fund is less than 1.25. While under the current assessment matrix, Mid Penn Bank does not pay any assessments for deposit insurance, because of past bank failures there is a possibility that the FDIC will adjust the assessment matrix in the future and that as a result Mid Penn Bank may have to start paying insurance assessments.

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Mid Penn Bank is also subject to quarterly assessments relating to interest payments on Financing Corporation (FICO) bonds issued in connection with the resolution of the thrift industry crisis. The FICO assessment rate is adjusted quarterly to reflect changes in the assessment bases of the BIF and SAIF. The FICO assessments on BIF-insured deposits are set at an annual rate of .0168% of assessable deposits.

Environmental Laws

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

In 1995, the Pennsylvania General Assembly enacted the Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act which, among other things, provides protection to lenders from environmental liability and remediation costs under the environmental laws for releases and contamination caused by others. A lender who engages in activities involved in the routine practices of commercial lending, including, but not limited to, the providing of financial services, holding of security interests, workout practices, foreclosure or the recovery of funds from the sale of property shall not be liable under the environmental acts or common law equivalents to the Pennsylvania Department of Environmental Resources or to any other person by virtue of the fact that the lender engages in such commercial lending practice. A lender, however, will be liable if it, its employees or agents, directly cause an immediate release or directly exacerbate a release of regulated substance on or from the property, or known and willfully compelled the borrower to commit an action which caused such release or violate an environmental act. The Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act does not limit federal liability which still exists under certain circumstances.

Consumer Protection Laws

There are a number of laws that govern the relationship between the bank and its customers. For example, the Community Reinvestment Act is designed to encourage lending by banks to persons in low and moderate income areas. The Home Mortgage Disclosure Act and the Equal Credit Opportunity Act attempt to minimize lending decisions based on impermissible criteria, such as race or gender. The Truth-in-Lending Act and the Truth-in-Savings Act require banks to provide certain disclosure of relevant terms related to loans and savings accounts, respectively. Anti-tying restrictions (which prohibit, for instance, conditioning the availability or terms of credit on the purchase of another banking product) further restrict the bank’s relationships with its customers.

Privacy Laws

In 2000, the federal banking regulators issued final regulations implementing certain provisions of GLB governing the privacy of consumer financial information. The regulations limit the disclosure by financial institutions, such as MPB and the bank, of nonpublic personal information about individuals who obtain financial products or services for personal, family, or household purposes. Subject to certain exceptions allowed by law, the regulations cover information sharing between financial institutions and nonaffiliated third parties. More specifically, the regulations require financial institutions to:

• provide initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal financial information to nonaffiliated third parties and affiliates;

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• provide annual notices of their privacy policies to their current customers; and

• provide a reasonable method for consumers to “opt out” of disclosures to nonaffiliated third parties.

Protection of Customer Information

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

• insure the security and confidentiality of customer records and information;

• protect against any anticipated threats or hazards to the security or integrity of such records; and

• protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.

Affiliate Transactions

Transactions between MPB and Mid Penn Bank and its affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An “affiliate” of a bank or savings institution is any company or entity that controls, is controlled by, or is under common control with the bank or savings institution. Generally, a subsidiary of a depository institution that is not also a depository institution is not treated as an affiliate of the bank for purposes of Sections 23A and 23B. Sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms that are consistent with safe and sound banking practices.

On October 31, 2002, the Federal Reserve adopted a new regulation, Regulation W, effective April 1, 2003, that comprehensively amends Sections 23A and 23B. The regulation unifies and updates staff interpretations issued over the years, incorporates several new interpretative proposals (such as to clarify when transactions with an unrelated third party will be attributed to an affiliate), and addresses new issues arising as a result of the expanded scope of non-banking activities engaged in by bank and bank holding companies in recent years and authorized for financial holding companies under the GLB.

The USA Patriot Act

On October 26, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) was signed into law. The USA Patriot Act broadened the application of anti-money laundering regulations to apply to additional types of financial institutions, such as broker-dealers, and strengthened the ability of the U.S. government to detect and prosecute international money laundering and the financing of terrorism. The principal provisions of Title III of the USA Patriot Act require that regulated financial institutions, including state-chartered banks:

• establish an anti-money laundering program that includes training and audit components;

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• comply with regulations regarding the verification of the identity of any person seeking to open an account;

• take additional required precautions with non-U.S. owned accounts; and

• perform certain verification and certification of money laundering risk for their foreign correspondent banking relationships.

The USA Patriot Act also expanded the conditions under which funds in a U.S. interbank account may be subject to forfeiture and increased the penalties for violation of anti-money laundering regulations. Failure of a financial institution to comply with the USA Patriot Acts requirements could have serious legal and reputational consequences for the institution. The bank has adopted policies, procedures and controls to address compliance with the requirements of the USA Patriot Act under the existing regulations and will continue to revise and update its policies, procedures and controls to reflect changes required by the USA Patriot Act and implementing regulations.

Anti-Money Laundering and Anti-Terrorism Financing

Under Title III of the USA PATRIOT Act, also known as the International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001, all financial institutions, including MPB and Mid Penn Bank, are required in general to identify their customers, adopt formal and comprehensive anti-money laundering programs, scrutinize or prohibit altogether certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning their customers and their transactions. Additional information-sharing among financial institutions, regulators, and law enforcement authorities is encouraged by the presence of an exemption from the privacy provisions of the GLB Act for financial institutions that comply with this provision and the authorization of the Secretary of the Treasury to adopt rules to further encourage cooperation and information-sharing. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act, which applies to the bank.

Effects of Government Policy and Potential Changes in Regulation

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

From time to time, legislation is enacted that has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, and before various bank regulatory agencies. MPB can not predict the likelihood of any major changes or the impact such changes might have on MPB and/or the bank. Various congressional bills and other proposals have proposed a sweeping overhaul of the banking system, including provisions for: limitations on deposit insurance coverage; changing the timing and method financial institutions use to pay for deposit insurance; expanding the power of banks by removing the restrictions on bank underwriting activities; and tightening the regulation of bank derivatives activities; and allowing commercial enterprises to own banks.

MPB’s earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have had, and will likely continue to have, an impact on the operating results of commercial

11

banks because of the Federal Reserve’s power to implement national monetary policy, to, among other things, curb inflation or combat recession. The Federal Reserve has a major impact on the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.

From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of the bank. It cannot be predicted whether any such legislation will be adopted or, if adopted, how such legislation would affect the business of the bank. As a consequence of the extensive regulation of commercial banking activities in the United States, the bank’s business is particularly susceptible to being affected by federal legislation and regulations that may increase the costs of doing business.

Available Information

Mid Penn Bancorp Inc.’s common stock is registered under Section 12(b) of the Securities Exchange Act of 1934 and is traded on the American Stock Exchange under the trading symbol MBP. Mid Penn Bancorp, Inc. is subject to the informational requirements of the Exchange Act, and, accordingly, files reports, proxy statements and other information with the Securities and Exchange Commission. The reports, proxy statements and other information filed with the SEC are available for inspection and copying at the SEC’s Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Mid Penn Bancorp, Inc. is an electronic filer with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s Internet site address is www.sec.gov.

MPB’s headquarters are located at 349 Union Street, Millersburg, Pennsylvania 17061, and its telephone number is (717) 692-2133. MPB’s internet address is www.midpennbank.com. MPB makes available through its website, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after filing with the Securities and Exchange Commission. MPB has adopted a Code of Ethics that applies to all employees. This document is also available on MPB’s website. The information included on our website is not a part of this document.

You may also inspect materials and other information concerning Mid Penn Bancorp, Inc. at the offices of the American Stock Exchange, Inc. at 86 Trinity Place, New York, New York 10006. Our common stock is listed on the American Stock Exchange under the trading symbol MBP. The American Stock Exchange’s Internet site address is www.amex.com.

ITEM 2. PROPERTIES.

The bank owns its main office, branch offices and certain parking facilities related to its banking offices, all of which are free and clear of any lien. The bank’s main office and all branch offices are located in Pennsylvania. The table below sets forth the location of each of the bank’s properties.

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Office and Address	Description of Property
Main Office	Main Bank Office
349 Union Street
Millersburg, PA 17061
Tremont Branch Office	Branch Bank
7-9 East Main Street
Tremont, PA 17981
Elizabethville Branch Office	Branch Bank
2 East Main Street
Elizabethville, PA 17023
Elizabethville Branch Office	Drive-In
11 East Main Street
Elizabethville, PA 17023
Dalmatia Branch Office	Branch Bank
School House Road
Dalmatia, PA 17017
Halifax Branch Office	Branch Bank
Halifax Shopping Center
3763 Peters Mountain Road
Halifax, PA 17032
Carlisle Pike Branch Office	Branch Bank
4622 Carlisle Pike
Mechanicsburg, PA 17050
Harrisburg Branch Office	Branch Bank
4098 Derry Street
Harrisburg, PA 17111
Harrisburg Branch Office	Branch Bank
2615 North Front Street
Harrisburg, PA 17110
Tower City Branch Office	Branch Bank
545 East Grand Avenue
Tower City, PA 17980
Dauphin Branch Office	Branch Bank
1001 Peters Mountain Road
Dauphin, PA 17018
Miners-Lykens Branch Office	Branch Bank
550 Main Street
Lykens, PA 17048

All of these properties are in good condition and are deemed by management to be adequate for the bank’s purposes.

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ITEM 3. LEGAL PROCEEDINGS.

Management is not aware of any litigation that would have a material adverse effect on the consolidated financial position of MPB. There are no proceedings pending other than ordinary routine litigation incident to the business of MPB and of the bank. In addition, management does not know of any material proceedings contemplated by governmental authorities against MPB or the bank or any of its properties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

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

The information required by this Item 5, regarding market value, dividend payments, and number of shareholders is set forth on page 40 of MPB’s 2004 Annual Report to Shareholders, which page is included at Exhibit 13 hereto, and incorporated herein by reference.

As of February 15, 2005, there were approximately 1030 shareholders of record of MPB’s common stock.

ITEM 6. SELECTED FINANCIAL DATA.

The information required by this Item is set forth on page 40 of MPB’s 2004 Annual Report to Shareholders, which page is included at Exhibit 13 hereto, and incorporated herein by reference.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this document 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” contained in MPB’s 2004 Annual Report to Shareholders as incorporated by reference to Exhibit 13, 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 MPB to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” and similar expressions are intended to identify such forward-looking statements.

MPB’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 future economic conditions on MPB and Mid Penn Bank’s customers;

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

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

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

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

• the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in MPB’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;

• technological changes;

• acquisitions and integration of acquired businesses;

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

• acts of war or terrorism.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of MPB’s consolidated financial statements and should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto and other detailed information appearing elsewhere in this Annual Report.

The information required by this Item is set forth on pages 26-40 of MPB’s 2004 Annual Report to Shareholders, which pages are included at Exhibit 13 hereto, and incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information required by this Item is set forth on pages 38-39 of MPB’s 2004 Annual Report to Shareholders, which pages are included at Exhibit 13 hereto and incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this Item is set forth on pages 4-25 of MPB’s 2004 Annual Report to Shareholders, which pages are included at Exhibit 13 hereto, and incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

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ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Within 90 days prior to the date of this Form 10-K, MPB carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, MPB’s disclosure controls and procedures are effective in timely alerting them to material information relating to MPB (including its consolidated subsidiaries) required to be included in our periodic SEC filings.

Changes in Internal Controls Over Financial Reporting

There have been no significant changes in MPB’s internal controls or, to its knowledge, in other factors that could significantly affect internal controls subsequent to the date MPB carried out its evaluation.

Mid Penn Bancorp, Inc. Management Report on Internal Controls Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a and 15(d) – 15(f) under the Exchange Act of 1934 (“1934 Act”). The corporation’s internal control over financial reporting includes those policies and procedures that pertain to the corporation’s ability to record, process, summarize, and report reliable financial data. All internal control systems have inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

In order to ensure that the corporation’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for its financial reporting as of December 31, 2004. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In performing this assessment, management has identified the material weaknesses in internal controls listed below:

• Lack of sufficient finance personnel to effect adequate segregation of duties in financial statement preparation

• Lack of adequate internal controls and testing in the area of information technology

As a result of these two material weaknesses in the corporation’s internal control over financial reporting, management has concluded that the corporation’s internal control over financial reporting, as of December 31, 2004, was not effective based on the criteria set forth by COSO in Internal Control – Integrated Framework. A material weakness in internal control over financial reporting is a significant deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2), or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Remediation steps to address material weaknesses:

Lack of sufficient finance personnel to effect adequate segregation of duties in financial statement preparation — The number of finance personnel is a factor of the size of the company and management’s attempt at maintaining an efficient structure. Management is evaluating the feasibility of using a disclosure review committee to review quarterly financial statements and SEC reports as well as the possibility of hiring additional finance personnel.

Lack of adequate internal controls and testing in the area of information technology — Management separately outsourced the internal audit function in this area to an independent CPA firm in

16

October of 2004. The independent firm did identify several control deficiencies; however, they did not identify any material weaknesses in their report. Management, however, is aggregating the deficiencies and is reporting them as a material weakness. Management is in the process of remedying the identified weaknesses in the area including the establishment of additional policies and procedures to require a formal review of various daily computer and network logs. In addition, Management has contracted in March of 2005 with a third party vendor to perform P.C. network testing of controls for monitoring unauthorized access to operating/application systems and/or security breaches.

Parente Randolph, LLC, independent registered public accounting firm that audited the corporation’s financial statements, has issued an attestation report on management’s assertion of the effectiveness of the corporation’s internal control over financial reporting as of December 31, 2004.

Alan W. Dakey	Kevin W. Laudenslager
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer

PARENTERANDOLPH

The Power of Ideas

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Mid Penn Bancorp, Inc.

Millersburg, Pennsylvania:

We have audited management’s assessment, included in the accompanying management report on internal controls over financial reporting, that Mid Penn Bancorp, Inc. and subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the material weaknesses identified in management’s assessment, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Mid Penn Bancorp, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

17

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment:

• Lack of sufficient financial personnel to effect adequate segregation of duties in financial statement preparation.

• Lack of adequate internal controls and testing in the area of information technology.

The effect of the material weaknesses is to increase to an unacceptable level the likelihood of a more than inconsequential misstatement of the annual or interim financial statements that will not be prevented or detected. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and this report does not affect our report dated February 9, 2005 on those financial statements.

In our opinion, management’s assessment that Mid Penn Bancorp, Inc. and subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Mid Penn Bancorp, Inc. and subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Mid Penn Bancorp, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004, and our report dated February 9, 2005 expressed an unqualified opinion thereon.

We do not express an opinion or any other form of assurance on management’s statements about the company’s plans to implement new controls relating to the material weaknesses identified and disclosure about actions taken by the company after the date of management’s assessment which are contained in the fourth paragraph in the accompanying management report on internal controls over financial reporting.

Parente Randolph, LLC

Williamsport, Pennsylvania

February 9, 2005

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ITEM 9B. OTHER INFORMATION.

NONE.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MPB.

The information required by this Item, relating to directors, executive officers, and control persons is set forth on pages 7-8 of MPB’s definitive proxy statement to be used in connection with the 2005 Annual Meeting of Shareholders, which pages are incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to directors, officers and employees of the Company and the Bank. The Company amended the Code of Ethics twice in 2005 and a copy of the Code of Ethics is included as Exhibit 14 to the Form 8-K filed with the Securities and Exchange Commission on March 9, 2005. A request for the Company’s Code of Ethics can be made either in writing to Alan W. Dakey, 349 Union Street, Millersburg, PA 17061 or by telephone at 717-692-2133.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item, relating to executive compensation, is set forth on pages 14-16 of MPB’s definitive proxy statement to be used in connection with the 2005 Annual Meeting of Shareholders, which pages are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this Item, relating to beneficial ownership of MPB’s common stock, is set forth on pages 17-18 of MPB’s definitive proxy statement to be used in connection with the 2005 Annual Meeting of Shareholders, which pages are incorporated herein by reference. MPB does not maintain any equity compensation plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item, relating to transactions with management and others, certain business relationships and indebtedness of management, is set forth on page 16-17 of MPB’s definitive proxy statement to be used in connection with the 2005 Annual Meeting of Shareholders, which page is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item, relating to the fees and services provided by MPB’s principal accountant, is set forth on pages 8-9 of MPB’s definitive proxy statement to be used in connection with the 2005 Annual Meeting of Shareholders, which page is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)	1.	Financial Statements.
		The following financial statements are included by reference in Part II, Item 8 hereof:
		Report of Independent Certified Public Accountants.
		Consolidated Balance Sheet.
		Consolidated Statement of Income.
		Consolidated Statement of Changes in Stockholders’ Equity.
		Consolidated Statement of Cash Flows.
		Notes to Consolidated Financial Statements.
	2.	Financial Statement Schedules.
		Financial Statement Schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto.
	3.	The following Exhibits are filed herewith or incorporated by reference as a part of this Annual Report.
		3(i)	The Registrant’s Articles of Incorporation. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
		3(ii)	The Registrant’s By-laws. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
		10.1	Mid Penn Bank’s Profit Sharing Retirement Plan. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
		10.2	Mid Penn Bank’s Employee Stock Ownership Plan. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
		10.3	The Registrant’s Dividend Reinvestment Plan, as amended and restated. (Incorporated by reference to Registrant’s Registration Statement on Form S-3, filed with the SEC on November 3, 1997.)
		10.4	Salary Continuation Agreement between Mid Penn Bank and Alan W. Dakey. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2003.)

20

	10.5	Split Dollar Agreement between Mid Penn Bank and Eugene F. Shaffer
	10.6	Death Benefit Plan and Agreement between Mid Penn Bank and the Trustee of the Eugene F. Shaffer Irrevocable Trust
	11	Statement re: Computation of Per Share Earnings. (Included herein at Exhibit 13, at page 6 of Registrant’s 2004 Annual Report to Shareholders.)
	12	Statements re: Computation of Ratios. (Included herein at Exhibit 13, at page 40 of Registrant’s 2004 Annual Report to Shareholders.)
	13	Excerpts from Registrant’s 2004 Annual Report to Shareholders.
	14	The Registrant’s Code of Ethics. (Incorporated by reference to Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 9, 2005)
	21	Subsidiaries of Registrant.
	23	Consent of Parente Randolph, PC, independent auditors.
	31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
	31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
	32.1	Chief Executive Officer’s §1350 Certification.
	32.2	Chief Financial Officer’s §1350 Certification.
(c)	The exhibits required herein are included at Item 15(a), above.
(d)	Not Applicable.

21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Mid Penn Bancorp, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MID PENN BANCORP, INC.
(Registrant)
By	/s/ Alan W. Dakey
	Alan W. Dakey
	President and Chief Executive Officer

Dated: March 11, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Mid Penn Bancorp, Inc. and in the capacities and on the dates indicated.

		DATE
By	/s/ Eugene F. Shaffer	March 11, 2005
	Eugene F. Shaffer
	Chairman of the Board of Directors
By	/s/ Alan W. Dakey	March 11, 2005
	Alan W. Dakey, President,
	Chief Executive Officer and Director
	(Principal Executive Officer)
By	/s/ K. W. Laudenslager	March 11, 2005
	Kevin W. Laudenslager
	Treasurer (Principal Financial and Principal
	Accounting Officer)
By	/s/ Jere M. Coxon	March 11, 2005
	Jere M. Coxon, Director
By	/s/ A. James Durica	March 11, 2005
	A. James Durica, Director

22

By	/s/ Donald E. Sauve	March 11, 2005
	Donald E. Sauve, Director
By	/s/ Edwin D. Schlegel	March 11, 2005
	Edwin D. Schlegel, Director
By	/s/ Guy J. Snyder, Jr.	March 11, 2005
	Guy J. Snyder, Jr., Director

23

EXHIBIT INDEX

Exhibit No.		Page Number in Manually Signed Original
3(i)	The Registrant’s Articles of Incorporation. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
3(ii)	The Registrant’s By-laws. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
10.1	Mid Penn Bank’s Profit Sharing Retirement Plan. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
10.2	Mid Penn Bank’s Employee Stock Ownership Plan. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
10.3	The Registrant’s Dividend Reinvestment Plan. (Incorporated by reference to Registrant’s Registration Statement on Form S-3, filed with the SEC on November 3, 1997.)
10.4	Salary Continuation Agreement between Mid Penn Bank and Alan W. Dakey. (Incorporated by reference to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2003.)
10.5	Split Dollar Agreement between Mid Penn Bank and Eugene F. Shaffer
10.6	Death Benefit Plan or Agreement between Mid Penn Bank and the Trustee of the Eugene F. Shaffer Irrevocable Trustee.
11	Statement re: Computation of Per Share Earnings. (Included herein at Exhibit 13, at page 6 of Registrant’s 2004 Annual Report to Shareholders.)
12	Statements re: Computation of Ratios. (Included herein at Exhibit 13, at page 40 of Registrant’s 2004 Annual Report to Shareholders.)
13	Excerpts from Registrant’s 2004 Annual Report to Shareholders.
14	The Registrant’s Code of Ethics. (Incorporated by reference to Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 9, 2005)
21	Subsidiaries of Registrant.
23	Consent of Parente Randolph, PC, independent auditors.
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1	Chief Executive Officer’s §1350 Certification.
32.2	Chief Financial Officer’s §1350 Certification.

* Incorporated by reference.

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EX-10.5

Exhibit 10.5

SPLIT DOLLAR AGREEMENT

This AGREEMENT, made and entered into this 15th day of December, 1994, by and among Mid Penn Bank, (hereinafter referred to as the “Corporation”), a Corporation organized and existing under the laws of Pennsylvania, and Eugene F. Shaffer (hereinafter referred to as the “Employee”).

WHEREAS, the Employee has performed his duties in an efficient and capable manner; and

WHEREAS, the Corporation is desirous of retaining the services of the Employee; and

WHEREAS, the Corporation is desirous of insuring the Employee and of assisting the Employee in paying for life insurance of his own life; and

WHEREAS, the Corporation has determined that this assistance can best be provided under a “split-dollar” arrangement; and

WHEREAS, the Corporation and the Trustee of the Eugene F. Shaffer Irrevocable Trust I (Trustee) have applied for Insurance Policy No. 45 422 858 (the “Policy”) issued by the New York Life Insurance Company (NYL) in the face amount of $1,020,238 on the Employee’s life; and

WHEREAS, the Corporation and the Employee agree to make said insurance Policy subject to this split-dollar agreement; and

WHEREAS, it is now understood and agreed that this split-dollar agreement is to be effective as of the date on which the Policy was issued by NYL;

NOW THEREFORE, for value received and in consideration of the mutual covenants contained herein, the parties agree as follows:

ARTICLE 1 – Definitions

For purposes of this Agreement, the following terms will have the meanings set forth below:

1. “Cash Surrender Value of the Policy” will mean the Cash Value of the Policy; plus the cash value of any paid-up additions; plus any dividend accumulations and unpaid dividends; and less any Policy Loan Balance.

2. “Cash Value of the Policy” will mean the Cash Value as illustrated in the table of values shown in the Policy.

3. “Corporation’s Interest in the Policy” will be limited to its cash outlay and as defined in Article 7.

4. “Current Loan Value of the Policy^” will mean the Loan Value of the Policy reduced by any outstanding Policy Loan Balance.

5. “Loan Value of the Policy” will mean the amount which with loan interest will equal the Cash Value of the Policy and of any paid-up additions on the next loan interest due date or on the next premium due date whichever is the smaller amount.

6. “Policy Loan Balance” at any time will mean policy loans outstanding plus interest accrued to date.

ARTICLE 2 - Allocation of Premiums

The Corporation will pay the premium. The economic benefit will be computed in accordance with I.R.S. Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, as in effect on the effective date of this Agreement. The Corporation will bonus the employee for his portion of the premium.

ARTICLE 3 - Waiver of Premiums Rider

The Trustee may add a rider to the Policy providing for the waiver of premiums in the event of his disability. Any additional premiums attributable to such rider will be payable by the Trustee.

ARTICLE 4 - Other Riders and Supplemental Agreements

Should the parties to this Agreement deem it desirable, the Trustee may add to the Policy one or more of such other riders or supplemental agreements which may be available from NYL. Any additional premium attributable to such rider or supplemental agreement will be payable by the Trustee. Notwithstanding the provisions of Article 8, any additional death benefits provided by such rider or supplemental agreement will be paid to the beneficiary designated by the Trustee.

ARTICLE 5 - Payment Premiums

Any premium or portion thereof which is payable by the Trustee under any Article of this agreement may at the election of the Employee be deducted from the cash compensation otherwise payable to him; and the Corporation agrees to transmit that premium or portion, along with any premium or portion thereof payable by it, to NYL on or before the premium due date.

ARTICLE 6 - Application of Policy Dividends

All dividends attributable to the Policy will be applied to provide paid-up additional insurance.

ARTICLE 7- Rights in the Policy

The Trustee will have the sole right to designate the beneficiary of the death proceeds of the Policy in excess of the Corporation’s interest in the Policy.

The Trustee will have and may exercise, except as limited hereinafter, all ownership rights in the Policy.

The Trustee will not take any action in dealing with NYL that would impair any right or interest of the corporation in the Policy.

“Corporation’s Interest in the Policy” will mean, at any time at which the value of such interest is to be determined under this Agreement, the cash value or the death benefit payable under the Policy equal is to its cumulative cash outlay.

ARTICLE 8 - Rights to the Proceeds at Death

In the event of, the Employee’s death while this Agreement is in force, the Corporation will be entitled to receive from the Policy proceeds an amount equal to the Corporation’s Interest in Policy. The remainder of the Policy Proceeds will be paid to such beneficiary as the Trustee may have designated under the terms of the policy.

ARTICLE 9 - Termination of the Agreement

This Agreement may be terminated at any time while the Employee is living only by written notice by both parties. Upon termination, the Corporation’s Interest in the Policy shall cease, and the Corporation shall be entitled to recover from the Employee any unexpired amount of its portion of the annual premium which it had previously paid for the Policy year in which said termination occurs. However, the Corporation waives any rights to premium recovery in the event it fails to continue to pay premiums without the Employee’s written consent.

ARTICLE 10 - Satisfaction of Claim

The Employee agrees that his rights and interests, and the rights and interests of any persons taking under or through him, will be completely satisfied upon compliance by the Corporation with the provisions of this Agreement.

ARTICLE 11 - Amendment and Assignment

This Agreement may be altered, amended or modified, including the addition of any extra policy provisions, by a written instrument

signed by the Corporation and the Employee. Either party may, subject to the limitations of Article 7, assign its interests and obligations under this Agreement, provided, however, that any assignment will be subject to the terms of this Agreement.

ARTICLE 12 - Possession of Policy

The Trustee will keep possession of the Policy. The Trustee agree from time to time to make the Policy available to NYL for the purpose of endorsing or filing any change of beneficiary on the Policy for the portion of the death proceeds equal to the Corporation’s Interest in the Policy as provided in Article 7, but the Policy will promptly be returned to the Trustee.

ARTICLE 13 - Governing Law

This Agreement sets forth the entire agreement of the parties hereto, and any and all prior agreements, to the extent inconsistent herewith, are hereby superseded. This Agreement will be governed by the Laws of the State of Pennsylvania.

ARTICLE 14 - Interpretation

Where appropriate in this Agreement, words used in the singular will include the plural.

In WITNESS WHEREOF, the parties have hereunto set their hands and seals, the Corporation by its duly authorized officer, on the day and year first written above.

/s/ Eugene F. Shaffer

Employee

(Corporation) by

/s/ Alan W. Dakey

President

EX-10.6

Exhibit 10.6

MID PENN BANK

DEATH BENEFIT PLAN AND AGREEMENT

THIS MID PENN BANK DEATH BENEFIT PLAN AND AGREEMENT (the “Agreement”) is adopted this      day of             , 2004, by and between MID PENN BANK (the “Bank”), a Pennsylvania-chartered commercial bank located in Millersburg, Pennsylvania, and Scott Shaffer as Trustee of the EUGENE F. SHAFFER IRREVOCABLE TRUST I dated November 15, 1994 (the Trust).

The purpose of this Agreement is to enhance the death benefit currently being provided on the life of Eugene F. Shaffer (the “Executive”), by dividing the death proceeds of a new life insurance policy which is owned by the Bank with the Trust as the designated beneficiary. The Bank will pay the life insurance premiums from its general assets.

ARTICLE I

DEFINITIONS

Whenever used in this Agreement, the following terms shall have the meanings specified:

1.1 “Bank’s Interest” means the benefit set forth in Section 3.2.

1.2 “Beneficiary” means each designated person, or the estate of the deceased Executive, entitled to benefits, if any, upon the death of the Executive.

1.3 “Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Trustee completes, signs and returns to the Plan Administrator to designate one or more Beneficiaries.

1.4 “Board” means the Board of Directors of the Bank as from time to time constituted.

1.5 “Change in Control” means any of the following:

A) any person (as such term is used in Sections 13d and 14d-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Bank or Corporation, a subsidiary of the Bank or Corporation, an employee benefit plan (or related trust) of the Bank or Corporation or a direct or indirect subsidiary of the Bank or Corporation, or Affiliates (as defined in Rule 12b-2 under the Exchange Act) of the Bank or Corporation, becomes the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank or Corporation representing more than 50% of the combined voting power of the Bank’s or Corporation’s then outstanding securities (other than a person owning 10% or more of the voting power of stock on the date hereof); or

(B) the liquidation or dissolution of the Bank or Corporation or the occurrence of, or execution of an agreement providing for a sale of all or substantially all of the assets of the Bank or Corporation to an entity which is not a direct or indirect subsidiary of the Bank or Corporation; or

(C) the occurrence of, or execution of an agreement providing for a reorganization, merger, consolidation or other similar transaction or connected series of transactions of the Bank or Corporation as a result of which either (a) the Bank or Corporation does not survive or (b) pursuant to which shares of the Bank or Corporation common stock (“Common Stock”) would be converted into cash, securities or other property, unless, in case of either (a) or (b), the holders of the Bank or Corporation Common Stock immediately prior to such transaction will, following the consummation of the transaction, beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation surviving, continuing or resulting from such transaction; or

(D) the occurrence of, or execution of an agreement providing for a reorganization, merger, consolidation or similar transaction of the Bank or Corporation, or before any connected series of such transactions, if upon consummation of such transaction or transactions, the persons who are members of the Board of the Bank or Corporation immediately before such transaction or transactions cease or, in the case of the execution of an agreement for such transaction or transactions, it is contemplated in such agreement that upon consummation such persons would cease to constitute a majority of the Board of the Bank or Corporation or, in the case where the Bank or Corporation does not survive in such transaction, of the corporation surviving, continuing or resulting from such transaction or transactions; or

(E) any other event which is at any time designated as a “Change in Control” for purposes of this Agreement by a resolution adopted by the Board of the Bank or Corporation with the affirmative vote of a majority of the non-employee directors in office at the time the resolution is adopted; in the event any such resolution is adopted, the Change in Control event specified thereby shall be deemed incorporated herein by reference and thereafter may not be amended, modified or revoked without the written agreement of the Trustee; or

(F) during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of the Bank or Corporation cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period, provided however this provision shall not apply in the event two-thirds of the Board at the beginning of a period no longer are directors due to death, normal retirement, or other circumstances not related to a Change in Control.

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Notwithstanding anything else to the contrary set forth in this Agreement, if (i) an agreement is executed by the Bank or Corporation providing for any of the transactions or events constituting a Change in Control as defined herein, and the agreement subsequently expires or is terminated without the transaction or event being consummated, and (ii) Executive’s employment did not terminate during the period after the agreement and prior to such expiration or termination, for purposes of this Agreement it shall be as though such agreement was never executed and no Change in Control event shall be deemed to have occurred as a result of the execution of such agreement.

1.6 “Corporation” means Mid Penn Bancorp, Inc.

1.7 “Insured” means the Executive.

1.8 “Insurer” means the insurance company issuing the life insurance policy on the life of the Insured.

1.9 “Policy” means the individual insurance policy or policies adopted by the Bank for purposes of insuring the Executive’s life under this Agreement. Policy does not include the individual insurance policy or policies adopted by the Bank for purposes of insuring the Executives life under the split dollar agreement between the Bank and Executive dated December 15, 1994 (the “1994 Agreement”).

1.10 “Primary Benefit” means the Trust’s or the Executive’s rights to proceeds at the Executive’s death provided under the 1994 Agreement. If the policy subject to the 1994 Agreement lapses, the Primary Benefit shall he deemed to be one million dollars ($1,000,000).

1.11 “Service” means Internal Revenue Service.

1.12 “Termination of Employment” means that the Executive ceases to be employed by the Bank for any reason whatsoever other than by reason of a leave of absence, which is approved by the Bank. For purposes of this Agreement, if there is a dispute over the employment status of the Executive or the date of the Executive’s Termination of Employment, the Bank shall have the sole and absolute right to decide the dispute.

1.13 “Trust’s Interest” means the benefit set forth in Section 3.1.

ARTICLE 2

PARTICIPATION

The Trust’s rights under this Agreement shall automatically cease and shall automatically terminate if the Executive has a Termination for Cause. In the event that the Bank decides to maintain the Policy after the termination of the Agreement, the Bank shall be the direct beneficiary of the entire death proceeds of the Policy.

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ARTICLE 3

POLICY OWNERSHIP/INTERESTS

3.1 Trust’s Interest. The Trust shall be the Beneficiary of an amount of death proceeds equal to one million dollars ($1,000,000) minus the Primary Benefit, subject to:

(a) forfeiture of Trust’s rights upon termination of the Trust’s participation as set forth in Article 2; or

(b) forfeiture of the Trust’s rights and interest hereunder that the Bank may reasonably consider necessary to conform with applicable law (including the Sarbanes-Oxley Act of 2002).

3.2 Banks Interest. The Bank shall own the Policy and shall have the right to exercise all incidents of ownership except that the Bank shall not sell, surrender or transfer ownership of a Policy so long as the Trust has an interest in the Policy as described in Section 3.1. However, the Bank may replace the Policy with a policy that provides comparable death benefits to cover the benefit provided under this Agreement. The Bank shall be the beneficiary of the remaining death proceeds of the Policy after the Trust’s Interest is determined according to Section 3.1.

ARTICLE 4

PREMIUMS

4.1 Premium Payment. The Bank shall pay all premiums due on all Policies.

4.2 Economic Benefit. The Bank shall determine the economic benefit attributable to the Executive based on the life insurance premium factor for the Executive’s age multiplied by the aggregate death benefit payable to the Beneficiary. The “life insurance premium factor” is the minimum factor applicable under guidance published pursuant to IRS Reg. § 1.61-22(d)(3)(ii) or any subsequent authority. The Bank will provide the Executive with an annual statement of the amount of income reportable by the Executive for federal and state income tax purposes as a result of such economic benefit.

4.3 Imputed Income The Bank shall impute the economic benefit to the Executive on an annual basis, by adding the economic benefit to the Executive’s W-2, or if applicable, Form 1099. The Bank and the Trust consider this Agreement to be a “death benefit plan” within the meaning of Section 409A(d)(1)(B). In the event the Service provides a contrary determination and this Agreement is otherwise subject to Section 409A of the Internal Revenue Code, the Bank will issue an appropriate Form W-2, or if applicable, Form 1099, and the Trust or Executive, as the case may be, shall be responsible for any resulting income tax, interest and excise tax.

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ARTICLE 5

BENEFICIARIES

5.1 Beneficiary. The Trust shall have the right, at any time, to designate a Beneficiary(ies) to receive any benefits payable under the Agreement to a beneficiary upon the death of the Executive.

5.2 Beneficiary Designation; Change. The Trust shall designate a Beneficiary by completing and signing the Beneficiary Designation Form, and delivering it to the Bank or its designated agent. The Trust shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Bank’s rules and procedures, as in effect from time to time. Upon the acceptance by the Bank of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Bank shall be entitled to rely on the last Beneficiary Designation Form filed by the Trust and accepted by the Bank prior to the Executive’s death.

5.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Bank or its designated agent.

ARTICLE 6

ASSIGNMENT

The Trust may irrevocably assign without consideration all or part of the Trust’s Interest in this Agreement to any person, entity or trust. In the event the Trust shall transfer all or part of the Trust’s Interest, then all or part of the Trust’s Interest in this Agreement shall be vested in the Trust’s transferee, who shall be substituted as a party hereunder, and the Trust shall have no further interest in this Agreement. The Executive is not a party to this Agreement, except to the extent the Executive has taxable income under applicable tax law. Except as otherwise provided herein, the Executive shall have no rights, title, or interest hereunder.

ARTICLE 7

INSURER

The Insurer shall be bound only by the terms of its given Policy. The insurer shall not be bound by or deemed to have notice of the provisions of this Agreement. The Insurer shall have the right to rely on the Bank’s representations with regard to any definitions, interpretations or Policy interests as specified under this Agreement.

ARTICLE 8

CLAIMS AND REVIEW PROCEDURE

8.1 Claims Procedure. The Trustee acting on behalf of the Trust or Beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:

8.1.1  Initiation – Written Claim. The claimant initiates a claim by submitting to the Bank a written claim for the benefits.

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8.1.2   Timing of Bank Response. The Bank shall respond to such claimant within 90 days after receiving the claim. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

8.1.3.   Notice of Decision. If the Bank denies part or all of the claim, the Bank shall notify the claimant in writing of such denial. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a) The specific reasons for the denial;

(b) A reference to the specific provisions of the Agreement on which the denial is based;

(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed;

(d) An explanation of the Agreement’s review procedures and the time limits applicable to such procedures; and

(e) A statement of the claimant’s right to bring a civil action under ERISA Section 5 02(a) following an adverse benefit determination on review.

8.2 Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows:

8.2.1   Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Bank’s notice of denial, must file with the Bank a written request for review.

8.2.2   Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Bank shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

8.2.3   Considerations on Review. In considering the review, the Bank shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

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8.2.4   Time of Bank’s Response. The Bank shall respond in writing to such claimant within 60 days after receiving the request for review. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

8.2.5   Notice of Decision. The Bank shall notify the claimant in writing of its decision on review. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a) The specific reasons for the denial;

(b) A reference to the specific provisions of the Agreement on which the denial is based;

(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of wily it is needed;

(d) All explanation of the Agreement’s review procedures and the time limits applicable to such procedures; and

(e) A statement of the claimant’s right to bring a civil action under ERISA Section 5 02(a) following an adverse benefit determination on review.

8.2 Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows:

8.2.1   Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Bank’s notice of denial, must file with the Bank a written request for review.

8.2.2   Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Bank shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

8.2.3   Considerations on Review. In considering the review, the Bank shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

8.2.4   Timing of Bank’s Response. The Bank shall respond in writing to such claimant within 60 days after receiving the request for review. If the Bank determines that

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special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that all additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

8.2.5   Notice of Decision. The Bank shall notify the claimant in writing of its decision on review. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a) the specific reasons for the denial;

(b) a reference to the specific provisions of the Agreement on which the denial is based;

(e) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; and

(d) a statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

ARTICLE 9

AMENDMENTS AND TERMINATION

No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Trustee and such officer or officers as may be specifically designated by the Board to sign on their behalf. Provided, however, in response to legislative or regulatory changes affecting nonqualified deferred compensation plans that would otherwise cause the Executive to be deemed in constructive receipt of benefits under this Agreement, the Bank can amend this Agreement for the sole purpose of complying with such legislative or regulatory changes.

ARTICLE 10

ADMINISTRATION

10.1   Plan Administrator Duties. This Agreement shall be administered by the Plan Administrator which shall consist of the Board, or such committee or persons as the Board may choose. The Plan Administrator shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions including interpretations of this Agreement, as may arise in connection with this Agreement.

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10.2 Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit, (including acting through a duly appointed representative), and may from time to time consult with counsel who may be counsel to the Bank.

10.3 Binding Effect of Decisions. The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of this Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in tins Agreement.

10.4 Indemnity of Plan Administrator. The Bank shall indemnify and hold harmless the members of the Plan Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator or any of its members.

ARTICLE 11

GENERAL LIMITATIONS

11.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Trust shall forfeit any right to a benefit under this Agreement if the Bank terminates the Executive’s employment for cause. Termination of the Executive’s employment for “Cause” shall mean termination because of personal dishonesty, willful misconduct, breach of fiduciary duty involving personal profit, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order or material breach of any provision of this Agreement. For purposes of this paragraph, no act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Bank.

11.2 Removal. Notwithstanding any provision of this Agreement to the contrary, the benefit provided under this Agreement shall be forfeited if the Executive is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act (“FDIA”).

11.3 Competition after Termination of Employment. The Trust shall forfeit its right to any benefits provided by this Agreement if the Executive, without the prior written consent of the Bank, violates the following described restrictive covenants.

11.3.1   Non-compete Provision. The Trust shall forfeit any unpaid benefits under this Agreement if during the term of this Agreement, and before all benefits have been paid, the Executive, directly or indirectly, either as an individual or as a proprietor, stockholder, partner, officer, director, employee, agent, consultant or independent

9

contractor of any individual, partnership, corporation or other entity (excluding an ownership interest of three percent (3%) or less in the stock of a publicly-traded company):

(i) becomes employed by, participates in, or becomes connected ill any manner with the ownership, management, operation or control of any bank, savings and loan or other similar financial institution if the Executive’s responsibilities will include providing banking or other financial services within the twenty-five (25) miles of any office maintained by the Bank as of the date of the termination of the Executive’s employment;

(ii) participates in any way ill hiring or otherwise engaging, or assisting any other person or entity in hiring or otherwise engaging, on a temporary, part-time or permanent basis, any individual who was employed by the Bank as of the date of termination of the Executive’s employment;

(iii) assists, advises, or serves in any capacity, representative or otherwise, any third party in any action against the Bank or transaction involving the Bank;

(iv) sells, offers to sell, provides banking or other financial services, assists any other person in selling or providing banking or other financial services, or solicits or otherwise competes for, either directly or indirectly, any orders, contract, or accounts for services of a kind or nature like or substantially similar to the financial services performed or financial products sold by the Bank (the preceding hereinafter referred to as “Services”), to or from any person or entity from whom the Executive or the Bank, to the knowledge of the Executive provided banking or other financial services, sold, offered to sell or solicited orders, contracts or accounts for Services during the three (3) year period immediately prior to the termination of the Executive’s employment;

(v) divulges, discloses, or communicates to others in any manner whatsoever, any confidential information of the Bank, to the knowledge of the Executive, including, but not limited to, the names and addresses of customers or prospective customers, of the Bank, as they may have existed from time to time, of work performed or services rendered for any customer, any method and/or procedures relating to projects or other work developed for the Bank, earnings or other information concerning the Bank. The restrictions contained ill this subparagraph (v) apply to all information regarding the Bank, regardless of the source who provided or compiled such information. Notwithstanding anything to the contrary, all information referred to herein shall not be disclosed unless and until it becomes known to the general public from sources other than the Executive.

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11.3.2   Judicial Remedies. In the event of a breach or threatened breach by the Executive of any provision of these restrictions, the Executive recognizes the substantial and immediate harm that a breach or threatened breach will impose upon the Bank or any of its subsidiaries or Affiliates, and further recognizes that in such event monetary damages may be inadequate to fully protect the Bank or any of its subsidiaries or Affiliates. Accordingly, in the event of a breach or threatened breach of the provisions of this Agreement, the Executive consents to the Bank’s or any of its subsidiaries’ entitlement to such ex parte, preliminary, interlocutory, temporary or permanent injunctive, or any other equitable relief, protecting and fully enforcing the Bank’ or any of its subsidiaries’ rights hereunder and preventing the Executive from further breaching any of his obligations set forth herein. The Executive expressly waives any requirement, based on any statute, rule of procedure, or other source, that the Bank or any of its subsidiaries or Affiliates post a bond as a condition of obtaining any of the above-described remedies. Nothing herein shall he construed as prohibiting the Bank or any of its subsidiaries or Affiliates from pursuing any other remedies available to the Bank or any of its subsidiaries or Affiliates at law or in equity for such breach or threatened breach, including the recovery of damages from the Executive.

11.3.3   Overbreadth of Restrictive Covenant. It is the intention of the parties that if any restrictive covenant in this Agreement is determined by a court of competent jurisdiction to be overly broad, then the court should enforce such restrictive covenant to the maximum extent permitted under the law as to area, breadth and duration.

11.3.4   Change in Control. The non-compete provision detailed in Section 11.3.1 shall not apply if there is a Change in Control.

11.4 Suicide or Misstatement. The Trust shall forfeit the benefit under this Agreement if the Executive commits suicide within two years after the date of this Agreement, or if the insurance company denies coverage for (i) material misstatements of fact made by the Executive on any application for life insurance purchased by the Bank, or (ii) any other reason. The Bank shall have no liability to the Trust for any denial of coverage by the insurance company.

ARTICLE 12

MISCELLANEOUS

12.1 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the Commonwealth of Pennsylvania, except to the extent preempted by the laws of the United States of America.

12.2 Binding Effect. This Agreement shall bind the Trust and the Bank, and their beneficiaries, survivors, executors, successors, administrators and transferees.

12.3 Entire Agreement. This Agreement, along with the Trust’s Beneficiary Designation

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Form constitute the entire agreement between the Bank and the Trust as to the subject matter hereof. No rights are granted to the Trust tinder this Agreement other than those specifically set forth herein.

12.4 Notice. Any notice or filing required or permitted to be given to the Bank under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

To the Bank:	Mid Penn Bank
	Millersburg Office
	349 Union Street
	Millersburg, PA 17061

Such notice shall he deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification.

Any notice or filing required or permitted to be given to the Trust under this Agreement shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Trust.

12.5   Reorganization. The Bank shall not merge or consolidate into or with another bank, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing bank, firm or person agrees to assume and discharge the obligations of the Bank under this Agreement. Upon the occurrence of such event, the term “Bank” as used in this Agreement shall be deemed to refer to the successor or survivor company.

12.6   Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

12.7   Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.

12.8   Waiver. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

12.9   Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

12.10   Regulatory Prohibition. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Trust pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. §1828(k)) and any regulations promulgated thereunder.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date indicated above.

EUGENE F. SHAFFER IRREVOCABLE	MID PENN BANK:
TRUST I:
By	By
Scott Shaffer
	Title

By executing hereof, Mid Penn Bancorp, Inc. consents to and agrees to be bound by the terms and conditions of this Agreement.

ATTEST:	CORPORATION:
	MID PENN BANCORP, INC.
	By
	Title

Acknowledged and Consented to:

By:

Eugene F. Shaffer

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MID PENN BANK

Supplemental Life Insurance Agreement

BENEFICIARY DESIGNATION FORM

I, as Trustee of the Trust, designate the following as Beneficiary of benefits under this Agreement payable following the Executive’s death:

Primary:	%
	%
Contingent:	%
	%

Note:   To name a trust as Beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement.

I understand that I may change these designations of beneficiary by filing a new written designation with the Plan Administrator.

Trust Name:	__________________________________________
Trustee Printed Name:	__________________________________________
Trustee Signature:	__________________________________________
Date:	__________________________________________

Acknowledged by the Plan Administrator this      day of             , 2005.

By

Title

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EX-13

EXHIBIT 13

EXCERPTS FROM REGISTRANT’S

2004 ANNUAL REPORT TO SHAREHOLDERS

Table of Contents:	Page
Financial Highlights	2
Unaudited Graphs of Financial Data	3
Report of Independent Registered Public Accounting Firm	4
Consolidated Balance Sheet	5
Consolidated Statement of Income	6
Consolidated Statement of Stockholders’ Equity	7
Consolidated Statement of Cash Flows	8
Notes to Consolidated Financial Statements	9-25
Management’s Discussion and Analysis	26-40
Directors, Officers and Advisory Board Members	41

financial highlights

AS OF AND FOR YEARS ENDED DECEMBER 31, 2004 AND 2003

(Dollars in thousands, except per share data.)	2004			2003		Percent Change
Total Assets	$	403,256		373,466		+7.98	%
Total Deposits		301,144		288,338		+4.44	%
Net Loans		275,904		229,086		+20.44	%
Total Investments and Interest Bearing Balances		105,020		124,011		-15.31	%
Stockholders’ Equity		35,272		37,361		-5.59	%
Net Income		4,369		4,615		-5.33	%
Earnings Per Share		1.37		1.45		-5.52	%
Cash Dividend Per Share		1.80		.80		+127.85	%
Book Value Per Share		11.06		11.72		-5.63	%
Return on Average Stockholders’ Equity		12.73	%	12.69	%	+0.32	%
Return on Average Assets		1.12	%	1.25	%	-10.40	%
Net Interest Margin		3.48	%	3.63	%	-4.13	%
Nonperforming Loans to Total Loans		0.63	%	1.18	%	-46.61	%

Mid Penn Bancorp, Inc.

Stockholders’ Information

	2004			2003
	High		Low	High	Low	Quarter
Market Value Per Share	$	31.95	23.75	22.00	21.00	1st
		28.78	27.25	23.50	21.25	2nd
		31.25	27.20	24.25	21.10	3rd
		28.20	25.10	24.35	22.00	4th

Market Value Information: The market share information was provided by the American Stock Exchange, New York, NY. Mid Penn Bancorp, Inc. common stock trades on the American Stock Exchange under the symbol: MBP.

Transfer Agent: Wells Fargo Shareholder Services, P.O. Box 64854, St. Paul, MN 55164-0854.

Phone: 1-800-468-9716.

Number of Stockholders: At December 31, 2004, there were 1,023 stockholders.

Dividends: A dividend of $.20 per share was paid during each quarter of 2004 and 2003. A special dividend of $1.00 per share was also paid in the first quarter of 2004. Mid Penn Bancorp, Inc. plans to continue a quarterly dividend payable in February, May, August and November.

Dividend Reinvestment and Stock Purchases: Stockholders of Mid Penn Bancorp, Inc. may acquire additional shares of common stock by reinvesting their cash dividends under the Dividend Reinvestment Plan without paying a brokerage fee. Voluntary cash contributions may also be made under the Plan. For additional information about the Plan, contact the Transfer Agent.

Form 10-K: A Copy of Mid Penn Bancorp, Inc.’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, will be provided to stockholders without charge upon written request to: Secretary, Mid Penn Bancorp, Inc., 349 Union Street, Millersburg, PA 17061.

Annual Meeting: The Annual Meeting of the Stockholders of Mid Penn Bancorp, Inc. will be held at 10:00 a.m. on Tuesday, April 26, 2005, at 349 Union Street, Millersburg, Pennsylvania.

Accounting, Auditing and Internal Control Complaints: Information on how to report a complaint regarding accounting, internal accounting controls or auditing matters is available at Mid Penn Bank’s website: www.midpennbank.com

2

unaudited graphs

3

report of independent registered public accounting firm

The Board of Directors and Stockholders

Mid Penn Bancorp, Inc.

Millersburg, Pennsylvania:

We have audited the accompanying consolidated balance sheet of Mid Penn Bancorp, Inc. and subsidiaries (collectively, “Corporation”) as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mid Penn Bancorp, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the Standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commision (COSO), and our report dated February 9, 2005 expressed an unqualified opinion on management’s assesment of internal control over financial reporting and an adverse opinion on the effectiveness of internal control over financial reporting.

PARENTE RANDOLPH, LLC

Williamsport, Pennsylvania

February 9, 2005

4

consolidated balance sheet

DECEMBER 31, 2004 AND 2003

(Dollars in thousands, except share data)	2004			2003
ASSETS
Cash and due from banks	$	6,679		7,456
Interest-bearing balances with other financial institutions		60,407		69,918
Available-for-sale investment securities		44,613		54,093
Loans		281,083		233,627
Less:
Unearned income		(1,536	)	(1,549	)
Allowance for loan losses		(3,643	)	(2,992	)
Net loans		275,904		229,086
Bank premises and equipment, net		4,874		3,920
Foreclosed assets held for sale		505		1,117
Accrued interest receivable		1,875		1,763
Deferred income taxes		982		303
Goodwill		259		0
Core deposit intangible		271		0
Cash surrender value of life insurance		6,180		4,953
Other assets		707		857
Total Assets	$	403,256		373,466
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	37,586		30,762
Interest-bearing demand		35,562		36,917
Money market		43,116		45,457
Savings		28,414		27,754
Time		156,466		147,448
Total Deposits		301,144		288,338
Short-term borrowings		13,801		9,688
Accrued interest payable		1,192		1,045
Other liabilities		1,890		1,350
Long-term debt		49,957		35,684
Total Liabilities		367,984		336,105
Stockholders’ Equity:
Common stock, par value $1 per share; authorized 10,000,000 shares; 3,207,912 shares Issued in 2004 and 2003		3,208		3,208
Additional paid-in capital		23,472		23,472
Retained earnings		8,435		9,805
Accumulated other comprehensive income		693		1,415
Treasury stock at cost (19,086 and 19,408 shares in 2004 and 2003, respectively)		(536	)	(539	)
Stockholders’ Equity, Net		35,272		37,361
Total Liabilities and Stockholders’ Equity	$	403,256		373,466

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

5

consolidated statement of income

FOR YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(Dollars in thousands, except share data)	2004		2003	2002
INTEREST INCOME
Interest and fees on loans	$	16,327	15,470	15,863
Interest on interest-bearing balances		1,809	2,099	2,703
Interest and dividends on investment securities:
U.S. Treasury and government agencies		599	559	659
State and political subdivision obligations, tax-exempt		1,286	1,783	2,001
Other securities		49	64	79
Interest on federal funds sold and securities purchased under agreement to resell		7	9	47
Total Interest Income		20,077	19,984	21,352
INTEREST EXPENSE
Interest on deposits		5,624	6,117	7,807
Interest on short-term borrowings		137	128	50
Interest on long-term debt		2,244	2,189	2,069
Total Interest Expense		8,005	8,434	9,926
Net Interest Income		12,072	11,550	11,426
PROVISION FOR LOAN LOSSES		725	290	425
Net Interest Income After Provision for Loan Losses		11,347	11,260	11,001
NONINTEREST INCOME
Trust department income		248	202	188
Service charges on deposits		1,467	1,227	1,053
Investment securities gains, net		475	261	60
Gain on sale of loans		0	45	51
Income on cash surrender value of life insurance		211	210	239
Fee income from investment services		162	21	67
Fee income from debit card transactions		169	149	146
Other income		725	592	218
Total Noninterest Income		3,457	2,707	2,022
NONINTEREST EXPENSE
Salaries and employee benefits		4,918	4,496	3,978
Occupancy expense, net		456	423	384
Equipment expense		631	602	514
Pennsylvania bank shares tax expense		265	266	259
Legal and professional expense		385	284	160
Marketing and advertising		185	100	115
Debit card processing expense		214	167	207
Director fees and benefits expense		196	201	225
Other expenses		1,780	1,560	1,416
Total Noninterest Expense		9,030	8,099	7,258
INCOME BEFORE PROVISION FOR INCOME TAXES		5,774	5,868	5,765
Provision for income taxes		1,405	1,253	1,270
Net Income	$	4,369	4,615	4,495
Earnings Per Share	$	1.37	1.45	1.41
Weighted Average Number of Shares Outstanding		3,188,867	3,188,504	3,188,333

Earnings per share information has been restated to reflect the retroactive effect of a five percent stock dividend in the second quarter of 2003.

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

6

consolidated statement of stockholders’ equity

FOR YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(Dollars in thousands, except share data)

	Common Stock		Additional Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance, December 31, 2001	$	3,057	20,368	8,880		(56	)	(533	)	31,716
Comprehensive income:
Net income		0	0	4,495		0		0		4,495
Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effects		0	0	0		1,413		0		1,413
Total comprehensive income										5,908
Cash dividends ($ .80 per share, historical)		0	0	(2,431	)	0		0		(2,431	)
Sale of treasury stock (443 shares)		0	0	0		0		11		11
Balance, December 31, 2002		3,057	20,368	10,944		1,357		(522	)	35,204
Comprehensive income:
Net income		0	0	4,615		0		0		4,615
Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effects		0	0	0		58		0		58
Total comprehensive income										4,673
Cash dividends ($ .80 per share, historical)		0	0	(2,499	)	0		0		(2,499	)
5% stock dividend (additional 151,411 shares)		151	3,104	(3,255	)	0		0		0
Purchase of treasury stock (786 shares)		0	0	0		0		(17	)	(17	)
Balance, December 31, 2003		3,208	23,472	9,805		1,415		(539	)	37,361
Comprehensive income:
Net income		0	0	4,369		0		0		4,369
Change in net unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effects		0	0	0		(722	)	0		(722	)
Total comprehensive income										3,647
Cash dividends ($ 1.80 per share, historical)		0	0	(5,739	)	0		0		(5,739	)
Sale of treasury stock (322 shares)		0	0	0		0		3		3
Balance, December 31, 2004	$	3,208	23,472	8,435		693		(536	)	35,272

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

7

consolidated statement of cash flows

FOR YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(Dollars in thousands)

	2004			2003		2002
Operating Activities:
Net income	$	4,369		4,615		4,495
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		725		290		425
Depreciation		475		426		340
Amortization of core deposit intangible		20		0		0
Increase in cash surrender value of life insurance		(211	)	(210	)	(239	)
Investment securities gains, net		(475	)	(261	)	(60	)
(Gain) loss on sale of foreclosed assets		4		(20	)	54
Gain on sale of loans		0		(45	)	(51	)
Deferred income taxes		(307	)	123		(147	)
Change in accrued interest receivable		(112	)	244		84
Change in other assets		142		380		(712	)
Change in accrued interest payable		147		(142	)	(105	)
Change in other liabilities		540		(301	)	307
Net Cash Provided By Operating Activities		5,317		5,099		4,391
Investing Activities:
Net decrease (increase) in interest-bearing balances		9,511		(4,431	)	(12,445	)
Proceeds from the maturity of investment securities		7,979		15,635		8,163
Proceeds from the sale of investment securities		17,195		5,793		3,176
Purchases of investment securities		(16,305	)	(16,313	)	(12,657	)
Purchase of life insurance		(1,016	)	0		0
Cash received from business combination		4,139		0		0
Proceeds from sale of loans		0		1,710		983
Net increase in loans		(45,163	)	(13,530	)	(19,969	)
Purchases of bank premises and equipment		(1,429	)	(1,029	)	(262	)
Proceeds from the sale of foreclosed assets		879		475		1,311
Capitalized additions - foreclosed assets		(147	)	0		(163	)
Net Cash Used In Investing Activities		(24,357	)	(11,690	)	(31,863	)
Financing Activities:
Net increase in deposits		5,613		13,635		20,598
Net (decrease) increase in short-term borrowings		4,113		(8,468	)	8,546
Cash dividends paid		(5,739	)	(2,499	)	(2,431	)
Long-term debt repayment		(5,127	)	(5,199	)	(185	)
Sale (purchase) of treasury stock		3		(17	)	11
Long-term borrowings		19,400		8,500		0
Net Cash Provided By Financing Activities		18,263		5,952		26,539
Net decrease in cash and due from banks		(777	)	(639	)	(933	)
Cash and due from banks at January 1		7,456		8,095		9,028
Cash and due from banks at December 31	$	6,679		7,456		8,095
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	7,858		8,576		10,031
Income taxes paid	$	1,385		1,410		1,427
Supplemental Noncash Disclosures:
Loan charge-offs	$	74		349		230
Transfers to foreclosed assets held for sale	$	124		791		290
Business Combination:
Fair value of assets acquired	$	3,054		0		0
Fair value of liabilities assumed	$	7,193		0		0

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

8

notes to consolidated financial statements

(1) Basis of Presentation

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

(2) Nature of Business

The Bank engages in a full-service commercial banking and trust business, making available to the community a wide range of financial services, including, but not limited to, installment loans, mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines of credit, construction financing, farm loans, community development loans, loans to non-profit entities and local government loans and various types of time and demand deposits, including but not limited to, checking accounts, savings accounts, clubs, money market deposit accounts, certificates of deposit and IRAs. In addition, the Bank provides a full range of trust services through its Trust Department. Deposits are insured by the Federal Deposit Insurance Corporation (FDIC) to the extent provided by law.

The financial services are provided to individuals, partnerships, non-profit organizations and corporations through its eleven offices located in the northern portion of Dauphin County, Swatara Township in the lower portion of Dauphin County, the southern portion of Northumberland County, the western portion of Schuylkill County and Hampden Township in Cumberland County.

Mid Penn Investment Corporation is engaged in investing activities.

Mid Penn Insurance Services, LLC provides a range of personal and investment insurance products.

(3) Summary of Significant Accounting Policies

The accounting and reporting policies of MPB conform with accounting principles generally accepted in the United States of America and to general practice within the financial industry. The following is a description of the more significant accounting policies.

(a) Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.

While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize changes to the allowance based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for loan losses may change materially in the near term.

(b) Investment Securities

Investments are accounted for as follows:

Available-for-Sale Securities - includes debt and restricted equity securities. Debt securities are reported at fair value, with unrealized holding gains and losses excluded from earnings and reported, net of deferred income taxes, as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Realized gains and losses on sales of investment securities are computed on the basis of specific identification of the cost of each security. Restricted equity securities are generally carried at cost and evaluated for impairment due to the lack of available market data. Restricted equity securities for which market data is available are reported as fair value.

(c) Loans

Interest on loans is recognized on a method which approximates a level yield basis over the life of the loans. The accrual of interest on loans, including impaired loans, is discontinued when principal or interest has consistently been in default for a period of 90 days or more, or because of a deterioration in the financial condition of the borrower, payment in full of principal or interest is not expected. Interest income is subsequently recognized only to the extent cash payments are received. The placement of a loan on the nonaccrual basis for revenue recognition does not necessarily imply a potential charge-off of loan principal. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan.

9

notes to consolidated financial statements

(d) Allowance for Loan Losses

The Bank’s methodology for determining the allowance for loan losses establishes both a specific and a general component. The specific portion of the allowance represents the results of analysis of individual “watch list” loans (commercial, residential and consumer loans). The individual commercial loans are risk rated with specific attention to estimated loss exposure. Historical loan loss rates are applied to “problem” consumer credits, adjusted to reflect current conditions.

Specific regular reviews of credits exceeding $500,000 are performed to monitor the major portfolio risk. The Bank analyzes all commercial loans in excess of $10,000 that are rated as watch list credits. Potential credit problems are monitored to determine whether specific loans are impaired, with impairment normally measured by reference to borrowers’ collateral values and estimated cash flows.

The general portion of the allowance for loan losses represents the results of measuring potential losses inherent in the portfolio that are not identified in the specific allowance analysis. This general portion is determined using historical loan loss experience adjusted by assessing changes in the Bank’s underwriting criteria, growth and/or changes in the mix of loans originated, industry concentrations and evaluations, lending management changes, comparisons of certain factors to peer group banks and changes in economic conditions.

Management believes the allowance for loan losses is adequate. Identification of specific losses is an ongoing process using available information. Specifically, quarterly management meetings to review “problem” loans are utilized to determine a plan for collection and, if necessary, a recommendation to the Board for charge off. Future additions to the allowance for loan losses through a provision for loan losses will be made based on identified changes in the above factors coupled with loss experience.

Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. These agencies may require the Bank to recognize changes to the allowance based on their judgment about information available to them at the time of their examinations.

(e) Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis. Maintenance and repairs are charged to expense when incurred. Gains and losses on dispositions are reflected in current operations.

(f) Foreclosed Assets Held for Sale

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

(g) Income Taxes

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

(h) Core Deposit Intangible

Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. In 2004, MPB acquired core deposit intangible in the amount of $291,000 in connection with its purchase of assets and assumption of liabilities of the Dauphin office of Vartan National Bank. The core deposit intangible is being amortized over an 8 year life on a straight-line basis. The recoverability of the carrying value of intangible asset is evaluated on an ongoing basis, and permanent declines in value, if any, are charged to expense.

(i) Goodwill

Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with business acquisitions accounted for as purchases. In 2004, MPB recorded goodwill of $259,000 in connection with its purchase of assets and assumption of liabilities of the Dauphin office of Vartan National Bank. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” requires a two-step process for testing the impairment of goodwill on at least an annual basis. Based on the fair value of the reporting unit, estimated using the expected present value of future cash flows, no impairment of goodwill was recognized in 2004. For Federal income tax reporting purposes, goodwill is expected to be amortized over 15 years.

10

notes to consolidated financial statements

(j) Marketing and Advertising Costs

Marketing and advertising costs are expensed as incurred and were $185,000 in 2004, $100,000 in 2003 and $115,000 in 2002.

(k) Pensions and Other Postretirement Benefit Plans

Effective December 31, 2003, MPB adopted Statement of Financial Accounting Standards No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“Revised SFAS No. 132”). Revised SFAS No. 132 requires additional disclosures about defined benefit pension plans and other postretirement defined benefit plans. It does not change the measurement or recognition of those plans. Applicable prior year disclosures have been restated to conform to Revised SFAS No. 132 requirements.

(l) Other Benefit Plan

A funded contributory profit-sharing plan is maintained for substantially all employees. The cost of the Bank’s profit-sharing plan is charged to current operating expenses and is funded annually.

(m) Trust Assets and Income

Assets held by the Bank in a fiduciary or agency capacity for customers of the Trust Department are not included in the consolidated financial statements since such items are not assets of the Bank. Trust income is recognized on the cash basis which is not materially different than if it were reported on the accrual basis.

(n) Earnings Per Share

Earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each of the years presented giving retroactive effect to stock dividends and stock splits. MPB’s basic and diluted earnings per share are the same since there are no potentially dilutive securities outstanding.

(o) Statement of Cash Flows

For purposes of cash flows, MPB considers cash and due from banks to be cash equivalents.

(p) Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s classifications.

(4) Comprehensive Income

The components of other comprehensive income (loss) and related tax effects are as follows:

(Dollars in thousands)	Years Ended December 31,
	2004			2003		2002
Unrealized holding (losses) gains on available-for-sale securities	$	(619	)	349		2,193
Less reclassification adjustment for gains realized in income		(475	)	(261	)	(60	)
Net unrealized (losses) gains		(1,094	)	88		2,133
Income tax benefit (expense)		372		(30	)	(720	)
Net	$	(722	)	58		1,413

(5) Restrictions on Cash and Due from Bank Accounts

The Bank is required to maintain reserve balances with the Federal Reserve Bank of Philadelphia. The amounts of those required reserve balances were $575,000 at December 31, 2004 and $549,000 at December 31, 2003.

Deposits with one financial institution are insured up to $100,000. The Bank maintains cash and cash equivalents with certain financial institutions in excess of the insured amount.

(6) Investment Securities

At December 31, 2004 and 2003, amortized cost, fair value, and unrealized gains and losses on investment securities are as follows:

(Dollars in Thousands) December 31, 2004	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	11,998	12	91	11,919
Mortgage-backed U.S. government agencies		5,508	21	87	5,442
State and political subdivision obligations		22,621	1,213	13	23,821
Restricted equity securities		3,435	0	4	3,431
	$	43,561	1,246	195	44,613

11

notes to consolidated financial statements

(Dollars in Thousands) December 31, 2003	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	10,564	191	49	10,706
Mortgage-backed U.S. government agencies		4,808	64	31	4,841
State and political subdivision obligations		34,447	1,972	3	36,416
Restricted equity securities		2,130	0	0	2,130
	$	51,949	2,227	83	54,093

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.

Restricted equity securities consist of stock in the Federal Home Loan Bank of Pittsburgh and Atlantic Central Bankers Bank which do not have a readily determinable fair value because their ownership is restricted and they lack a market. Also included in restricted equity securities is an investment in Access Capital Strategies, an equity fund that invests in low to moderate income financing projects. This investment was purchased in 2004 to fulfill the Bank’s regulatory requirement of the Community Reinvestment Act Investment and, at December 31, 2004, is reported at fair value net of an unrealized loss of $4,000.

Investment securities having a fair value of $29,128,000 at December 31, 2004 and $26,803,000 at December 31, 2003, were pledged to secure public deposits and other borrowings.

Gains from sales of investment securities amounted to $475,000 in 2004, $261,000 in 2003 and $60,000 in 2002. The proceeds from sales of investment securities were $17,195,000 in 2004, $5,793,000 in 2003 and $3,176,000 in 2002.

The following table presents gross unrealized losses and fair value of investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2004.

(In thousands)	Less Than 12 Months			12 Months or More		Total
	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	0	0	7,906	91	7,906	91
Mortgage-backed U.S. government agencies		0	0	4,071	87	4,071	87
State and political subdivision obligations		0	0	716	13	716	13
Restricted equity securities		0	0	246	4	246	4
Total temporarily impaired available-for-sale securities	$	0	0	12,939	195	12,939	195

The unrealized losses on investment securities are primarily the result of volatility in interest rates. Based on the credit worthiness of the issuers, management believes that investment securities at December 31, 2004 were not other-than-temporarily impaired.

The following is a schedule of the maturity distribution of investment securities at amortized cost and fair value at December 31, 2004 and 2003:

	December 31, 2004			December 31, 2003
(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Due in 1 year or less	$	1,240	1,252	814	844
Due after 1 year but within 5 years		6,832	6,857	10,646	10,900
Due after 5 years but within 10 years		13,240	13,709	11,165	11,782
Due after 10 years		13,306	13,922	22,386	23,596
		34,618	35,740	45,011	47,122
Mortgage-backed securities		5,508	5,442	4,808	4,841
Restricted equity securities		3,435	3,431	2,130	2,130
	$	43,561	44,613	51,949	54,093

12

notes to consolidated financial statements

(7) Loans

A summary of loans at December 31, 2004 and 2003 is as follows:

(Dollars in thousands)	2004		2003
Commercial real estate, construction and land development	$	195,549	154,296
Commercial, industrial and agricultural		30,940	25,567
Real estate - residential		43,914	43,384
Consumer		10,680	10,380
	$	281,083	233,627

Net unamortized loan fees and costs of $344,000 in 2004 and $167,000 in 2003 were deducted from loans.

Loans and available credit to Bank executive officers, directors, and corporations in which such executive officers and directors have beneficial interests as stockholders, executive officers, or directors aggregated approximately $2,983,000 at December 31, 2004 and $3,275,000 at December 31, 2003. New loans extended were $867,000 in 2004 and $2,328,000 in 2003. Net payments on these loans equalled $1,159,000 during 2004 and $988,000 during 2003. These loans were made on substantially the same basis, including interest rates and collateral as those prevailing for comparable transactions with other borrowers at the same time.

(8) Allowance for Loan Losses

Changes in the allowance for loan losses for the years 2004, 2003, and 2002 are summarized as follows:

(Dollars in thousands)	2004			2003		2002
Balance, January 1	$	2,992		3,051		2,856
Provision for loan losses		725		290		425
Loans charged off		(121	)	(409	)	(302	)
Recoveries on loans charged off		47		60		72
Balance, December 31	$	3,643		2,992		3,051

The recorded investment in loans that are considered impaired amounted to $1,013,000 and $439,000 on December 31, 2004 and December 31, 2003, respectively. By definition, impairment of a loan is considered when, based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. The allowance for loan losses related to loans classified as impaired amounted to approximately $126,000 at December 31, 2004 and $40,000 at December 31, 2003. All impaired loans at the end of 2004 and 2003 had related allowances. The average balances of these loans amounted to approximately $945,000, $983,000 and $1,361,000 for the years 2004, 2003 and 2002, respectively. The Bank recognizes interest income on impaired loans on a cash basis. The following is a summary of cash receipts on these loans and how they were applied in 2004, 2003 and 2002.

(Dollars in thousands)	2004		2003	2002
Cash receipts applied to reduce principal balance	$	36	4	122
Cash receipts recognized as interest income		3	0	1
Total cash receipts	$	39	4	123

Loans which were past due 90 days or more for which interest continued to be accrued amounted to approximately $394,000 at December 31, 2004 and $661,000 at December 31, 2003. The Bank has no commitments to loan additional funds to borrowers with impaired or nonaccrual loans.

(9) Bank Premises and Equipment

At December 31, 2004 and 2003, bank premises and equipment are as follows:

(Dollars in thousands)	2004		2003
Land	$	1,288	838
Buildings		4,732	4,001
Furniture and fixtures		4,966	4,720
		10,986	9,559
Less accumulated depreciation		6,112	5,639
	$	4,874	3,920

Depreciation expense was $475,000 in 2004, $426,000 in 2003 and $340,000 in 2002.

13

notes to consolidated financial statements

(10) Deposits

At December 31, 2004 and 2003, time deposits in denominations of $100,000 or more amounted to $27,883,000 and $24,598,000, respectively. Interest expense on such certificates of deposit amounted to approximately $830,000, $873,000, and $1,112,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Time deposits at December 31, 2004, mature as follows: (in thousands) 2005, $57,216; 2006, $33,376; 2007, $37,993; 2008, $12,720; 2009, $13,007; thereafter, $2,154.

Deposits and other funds from related parties held by MPB at December 31, 2004 and 2003 amounted to approximately $6,133,000 and $4,727,000, respectively.

(11) Short-term Borrowings

Short-term borrowings as of December 31, 2004 and 2003 consisted of:

(Dollars in thousands)	2004		2003
Federal funds purchased	$	10,400	6,000
Repurchase agreements		2,928	3,246
Treasury, tax and loan notes		473	254
Due to broker		0	188
	$	13,801	9,688

Federal funds purchased represent overnight funds. Securities sold under repurchase agreements generally mature between one day and one year. Treasury, tax and loan notes are open-ended interest bearing notes payable to the U.S. Treasury upon call. All tax deposits accepted by the Bank are placed in the Treasury note option account. The due to broker balance represents previous day balances transferred from deposit accounts under a sweep account agreement. The Bank also has unused lines of credit with several banks amounting to $34,600,000 dollars at December 31, 2004.

(12) Long-term Debt

The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) and through its membership, the Bank can access a number of credit products which are utilized to provide various forms of liquidity. As of December 31, 2004 and 2003, the Bank had long-term debt in the amount of $49,957,000 and $35,684,000, respectively, consisting of:

	At December 31
(Dollars in thousands)	2004		2003
Loans matured in 2004 with rates ranging from 5.20% to 7.30%	$	0	5,087
Loans maturing in 2006 with rates ranging from 2.17% to 6.21%		10,000	5,000
Loans maturing in 2007 at a rate of 3.71%		5,000	0
Loans maturing in 2008 at a rate of 3.08%		5,000	5,000
Loans maturing in 2009 with rates ranging from 4.22% to 7.24%		12,000	7,000
Loans maturing in 2010 with rates ranging from 6.28% to 6.71%		10,000	10,000
Loans maturing in 2013 with rates ranging from 4.08% to 4.75%		3,500	3,500
Loans maturing in 2026 at a rate of 4.80%		4,362	0
Loans maturing in 2005 through 2027 at a rate of 6.71%		95	97
Total Long-term Debt	$	49,957	35,684

The aggregrate amounts of maturities of long-term debt subsequent to December 31, 2004 are $10,002,000 (2006), $5,002,000 (2007), $5,002,000 (2008), $12,003,000 (2009), $17,948,000 thereafter. Most of the Bank’s investments and mortgage loans are pledged to secure FHLB borrowings.

(13) Pension and Other Postretirement Benefit Plans

MPB has an unfunded noncontributory defined benefit pension plan for directors. The plan provides defined benefits based on years of service.

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

The significant aspects of each plan are as follows:

(a) Health Insurance

For full-time employees who retire after at least 20 years of service, MPB will pay premiums for major medical insurance (as provided to active employees) for a period ending on the earlier of the date the participant obtains

14

notes to consolidated financial statements

other employment where major medical coverage is available or the date of the participant’s death; however, in all cases payment of medical premiums by MPB will not exceed five years. If the retiree becomes eligible for Medicare within the five year period beginning on his/her retirement date, the Bank may pay, at its discretion, premiums for 65 Special coverage or a similar supplemental coverage. After the five year period has expired, all MPB paid benefits cease; however, the retiree may continue coverage through the Bank at his/her own expense.

(b) Life Insurance

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

(c) Retirement Plan

MPB has an unfunded defined benefit retirement plan for directors with benefits based on years of service. The adoption of this plan generated unrecognized prior service cost of $274,000, which is being amortized based on the expected future years of service of active directors.

The following tables provide a reconciliation of the changes in the plans’ health and life insurance benefit obligations and fair value of plan assets for the years ended December 31, 2004 and 2003 and a statement of the funded status at December 31, 2004 and 2003:

	December 31,
(Dollars in thousands)	2004			2003
Change in benefit obligations:
Benefit obligations, January 1	$	501		450
Service cost		38		30
Interest cost		31		30
Actuarial loss		92		10
Benefit payments		(16	)	(19	)
Benefit obligations, December 31	$	646		501
Change in fair value of plan assets:
Fair value of plan assets, January 1	$	0		0
Employer contributions		16		19
Benefit payments		(16	)	(19	)
Fair value of plan assets, December 31	$	0		0
	December 31,
(Dollars in thousands)	2004			2003
Funded status:
Excess of the benefit obligation over the value of plan assets	$	(646	)	(501	)
Unrecognized transition obligation		117		133
Unrecognized loss (gain)		4		(88	)
Net amount recognized	$	(525	)	(456	)

Amount recognized in the consolidated balance sheet at December 31, 2004 and 2003 is as follows:

(Dollars in thousands)	2004			2003
Accrued benefit liability	$	(525	)	(456	)

The accumulated benefit obligation for health and life insurance plans was $ 646,000 and $ 501,000 at December 31, 2004 and 2003, respectively.

The components of net periodic postretirement benefit cost for 2004, 2003 and 2002 are as follows:

(Dollars in thousands)	2004		2003		2002
Service cost	$	38	30		24
Interest cost		31	30		28
Amortization of transition obligation		15	15		15
Amortization of net gain		0	(3	)	(4	)
Net periodic postretirement benefit cost	$	84	72		63

15

notes to consolidated financial statements

Assumptions used in the measurement of MPB’s benefit obligations at December 31, 2004 and 2003 are as follows:

	2004		2003
Weighted-average assumptions:
Discount rate	5.75	%	6.00	%
Rate of compensation increase	5.00	%	5.00	%

Assumptions used in the measurement of MPB’s net periodic benefit cost for the years ended December 31, 2004, 2003 and 2002 are as follows:

	2004		2003		2002
Weighted-average assumptions:
Discount rate	6.00	%	6.75	%	7.00	%
Rate of compensation increase	5.00	%	5.00	%	5.00	%

Assumed health care cost trend rates at at December 31, 2004, 2003 and 2002 are as follows:

	2004		2003		2002
Health care cost trend rate assumed for next year	10.00	%	5.50	%	6.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00	%	5.50	%	6.00	%
Year that the rate reaches the ultimate trend rate	2009		2004		2003

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.

A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	One-Percentage Point
(Dollars in thousands)	Increase		Decrease
Effect on total of service and interest cost	$	11	9
Effect on postretirement benefit obligation		82	69

MPB expects to contribute $ 21,154 to its postretirement benefit plans in 2005.

Estimated Future Benefit Payments
1/1/2005 to 12/31/2005	$	21,154
1/1/2006 to 12/31/2006		24,550
1/1/2007 to 12/31/2007		22,180
1/1/2008 to 12/31/2008		21,297
1/1/2009 to 12/31/2009		24,562
1/1/2010 to 12/31/2014		194,843

The following tables provide a reconciliation of the changes in the directors’ defined benefit plan’s benefit obligations and fair value of plan assets for the years ended December 31, 2004 and 2003 and a statement of the funded status at December 31, 2004 and 2003:

(Dollars in thousands)	December 31,
	2004			2003
Change in benefit obligations:
Benefit obligations, January 1	$	647		563
Service cost		22		20
Interest cost		39		37
Actuarial (gain) loss		5		(10	)
Change in assumptions		17		46
Benefit payments		(18	)	(9	)
Benefit obligations, December 31	$	712		647

16

notes to consolidated financial statements

(Dollars in thousands)	2004			2003
Change in fair value of plan assets:
Fair value of plan assets, January 1	$	0		0
Employer contributions		18		9
Benefit payments		(18	)	(9	)
Fair value of plan assets, December 31	$	0		0

(Dollars in thousands)	December 31,
Funded status:
Excess of the benefit obligation over the value of plan assets	$	(712	)	(647	)
Unrecognized prior-service cost		26		52
Unrecognized loss		57		35
Net amount recognized	$	(629	)	(560	)

Amounts recognized in the consolidated balance sheet at December 31, 2004 and 2003 are as follows:

(Dollars in thousands)	2004			2003
Accrued benefit liability	$	(645	)	(573	)
Intangible asset		16		13
Net amount recognized	$	(629	)	(560	)

The accumulated benefit obligation for the retirement plan was $ 645,000 and $ 573,000 at December 31, 2004 and 2003, respectively.

Other plan information at December 31, 2004 and 2003 is as follows:

(Dollars in thousands)	2004		2003
Projected benefit obligation	$	712	647
Accumulated benefit obligation		645	573
Fair value of plan assets		0	0

The components of net periodic pension cost for 2004, 2003 and 2002 are as follows:

(Dollars in thousands)	2004		2003	2002
Service cost	$	22	20	23
Interest cost		39	37	35
Amortization of prior-service cost		26	26	26
Net periodic pension cost	$	87	83	84

Assumptions used in the measurement of MPB’s benefit obligations at December 31, 2004 and 2003 are as follows:

	2004		2003
Weighted-average assumptions:
Discount rate	5.75	%	6.00	%
Change in consumer price index	4.00	%	4.00	%

Assumptions used in the measurement of MPB’s net periodic benefit cost for the years ended December 31, 2004, 2003 and 2002 are as follows:

	2004		2003		2002
Weighted-average assumptions:
Discount rate	6.00	%	6.75	%	7.00	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%

MPB expects to contribute $ 24,567 to its pension plan in 2005.

The Bank is the owner and beneficiary of insurance policies on the lives of certain officers and directors which informally fund the retirement plan obligation. The aggregate cash surrender value of these policies was $ 2,244,000 and $1,605,000 at December 31, 2004 and 2003, respectively.

17

notes to consolidated financial statements

Estimated Future Benefit Payments
1/1/2005 to 12/31/2005	$	24,567
1/1/2006 to 12/31/2006		48,828
1/1/2007 to 12/31/2007		54,473
1/1/2008 to 12/31/2008		61,150
1/1/2009 to 12/31/2009		61,054
1/1/2010 to 12/31/2014		331,865

(14) Other Benefit Plans

(a) Profit-Sharing

The Bank has a funded contributory profit-sharing plan covering substantially all employees. The Bank’s contribution to the plan was $307,000 for 2004, $267,000 for 2003 and $235,000 for 2002.

(b) Deferred Compensation Plans

The Bank has an executive deferred compensation plan which allows an executive officer to defer bonus compensation for a specified period in order to provide future retirement income. At December 31, 2004 and 2003, the Bank has accrued a liability of approximately $106,000 and $82,000, respectively, for this plan.

The Bank also has a directors’ deferred compensation plan which allows directors to defer receipt of monthly fees for a specified period in order to provide future retirement income. At December 31, 2004 and 2003, the Bank has accrued a liability of approximately $179,000 and $154,000, respectively, for this plan.

The Bank is the owner and beneficiary of insurance policies on the lives of the participating executive officer and directors which informally fund the benefit obligations. The aggregate cash surrender value of these policies was approximately $1,626,000 and $1,564,000 at December 31, 2004 and 2003, respectively.

(c) Salary Continuation Agreement

The Bank maintains a Salary Continuation Agreement (Agreement) for an executive officer. The Agreement provides the executive officer with a fixed annual benefit. The benefit is payable beginning at age 65 for a period of 15 years. If the executive officer terminates employment before the normal retirement date for reasons other than death, the annual benefit payable will be based on the vesting schedule as defined in the Agreement. Upon death or a change in control of the Bank, the executive officer or his beneficiary is entitled to the full fixed annual benefit. At December 31, 2004 and 2003, the Bank has accrued a liability of approximately $161,000 and $129,000, respectively, for the Agreement. The expense related to the Agreement was $32,000 for 2004, $30,000 for 2003 and $28,000 for 2002.

The Bank is the owner and beneficiary of an insurance policy on the life of the participating executive officer which informally funds the benefit obligation. The aggregate cash surrender value of this policy was approximately $866,000 and $836,000 at December 31, 2004 and 2003, respectively.

(d) Employee Stock Ownership Plan

The Bank has an Employee Stock Ownership Plan (ESOP) covering substantially all employees. Contributions to the ESOP are made at the discretion of the Board of Directors. Total expense related to the Bank’s contribution to the ESOP for 2004, 2003 and 2002 was $155,000, $134,000 and $118,000, respectively. The ESOP held 32,836 and 27,941 shares of MPB stock as of December 31, 2004 and December 31, 2003, respectively, all of which were allocated to plan participants. Shares held by the ESOP are considered outstanding for purposes of calculating earnings per share. Dividends paid on shares held by the ESOP are charged to retained earnings.

(e) Other

At December 31, 2004 and 2003, the Bank had Split Dollar Life Insurance arrangements with two executives for which the aggregate collateral assignment and cash surrender values are approximately $1,444,000 and $948,000, respectively.

18

notes to consolidated financial statements

(15) Federal Income Taxes

The following temporary differences gave rise to the deferred tax asset at December 31, 2004 and 2003:

(Dollars in thousands)	2004			2003
Deferred tax assets:
Allowance for loan losses	$	1,085		863
Benefit plans		555		460
Nonaccrual interest		54		37
Core deposit intangible		3		0
Total	$	1,697		1,360
(Dollars in thousands)	2004			2003
Deferred tax liabilities:
Depreciation	$	(198	)	(170	)
Loan fees		(129	)	(134	)
Bond accretion		(20	)	(24	)
Other items		(11	)	0
Unrealized gain on securities		(357	)	(729	)
Total	$	(715	)	(1,057	)
Deferred tax asset, net	$	982		303

The provision for income taxes consists of the following:

(Dollars in thousands)	2004			2003	2002
Current provision	$	1,712		1,130	1,417
Deferred provision		(307	)	123	(147	)
Provision for income taxes	$	1,405		1,253	1,270

A reconciliation of income tax at the statutory rate to MPB’s effective rate is as follows:

(Dollars in thousands)	2004			2003		2002
Provision at the expected statutory rate	$	1,963		1,995		1,960
Effect of tax-exempt income		(583	)	(752	)	(824	)
Nondeductible interest		34		53		73
Other items		(9	)	(43	)	61
Provision for income taxes	$	1,405		1,253		1,270

(16) Business Combination

On June 14, 2004, MPB consummated the purchase of assets and assumption of liabilities of the Dauphin office of Vartan National Bank (“Vartan”). MPB approved this deal in order to increase market share in the Central Pennsylvania Area. The net receipt of cash from Vartan was $4,139,000. The results of operations of Vartan from the date of acquisition have been included in the accompanying consolidated financial statements.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

(Dollars in thousands)	2004
Cash	$	21
Loans		2,483
Goodwill		259
Core deposit intangible		291
Total Assets Acquired	$	3,054
Deposits:
Demand and savings deposits	$	4,297
Time		2,896
Total Liabilities Assumed		7,193
Net Liabilities Assumed	$	4,139

19

notes to consolidated financial statements

Presented herein is certain unaudited pro forma information for 2004 as if Vartan had been acquired on January 1, 2004 and for 2003 as if Vartan had been acquired on January 1, 2003. These results combine historical results of Vartan into MPB’s consolidated statement of income and, while certain adjustments were made for the estimated impact of purchase accounting adjustments and other acquisition-related activity, they are not necessarily indicative of what would have occurred had the acquisition taken place on the indicated dates.

(Dollars in thousands, except per share data)	Unaudited Pro forma for Year Ended December 31
	2004		2003
Interest income	$	20,178	20,186
Noninterest income		3,482	2,757
Net income		4,428	4,733
Earnings per share		1.39	1.48

(17) Core Deposit Intangible

A summary of core deposit intangible is as follows at December 31, 2004.

(Dollars in thousands)
Gross carrying amount	$	291
Less accumulated amortization		20
Net carrying amount	$	271

Amortization expense amounted to $20,000 in 2004.

The estimated amoritization expense of intangible assets for each of the five succeeding fiscal years is $36,000 per year.

(18) Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier I capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier I and total capital (as defined) to risk-weighted assets (as defined). To be considered adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier I leverage, Tier I risk-based and total risk-based ratios as set forth in the table. The Bank’s actual capital amounts and ratios are also presented in the table.

					Capital Adequacy
(Dollars in thousands)	Actual:				Minimum Capital Required:			To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio		Amount	Ratio		Amount	Ratio
As of December 31, 2004:
Tier I Capital (to Average Assets)	$	27,346	7.0	%	15,604	4.0	%	19,505	5.0	%
Tier I Capital (to Risk Weighted Assets)		27,346	9.0	%	12,147	4.0	%	18,221	6.0	%
Total Capital (to Risk Weighted Assets)		30,989	10.2	%	24,294	8.0	%	30,368	10.0	%
As of December 31, 2003:
Tier I Capital (to Average Assets)	$	27,331	7.5	%	14,565	4.0	%	18,206	5.0	%
Tier I Capital (to Risk Weighted Assets)		27,331	10.6	%	10,301	4.0	%	15,452	6.0	%
Total Capital (to Risk Weighted Assets)		30,323	11.8	%	20,602	8.0	%	25,753	10.0	%

20

notes to consolidated financial statements

As of December 31, 2004, the Bank’s capital ratios are in excess of the minimum and well-capitalized guidelines and MPB’s capital ratios are in excess of the Bank’s capital ratios.

(19) Concentration of Risk and Off-Balance Sheet Risk

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and financial standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and financial standby letters of credit written is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for direct, funded loans.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Financial standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The term of these financial standby letters of credit is generally one year or less.

As of December 31, 2004, commitments to extend credit amounted to $61,028,000 and financial standby letters of credit amounted to $11,904,000.

Significant concentration of credit risk may occur when obligations of the same parties engaged in similar activities occur and accumulate in significant amounts.

In analyzing the Bank’s exposure to significant concentration of credit risk, management set a parameter of 10% or more of the Bank’s total net loans outstanding as the threshold in determining whether the obligations of the same or affiliated parties would be classified as significant concentration of credit risk. Concentrations by industry, product line, type of collateral, etc., are also considered. U.S. Treasury securities, obligations of U.S. government agencies and corporations, and any assets collateralized by the same were excluded.

As of December 31, 2004, commercial real estate financing was the only similar activity that met the requirements to be classified as a significant concentration of credit risk. However, there is a geographical concentration in that most of the Bank’s business activity is with customers located in Central Pennsylvania, specifically within the Bank’s trading area made up of Dauphin County, lower Northumberland County, western Schuylkill County and Hampden Township in Cumberland County.

The Bank’s highest concentrations of credit are in the areas of hotel/motel lodging financings and apartment building financing. Outstanding credit to these sectors amounted to $26,664,000 or 9.7% and $24,276,000 or 8.8%, respectively, of net loans outstanding as of December 31, 2004.

(20) Commitments and Contingencies

Operating Lease

MPB has entered into a non-cancelable operating lease agreement to lease approximately 2,500 square feet of office space in the downtown Harrisburg area beginning in April 2005 with the initial term extending through March 2010. MPB has the option to renew this lease for two additional five year periods.

21

notes to consolidated financial statements

Minimum future rental payments under this operating lease as of December 31, 2004 for each of the next 5 years and in the aggregate are:

2005	$	49,590
2006		67,608
2007		69,636
2008		71,725
2009		73,877
Thereafter		18,605
	$	351,042

Litigation

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

(21) Parent Company Statements

The condensed balance sheet, statement of income and statement of cash flows for Mid Penn Bancorp, Inc., parent only, are presented below:

CONDENSED BALANCE SHEET

December 31, 2004 and 2003

(Dollars in thousands)	2004			2003
ASSETS
Cash	$	273		279
Investment in Subsidiaries		34,999		37,082
Total Assets	$	35,272		37,361
	2004			2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
Stockholders’ Equity	$	35,808		37,900
Less Treasury Stock		(536	)	(539	)
Total Liabilities and Equity	$	35,272		37,361

CONDENSED STATEMENT OF INCOME

For Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands)	2004			2003		2002
Dividends from Subsidiaries	$	5,774		2,566		2,496
Other Income from Subsidiaries		23		24		27
Undistributed Earnings of Subsidiaries		(1,361	)	2,097		2,051
Other Expenses		(67	)	(72	)	(79	)
Net Income	$	4,369		4,615		4,495

CONDENSED STATEMENT OF CASH FLOWS

For Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands)
	2004		2003		2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	4,369	4,615		4,495
Undistributed Earnings of Subsidiaries		1,361	(2,097	)	(2,051	)
Net Cash Provided By Operating Activities		5,730	2,518		2,444

22

notes to consolidated financial statements

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid		(5,739	)	(2,499	)	(2,431	)
Sale (Purchase) of Treasury Stock		3		(17	)	11
Net Cash Used In Financing Activities		(5,736	)	(2,516	)	(2,420	)
Net (Decrease) Increase in Cash		(6	)	2		24
Cash at Beginning of Period		279		277		253
Cash at End of Period	$	273		279		277

(22) Fair Value of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosures of fair value information about financial instruments, whether or not recognized in the consolidated balance sheet, for which it is practical to estimate that value. In cases where quoted market values are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets, and in many cases, could not be realized in immediate settlement of the instrument. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of MPB.

The following methodologies and assumptions were used to estimate the fair value of MPB’s financial instruments:

Cash and due from banks:

The carrying value of cash and due from banks 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.

Investment securities:

As indicated in Note 6, estimated fair values of investment securities are based on quoted market prices, where applicable. If quoted market prices are not available, fair values are based on quoted market prices for comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued.

Loans:

The loan portfolio was segregated into pools of loans with similar economic characteristics and was further segregated into fixed rate and variable rate and each pool was treated as a single loan with the estimated fair value based on the discounted value of expected future cash flows. Fair value of loans with significant collectibility concerns (that is, problem loans and potential problem loans) was determined on an individual basis using an internal rating system and appraised values of each loan. Assumptions regarding problem loans are judgmentally determined using specific borrower information.

Deposits:

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

Short-term borrowings:

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

Long-term debt:

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

Accrued interest:

The carrying amounts of accrued interest approximates their fair values.

23

notes to consolidated financial statements

Off-balance sheet financial instruments:

There are no unearned fees outstanding on off-balance sheet financial instruments and the fair values are determined to be equal to the contractual values.

The following table summarizes the book value and fair value of financial instruments at December 31, 2004 and 2003.

(Dollars in thousands)	December 31, 2004			December 31, 2003
	Book Value		Fair Value	Book Value	Fair Value
Financial assets:
Cash and due from banks	$	6,679	6,679	7,456	7,456
Interest-bearing balances		60,407	60,407	69,918	69,918
Investment securities		44,613	44,613	54,093	54,093
Net loans		275,904	283,141	229,086	239,812
	December 31, 2004			December 31, 2003
(Dollars in thousands)	Book Value		Fair Value	Book Value	Fair Value
Financial liabilities:
Deposits	$	301,144	302,517	288,338	292,206
Short-term borrowings		13,801	13,801	9,688	9,688
Accrued interest		1,192	1,192	1,045	1,045
Long-term debt		49,957	53,081	35,684	38,321
Off-balance sheet financial instruments:
Commitments to extend credit	$	61,028	61,028	48,786	48,786
Financial standby letters of credit		11,904	11,904	5,804	5,804

(23) Common Stock:

MPB has reserved 50,000 of authorized, but unissued shares of its common stock for issuance under a Stock Bonus Plan (the “Plan”). Shares issued under the Plan are at the discretion of the board of directors.

Under MPB’s amended and restated dividend reinvestment plan, (DRIP), two hundred thousand shares of MPB’s authorized but unissued common stock are reserved for issuance. The DRIP also allows for voluntary cash payments within specified limits, for the purchase of additional shares.

(24) Summary of Quarterly Consolidated Financial Data (Unaudited):

The following table presents summarized quarterly financial data for 2004, 2003 and 2002.

(Dollars in Thousands, Except Per Share Data)	2004 Quarter Ended
	Mar. 31		June 30	Sept. 30	Dec. 31
Interest Income	$	4,736	4,929	5,177	5,235
Interest Expense		1,927	1,885	2,021	2,172
Net Interest Income		2,809	3,044	3,156	3,063
Provision for Loan Losses		0	425	200	100
Net Interest Income After Provision for Loan Losses		2,809	2,619	2,956	2,963
Other Income		681	688	742	871
Securities Gains		202	234	39	0
Gain on Sale of Loans		0	0	0	0
Other Expenses		2,277	2,251	2,331	2,171
Income Before Income Tax Provision		1,415	1,290	1,406	1,663
Income Tax Provision		329	317	349	410
Net Income	$	1,086	973	1,057	1,253
Earnings Per Share	$	0.34	0.30	0.33	0.40

24

notes to consolidated financial statements

(Dollars in Thousands, Except Per Share Data)	2003 Quarter Ended
	Mar. 31		June 30	Sept. 30	Dec. 31
Interest Income	$	5,139	5,089	4,902	4,854
Interest Expense		2,281	2,108	2,034	2,011
Net Interest Income		2,858	2,981	2,868	2,843
Provision for Loan Losses		190	25	75	0
Net Interest Income After Provision for Loan Losses		2,668	2,956	2,793	2,843
Other Income		598	570	585	648
Securities Gains		0	170	88	3
Gain on Sale of Loans		0	0	0	45
Other Expenses		1,948	2,025	2,077	2,049
Income Before Income Tax Provision		1,318	1,671	1,389	1,490
Income Tax Provision		266	404	303	280
Net Income	$	1,052	1,267	1,086	1,210
Earnings Per Share	$	0.33	0.40	0.34	0.38
(Dollars in Thousands, Except Per Share Data)	2002 Quarter Ended
	Mar. 31		June 30	Sept. 30	Dec. 31
Interest Income	$	5,420	5,274	5,379	5,279
Interest Expense		2,511	2,483	2,550	2,382
Net Interest Income		2,909	2,791	2,829	2,897
Provision for Loan Losses		100	100	100	125
Net Interest Income After Provision for Loan Losses		2,809	2,691	2,729	2,772
Other Income		462	454	498	497
Securities Gains		5	0	55	0
Gain on Sale of Loans		0	0	0	51
Other Expenses		1,843	1,910	1,807	1,698
Income Before Income Tax Provision		1,433	1,235	1,475	1,622
Income Tax Provision		327	259	330	354
Net Income	$	1,106	976	1,145	1,268
Earnings Per Share	$	0.34	0.30	0.36	0.41

(25) Recent Accounting Pronouncements:

In March 2004, the FASB issued Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This statement provides guidance for evaluating whether an investment is other-than-temporarily impaired and was effective for the other-than-temporary impairment evaluations made in the reporting periods beginning after June 15, 2004. The FASB staff has issued a proposed Board-directed FASB Staff Position, FSP EITF Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1. The proposed FSP would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for other-than-temporary impairment under paragraph 16 of Issue 03-1. In September 2004, based on comment letters received by constituents, the Board decided to further consider whether application guidance is necessary for all securities analyzed for impairment under paragraphs 10-20 of Issue 03-1. The delay did not include the disclosure provisions which will remain in effect until the full reconsideration of Issue 03-1 guidance is completed. MPB will delay the effective application until the implementation guidance is finalized.

In December 2004, the FASB issued SFAS 123R which replaces SFAS 123, Accounting for Stock-Based Compensation, and supercedes APB Opinion 25, Accounting for Stock Issued to Employees. SFAS 123R requires that the cost of share-based payment transactions (including those with employees and nonemployees) be recognized in the financial statements. SFAS 123R applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments.

Public entities such as MPB are not required to apply SFAS 123R until the beginning of the first interim period or fiscal year beginning after June 15, 2005.

25

management’s discussion and analysis

The purpose of this discussion is to further detail the financial condition and results of operations of Mid Penn Bancorp, Inc. (MPB). MPB is not aware of any known trends, events, uncertainties or of any current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on MPB’s liquidity, capital resources or operations. This discussion should be read along with the consolidated financial statements also appearing in this report.

Financial Summary

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

MPB earned net income of $4,369,000 for the year 2004, compared to $4,615,000 in 2003, which was a decrease of $246,000 or 5.3%. This represents net income in 2004 of $1.37 per share compared to $1.45 per share in 2003 and $1.41 per share in 2002. The major reason for the decrease in earnings was the large provision for possible loan losses of $725,000, compared to $290,000 in 2003. The larger provision was needed because of the strong growth in the loan portfolio as well as the reclassification of a $3.5 million loan as substandard.

Total assets of MPB continued to grow in 2004, reaching the level of $403,256,000, an increase of $29,790,000 or 8.0% over $373,466,000 at year end 2003. The majority of growth came from increases in commercial real estate loans in the Capital Region. These increases were funded primarily through retained earnings of the Bank as well as proceeds from sales and maturities of bank investments, along with increased short-term and long-term borrowings.

MPB continued to achieve a solid return on average shareholders’ equity, (ROE), a widely recognized performance indicator in the financial industry. The ROE was 12.03% in 2004, 12.69% in 2003 and 13.60% in 2002. Return on average assets (ROA), another performance indicator, was 1.12% in 2004, 1.25% in 2003 and 1.32% in 2002.

Tier one capital (to risk weighted assets) of $27,346,000 or 9.0% and total capital (to risk weighted assets) of $30,989,000 or 10.2% at December 31, 2004, are above the December 31, 2004 requirement, which is 4% for tier one capital and 8% for total capital. Tier one capital consists primarily of the bank’s stockholders’ equity. Total capital includes qualifying subordinated debt, if any, and the allowance for loan losses, within permitted limits. Risk-weighted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet activities.

Critical Accounting Policies

Management of the Company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgements can have on the results of operations. While management’s current evaluation of the allowance for loan losses indicates that the allowance is adequate, under adversely different conditions or assumptions, the allowance may need to be increased. For example, if historical loan loss experience significantly worsened or if current economic conditions significantly deteriorated, additional provisions for loan losses may be required to increase the allowance. In addition, the assumptions and estimates used in the internal reviews of the Company’s non-performing loans and potential problem loans have a significant impact on the overall analysis of the adequacy of the allowance for loan losses. While management has concluded that the current evaluation of collateral values is reasonable under the circumstances, if collateral evaluations were significantly lowered, the Company’s allowance for loan loss may also require additional provisions for loan losses.

Net Interest Income

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

During 2004 net interest income increased $522,000 or 4.5% as compared to an increase of $124,000 or 1.1% in 2003. The average balances, effective interest differential and interest yields for the years ended December 31, 2004, 2003 and 2002 and the components of net interest income, are presented in Table 1. A comparative presentation of the changes in net interest income for 2004 compared to 2003, and 2003 compared to 2002, is given in Table 2. This analysis indicates the changes in interest income and interest expense caused by the volume and rate components of interest earning assets and interest bearing liabilities.

26

management’s discussion and analysis

The yield on earning assets decreased to 5.66% in 2004 from 6.08% in 2003. The yield on earning assets for 2002 was 7.00%. The change in the yield on earning assets was due primarily to the downward movement of rates on new and maturing assets. The average “prime rate” for 2004 was 4.34% as compared to 4.12% for 2003 and 4.67% for 2002.

Interest expense decreased by $429,000 or 5.1% in 2004 as compared to a decrease of $1,492,000 or 15.0% in 2003. In order to maintain the spread between interest earning assets and interest bearing liabilities, management was forced to aggressively decrease the expense on deposits.

Primarily resulting from the fluctuations in interest rates, the net interest margin, on a tax equivalent basis, in 2004 was 3.48% compared to 3.63% in 2003 and 3.91% in 2002. Management continues to closely monitor the net interest margin.

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

INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS

FOR YEAR ENDED DECEMBER 31, 2004

(Dollars in thousands)	Average Balance		Interest Income/Expense		Average Rates Earned/Paid
ASSETS:
Interest Bearing Balances	$	66,750		1,809	2.71	%
Investment Securities:
Taxable		17,531		599	3.42	%
Tax-Exempt		26,555		1,948	7.34	%
Total Investment Securities		44,086
Federal Funds Sold		346		7	2.02	%
Loans, Net		256,627		16,449	6.41	%
Total Earning Assets		367,809		20,812	5.66	%
Cash and Due from Banks		6,527
Other Assets		16,002
Total Assets	$	390,338
LIABILITIES & STOCKHOLDERS’ EQUITY:
Interest Bearing Deposits:
NOW	$	34,750		61	0.18	%
Money Market		45,202		442	0.98	%
Savings		29,027		77	0.27	%
Time		153,100		5,044	3.29	%
Short-term Borrowings		11,415		137	1.20	%
Long-term Debt		43,780		2,244	5.13	%
Total Interest Bearing Liabilities		317,274		8,005	2.52	%
Demand Deposits		37,586
Other Liabilities		1,951
Stockholders’ Equity		33,527
Total Liabilities and Stockholders’ Equity	$	390,338
Net Interest Income			$	12,807
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets					5.66	%
Rate on Supporting Liabilities					2.18	%
Net Interest Margin					3.48	%

27

management’s discussion and analysis

TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS (cont’d)

INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS

FOR YEAR ENDED DECEMBER 31, 2003

(Dollars in thousands)

	Average Balance		Interest Income/Expense		Average Rates Earned/Paid
ASSETS:
Interest Bearing Balances	$	68,256		2,099	3.08	%
Investment Securities:
Taxable		14,222		559	3.93	%
Tax-Exempt		36,355		2,702	7.43	%
Total Investment Securities		50,577
Federal Funds Sold		950		9	0.95	%
Loans, Net		224,993		15,598	6.93	%
Total Earning Assets		344,776		20,967	6.08	%
Cash and Due from Banks		6,306
Other Assets		17,489
Total Assets	$	368,571
LIABILITIES & STOCKHOLDERS’ EQUITY:
Interest Bearing Deposits:
NOW	$	33,897		82	0.24	%
Money Market		45,072		638	1.42	%
Savings		27,756		165	0.59	%
Time		144,194		5,232	3.63	%
Short-term Borrowings		10,670		128	1.20	%
Long-term Debt		36,463		2,189	6.00	%
Total Interest Bearing Liabilities		298,052		8,434	2.83	%
Demand Deposits		30,918
Other Liabilities		4,309
Stockholders’ Equity		35,292
Total Liabilities and Stockholders’ Equity	$	368,571
Net Interest Income			$	12,533
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets					6.08	%
Rate on Supporting Liabilities					2.45	%
Net Interest Margin					3.63	%

28

management’s discussion and analysis

TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS (cont’d)

INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS

FOR YEAR ENDED DECEMBER 31, 2002

(Dollars in thousands)

	Average Balance		Interest Income/Expense		Average Rates Earned/Paid
ASSETS:
Interest Bearing Balances	$	57,454		2,703	4.70	%
Investment Securities:
Taxable		14,460		738	5.10	%
Tax-Exempt		39,937		3,032	7.59	%
Total Investment Securities		54,397
Federal Funds Sold		2,786		47	1.69	%
Loans, Net		207,028		15,983	7.72	%
Total Earning Assets		321,665		22,503	7.00	%
Cash and Due from Banks		6,350
Other Assets		13,745
Total Assets	$	341,760
LIABILITIES & STOCKHOLDERS’ EQUITY:
Interest Bearing Deposits:
NOW	$	32,480		168	0.52	%
Money Market		36,390		801	2.20	%
Savings		26,662		355	1.33	%
Time		144,353		6,483	4.49	%
Short-term Borrowings		4,821		50	1.04	%
Long-term Debt		32,469		2,069	6.37	%
Total Interest Bearing Liabilities		277,175		9,926	3.58	%
Demand Deposits		28,069
Other Liabilities		3,475
Stockholders’ Equity		33,041
Total Liabilities and Stockholders’ Equity	$	341,760
Net Interest Income			$	12,577
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets					7.00	%
Rate on Supporting Liabilities					3.09	%
Net Interest Margin					3.91	%

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

Loan fees of $448,000, 612,000 and $550,000 are included with interest income in Table 1 for the years 2004, 2003 and 2002, respectively.

29

management’s discussion and analysis

TABLE 2: VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(Dollars in thousands)

	2004 Compared to 2003 Increase (Decrease) Due to Change In:							2003 Compared to 2002 Increase (Decrease) Due to Change In:
	Volume			Rate		Net		Volume		Rate		Net
Taxable Equivalent Basis
INTEREST INCOME:
Interest Bearing Balances	$	(46	)	(244	)	(290	)	508		(1,112	)	(604	)
Investment Securities:
Taxable		130		(90	)	40		(12	)	(167	)	(179	)
Tax-Exempt		(719	)	(35	)	(754	)	(272	)	(58	)	(330	)
Total Investment Securities		(635	)	(369	)	(714	)	(284	)	(225	)	(509	)
Federal Funds Sold		(6	)	4		(2	)	(31	)	(7	)	(38	)
Loans, Net		2,192		(1,341	)	851		1,387		(1,772	)	(385	)
Total Interest Income		1,551		(1,706	)	(155	)	1,580		(3,116	)	(1,536	)
INTEREST EXPENSE:
Interest Bearing Deposits:
NOW		2		(23	)	(21	)	7		(93	)	(86	)
Money Market		2		(198	)	(196	)	191		(354	)	(163	)
Savings		7		(95	)	(88	)	15		(205	)	(190	)
Time		323		(511	)	(188	)	(7	)	(1,244	)	(1,251	)
Total Interest Bearing Deposits		334		(827	)	(493	)	206		(1,896	)	(1,690	)
Short-term Borrowings		9		0		9		61		17		78
Long-term Debt		439		(384	)	55		254		(134	)	120
Total Interest Expense		782		(1,211	)	(429	)	521		(2,013	)	(1,492	)
NET INTEREST INCOME	$	769		(495	)	274		1,059		(1,103	)	(44	)

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

Provision for Loan Losses

The provision for loan losses charged to operating expense represents the amount deemed appropriate by management to maintain an adequate allowance for possible loan losses. Following its model for loan loss allowance adequacy, management made a $725,000 provision in 2004 as well as a provision of $290,000 in 2003 and $425,000 in 2002. The allowance for loan losses as a percentage of average total loans was 1.42% at December 31, 2004, compared to 1.33% at December 31, 2003 and 1.45% at December 31, 2002, which continues to be higher than that of peer financial institutions due to MPB’s higher level of loans to finance commercial real estate. The higher 2004 provision was due to both the more than 20% growth in loans during the year, coupled with the reclassification of a large commercial loan relationship to a substandard classification by the Bank’s regulators. A summary of charge-offs and recoveries of loans is presented in Table 3.

30

management’s discussion and analysis

TABLE 3: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(Dollars in thousands)

	Years ended December 31,
	2004			2003		2002		2001		2000
Balance, beginning of year	$	2,992		3,051		2,856		2,815		2,505
Loans charged-off:
Commercial real estate, construction and land development		25		171		41		249		1
Commercial, industrial and agricultural		10		140		113		118		12
Real estate-residential		8		0		0		0		0
Consumer		78		98		148		122		61
Total loans charged off		121		409		302		489		74
Recoveries on loans previously
charged-off:
Commercial real estate, construction and land development		0		0		17		0		28
Commercial, industrial and agricultural		8		14		0		1		5
Real estate-residential		0		0		0		0		0
Consumer		39		46		55		29		26
Total recoveries		47		60		72		30		59
Net charge-offs		74		349		230		459		15
Provision for loan losses		725		290		425		500		325
Balance, end of year	$	3,643		2,992		3,051		2,856		2,815
Ratio of net charge-offs during the year to average loans outstanding during the year, net of unearned discount		.03	%	.14	%	.11	%	.24	%	.01	%
Allowance for loan losses as a percentage of average total loans		1.42	%	1.33	%	1.45	%	1.48	%	1.58	%

Noninterest Income

During 2004, MPB earned $3,457,000 in noninterest income, compared to $2,707,000 earned in 2003 and $2,022,000 earned in 2002.

Service charges on deposit accounts amounted to $1,467,000 for 2004, an increase of $240,000 or 19.6% over $1,227,000 for 2003, which showed an increase of $174,000 over 2002. The majority of this increase resulted from the increasing revenues from NSF charges.

Gains on the sale of investment securities amounted to $475,000 in 2004 as MPB realized certain investment gains in anticipation of rising rates and diminishing gains.

MPB owns cash surrender value life insurance policies that provide funding for director retirement and salary continuation plans. The income on these policies amounted to $211,000 during the year 2004, $210,000 in 2003 and $239,000 in 2002.

Trust department income for 2004 was $248,000, a $46,000 or 22.8% increase from the $202,000 in 2003, which was a $14,000 or 7.4% increase from the $188,000 earned in 2002. Trust Department income can fluctuate from year to year, due to the number of estates being settled during the year.

31

management’s discussion and analysis

MPB also earned $162,000 in 2004, $21,000 in 2003 and $67,000 in 2002 in fees from the third-party provider of investments whose services the Bank has contracted. Other income amounted to $725,000 in 2004, $592,000 in 2003 and $218,000 in 2002, including gains on other real estate. The increase in other noninterest income is due to the aggregate of several relatively small increases in other fee areas throughout the bank, as management continues to focus on generating noninterest income.

Noninterest Expense

A summary of the major components of noninterest expense for the years ended December 31, 2004, 2003 and 2002 is reflected in Table 4. Noninterest expense increased to $9,030,000 in 2004 from $8,099,000 in 2003 and $7,258,000 in 2002. The major component of noninterest expense is salaries and employee benefits. The number of full-time equivalent employees increased from 112 to 116 during 2004. Increases in the 2004 workforce included the addition of an experienced commercial loan officer who joined the Capital Region lending staff. A major increase in noninterest expense was the increase in expenses, primarily in licensing and maintenance, associated with the mainframe computer and imaging system implemented in 2003. The new system allows the bank to be compliant with the Check Truncation Act and also allows for labor and storage efficiencies going forward.

TABLE 4: NONINTEREST EXPENSE

(Dollars in thousands)

	Years ended December 31,
	2004		2003	2002
Salaries and employee benefits	$	4,918	4,496	3,978
Occupancy, net		456	423	384
Equipment		631	602	514
Postage and supplies		308	320	278
Marketing and advertising		185	100	115
Other real estate, net		0	135	294
Pennsylvania bank shares tax		265	266	259
Professional services		113	86	160
Telephone		86	77	78
Loss on mortgage sales		66	146	79
Legal		100	86	17
Consultant		292	199	143
Debit card processing		214	167	207
Director fees and benefits		196	201	225
Computer software licensing and maintenance		170	91	77
Other		1,030	704	450
Total Noninterest Expense	$	9,030	8,099	7,258

Investments

MPB’s investment portfolio is utilized to improve earnings through investments of funds in higher-yielding assets, while maintaining asset quality, which provide the necessary balance sheet liquidity for MPB.

MPB’s entire portfolio of investment securities is considered available for sale. As such, the investments are recorded at fair value. Our investments: US Treasury, Agency and Municipal securities are given a market price relative to investments of the same type with similar maturity dates. As the interest rate environment of these securities changes, our existing securities are valued differently in comparison. This difference in value, or unrealized gain, amounted to $693,000, net of tax, as of the end of the year.

As of December 31, 2004, SFAS No. 115 resulted in an increase in shareholders’ equity of $693,000 (unrealized gain on securities of $1,051,000 less estimated income tax expense of $357,000). At December 31, 2003, SFAS No. 115 resulted in an increase of shareholders’ equity of $1,415,000 (unrealized gain on securities of $2,144,000 less estimated income tax expense of $729,000) compared to a December 31, 2002 increase in shareholders’ equity of $1,357,000 (unrealized gain on securities of $2,049,000, less estimated income tax expense of $692,000).

MPB does not have any significant concentrations of investment securities.

32

management’s discussion and analysis

Table 5 provides a history of the amortized cost of investment securities at December 31, for each of the past three years. The unrealized gains and losses on investment securities are outlined in Note 6 to the Consolidated Financial Statements.

TABLE 5: AMORTIZED COST OF INVESTMENT SECURITIES

(Dollars in thousands)	December 31,
	2004		2003	2002
U. S. Treasury and U.S. government agencies	$	11,998	10,564	9,538
Mortgage-backed U.S. government agencies		5,508	4,808	5,512
State and political subdivision obligations		22,621	34,447	39,388
Restricted equity securities		3,435	2,130	2,372
Total	$	43,561	51,949	56,810

Loans

At December 31, 2004, net loans totaled $275,904,000, a $46,818,000 or 20.4% increase from December 31, 2003. During 2004, MPB experienced a net increase in commercial real estate and commercial/industrial loans of approximately $46,626,000, the majority of which was generated in the greater Harrisburg region.

The current environment in lending remains extremely competitive with financial institutions aggressively pursuing potential borrowers. At December 31, 2004, loans, net of unearned income, represented 71.5% of earning assets as compared to 64.3% on December 31, 2003 and 64.4% on December 31, 2002.

The Bank’s loan portfolio is diversified among individuals, farmers, and small and medium-sized businesses generally located within the Bank’s trading area of Dauphin County, lower Northumberland County, western Schuylkill County and eastern Cumberland County. Commercial real estate, construction and land development loans are collateralized mainly by mortgages on the income-producing real estate or land involved. Commercial, industrial and agricultural loans are made to business entities and may be secured by business assets, including commercial real estate, or may be unsecured. Residential real estate loans are secured by liens on the residential property. Consumer loans include installment, lines of credit and home equity loans.

A distribution of the Bank’s loan portfolio according to major loan classification is shown in Table 6.

TABLE 6: LOAN PORTFOLIO

(Dollars in thousands)	December 31,
	2004					2003			2002			2001			2000
	Amount			Percent of Loans		Amount		Percent of Loans	Amount		Percent of Loans	Amount		Percent of Loans	Amount		Percent of Loans
Commercial real estate, construction and land development	$	195,549		69.6	%	154,296		66.5	146,325		65.6	130,983		63.8	110,947		59.3
Commercial, industrial and agricultural		30,940		11.0		25,567		11.0	22,398		10.0	23,107		11.3	26,274		14.1
Real estate-residential		43,914		15.6		43,384		18.7	41,502		18.6	38,349		18.7	35,610		19.0
Consumer		10,680		3.8		10,380		3.8	12,978		5.8	12,732		6.2	14,110		7.6
Total Loans	$	281,083		100		233,627		100	233,203		100	205,101		100	186,941		100
Unearned income		(1,536	)			(1,549	)		(1,850	)		(2,265	)		(2,730	)
Loans net of unearned discount		279,547				232,078			221,353			202,836			184,211
Allowance for loan losses		(3,643	)			(2,992	)		(3,051	)		(2,856	)		(2,815	)
Net Loans	$	275,904				229,086			218,302			99,980			181,396

33

management’s discussion and analysis

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by Management to absorb potential loan losses in the loan portfolio. MPB has a loan review department that is charged with establishing a “watch list” of potential unsound loans, identifying unsound credit practices and suggesting corrective actions. A quarterly review and reporting process is in place for monitoring those loans that are on the “watch list.” Each credit on the “watch list” is evaluated to estimate potential losses. In addition, estimates for each category of credit are provided based on Management’s judgment which considers past experience, current economic conditions and other factors. For installment and real estate mortgages, specific allocations are based on past loss experience adjusted for recent portfolio growth and economic trends. The total of reserves resulting from this analysis are “specific” reserves. The amounts not specifically provided for individual classes of loans are considered “general.” This amount is determined and based on judgments regarding economic conditions, trends and other factors.

The allocation of the allowance for loan losses among the major classifications is shown in Table 7 as of December 31 of each of the past five years. The allowance for loan losses at December 31, 2004 was $3,643,000 or 1.30% of total loans less unearned discount as compared to $2,992,000 or 1.29% at December 31, 2003, and $3,051,000 or 1.38% at December 31, 2002.

TABLE 7: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

(Dollars in thousands)	December 31,
	2004		2003	2002	2001	2000
Commercial real estate, construction and land development	$	2,368	1,938	1,898	1,584	1,318
Commercial, industrial and agricultural		1,093	954	922	987	1,008
Real estate-residential		65	20	56	73	209
Consumer		83	65	147	166	93
General		34	15	28	46	187
Total Loans	$	3,643	2,992	3,051	2,856	2,815

Nonperforming Assets

Nonperforming assets, other than consumer loans and 1-4 family residential mortgages, include impaired and nonaccrual loans, loans past due 90 days or more, restructured loans and other real estate (including residential property). Nonaccrual loans are loans on which we no longer recognize daily interest income. A loan is generally classified as nonaccrual when principal or interest has consistently been in default for a period of 90 days or more, or because of a deterioration in the financial condition of the borrower, payment in full of principal or interest is not expected. Loans past due 90 days or more and still accruing interest are loans that are generally well-secured and in the process of collection or repayment. Restructured loans are those loans whose terms have been modified to lower interest or principal payments because of borrower financial difficulties. Foreclosed assets held for sale include those assets that have been acquired through foreclosure for debts previously contracted, in settlement of debt.

Consumer loans are generally recommended for charge-off when they become 120 days delinquent. All 1-4 family residential mortgages 90 days or more past due are reviewed quarterly by Management, and collection decisions are made in light of the analysis of each individual loan. The amount of consumer and residential mortgage loans past due 90 days or more at year-end was $397,000, $533,000 and $350,000 in 2004, 2003 and 2002, respectively.

A presentation of nonperforming assets as of December 31, for each of the past five years is given in Table 8. Nonperforming assets at December 31, 2004, totaled $1,775,000 or 0.44% of total assets compared to $2,767,000 or 0.74% of total assets in 2003, and $2,753,000 or 0.76% of total assets in 2002. The foreclosed assets held for sale at December 31, 2004, consist of two parcels of commercial real estate and one residential property.

34

management’s discussion and analysis

TABLE 8: NONPERFORMING ASSETS

(Dollars in thousands)	December 31,
	2004			2003		2002		2001		2000
Nonaccrual loans	$	873		984		1,164		1,686		1,116
Past due 90 days or more		397		666		808		828		504
Restructured loans		0		0		0		537		622
Total nonperforming loans		1,270		1,650		1,972		3,051		2,242
Foreclosed assets held for sale		505		1,117		781		1,693		70
Total nonperforming assets	$	1,775		2,767		2,753		4,744		2,312
Percent of loans outstanding		0.63	%	1.18	%	1.23	%	2.31	%	1.24	%
Percent of total assets		0.44	%	0.74	%	0.76	%	1.44	%	0.73	%

There is one loan classified for regulatory purposes that has not been included in Table 8. Management is monitoring one large commercial relationship in the amount of approximately $3,500,000, which is not included in the table above, but has been classified by regulatory standards as substandard. Management believes this loan is adequetely collaterallized. There are no trends or uncertainties which Management expects will materially impact future operating results, liquidity or capital resources, or no other material credits about which Management is aware of any information which causes Management to have serious doubts as to the ability of such borrowers to comply with loan repayment terms.

Deposits and Other Funding Sources

MPB’s primary source of funds is its deposits. Deposits at December 31, 2004, increased by $12,806,000 or 4.4% over December 31, 2003, which also increased by $13,635,000 or 5.0% from December 31, 2002. Average balances and average interest rates applicable to the major classifications of deposits for the years ended December 31, 2004, 2003, and 2002 are presented in Table 9.

Average short-term borrowings for 2004 were $11,415,000 as compared to $10,670,000 in 2003. These borrowings included customer repurchase agreements, treasury tax and loan option borrowings and federal funds purchased.

TABLE 9: DEPOSITS BY MAJOR CLASSIFICATION

(Dollars in thousands)	Years ended December 31,
	2004				2003			2002
	Average		Average		Average	Average		Average	Average
	Balance		Rate		Balance	Rate		Balance	Rate
Noninterest-bearing demand deposits	$	38,884	0.00	%	30,918	0.00	%	28,069	0.00	%
Interest-bearing demand deposits		34,750	0.18	%	33,897	0.24	%	32,480	0.52	%
Money market		45,202	0.98	%	45,072	1.42	%	36,390	2.20	%
Savings		29,027	0.27	%	27,756	0.59	%	26,662	1.33	%
Time		153,100	3.29	%	144,194	3.63	%	144,353	4.49	%
Total	$	300,963	1.88	%	281,837	2.17	%	267,954	2.91	%

Capital Resources

Stockholders’ equity, or capital, is evaluated in relation to total assets and the risk associated with those assets. The greater the capital resources, the more likely a corporation is to meet its cash obligations and absorb unforeseen losses. Too much capital, however, indicates that not enough of the company’s earnings have been paid to stockholders and the buildup makes it difficult for a company to offer a competitive return on the stockholders’ capital going forward. For these reasons capital adequacy has been, and will continue to be, of paramount importance.

In 2004, capital decreased by $2,089,000 or 5.6%, largely due to the $1 per share special dividend in the first quarter of 2004. In 2003, capital was increased by $2,157,000 or 6.1%. In 2002, capital was increased by $3,488,000 or 11.0%. Capital growth is achieved by retaining more in earnings than we pay out to our stockholders.

35

management’s discussion and analysis

MPB’s normal dividend payout allows for quarterly cash returns to its stockholders and provides earnings retention at a level sufficient to finance future growth. The dividend payout ratio, which represents the percentage of annual net income returned to the stockholders in the form of cash dividends, was 131% for 2004 compared to 54% for 2003 and 54% for 2002.

At December 31, 2004, 19,086 shares of MPB’s common stock have been purchased back by MPB, held as treasury stock, and are available for issuance under the dividend reinvestment plan or the stock bonus plan. The treasury stock may also be used for the employee stock ownership plan.

Federal Income Taxes

Federal income tax expense for 2004 was $1,405,000 compared to $1,253,000 and $1,270,000 in 2003 and 2002, respectively. The effective tax rate was 24% for 2004, 21% for 2003 and 22% for 2002.

Liquidity

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

The major sources of cash in 2004 came from operations, a net increase of long-term borrowings of $14,273,000, an increase in deposits of $12,806,000, a net decrease in interest-bearing balances (certificates of deposit of other banks) of $9,511,000, and a net decrease in investment securities of $9,480,000.

The major use of cash during the year was the funding of a net increase in loans of more than $46 million. Another major use of cash during the year was the payment of $5,739,000 in cash dividends. This amount included the $1 per share special dividend, which was paid in the first quarter of 2004.

The major sources of cash in 2003 came from operations and a net increase in deposits of $13,635,000. Deposits grew at a slower pace in 2003 due to improving equity markets. In addition, net long-term debt was increased by approximately $3,301,000 as the Bank locked into several new borrowings at the favorable current rate levels.

In 2003, the major use of cash was for net loan growth of $13,530,000. Loan growth in 2003 was slower than the prior year, due to a slow economy and heightened competition for commercial loans. Excess cash generated was used to pay down short-term borrowings.

Market Risk - Asset-Liability Management and Interest Rate Sensitivity

Interest rate sensitivity is a function of the repricing characteristics of MPB’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. These differences are known as interest sensitivity gaps.

MPB manages the interest rate sensitivity of its assets and liabilities. The principal purpose of asset-liability management is to maximize net interest income while avoiding significant fluctuations in the net interest margin and maintaining adequate liquidity. Net interest income is increased by increasing the net interest margin and by increasing earning assets.

MPB utilizes asset-liability management models to measure the impact of interest rate movements on its interest rate sensitivity position. The traditional maturity gap analysis is also reviewed regularly by MPB’s management. MPB does not attempt to achieve an exact match between interest sensitive assets and liabilities because it believes that a controlled amount of interest rate risk is desirable.

36

management’s discussion and analysis

The maturity distribution and weighted average yields of investments is presented in Table 10. The maturity distribution and repricing characteristics of MPB’s loan portfolio is shown in Table 11. Table 12 provides expected maturity information about MPB’s financial instruments that are sensitive to changes in interest rates. Except for the effects of prepayments on mortgage related assets, the table presents principal cash flows and related average interest rates on interest earning assets by contractual maturity. Residential loans are assumed to have annual payment rates between 12% and 18% of the portfolio. Loan and mortgage backed securities balances are not adjusted for unearned discounts, premiums, and deferred loan fees.

MPB assumes that 75% of savings and NOW accounts are core deposits and are, therefore, expected to reprice after 5 years. Transaction accounts, excluding money market accounts, are assumed to reprice after five years. Money market accounts are assumed to be variable accounts and are reported as maturing within the first twelve months. No roll-off is applied to certificates of deposit. Fixed maturity deposits reprice at maturity. The maturity distribution of time deposits of $100,000 or more is shown in Table 13.

TABLE 10: INVESTMENT MATURITY AND YIELD

(Dollars in thousands)	December 31, 2004
	One Year and Less			After One Year thru Five Years	After Five Years thru Ten Years	After Ten Years	Total
U.S. Treasury and U.S.government agencies	$	1,000		5,500	3,500	1,998	11,998
State and political subdivision obligations		240		1,331	9,742	11,255	22,568
Mortgage-backed U.S. government agencies		0		263	86	5,159	5,508
Equity securities		0		0	0	3,435	3,435
Total	$	1,240		7,094	13,328	21,847	43,509
	One Year and Less			After One Year thru Five Years	After Five Years thru Ten Years	After Ten Years	Total
Weighted Average Yields
U.S. Treasury and U.S. government agencies		6.20	%	3.35	4.06	4.65	4.01
State and political subdivision obligations		5.59		6.27	6.85	7.08	6.91
Mortgage-backed U.S. government agencies		0		5.47	6.51	5.02	5.06
Equity securities		0		0	0	1.50	1.50
Total		6.08	%	3.98	6.12	5.49	5.45

TABLE 11: LOAN MATURITY AND INTEREST SENSITIVITY

(Dollars in thousands)	December 31, 2004
	One Year and Less		After One Year thru Five Years	After Five Years	Total
Commercial, real estate, construction and land development	$	67,366	94,294	33,889	195,549
Commercial, industrial and agricultural		17,523	8,007	5,410	30,940
Real estate-residential mortgages		14,834	18,619	10,461	43,914
Consumer		1,570	7,718	1,392	10,680
Total Loans	$	101,293	128,638	51,152	281,083
Rate Sensitivity
Predetermined rate	$	9,597	28,637	46,192	84,426
Floating or adjustable rate		91,696	100,001	4,960	196,657
Total	$	101,293	128,638	51,152	281,083

37

management’s discussion and analysis

TABLE 12: INTEREST RATE SENSITIVITY GAP

(Dollars in thousands) (As of December 31, 2004)	Expected Maturity Year Ended December 31,
	2005			2006		2007		2008	2009	Thereafter		Total	Fair Value
Assets:
Interest bearing balances	$	43,967		3,663		99		5,645	6,934	99		60,407	60,407
Average interest rate		2.73		3.32		5.05		3.74	3.91	4.40		3.00
Debt securities		1,240		355		551		4,263	1,925	31,741		40,075	41,129
Average interest rate		6.08		7.94		6.21		3.40	4.51	6.19		5.79
Adjustable rate loans		91,696		20,034		22,002		30,896	27,069	4,960		196,657	196,657
Average interest rate		5.91		6.65		6.73		6.07	6.25	5.55		6.14
Fixed rate loans		9,371		4,431		10,200		6,235	6,661	45,993		82,891	86,484
Average interest rate		6.68		7.10		6.61		6.48	6.49	6.24		6.42
Total	$	146,274		28,483		32,852		47,039	42,589	82,793		380,030	384,677
Interest liabilities:
Variable rate savings and transaction accounts	$	59,109		0		0		0	0	85,569		144,678	144,678
Average interest rate		0.77								0.12		0.38
Certificates of deposit and IRAs		57,216		33,376		37,993		12,720	13,007	2,154		156,466	157,839
Average interest rate		2.75		3.08		3.73		3.46	3.99	3.95		3.24
Short term borrowings		13,801		0		0		0	0	0		13,801	13,801
Average interest rate		2.25										2.25
Long term fixed rate borrowings		0		10,000		5,000		5,000	12,000	17,957		49,957	53,081
Average interest rate		—		4.19		3.71		3.08	5.63	5.68		4.91
Total	$	130,126		43,376		42,993		17,720	25,007	105,680		364,902	369,399
Rate sensitive gap:
Periodic gap	$	16,148		(14,893	)	(10,141	)	29,319	17,582	(22,887	)
Cumulative gap	$	16,148		1,255		(8,886	)	20,433	38,015	15,128
Cumulative gap as a percentage of total assets		+4.0	%	+0.3		-2.2		+5.1	+9.4	+3.8
(Dollars in thousands) (As of December 31, 2003)	Expected Maturity Year Ended December 31,
	2004			2005		2006		2007	2008	Thereafter		Total	Fair Value
Assets:
Interest bearing balances	$	51,855		12,180		297		99	5,487	0		69,918	69,918
Average interest rate		2.40		2.89		6.68		5.05	3.73	—		2.61
Debt securities		814		4,064		1,927		662	4,994	37,322		49,783	54,093
Average interest rate		6.37		6.13		5.51		5.41	3.36	6.62		6.19
Adjustable rate loans		92,340		16,502		17,954		15,145	28,510	1,949		172,400	172,400
Average interest rate		5.31		6.91		6.79		6.60	5.99	5.01		5.84
Fixed rate loans		5,066		5,823		5,727		6,912	6,867	29,283		59,678	67,412
Average interest rate		7.28		7.61		7.29		7.05	6.45	7.05		7.08
Total	$	150,075		38,569		25,905		22,818	45,858	68,554		351,779	363,823

38

management’s discussion and analysis

TABLE 12: INTEREST RATE SENSITIVITY GAP (cont’d)

(Dollars in thousands) (As of December 31, 2003)	Expected Maturity Year Ended December 31,
	2004			2005	2006	2007	2008	Thereafter		Total	Fair Value
Interest liabilities:
Variable rate savings and transaction accounts	$	61,611		0	0	0	0	79,279		140,890	140,890
Average interest rate		0.91		—	—	—	—	0.18		0.50
Certificates of deposit and IRAs		59,605		29,705	19,769	21,612	12,364	2,463		145,518	151,316
Average interest rate		2.70		4.08	3.48	4.29	3.55	3.91		3.42
Short term borrowings		9,688		0	0	0	0	0		9,688	9,688
Average interest rate		1.06		—	—	—	—	—		1.06
Long term fixed rate borrowings		5,088		0	5,000	0	0	25,596		35,684	38,321
Average interest rate		5.24		—	6.21	—	—	5.84		5.81
Total	$	135,992		29,705	24,769	21,612	12,364	107,338		331,780	340,215
Rate sensitive gap:
Periodic gap	$	14,083		8,864	1,136	1,206	33,494	(38,784	)
Cumulative gap	$	14,083		22,947	24,083	25,289	58,783	19,999
Cumulative gap as a percentage of total assets		+3.7	%	+6.1	+6.4	+6.8	+15.7	+5.4

During 2004, Management analyzed interest rate risk using the Profit Star Asset-Liability Management Model. Using the computerized model, Management reviews interest rate risk on a monthly basis. This analysis includes an earnings scenario whereby interest rates are increased by 200 basis points and another whereby they are decreased by 200 basis points. These scenarios indicate that there would not be a significant variance in net interest income at the one-year time frame due to interest rate changes; however, actual results could vary significantly from the calculations prepared by Management. At December 31, 2004, all interest rate risk levels according to our model were within the tolerance guidelines set by Management. The model noted above utilized by Management to create the reports used for Table 12 makes various assumptions and estimates. Actual results could differ significantly from these estimates which would result in significant differences in cash flows. In addition, the table does not take into consideration changes which Management would make to realign its portfolio in the event of a changing rate environment.

TABLE 13: MATURITY OF TIME DEPOSITS $100,000 OR MORE

(Dollars in thousands)	December 31,
	2004		2003	2002
Three months or less	$	7,431	4,821	5,757
Over three months to twelve months		6,771	7,104	6,179
Over twelve months		13,681	12,673	12,895
Total	$	27,883	24,598	24,831

Effects of Inflation

A bank’s asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of a bank are monetary in nature. Management believes the impact of inflation on its financial results depends principally upon MPB’s ability to react to changes in interest rates and, by such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the same direction or at the same magnitude as the prices of other goods and services. As discussed previously, Management seeks to manage the relationship between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

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

39

management’s discussion and analysis

Off-Balance Sheet Items

MPB makes contractual commitments to extend credit and extends lines of credit which are subject to MPB’s credit approval and monitoring procedures.

As of December 31, 2004, commitments to extend credit amounted to $61,028,000 as compared to $48,786,000 as of December 31, 2003.

MPB also issues financial standby letters of credit to its customers. The risk associated with financial standby letters of credit is essentially the same as the credit risk involved in loan extensions to customers. Financial standby letters of credit increased to $11,904,000 at December 31, 2004, from $5,804,000 at December 31, 2003.

Comprehensive Income

Comprehensive Income is a measure of all changes in equity of a corporation, excluding transactions with owners in their capacity as owners (such as proceeds from issuances of stock and dividends). The difference between Net Income and Comprehensive Income is termed “Other Comprehensive Income.” For MPB, Other Comprehensive Income consists of unrealized gains and losses on available-for-sale securities, net of deferred income tax. Comprehensive Income should not be construed to be a measure of net income. The effect of Other Comprehensive Income would only be reflected in the income statement if the entire portfolio of available-for-sale securities were sold on the statement date. The amount of unrealized gains or losses reflected in Comprehensive Income may vary widely at statement dates depending on the markets as a whole and how the portfolio of available-for-sale securities is affected by interest rate movements. Other Comprehensive Income for the years ended December 31, 2004, 2003 and 2002 was ($722,000), $58,000 and $1,413,000, respectively.

Summary of Selected Financial Data

(Dollars in thousands, except per share data)

	2004		2003	2002	2001	2000
INCOME:
Total Interest Income	$	20,077	19,984	21,352	22,864	22,053
Total Interest Expense		8,005	8,434	9,926	11,735	11,455
Net Interest Income		12,072	11,550	11,426	11,129	10,598
Provision for Possible Loan Losses		725	290	425	500	325
Noninterest Income		3,457	2,707	2,022	1,845	1,556
Noninterest Expense		9,030	8,099	7,258	7,026	6,656
Income Before Income Taxes		5,774	5,868	5,765	5,448	5,203
Provision for Income Taxes		1,405	1,253	1,270	1,218	1,255
Net Income		4,369	4,615	4,495	4,230	3,948
COMMON STOCK DATA PER SHARE:
Earnings Per Share	$	1.37	1.45	1.41	1.33	1.24
Cash Dividends Declared		1.80	.80	.80	.80	.80
Stockholders’ Equity		11.06	11.72	11.04	9.94	9.29
AVERAGE SHARES OUTSTANDING		3,188,867	3,188,504	3,188,333	3,190,802	3,187,807
AT YEAR-END:
Investments	$	44,613	54,093	58,859	55,348	73,885
Loans, Net of Unearned Discount		279,547	232,078	221,353	202,836	184,211
Allowance for Loan Losses		3,643	2,992	3,051	2,856	2,815
Total Assets		403,256	373,466	363,284	330,635	315,584
Total Deposits		301,144	288,338	274,703	254,105	231,408
Short-term Borrowings		13,801	9,688	18,156	9,610	22,738
Long-term Debt		49,957	35,684	32,383	32,568	29,241
Stockholders’ Equity	$	35,272	37,361	35,204	31,716	29,626
RATIOS:
Return on Average Assets		1.12	1.25	1.32	1.31	1.34
Return on Average Stockholders’ Equity		12.73	12.69	13.60	13.68	14.64
Cash Dividend Payout Ratio		131.38	54.48	54.05	57.55	61.54
Allowance for Loan Losses to Loans		1.30	1.29	1.38	1.41	1.53
Average Stockholders’ Equity to Average Assets		8.75	9.97	9.67	9.67	9.15

40

list of directors, officers and advisory board members

DIRECTORS	EXECUTIVE OFFICERS	Kathy I. Bordner
Mid Penn Bancorp, Inc. Mid Penn Bank Jere M. Coxon Executive Vice President Penn Wood Products, Inc. Alan W. Dakey President and CEO Mid Penn Bank A. James Durica Consultant Gregory M. Kerwin Senior Partner Kerwin & Kerwin, Attorneys Theodore W. Mowery Partner Gunn-Mowery Insurance Group, Inc. William G. Nelson President Hess Trucking Co., Inc. Donald E. Sauve Consultant Don’s Food Market, Inc. Edwin D. Schlegel Retired Superintendent Millersburg Area School District Eugene F. Shaffer Chairman Mid Penn Bank Guy J. Snyder, Jr. President Snyder Fuels, Inc. DIRECTORS EMERITI Guy F. Bucher Earl R. Etzweiler Harvey J. Hummel Charles F. Lebo Warren A. Miller Charles R. Phillips Anna C. Woodside	Mid Penn Bancorp, Inc. Eugene F. Shaffer Chairman William G. Nelson Vice Chairman Alan W. Dakey President and CEO Kevin W. Laudenslager Treasurer Cindy L. Wetzel Secretary SENIOR MANAGEMENT Mid Penn Bank Eugene F. Shaffer Chairman     48 Years Banking Experience Alan W. Dakey President and CEO     31 Years Banking Experience Kevin W. Laudenslager Executive Vice President and Chief Financial Officer     20 Years Banking Experience Eric S. Williams Executive Vice President and Senior Commercial Loan Officer     26 Years Banking Experience Randall L. Klinger Senior Vice President and Senior Credit Officer     31 Years Banking Experience Allen J. Trawitz Executive Vice President     36 Years Banking Experience Donald J. Bonafede Vice President and Director of Equipment Leasing     22 Years Banking Experience	Vice President and Marketing Director     20 Years Banking Experience Nelson E. Carr Vice President and Business Development Officer     44 Years Banking Experience J. Martin Dell Vice President and Commercial Loan Officer     30 Years Banking Experience William R. Feist, IV Vice President and Commercial Loan Officer     10 Years Banking Experience Roberta A. Hoffman, PHR Vice President, Human Resources Officer and Asst. Secretary     29 Years Banking Experience Michael T. Lehmer Vice President and Senior Trust Officer     14 Years Banking Experience Craig E. Morrow Vice President and Retail Division Manager     18 Years Banking Experience Eric D. Mummau Vice President and Commercial Loan Officer     25 Years Banking Experience Brad N. Shaak Vice President, Consumer and Mortgage Lending Manager     18 Years Banking Experience Steven S. Shuey Vice President and Loan Review Officer     31 Years Banking Experience Dennis E. Spotts Vice President and Operations Officer     32 Years Banking Experience Cindy L. Wetzel Vice President and Corporate Secretary     26 Years Banking Experience CAPITAL AREA ADVISORY BOARD Mid Penn Bank Robert C. Grubic Norman K.A. Hoffer Norman L. Houser Theodore W. Mowery Robert M. Newbury David J. Remmel

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

Name	State of Incorporation
Mid Penn Bank	Pennsylvania
Mid Penn Investment Corp.	Delaware
Mid Penn Insurance Services, LLC	Pennsylvania

EX-23

EXHIBIT 23

CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in Mid Penn Bancorp, Inc.’s Annual Report on Form 10-K of our report dated February 9, 2005, relating to the consolidated financial statements as of and for the year ended December 31, 2004 of Mid Penn Bancorp, Inc. and subsidiaries, which report appears in Mid Penn Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 and filed with the Securities and Exchange Commission.

/s/ PARENTE RANDOLPH, LLC

Williamsport, Pennsylvania

March 11, 2005

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Alan W. Dakey, President and Chief Executive Officer, certify, that:

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

2. Based on my knowledge, the annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officers 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 we 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 annual 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 annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and

(c) 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 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) all significant deficiencies and material weaknesses 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.

Date: March 11, 2005	By:	/s/ Alan W. Dakey
		Alan W. Dakey
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kevin W. Laudenslager, Chief Financial Officer, certify, that:

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

2. Based on my knowledge, the annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officers 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 we 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 annual 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 annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon 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 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) all significant deficiencies and material weaknesses 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.

Date: March 11, 2005	By:	/s/ K. W. Laudenslager
		Kevin W. Laudenslager,
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, Alan W. Dakey, Chief Executive Officer of Mid Penn Bancorp, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Company’s Annual Report on Form 10-K for the period ended December 31, 2004 (the “Report”):

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

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2004.

Date: March 11, 2005	/s/ Alan W. Dakey
	Alan W. Dakey, President and
	Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

EXHIBIT 32.2

CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, Kevin W. Laudenslager, Chief Financial Officer of Mid Penn Bancorp, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Company’s Annual Report on Form 10-K for the period ended December 31, 2004 (the “Report”):

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

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2004.

Date: March 11, 2005	/s/ K. W. Laudenslager
	Kevin W. Laudenslager,
	Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.