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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Assets Measured at Fair Value on a Recurring Basis

The following tables illustrate the assets measured at fair value on a recurring basis segregated by hierarchy fair value levels.

			Fair value measurements at September 30, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2019		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	32,533	$	—	$	32,533	$	—
Mortgage-backed U.S. government agencies		16,511		—		16,511		—
State and political subdivision obligations		1,055		—		1,055		—
Corporate debt securities		2,320		—		2,320		—
Other assets:
Equity securities		509		509		—		—
Total	$	52,928	$	509	$	52,419	$	—

			Fair value measurements at December 31, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. Treasury and U.S. government agencies	$	41,572	$	—	$	41,572	$	—
Mortgage-backed U.S. government agencies		38,849		—		38,849		—
State and political subdivision obligations		29,256		—		29,256		—
Corporate debt securities		2,246		—		2,246		—
Other assets:
Equity securities		492		492		—		—
Total	$	112,415	$	492	$	111,923	$	—

Fair Value Measurements, Nonrecurring

The following tables illustrate the assets measured at fair value on a nonrecurring basis segregated by hierarchy fair value levels.

			Fair value measurements at September 30, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	September 30, 2019		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	879	$	—	$	—	$	879
Bank Premises and Equipment Held for Sale		1,274		—		—		1,274
Foreclosed Assets Held for Sale		130		—		—		130

			Fair value measurements at December 31, 2018 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	4,935	$	—	$	—	$	4,935
Foreclosed Assets Held for Sale		581		—		—		581

Fair Value Measurement Inputs and Valuation Techniques

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Mid Penn has utilized Level 3 inputs to determine the fair value.

(Dollars in thousands)

Quantitative Information about Level 3 Fair Value Measurements

September 30, 2019

Fair Value Estimate

Valuation Technique

Unobservable Input

Range

Weighted Average

Impaired Loans

879

Appraisal of collateral (a), (b)

Appraisal adjustments (b)

0% - 69%

36%

Bank Premises and Equipment Held for Sale

1,274

Negotiated sales contract (c)

Selling costs (c)

2% - 2%

Foreclosed Assets Held for Sale

130

Appraisal of collateral (a), (b)

Appraisal adjustments (b)

24% - 27%

25%

(Dollars in thousands)

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2018

Fair Value Estimate

Valuation Technique

Unobservable Input

Range

Weighted Average

Impaired Loans

4,935

Appraisal of collateral (a), (b)

Appraisal adjustments (b)

26% - 100%

40%

Foreclosed Assets Held for Sale

581

Appraisal of collateral (a), (b)

Appraisal adjustments (b)

17% - 17%

17%

(a)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various level 3 inputs which are not observable.

(b)

Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, or age of the appraisal.

(c)

Fair value was determined through a negotiated sales contract executed during the first quarter of 2019, adjusted for selling costs. See Note 7 – Bank Premises and Equipment Held For Sale for more information.

Fair Value, by Balance Sheet Grouping

The following table summarizes the carrying value and fair value of financial instruments at September 30, 2019 and December 31, 2018.

(Dollars in thousands)	September 30, 2019				December 31, 2018
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	160,879	$	160,879	$	40,065	$	40,065
Available-for-sale investment securities		52,419		52,419		111,923		111,923
Held-to-maturity investment securities		170,472		173,722		168,370		166,582
Equity securities		509		509		492		492
Loans held for sale		7,115		7,115		1,702		1,702
Net loans and leases		1,701,118		1,738,201		1,615,670		1,622,287
Restricted investment in bank stocks		6,105		6,105		6,646		6,646
Accrued interest receivable		8,414		8,414		8,244		8,244

Financial liabilities:
Deposits	$	1,890,093		1,894,019	$	1,726,026	$	1,725,674
Short-term borrowings		12,000		12,000		43,100		43,100
Long-term debt (a)		59,400		54,330		48,024		44,585
Subordinated debt		27,067		25,304		27,082		24,881
Accrued interest payable		2,823		2,823		2,262		2,262

(a)

Long-term debt excludes finance lease obligations.

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of September 30, 2019 and December 31, 2018. Carrying values approximate fair values for cash and cash equivalents, interest-bearing time balances with other financial institutions, loans held for sale, restricted investment in bank stocks, mortgage servicing rights, accrued interest receivable and payable, and short-term borrowings. Other than cash and cash equivalents, which are considered Level 1 Inputs and mortgage servicing rights, which are Level 3 Inputs, these instruments are Level 2 Inputs. These tables exclude financial instruments for which the carrying amount approximates fair value, not previously disclosed.

					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
September 30, 2019	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment securities	$	170,472	$	173,722	$	—	$	173,722	$	—
Net loans and leases		1,701,118		1,738,201		—		—		1,738,201

Financial instruments - liabilities
Deposits	$	1,890,093	$	1,894,019	$	—	$	1,894,019	$	—
Long-term debt (a)		59,400		54,330		—		54,330		—
Subordinated debt		27,067		25,304		—		25,304		—

					Fair Value Measurements
					Quoted Prices
					in Active Markets				Significant
(Dollars in thousands)					for Identical Assets		Significant Other		Unobservable
	Carrying				or Liabilities		Observable Inputs		Inputs
December 31, 2018	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment securities	$	168,370	$	166,582	$	—	$	166,582	$	—
Net loans and leases		1,615,670		1,622,287		—		—		1,622,287

Financial instruments - liabilities
Deposits	$	1,726,026	$	1,725,674	$	—	$	1,725,674	$	—
Long-term debt		48,024		44,585		—		44,585		—
Subordinated debt		27,082		24,881		—		24,881		—

(a)

Long-term debt excludes finance lease obligations.