Investment Securities

12 Months Ended

Dec. 31, 2019

Securities Financing Transactions Disclosures [Abstract]

(6)Investment Securities

The majority of the investment portfolio is comprised of securities issued by U.S. government agencies and state and political subdivision obligations. The amortized cost, fair value, and unrealized gains and losses on investment securities at December 31, 2019 and December 31, 2018 are as follows:

(Dollars in thousands)
	Amortized		Unrealized		Unrealized		Fair
December 31, 2019	Cost		Gains		Losses		Value
Available for sale securities:
U.S. government agencies	$	22,894	$	6	$	70	$	22,830
Mortgage-backed U.S. government agencies		12,996		7		113		12,890
State and political subdivision obligations		30		—		—		30
Corporate debt securities		1,250		9		—		1,259
Total available for sale securities		37,170		22		183		37,009
Held to maturity securities:
U.S. Treasury and U.S. government agencies		50,210		46		220		50,036
Mortgage-backed U.S. government agencies		42,098		95		102		42,091
State and political subdivision obligations		44,169		1,193		13		45,349
Total held to maturity securities		136,477		1,334		335		137,476
Total	$	173,647	$	1,356	$	518	$	174,485

(Dollars in thousands)
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Available for sale securities:
U.S. government agencies	$	43,270	$	10	$	1,708	$	41,572
Mortgage-backed U.S. government agencies		39,865		—		1,016		38,849
State and political subdivision obligations		30,642		11		1,397		29,256
Corporate debt securities		2,250		—		4		2,246
Total available-for-sale debt securities		116,027		21		4,125		111,923
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies		16,985		14		143		16,856
Mortgage-backed U.S. government agencies		65,812		46		1,310		64,548
State and political subdivision obligations		84,034		457		842		83,649
Corporate debt securities		1,539		—		10		1,529
Total held-to-maturity debt securities		168,370		517		2,305		166,582
Total	$	284,397	$	538	$	6,430	$	278,505

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 14, Fair Value Measurement, for more information on the fair value of investment securities.

During the fourth quarter of 2019, Mid Penn early adopted Accounting Standards Update (“ASU”) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments), and as part of the adoption, reclassified 113 held-to-maturity debt securities with an aggregate amortized cost of $67,096,000 to the available for sale category. All 113 securities were subsequently sold during the fourth quarter and Mid Penn recognized a pre-tax gain on the sales of $1,779,000. Please refer to Note 24, Recent Accounting Pronouncements, for more information regarding the adoption of ASU 2019-04.

Investment securities having a fair value of $147,283,000 at December 31, 2019, and $214,239,000 at December 31, 2018, were pledged primarily to secure public fund deposits. Mid Penn also obtains letters of credit from the Federal Home Loan Bank of Pittsburgh (“FHLB”) to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of credit. These FHLB letter of credit commitments totaled $169,051,000 as of December 31, 2019 and $36,850,000 as of December 31, 2018.

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, 2019 and 2018.

(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total
December 31, 2019	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Available for sale securities:
U.S. government agencies	4	$	4,652	$	24	7	$	11,982	$	46	11	$	16,634	$	70
Mortgage-backed U.S. government agencies	1		1,643		4	14		10,603		109	15		12,246		113
Total temporarily impaired available for sale securities	5		6,295		28	21		22,585		155	26		28,880		183

Held to maturity securities:
U.S. Treasury and U.S. government agencies	18	$	29,024	$	219	1	$	2,999	$	1	19	$	32,023	$	220
Mortgage-backed U.S. government agencies	6		8,445		35	13		11,050		67	19		19,495		102
State and political subdivision obligations	3		1,383		13	0		—		—	3		1,383		13
Total temporarily impaired held to maturity securities	27		38,852		267	14		14,049		68	41		52,901		335
Total	32	$	45,147	$	295	35	$	36,634	$	223	67	$	81,781	$	518


(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total
December 31, 2018	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Available for sale securities:
U.S. government agencies	0	$	—	$	—	21	$	38,386	$	1,708	21	$	38,386	$	1,708
Mortgage-backed U.S. government agencies	11		16,740		163	19		22,093		853	30		38,833		1,016
State and political subdivision obligations	3		1,751		23	51		24,520		1,374	54		26,271		1,397
Corporate debt securities	2		1,996		4	0		—		—	2		1,996		4
Total temporarily impaired available for sale securities	16		20,487		190	91		84,999		3,935	107		105,486		4,125

Held to maturity securities:
U.S. Treasury and U.S. government agencies	1	$	1,985	$	10	3	$	8,852	$	133	4	$	10,837	$	143
Mortgage-backed U.S. government agencies	10		16,165		79	35		42,431		1,231	45		58,596		1,310
State and political subdivision obligations	26		11,321		111	77		29,460		731	103		40,781		842
Corporate debt securities	1		1,529		10	0		—		—	1		1,529		10
Total temporarily impaired held to maturity securities	38		31,000		210	115		80,743		2,095	153		111,743		2,305
Total	54	$	51,487	$	400	206	$	165,742	$	6,030	260	$	217,229	$	6,430

Management evaluates securities for other-than-temporary impairment at least on quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than 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.

At December 31, 2019, the majority of the unrealized losses on securities in an unrealized loss position were attributed to U.S. government agencies and mortgage-back U.S. government agencies. At December 31, 2018, the majority of the unrealized losses on securities in an unrealized loss position were attributed to state and political subdivision obligations, mortgage-back U.S. government agencies, and U.S. government agencies.

Mid Penn had no securities considered by management to be other-than-temporarily impaired as of December 31, 2019 and December 31, 2018, 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 be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality.

Gross realized gains and losses on sales of available-for-sale securities for the years ended December 31, 2019, 2018, and 2017 are shown in the table below.

(Dollars in thousands)	For the year ended December 31,
	2019			2018				2017
Realized gains	$	1,951		$	150		$	246
Realized losses		(73	)		(13	)		(204	)
Net gains	$	1,878		$	137		$	42

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value at December 31, 2019.

(Dollars in thousands)	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
December 31, 2019	Cost		Value		Cost		Value
Due in 1 year or less	$	4,047	$	4,032	$	3,994	$	3,999
Due after 1 year but within 5 years		8,399		8,385		16,423		16,637
Due after 5 years but within 10 years		11,728		11,702		73,962		74,749
Due after 10 years		—		—		—		—
		24,174		24,119		94,379		95,385
Mortgage-backed securities		12,996		12,890		42,098		42,091
	$	37,170	$	37,009	$	136,477	$	137,476