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Investment Securities
 9 Months Ended
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 agencies204,050 — 11,888 192,162 
State and political subdivision obligations4,315 — 554 3,761 
Corporate debt securities35,746 — 3,678 32,068 
Total available-for-sale debt securities271,831 — 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 agencies39,213 — 4,233 34,980 
State and political subdivision obligations80,042 — 5,238 74,804 
Corporate debt securities25,456 — 1,319 24,137 
Total held-to-maturity debt securities386,618 — 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 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 $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 $153.5 million as of December 31, 2023.
The following tables present gross unrealized losses and fair value of debt investment securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for the periods presented:
(Dollars in thousands)Less Than 12 Months12 Months or MoreTotal
September 30, 2024Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses/(Gains)		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies—$— $— 15$27,236 $484 15$27,236 $484 
Mortgage-backed U.S. government agencies651,410 144 91140,752 11,744 97192,162 11,888 
State and political subdivision obligations—— — 83,761 554 83,761 554 
Corporate debt securities1428 72 1731,640 3,606 1832,068 3,678 
Total available-for-sale debt securities7$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—— — 143220,444 21,463 143220,444 21,463 
Mortgage-backed U.S. government agencies2174 — 6234,806 4,233 6434,980 4,233 
State and political subdivision obligations113,707 (12)17571,097 5,250 18674,804 5,238 
Corporate debt securities410,500 — 1113,637 1,319 1524,137 1,319 
Total held-to-maturity debt securities1714,381 (12)391339,984 32,265 408354,365 32,253 
Total24$66,219 $204 522$543,373 $48,653 546$609,592 $48,857 
(Dollars in thousands)Less Than 12 Months12 Months or MoreTotal
December 31, 2023Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses		Number
of
Securities		Estimated
Fair
Value		Gross
Unrealized
Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies—$— $— 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 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-saleHeld-to-maturity
September 30, 2024Amortized
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 years22,970 22,069 134,278 127,167 
Due after 5 years but within 10 years28,964 25,356 178,504 160,077 
Due after 10 years844 682 18,165 15,796 
67,781 63,065 347,405 319,385 
Mortgage-backed securities204,050 192,162 39,213 34,980 
$271,831 $255,227 $386,618 $354,365