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Investment Securities
 3 Months Ended
Mar. 31, 2023
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 ASU 2016-13, 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 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:
•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 March 31, 2023, 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 March 31, 2023, accrued interest receivable totaled $1.0 million for AFS securities and was reported in other assets 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 March 31, 2023, Mid Penn’s HTM securities totaled $396.8 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 March 31, 2023.
Accrued interest receivable is excluded from the estimate of credit losses for HTM securities. At March 31, 2023, accrued interest receivable totaled $2.2 million for HTM securities and was reported in other assets on the accompanying Consolidated Balance Sheet.
At March 31, 2023, 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 March 31, 2023.
The amortized cost and estimated fair value of investment securities for the periods presented:
March 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$36,554 $— $1,304 $35,250 
Mortgage-backed U.S. government agencies182,196 — 16,592 165,604 
State and political subdivision obligations4,349 — 652 3,697 
Corporate debt securities35,471 — 3,413 32,058 
Total available-for-sale debt securities258,570 — 21,961 236,609 
Held-to-maturity
U.S. Treasury and U.S. government agencies$245,703 $— $30,853 $214,850 
Mortgage-backed U.S. government agencies49,050 — 6,061 42,989 
State and political subdivision obligations87,048 33 6,324 80,757 
Corporate debt securities14,983 — 1,125 13,858 
Total held-to-maturity debt securities396,784 33 44,363 352,454 
Total$655,354 $33 $66,324 $589,063 
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 agencies185,993 — 19,078 166,915 
State and political subdivision obligations4,354 — 815 3,539 
Corporate debt securities35,467 — 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 agencies50,710 — 6,676 44,034 
State and political subdivision obligations87,125 — 8,345 78,780 
Corporate debt securities15,988 — 1,134 14,854 
Total held-to-maturity debt securities399,494 — 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 $376.2 million at March 31, 2023 and $338.8 million at December 31, 2022 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 $183.5 million as of March 31, 2023 and $189.0 million as of December 31, 2022.
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
March 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 debt securities:
U.S. Treasury and U.S. government agencies15$28,440 $615 4$6,810 $689 19$35,250 $1,304 
Mortgage-backed U.S. government agencies3577,144 2,903 5888,460 13,689 93165,604 16,592 
State and political subdivision obligations—— — 83,697 652 83,697 652 
Corporate debt securities917,768 1,452 711,040 1,961 1628,808 3,413 
Total available-for-sale debt securities59$123,352 $4,970 77$110,007 $16,991 136$233,359 $21,961 
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies2338,341 1,272 122176,509 29,581 145214,850 30,853 
Mortgage-backed U.S. government agencies5875 33 5942,114 6,028 6442,989 6,061 
State and political subdivision obligations7326,077 576 11448,360 5,748 18774,437 6,324 
Corporate debt securities22,760 232 67,149 893 89,909 1,125 
Total held-to-maturity debt securities10368,053 2,113 301274,132 42,250 404342,185 44,363 
Total162$191,405 $7,083 378$384,139 $59,241 540$575,544 $66,324 
(Dollars in thousands)Less Than 12 Months12 Months or MoreTotal
December 31, 2022Number
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 agencies19$34,914 $1,614 —$— $— 19$34,914 $1,614 
Mortgage-backed U.S. government agencies69131,879 11,876 2435,036 7,202 93166,915 19,078 
State and political subdivision obligations62,521 671 21,018 144 83,539 815 
Corporate debt securities1225,063 2,153 44,196 804 1629,259 2,957 
Total available-for-sale securities106194,377 16,314 3040,250 8,150 136234,627 24,464 
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies54$84,946 $10,093 91$125,891 $24,741 145$210,837 $34,834 
Mortgage-backed U.S. government agencies4013,866 1,071 2430,168 5,605 6444,034 6,676 
State and political subdivision obligations18573,735 7,413 184,616 932 20378,351 8,345 
Corporate debt securities45,721 317 55,182 817 910,903 1,134 
Total held to maturity securities283178,268 18,894 138165,857 32,095 421344,125 50,989 
Total389$372,645 $35,208 168$206,107 $40,245 557$578,752 $75,453 
There were no gross realized gains and losses on sales of available-for-sale debt securities for the three months ended March 31, 2023 and 2022.
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
March 31, 2023Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Due in 1 year or less$250 $250 $3,339 $3,322 
Due after 1 year but within 5 years42,815 41,209 92,148 87,515 
Due after 5 years but within 10 years30,444 27,141 210,891 183,926 
Due after 10 years2,865 2,405 41,356 34,702 
76,374 71,005 347,734 309,465 
Mortgage-backed securities182,196 165,604 49,050 42,989 
$258,570 $236,609 $396,784 $352,454