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Investment Securities | 9 Months Ended
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Sep. 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. Mid Penn evaluates if any security has a fair value less than its amortized cost on a quarterly basis. 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: •Mid Penn reviews the extent to which the fair value is less than the amortized cost and observes 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 any 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 September 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 September 30, 2024, accrued interest receivable totaled $1.1 million 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 September 30, 2024, Mid Penn’s HTM securities totaled $386.6 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 September 30, 2024. Accrued interest receivable is excluded from the estimate of credit losses for HTM securities. At September 30, 2024, accrued interest receivable totaled $2.2 million for HTM securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet. At September 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 September 30, 2024. The following tables set forth the amortized cost and estimated fair value of investment securities for the periods presented:
| September 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 | $ | 27,720 |  |  | $ | — |  |  | $ | 484 |  |  | $ | 27,236 |
Mortgage-backed U.S. government agencies | 204,050 |  |  | — |  |  | 11,888 |  |  | 192,162 |
State and political subdivision obligations | 4,315 |  |  | — |  |  | 554 |  |  | 3,761 |
Corporate debt securities | 35,746 |  |  | — |  |  | 3,678 |  |  | 32,068 |
Total available-for-sale debt securities | 271,831 |  |  | — |  |  | 16,604 |  |  | 255,227 |
Held-to-maturity |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies | $ | 241,907 |  |  | $ | — |  |  | $ | 21,463 |  |  | $ | 220,444 |
Mortgage-backed U.S. government agencies | 39,213 |  |  | — |  |  | 4,233 |  |  | 34,980 |
State and political subdivision obligations | 80,042 |  |  | — |  |  | 5,238 |  |  | 74,804 |
Corporate debt securities | 25,456 |  |  | — |  |  | 1,319 |  |  | 24,137 |
Total held-to-maturity debt securities | 386,618 |  |  | — |  |  | 32,253 |  |  | 354,365 |
Total | $ | 658,449 |  |  | $ | — |  |  | $ | 48,857 |  |  | $ | 609,592 |
| 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 |
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 $490.1 million at September 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 $154.0 million as of September 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 Months |  | 12 Months or More |  | Total
September 30, 2024 | Number of Securities |  | Estimated Fair Value |  | Gross Unrealized Losses/(Gains) |  | 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 | — |  | $ | — |  |  | $ | — |  |  | 15 |  | $ | 27,236 |  |  | $ | 484 |  |  | 15 |  | $ | 27,236 |  |  | $ | 484 |
Mortgage-backed U.S. government agencies | 6 |  | 51,410 |  |  | 144 |  |  | 91 |  | 140,752 |  |  | 11,744 |  |  | 97 |  | 192,162 |  |  | 11,888 |
State and political subdivision obligations | — |  | — |  |  | — |  |  | 8 |  | 3,761 |  |  | 554 |  |  | 8 |  | 3,761 |  |  | 554 |
Corporate debt securities | 1 |  | 428 |  |  | 72 |  |  | 17 |  | 31,640 |  |  | 3,606 |  |  | 18 |  | 32,068 |  |  | 3,678 |
Total available-for-sale debt securities | 7 |  | $ | 51,838 |  |  | $ | 216 |  |  | 131 |  | $ | 203,389 |  |  | $ | 16,388 |  |  | 138 |  | $ | 255,227 |  |  | $ | 16,604 |
Held-to-maturity debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies | — |  | — |  |  | — |  |  | 143 |  | 220,444 |  |  | 21,463 |  |  | 143 |  | 220,444 |  |  | 21,463 |
Mortgage-backed U.S. government agencies | 2 |  | 174 |  |  | — |  |  | 62 |  | 34,806 |  |  | 4,233 |  |  | 64 |  | 34,980 |  |  | 4,233 |
State and political subdivision obligations | 11 |  | 3,707 |  |  | (12) |  |  | 175 |  | 71,097 |  |  | 5,250 |  |  | 186 |  | 74,804 |  |  | 5,238 |
Corporate debt securities | 4 |  | 10,500 |  |  | — |  |  | 11 |  | 13,637 |  |  | 1,319 |  |  | 15 |  | 24,137 |  |  | 1,319 |
Total held-to-maturity debt securities | 17 |  | 14,381 |  |  | (12) |  |  | 391 |  | 339,984 |  |  | 32,265 |  |  | 408 |  | 354,365 |  |  | 32,253 |
Total | 24 |  | $ | 66,219 |  |  | $ | 204 |  |  | 522 |  | $ | 543,373 |  |  | $ | 48,653 |  |  | 546 |  | $ | 609,592 |  |  | $ | 48,857 |
(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 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 securities | 2 |  | 4,425 |  |  | 116 |  |  | 136 |  | 219,130 |  |  | 22,215 |  |  | 138 |  | 223,555 |  |  | 22,331 |
Held-to-maturity 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 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 |
There were no gross realized gains and losses on sales of available-for-sale debt securities for the nine months ended September 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-sale |  | Held-to-maturity
September 30, 2024 | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Due in 1 year or less | $ | 15,003 |  |  | $ | 14,958 |  |  | $ | 16,458 |  |  | $ | 16,345 |
Due after 1 year but within 5 years | 22,970 |  |  | 22,069 |  |  | 134,278 |  |  | 127,167 |
Due after 5 years but within 10 years | 28,964 |  |  | 25,356 |  |  | 178,504 |  |  | 160,077 |
Due after 10 years | 844 |  |  | 682 |  |  | 18,165 |  |  | 15,796 |
| 67,781 |  |  | 63,065 |  |  | 347,405 |  |  | 319,385 |
Mortgage-backed securities | 204,050 |  |  | 192,162 |  |  | 39,213 |  |  | 34,980 |
| $ | 271,831 |  |  | $ | 255,227 |  |  | $ | 386,618 |  |  | $ | 354,365 |

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