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Investment Securities
 6 Months Ended
Jun. 30, 2024
Securities Financing Transactions Disclosures [Abstract]  
Investment Securities Investment Securities
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:
•High credit rating
•Long history with no credit losses
•Guaranteed by a sovereign entity
•Widely recognized as "risk-free rate"
•Can print its own currency
•Currency is routinely held by central banks, used in international commerce, and commonly viewed as reserve currency
•Currently under the U.S. Government conservatorship or receivership
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.
AFS Securities
ASU 2016-13 made 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:
•Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.
•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.
The DCF analysis utilizes contractual maturities, as well as third-party credit ratings and cumulative default rates published annually by a reputable third-party.
At June 30, 2024, the results of the analysis did not identify any securities that violate the credit loss triggers; therefore, no DCF analysis was performed and no credit loss was recognized on any of the securities available for sale.
Accrued interest receivable is excluded from the estimate of credit losses for AFS securities. At June 30, 2024, accrued interest receivable totaled $986 thousand for AFS securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.
HTM Securities
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:
•The portfolio is segmented into agency and non-agency securities.
•The non-agency securities are separated into state and political subdivision obligations and corporate debt securities.
Each individual segment is categorized by third-party credit ratings.
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 June 30, 2024, Mid Penn’s HTM securities totaled $393.3 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 June 30, 2024.
Accrued interest receivable is excluded from the estimate of credit losses for HTM securities. At June 30, 2024, accrued interest receivable totaled $1.8 million for HTM securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.
At June 30, 2024, Mid Penn had no HTM securities that were past due 30 days or more as to principal or interest payments. Mid Penn had no HTM securities classified as nonaccrual at June 30, 2024.
The amortized cost and estimated fair value of investment securities for the periods presented:
June 30, 2024
(In thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross Unrealized
Losses		Estimated
Fair Value
Available-for-sale
U.S. Treasury and U.S. government agencies$31,693 $— $1,074 $30,619 
Mortgage-backed U.S. government agencies160,932 — 18,895 142,037 
State and political subdivision obligations4,320 — 729 3,591 
Corporate debt securities35,742 — 4,053 31,689 
Total available-for-sale debt securities232,687 — 24,751 207,936 
Held-to-maturity
U.S. Treasury and U.S. government agencies$245,873 $— $30,436 $215,437 
Mortgage-backed U.S. government agencies40,845 — 5,776 35,069 
State and political subdivision obligations81,142 — 7,719 73,423 
Corporate debt securities25,460 — 2,114 23,346 
Total held-to-maturity debt securities393,320 — 46,045 347,275 
Total$626,007 $— $70,796 $555,211 
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 agencies169,184 — 16,501 152,683 
State and political subdivision obligations4,332 — 686 3,646 
Corporate debt securities35,733 — 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 agencies43,818 — 5,523 38,295 
State and political subdivision obligations84,035 11 6,486 77,560 
Corporate debt securities25,470 — 935 24,535 
Total held-to-maturity debt securities399,128 13 41,620 357,521 
Total$645,014 $13 $63,951 $581,076 
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 8 - Fair Value Measurement," for additional information.
Investment securities having a fair value of $408.3 million at June 30, 2024 and $380.3 million at December 31, 2023 were pledged 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 $138.9 million as of June 30, 2024 and $153.5 million as of December 31, 2023.
The following tables present gross unrealized losses and fair value of debt investment securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for the periods presented:
(Dollars in thousands)Less Than 12 Months12 Months or MoreTotal
June 30, 2024Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies—$— $— 17$30,619 $1,074 17$30,619 $1,074 
Mortgage-backed U.S. government agencies—— — 93142,037 18,895 93142,037 18,895 
State and political subdivision obligations—— — 83,591 729 83,591 729 
Corporate debt securities1413 87 1731,276 3,966 1831,689 4,053 
Total available-for-sale debt securities1$413 $87 135$207,523 $24,664 136$207,936 $24,751 
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies—— — 145215,437 30,436 145215,437 30,436 
Mortgage-backed U.S. government agencies—— — 6435,069 5,776 6435,069 5,776 
State and political subdivision obligations3952 18 18672,471 7,701 18973,423 7,719 
Corporate debt securities612,950 1,050 910,396 1,064 1523,346 2,114 
Total held-to-maturity debt securities913,902 1,068 404333,373 44,977 413347,275 46,045 
Total10$14,315 $1,155 539$540,896 $69,641 549$555,211 $70,796 
(Dollars in thousands)Less Than 12 Months12 Months or MoreTotal
December 31, 2023Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies—$— $— 19$35,649 $988 19$35,649 $988 
Mortgage-backed U.S. government agencies14,015 26 92148,668 16,475 93152,683 16,501 
State and political subdivision obligations—— — 83,646 686 83,646 686 
Corporate debt securities1410 90 1731,167 4,066 1831,577 4,156 
Total available-for-sale securities24,425 116 136219,130 22,215 138223,555 22,331 
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies1$2,002 $— 144$215,129 $28,676 145$217,131 $28,676 
Mortgage-backed U.S. government agencies—— — 6438,295 5,523 6438,295 5,523 
State and political subdivision obligations258,729 63 17068,831 6,423 19577,560 6,486 
Corporate debt securities1936 57 1423,599 878 1524,535 935 
Total held to maturity securities2711,667 120 392345,854 41,500 419357,521 41,620 
Total29$16,092 $236 528$564,984 $63,715 557$581,076 $63,951 
There were no gross realized gains and losses on sales of available-for-sale debt securities for the six months ended June 30, 2024 and 2023.
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-saleHeld-to-maturity
June 30, 2024Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Due in 1 year or less$12,000 $11,870 $17,458 $17,255 
Due after 1 year but within 5 years29,949 28,395 125,451 115,700 
Due after 5 years but within 10 years28,481 24,565 189,439 162,513 
Due after 10 years1,325 1,069 20,127 16,738 
71,755 65,899 352,475 312,206 
Mortgage-backed securities160,932 142,037 40,845 35,069 
$232,687 $207,936 $393,320 $347,275