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Investment Securities | 9 Months Ended
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Sep. 30, 2018
Securities Financing Transactions Disclosures [Abstract] |
Investment Securities |
(4) | Investment Securities
Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available-for-sale and carried at fair value. Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, pledging requirements, and other factors related to effective portfolio management. Securities to be held to maturity are carried at amortized cost. For available-for-sale debt securities, realized gains and losses on dispositions are based on the net proceeds and the amortized cost of the securities sold, using the specific identification method. Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through Mid Penn’s consolidated statements of income for the respective period. ASC Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess, in addition to the credit condition of the underlying issuer, whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. In instances when a determination is made that other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Mid Penn had no securities considered by management to be other-than-temporarily impaired as of September 30, 2018, December 31, 2017, or September 30, 2017, and did not record any securities impairment charges in the respective periods ended on these dates. Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to relate to changes in interest rates, and not erosion of credit quality. Beginning January 1, 2018, upon adoption of ASU 2016-01, equity securities with readily determinable fair values are stated at fair value within other assets on the balance sheet, with realized and unrealized gains and losses reported in other expense on the income statement. For periods prior to January 1, 2018, equity securities were classified as available-for-sale and stated at fair value within investment securities available-for-sale on the balance sheet, with unrealized gains and losses reported as a separate component of accumulated other comprehensive loss, net of tax. Equity securities without readily determinable fair values are recorded at cost less any impairment. The amortized cost, fair value, and unrealized gains and losses on investment securities at September 30, 2018 and December 31, 2017 are as follows:
(Dollars in thousands) |  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | $ | 40,590 |  |  | $ | — |  |  | $ | 2,640 |  |  | $ | 37,950 |
Mortgage-backed U.S. government agencies |  |  | 41,677 |  |  |  | - |  |  |  | 1,490 |  |  |  | 40,187 |
State and political subdivision obligations |  |  | 33,306 |  |  |  | 54 |  |  |  | 2,213 |  |  |  | 31,147 |
Corporate debt securities |  |  | 1,250 |  |  |  | - |  |  |  | 7 |  |  |  | 1,243 |
Total available-for-sale debt securities |  |  | 116,823 |  |  |  | 54 |  |  |  | 6,350 |  |  |  | 110,527 |
Held-to-maturity debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  |  | 16,480 |  |  |  | 5 |  |  |  | 261 |  |  |  | 16,224 |
Mortgage-backed U.S. government agencies |  |  | 69,344 |  |  |  | 2 |  |  |  | 1,998 |  |  |  | 67,348 |
State and political subdivision obligations |  |  | 84,154 |  |  |  | 19 |  |  |  | 2,157 |  |  |  | 82,016 |
Corporate debt securities |  |  | 1,543 |  |  |  | — |  |  |  | 11 |  |  |  | 1,532 |
Total held-to-maturity debt securities |  |  | 171,521 |  |  |  | 26 |  |  |  | 4,427 |  |  |  | 167,120 |
Total |  | $ | 288,344 |  |  | $ | 80 |  |  | $ | 10,777 |  |  | $ | 277,647 |
(Dollars in thousands) |  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | $ | 40,125 |  |  | $ | — |  |  | $ | 1,395 |  |  | $ | 38,730 |
Mortgage-backed U.S. government agencies |  |  | 26,398 |  |  |  | 2 |  |  |  | 569 |  |  |  | 25,831 |
State and political subdivision obligations |  |  | 27,775 |  |  |  | 7 |  |  |  | 739 |  |  |  | 27,043 |
Corporate debt securities |  |  | 1,350 |  |  |  | 5 |  |  |  | — |  |  |  | 1,355 |
Total available-for-sale debt securities |  |  | 95,648 |  |  |  | 14 |  |  |  | 2,703 |  |  |  | 92,959 |
Available-for-sale equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  | 550 |  |  |  | — |  |  |  | 44 |  |  |  | 506 |
Total available-for-sale equity securities |  |  | 550 |  |  |  | — |  |  |  | 44 |  |  |  | 506 |
Held-to-maturity debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  |  | 10,984 |  |  |  | — |  |  |  | 90 |  |  |  | 10,894 |
Mortgage-backed U.S. government agencies |  |  | 53,472 |  |  |  | — |  |  |  | 523 |  |  |  | 52,949 |
State and political subdivision obligations |  |  | 36,900 |  |  |  | 41 |  |  |  | 301 |  |  |  | 36,640 |
Total held-to-maturity debt securities |  |  | 101,356 |  |  |  | 41 |  |  |  | 914 |  |  |  | 100,483 |
Total |  | $ | 197,554 |  |  | $ | 55 |  |  | $ | 3,661 |  |  | $ | 193,948 |
Estimated fair values of debt securities are based on quoted market prices, where applicable. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued. Please refer to Note 5, Fair Value Measurement, for more information on the fair value of investment securities. Equity securities consist of Community Reinvestment Act funds and, as of September 30, 2018 and December 31, 2017, Mid Penn had $488,000 and $506,000, respectively, in equity securities recorded at fair value. Prior to January 1, 2018, equity securities were stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive loss, net of tax. At December 31, 2017, net unrealized gains of $44,000 had been recognized in accumulated other comprehensive loss. On January 1, 2018, with the adoption of ASU 2016-01, these unrealized gains and losses were reclassified out of accumulated other comprehensive loss and into retained earnings and subsequent changes in fair value are now recognized in net income and the fair value of securities is presented in other assets. No equity securities were sold during the three and nine months ended September 30, 2018. Investment securities having a fair value of $240,070,000 at September 30, 2018 and $141,465,000 at December 31, 2017 were pledged to secure public deposits, some trust account holdings, and certain other borrowings. Gross realized gains and losses on sales of available-for-sale debt securities for the three and nine months ended September 30, 2018 and 2017 are shown in the table below.
(Dollars in thousands) | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
| 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Realized gains |  | $ | 30 |  |  |  | $ | 46 |  |  |  | $ | 141 |  |  | $ | 246 |
Realized losses |  |  | - |  |  |  |  | (24 | ) |  |  |  | (9 | ) |  |  | (204 | )
Net gains |  | $ | 30 |  |  |  | $ | 22 |  |  |  | $ | 132 |  |  | $ | 42 |
The following tables present gross unrealized losses and fair value of debt security investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2018 and December 31, 2017.
(Dollars in thousands) |  | Less Than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Number |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |
|  | of |  | Fair |  |  | Unrealized |  |  | of |  |  | Fair |  |  | Unrealized |  |  | of |  | Fair |  |  | Unrealized |
September 30, 2018 |  | Securities |  | Value |  |  | Losses |  |  | Securities |  |  | Value |  |  | Losses |  |  | Securities |  | Value |  |  | Losses |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | 1 |  | $ | 484 |  |  | $ | 4 |  |  | 21 |  |  | $ | 37,466 |  |  | $ | 2,636 |  |  | 22 |  | $ | 37,950 |  |  | $ | 2,640 |
Mortgage-backed U.S. government agencies |  | 12 |  |  | 18,385 |  |  |  | 360 |  |  | 18 |  |  |  | 21,777 |  |  |  | 1,130 |  |  | 30 |  |  | 40,162 |  |  |  | 1,490 |
State and political subdivision obligations |  | 14 |  |  | 7,144 |  |  |  | 285 |  |  | 45 |  |  |  | 20,283 |  |  |  | 1,928 |  |  | 59 |  |  | 27,427 |  |  |  | 2,213 |
Corporate debt securities |  | 1 |  |  | 993 |  |  |  | 7 |  |  |  | — |  |  |  | — |  |  |  | — |  |  | 1 |  |  | 993 |  |  |  | 7 |
Total temporarily impaired available-for-sale debt securities |  | 28 |  |  | 27,006 |  |  |  | 656 |  |  | 84 |  |  |  | 79,526 |  |  |  | 5,694 |  |  | 112 |  |  | 106,532 |  |  |  | 6,350 |
Held-to-maturity debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | 4 |  |  | 9,313 |  |  |  | 206 |  |  | 2 |  |  |  | 4,942 |  |  |  | 55 |  |  | 6 |  |  | 14,255 |  |  |  | 261 |
Mortgage-backed U.S. government agencies |  | 35 |  |  | 49,974 |  |  |  | 1,279 |  |  | 12 |  |  |  | 16,406 |  |  |  | 719 |  |  | 47 |  |  | 66,380 |  |  |  | 1,998 |
State and political subdivision obligations |  | 171 |  |  | 69,513 |  |  |  | 1,730 |  |  | 20 |  |  |  | 7,147 |  |  |  | 427 |  |  | 191 |  |  | 76,660 |  |  |  | 2,157 |
Corporate debt securities |  | 1 |  |  | 1,532 |  |  |  | 11 |  |  |  | — |  |  |  | — |  |  |  | — |  |  | 1 |  |  | 1,532 |  |  |  | 11 |
Total temporarily impaired held-to-maturity debt securities |  | 211 |  |  | 130,332 |  |  |  | 3,226 |  |  | 34 |  |  |  | 28,495 |  |  |  | 1,201 |  |  | 245 |  |  | 158,827 |  |  |  | 4,427 |
Total |  | 239 |  | $ | 157,338 |  |  | $ | 3,882 |  |  | 118 |  |  | $ | 108,021 |  |  | $ | 6,895 |  |  | 357 |  | $ | 265,359 |  |  | $ | 10,777 |
(Dollars in thousands) |  | Less Than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Number |  |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |
|  | of |  |  | Fair |  |  | Unrealized |  |  | of |  | Fair |  | Unrealized |  |  | of |  | Fair |  |  | Unrealized |
December 31, 2017 |  | Securities |  |  | Value |  |  | Losses |  |  | Securities |  | Value |  | Losses |  |  | Securities |  | Value |  |  | Losses |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | 3 |  |  | $ | 5,008 |  |  | $ | 184 |  |  | 18 |  | $ | 33,722 |  |  | $ | 1,211 |  |  | 21 |  | $ | 38,730 |  |  | $ | 1,395 |
Mortgage-backed U.S. government agencies |  | 4 |  |  |  | 5,267 |  |  |  | 75 |  |  | 15 |  |  | 20,497 |  |  |  | 494 |  |  | 19 |  |  | 25,764 |  |  |  | 569 |
State and political subdivision obligations |  | 11 |  |  |  | 6,144 |  |  |  | 102 |  |  | 40 |  |  | 19,091 |  |  |  | 637 |  |  | 51 |  |  | 25,235 |  |  |  | 739 |
Equity securities |  |  | — |  |  |  | — |  |  |  | — |  |  | 1 |  |  | 506 |  |  |  | 44 |  |  | 1 |  |  | 506 |  |  |  | 44 |
Total temporarily impaired available-for-sale securities |  | 18 |  |  | $ | 16,419 |  |  | $ | 361 |  |  | 74 |  | $ | 73,816 |  |  | $ | 2,386 |  |  | 92 |  | $ | 90,235 |  |  | $ | 2,747 |
Held-to-maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  |  | — |  |  |  | — |  |  |  | — |  |  | 4 |  |  | 10,894 |  |  |  | 90 |  |  | 4 |  |  | 10,894 |  |  |  | 90 |
Mortgage-backed U.S. government agencies |  |  | — |  |  |  | — |  |  |  | — |  |  | 35 |  |  | 52,949 |  |  |  | 523 |  |  | 35 |  |  | 52,949 |  |  |  | 523 |
State and political subdivision obligations |  |  | — |  |  |  | — |  |  |  | — |  |  | 77 |  |  | 29,976 |  |  |  | 301 |  |  | 77 |  |  | 29,976 |  |  |  | 301 |
Total temporarily impaired held to maturity securities |  | 0 |  |  |  | — |  |  |  | — |  |  | 116 |  |  | 93,819 |  |  |  | 914 |  |  | 116 |  |  | 93,819 |  |  |  | 914 |
Total |  | 18 |  |  | $ | 16,419 |  |  | $ | 361 |  |  | 190 |  | $ | 167,635 |  |  | $ | 3,300 |  |  | 208 |  | $ | 184,054 |  |  | $ | 3,661 |
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such additional evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than amortized cost and the financial condition and near term prospects of the issuer. In addition, for debt securities, Mid Penn considers (a) whether management has the intent to sell the security, (b) it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (c) whether management expects to recover the entire amortized cost basis. For equity securities, management considers the intent and ability to hold securities until recovery of unrealized losses. The majority of the investment portfolio is comprised of securities issued by U.S. government agencies and state and political subdivision obligations. For the investment securities with an unrealized loss, Mid Penn has concluded that, based on its analysis, the unrealized losses were primarily caused by the movement of interest rates and not due to an erosion of credit quality of the underlying issuers. At both September 30, 2018 and December 31, 2017, the majority of available-for-sale securities and held-to-maturity securities in an unrealized loss position were obligations of state and political subdivisions, U.S. Treasury and agency securities, and mortgage-backed U.S. government agencies. The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of September 30, 2018.
(Dollars in thousands) |  | Available-for-sale |  |  | Held-to-maturity |
|  | Amortized |  |  | Fair |  |  | Amortized |  |  | Fair |
September 30, 2018 |  | Cost |  |  | Value |  |  | Cost |  |  | Value |
Due in 1 year or less |  | $ | - |  |  | $ | - |  |  | $ | 3,084 |  |  | $ | 3,080 |
Due after 1 year but within 5 years |  |  | 19,586 |  |  |  | 18,828 |  |  |  | 15,466 |  |  |  | 15,163 |
Due after 5 years but within 10 years |  |  | 43,451 |  |  |  | 40,271 |  |  |  | 82,415 |  |  |  | 80,337 |
Due after 10 years |  |  | 12,109 |  |  |  | 11,241 |  |  |  | 1,212 |  |  |  | 1,192 |
|  |  | 75,146 |  |  |  | 70,340 |  |  |  | 102,177 |  |  |  | 99,772 |
Mortgage-backed securities |  |  | 41,677 |  |  |  | 40,187 |  |  |  | 69,344 |  |  |  | 67,348 |
|  | $ | 116,823 |  |  | $ | 110,527 |  |  | $ | 171,521 |  |  | $ | 167,120 |

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- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2209399 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI http://asc.fasb.org/topic&trid=2196928 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2176304 + Details
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