The following is Management's Discussion of Consolidated Financial Condition as of March 31, 2009, compared to year-end 2008 and the Results of Operations for the first three months of 2009 compared to the same period in 2008.

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, 2008, and with Mid Penn's Forms 8-K, that were filed during 2009 with the SEC. 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 the Corporation 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.

The Corporation'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 Mid Penn and its customers;

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

• 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;

• Deteriorating economic conditions; and

• The inability of borrowers to repay loans

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 Annual Report and other documents that we periodically file with the SEC, including Mid Penn's Annual Report on Form 10-K for the year ended December 31, 2008.

Critical Accounting Estimates

Mid Penn's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America 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 the Corporation considers the accounting judgments relating to the allowance for loan and lease losses and the evaluation of the Corporation's investment securities for other-than-temporary 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 potentially 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 presentation, 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 income.

Results of Operations

Overview

Net income was $213,000 or $0.02 per common share for the quarter ended March 31, 2009, as compared to net income of $1,173,000 or $0.34 per common share for the quarter ended March 31, 2008.

The margin compression experienced throughout 2008 continued in the first quarter of 2009 with net interest income decreasing from $4,200,000 in 2008 to $3,956,000 in 2009.

The provision for loan and lease losses in the first quarter of 2009 was $933,000, as compared to $100,000 in the first quarter of 2008. The increased provision reflects strong loan growth during the quarter, weak economic conditions, and additional problem loans.

Increasing noninterest expenses in the first quarter of 2009, versus the same period in 2008, also negatively affected earnings. The three primary areas of increased expenses during the first quarter of 2009 were Salaries and Benefits, FDIC Assessment, and Marketing and Advertising expense.

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

                                         Three Months Ended March 31,
                                          2009                 2008
            Return on average assets          0.15 %                0.90 %
            Return on average equity          1.54 %               11.68 %

Total assets fell to $565,070,000 at March 31, 2009, from $572,300,000 on December 31, 2008. This asset decline was the result of maturities in time deposits with other financial institutions and investment securities being used to pay down short-term borrowings and long-term debt. Loan demand was strong during the first quarter of 2009 with gross loans of $448,950,000 at March 31, 2009 compared to $434,643,000 at year-end, an increase of approximately $14 million.

Deposit growth was strong during the first three months of 2009. Total deposits were $451,569,000 at March 31, 2009, compared to $436,824,000 at December 31, 2008, an increase of approximately $15 million. This increase in deposits was boosted by a flight to safety as investors retreat from the stock market and invests their funds in insured accounts.

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



                                                 For the Three Months Ended              For the Three Months Ended
                                                       March 31, 2009                          March 31, 2008
                                               Average                                 Average
(Dollars in thousands)                         Balance      Interest    Rate (%)       Balance      Interest    Rate (%)
ASSETS:
Interest Earning Assets
Interest Earning Balances                    $    45,506   $      456       4.06 %   $    54,548   $      672       4.95 %
Investment Securities:
Taxable                                           25,905          178       2.79 %        24,721          282       4.59 %
Tax-Exempt                                        25,151          432       6.97 %        30,253          523       6.95 %

Total Investment Securities                       51,056                                  54,974

Federal Funds Sold                                   728            1       0.56 %            -            -
Loans and Leases, Net:
Taxable                                          427,812        6,488       6.15 %       371,803        6,666       7.21 %
Tax-Exempt                                        13,253          235       7.19 %         8,837          168       7.65 %

Total Loans and Leases, Net                      441,065                                 380,640
Restricted Investment in Bank Stocks               3,723            1       0.11 %         3,488           -        0.00 %

Total Earning Assets                             542,078        7,791       5.83 %       493,650        8,311       6.77 %

Cash and Due from Banks                            6,580                                   8,048
Other Assets                                      23,591                                  21,282

Total Assets                                 $   572,249                             $   522,980

LIABILITIES & STOCKHOLDERS' EQUITY:
Interest Bearing Liabilities
Interest Bearing Deposits:
NOW                                          $    35,576            8       0.09 %   $    36,240           51       0.57 %
Money Market                                      76,413          359       1.91 %        65,687          405       2.48 %
Savings                                           25,858            6       0.09 %        25,253           17       0.27 %
Time                                             256,542        2,529       4.00 %       224,098        2,514       4.51 %
Short-term Borrowings                             14,537           19       0.53 %        32,177          262       3.27 %
Long-term Debt                                    53,924          688       5.17 %        48,493          628       5.21 %

Total Interest Bearing Liabilities               462,850        3,609       3.16 %       431,948        3,877       3.61 %

Demand Deposits                                   47,993                                  45,233
Other Liabilities                                  5,418                                   5,419
Stockholders' Equity                              55,988                                  40,380

Total Liabilities and Stockholders' Equity   $   572,249                             $   522,980

Net Interest Income                                        $    4,182                              $    4,434

Net Yield on Interest Earning Assets:
Total Yield on Earning Assets                                               5.83 %                                  6.77 %
Rate on Supporting Liabilities                                              3.16 %                                  3.61 %
Average Interest Spread                                                     2.67 %                                  3.16 %
Net Interest Margin                                                         3.13 %                                  3.61 %

For the three months ended March 31, 2009, Mid Penn's taxable-equivalent net interest margin declined to 3.13% from 3.61% during the three months ended March 31, 2008, driven primarily by a reduction in market interest rates and the tightening spread between the yield on earning assets and the cost of supporting liabilities. Net interest income, on a taxable-equivalent basis, in the first three months of 2009 decreased to $4,182,000 from $4,434,000 in the first three months of 2008, in spite of the strong growth in average earning assets, which increased 9.81% from March 31, 2008 to March 31, 2009.

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 quarter of 2009, Mid Penn continued to experience a challenging operating environment. Given the economic pressures that impact some borrowers, the Corporation has increased 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, 2008 to March 31, 2009. The provision for loan and lease losses was $933,000 for the three months ended March 31, 2009, as compared to $100,000 for the three months ended March 31, 2008. 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 Discussion and Analysis.

Noninterest Income

Noninterest income increased by $45,000, or 5.0% during the first quarter of
2009 versus the first quarter of 2008. The net increase was primarily the result
of changes in the following components of noninterest income:



                                                    Three Months Ended
                                                         March 31,
      (Dollars in Thousands)            2009    2008     $ Variance      % Variance
      Service charges on deposits       $ 351   $ 408   $        (57 )        (14.0 )%
      Gain on life insurance proceeds     158      -             158            N/A

The increase in noninterest income was the result of recognition of insurance proceeds due to the death of a former Director. The death benefit revenue was offset by a decline in service charges on deposits, primarily NSF fee income.

Noninterest Expenses

Noninterest expenses increased by $422,000, or 12.2% during the first quarter of
2009, versus the same period in 2008. The increase was primarily a result of
increases in the following components of noninterest expense:



                                                     Three Months Ended
                                                          March 31,
    (Dollars in Thousands)               2009      2008      $ Variance    % Variance
    Salaries and employee benefits      $ 2,100   $ 1,812   $        288         15.9 %
    FDIC Assessment                         128        11            117       1063.6 %
    Marketing and advertising expense       194        79            115        145.6 %

The increases in salaries and employee benefits reflect the full quarter impact of added team members throughout 2008 to position Mid Penn for handling current needs and future growth. The increase in FDIC Assessment is the result of the agency's efforts to replenish the insurance fund in light of the wave of bank closures brought on by the sub-prime lending and credit crisis. Marketing and advertising expenses are higher in 2009 as we position ourselves to take advantage of market disruption caused by the sub-prime lending and credit crisis related mergers and financial difficulties.

Income Taxes

The benefit from income taxes was ($117,000) for the three months ended March 31, 2009, as compared to a provision for income taxes of $377,000 the same period of last year. The tax benefit was related to the reduced net income stemming from the increased provision for loan losses, increased noninterest expenses, and the reduction in net interest income during the first quarter of 2009 versus the same period in 2008. The effective tax rate, as of March 31, 2009, was (121.7) % compared to 24.3% as of March 31, 2008. Generally, our effective tax rate is below the statutory rate due to earnings on tax-exempt loans, investments, and bank-owned life insurance, and the impact of tax credits. The realization of deferred tax assets is dependent on future earnings. As a result of Mid Penn's adoption of FIN 48 and FIN 48-1, no significant income tax uncertainties were identified, therefore, Mid Penn recognized no adjustment for unrealized income tax benefits for the periods ended March 31, 2009 and March 31, 2008. We currently anticipate that future earnings will be adequate to utilize deferred tax assets fully.

Financial Condition

Investment Securities

Securities to be held for indefinite periods of time, but not intended to be held to maturity, are classified as available for sale and carried at fair value. Securities held for indefinite periods of time include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk, and other factors related to interest rate and resultant prepayment risk changes.

Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold, using the specific identification method. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through the Corporation's results of operations.

Interest-bearing time deposits with other financial institutions are fully covered by FDIC Insurance.

As of March 31, 2009 and December 31, 2008, all of Mid Penn's investment securities are classified as available for sale, with the stratification noted in the table below:

                                                March 31, 2009                     December 31,2008
(Dollars in thousands)                  Amortized Cost      Fair Value      Amortized Cost      Fair Value
Available-for-sale:
U.S. Treasury and U.S. government
agencies                                $        11,829    $     12,206    $         22,347    $     23,086
Mortgage-backed U.S. government
agencies                                          3,531           3,640               4,154           4,173
State and political subdivision
obligations                                      25,150          25,637              25,151          25,244
Equity securities                                   250             239                 250             236

Total investment securities             $        40,760    $     41,722    $         51,902    $     52,739

At December 31, 2008, fair value exceeded amortized cost by $837,000 and at March 31, 2009, fair value exceeded amortized cost by $962,000.

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

During the first three months of 2009, Mid Penn had net charge-offs of $174,000 as compared to net charge-offs of $23,000 during the same period of 2008. Mid Penn may need to make future adjustments to the allowance and the provision for loan and lease losses, if economic conditions or loan credit quality differs substantially from the assumptions used in making the Corporation's evaluation of the level of the allowance for loan losses as compared to the balance of outstanding loans.

Analysis of the Allowance for Loan and Lease Losses:



                                                Three Months Ended             Three Months Ended
(Dollars in thousands)                            March 31, 2009                 March 31, 2008
Average total loans outstanding (net
of unearned income)                            $            441,065           $            380,640
Period ending total loans outstanding
(net of unearned income)                       $            448,950           $            389,178
Balance, beginning of period                   $              5,505           $              4,790
Loans charged off during period                                (210 )                          (47 )
Recoveries of loans previously charged
off                                                              36                             24

Net chargeoffs                                                 (174 )                          (23 )

Provision for loan and lease losses                             933                            100

Balance, end of period                         $              6,264           $              4,867

Ratio of net loans charged off to
average loans outstanding (annualized)                         0.16 %                         0.02 %
Ratio of allowance for loan losses to
net loans at end of period                                     1.40 %                         1.25 %

Other than as described herein, we do not believe there are any trends, events or uncertainties that are reasonably expected to have a material impact on future results of operations, liquidity, or capital resources. Further, based on known information, we believe that the effects of current and past economic conditions and other unfavorable business conditions may influence certain borrowers' abilities to comply with their repayment terms. The Corporation continues to monitor closely these borrowers' financial strength.

At March 31, 2009, total nonperforming loans amounted to $3,562,000, or .79% of loans and leases net of unearned income, as compared to levels of $4,164,000, or .96%, at December 31, 2008 and $5,396,000, or 1.39%, at March 31, 2008.

Schedule of Nonperforming Assets:



                                                  March 31,         December 31,         March 31,
(Dollars in thousands)                              2009                2008               2008
Nonperforming Assets:
Nonaccrual loans                                 $     3,443       $        4,113       $     5,396
Loans renegotiated with borrowers                        119                   51                -

Total nonperforming loans                              3,562                4,164             5,396
Foreclosed real estate                                 1,209                1,516               445
Other repossessed property                                53                   -                 -

Total non-performing assets                            4,824                5,680             5,841
Accruing loans 90 days or more past due                  366                1,860             1,672

Total risk elements                              $     5,190       $        7,540       $     7,513

Nonperforming loans as a % of total loans
outstanding                                             0.79 %               0.96 %            1.39 %
Nonperforming assets as a % of total loans
outstanding + other real estate                         1.07 %               1.30 %            1.50 %
Ratio of allowance for loan losses to
nonperforming loans                                   175.86 %             132.20 %           90.20 %

Mid Penn considers a loan or lease to be impaired when, based upon current information and events, it is probable that all interest and principal payments due according to the contractual terms of the loan or lease agreement will not be collected. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease to be considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan or lease and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Larger groups of small-balance loans, such as residential mortgages and consumer installment loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures unless such loans are the subject of a restructuring agreement. As previously discussed in Note 9 of these interim consolidated financial statements, Mid Penn . . .