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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
Mid Penn manages its exposure to certain interest rate risks through the use of derivatives; however, none are entered into for speculative purposes. During the first six months of June 30, 2023, Mid Penn entered into outstanding derivative contracts designated as hedges. As of December 31, 2022, Mid Penn did not designate any derivative financial instruments as formal hedging relationships. Mid Penn’s free-standing derivative financial instruments are required to be carried at their fair value on the Consolidated Balance Sheets.
Mortgage Banking Derivative Financial Instruments
In connection with its mortgage banking activities, Mid Penn enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, Mid Penn enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured.
Loan-level Interest Rate Swaps
Mid Penn enters into loan-level interest rate swaps with certain qualifying, creditworthy commercial loan customers to meet their interest rate risk management needs. Mid Penn simultaneously enters into parallel interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of the offsetting customer and dealer counterparty swap agreements is that the customer pays a fixed rate of interest and Mid Penn receives a floating rate. Mid Penn’s loan-level interest rate swaps are considered derivatives, but are not accounted for using hedge accounting.
Cash Flow Hedges of Interest Rate Risk

Mid Penn’s objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, Mid Penn primarily uses interest rate swaps as part of its interest rate risk management strategy. During the first six months of 2023, Mid Penn entered into interest rate swaps designated as cash flow hedges to hedge the cash flows associated with existing brokered CDs.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on Mid Penn’s variable-rate liabilities. During the next twelve months, Mid Penn estimates that an additional $2.9 million will be reclassified as a decrease to interest expense.

The following table presents a summary of the notional amounts and fair values of derivative financial instruments:
June 30, 2023December 31, 2022
(In thousands)Notional AmountAsset (Liability) Fair Value Notional AmountAsset (Liability) Fair Value
Interest Rate Lock Commitments
Positive Fair Values$2,285 $14 $274 $3 
Negative Fair Values 4,248 (22)5,252 (40)
Forward Commitments
Positive Fair Values1,762 6 4,750 43 
Negative Fair Values3,442 (15)— — 
Interest Rate Swaps with Customers
Positive Fair Values36,644 251 16,650 164 
Negative Fair Values106,434 (11,431)107,145 (11,533)
Interest Rate Swaps with Counterparties
Positive Fair Values106,434 11,431 107,145 11,533 
Negative Fair Values36,644 (251)16,650 (164)
Interest Rate Swaps used in Cash Flow Hedges
Positive Fair Values190,000 3,589 — — 
Negative Fair Values— — — — 
The following table presents derivative financial instruments and the amount of the net fair value gains (losses) recognized within other noninterest income on the Consolidated Statement of Income:
Three months endedSix months ended
(In thousands)June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Interest Rate Lock Commitments$(42)$214 $29 $27 
Forward Commitments170 324 119 1,077 
Total$128 $538 $148 $1,104 
The following table presents the effect of fair value and cash flow hedge accounting on AOCI:
(In thousands)
Amount of Gain Recognized in OCI on Derivative Amount of Gain Recognized in OCI Included ComponentAmount of Gain Recognized in OCI Excluded ComponentLocation of Gain recognized from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Expense Included ComponentAmount of Gain (Loss) Reclassified from AOCI into Expense Excluded Component
Derivatives in Cash Flow Hedging Relationships:
Three months ended
June 30, 2023
Interest Rate Swaps$3,591 $3,591 $— Interest Expense$— $— $— 
Six months ended
June 30, 2023
Interest Rate Swaps$3,428 $3,428 $— Interest Expense$— $— $— 
The gross amounts of commercial loan swap derivatives, the amounts offset and the carrying values in the Consolidated Balance Sheets, and the collateral pledged to support such agreements are presented below:
(In thousands)June 30, 2023December 31, 2022
Interest Rate Swap Contracts - Commercial Loans:
Gross amounts recognized (1)
$11,682 $11,697 
Gross amounts offset (2)
11,682 11,697 
Net Amounts Presented in the Consolidated Balance Sheets— — 
Gross amounts not offset:
Financial instruments— — 
Cash collateral (3)
1,600 1,600 
Net Amounts$1,600 $1,600 
(1) Included in other assets on the Consolidated Balance Sheet.
(2) Included in other liabilities on the Consolidated Balance Sheet.
(3) Included in cash and due from banks on the Consolidated Balance Sheet.