Mid Penn Bancorp, Inc., is a financial holding company and maintains a well-capitalized status in both the consolidated Corporation and in its bank subsidiary. Quantitative measures established by regulation to ensure capital adequacy require Mid Penn to maintain minimum amounts and ratios (set forth below) of Tier 1 Capital to average assets and of Total Capital (as defined in the regulations) to risk-weighted assets. As of December 31, 2021 and December 31, 2020, Mid Penn met all capital adequacy requirements to which the Bank is subject, and the Bank is considered “well-capitalized”. However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources.

The federal banking agencies have substantially amended the regulatory risk-based capital rules applicable to Mid Penn. The amendments implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The amended rules included new minimum risk-based capital and leverage ratios, which became effective in January 2015, with certain requirements phased in beginning in 2016, and refined the definition of what constitutes "capital" for purposes of calculating those ratios.

The revised minimum capital level requirements applicable to Mid Penn include: (i) a new common equity Tier I capital ratio of 4.5%; (ii) a Tier I capital ratio of 6.0% (increased from 4.0 %); (iii) a Total Capital ratio of 8.0% (unchanged from prior rules); and (iv) a Tier I leverage ratio of 4.0% for all institutions. The amended rules also established a "capital conservation buffer" of 2.5% above the revised regulatory minimum capital ratios, which result in the following minimum ratios: (i) a common equity Tier I capital ratio of 7.0%; (ii) a Tier I capital ratio of 8.5%; and (iii) a Total Capital ratio of 10.5%. The new capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that could be utilized for such actions.

The final rules allowed community banks to make a one-time election not to include the additional components of accumulated other comprehensive income (“AOCI”) in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. Mid Penn made the election not to include the additional components of AOCI in regulatory capital.

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

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

Under the new rules, mortgage servicing assets (“MSAs”) and certain deferred tax assets (“DTAs”) are subject to stricter limitations than those applicable under the current general risk-based capital rule. The new rules also increase the risk weights for past-due loans, certain risk weights and credit conversion factors.

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

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans, or advances. The amount of dividends that may be paid from the Bank to the Corporation in any calendar year is limited to the Bank’s current year’s net profits, combined with the retained net profits of the preceding two years. For the year ended December 31, 2021, $38,474,000 of undistributed earnings of the Bank, included in the consolidated shareholders’ equity balance, was available for distribution to the Corporation as dividends without prior regulatory approval, subject to regulatory capital requirements below.

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

(Dollars in thousands)	Capital Adequacy
											To Be Well-Capitalized
						Minimum for					Under Prompt
						Basel III Capital					Corrective
	Actual					Adequacy (a)					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Mid Penn Bancorp, Inc.
As of December 31, 2021
Tier 1 Capital (to Average Assets)	$	374,368		8.1	%	$	185,764		4.0	%	$	N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		365,084		11.7	%		217,579		7.0	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		374,368		12.0	%		264,203		8.5	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		452,527		14.6	%		326,369		10.5	%	N/A		N/A

Mid Penn Bank
As of December 31, 2021
Tier 1 Capital (to Average Assets)	$	398,773		8.6	%	$	185,721		4.0	%	$	232,151		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		398,773		12.8	%		217,446		7.0	%		201,914		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		398,773		12.8	%		264,041		8.5	%		248,510		8.0	%
Total Capital (to Risk Weighted Assets)		413,442		13.3	%		326,169		10.5	%		310,637		10.0	%

Mid Penn Bancorp, Inc.
As of December 31, 2020
Tier 1 Capital (to Average Assets)	$	188,501		6.8	%	$	111,201		4.0	%	$	N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		188,501		9.6	%		137,351		7.0	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		188,501		9.6	%		166,783		8.5	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		246,529		12.6	%		206,026		10.5	%	N/A		N/A

Mid Penn Bank
As of December 31, 2020
Tier 1 Capital (to Average Assets)	$	218,676		7.9	%	$	111,166		4.0	%	$	138,958		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		218,676		11.1	%		137,288		7.0	%		127,482		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		218,676		11.1	%		166,707		8.5	%		156,901		8.0	%
Total Capital (to Risk Weighted Assets)		232,124		11.8	%		205,933		10.5	%		196,126		10.0	%

(1) The minimum amounts and ratios as of December 31, 2021 and December 31, 2020 include the full phase in of the capital conservation buffer of 2.5 percent required by the Basel III framework.