FASB ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," was adopted by Mid Penn on January 1, 2023. ASU 2016-13 introduces the CECL methodology for estimating allowances for credit losses. ASU 2016-13 applies to all financial instruments carried at amortized cost, including HTM securities, and makes targeted improvements to the accounting for credit losses on AFS securities.

In order to comply with ASC 326, Mid Penn conducted a review of its investment portfolio and determined that for certain classes of securities it would be appropriate to assume the expected credit loss to be zero. This zero-credit loss assumption applies to debt issuances of the U.S. Treasury and agencies and instrumentalities of the United States government. The reasons behind the adoption of the zero-credit loss assumption are as follows:

Mid Penn will continuously monitor any changes in economic conditions, credit downgrades, changes to explicit or implicit guarantees granted to certain debt issuers, and any other relevant information that would indicate potential credit deterioration and prompt Mid Penn to reconsider its zero-credit loss assumption.

At the date of adoption, Mid Penn’s estimated allowance for credit losses on AFS and HTM securities under ASU 2016-13 was deemed immaterial due to the composition of these portfolios. Both portfolios consist primarily of U.S. government agency guaranteed mortgage-backed securities for which the risk of loss is minimal. Therefore, Mid Penn did not recognize a cumulative effect adjustment through retained earnings related to the AFS and HTM securities.

ASU 2016-13 makes targeted improvements to the accounting for credit losses on AFS securities. The concept of other-than-temporarily impaired has been replaced with the allowance for credit losses. Unlike HTM securities, AFS securities are evaluated on an individual level and pooling of securities is not allowed.

Quarterly, Mid Penn evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, Mid Penn performs further analysis as outlined below:

•The securities that violate the credit loss triggers above would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

•If Mid Penn determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss Mid Penn records will be limited to the amount by which the amortized cost exceeds the fair value.

Accrued interest receivable is excluded from the estimate of credit losses for AFS securities. At December 31, 2023, accrued interest receivable totaled $1.3 million for AFS securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.

ASU 2016-13 requires institutions to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risks exist. Mid Penn uses several levels of segmentation in order to measure expected credit losses:

As discussed above, Mid Penn has determined that for certain classes of securities it would be appropriate to assume the expected credit loss to be zero, which include debt issuances of the U.S. Treasury and agencies and instrumentalities of the United States government. This assumption will be reviewed and attested to quarterly.

At December 31, 2023, Mid Penn’s HTM securities totaled $399.1 million. After applying appropriate probability of default and loss given default assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded at December 31, 2023.

Accrued interest receivable is excluded from the estimate of credit losses for HTM securities. At December 31, 2023, accrued interest receivable totaled $1.9 million for HTM securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.


	December 31, 2023
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale
U.S. Treasury and U.S. government agencies	$	36,637	$	—	$	988	$	35,649
Mortgage-backed U.S. government agencies	169,184		—		16,501		152,683
State and political subdivision obligations	4,332		—		686		3,646
Corporate debt securities	35,733		—		4,156		31,577
Total available-for-sale debt securities	$	245,886	$	—	$	22,331	$	223,555
Held-to-maturity
U.S. Treasury and U.S. government agencies	$	245,805	$	2	$	28,676	$	217,131
Mortgage-backed U.S. government agencies	43,818		—		5,523		38,295
State and political subdivision obligations	84,035		11		6,486		77,560
Corporate debt securities	25,470		—		935		24,535
Total held-to-maturity debt securities	399,128		13		41,620		357,521
Total	$	645,014	$	13	$	63,951	$	581,076


	December 31, 2022
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale
U.S. Treasury and U.S. government agencies	$	36,528	$	—	$	1,614	$	34,914
Mortgage-backed U.S. government agencies	185,993		—		19,078		166,915
State and political subdivision obligations	4,354		—		815		3,539
Corporate debt securities	35,467		—		2,957		32,510
Total available-for-sale debt securities	$	262,342	$	—	$	24,464	$	237,878
Held-to-maturity
U.S. Treasury and U.S. government agencies	$	245,671	$	—	$	34,834	$	210,837
Mortgage-backed U.S. government agencies	50,710		—		6,676		44,034
State and political subdivision obligations	87,125		—		8,345		78,780
Corporate debt securities	15,988		—		1,134		14,854
Total held-to-maturity debt securities	399,494		—		50,989		348,505
Total	$	661,836	$	—	$	75,453	$	586,383

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 instruments of a similar type, credit quality and structure, adjusted for differences between the quoted instruments and the instruments being valued. See "Note 7 - Fair Value Measurement," for additional information.

Investment securities having a fair value of $380.3 million at December 31, 2023, and $338.8 million at December 31, 2022, were pledged primarily to secure public deposits, some Trust department deposit accounts, and certain other borrowings. In accordance with legal provisions for alternatives other than pledging of investments, Mid Penn also obtains letters of credit from the FHLB to secure certain public deposits. These FHLB letter of credit commitments totaled $153.5 million as of December 31, 2023 and $189.0 million as of December 31, 2022.


(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total
December 31, 2023	Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies	—	$	—	$	—	19	$	35,649	$	988	19	$	35,649	$	988
Mortgage-backed U.S. government agencies	1	4,015		26		92	148,668		16,475		93	152,683		16,501
State and political subdivision obligations	—	—		—		8	3,646		686		8	3,646		686
Corporate debt securities	1	410		90		17	31,167		4,066		18	31,577		4,156
Total available-for-sale debt securities	2	4,425		116		136	219,130		22,215		138	223,555		22,331

Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	1	2,002		—		144	215,129		28,676		145	217,131		28,676
Mortgage-backed U.S. government agencies	—	—		—		64	38,295		5,523		64	38,295		5,523
State and political subdivision obligations	25	8,729		63		170	68,831		6,423		195	77,560		6,486
Corporate debt securities	1	936		57		14	23,599		878		15	24,535		935
Total held-to-maturity debt securities	27	11,667		120		392	345,854		41,500		419	357,521		41,620
Total	29	$	16,092	$	236	528	$	564,984	$	63,715	557	$	581,076	$	63,951


(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total
December 31, 2022	Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	19	$	34,914	$	1,614	—	$	—	$	—	19	$	34,914	$	1,614
Mortgage-backed U.S. government agencies	69	131,879		11,876		24	35,036		7,202		93	166,915		19,078
State and political subdivision obligations	6	2,521		671		2	1,018		144		8	3,539		815
Corporate debt securities	12	25,063		2,153		4	4,196		804		16	29,259		2,957
Total available-for-sale securities	106	194,377		16,314		30	40,250		8,150		136	234,627		24,464

Held-to-maturity securities:
U.S. Treasury and U.S. government agencies	54	84,946		10,093		91	125,891		24,741		145	210,837		34,834
Mortgage-backed U.S. government agencies	40	13,866		1,071		24	30,168		5,605		64	44,034		6,676
State and political subdivision obligations	185	73,735		7,413		18	4,616		932		203	78,351		8,345
Corporate debt securities	4	5,721		317		5	5,182		817		9	10,903		1,134
Total held to maturity securities	283	178,268		18,894		138	165,857		32,095		421	344,125		50,989
Total	389	$	372,645	$	35,208	168	$	206,107	$	40,245	557	$	578,752	$	75,453

Mid Penn had no securities considered by management to be credit related losses as of December 31, 2023 and December 31, 2022, and did not record any securities losses in the respective periods ended on these dates. Mid Penn does not consider the securities with unrealized losses on the respective dates to be credit related losses 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.

The table below illustrates the contractual maturity of debt investment securities at amortized cost and estimated fair value. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without call or prepayment penalties.


(In thousands)	Available-for-sale				Held-to-maturity
December 31, 2023	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	12,494	$	12,340	$	9,708	$	9,627
Due after 1 year but within 5 years	32,400		30,977		130,686		123,005
Due after 5 years but within 10 years	29,474		25,614		191,793		166,811
Due after 10 years	2,334		1,941		23,123		19,783
	76,702		70,872		355,310		319,226
Mortgage-backed securities	169,184		152,683		43,818		38,295
	$	245,886	$	223,555	$	399,128	$	357,521