The following is Management's Discussion of Consolidated Financial Condition as of June 30, 2012, compared to year-end 2011, and the Results of Operations for the three and six months ended June 30, 2012, compared to the same period in 2011.

This discussion should be read in conjunction with the financial tables, statistics, and the audited financial statements and notes thereto included in Mid Penn's Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.

Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mid Penn to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words "expect", "anticipates", "intend", "plan", "believe", "estimate", and similar expressions are intended to identify such forward-looking statements.

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

• The effects of economic deterioration on current customers, specifically the effect of the economy on loan customers' ability to repay loans;

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

• The 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 Mid Penn's market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;

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

• Technological changes;

• Acquisitions and integration of acquired businesses;

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

• Acts of war or terrorism;

• Volatilities in the securities markets; and

• Deteriorating economic conditions.

Mid Penn undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should carefully review the risk factors described in the documents that we periodically file with the SEC, including Mid Penn's Annual Report on Form 10-K for the year ended December 31, 2011.

Critical Accounting Estimates

Mid Penn's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and conform to general practices within the banking industry. Application of these principles involves significant judgments and estimates by management that have a material impact on the carrying value of certain assets and liabilities. The judgments and estimates that we used are based on historical experiences and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and estimates that we have made, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of our operations.

Management of Mid Penn considers the accounting judgments relating to the allowance for loan and lease losses, the evaluation of Mid Penn's investment securities for other-than-temporary impairment, and the assessment of goodwill for impairment to be the accounting areas that require the most subjective and complex judgments.

The allowance for loan and lease losses represents management's estimate of probable incurred credit losses inherent in the loan and lease portfolio. Determining the amount of the allowance for loan and lease losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan and lease portfolio also represents the largest asset type on the consolidated balance sheet. Throughout the remainder of this report, the terms "loan" or "loans" refers to both loans and leases.

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

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

Results of Operations

Overview

Net income available to common shareholders was $1,231,000, $0.35 per common share, for the quarter ended June 30, 2012, as compared to net income available to common shareholders of $930,000, or $0.27 per common share, for the quarter ended June 30, 2011, a 32.4% increase. During the six months ended June 30, 2012, net income available to common shareholders was $2,237,000, or $0.64 per common share, versus $1,802,000, or $0.52 per common share for the same period in 2011, a 24.1% increase.

Net interest income increased $433,000, or 7.7%, to $6,023,000 for the quarter ended June 30, 2012 from $5,590,000 during the quarter ended June 30, 2011. Through the first six months of 2012, net interest income increased $1,127,000, or 10.7%, to $11,700,000 from $10,573,000 during the same period in 2011. This increase has been spurred by a moderating cost of funds and increasing levels of average earning assets.

The provision for loan and lease losses in the second quarter of 2012 was $225,000, compared to $550,000 in the second quarter of 2011. During the six months ended June 30, 2012, the provision for loan and lease losses was $525,000 compared to $750,000 for the six months ended June 30, 2011.

Net income as a percent of average assets (return on average assets or "ROA") and shareholders' equity (return on average equity or "ROE") were as follows on an annualized basis:

                                        Three Months Ended June 30,              Six Months Ended June 30,
                                          2012                  2011             2012                 2011
Return on average assets                       0.78 %             0.62 %             0.71 %               0.62 %
Return on average equity                       9.96 %             8.53 %             9.22 %               8.44 %

Total assets decreased $18,449,000 to $696,934,000 at June 30, 2012, from $715,383,000 at December 31, 2011. This decrease is mainly attributable to the decline in total deposits, which decreased $23,641,000 from $634,055,000 at December 31, 2011 to $610,414,000 at June 30, 2012. Loan growth during the first six months of 2012 was weak, increasing $3,265,000 from $482,717,000 at December 31, 2011 to $485,982,000 at June 30, 2012. In order to continue improving net interest margin within the current environment, Mid Penn has chosen to manage the balance sheet in such a way that loan and deposit growth in 2012 remain closely matched, and because of this strategy, asset growth has moderated in the first six months of 2012.

Deposit growth has diminished, as noted above, during the first six months of 2012. This allowed for a closer match between funding sources and funding uses, as well as reduced the balance of overnight funding, which has been advantageous from a net interest margin perspective. Numerous deposit repricing opportunities remain throughout 2012, which will continue to help improve cost of funds as well as overall net interest margin despite continued downward pressure on asset yields.

Net Interest Income/Funding Sources

Net interest income, Mid Penn's primary source of revenue, is the amount by which interest income on loans and investments exceeds interest incurred on deposits and borrowings. The amount of net interest income is affected by changes in interest rates and changes in the volume and mix of interest-sensitive assets and liabilities. Net interest income and corresponding yields are presented in the analysis below on a taxable-equivalent basis. Income from tax-exempt assets, primarily loans to or securities issued by state and local governments, is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 34%. The following table includes average balances, rates, interest income and expense, interest rate spread, and net interest margin:

Average Balances, Effective Interest Differential and Interest Yields

Interest rates and interest differential - taxable equivalent basis



(Dollars in thousands)                            For the Six Months Ended                For the Six Months Ended
                                                       June 30, 2012                           June 30, 2011
                                              Average                     Rate        Average                     Rate
                                              Balance      Interest       (%)         Balance      Interest       (%)
ASSETS:
Interest Earning Balances                    $  27,269     $     125       0.92 %    $  59,868     $     317       1.07 %
Investment Securities:
Taxable                                        106,017           773       1.47 %       61,381           547       1.80 %
Tax-Exempt                                      49,067         1,232       5.05 %       30,037           953       6.40 %

Total Investment Securities                    155,084                                  91,418

Federal Funds Sold                               3,701             6       0.33 %       10,884            14       0.26 %
Loans and Leases, Net                          484,966        14,065       5.83 %      471,449        14,214       6.08 %
Restricted Investment in Bank Stocks             2,960             2       0.14 %        3,938            -        0.00 %

Total Earning Assets                           673,980        16,203       4.83 %      637,557        16,045       5.07 %
Cash and Due from Banks                          7,893                                   7,273
Other Assets                                    24,531                                  25,339

Total Assets                                 $ 706,404                               $ 670,169

LIABILITIES & SHAREHOLDERS' EQUITY:
Interest Bearing Deposits:
NOW                                          $  99,887           156       0.31 %    $  51,665            58       0.23 %
Money Market                                   256,968         1,198       0.94 %      237,433         1,604       1.36 %
Savings                                         28,745             7       0.05 %       27,220             7       0.05 %
Time                                           189,603         2,046       2.17 %      212,735         2,767       2.62 %
Short-term Borrowings                              898             1       0.22 %        1,020             3       0.59 %
Long-term Debt                                  22,653           487       4.32 %       24,053           516       4.33 %

Total Interest Bearing Liabilities             598,754         3,895       1.31 %      554,126         4,955       1.80 %
Demand Deposits                                 47,639                                  60,218
Other Liabilities                                5,302                                   6,632
Shareholders' Equity                            54,709                                  49,193

Total Liabilities and Shareholders' Equity   $ 706,404                               $ 670,169

Net Interest Income                                        $  12,308                               $  11,090

Net Yield on Interest Earning Assets:
Total Yield on Earning Assets                                              4.83 %                                  5.07 %
Rate on Supporting Liabilities                                             1.31 %                                  1.80 %
Average Interest Spread                                                    3.52 %                                  3.27 %
Net Interest Margin                                                        3.67 %                                  3.51 %

For the six months ended June 30, 2012, Mid Penn's taxable-equivalent net interest margin increased to 3.67%, from 3.51%, as compared to the six months ended June 30, 2011, driven primarily by a reduction in cost of supporting liabilities. Net interest income, on a taxable-equivalent basis, in the first six months of 2012, increased to $12,308,000 from $11,090,000 in the first six months of 2011, related to the changing composition of interest bearing liabilities and the growth in average earning assets, which increased 5.7% from June 30, 2011 to June 30, 2012.

Although the effective interest rate impact on earning assets and funding sources can be reasonably estimated at current interest rate levels, the options selected by customers, and the future mix of the loan, investment, and deposit products in the Bank's portfolios, may significantly change the estimates used in the simulation models. In addition, our net interest income may be impacted by further interest rate actions of the Federal Reserve Bank.

Provision for Loan Losses

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

During the first six months of 2012, Mid Penn continued to experience a challenging economic and operating environment both on a national and local level. Give the economic pressures that impact some borrowers, Mid Penn has contributed to the allowance for loan and lease losses in accordance with Mid Penn's assessment process, which took into consideration the decrease in collateral values from December 31, 2011 to June 30, 2012. Mid Penn's provision for loan and lease losses was $225,000 for the three months ended June 30, 2012, as compared to $550,000 for the three months ended June 30, 2011. During the six months ended June 30, 2012, the provision for loan and lease losses was $525,000, as compared to $750,000 for the six months ended June 30, 2011. For further discussion of factors affecting the provision for loan and lease losses please see Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses in the Financial Condition section of this Management's Discussion and Analysis.

Noninterest Income

Noninterest income increased $226,000, or 32.1%, during the second quarter of
2012 versus the second quarter of 2011. During the six months ended June 30,
2012, noninterest income increased $206,000, or 14.1%, versus the same period in
2011. The following components of noninterest income showed significant changes:



   (Dollars in Thousands)                         Three Months Ended June 30,
                                       2012       2011       $ Variance        % Variance
   Income from fiduciary activities   $   189     $ 115     $         74              64.3 %
   Service charges on deposits            136       189              (53 )           -28.0 %
   Mortgage banking income                137        80               57              71.3 %
   Other income                           397       256              141              55.1 %




(Dollars in Thousands)                                        Six Months Ended June 30,
                                               2012        2011        $ Variance          % Variance
Income from fiduciary activities               $ 301       $ 210       $        91                43.3 %
Service charges on deposits                      265         372              (107 )             -28.8 %
Net gain on sales of investment securities        26          -                 26                 N/A
Mortgage banking income                          259         203                56                27.6 %
Other income                                     694         548               146                26.6 %

Income from fiduciary activities increased during the three and six months ended June 30, 2012 versus the same periods in 2011. This increase was the result of greater sales of third party mutual funds during the first half of 2012. Service charges on deposits, primarily fees from insufficient funds, have decreased during the three and six months ended June 30, 2012. During this period of economic downturn, customers seem to have become more conscientious about their account balances and avoiding unnecessary charges related to insufficient funds. In addition to this behavioral change, Mid Penn was negatively impacted by recent regulatory changes governing overdraft charges on electronic transactions, which has resulted in a reduction in NSF revenue. Mid Penn recognized investment security gains in the first six months of 2012 as a result of efforts to position the portfolio to provide earnings and cash flow in support of anticipated loan growth. Mortgage banking income has been robust during the three and six months ended June 30, 2012. The reduction in both 15 and 30 year mortgage rates has incentivized qualified borrowers to refinance their present mortgages. Purchase activity has increased but is still weak versus pre-recession levels in spite of low financing rates and reduced home prices. During the second quarter of 2012, the former Bank branch at 4098 Derry Street in Harrisburg was sold, resulting in a gain of $40,000. Administrative operations housed in this location were relocated to other facilities within the Bank's network. Also contributing to the increase in other income during 2012 were increased levels of merchant services and card interchange revenue compared to the same periods in 2011, as well as recognition of $35,000 in sales tax refunds from disputed filings in previous years.

Noninterest Expenses

Noninterest expenses increased $539,000 or 12.2% during the second quarter of 2012, versus the same period in 2011. During the six months ended June 30, 2012, noninterest expenses increased $977,000, or 11.2%, versus the same period in 2011. The changes were primarily a result of the following components of noninterest expense:

                                            2012          2011           $ Variance          % Variance
Salaries and employee benefits             $ 2,619       $ 2,401        $        218                -9.1 %
Equipment expense                              286           318                 (32 )              10.1 %
FDIC assessment                                302           217                  85               -39.2 %
Marketing and advertising expense              128            95                  33               -34.7 %
Loss (gain) on sale/write-down of
foreclosed assets                               50           (31 )                81              -261.3 %
Other expenses                                 633           508                 125               -24.6 %




(Dollars in Thousands)                                       Six Months Ended June 30,
                                            2012          2011           $ Variance          % Variance
Salaries and employee benefits             $ 5,215       $ 4,602        $        613               -13.3 %
Equipment expense                              580           662                 (82 )              12.4 %
FDIC assessment                                603           531                  72               -13.6 %
Marketing and advertising expense              197           158                  39               -24.7 %
Loss (gain) on sale/write-down of
foreclosed assets                               58           (59 )               117              -198.3 %
Loan collection costs                          148            91                  57               -62.6 %
Other expenses                               1,146         1,008                 138               -13.7 %

Salaries and employee benefits increased during the three and six months ended June 30, 2012, primarily due to the increase in actual medical claims experienced from Mid Penn's self-funded medical insurance plan. Also contributing to the increase was the hiring of experienced team members to bolster compliance functions and to add depth to the sales and support areas of Mid Penn. Equipment expense for the three and six months ended June 30, 2012 declined from the same period in 2011, mainly because depreciation expense has been declining as older assets become fully depreciated faster than newly acquired assets have been added. FDIC assessments have increased during the three and six months ended June 30, 2012 due to a combination of the growth in the asset base used in the computation. Marketing and advertising expenses have also increased during the periods noted above due to Mid Penn taking a more active posture toward raising general market awareness as the Bank seeks to grow the institution. A negative variance during the three and six months ended June 30, 2012 was the loss (gain) on sale/write-down of foreclosed assets. Real estate values for these distressed properties have declined, though their liquidation has been able to proceed in a more orderly manner. The escalation in loan collection costs for the six months ended June 30, 2012 is attributed to the portfolio of problem credits migrating through the collection process. Other expenses increased during the three and six months ended June 30, 2012, primarily due to a general increase in overall cost of services utilized.

Income Taxes

The provision for income taxes was $422,000 for the three months ended June 30, 2012, as compared to the provision for income taxes of $278,000 in the same period last year. The effective tax rate for the three months ended June 30, 2012, was 23.6% compared to 20.8% for the three months ended June 30, 2011. The provision for income taxes for the six months ended June 30, 2012 was $665,000, as compared to $519,000 during the same period in 2011. The effective tax rate for the six months ended June 30, 2012 was 21.0% compared to 20.1% for the six months ended June 30, 2011. Generally, our effective tax rate is below the statutory rate due to earnings on tax-exempt loans, investments, and bank-owned life insurance, as well as the impact of tax credits. The realization of deferred tax assets is dependent on future earnings. We currently anticipate that future earnings will be adequate to fully utilize deferred tax assets.

Financial Condition

Loans

During the first six months of 2012, Mid Penn experienced an increase in loans outstanding. Commercial real estate, as well as commercial, industrial, and agricultural, and residential real estate balances showed modest increases as requests from creditworthy borrowers has begun to increase. Balances in the other components of the loan portfolio have eroded through contractual payments and the refinancing of real estate secured debt by borrowers with equity in their properties. While loan demand has shown modest improvement, Mid Penn experienced weaker than normal loan demand during the first six months of 2012 despite a desire to sensibly lend to support creditworthy existing and new customers in our marketplace.

(Dollars in thousands)                                June 30, 2012               December 31, 2011
                                                   Amount           %            Amount           %
Commercial real estate, construction and land
development                                       $ 250,982         51.6 %     $  249,204         51.6 %
Commercial, industrial and agricultural              78,752         16.2 %         78,655         16.3 %
Real estate - residential                           148,331         30.5 %        146,847         30.4 %
Consumer                                              7,917          1.7 %          8,011          1.7 %

                                                  $ 485,982        100.0 %     $  482,717        100.0 %

Most of Mid Penn's lending activities are with customers located within the trading area of Dauphin County, lower Northumberland County, western Schuylkill County and eastern Cumberland County, Pennsylvania. This region currently, and historically, has lower unemployment than the U.S. as a whole. This is due in . . .