10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-13677

MID PENN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania	25-1666413
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
349 Union Street Millersburg, Pennsylvania	17061
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code 1.866.642.7736

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value per share	MPB	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐ Accelerated filer  ☒ Non-accelerated filer  ☐ Smaller reporting company ☒ Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐    No ☒

As of August 6, 2020, the registrant had 8,420,624 shares of common stock outstanding.

1

FORM 10-Q

TABLE OF CONTENTS

PART 1 – FINANCIAL INFORMATION			3
	Item 1 – Financial Statements		3
		Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited)	3
		Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and June 30, 2019 (Unaudited)	4
		Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and June 30, 2019 (Unaudited)	5
		Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and June 30, 2019 (Unaudited)	6
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and June 30, 2019 (Unaudited)	7
		Notes to Consolidated Financial Statements (Unaudited)	9
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk		61
	Item 4 – Controls and Procedures		61
PART II – OTHER INFORMATION			62
	Item 1 – Legal Proceedings		62
	Item 1A – Risk Factors		62
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		62
	Item 3 – Defaults upon Senior Securities		62
	Item 4 – Mine Safety Disclosures		62
	Item 5 – Other Information		62
	Item 6 – Exhibits		62
	Signatures		63

Unless the context otherwise requires, the terms “Mid Penn”, “we”, “us”, and “our” refer to Mid Penn Bancorp, Inc. its consolidated wholly-owned banking subsidiary, and its nonbank subsidiaries.

2

MID PENN BANCORP, INC.

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share data)	June 30, 2020			December 31, 2019
ASSETS
Cash and due from banks	$	33,495		$	25,746
Interest-bearing balances with other financial institutions		3,322			4,657
Federal funds sold		106,938			108,627
Total cash and cash equivalents		143,755			139,030
Investment securities available for sale, at fair value		23,492			37,009
Investment securities held to maturity, at amortized cost (fair value $139,491 and $137,476)		135,387			136,477
Loans held for sale		21,812			8,422
Loans and leases, net of unearned interest		2,445,765			1,762,756
Less:  Allowance for loan and lease losses		(11,067	)		(9,515	)
Net loans and leases		2,434,698			1,753,241
Bank premises and equipment, net		26,038			24,937
Operating lease right of use asset		10,587			11,442
Finance lease right of use asset		3,357			3,447
Cash surrender value of life insurance		17,033			16,881
Restricted investment in bank stocks		7,079			4,902
Accrued interest receivable		12,743			7,964
Deferred income taxes		1,533			2,810
Goodwill		62,840			62,840
Core deposit and other intangibles, net		5,108			5,758
Foreclosed assets held for sale		1,718			196
Other assets		15,185			15,819
Total Assets	$	2,922,365		$	2,231,175
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	564,834		$	310,036
Interest-bearing demand		518,857			458,451
Money Market		632,439			488,748
Savings		189,465			177,737
Time		420,718			477,422
Total Deposits		2,326,313			1,912,394
Short-term borrowings		203,937			—
Long-term debt		85,282			32,903
Subordinated debt		42,009			27,070
Operating lease liability		11,643			12,544
Accrued interest payable		2,590			2,208
Other liabilities		7,246			6,182
Total Liabilities		2,679,020			1,993,301
Shareholders' Equity:
Common stock, par value $1.00 per share; 20,000,000 shares authorized; Shares issued: 8,488,924 at June 30, 2020 and 8,480,938 at December 31, 2019; and shares outstanding:  8,408,401 at June 30, 2020 and 8,480,938 at December 31, 2019		8,489			8,481
Additional paid-in capital		178,497			178,159
Retained earnings		58,069			50,891
Accumulated other comprehensive (loss) income		(150	)		343
Treasury stock, at cost; 80,523 shares at June 30, 2020		(1,560	)		—
Total Shareholders’ Equity		243,345			237,874
Total Liabilities and Shareholders' Equity	$	2,922,365		$	2,231,175

The accompanying notes are an integral part of these consolidated financial statements.

3

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019
INTEREST INCOME
Interest and fees on loans and leases	$	25,116	$	22,214	$	47,365	$	43,292
Interest on interest-bearing balances		18		27		33		57
Interest on federal funds sold		23		130		413		198
Interest and dividends on investment securities:
U.S. Treasury and government agencies		460		839		1,131		1,732
State and political subdivision obligations, tax-exempt		248		584		469		1,203
Other securities		323		204		476		382
Total Interest Income		26,188		23,998		49,887		46,864
INTEREST EXPENSE
Interest on deposits		4,009		5,276		9,389		9,862
Interest on short-term borrowings		45		157		45		389
Interest on long-term and subordinated debt		788		795		1,442		1,537
Total Interest Expense		4,842		6,228		10,876		11,788
Net Interest Income		21,346		17,770		39,011		35,076
PROVISION FOR LOAN AND LEASE LOSSES		1,050		465		1,600		590
Net Interest Income After Provision for Loan and Lease Losses		20,296		17,305		37,411		34,486
NONINTEREST INCOME
Income from fiduciary and wealth management activities		421		347		805		706
Service charges on deposits		115		218		320		435
ATM debit card interchange income		475		380		891		714
Mortgage banking income		1,638		1,077		2,820		1,514
Net gain on sales of SBA loans		178		233		262		435
Merchant services income		98		104		181		189
Earnings from cash surrender value of life insurance		76		79		152		157
Net gain on sales of investment securities		111		17		243		24
Other income		510		419		882		749
Total Noninterest Income		3,622		2,874		6,556		4,923
NONINTEREST EXPENSE
Salaries and employee benefits		7,986		7,786		16,267		15,545
Occupancy expense, net		1,333		1,344		2,772		2,745
Equipment expense		722		658		1,435		1,285
Pennsylvania bank shares tax expense		55		245		460		381
FDIC Assessment		357		314		669		673
Legal and professional fees		349		471		701		893
Marketing and advertising expense		98		226		302		405
Software licensing and utilization		1,297		1,111		2,518		2,132
Telephone expense		137		161		271		315
Loss on sale or write-down of foreclosed assets, net		—		18		—		14
Intangible amortization		326		360		649		723
Other expenses		2,743		2,102		4,940		3,988
Total Noninterest Expense		15,403		14,796		30,984		29,099
INCOME BEFORE PROVISION FOR INCOME TAXES		8,515		5,383		12,983		10,310
Provision for income taxes		1,682		980		2,332		1,830
NET INCOME		6,833		4,403		10,651		8,480
PER COMMON SHARE DATA:
Basic and Diluted Earnings Per Common Share	$	0.81	$	0.52	$	1.26	$	1.00
Cash Dividends Paid	$	0.18	$	0.18	$	0.41	$	0.43

The accompanying notes are an integral part of these consolidated financial statements. 

4

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in thousands)	Three Months Ended June 30,
	2020			2019
Net income	$	6,833		$	4,403
Other comprehensive (loss) income:
Unrealized income arising during the period on available-for-sale
securities, net of income taxes of $21 and $313, respectively		79			1,179
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($23) and ($3), respectively (a)		(88	)		(14	)
Change in defined benefit plans, net of income taxes of ($27) and ($90), respectively (b)		(102	)		(339	)
Reclassification adjustment for settlement losses (gains) and activity related to benefit plans, net
of income taxes of $4 and ($8), respectively (c)		13			(29	)
Total other comprehensive (loss) income		(98	)		797
Total comprehensive income	$	6,735		$	5,200

(Dollars in thousands)	Six Months Ended June 30,
	2020			2019
Net income	$	10,651		$	8,480
Other comprehensive (loss) income:
Unrealized income arising during the period on available-for-sale
securities, net of income taxes of $87 and $796, respectively		329			2,998
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($51) and ($5), respectively (a)		(192	)		(19	)
Change in defined benefit plans, net of income tax impact of ($170) and ($91), respectively (b)		(639	)		(346	)
Reclassification adjustment for settlement losses (gains) and activity related to benefit plans, net
of income taxes of $3 and ($8), respectively (c)		9			(29	)
Total other comprehensive (loss) income		(493	)		2,604
Total comprehensive income	$	10,158		$	11,084

(a) Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate element within total noninterest income.

(b) The change in defined benefit plans consists primarily of unrecognized actuarial (losses) gains on defined benefit plans during the period.  

(c) The reclassification adjustment for benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss.  Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.  Please reference Note 11 – Defined Benefit Plans, for more information.

The accompanying notes are an integral part of these consolidated financial statements.

5

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)								Accumulated
			Additional					Other						Total
	Common		Paid-in		Retained			Comprehensive			Treasury			Shareholders'
	Stock		Capital		Earnings			Income (Loss)			Stock			Equity
Balance, January 1, 2020	$	8,481	$	178,159	$	50,891		$	343		$	—		$	237,874
Net income		—		—		3,818			—			—			3,818
Total other comprehensive loss, net of taxes		—		—		—			(395	)		—			(395	)
Common stock dividends declared		—		—		(1,950	)		—			—			(1,950	)
Employee Stock Purchase Plan (1,647 shares)		1		32		—			—			—			33
Director Stock Purchase Plan (1,743 shares)		2		33		—			—			—			35
Restricted stock activity		—		96		—			—			—			96
Balance, March 31, 2020	$	8,484	$	178,320	$	52,759		$	(52	)	$	—		$	239,511
Net income		—		—		6,833			—			—			6,833
Total other comprehensive loss, net of taxes		—		—		—			(98	)		—			(98	)
Common stock dividends declared		—		—		(1,523	)		—			—			(1,523	)
Repurchased stock (80,523 shares)		—		—		—			—			(1,560	)		(1,560	)
Employee Stock Purchase Plan (2,365 shares)		3		42		—			—			—			45
Director Stock Purchase Plan (2,231 shares)		2		39		—			—			—			41
Restricted stock activity		—		96		—			—			—			96
Balance, June 30, 2020	$	8,489	$	178,497	$	58,069		$	(150	)	$	(1,560	)	$	243,345

Balance, January 1, 2019	$	8,460	$	177,565	$	39,562		$	(2,378	)	$	—	$	223,209
Impact of adoption of new accounting standard (a)		—		—		316			—			—		316
Balance at January 1, 2019, adjusted		8,460		177,565		39,878			(2,378	)		—		223,525
Net income		—		—		4,077			—			—		4,077
Total other comprehensive income, net of taxes		—		—		—			1,807			—		1,807
Common stock dividends declared		—		—		(2,113	)		—			—		(2,113	)
Employee Stock Purchase Plan (1,152 shares)		1		27		—			—			—		28
Director Stock Purchase Plan (1,361 shares)		1		32		—			—			—		33
Restricted stock activity		—		80		—			—			—		80
Balance, March 31, 2019	$	8,462	$	177,704	$	41,842		$	(571	)	$	—	$	227,437
Net income		—		—		4,403			—			—		4,403
Total other comprehensive income, net of taxes		—		—		—			797			—		797
Common stock dividends declared		—		—		(1,524	)		-			—		(1,524	)
Employee Stock Purchase Plan (1,411 shares)		2		34		—			—			—		36
Director Stock Purchase Plan (1,336 shares)		1		32		—			—			—		33
Restricted stock activity		—		80		—			—			—		80
Balance, June 30, 2019	$	8,465	$	177,850	$	44,721		$	226		$	—	$	231,262

(a) Represents the impact of adopting Accounting Standard Update ASU 2016-02, Leases. See Note 2 to the consolidated financial statements for more information.

The accompanying notes are an integral part of these consolidated financial statements.

6

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)	Six Months Ended June 30,
		2020			2019
Operating Activities:
Net Income	$	10,651		$	8,480
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan and lease losses		1,600			590
Depreciation		1,576			1,398
Amortization of intangibles		649			723
Net amortization of security discounts/premiums		362			196
Amortization of operating lease right of use assets		855			826
Amortization of finance lease right of use asset		90			60
Gain on sales of investment securities		(243	)		(24	)
Earnings on cash surrender value of life insurance		(152	)		(174	)
Mortgage loans originated for sale		(114,714	)		(65,989	)
Proceeds from sales of mortgage loans originated for sale		104,144			61,066
Gain on sale of mortgage loans		(2,820	)		(1,514	)
SBA loans originated for sale		(2,446	)		(7,109	)
Proceeds from sales of SBA loans originated for sale		2,708			7,544
Gain on sale of SBA loans		(262	)		(435	)
Loss on write-down or disposal of property, plant, and equipment		10			163
Loss on sale or write-down of foreclosed assets		—			14
Stock compensation expense		192			160
Deferred income tax expense (benefit)		611			(388	)
Increase in accrued interest receivable		(4,779	)		(639	)
Decrease (increase) in other assets		353			(4,296	)
Increase in accrued interest payable		382			434
Net change in operating lease liability		(901	)		(883	)
Increase (decrease) in other liabilities		1,065			(81	)
Net Cash (Used In) Provided By Operating Activities		(1,069	)		122
Investing Activities:
Proceeds from the sale of available-for-sale securities		68,811			40,455
Proceeds from the maturity or call of available-for-sale securities		8,513			3,436
Purchases of available-for-sale securities		(63,503	)		(11,556	)
Proceeds from the maturity or call of held-to-maturity securities		82,001			10,968
Purchases of held-to-maturity securities		(80,880	)		(2,997	)
(Purchases) redemptions of restricted investment in bank stock		(2,177	)		166
Net increase in loans and leases		(684,579	)		(64,616	)
Proceeds from bank owned life insurance		—			140
Purchases of bank premises and equipment		(2,687	)		(1,115	)
Proceeds from the sale of foreclosed assets		—			907
Net Cash Used In Investing Activities		(674,501	)		(24,212	)
Financing Activities:
Net increase in deposits		413,919			52,375
Net increase (decrease) in short-term borrowings		203,937			(30,100	)
Common stock dividends paid		(3,473	)		(3,637	)
Proceeds from Employee Stock Purchase Plan stock issuance		78			63
Proceeds from Director Stock Purchase Plan stock issuance		76			67
Treasury stock purchased		(1,560	)		—
Net change in finance lease liability		(41	)		(6	)
Proceeds from the issuance of subordinated debt		15,000			—
Issuance of long-term debt		70,000			13,500
Long-term debt repayment		(17,641	)		(92	)
Net Cash Provided By Financing Activities		680,295			32,170
Net increase in cash and cash equivalents		4,725			8,080
Cash and cash equivalents, beginning of period		139,030			40,065
Cash and cash equivalents, end of period	$	143,755		$	48,145

7

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

(Dollars in thousands)	Six Months Ended June 30,
		2020		2019
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	10,494	$	11,354
Cash paid for income taxes		1,060		2,200
Supplemental Noncash Disclosures:
Recognition of operating lease right of use assets	$	—	$	11,661
Recognition of operating lease liabilities		—		12,866
Recognition of finance lease right of use asset		—		3,597
Recognition of finance lease liability		—		3,597
Asset transferred to bank premises and equipment held for sale		—		1,274
Loans transferred to foreclosed assets held for sale		1,522		294

The accompanying notes are an integral part of these consolidated financial statements.

8

MID PENN BANCORP, INC.

(1)Basis of Presentation

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. (“Mid Penn” or the “Corporation”) and its wholly-owned subsidiary, Mid Penn Bank (the “Bank”). During the first six months of 2020, Mid Penn established a non-bank subsidiary, MPB Financial Services, LLC under which two additional non-bank subsidiaries have been established: (i) MPB Wealth Management, LLC, created to expand the wealth management function of the Corporation, and (ii) MPB Risk Services, LLC, created to fulfill the insurance needs of both existing and potential customers of the Corporation. As of June 30, 2020, the accounts and activities of these three new non-bank subsidiaries were not material to warrant separate disclosure or segment reporting.  All material intercompany accounts and transactions have been eliminated in consolidation.

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Mid Penn believes the information presented is not misleading and the disclosures are adequate.  For comparative purposes, the period ending June 30, 2019 and December 31, 2019 balances have been reclassified, when necessary, to conform to the 2020 presentation.  Such reclassifications had no impact on net income. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.  Except for adjustments made related to the adoption of new accounting standards, in the opinion of management, all adjustments necessary for fair presentation of the periods presented have been reflected in the accompanying consolidated financial statements.  All such adjustments are of a normal, recurring nature.  These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019.  

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2020, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the issuance date of these consolidated financial statements.

(2)Summary of Significant Accounting Policies

The accounting and reporting policies of Mid Penn conform with accounting principles as required under GAAP and general practices within the financial industry.  The following is a description of the more significant accounting policies.

Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available for sale and carried at fair value.  Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, pledging requirements, and other factors related to effective portfolio management.  Securities to be held to maturity are carried at amortized cost.

For available-for-sale debt securities, realized gains and losses on dispositions are based on the difference between net proceeds and the amortized cost of the securities sold, using the specific identification method.  Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through Mid Penn’s consolidated statement of income for the respective period.

ASC Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired.  For debt securities, management must assess, in addition to the credit condition of the underlying issuer, whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.  These steps are done before assessing whether the Corporation will recover the cost basis of the investment.

In instances when a determination is made that other-than-temporary impairment exists but the Corporation does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.  The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Equity Securities

In accordance with Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, Mid Penn reports its equity securities with readily determinable fair values at fair value within other assets on the balance sheet, with realized and unrealized gains and losses reported in other expense on the income statement.  Mid Penn’s equity securities consisted of Community Reinvestment Act (“CRA”) funds totaling $518,000 and $507,000 as of June 30, 2020 and December 31, 2019, respectively.  No equity securities were sold during the three or six months ended June 30, 2020 or June 30, 2019.

Loans

9

MID PENN BANCORP, INC.

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans, generally being amortized over the contractual life of the loan.  Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loan portfolio is segmented into commercial and consumer loans.  Commercial loans consist of the following classes:  commercial and industrial, commercial real estate, commercial real estate-construction and lease financing.  Consumer loans consist of the following classes:  residential mortgage loans, home equity loans and other consumer loans.

For all classes of loans, the accrual of interest generally is discontinued when the contractual payment of principal or interest has become 90 days or more past due, or management has serious doubts about further collectability of principal or interest even though the loan is currently performing.  A loan past due 90 days or more may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest is credited to income.  Interest received on nonaccrual loans, including impaired loans, is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.  Nonaccrual loans may be restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally, at least nine consecutive months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.  The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Commercial and Industrial Loans

Mid Penn originates commercial and industrial loans.  Most of the Bank’s commercial and industrial loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory, and accounts receivable.  Commercial loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.  Generally, the maximum term on non-mortgage lines of credit is one year.  The loan-to-value ratio on such loans and lines of credit generally may not exceed 80 percent of the value of the collateral securing the loan.  The Bank’s commercial business lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower.  Analysis of the borrower’s past, present, and future cash flows is also an important aspect of the Bank’s current credit analysis.  Nonetheless, such loans are believed to carry higher credit risk than other extensions of credit.

Commercial and industrial loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, which, in turn, is likely to be dependent upon the general economic environment.  Mid Penn’s commercial and industrial loans are usually, but not always, secured by business assets and personal guarantees.  However, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business.

Commercial Real Estate and Commercial Real Estate – Construction Loans

Commercial real estate and commercial real estate construction loans generally present a higher level of risk than loans secured by one-to-four family residences.  This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans.  In addition, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project.  If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Residential Mortgage Loans

Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction.  The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas.  Residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 percent of the lesser of the appraised value of the security property or the contract price.  Private mortgage insurance is generally required in an amount sufficient to reduce the Bank’s exposure to at or below the 85 percent loan to value level.  Residential mortgage loans generally do not include prepayment penalties.

In underwriting residential mortgage loans, the Bank evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan.  Most properties securing real estate loans made by Mid Penn are appraised by independent fee appraisers.  The Bank generally requires borrowers to obtain title insurance and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan.  Real estate loans originated by the Bank generally contain a “due on sale” clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property.

The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, Federal Home Loan Bank, or Pennsylvania Housing Finance Agency standards, with the intention of selling the

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majority of residential mortgages originated into the secondary market.  In the event that the facts and circumstances surrounding a residential mortgage application do not meet the required underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request.  In the event that the loan is funded and held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

Consumer Loans, Including Home Equity Credits

Mid Penn offers a variety of secured consumer loans, including home equity, automobile, and deposit secured loans.  In addition, the Bank offers other secured and unsecured consumer loans.  Most consumer loans are originated in Mid Penn’s primary market and surrounding areas.

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit.  Substantially all home equity loans and lines of credit are secured by junior lien mortgages on principal residences.  The Bank will lend amounts, which, together with all prior liens, typically may be up to 85 percent of the appraised value of the property securing the loan.  Home equity term loans may have maximum terms up to 20 years, while home equity lines of credit generally have maximum terms of five years.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts, and an assessment of ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment.  In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance.  In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.  Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt.  Generally, foreclosure actions could become more prevalent if the real estate market weakens and property values deteriorate.

Payroll Protection Program (“PPP”) Loans

On March 27, 2020, in response to the novel coronavirus (“COVID-19”) pandemic, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law by President Donald Trump.  This legislation created the federal Paycheck Protection Program (“PPP”) which permitted eligible business entities to apply for loans through a participating financial institution to cover payroll, rent, and other business expenses during the COVID-19 pandemic.  The PPP loans, which are 100 percent guaranteed by the Small Business Administration (“SBA”), have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.  The vast majority of Mid Penn’s PPP loans have a two-year term to maturity.  The SBA may forgive the PPP loans if at least 60 percent of the proceeds are used for payroll costs.  Also, the borrowers will not have to make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the deferment period.   The SBA also provided a processing fee to financial institutions who participated in the PPP, with the amount of such fee pre-determined by the SBA dependent upon the size of each credit.  As of June 30, 2020, Mid Penn had received $20,329,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP initiative.   These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and will be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the loan.  During the three and six months ended June 30, 2020, Mid Penn recognized $2,371,000 of PPP processing fees within interest and fees on loans and leases on the Consolidated Statements of Income.  

As of June 30, 2020, Mid Penn had $588,667,000 of PPP loans outstanding, net of deferred PPP processing fees of $17,958,000 with all of these loans being recorded in the commercial and industrial loan portfolio classification.  

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Allowance for Loan and Lease Losses

The allowance for credit losses (“allowance”) and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not required to adopted the current expected credit loss (“CECL”) accounting standard until January 1, 2023.  The allowance consists of (i) the allowance for loan and lease losses, and (ii) the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet.  The reserve for unfunded lending commitments was $77,000 at June 30, 2020 and $80,000 at December 31, 2019.  

The allowance is increased by the provision for loan and lease losses, and decreased by charge-offs, net of recoveries.  Loans deemed to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.  All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible.  Because all identified losses are immediately charged off, no portion of the allowance is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance.  The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components.  The specific component relates to loans that are classified as impaired.  For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.  These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in collateral values, changes in the experience of the lending staff and loan review systems, changes in lending policies and procedures (including underwriting standards), changes in the mix and volume of loans originated, the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio, shifting industry or portfolio concentrations, and other relevant factors.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.  Adjustments to the factors are supported through documentation of changes in conditions in relevant analyses and a narrative accompanying the allowance for loan loss calculation.

The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific and general components. For example, at times Mid Penn could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral.  Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses, including the unpredictable timing and amounts of charge-offs, the fact that historical loss averages don’t necessarily correlate to future loss trends, and unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors.

Mid Penn generally considers a commercial loan (consisting of commercial and industrial, commercial real estate, commercial real estate-construction, and lease financing loan classes) to be impaired when it becomes 90 days or more past due and not in the process of collection, or sooner when it is probable that Mid Penn will be unable to collect all contractual principal and interest due.  This methodology assumes the borrower cannot or will not continue to make additional payments.  At that time, the loan would generally be considered collateral dependent as the discounted cash flow method would generally indicate no operating income available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

In addition, Mid Penn’s rating system assumes any loans classified as nonaccrual, included in the substandard rating, to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

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Mid Penn evaluates loans for charge-off on a monthly basis.  Policies that govern the recommendation for charge-off are unique to the type of loan being considered.  Commercial loans classified as substandard nonaccrual, doubtful, having probable loss will first have a collateral evaluation completed in accordance with the guidance on impaired loans.  Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation.  The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment.  Commercial real estate loans determined to be impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans.  An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value.  A specific allocation of allowance is made for any anticipated collateral shortfall. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  The process of charging off a residential mortgage loan begins when a loan becomes delinquent for 90 days and is not in the process of collection.  The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens.  A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible.  The collateral shortfall of the consumer loan is recommended for charge-off at this point.

As noted above, Mid Penn assesses a specific allocation for commercial loans and commercial real estate loans.  The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In addition, Mid Penn takes a preemptive step when any commercial loan becomes classified under its internal classification system.  A preliminary collateral evaluation, in accordance with the guidance on impaired loans, is prepared using the existing collateral information in the loan file.  This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation.  This collateral evaluation is preliminary, but allows Mid Penn to determine if any potential collateral shortfalls exist.

It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard nonaccrual.  Prior to receipt of the updated real estate valuation, Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation.  The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals.  To date, there have been no material time lapses noted with the above processes.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment.  In these circumstances, a collateral inspection is performed by Mid Penn personnel to determine an estimated value.  The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management.  Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales.  Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, the independent third party market valuations on the subject property obtained by Mid Penn as soon as practically possible following the credit being placed on nonaccrual status sometimes indicates that the loan-to-value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area.  These circumstances are determined on a case by case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans.  This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values.  All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, Mid Penn does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted concessions and it is deemed that those borrowers are experiencing financial difficulty.  Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date.  Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for nine consecutive months after modification.  Loans classified as troubled debt restructurings are designated as impaired.

The allowance calculation methodology includes segregation of loan classes into risk rating categories.  The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments.  Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss.  Loans criticized as special mention have potential weaknesses that deserve management’s close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.  Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.  Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses.  Any loans not classified as noted above are rated pass.

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In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.  Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

As of June 30, 2020, Mid Penn had $588,667,000 of PPP loans outstanding, net of deferred fees, which are guaranteed by the Small Business Administration and, thus, have no loss reserve allocated to that pool.

Acquired Loans

Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses.  The balance of loans acquired at fair value and included in the balance of loans and leases, net of unearned interest on the Consolidated Balance Sheets totaled $324,159,000 and $414,498,000 as of June 30, 2020 and December 31, 2019, respectively.  The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.  The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount.  These loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.  The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan.  Subsequent decreases to the expected cash flows will require Mid Penn to evaluate the need for an additional allowance.  Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which Mid Penn will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows.  To the extent that the expected cash flows of a loan have decreased due to credit deterioration, Mid Penn establishes an allowance.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20.  These loans are initially recorded at fair value, and include credit and interest rate marks associated with acquisition accounting adjustments.  Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans.  There is no allowance for loan losses established at the acquisition date for acquired performing loans.  An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Mid Penn expects to fully collect the new carrying value (i.e. fair value) of the loans.  As such, Mid Penn may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount.  In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Loan-Level Interest Rate Swaps

Beginning during the second quarter of 2020, Mid Penn entered into loan-level interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs.  These swaps qualify as derivatives, but are not designated as hedging instruments.   A loan-level interest rate swap is a contract in which the series of interest rate flows (fixed and variable) are exchanged over the term of a loan with certain qualifying commercial loan customers, and Mid Penn simultaneously enters into an interest rate swap with a dealer counterparty with identical notional amounts and terms. The net result of these swaps is that the customer pays a fixed interest rate and Mid Penn receives a floating interest rate.  The swap positions with customers are equally offset with the dealer counterparties to minimize the potential impact on Mid Penn’s financial statements. 

Pursuant to our agreements with the dealer counterparties, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, including the possibility that we will incur a loss because a party to the agreements, which may be a dealer counterparty or a customer, fails to meet its contractual obligations. Derivative contracts may only be executed with dealer counterparties as approved by our Board of Directors.  Similarly, derivatives with customers may only be executed with customers within credit exposure limits as approved by our Board of Directors. Loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

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Bank Premises and Equipment Held for Sale

Bank premises and equipment designated as held for sale are carried at the lower of cost or market value. There were no premises and equipment classified as held for sale as of June 30, 2020 or December 31, 2019. During 2019, Mid Penn sold the land and facility formerly used as a full-service retail banking property. An impairment charge of $105,000 was recorded during the first six months of 2019 related to this property and is included in other expenses on the Consolidated Statement of Income.  Similar impairment charges were not recorded during the six months ended June 30, 2020.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale consist primarily of real estate acquired through, or in lieu of, foreclosure in settlement of debt, and are recorded at fair value less the selling costs at the date of transfer, establishing a new cost basis.  Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses.  Subsequent to acquisition, foreclosed assets are carried at fair value less estimated costs of disposal, based upon periodic evaluations that consider changes in market conditions and development and disposal costs.  Operating results from assets acquired in satisfaction of debt, including rental income less operating costs and gains or losses on the sale of, or the periodic evaluation of foreclosed assets, are recorded in noninterest expense.  As of June 30, 2020, Mid Penn had $135,000 of residential real estate held in other real estate owned and $90,000 in loans for which formal foreclosure proceedings were in process.  As of December 31, 2019, Mid Penn had $78,000 of residential real estate held in other real estate owned and $84,000 in loans for which formal foreclosure proceedings were in process.

Leases

Mid Penn leases certain premises and equipment and, as of January 1, 2019, for all leases in effect upon adoption of Accounting Standards Update 2016-02, Leases (Topic 842), as well as any leases commencing thereafter, Mid Penn has recognized a right-of-use asset and a related lease liability for each distinct lease agreement.  The lease right-of-use asset consists of the amount of the initial measurement of the lease liability, adjusted for (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and (ii) any initial direct costs incurred by the lessee (defined as costs of a lease that would not have been incurred had the lease not been executed).  The related lease liability is equal to the present value of the future lease payments, discounted using the rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Given that the rate implicit in the lease is rarely available, all lease liability amounts were calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. As a result of the adoption of this standard, effective January 1, 2019, Mid Penn recognized (i) an operating lease ROU asset of $11,661,000, (ii) an operating lease liability of $12,866,000, and (iii) an opening adjustment to retained earnings of $316,000 to eliminate the remaining balance of the deferred sale/leaseback gain on two retail branch locations which had originally been recorded in 2016.  

Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.  Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.  Finance lease expense consists of the amortization of the right-of-use asset, recognized as a component of occupancy expense on the Consolidated Statements of Income, and interest expense on the lease liability, which is recorded as a component of other interest expense on the Consolidated Statements of Income.

In assessing whether a contract contains a lease, Mid Penn reviews third-party agreements to determine if the contract conveys the right to control the use of identified property, plant, or equipment (defined as an identified asset by Topic 842) for a period of time in exchange for consideration, and grants Mid Penn the right to both (i) obtain substantially all of the economic benefits from the identified asset’s use, and (ii) direct the use of the identified asset throughout the term of the agreement.  

Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the (i) lease components, consisting of consideration paid to transfer a good or service to Mid Penn, and (ii) non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance.  

Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term.  These renewal and extension options were not included in the calculation of the right-of-use assets and lease liabilities as Mid Penn is not reasonably certain that these renewals and extensions will be utilized.  Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of right-of-use assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred.

None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments.  Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations.

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Investments in Limited Partnerships

Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania.  The carrying value of Mid Penn’s investment in the limited partnership was $168,000 at June 30, 2020, and $190,000 at December 31, 2019, net of amortization, using the straight-line method.  The investment in this limited partnership is reported in other assets on the Consolidated Balance Sheets, and Mid Penn’s maximum exposure to loss is limited to the carrying value of the investment.  

Mid Penn also has a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania.  The total investment in this limited partnership, net of amortization, was $7,061,000 and $7,249,000 on June 30, 2020 and December 31, 2019, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet.  All of the units are intended to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended.  Mid Penn’s limited partner capital contribution commitment is $7,579,000.  Investments made to date, and future payments under this commitment are paid in installments over the course of construction of the low-income housing facilities.  Each installment payment is conditional upon both Mid Penn’s review and approval of the installment payment certificate and continued compliance with the terms of the original partnership agreement. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period as the facilities became operational and began to be occupied beginning in December 2019.  The project has been conditionally awarded $861,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $8,613,000 to be awarded to Mid Penn over the ten-year amortization period.  Mid Penn’s commitment to initiate investments in the limited partnership interest was conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it deemed necessary. All such initial conditions were satisfied and Mid Penn began funding the investment during 2018 and the investment is expected to be fully funded in 2020.  Mid Penn recognizes the related amortization and tax credits using the cost amortization method over a ten-year period.  

Core Deposit Intangible

Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases.  The carrying amount of core deposit intangible was $4,907,000 and $5,526,000 at June 30, 2020 and December 31, 2019, respectively.  Core deposit amortization expense is reflected in the Consolidated Statements of Income in intangible amortization and was $619,000 and $695,000 for the six months ended June 30, 2020 and 2019, respectively.  Core deposit amortization expense was $309,000 and $347,000 for the three months ended June 30, 2020 and 2019, respectively.   The core deposit intangible for each respective acquisition (Phoenix in March 2015; Scottdale in January 2018; and First Priority in July 2018) is being amortized over a ten-year period starting at the respective acquisition date and using a sum-of-the-year’s digits basis.  Core deposit intangible assets are subject to impairment testing whenever events or changes in circumstances indicate the need for such evaluation.  During the first quarter of 2020 and continuing through the period subsequent to June 30, 2020, the novel coronavirus (“COVID-19”) global pandemic impacted the United States including the State of Pennsylvania and Mid Penn’s market area and communities and customers.  Accordingly, Mid Penn management evaluated whether this COVID-19 event resulted in any impairment to Mid Penn’s business and the value of its acquired consumer demand and savings deposit base.  Management’s determination was that there was no impairment to its core deposit intangible to date as a result of the pandemic or related factors.  Supporting this assertion, as reflected in the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, Mid Penn has recognized substantial total deposit growth of $413,919,000 or over 21 percent during the first six months of 2020, with none of this growth attributable to brokered deposits.  Subsequent to June 30, 2020, and through the date of this filing, these increased deposit levels were sustained and continued to reflect no evidence of impairment.

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Goodwill

Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with past business acquisitions.  The goodwill balance was $62,840,000 at both June 30, 2020 and December 31, 2019, and was comprised of (i) $39,744,000 related to the July 31, 2018 First Priority acquisition, (ii) $19,178,000 related to the January 8, 2018 Scottdale acquisition and (iii) $3,918,000 recorded as a result of the Phoenix acquisition in 2015.  Goodwill is evaluated annually for impairment; however, if certain events occur which indicate goodwill might be impaired between annual tests, goodwill would be tested for impairment when such events occur.  In making a potential impairment assessment of goodwill, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc.  There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of goodwill impairment.  Mid Penn did not identify any impairment on its outstanding goodwill from its evaluation which was performed as of October 31, 2019 using a qualitative analysis.  Changes in economic and operating conditions could result in goodwill impairment in future periods.  During the first half of 2020, and in support of its March 31, 2020 financial reports, Mid Penn management performed a “Step One” goodwill analysis to determine whether the current or expected impact from the COVID-19 global pandemic resulted in any impairment to Mid Penn’s business and the recorded value of its goodwill intangible asset.  Based upon this goodwill analysis, Mid Penn management determined that there was no impairment to its goodwill. A subsequent “Step One” goodwill analysis was not performed as of June 30, 2020; however, in response to the continued presence of the COVID-19 pandemic event and its impacts on the capital markets and the economy, management reviewed the criteria supporting the “Step One” assessment performed for the first quarter of 2020, including economic projections, anticipated cash flows, and current market data. Mid Penn management determined there were no adverse changes to key considerations from this previous assessment, or additional events that occurred since this previous assessment, and affirmed its determination that there is no impairment to its goodwill as of June 30, 2020.  As the COVID-19 event continues and its implications to the country, the economy, and specifically Mid Penn evolve, management will perform additional goodwill evaluations as necessary.

Revenue from Contracts with Customers

Mid Penn recognizes revenues when earned based upon (i) contractual terms as transactions occur, or (ii) as related services are provided and collectability is reasonably assured. The largest source of revenue for Mid Penn is interest income, which is primarily recognized on an accrual basis according to a written contract, such as loan and lease agreements or investment securities contracts.  Mid Penn earns noninterest income through a variety of financial and transactional services such as trust and wealth management services, deposit account transaction fees, ATM debit card fees, and mortgage banking fees.  Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed.  In certain circumstances, noninterest income is reported net of associated expenses.

On January 1, 2018, Mid Penn adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU establishes principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods and services to customers.  Topic 606 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.  

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit card interchange income, merchant service fees and certain components of other income are within the scope of Topic 606 and are discussed in greater detail below.

Income from Fiduciary and Wealth Management Activities

Income from fiduciary and wealth management activities consist of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income.  Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned.  Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur.  Payment is typically received in the following month.  Estate fee income is recognized as services are performed over the service period, generally eighteen months.

Service Charges on Deposits

Service charges on deposits consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts.  Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs and the related service charge is subsequently processed.  Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts.

ATM Debit Card Interchange Income

ATM debit card interchange income consists of interchange fees earned when Mid Penn’s debit cards are processed through card payments networks.  The interchange fee is calculated as a percentage of the total electronic funds transfer (EFT) transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT transaction, and the type of business at which the transaction was processed.  Revenue is recognized daily as transactions occur and interchange fees are subsequently processed.  Payment for most interchange activity is received daily, while some fees are aggregated and payment is received in the following month.

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Merchant Services Income

Merchant services income is processed through third party providers with whom Mid Penn has partnered to provide merchant services to its business customers.  Fees are charged to merchants to process their debit card transactions, cash advance services, and other related products.  Mid Penn receives a percentage of the revenue generated from each joint customer relationship after the respective third-party provider has collected the fee income from the merchant.  Payment is primarily received in the following month.

Other Income

Certain aspects of other income, such as credit card royalties, check orders, and letter of credit fees, are within the scope of Topic 606.  These fees are primarily transactional, and revenue is recognized when transactions occur and the related services are subsequently processed.  Payment is primarily received immediately or in the following month.  

Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied.  Mid Penn has not recognized any assets from the costs to obtain or fulfill a contract with customers for revenue streams that fall within the guidance of Topic 606.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income.  Mid Penn also recognizes other comprehensive income (loss) from an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees.  These plans utilize assumptions and methods to calculate the fair value of plan assets and Mid Penn recognizes the overfunded and underfunded status of the plans on its consolidated balance sheet.  Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment.

The components of accumulated other comprehensive income (loss), net of taxes, are as follows:

(Dollars in thousands)	Unrealized Gain (Loss) on Securities			Defined Benefit Plans			Accumulated Other Comprehensive (Loss) Income
Balance - June 30, 2020	$	9		$	(159	)	$	(150	)
Balance - December 31, 2019	$	(128	)	$	471		$	343

During the six months ended June 30, 2020, the fair value of plan assets in Mid Penn’s defined benefit pension plan was impacted by the economic implications of the COVID-19 pandemic, resulting in a decrease in the fair value of the plan assets and a corresponding decrease in accumulated other comprehensive (loss) income, net of taxes, of $620,000 when comparing December 31, 2019 to June 30, 2020.

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Earnings Per Common Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus common shares that would have been outstanding if dilutive potential common shares, consisting of unvested restricted stock, had been issued.  The effect of dilutive unvested restricted stock was not material and did not result in a difference, when rounded to the whole cent, between the basic earnings per share compared to the diluted earnings per share for any of the periods presented. The following data shows the amounts used in computing basic and diluted earnings per common share.

(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2020			2019	2020				2019
Net income	$	6,833	$	4,403		$	10,651	$	8,480
Weighted average common shares outstanding (basic)		8,446,377		8,462,522			8,463,676		8,461,269
Effect of dilutive unvested restricted stock grants		3,973		5,689			4,528		4,015
Weighted average common shares outstanding (diluted)		8,450,350		8,468,211			8,468,204		8,465,284
Basic earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00
Diluted earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00

There were no antidilutive shares at June 30, 2020 and 2019.

(3) Investment Securities

The majority of the investment portfolio is comprised of securities issued by U.S. government agencies, and state and political subdivision obligations.  The amortized cost, fair value, and unrealized gains and losses on investment securities at June 30, 2020 and December 31, 2019 are as follows:

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
June 30, 2020
Available-for-sale debt securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	—	$	2
State and political subdivision obligations		7,014		36		—		7,050
Corporate debt securities		16,464		42		66		16,440
Total available-for-sale debt securities		23,480		78		66		23,492
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	24,004	$	228	$	—	$	24,232
Mortgage-backed U.S. government agencies		41,312		1,072		4		42,380
State and political subdivision obligations		60,525		2,642		23		63,144
Corporate debt securities		9,546		205		16		9,735
Total held-to-maturity debt securities		135,387		4,147		43		139,491
Total	$	158,867	$	4,225	$	109	$	162,983

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(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2019
Available-for-sale debt securities:
U.S. government agencies	$	22,894	$	6	$	70	$	22,830
Mortgage-backed U.S. government agencies		12,996		7		113		12,890
State and political subdivision obligations		30		—		—		30
Corporate debt securities		1,250		9		—		1,259
Total available-for-sale debt securities		37,170		22		183		37,009
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	50,210	$	46	$	220	$	50,036
Mortgage-backed U.S. government agencies		42,098		95		102		42,091
State and political subdivision obligations		44,169		1,193		13		45,349
Total held-to-maturity debt securities		136,477		1,334		335		137,476
Total	$	173,647	$	1,356	$	518	$	174,485

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 comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued.  Please refer to Note 7, Fair Value Measurement, for more information on the fair value of investment securities.

Investment securities having a fair value of $128,301,000 at June 30, 2020 and $147,283,000 at December 31, 2019 were pledged to secure public deposits, some trust account holdings, and certain other borrowings.  Mid Penn also obtains letters of credit from the Federal Home Loan Bank of Pittsburgh (“FHLB”) to secure certain public deposits.  These FHLB letter of credit commitments totaled $212,401,000 as of June 30, 2020 and $169,051,000 as of December 31, 2019.

The following tables present gross unrealized losses and fair value of debt security investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2020 and December 31, 2019.

(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total
	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
June 30, 2020	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Available-for-sale debt securities:
Corporate debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66
Total temporarily impaired available-for-sale debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66
Held-to-maturity debt securities:
Mortgage-backed U.S. government agencies	1	$	1,135	$	4	0	$	—	$	—	1	$	1,135	$	4
State and political subdivision obligations	2		2,668		23	0		—		—	2		2,668		23
Corporate debt securities	2		1,983		16	0		—		—	2		1,983		16
Total temporarily impaired held-to-maturity debt securities	5	$	5,786	$	43	0	$	—	$	—	5	$	5,786	$	43
Total	10	$	15,681	$	109	0	$	—	$	—	10	$	15,681	$	109

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(Dollars in thousands)	Less Than 12 Months					12 Months or More						Total
	Number					Number						Number
	of	Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized
December 31, 2019	Securities	Value		Losses		Securities	Value		Losses			Securities	Value		Losses
Available-for-sale securities:
U.S. government agencies	4	$	4,652	$	24	7	$	11,982		$	46	11	$	16,634	$	70
Mortgage-backed U.S. government agencies	1		1,643		4	14		10,603			109	15		12,246		113
Total temporarily impaired available-for-sale securities	5	$	6,295	$	28	21	$	22,585		$	155	26	$	28,880	$	183
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies	18	$	29,024	$	219	1	$	2,999		$	1	19	$	32,023	$	220
Mortgage-backed U.S. government agencies	6		8,445		35	13		11,050			67	19		19,495		102
State and political subdivision obligations	3		1,383		13	0		—			—	3		1,383		13
Total temporarily impaired held to maturity securities	27	$	38,852	$	267	14	$	14,049		$	68	41	$	52,901	$	335
Total	32	$	45,147	$	295	35	$	36,634		$	223	67	$	81,781	$	518

Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such additional evaluation. Consideration is given to the length of time and the extent to which the fair value of the security has been less than amortized cost, as well as the overall financial condition of the issuer.  In addition, for debt securities, Mid Penn considers (i) whether management has the intent to sell the security, (ii) whether it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (iii) whether management expects to recover the entire amortized cost basis.  At both June 30, 2020 and December 31, 2019, the majority of available-for-sale securities and held-to-maturity securities in an unrealized loss position were corporate debt securities.

Mid Penn had no securities considered by management to be other-than-temporarily impaired as of June 30, 2020, December 31, 2019, or June 30, 2019, and did not record any securities impairment charges in the respective periods ended on these dates.  This determination reflects management’s assessment that no securities in its portfolio were impaired as a result of any COVID-19 pandemic impacts, to date, to the underlying issuers of securities.  Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality.

Gross realized gains and losses on sales of available-for-sale debt securities for the three and six months ended June 30, 2020 and 2019 are shown in the table below.

(Dollars in thousands)	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Realized gains		$	118			$	43			$	255			$	69
Realized losses			(7	)			(26	)			(12	)			(45	)
Net gains		$	111			$	17			$	243			$	24

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The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of June 30, 2020.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
June 30, 2020	Cost		Value		Cost		Value
Due in 1 year or less	$	—	$	—	$	3,162	$	3,191
Due after 1 year but within 5 years		2,975		2,994		19,478		20,195
Due after 5 years but within 10 years		17,679		17,667		67,984		70,266
Due after 10 years		2,824		2,829		3,451		3,459
		23,478		23,490		94,075		97,111
Mortgage-backed securities		2		2		41,312		42,380
	$	23,480	$	23,492	$	135,387	$	139,491

(4) Loans and Allowance for Loan and Lease Losses

The types of loans in Mid Penn’s portfolio, summarized by those rated as “pass” (net of deferred fees and costs of $18,066,000 as of June 30, 2020 and $1,081,000 as of December 31, 2019), and the loans classified as “special mention” and “substandard” within Mid Penn’s internal risk rating system as of June 30, 2020 and December 31, 2019, are as follows:

(Dollars in thousands)			Special
June 30, 2020	Pass		Mention		Substandard		Total
Commercial and industrial	$	916,886	$	9,712	$	2,792	$	929,390
Commercial real estate		983,198		2,752		12,723		998,673
Commercial real estate - construction		224,325		—		32		224,357
Residential mortgage		216,948		54		1,350		218,352
Home equity		65,744		7		2,414		68,165
Consumer		6,828		—		—		6,828
	$	2,413,929	$	12,525	$	19,311	$	2,445,765

(Dollars in thousands)			Special
December 31, 2019	Pass		Mention		Substandard		Total
Commercial and industrial	$	326,573	$	9,558	$	3,016	$	339,147
Commercial real estate		913,001		2,426		13,711		929,138
Commercial real estate - construction		181,650		—		40		181,690
Residential mortgage		235,252		55		1,417		236,724
Home equity		68,224		—		47		68,271
Consumer		7,786		—		—		7,786
	$	1,732,486	$	12,039	$	18,231	$	1,762,756

The increase in deferred fees and costs from December 31, 2019 to June 30, 2020 was the result of collected but unearned PPP loan processing fees related to the PPP loans which Mid Penn processed and disbursed during the second quarter of 2020.  PPP loans are included in commercial and industrial loans and are fully guaranteed by the SBA, therefore all PPP loans outstanding are classified as “pass” within Mid Penn’s internal risk rating system as of June 30, 2020.  

Mid Penn had no loans classified as doubtful as of June 30, 2020 and December 31, 2019.

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Impaired loans by loan portfolio class as of June 30, 2020 and December 31, 2019 are summarized as follows:

	June 30, 2020						December 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	1,012	$	1,061	$	—	$	890	$	890	$	—
Commercial real estate		7,126		7,465		—		7,973		8,366		—
Commercial real estate - construction		32		34		—		40		61		—
Residential mortgage		776		798		—		817		838		—
Home equity		2,406		2,436		—		25		27		—
Consumer		—		—		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	—	$	3	$	68	$	—
Commercial real estate		1,430		1,700		—		1,423		1,708		—
Commercial real estate - construction		—		—		—		—		—		—
Residential mortgage		354		494		—		381		578		—
Home equity		1		4		—		1		5		—
Consumer		—		—		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	198	$	198	$	53	$	—	$	—	$	—
Commercial real estate		902		944		190		338		380		166
Commercial real estate - construction		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,210	$	1,259	$	53	$	893	$	958	$	—
Commercial real estate		9,458		10,109		190		9,734		10,454		166
Commercial real estate - construction		32		34		—		40		61		—
Residential mortgage		1,130		1,292		—		1,198		1,416		—
Home equity		2,407		2,440		—		26		32		—
Consumer		—		—		—		—		—		—

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The average recorded investment of impaired loans and related interest income recognized for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended
	June 30, 2020				June 30, 2019
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	955	$	—	$	—	$	—
Commercial real estate		7,004		—		2,273		—
Commercial real estate - construction		36		—		40		—
Residential mortgage		762		6		880		7
Home equity		1,215		—		29		—
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	29	$	—
Commercial real estate		1,423		—		1,602		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		360		—		1,222		—
Home equity		1		—		4		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	99	$	—	$	140	$	—
Commercial real estate		835		—		513		—
Commercial real estate - construction		—		—		183		—
Residential mortgage		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,054	$	—	$	169	$	—
Commercial real estate		9,262		—		4,388		—
Commercial real estate - construction		36		—		223		—
Residential mortgage		1,122		6		2,102		7
Home equity		1,216		—		33		—
Consumer		—		—		—		—

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	Six Months Ended
	June 30, 2020				June 30, 2019
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	933	$	—	$	—	$	—
Commercial real estate		7,362		—		2,289		—
Commercial real estate - construction		37		—		27		—
Residential mortgage		780		13		857		14
Home equity		818		—		29		—
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	1	$	—	$	29	$	—
Commercial real estate		1,421		—		1,589		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		367		—		1,219		—
Home equity		1		—		4		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	66	$	—	$	1,603	$	3
Commercial real estate		634		—		477		—
Commercial real estate - construction		—		—		245		—
Residential mortgage		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,000	$	—	$	1,632	$	3
Commercial real estate		9,417		—		4,355		—
Commercial real estate - construction		37		—		272		—
Residential mortgage		1,147		13		2,076		14
Home equity		819		—		33		—
Consumer		—		—		—		—

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MID PENN BANCORP, INC.

Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of June 30, 2020 and December 31, 2019 are summarized as follows:

(Dollars in thousands)	June 30, 2020		December 31, 2019
Commercial and industrial	$	1,210	$	894
Commercial real estate		9,458		9,800
Commercial real estate - construction		32		40
Residential mortgage		697		711
Home equity		2,407		26
Consumer		—		—
	$	13,804	$	11,471

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.  The classes of the loan portfolio summarized by the past due status as of June 30, 2020 and December 31, 2019 are summarized as follows:

													Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and
June 30, 2020	Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	859	$	233	$	953	$	2,045	$	927,345	$	929,390	$	800
Commercial real estate		325		146		7,519		7,990		989,253		997,243		—
Commercial real estate - construction		—		—		—		—		224,357		224,357		—
Residential mortgage		99		49		250		398		217,600		217,998		—
Home equity		254		7		2,406		2,667		65,497		68,164		—
Consumer		4		—		—		4		6,824		6,828		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		—		—		—		—		—
Commercial real estate		—		—		1,419		1,419		11		1,430		—
Commercial real estate - construction		—		—		—		—		—		—		—
Residential mortgage		—		—		189		189		165		354		—
Home equity		—		—		—		—		1		1		—
Consumer		—		—		—		—		—		—		—
Total	$	1,541	$	435	$	12,736	$	14,712	$	2,431,053	$	2,445,765	$	800

													Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and
December 31, 2019	Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	—	$	1,059	$	890	$	1,949	$	337,195	$	339,144	$	—
Commercial real estate		1,298		11		7,819		9,128		918,587		927,715		—
Commercial real estate - construction		—		—		—		—		181,690		181,690		—
Residential mortgage		145		—		326		471		235,872		236,343		—
Home equity		34		—		—		34		68,236		68,270		—
Consumer		5		3		—		8		7,778		7,786		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		3		3		—		3		—
Commercial real estate		16		473		934		1,423		—		1,423		—
Commercial real estate - construction		—		—		—		—		—		—		—
Residential mortgage		5		—		203		208		173		381		—
Home equity		—		—		—		—		1		1		—
Consumer		—		—		—		—		—		—		—
Total	$	1,503	$	1,546	$	10,175	$	13,224	$	1,749,532	$	1,762,756	$	—

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MID PENN BANCORP, INC.

The allowance for loan losses and the related loan loss provision for the periods presented reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023.  PPP loans are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the Small Business Administration, no allowance for loan losses was recorded against the $588,667,000 balance of PPP loans outstanding as of June 30, 2020.

.  

The following tables summarize the allowance and recorded investments in loans receivable.

(Dollars in thousands)
As of, and for the three months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2020	$	2,427		$	6,630	$	57		$	436		$	448	$	2		$	14	$	10,014
Charge-offs		(1	)		—		(7	)		—			—		(4	)		—		(12	)
Recoveries		2			—		2			—			1		10			—		15
Provisions		358			611		13			(9	)		68		(6	)		15		1,050
Ending balance,
June 30, 2020	$	2,786		$	7,241	$	65		$	427		$	517	$	2		$	29	$	11,067
(Dollars in thousands)
As of, and for the six months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2020	$	2,341		$	6,259	$	51		$	417		$	442	$	2		$	3	$	9,515
Charge-offs		(45	)		—		(7	)		—			—		(18	)		—		(70	)
Recoveries		2			1		2			3			1		13			—		22
Provisions		488			981		19			7			74		5			26		1,600
Ending balance,
June 30, 2020		2,786			7,241		65			427			517		2			29		11,067
Individually evaluated for impairment		53			190		—			—			—		—			—		243
Ending balance:
collectively evaluated for impairment	$	2,733		$	7,051	$	65		$	427		$	517	$	2		$	29	$	10,824
Loans receivables:
Ending balance	$	929,390		$	998,673	$	224,357		$	218,352		$	68,165	$	6,828		$	—	$	2,445,765
Ending balance: individually evaluated for impairment		1,210			8,028		32			776			2,406		—			—		12,452
Ending balance: acquired with credit deterioration		—			1,430		—			354			1		—			—		1,785
Ending balance: collectively evaluated for impairment	$	928,180		$	989,215	$	224,325		$	217,222		$	65,758	$	6,828		$	—	$	2,431,528

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MID PENN BANCORP, INC.

(Dollars in thousands)
December 31, 2019	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Ending balance	$	2,341	$	6,259	$	51	$	417	$	442	$	2	$	3	$	9,515
Ending balance: individually evaluated for impairment		—		166		—		—		—		—		—		166
Ending balance: collectively evaluated for impairment	$	2,341	$	6,093	$	51	$	417	$	442	$	2	$	3	$	9,349
Loans receivable:
Ending balance	$	339,147	$	929,138	$	181,690	$	236,724	$	68,271	$	7,786	$	—	$	1,762,756
Ending balance: individually evaluated for impairment		890		8,311		40		817		25		—		—		10,083
Ending balance: acquired with credit deterioration		3		1,423		—		381		1		—		—		1,808
Ending balance: collectively evaluated for impairment	$	338,254	$	919,404	$	181,650	$	235,526	$	68,245	$	7,786	$	—	$	1,750,865

(Dollars in thousands)
As of, and for the three months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2019	$	2,443		$	5,031		$	81		$	477		$	450		$	6		$	14		$	8,502
Charge-offs		(205	)		—			(20	)		—			—			(38	)		—			(263	)
Recoveries		42			15			—			—			1			9			—			67
Provisions		168			266			(16	)		(1	)		31			30			(13	)		465
Ending balance,
June 30, 2019	$	2,448		$	5,312		$	45		$	476		$	482		$	7		$	1		$	8,771
(Dollars in thousands)
As of, and for the six months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2019		2,391			4,703			75			453			528			7			240		$	8,397
Charge-offs		(205	)		(12	)		(40	)		—			—			(47	)		—			(304	)
Recoveries		43			33			—			—			1			11			—			88
Provisions		219			588			10			23			(47	)		36			(239	)		590
Ending balance,
June 30, 2019		2,448			5,312			45			476			482			7			1			8,771
Individually evaluated for impairment		13			243			—			—			—			—			—			256
Ending balance:
collectively evaluated for impairment	$	2,435		$	5,069		$	45		$	476		$	482		$	7		$	1		$	8,515
Loans receivables:
Ending balance	$	301,271		$	883,317		$	173,900		$	249,114		$	70,442		$	10,129		$	—		$	1,688,173
Ending balance: individually evaluated for impairment		76			2,745			40			897			28			—			—			3,786
Ending balance: acquired with credit deterioration		29			1,616			—			1,234			4			—			—			2,883
Ending balance: collectively evaluated for impairment	$	301,166		$	878,956		$	173,860		$	246,983		$	70,410		$	10,129		$	—		$	1,681,504

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MID PENN BANCORP, INC.

Mid Penn entered into forbearance or modification agreements on all loans currently classified as troubled debt restructures and all of these agreements have resulted in additional principal repayment.  The terms of these forbearance agreements vary and generally involve modifications from the original loan agreements, including either a reduction in the amount of principal payments for certain or extended periods, interest rate reductions, and/or the intent for the loan to be repaid as collateral is sold.

Mid Penn’s troubled debt restructured loans at June 30, 2020 totaled $948,000 and included three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $477,000. The remaining $471,000 of troubled debt restructurings was attributable to seven loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  The balance of nonaccrual impaired troubled debt restructured loans as of June 30, 2020 was comprised of $420,000 in commercial real estate loans amongst two borrowers, one commercial real estate construction loan for $32,000, one residential mortgage loan for $11,000, and one commercial and industrial loan for $7,000.  As of June 30, 2020, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.  There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2020.  

Mid Penn’s troubled debt restructured loans at December 31, 2019 totaled $2,238,000, and included three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $490,000.  The remaining $1,748,000 of troubled debt restructurings was attributable to eight loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  One large relationship accounted for $1,252,000 of the total $1,748,000 in nonaccrual impaired troubled debt restructured loans.  As of December 31, 2019, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.  There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2019.

The recorded investments in troubled debt restructured loans at June 30, 2020 and December 31, 2019 are as follows:

(Dollars in thousands)	Pre-Modification		Post-Modification
June 30, 2020	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	8	$	8	$	7
Commercial real estate		1,214		1,115		420
Commercial real estate - construction		40		40		32
Residential mortgage		689		687		489
	$	1,951	$	1,850	$	948

(Dollars in thousands)	Pre-Modification		Post-Modification
December 31, 2019	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	3	$	3	$	3
Commercial real estate		2,562		2,463		1,705
Commercial real estate - construction		40		40		40
Residential mortgage		677		675		490
	$	3,282	$	3,181	$	2,238

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MID PENN BANCORP, INC.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act provided that qualifying short-term modifications made in response to COVID-19 do not need to be accounted for as troubled debt restructurings. The federal financial institution regulatory agencies, in consultation with state financial regulators, affirmed the CARES Act provisions in a revised interagency statement issued on April 7, 2020. As of June 30, 2020, Mid Penn had provided loan modifications meeting the CARES Act qualifications to 1,019 borrowers with aggregate loans outstanding of $444,886,000.  Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications range from deferrals of both principal and interest payments for three to six months, or borrowers reverting to interest-only payments for a period of three to six months.  Interest will continue to accrue on loans modified under the CARES Act during the deferral period.  Mid Penn remains in communication with each of these borrowers to assess the ongoing credit status of the borrowers, and may make further adjustments to a borrower’s modification at some future time if warranted for the specific situation.

The following tables provide activity for the accretable yield of acquired impaired loans from the Phoenix Bancorp, Inc. (March 2015), Scottdale (January 2018), and First Priority (July 2018) acquisitions for the three and six months ended June 30, 2020.

(Dollars in thousands)
	Three Months Ended June 30,
	2020			2019
Accretable yield, beginning of period	$	72		$	254
Accretable yield amortized to interest income		(16	)		(57	)
Accretable yield, end of period	$	56		$	197

(Dollars in thousands)	Six Months Ended June 30,
	2020			2019
Accretable yield, beginning of period	$	89		$	309
Accretable yield amortized to interest income		(33	)		(112	)
Accretable yield, end of period	$	56		$	197

(5)Leases

On January 1, 2019, Mid Penn adopted ASU No. 2016-02, Leases (Topic 842), and all subsequent ASUs that modified Topic 842, which primarily affected the accounting treatment for operating lease agreements in which Mid Penn is the lessee.  As of the January 1, 2019 adoption date, Mid Penn leased twenty-four branch locations under non-cancelable operating leases, which expire at various dates through the year ending December 31, 2035.  Three of Mid Penn’s operating leases are with related parties.  Subsequent to the adoption of Topic 842, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039.

In 2016, Mid Penn entered into two subleasing agreements with unrelated parties on one of its properties under an operating lease.  Both subleases included escalation clauses.  The first sublease agreement began on April 1, 2016, while the second sublease began on July 1, 2016.  One sublease was terminated during the first quarter of 2019 due to the bankruptcy of the tenant.  The remaining sublease ends on March 31, 2021.  

Operating and finance lease right-of-use assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt.  Mid Penn has elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) or equipment leases (deemed immaterial) on the Consolidated Balance Sheet.

There were no sale and leaseback transactions, leveraged leases, or leases that had not commenced as of June 30, 2020.  

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MID PENN BANCORP, INC.

Below is a summary of the operating and finance lease right-of-use assets and related lease liabilities, as well as the weighted average lease term (in years) and weighted average discount rate for each of the lease classifications as of June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020						December 31, 2019
	Operating Leases			Finance Lease			Operating Leases			Finance Lease
Right of use asset	$	10,587		$	3,357		$	11,442		$	3,447
Lease liability	$	11,643		$	3,509		$	12,544		$	3,551
Weighted average remaining lease term (in years)		8.44			18.67			8.64			19.17
Weighted average discount rate		3.34	%		3.81	%		3.33	%		3.81	%

A summary of lease costs during the three and six months ended June 30, 2020 and 2019 are presented below.  Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income.

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Finance lease cost:
Amortization of right-of-use asset	$	45		$	45		$	90		$	60
Interest expense on lease liability		33			35			67			46
Total finance lease cost		78			80			157			106
Operating lease cost		505			515			1,033			1,030
Short-term and equipment lease cost		12			3			21			31
Variable lease cost		—			—			—			—
Sublease income		(4	)		(7	)		(10	)		(12	)
Total lease costs	$	591		$	591		$	1,201		$	1,155

A summary of cash paid for amounts included in the measurement of lease liabilities is presented below.

(Dollars in thousands)	Six Months Ended
	June 30, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	67	$	46
Operating cash flows from operating leases		1,064		1,087
Financing cash flows from finance leases		41		6

A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below.

(Dollars in thousands)	June 30, 2020
	Operating Leases			Finance Lease
Lease payments due:
Within one year	$	1,042		$	108
After one but within two years		1,868			216
After two but within three years		1,824			217
After three but within four years		1,572			217
After four but within five years		1,512			252
After five years		5,584			3,992
Total undiscounted cash flows		13,402			5,002
Discount on cash flows		(1,759	)		(1,493	)
Total lease liability	$	11,643		$	3,509

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MID PENN BANCORP, INC.

(6) Loan-Level Interest Rate Swaps

Mid Penn enters into loan-level interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. Mid Penn simultaneously enters into 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.

The fair value, notional amount, and collateral posted related to loan-level interest rate swaps are presented below.

(Dollars in thousands)	June 30, 2020		December 31, 2019
Interest Rate Swap Contracts - Commercial Loans:
Gross Fair Value (a)	$	239	$	—
Notional Amount		8,907		—
Cash Collateral Posted (b)		250		—

(a) Included in other assets on the Consolidated Balance Sheet

(b) Included in cash and due from banks on the Consolidated Balance Sheet

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.

(Dollars in thousands)	June 30, 2020		December 31, 2019
Interest Rate Swap Contracts - Commercial Loans:
Gross amounts recognized	$	239	$	—
Gross amounts offset		239		—
Net Amounts Presented in the Consolidated Balance Sheets		—		—
Gross amounts not offset:
Financial instruments		—		—
Cash collateral		250		—
Net Amounts	$	250	$	—

(7) Fair Value Measurement

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased.  Information on identifying circumstances when a transaction may not be considered orderly is also included within the guidance.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability.  When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance.

This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly.  In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly.  The guidance provides a list of circumstances that may indicate that a transaction is not orderly.  A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

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MID PENN BANCORP, INC.

Inputs to valuation techniques refer to the assumptions that market participants would use in measuring the fair value of an asset or liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available in the circumstances.  Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement or disclosure.  The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

There were no transfers of assets between fair value Level 1 and Level 2 during the six months ended June 30, 2020 and 2019.

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

			Fair value measurements at June 30, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	2	$	—
State and political subdivision obligations		7,050		—		7,050		—
Corporate debt securities		16,440		—		16,440		—
Other assets:
Equity securities		518		518		—		—
Interest rate swap agreements		239		—		239		—
Total	$	24,249	$	518	$	23,731	$	—

			Fair value measurements at December 31, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. government agencies	$	22,830	$	—	$	22,830	$	—
Mortgage-backed U.S. government agencies		12,890		—		12,890		—
State and political subdivision obligations		30		—		30		—
Corporate debt securities		1,259		—		1,259		—
Other assets:
Equity securities		507		507		—		—
Total	$	37,516	$	507	$	37,009	$	—

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

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MID PENN BANCORP, INC.

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

			Fair value measurements at June 30, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	812	$	—	$	—	$	812

			Fair value measurements at December 31, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	271	$	—	$	—	$	271
Foreclosed Assets Held for Sale		122		—		—		122

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
June 30, 2020	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	812	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	26% - 100%	32%

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2019	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	271	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	26% - 85%	36%
Foreclosed Assets Held for Sale		122	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	8% - 27%	16%

(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.

There were no changes in unrealized gains and losses included in other comprehensive income for the six months ended June 30, 2020 related to Level 3 recurring fair value measurements as Mid Penn has no assets measured at fair value on a Level 3 recurring basis.

Mid Penn uses the following methodologies and assumptions to estimate the fair value of certain assets and liabilities.

Securities:

The fair value of securities classified as available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather, relying on the securities’ relationship to other benchmark quoted prices.

Interest Rate Swap Agreements:

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.

Impaired Loans (included in “Net Loans and Leases” in the following tables):

All performing troubled debt restructured loans and loans classified as nonaccrual are deemed to be impaired, and all of these loans are considered collateral dependent; therefore, all of Mid Penn’s impaired loans, whether reporting a specific allowance allocation or not, are considered collateral dependent.

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MID PENN BANCORP, INC.

It is Mid Penn’s policy to obtain updated third-party valuations on all impaired loans collateralized by real estate within 30 days of the credit being classified as substandard nonaccrual.  Prior to receipt of the updated real estate valuation, Mid Penn will use existing real estate valuations to determine any potential allowance for loan loss issues, and will update the allowance impact calculation upon receipt of the   updated real estate valuation.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment.  In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value.  The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management.  Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales.  Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary. Mid Penn considers the estimates used in its impairment analysis to be Level 3 inputs.

Mid Penn actively monitors the values of collateral on impaired loans.  This monitoring may require the modification of collateral values, either in a positive or negative way, due to the passage of time or some other change in one or more valuation inputs.  Collateral values for impaired loans will be reassessed by management at least every 12 months for possible revaluation by an independent third party.

Foreclosed Assets Held for Sale:

Certain assets included in foreclosed assets held for sale are carried at fair value and accordingly is presented as measured on a non-recurring basis.  Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.

The following table summarizes the carrying value and fair value of financial instruments at June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020				December 31, 2019
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	143,755	$	143,755	$	139,030	$	139,030
Available-for-sale investment securities		23,492		23,492		37,009		37,009
Held-to-maturity investment securities		135,387		139,491		136,477		137,476
Equity securities		518		518		507		507
Loans held for sale		21,812		22,120		8,422		8,630
Net loans and leases		2,434,698		2,522,315		1,753,241		1,789,402
Restricted investment in bank stocks		7,079		7,079		4,902		4,902
Accrued interest receivable		12,743		12,743		2,810		2,810
Interest rate swap agreements		239		239		—		—
Financial liabilities:
Deposits	$	2,326,313		2,336,221	$	1,912,394	$	1,916,624
Short-term borrowings		203,937		203,937		—		—
Long-term debt (a)		81,773		81,686		29,352		30,216
Subordinated debt		42,009		40,439		27,070		25,273
Accrued interest payable		2,590		2,590		2,208		2,208

(a) Long-term debt excludes finance lease obligations.

The Bank’s outstanding and unfunded credit commitments and financial standby letters of credit were deemed to have no significant fair value as of June 30, 2020 and December 31, 2019.

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MID PENN BANCORP, INC.

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of June 30, 2020 and December 31, 2019.  Carrying values approximate fair values for cash and cash equivalents, restricted investment in bank stocks, 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
June 30, 2020	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	135,387	$	139,491	$	—	$	139,491	$	—
Loans held for sale		21,812		22,120		—		22,120		—
Net loans and leases		2,434,698		2,522,315		—		—		2,522,315
Financial instruments -    liabilities
Deposits	$	2,326,313	$	2,336,221	$	—	$	2,336,221	$	—
Long-term debt (a)		81,773		81,686		—		81,686		—
Subordinated debt		42,009		40,439		—		40,439		—

					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, 2019	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	136,477	$	137,476	$	—	$	137,476	$	—
Loans held for sale		8,422		8,630		—		8,630		—
Net loans and leases		1,753,241		1,789,402		—		—		1,789,402
Financial instruments -    liabilities
Deposits	$	1,912,394	$	1,916,624	$	—	$	1,916,624	$	—
Long-term debt (a)		29,352		30,216		—		30,216		—
Subordinated debt		27,070		25,273		—		25,273		—

(a) Long-term debt excludes finance lease obligations.

(8) Guarantees, Commitments, and Contingencies

Guarantees

In the normal course of business, Mid Penn makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying consolidated financial statements.  The commitments include various guarantees and commitments to extend credit.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Mid Penn evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer.  Standby letters of credit and financial guarantees written are conditional commitments to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued to support public and private borrowing arrangements.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.  Mid Penn had $28,589,000 and $26,574,000 of standby letters of credit outstanding as of June 30, 2020 and December 31, 2019, respectively.  Mid Penn does not anticipate any losses because of these transactions.  The amount of the liability as of June 30, 2020 and December 31, 2019 for payment under standby letters of credit issued was not material.

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MID PENN BANCORP, INC.

Commitments

Mid Penn also has a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania.  The total investment in this limited partnership, net of amortization, was $7,061,000 and $7,249,000 on June 30, 2020 and December 31, 2019, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet.  All of the units are intended to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended.  Mid Penn’s limited partner capital contribution commitment is $7,579,000.  Investments made to date, and future payments under this commitment are paid in installments over the course of construction of the low-income housing facilities.  Each installment payment is conditional upon both Mid Penn’s review and approval of the installment payment certificate and continued compliance with the terms of the original partnership agreement. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period as the facilities became operational and began to be occupied beginning in December 2019.  The project has been conditionally awarded $861,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $8,613,000 to be awarded to Mid Penn over the ten-year amortization period.  Mid Penn’s commitment to initiate investments in the limited partnership interest was conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it deemed necessary. All such initial conditions were satisfied and Mid Penn began funding the investment during 2018 and the investment is expected to be fully funded in 2020.  Mid Penn recognizes the related amortization and tax credits using the cost amortization method over a ten-year period.  

Contingencies

As of June 30, 2020, Mid Penn had received $20,329,000 of nonrefundable loan processing fees related to the loans disbursed as a result of the SBA’s Paycheck Protection Program (“PPP”) created when the CARES Act was signed into law on March 27, 2020.  These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and will be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the loan.  

The processing fees received from the SBA for administering the application for, and disbursing of, the PPP loans may be subject to clawback (or if the SBA has not yet paid the fee, the fee may not be paid), after full disbursement of a PPP loan if (i) the PPP loan is cancelled or voluntarily terminated and repaid after disbursement but before the borrower certification safe harbor date, (ii) the PPP loan is cancelled, terminated, or repaid after disbursement (and after the borrower certification safe harbor date) because the SBA conducted a loan review and determined that the borrower was ineligible for a PPP loan, or (iii) the lender has not fulfilled its obligations under the PPP regulations.

As of June 30, 2020, Mid Penn is not aware of any PPP loans outstanding, or for which fees have been received from the SBA, that have been cancelled, terminated, or repaid due to a borrower being determined to be ineligible for a PPP loan.

Litigation

Mid Penn is subject to lawsuits and claims arising out of its normal conduct of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of Mid Penn.

(9) Debt

Short-term FHLB and Correspondent Bank Borrowings

Short-term borrowings generally consist of federal funds purchased and advances from the FHLB with an original maturity of less than a year. Federal funds purchased from correspondent banks mature in one business day and reprice daily based on the Federal Funds rate. Advances from the FHLB are collateralized by our investment in the common stock of the FHLB and by a blanket lien on selected loan receivables comprised principally of real estate secured loans within the Bank’s portfolio totaling $1,168,684,000 at June 30, 2020.  The Bank had short-term borrowing capacity from the FHLB up to the Bank’s unused borrowing capacity of $814,982,000 at June 30, 2020 upon satisfaction of any stock purchase requirements of the FHLB.  No draws were outstanding on short-term FHLB or correspondent bank borrowings as of June 30, 2020 and December 31, 2019.

The Bank also has unused overnight lines of credit with other correspondent banks amounting to $35,000,000 at June 30, 2020.  No draws have been made on these lines of credit and on June 30, 2020 and December 31, 2019, the balance was zero.

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MID PENN BANCORP, INC.

Short-term PPPLF Borrowings

The entire balance of short-term borrowings of $203,937,000 at June 30, 2020 consisted of funding obtained from the Federal Reserve through the Paycheck Protection Program Liquidity Facility (“PPPLF”).  The PPPLF allows banks to pledge PPP loans as collateral to borrow funds for up to a term of two years (to match the term of the respective PPP loans) at an interest rate of 0.35%.  Draws of PPPLF funds must be repaid to the Federal Reserve immediately after the specific PPP loans collateralizing the related draws are repaid to the Bank.  Mid Penn had no short-term PPPLF borrowings as of December 31, 2019.

Long-term Debt

As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity.  As of June 30, 2020, and December 31, 2019, the Bank had long-term debt outstanding in the amount of $85,282,000 and $32,903,000, respectively, consisting of FHLB fixed rate instruments, and a finance lease obligation executed during the first quarter of 2019.  

The FHLB fixed rate instruments are secured under the terms of a blanket collateral agreement with the FHLB consisting of FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans.  Mid Penn also obtains letters of credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of credit. These FHLB letter of credit commitments totaled $212,401,000 as of June 30, 2020 and $169,051,000 as of December 31, 2019.  

The following table presents a summary of long-term debt as of June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020		December 31, 2019
FHLB fixed rate instruments:
Due June 2020, 1.72%	$	—	$	2,000
Due July 2020, 2.45%		—		5,000
Due August 2020, 3.05%		5,000		5,000
Due September 2020, 2.38%		—		2,500
Due October 2020, 3.06%		5,000		5,000
Due November 2020, 2.32%		—		3,000
Due December 2020, 1.78%		—		2,000
Due December 2020, 2.31%		—		3,000
Due April 2022, 0.86%		70,000		—
Due August 2026, 4.80%		1,728		1,846
Due February 2027, 6.71%		45		47
Less: fair value adjustments on debt assumed in acquisitions		—		(41	)
Total FHLB fixed rate instruments		81,773		29,352
Lease obligations included in long-term debt		3,509		3,551
Total long-term debt	$	85,282	$	32,903

Mid Penn prepaid $17,500,000 of FHLB fixed rate instruments originally due in 2020 and recognized prepayment penalties of $76,000 for the three months ended June 30, 2020, and $139,000 for the six months ended June 30, 2020. Prepayment penalties are included in other expenses on the Consolidated Statement of Income. No prepayment penalties were recognized during the three and six months ended June 30, 2019.

(10) Subordinated Debt

Subordinated Debt Issued March 2020

On March 20, 2020, Mid Penn entered into agreements with accredited investors who purchased $15,000,000 aggregate principal amount of Mid Penn Subordinated Notes due 2030 (the “2020 Notes”).  The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

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MID PENN BANCORP, INC.

The 2020 Notes bear interest at a rate of 4.0% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less than 4.25%.  Interest will be payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30.  The 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030.  Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes.  In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2020 Notes at 100% of the principal amount of the 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.  

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary.  Related parties held $1,700,000 of the 2020 Notes as of June 30, 2020.  

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”).  In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000, which is amortized through interest expense until the maturity date of November 30, 2025. The First Priority Notes are intended to be treated as Tier 2 capital for regulatory reporting purposes.

The First Priority Notes agreements were entered into by First Priority, on November 13, 2015, with five accredited investors pursuant to which First Priority issued subordinated notes totaling $9,500,000. The First Priority Notes have a maturity date of November 30, 2025, and bear interest at a fixed rate of 7.00% per annum.  The First Priority Notes are non-callable for an initial period of five years and include provisions for redemption pricing between 101.5% and 100.5% of the liquidation value if called after five years but prior to the stated maturity date. 

Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its Subordinated Notes due 2028 (the “2017 Notes”). The 2017 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.  The offering closed in December 2017.

The 2017 Notes bear interest at a rate of 5.25% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2017 Notes may not accelerate the maturity of the 2017 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary.  Related parties held $1,450,000 of the 2017 Notes as of June 30, 2020 and December 31, 2019.  

Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025.  The 2015 Notes are treated as Tier 2 capital for regulatory capital purposes.

The 2015 Notes bear interest at a rate of 5.15% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0%.  Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025.  Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if:  (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

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MID PENN BANCORP, INC.

Holders of the 2015 Notes may not accelerate the maturity of the 2015 Notes, except upon Mid Penn’s or Mid Penn Bank’s bankruptcy, insolvency, liquidation, receivership or similar event.  Related parties held $1,930,000 of the 2015 Notes as of June 30, 2020 and December 31, 2019.  

ASC Subtopic 835-30, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability.  The unamortized debt issuance costs associated with the 2015 Notes and the 2017 Notes were collectively $84,000 at June 30, 2020 and $103,000 at December 31, 2019.

(11) Defined Benefit Plans

Mid Penn has an unfunded noncontributory defined benefit retirement plan for directors.  The plan provides defined benefits based on years of service.  Mid Penn also sponsors a defined benefit healthcare plan that provides post-retirement medical benefits and life insurance to qualifying full-time employees.  These healthcare and life insurance plans are noncontributory and each plan uses a December 31 measurement date.  

As a result of the acquisition of Scottdale, Mid Penn has assumed a noncontributory defined benefit pension plan covering certain former employees of Scottdale.  Mid Penn estimates that it will contribute $200,000 to the defined benefit pension plan during 2020.  A December 31 measurement date for the plan is used.

The components of net periodic benefit costs from these defined benefit plans are as follows:

	Three Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits
	2020			2019			2020			2019
Service cost	$	45		$	36		$	1		$	1
Interest cost		60			65			6			4
Expected return on plan assets		(68	)		(63	)		—			—
Accretion of prior service cost		—			—			(5	)		(5	)
Amortization of net gain		—			(15	)		—			(1	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	59		$	(14	)	$	2		$	(1	)
	Six Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits
	2020			2019			2020			2019
Service cost	$	64		$	72		$	1		$	2
Interest cost		105			129			6			8
Expected return on plan assets		(136	)		(127	)		—			—
Accretion of prior service cost		—			—			(10	)		(10	)
Amortization of net gain		—			(30	)		—			(2	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	55		$	7		$	(3	)	$	(2	)

Service costs are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets, amortization (accretion) of prior service cost, and amortization of (gain) loss are reported as a component of other income.

(12) Common Stock

Treasury Stock Repurchase Program

During the first quarter of 2020, Mid Penn announced the adoption of a treasury stock repurchase program authorizing the repurchase of up to $15,000,000 of Mid Penn’s outstanding common stock, which represents approximately 9.6% of the issued shares based on Mid Penn’s closing stock price and shares issued as of June 30, 2020.  Under the treasury stock purchase program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions.  Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors.  There is no guarantee as to the exact number of shares that Mid Penn may repurchase.  The repurchase plan became effective March 19, 2020 and is authorized to continue through March 19, 2021, unless otherwise extended by Mid Penn’s Board of Directors.  

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MID PENN BANCORP, INC.

The repurchase plan may be modified, suspended or terminated at any time, in Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate.  The repurchase program does not obligate Mid Penn to repurchase any shares.  

As of June 30, 2020, Mid Penn had repurchased 80,523 shares of common stock at an average price of $19.37 per share under the treasury stock repurchase program.

Authorized Shares

At the May 14, 2019 annual shareholder meeting, Mid Penn shareholders approved an amendment to the Articles of Incorporation to increase the number of authorized shares of common stock from 10,000,000 shares to 20,000,000 shares.

Restricted Stock Plan

On May 6, 2014, Mid Penn shareholders approved the 2014 Restricted Stock Plan (the “Plan”), which authorizes the issuance of awards that shall not exceed, in the aggregate, 100,000 shares of common stock.  Awards under the Plan are limited to employees and directors of the Corporation, and the recipients are selected by the Compensation Committee of the Board of Directors, to advance the best interest of Mid Penn and its shareholders.  

Share-based compensation expense relating to restricted stock is recognized on a straight-line basis over the vesting periods of the awards and is a component of salaries and benefits expense.  As of June 30, 2020, a total of 57,655 restricted shares were granted under the Plan, of which 2,446 shares were forfeited and available for reissuance, 27,271 shares were vested, and the remaining 27,938 shares were unvested. One hundred shares were forfeited due to a voluntary termination of an employee during the six months ended June 30, 2020, while no shares were forfeited during the six months ended June 30, 2019. The Plan shares granted and vested resulted in $96,000 in share-based compensation expense for the three months ended June 30, 2020, while $80,000 of share-based compensation expense was recorded for the three months ended June 30, 2019.  Compensation expense related to the Plan was $192,000 for the six months ended June 30, 2020 and $160,000 for the same period in 2019.

(13) Recent Accounting Pronouncements

Accounting Standards Adopted in 2020

ASU 2018-15: The FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Mid Penn adopted ASU 2018-15 effective January 1, 2020 on a prospective basis. ASU 2018-15 did not have a material impact on the results of operations.

ASU 2018-13:  The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures.

As a result of this ASU, several disclosures were removed from Topic 820, including: (i) disclosure of the valuation process for Level 3 fair value measurements, and (ii) amounts of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.  However, some additional disclosures are required as a result of this ASU, including the requirement to disclose the changes in unrealized gains and losses included in other comprehensive income for the period related to Level 3 recurring fair value measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.  Mid Penn adopted ASU 2018-13 effective January 1, 2020 on a prospective basis.  The adoption of this ASU resulted in disclosure changes only and did not impact Mid Penn’s overall financial condition.

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Accounting Standards Pending Adoption

ASU 2016-13:  The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further amended.

The ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model).  Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities.  The allowance for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”) should be determined in a similar manner to other financial assets measured on an amortized cost basis.  However, upon initial recognition, the allowance is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis.  The subsequent accounting for PCD financial assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale debt securities.  For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.  Certain incremental disclosures are required.

Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, and ASU 2019-11 to clarify, improve, or defer the adoption of ASU 2016-13.

In October 2019, the FASB issued ASU 2019-10 which deferred the implementation date of ASU 2016-13 for smaller reporting companies (SRCs) until January 1, 2023.  The effective date for larger SEC filers would remain unchanged at January 1, 2020.  Mid Penn qualifies as an SRC as of the most recent measurement date of June 30, 2019; therefore, Mid Penn has chosen to delay the adoption of ASU 2016-13.  

Mid Penn is currently evaluating the details of this ASU and the impact the guidance will have on Mid Penn’s consolidated financial statements.  Mid Penn expects that it is possible that the ASU may result in an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities.  The amount of the change in the allowance for credit losses, if any, resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption.  Mid Penn will continue to collect the required data elements needed to perform the calculation in advance of the January 1, 2023 adoption date.

ASU 2018-14:  The FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to defined benefit pension and other postretirement plans by removing and adding certain disclosures.  

The ASU is effective for public business entities for fiscal years ending after December 15, 2020.  Early adoption is permitted.

As a result of this ASU, several disclosures were removed from Topic 715, including: (i) disclosures of the amounts in accumulated comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and (ii) the effects of a one-percentage point change in the assumed health care cost trend rates on the aggregate of service and interest cost components of net periodic postretirement health care benefit costs.  However, some additional disclosures will be required as a result of this ASU, including the requirement to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period.  Mid Penn is currently evaluating the impact of this ASU on our current disclosures.  The adoption of this standard will result in disclosure changes only and will not impact Mid Penn’s overall financial condition.

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(14)         COVID-19 Pandemic Implications

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due the Novel Coronavirus (“COVID-19”), and on March 11, 2020, the WHO classified COVID-19 as a pandemic based on the rapid increase in exposure globally.

To curtail the spread of the virus, beginning March 17, 2020, Mid Penn temporarily closed all bank branch lobbies, and the branch lobbies have remained closed through June 30, 2020 with no targeted time frame for reopening them. Our retail employees continue to work providing access to customers through drive-through banking services and night depositories.  Services that cannot be performed through drive-through (i.e. business cash orders, loan closings and new account openings) are accommodated in the branches by appointment.   We are continuously cleaning bank facilities during business hours with disinfecting wipes to sanitize all facets of our common areas, including door handles, work stations, ATM’s and service counters. We have mandated that all employees who handle cash use latex gloves when doing so, and we are requiring all employees to use hand sanitizer after each transaction and wash their hands with soap and hot water several times every hour.  Additionally, employees having face-to-face interaction with customers are required to wear a mask.  Importantly, we maintain appropriate social distancing standards when individuals are required by their job duties to be in the same location. 

Mid Penn was a significant lender under the federal Paycheck Protection Program (“PPP”) which was created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, by President Trump. Asset growth during the second quarter of 2020 included the significant volume of $588,667,000 of PPP loans still outstanding, net of deferred fees, as of June 30, 2020.  The Paycheck Protection Program permitted eligible business entities to apply for loans through a participating financial institution to cover payroll, rent, and other business expenses during the COVID-19 pandemic.  The PPP loans, which are 100 percent guaranteed by the SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.  The vast majority of Mid Penn’s PPP loans have a two-year term to maturity.  The SBA may forgive the PPP loans if at least 60 percent of the proceeds are used for payroll costs.  Also, the borrowers will not have to make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the deferment period.  

The SBA provided a processing fee to financial institutions who participated in the PPP, with the amount of such fee pre-determined by the SBA dependent upon the size of each credit.  As of June 30, 2020, Mid Penn had received $20,329,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP initiative.  These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs.  The PPP loan processing fees will be amortized over the life of the loan.  During the three and six months ended June 30, 2020, Mid Penn recognized $2,371,000 of PPP processing fees within interest and fees on loans and leases on the Consolidated Statements of Income.  As of June 30, 2020, the balance of deferred PPP processing fees totaled $17,958,000 and are offset against loan origination costs as a component of Loans and leases, net of unearned interest on the Consolidated Balance Sheet.

On March 22, 2020, the federal financial institution regulatory agencies and the state banking regulators issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications.  Concurrently, the Financial Accounting Standards Board (FASB) released a statement indicating that the interagency guidance was developed in consultation with the FASB staff.  The banking agencies encouraged financial institutions to work with borrowers, and indicated that they will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDRs).  The statement indicated that the agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.  Prior to this interagency guidance being issued, Mid Penn had proactively reached out to its borrowers to assess how the COVID-19 situation was impacting them, and was evaluating taking similar forbearance and payment deferral measures.  In response to these customer outreaches and respectful of the interagency guidance, Mid Penn has provided related loan modifications to over 1,000 borrowers, and as of June 30, 2020, the amount of loans outstanding which had such a deferral totaled $444,886,000.   Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications range from deferrals of both principal and interest payments for three to six months, or borrowers reverting to interest-only payments for a period of three to six months.  Interest will continue to accrue on loans modified under the CARES Act during the deferral period.  Mid Penn remains in communication with each of these borrowers to assess the ongoing credit status of the borrowers, and may make further adjustments to a borrower’s modification at some future time if warranted for the specific situation.

The full impact of the coronavirus continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Corporation’s financial condition, liquidity, capital position, and future results of operations. In addition, the adverse economic effects of the coronavirus may lead to an increase in credit risk on the Corporation’s commercial and residential loan portfolios.  Also, the Corporation is also monitoring the fluctuations in the markets as it pertains to interest rates and the fair value of our investments, as well as the impact of the pandemic of underlying bond issuers and the potential for OTTI.

 Management is actively monitoring the global situation on its financial condition, liquidity, capital position, operations, industry, and workforce. Given the daily evolution of the coronavirus and the global responses to curb its spread, the Corporation is not able to estimate the effects of the coronavirus on its results of operations, financial condition, capital position, or liquidity for fiscal year 2020.

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MID PENN BANCORP, INC.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is Management’s Discussion and Analysis of Consolidated Financial Condition as of June 30, 2020, compared to year-end 2019, and the Results of Operations for the three and six months ended June 30, 2020, compared to the same periods in 2019.  For comparative purposes, the June 30, 2020 and December 31, 2019 balances have been reclassified when, and if necessary, to conform to the 2020 presentation.  Such reclassifications had no impact on net income.  This discussion should be read in conjunction with the financial tables, statistics, and the audited financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”).  The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.

Caution About Forward-Looking Statements

Forward-looking statements involve risks, uncertainties and assumptions.  Although Mid Penn generally does not make forward-looking statements unless Mid Penn’s management believes its management has a reasonable basis for doing so, Mid Penn cannot guarantee the accuracy of any forward-looking statements.  Actual results may differ materially from those expressed in any forward-looking statements due to a number of uncertainties and risks, including the risks described in this Quarterly Report on Form 10-Q, the 2019 Annual Report, and other unforeseen risks.  You should not put undue reliance on any forward-looking statements.  These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on Mid Penn’s website or otherwise, and Mid Penn undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mid Penn to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.  The words “expect”, “anticipates”, “intend”, “plan”, “believe”, “estimate”, and similar expressions are intended to identify such forward-looking statements.  Mid Penn’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

• the effects of potentially slowing or volatile future economic conditions on Mid Penn and its customers;

• governmental monetary and fiscal policies, as well as legislative and regulatory changes;

• future actions or inactions of the federal or state governments, including a failure to increase the government debt limit or a prolonged shutdown of the federal government, or a federal or state government-mandated shutdowns of significant segments of the economy;

• business or economic disruptions from national or global epidemic or pandemic events, including those from the ongoing COVID-19 pandemic;

• an increase in the Pennsylvania Bank Shares Tax to which Mid Penn Bank’s capital stock is currently subject, or imposition of any additional taxes on Mid Penn or Mid Penn Bank;

• impacts of the capital and liquidity requirements imposed by the Basel III standards and other regulatory pronouncements and rules;

• the effect of changes in accounting policies and practices, as may be adopted by the supervisory agencies, as well as the Public Company Accounting Oversight Board, Financial Accounting Standards Board, and other accounting standard setters;

• the risks of changes in interest rates and the yield curve on the level and composition of deposits and other funding sources, loan demand and yields, values of loan collateral, securities and yields, and interest rate protection agreements;

• the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in Mid Penn’s market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;

• the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;

• technological changes and changes to data security systems including those with third-party information technology providers;

• our ability to implement business strategies, including our acquisition strategy;

• our ability to implement organic branch, product and service expansion strategies;

• our current and future acquisition strategies may not be successful in locating or acquiring advantageous targets at favorable prices;

• our ability to successfully integrate any banks, companies, assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames;

• potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;

• our ability to attract and retain qualified management and personnel;

• our ability to maintain the value and image of our brand and protect our intellectual property rights;

• results of regulatory examination and supervision processes;

• our ability to maintain compliance with the exchange rules of The NASDAQ Stock Market LLC;

• the failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities;

• acts of war or terrorism; disruptions due to flooding, severe weather, or other natural disasters or Acts of God; and

• volatility in the securities markets.

The above list of factors that may affect future performance is illustrative, but by no means exhaustive.  Accordingly, all forward-looking statements should be evaluated with this understanding of inherent uncertainty.

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MID PENN BANCORP, INC.

Critical Accounting Estimates

Mid Penn’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and conform to general practices within the banking industry.  Application of these principles involves significant judgments and estimates by management that have a material impact on the carrying value of certain assets and liabilities.  The judgments and estimates that we used are also based on historical experiences and other factors, which are believed to be reasonable under the circumstances.  Because of the nature of the judgments and estimates that we have made, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of our operations.  Management of the Corporation considers the accounting judgments relating to the allowance, the evaluation of the Corporation’s investment securities for other-than-temporary impairment, the valuation of the Corporation’s goodwill and other merger-related intangible assets for impairment, and the valuation of assets acquired and liabilities assumed in business combinations, to be the accounting areas that require the most subjective and complex judgments.

The allowance represents management’s estimate of probable incurred credit losses inherent in the loan and lease portfolio.  Determining the amount of the allowance is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.  The loan and lease portfolio also represents the largest asset type on the consolidated balance sheet.  Throughout the remainder of this report, the terms “loan” or “loans” refers to both loans and leases.

Valuations for the investment portfolio are determined using quoted market prices, where available.  If quoted market prices are not available, investment valuation is based on pricing models, quotes for similar investment securities, and observable yield curves and spreads.  In addition to securities valuation, management must assess whether there are any declines in value below the carrying value of the investments that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of the loss in the consolidated statement of income.

Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment.  Goodwill is tested annually for impairment, and if certain events occur which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur.  In making this assessment, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc.  Similarly, the amortized basis of the core deposit intangible asset and trade name intangible are periodically assessed for impairment.  There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of core deposit intangible, trade name intangible, and goodwill impairment.  Changes in economic and operating conditions could result in goodwill or core deposit intangible or trade name intangible impairment in future periods.  

Valuations of assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date.  In many cases, determining the fair value of the assets acquired and liabilities assumed requires Mid Penn to estimate cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.

Results of Operations

Overview

Net income available to common shareholders was $6,833,000 or $0.81 per common share, for the quarter ended June 30, 2020, compared to net income of $4,403,000 or $0.52 per common share for the quarter ended June 30, 2019. During the six months ended June 30, 2020, net income was $10,651,000 or $1.26 per common share, versus $8,480,000 or $1.00 per common share for the six months ended June 30, 2019.

Net income as a percent of average assets (return on average assets, or “ROA”) and net income as a percentage of shareholders' equity (return on average equity, or “ROE”) were as follows (calculated and reported on an annualized basis):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Return on average assets		0.99	%		0.83	%		0.85	%		0.81	%
Return on average equity		11.41	%		7.71	%		8.93	%		7.54	%

Net Interest Income/Funding Sources

Net interest income, Mid Penn’s primary source of revenue, is the amount by which interest income on loans and investments exceeds interest incurred on deposits and borrowings.  The amount of net interest income is affected by changes in interest rates and changes in the volume and mix of interest-sensitive assets and liabilities.  Net interest income and corresponding yields are presented in the analysis below on a taxable-equivalent basis.  Income from tax-exempt assets, primarily loans to or securities issued by state and local governments, is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 21 percent for the three and six months ended June 30, 2020 and 2019.

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MID PENN BANCORP, INC.

The following tables include average balances, amounts, and rates of interest income and expense, interest rate spread, and net interest margin for the three months ended June 30, 2020 and 2019.

	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Three Months Ended
(Dollars in thousands)	June 30, 2020									June 30, 2019
	Average						Average			Average						Average
	Balance		Interest				Rates			Balance		Interest				Rates
ASSETS:
Interest Bearing Balances	$	6,307	$	18				1.15	%	$	5,030	$	27				2.15	%
Investment Securities:
Taxable		124,524		749				2.42	%		159,252		938				2.36	%
Tax-Exempt		48,734		314		(a)		2.59	%		101,088		739		(a)		2.93	%
Total Securities		173,258		1,063				2.47	%		260,340		1,677				2.58	%
Federal Funds Sold		90,013		23				0.10	%		21,554		130				2.42	%
Loans and Leases, Net		2,287,260		25,207		(b)		4.43	%		1,665,568		22,292		(b)		5.37	%
Restricted Investment in Bank Stocks		7,039		34				1.94	%		5,996		105				7.02	%
Total Earning Assets		2,563,877		26,345				4.13	%		1,958,488		24,231				4.96	%
Cash and Due from Banks		28,417									27,202
Other Assets		174,467									148,054
Total Assets	$	2,766,761								$	2,133,744
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest-bearing Demand	$	512,592		787				0.62	%	$	399,187		984				0.99	%
Money Market		575,195		881				0.62	%		429,180		1,897				1.77	%
Savings		184,680		79				0.17	%		190,031		161				0.34	%
Time		451,410		2,262				2.02	%		471,025		2,234				1.90	%
Total Interest-bearing Deposits		1,723,877		4,009				0.94	%		1,489,423		5,276				1.42	%
Short-term Borrowings		52,293		45				0.35	%		21,320		157				2.95	%
Long-term Debt		81,487		281				1.39	%		56,153		407				2.91	%
Subordinated Debt		42,031		507				4.85	%		27,074		388				5.75	%
Total Interest-bearing Liabilities		1,899,688		4,842				1.03	%		1,593,970		6,228				1.57	%
Noninterest-bearing Demand		601,650									288,268
Other Liabilities		24,632									22,625
Shareholders' Equity		240,791									228,881
Total Liabilities & Shareholders' Equity	$	2,766,761								$	2,133,744
Net Interest Income (taxable equivalent basis)			$	21,503								$	18,003
Taxable Equivalent Adjustment				(157	)								(233	)
Net Interest Income			$	21,346								$	17,770
Total Yield on Earning Assets								4.13	%								4.96	%
Rate on Supporting Liabilities								1.03	%								1.57	%
Average Interest Spread								3.11	%								3.40	%
Net Interest Margin								3.37	%								3.69	%

(a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $66,000 and $155,000 for the three months ended June 30, 2020 and 2019, respectively.  Tax-equivalent adjustments were calculated using statutory tax rate of 21% at June 30, 2020 and 2019.

(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $91,000 and $78,000 for the three months ended June 30, 2020 and 2019, respectively.  Tax-equivalent adjustments were calculated using statutory tax rate of 21% at June 30, 2020 and 2019.

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MID PENN BANCORP, INC.

	Three months ended
	June 30, 2020 vs. 2019
(Dollars in thousands on a Taxable Equivalent Basis)	Increase (decrease)
	Volume			Rate			Net
INTEREST INCOME:
Interest Bearing Balances	$	7		$	(16	)	$	(9	)
Investment Securities:
Taxable		(204	)		15			(189	)
Tax-Exempt		(382	)		(43	)		(425	)
Total Securities		(586	)		(28	)		(614	)
Federal Funds Sold		412			(519	)		(107	)
Loans and Leases, Net		8,298			(5,383	)		2,915
Restricted Investment Bank Stocks		18			(89	)		(71	)
Total Interest Income		8,149			(6,035	)		2,114
INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand		279			(476	)		(197	)
Money Market		644			(1,660	)		(1,016	)
Savings		(5	)		(77	)		(82	)
Time		(93	)		121			28
Total Interest Bearing Deposits		825			(2,092	)		(1,267	)
Short-term Borrowings		227			(339	)		(112	)
Long-term Debt		183			(309	)		(126	)
Subordinated Debt		214			(95	)		119
Total Interest Expense		1,449			(2,835	)		(1,386	)
NET INTEREST INCOME	$	6,700		$	(3,200	)	$	3,500

Taxable-equivalent net interest income was $21,503,000 for the three months ended June 30, 2020, an increase of $3,500,000 or 19 percent compared to the three months ended June 30, 2019.  

For the three months ended June 30, 2020, Mid Penn’s tax-equivalent net interest margin was 3.37% for the second quarter of 2020 compared to 3.69% for the second quarter of 2019. Though the quarterly average balance of interest-earning assets increased year over year, the yields on interest earning assets declined due to both (i) the significant average balance of PPP loans outstanding totaling $480,409,000 during the three months ended June 30, 2020 which earn interest at a rate of 1 percent, and (ii) reductions in the yield curve subsequent to June 2019, including the impact of the three rate decreases approved by the  Federal Open Market Committee (“FOMC”), for 0.75% combined during the latter half of 2019, and the 1.50% of combined rate cuts, during March 2020 in response to the COVID-19 pandemic.  Decreases in the yields on interest earning assets were partially offset by the recognition of $2,371,000 of PPP loan processing fees in total interest income. The total cost of deposits for the three months ended June 30, 2020 favorably decreased compared to the same periods in 2019 as a result of the aforementioned yield curve reductions and FOMC rate cuts providing for management to significantly reduce deposit account rates while still maintaining and growing core deposit balances.

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MID PENN BANCORP, INC.

The following tables include average balances, amounts, and rates of interest income and expense, interest rate spread, and net interest margin for the six months ended June 30, 2020 and 2019.

	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Six Months Ended
(Dollars in thousands)	June 30, 2020									June 30, 2019
	Average						Average			Average						Average
	Balance		Interest				Rates			Balance		Interest				Rates
ASSETS:
Interest Bearing Balances	$	5,414	$	33				1.23	%	$	5,592	$	57				2.06	%
Investment Securities:
Taxable		129,035		1,489				2.32	%		162,339		1,927				2.39	%
Tax-Exempt		45,749		594		(a)		2.61	%		104,385		1,523		(a)		2.94	%
Total Securities		174,784		2,083				2.40	%		266,724		3,450				2.61	%
Federal Funds Sold		106,324		413				0.78	%		16,452		198				2.43	%
Loans and Leases, Net		2,029,352		47,548		(b)		4.71	%		1,647,624		43,454		(b)		5.32	%
Restricted Investment in Bank Stocks		5,850		118				4.06	%		5,992		187				6.29	%
Total Earning Assets		2,321,724		50,195				4.35	%		1,942,384		47,346				4.92	%
Cash and Due from Banks		29,478									27,687
Other Assets		160,755									143,124
Total Assets	$	2,511,957								$	2,113,195
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest-bearing Demand	$	484,139		1,959				0.81	%	$	390,879		1,837				0.95	%
Money Market		539,060		2,478				0.92	%		408,468		3,360				1.66	%
Savings		180,302		199				0.22	%		195,343		337				0.35	%
Time		465,863		4,753				2.05	%		479,250		4,328				1.82	%
Total Interest-bearing Deposits		1,669,364		9,389				1.13	%		1,473,940		9,862				1.35	%
Short-term Borrowings		26,146		45				0.35	%		27,869		389				2.81	%
Long-term Debt		55,135		533				1.94	%		52,161		761				2.94	%
Subordinated Debt		35,539		909				5.14	%		27,077		776				5.78	%
Total Interest-bearing Liabilities		1,786,184		10,876				1.22	%		1,581,047		11,788				1.50	%
Noninterest-bearing Demand		461,083									282,503
Other Liabilities		24,860									22,740
Shareholders' Equity		239,830									226,905
Total Liabilities & Shareholders' Equity	$	2,511,957								$	2,113,195
Net Interest Income (taxable equivalent basis)			$	39,319								$	35,558
Taxable Equivalent Adjustment				(308	)								(482	)
Net Interest Income			$	39,011								$	35,076
Total Yield on Earning Assets								4.35	%								4.92	%
Rate on Supporting Liabilities								1.22	%								1.50	%
Average Interest Spread								3.12	%								3.41	%
Net Interest Margin								3.41	%								3.69	%

(a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $125,000 and $320,000 for the six months ended June 30, 2020 and 2019, respectively.  Tax-equivalent adjustments were calculated using statutory tax rate of 21% at June 30, 2020 and 2019.

(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $183,000 and $162,000 for the six months ended June 30, 2020 and 2019, respectively.  Tax-equivalent adjustments were calculated using statutory tax rate of 21% at June 30, 2020 and 2019.

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MID PENN BANCORP, INC.

	Six months ended
	June 30, 2020 vs. 2019
(Dollars in thousands on a Taxable Equivalent Basis)	Increase (decrease)
	Volume			Rate			Net
INTEREST INCOME:
Interest Bearing Balances	$	(2	)	$	(22	)	$	(24	)
Investment Securities:
Taxable		(396	)		(42	)		(438	)
Tax-Exempt		(858	)		(71	)		(929	)
Total Securities		(1,254	)		(113	)		(1,367	)
Federal Funds Sold		1,085			(870	)		215
Loans and Leases, Net		10,096			(6,002	)		4,094
Restricted Investment Bank Stocks		(4	)		(65	)		(69	)
Total Interest Income		9,921			(7,072	)		2,849
INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand		440			(318	)		122
Money Market		1,077			(1,959	)		(882	)
Savings		(26	)		(112	)		(138	)
Time		(121	)		546			425
Total Interest Bearing Deposits		1,370			(1,843	)		(473	)
Short-term Borrowings		(24	)		(320	)		(344	)
Long-term Debt		44			(272	)		(228	)
Subordinated Debt		243			(110	)		133
Total Interest Expense		1,633			(2,545	)		(912	)
NET INTEREST INCOME	$	8,288		$	(4,527	)	$	3,761

Taxable-equivalent net interest income was $39,319,000 for the six months ended June 30, 2020, an increase of $3,761,000 or 11 percent compared to the six months ended June 30, 2019.  

For the six months ended June 30, 2020, Mid Penn’s tax-equivalent net interest margin was 3.41% compared to 3.69% for the same period in 2019. Though the year-to-date average balance of interest-earning assets increased year over year, the yields on interest earning assets declined due to both (i) the significant average balance of PPP loans outstanding totaling $240,204,000 during the six months ended June 30, 2020 which earn interest at a rate of 1 percent, and (ii) reductions in the yield curve subsequent to June 2019, including the impact of the three rate decreases approved by the  Federal Open Market Committee (“FOMC”), for 0.75% combined during the latter half of 2019, and the 1.50% of combined rate cuts, during March 2020 in response to the COVID-19 pandemic.  Decreases in the yields on interest earning assets were partially offset by the recognition of $2,371,000 of PPP loan processing fees in total interest income. The total cost of deposits for the six months ended June 30, 2020 favorably decreased compared to the same periods in 2019 as a result of the aforementioned yield curve reductions and FOMC rate cuts providing for management to significantly reduce deposit account rates while still maintaining and growing core deposit balances.

Although the effective interest rate impact on earning assets and funding sources can be reasonably estimated at current interest rate levels, the interest-bearing product and pricing options selected by customers, and the future mix of the loan, investment, and deposit products in the Bank's portfolios, may significantly change the estimates used in Mid Penn’s asset and liability management and related interest rate risk simulation models.  In addition, our net interest income may be impacted by further interest rate actions of FOMC.

Provision for Loan Losses

The provision for loan and lease losses is the expense necessary to maintain the allowance at a level adequate to absorb management’s estimate of probable losses in the loan and lease portfolio.  Mid Penn’s provision for loan and lease losses is based upon management’s monthly review of the loan portfolio.  The purpose of the review is to assess loan quality, identify impaired loans and leases, analyze delinquencies, ascertain loan and lease growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets Mid Penn serves.

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MID PENN BANCORP, INC.

Mid Penn has maintained the allowance in accordance with Mid Penn’s assessment process, which takes into consideration, among other relevant factors, the risk characteristics of the loan portfolio, the growth in the loan portfolio during the first six months of 2020, and shifting collateral values from December 31, 2019 to June 30, 2020.

Management performed a current evaluation of the adequacy of the loan and lease loss allowance and based on this evaluation, a loan loss provision of $1,050,000 and $465,000 was recorded for the three months ended June 30, 2020 and 2019, respectively.  During the six months ended June 30, 2020, the provision for the loan and lease losses was $1,600,000 compared to $590,000 for the six months ended June 30, 2019. The allowance for loan losses and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023.  The increase in the loan loss reserves and the quarterly provision was primarily the result of an increase in qualitative factors related to economic and external conditions when compared to prior periods, with such changes driven by the potential for ongoing financial implications from the COVID-19 pandemic on Mid Penn’s customers and market area. Mid Penn’s allowance and other asset quality measures did not reflect any new impaired assets or specific reserve allocations related to the early impact of the COVID-19 pandemic, though Bank management is continuously and closely monitoring and evaluating the impact of the COVID-19 situation on the portfolio.  

Noninterest Income

During the three months ended June 30, 2020, noninterest income totaled $3,622,000, an increase of $748,000 or 26 percent, compared to noninterest income of $2,874,000 for the three months ended June 30, 2019. For the six months ended June 30, 2020, noninterest income totaled $6,556,000, an increase of $1,633,000 or 33 percent, compared to noninterest income of $4,923,000 for the same period 2019.

The following components of noninterest income showed significant changes:

(Dollars in Thousands)	Three Months Ended June 30,
	2020		2019		$ Variance			% Variance
Income from fiduciary and wealth management activities	$	421	$	347	$	74			21	%
Service charges on deposits		115		218		(103	)		-47	%
ATM debit card interchange income		475		380		95			25	%
Mortgage banking income		1,638		1,077		561			52	%
Net gain on sales of SBA loans		178		233		(55	)		-24	%
Net gain on sales of investment securities		111		17		94			553	%
Other income		510		419		91			22	%

(Dollars in Thousands)	Six Months Ended June 30,
	2020		2019		$ Variance			% Variance
Income from fiduciary and wealth management activities	$	805	$	706	$	99			14	%
Service charges on deposits		320		435		(115	)		-26	%
ATM debit card interchange income		891		714		177			25	%
Mortgage banking income		2,820		1,514		1,306			86	%
Net gain on sales of SBA loans		262		435		(173	)		-40	%
Net gain on sales of investment securities		243		24		219			913	%
Other income		882		749		133			18	%

Income from fiduciary and wealth management activities was $805,000 for the six months ended June 30, 2020, an increase of $99,000 or 14 percent, compared to fiduciary income of $706,000 for the same period in 2019. These additional revenues were attributed to growth in trust assets under management and increased sales of retail investment products, as well as additional fee income from Mid Penn’s expanded wealth management team.

Mortgage banking income was $2,820,000 for the six months ended June 30, 2020, an increase of $1,306,000 or 86 percent compared to mortgage banking income of $1,514,000 for the six months ended June 30, 2019.  Longer-term mortgage interest rates have declined significantly over the past twelve months, resulting in a higher level of mortgage originations (both purchase and refinance activity) and secondary-market loan sales when comparing the first six months of 2020 to the same period in 2019.

ATM debit card interchange income was $891,000 for the six months ended June 30, 2020, an increase of $177,000 or 25 percent compared to interchange income of $714,000 for the six months ended June 30, 2019. The increase resulted from increasing card-based transaction usage across our expanding transactional account customer base.

Net gains on sales of securities were $243,000 for the six months ended June 30, 2020, an increase of $219,000 compared to net gains on sales of securities of $24,000 for the six months ended June 30, 2019.  Sales volume and gains were driven by the implementation of asset/liability management strategies, which vary from quarter to quarter based upon market conditions and related yield curve and valuation changes.

Service charges on deposits were $320,000 for the six months ended June 30, 2020, a decrease of $115,000 or 26 percent compared to service charges on deposits of $435,000 for the six months ended June 30, 2019.  The decrease is due to lower non-sufficient funds fees incurred through the first half of 2020 when compared to the same period in 2019.

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MID PENN BANCORP, INC.

Net gains on sales of SBA loans were $262,000 for the six months ended June 30, 2020, a decrease of $173,000 or 40 percent compared to net gains on sales of SBA loans of $435,000 during the same period of 2019.  Much of the decrease is due to the shift of the SBA lending function to documenting, processing, and funding PPP loans during the second quarter of 2020.

Other income was $882,000 for the six months ended June 30, 2020, an increase of $133,000 compared to other income of $749,000 for the six months ended June 30, 2019.  The increase in other income was primarily driven by higher volumes of fee-based income, including wire transfer fees, letter of credit fees, and credit card program referrals and royalties.

Noninterest Expense

For the three months ended June 30, 2020, noninterest expense totaled $15,403,000, an increase of $607,000 or 4 percent, compared to noninterest expense of $14,796,000 for the three months ended June 30, 2019. For the six months ended June 30, 2020, noninterest expense totaled $30,984,000, reflecting an increase of $1,885,000 or 6 percent, compared to noninterest expense of $29,099,000 for the six months ended June 30, 2019. The year-over-year increase in quarterly noninterest expense was attributable to both (i) growth-related business development officer additions since June 30, 2019, including those in Mid Penn’s expanded wealth management services, and (ii) increases across other expense categories reflective of the overall growth of the organization, including software licensing and utilization, Pennsylvania bank shares tax, and occupancy and equipment expenses.  Also, other expenses for the first two quarters of 2020 included approximately $138,000 of non-recurring FHLB prepayment costs resulting from Mid Penn’s early redemption of $17,500,000 of higher-cost term advances.  No FHLB borrowing prepayments occurred during the first six months of 2019.

The changes were primarily a result of the following components of noninterest expense, which had significant variances when comparing results for periods ending in 2020 versus the corresponding period in 2019:

(Dollars in Thousands)	Three Months Ended June 30,
	2020		2019		$ Variance			% Variance
Salaries and employee benefits	$	7,986	$	7,786	$	200			3	%
Equipment expense		722		658		64			10	%
Pennsylvania bank shares tax expense		55		245		(190	)		-78	%
Legal and professional fees		349		471		(122	)		-26	%
Marketing and advertising expense		98		226		(128	)		-57	%
Software licensing and utilization		1,297		1,111		186			17	%
Intangible amortization		326		360		(34	)		-9	%
Other expenses		2,743		2,102		641			30	%

(Dollars in Thousands)	Six Months Ended June 30,
	2020		2019		$ Variance			% Variance
Salaries and employee benefits	$	16,267	$	15,545	$	722			5	%
Equipment expense		1,435		1,285		150			12	%
Pennsylvania bank shares tax expense		460		381		79			21	%
Legal and professional fees		701		893		(192	)		-22	%
Marketing and advertising expense		302		405		(103	)		-25	%
Software licensing and utilization		2,518		2,132		386			18	%
Intangible amortization		649		723		(74	)		-10	%
Other expenses		4,940		3,988		952			24	%

Salaries and employee benefits were $16,267,000 for the six months ended June 30, 2020, an increase of $722,000 or 5 percent, versus the same period in 2019, with the increase primarily attributable to (i) retail staff added as part of the new Hazle Township branch location opened during the fourth quarter of 2019, (ii) the addition of private banking and insurance business development professionals to enhance our wealth management and insurance activities, (iii) increased commissions commensurate with the successes of the mortgage banking group, and (iv) increased expense for the substantial time and effort devoted to business development activities by many of our staff members during the second quarter of 2020.

Equipment expense increased $150,000 or 12 percent during the six months ended June 30, 2020 compared to the same period in 2019, and related to the expansion of the corporate administrative facilities to centralize back-office functions, as well as additional hardware and software enhancements placed in service to improve operations and efficiencies across the Mid Penn footprint.

Pennsylvania bank shares tax expense was $460,000 for the six months ended June 30, 2020, an increase of $79,000 or 20 percent compared to $381,000 for the six months ended June 30, 2019.  The increase in shares tax expense generally reflects the organic growth in the past year of the total shareholder equity balance upon which the tax is based, with some of the increase offset by non-recurring tax-credit-generating donations made during the second quarter of 2020.

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MID PENN BANCORP, INC.

Software licensing and utilization costs were $2,518,000 for the six months ended June 30, 2020, an increase of $386,000 or 18 percent compared to $2,132,000 for the six months ended June 30, 2019.  This increase reflects the additional costs from both transaction volume-based charges, and licensing fees related to the addition of new staff and locations added since June 30, 2019, as well as costs associated with ensuring remote connectivity for an increased volume of employees in response to the COVID-19 work-from-home restrictions.  Additionally, Mid Penn continued to invest in upgrades to internal systems, networks, storage capabilities, and data security mechanisms to enhance data management and security capabilities responsive to both the larger company profile and increasing complexity of information technology management.

Legal and professional fees for the six months ended June 30, 2020 decreased by $192,000 or 22 percent compared to the same period in 2019, due primarily to the first six months of 2019 including additional services supporting a new third-party loan review service, as well as costs associated with supporting both trust and wealth management activities, and the update and revision of Mid Penn’s corporate governance and Board structure.

Marketing and advertising expense was $302,000 for the six months ended June 30, 2020, a decrease of $103,000 or 25 percent compared to $405,000 during the first six months of 2019.  The first six months of 2019 reflected additional advertising expense and promotional items expense to increase recognition and knowledge of Mid Penn’s Southeastern Pennsylvania mortgage origination team.  Similar expenses were not recognized in 2020.

Intangible amortization decreased from $723,000 during the six months ended June 30, 2019 to $649,000 during the six months ended June 30, 2020, as the core deposit intangible (“CDI”) amortization from the 2018 acquisitions of both (i) the Scottdale Bank and Trust on January 8, 2018, and (ii) First Priority Bancorp on July 31, 2018 continues to decrease as it is amortized using the sum-of-the-years digits method over a ten year term (which results in decreasing expense recognized in each year following the respective acquisition).

Income Taxes

The provision for income taxes was $1,682,000 during the three months ended June 30, 2020, an increase of $700,000 or 72 percent compared to $980,000 for the same period in 2019.  The provision for income taxes for the three months ended June 30, 2020 reflects an effective tax rate of 19.8%, compared to an effective tax rate of 18.2% for the three months ended June 30, 2019. The provision for income taxes was $2,332,000 during the six months ended June 30, 2020, an increase of $502,000 or 27 percent compared to $1,830,000 for the same period in 2019.   The provision for income taxes for the six months ended June 30, 2020 reflects an effective tax rate of 18.0%, compared to an effective tax rate of 17.8% for the six months ended June 30, 2019. The increase in the effective tax rate for 2020 reflects (i) the additional pre-tax income generated year-to-date when compared to 2019, (ii) less tax-exempt income generated in 2020 due to strategic reductions in the tax-exempt investment security portfolio, and (iii) an increase in the expected tax liability for New Jersey taxes in 2020.  Some of the increase was offset by federal tax credits recognized related to Mid Penn’s investment in a low-income housing project in Dauphin County, Pennsylvania.  The units were substantially completed and met the occupancy requirements necessary to begin recognizing the related amortization and tax credits during the fourth quarter of 2019.  Similar credits were not recognized during the six months ended June 30, 2019.

Generally, Mid Penn’s effective tax rate is below the statutory rate due to earnings on tax-exempt loans, investments, and earnings from the cash surrender value of life insurance, as well as the impact of tax credits.  The realization of Mid Penn’s deferred tax assets is dependent on future earnings.  Mid Penn currently anticipates that future earnings will be adequate to fully realize the currently recorded deferred tax assets.

Financial Condition

Overview

Mid Penn’s total assets were $2,922,365,000 as of June 30, 2020, reflecting an increase of $691,190,000 or 31 percent compared to total assets of $2,231,175,00 as of December 31, 2019, and an increase of $786,243,000 or 37 percent compared to total assets of $2,136,122,000 as of June 30, 2019.  Asset growth during the second quarter of 2020 included the significant volume of $588,667,000 of PPP loans still outstanding, net of deferred fees, as of June 30, 2020.  Additionally, total core banking loans (total loans excluding both the PPP portfolio and mortgage loans held for sale) increased to $1,857,098,000 as of June 30, 2020, representing an annualized core loan growth rate of over 10 percent since the end of 2019.  The asset growth was funded by both (i) $413,919,000 of deposit growth, representing an annualized deposit growth rate of 43 percent, with more than half of such growth favorably being in noninterest-bearing deposits; and (ii) a $256,316,000 net increase in wholesale borrowings, including $203,937,000 of funding obtained from the Federal Reserve PPPLF.  

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MID PENN BANCORP, INC.

Loans

Total loans at June 30, 2020 were $2,445,765,000 compared to $1,762,756,000 at December 31, 2019, an increase of $683,009,000 or 39 percent since year-end 2019.  Much of the growth is attributable to the funding of PPP loans during the second quarter of 2020, with $588,667,000 of PPP loans outstanding, net of deferred PPP processing fees of $17,958,000 as of June 30, 2020.  The remaining increase of $94,342,000 (annualized growth rate of nearly 9 percent) was driven by organic growth, particularly within both commercial real estate credits, and commercial and industrial financing loans.

(Dollars in thousands)	June 30, 2020					December 31, 2019
	Amount		%			Amount		%
Commercial and industrial	$	929,390		38.0	%	$	339,147		19.2	%
Commercial real estate		998,673		40.8	%		929,138		52.7	%
Commercial real estate - construction		224,357		9.2	%		181,690		10.3	%
Residential mortgage		218,352		8.9	%		236,724		13.4	%
Home equity		68,165		2.8	%		68,271		3.9	%
Consumer		6,828		0.3	%		7,786		0.5	%
	$	2,445,765		100.0	%	$	1,762,756		100.0	%

Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses

The allowance for loan losses and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023.  Mid Penn’s allowance and other asset quality measures did not reflect any new impaired assets or specific reserve allocations related to the early impact of the COVID-19 pandemic, though Bank management is continuously and closely monitoring and evaluating the impact of the COVID-19 situation on the portfolio.  Also, PPP loans, which are included in the commercial and industrial classification, are fully guaranteed by the Small Business Administration, and, as such, no allowance for loan losses was recorded against the $588,667,000 balance of PPP loans outstanding as of June 30, 2020.

For the six months ended June 30, 2020, Mid Penn had net loan charge-offs of $48,000 compared to net charge-offs of $216,000 during the same period in 2019.  None of the charge offs in the first six months of 2020 were a result of the COVID-19 pandemic.  Loans charged off during the first six months of 2020 totaled $70,000 and included three commercial and industrial loans for $45,000, one commercial real estate (construction) loan for $7,000, one consumer loan for $5,000, and $13,000 in deposit account charge-offs.  Mid Penn may need to make future adjustments to the allowance and the provision for loan and lease losses if economic conditions or loan credit quality differs substantially from the assumptions used in making Mid Penn’s evaluation of the level of the allowance for loan losses as compared to the balance of outstanding loans.

Changes in the allowance for the six months ended June 30, 2020 and 2019 are summarized as follows:

(Dollars in thousands)	Six Months Ended June 30,
	2020			2019
Balance, beginning of period	$	9,515		$	8,397
Loans charged off during period		(70	)		(304	)
Recoveries of loans previously charged off		22			88
Net charge-offs		(48	)		(216	)
Provision for loan and lease losses		1,600			590
Balance, end of period	$	11,067		$	8,771
Ratio of net loan charge-offs to average loans outstanding, annualized		0.01	%		0.00	%
Ratio of allowance for loan losses to net loans at end of period		0.45	%		0.52	%

Improvements in the ratio of allowance for loan losses to net loans since December reflect the substantial increase in outstanding loans due to Mid Penn’s participation in the PPP program.  The allowance for loan and lease losses as a percentage of loans, excluding PPP loans which are guaranteed by the SBA and have no associated allowance, was 0.60% as of June 30, 2020. 

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MID PENN BANCORP, INC.

Other than as described herein, including the disclosures in previous sections regarding the continued impact of the COVID-19 pandemic, Mid Penn does not believe there are any trends or events at this time that are reasonably expected to have a material impact on future results of operations, liquidity, or capital resources.  Based on known information, Mid Penn believes that the effects of current and past economic conditions and other unfavorable business conditions, including those related to COVID-19, may eventually impact some borrowers’ abilities to comply with their repayment terms.  Accordingly, Mid Penn increased its qualitative factors for economic and external conditions as part of its general component determination.  Mid Penn continues to monitor closely the financial strength of these borrowers and the economic conditions impacting them, including the impacts from the COVID-19 pandemic.  

Mid Penn does not ordinarily engage in practices which may be used to artificially shield certain borrowers from the negative economic or business cycle effects that may compromise their ability to repay.  Mid Penn does not normally structure construction loans with interest reserve components.  Mid Penn has not in the past performed any commercial real estate or other type of loan workouts whereby an existing loan was restructured into multiple new loans.  Also, Mid Penn does not extend loans at maturity solely due to the existence of guarantees, without recognizing the credit as impaired.  While the existence of a guarantee may be a mitigating factor in determining the proper level of allowance once impairment has been identified, the guarantee does not affect the impairment analysis.

The following table presents the change in nonperforming asset categories as of June 30, 2020, December 31, 2019, and June 30, 2019.

(Dollars in thousands)
	June 30, 2020			December 31, 2019			June 30, 2019
Nonperforming Assets:
Nonaccrual loans	$	13,804		$	11,471		$	6,165
Accruing troubled debt restructured loans		477			490			503
Total nonperforming loans		14,281			11,961			6,668
Foreclosed real estate		1,718			196			390
Total non-performing assets		15,999			12,157			7,058
Accruing loans 90 days or more past due		800			—			—
Total risk elements	$	16,799		$	12,157		$	7,058
Nonperforming loans as a % of total
loans outstanding		0.58	%		0.68	%		0.39	%
Nonperforming assets as a % of total
loans outstanding and other real estate		0.65	%		0.69	%		0.42	%
Ratio of allowance for loan losses
to nonperforming loans		77.49	%		79.55	%		131.54	%

In the table above, troubled debt restructured loans that are no longer accruing interest are included in nonaccrual loans.  

Nonperforming loans increased from $11,961,000 at December 31, 2019 to $14,281,000 at June 30, 2020 primarily due to one home equity loan relationship totaling $2,378,000 being designated as nonaccrual. One loan relationship which accounts for $7,385,000 of the nonperforming loan balance is discussed in more detail below.  None of the nonperforming assets were impaired as a result of the COVID-19 pandemic as the conditions resulting in the respective asset’s impairment preceded the pandemic.  However, as Mid Penn pursues full collection of these assets, the timing or extent of resolution may ultimately be impacted if the pandemic persists.

Loan relationship no. 1 – At June 30, 2020, the contractual outstanding principal balance of this loan relationship was $7,385,000 and was comprised of two commercial and industrial loans and one commercial real estate credit acquired in 2018.  Given that the fair value of the collateral, primarily comprised of a significant amount of commercial real estate, exceeds the outstanding principal balance, no specific allowance allocation has been assigned to this relationship.  Management is diligently pursuing its full rights given its priority liens to the collateral under the loan agreements to collect the remaining outstanding balance.

The increase in foreclosed real estate from $196,000 at December 31, 2019 to $1,718,000 at June 30, 2020 was primarily driven by the transfer of one loan relationship totaling $1,465,000 from nonaccrual status to foreclosed real estate during the first six months of 2020, which is discussed in more detail below.  

Foreclosed real estate no. 1 – At June 30, 2020, this property consisted of a commercial property and was carried at a net realizable value of $1,465,000.  Management has actively listed the property for sale and expects to recover its full investment in this property at the time of sale.

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Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to writing down or charging off the loan.  Once the write down is taken, the remaining balance remains a nonperforming loan with the original terms and interest rate intact and is not treated as a restructured credit.  The following table provides additional analysis of partially charged-off loans.

(Dollars in thousands)
	June 30, 2020			December 31, 2019
Period ending total loans outstanding	$	2,445,765		$	1,762,756
Allowance for loan and lease losses		11,067			9,515
Total Nonperforming loans		14,281			11,961
Nonperforming and impaired loans with partial charge-offs		103			332
Ratio of nonperforming loans with partial charge-offs
to total loans		0.00	%		0.02	%
Ratio of nonperforming loans with partial charge-offs
to total nonperforming loans		0.72	%		2.78	%
Coverage ratio net of nonperforming loans with
partial charge-offs		78.06	%		81.82	%
Ratio of total allowance to total loans less
nonperforming loans with partial charge-offs		0.45	%		0.54	%

Mid Penn considers a commercial loan or commercial real estate loan to be impaired when it becomes 90 days or more past due and not well-secured or otherwise not probable for collection.  This methodology assumes the borrower cannot or will not continue to make additional payments.  At that time the loan would be considered collateral dependent as the discounted cash flow method indicates no operating income is available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis.  Policies that govern the recommendation for charge-off are unique to the type of loan being considered.  Commercial loans rated as nonaccrual or lower will first have a collateral evaluation completed in accordance with the guidance on impaired loans.  Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation.  The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment.  Commercial real estate loans rated as impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans.  An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variation in value.  A specific allocation of allowance is made for any anticipated collateral shortfall.  The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  The process of charge-off for residential mortgage loans begins upon a loan becoming delinquent for 90 days and not in the process of collection.  The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens.  A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation.  Consumer loans are recommended for charge-off after reaching delinquency of 90 days and the loan is not well-secured or otherwise not probable for collection.  The collateral shortfall of the consumer loan is recommended for charge-off at this point.

As noted above, Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans.  The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In addition, Mid Penn takes a preemptive step when any commercial loan or commercial real estate loan becomes classified under its internal classification system.  A preliminary collateral evaluation in accordance with the guidance on impaired loans is prepared using the existing collateral information in the loan file.  This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation.  This collateral evaluation is preliminary, but allows Mid Penn to determine if any potential collateral shortfalls exist.

Larger groups of small-balance loans, such as residential mortgages and consumer installment loans are collectively evaluated for impairment.  Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures unless such loans are the subject of a restructuring agreement.

Mid Penn’s rating system assumes any loans classified as substandard nonaccrual to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

It is Mid Penn’s policy to obtain updated third-party valuations on all impaired loans collateralized by real estate as soon as practically possible following the credit being classified as substandard nonaccrual.  Prior to receipt of the updated real estate valuation Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation.  The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals.  To date, there have been no material time lapses noted with the above processes.

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In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment.  In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value.  The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management.  Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction or private sales.  Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, Mid Penn’s practice of obtaining independent third party market valuations on the subject property as soon as practically possible of being placed on nonaccrual status sometimes indicates that the loan to value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area.  These circumstances are determined on a case by case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans.  This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values.  All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

Mid Penn had loans with an aggregate balance of $14,237,000 which were deemed by management to be impaired at June 30, 2020, including $1,785,000 in loans acquired with credit deterioration in connection with the closing of the Phoenix acquisition in 2015 and the Scottdale and First Priority acquisitions in 2018.  Of the $12,452,000 of impaired loan relationships excluding the loans acquired with credit deterioration, $1,210,000 were commercial and industrial relationships, $8,028,000 were commercial real estate relationships, $2,406,000 were home equity relationships, $776,000 were residential relationships, and $32,000 were commercial real estate – construction relationships.  There were specific loan loss reserve allocations of $190,000 against $902,000 of commercial real estate loan relationships and $53,000 of specific loan loss reserve allocations against $198,000 of commercial and industrial loan relationships.  Management currently believes that the specific reserves are adequate to cover probable future losses related to these relationships.

The allowance is a reserve established in the form of a provision expense for loan and lease losses and is reduced by loan charge-offs net of recoveries.  In conjunction with an internal loan review function that operates independently of the lending function, management monitors the loan portfolio to identify risk on a monthly basis so that an appropriate allowance is maintained.  Based on an evaluation of the loan portfolio, management presents a monthly review of the allowance to the Board of Directors, indicating any changes in the allowance since the last review.  In making the evaluation, management considers the results of recent regulatory examinations, which typically include a review of the allowance as an integral part of the examination process.  As part of the examination process, federal or state regulatory agencies may require Mid Penn to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

In establishing the allowance, management evaluates on a quantitative basis individual classified loans and nonaccrual loans, and determines an aggregate reserve for those loans based on that review.  In addition, an allowance for the remainder of the loan and lease portfolio is determined based on historical loss experience within certain components of the portfolio.  These allocations may be modified if current conditions indicate that loan and lease losses may differ from historical experience.

In addition, a portion of the allowance is established for losses inherent in the loan and lease portfolio which have not been identified by the quantitative processes described above.  This determination inherently involves a higher degree of subjectivity, and considers risk factors that may not have yet manifested themselves in historical loss experience.  These factors include:

• changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (and the potential adverse impacts on the economy from the COVID-19 pandemic);

• changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

• changes in the value of underlying collateral for collateral-dependent loans;

• changes in the experience, ability, and depth of lending management and other relevant staff;

• changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

• changes in the quality of the institution's loan review system;

• changes in the nature and volume of the portfolio and in the terms of loans;

• the effect of other external factors such as competition, legal and regulatory requirements, governmental restrictions impacting business activity as a result of the COVID-19 pandemic, and other factors beyond the control of Mid Penn which could affect the level of estimated credit losses in the institution's existing portfolio; and

• the existence and effect of any concentrations of credit and changes in the level of such concentrations.

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While the allowance is maintained at a level believed to be adequate by management to provide for probable losses inherent in the loan and lease portfolio, determination of the allowance is inherently subjective, as it requires estimates, all of which may be susceptible to significant change.  The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific or general components. For example, we believe that we could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral, including the prospective unknown impacts of the COVID-19 pandemic.  Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses, including the unpredictable timing and amounts of charge-offs, the fact that historical loss averages don’t necessarily correlate to future loss trends, and unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors. Changes from these various other uncertainties and considerations may impact the provisions charged to expense in future periods.

Management believes, based on information currently available, that the allowance for loan losses of $11,067,000 is adequate as of June 30, 2020 to cover specifically identifiable loan losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable.

Liquidity

Mid Penn’s objective is to maintain adequate liquidity to meet funding needs at a reasonable cost and to provide contingency plans to meet unanticipated funding needs or a loss of funding sources, while minimizing interest rate risk.  Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding corporate operations.  Sources of liquidity are as follows:

• a growing core deposit base;

• proceeds from the sale or maturity of investment securities;

• proceeds from interest-bearing time deposits with other financial institutions;

• payments received on loans and mortgage-backed securities;

• overnight correspondent bank borrowings on various credit lines; and

• borrowing capacity available from the FHLB, the Federal Reserve Discount Window, and other lines of credit currently available to Mid Penn.

The major sources of cash received in the first six months of 2020 were from the $413,919,000 net increase in deposits, $203,937,000 net increase in short-term borrowings, and $104,144,000 of proceeds from sales of mortgage loans originated for sale.

Major uses of cash in the first six months of 2020 were $684,579,000 to fund portfolio loan growth (primarily PPP commercial loans), $114,714,000 to fund mortgage loans originated for sale, and $80,880,000 to fund the purchase of held-to-maturity investment securities.

Mid Penn believes its core deposits are generally stable even in periods of changing interest rates.  Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends.  These measurements indicate that liquidity generally remains stable and exceeds our minimum defined levels of adequacy.  Other than the trends of continued competitive pressures and volatile interest rates, and the uncertain impact of the COVID-19 event, there are no known demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.

On at least a quarterly basis, a comprehensive liquidity analysis is reviewed by the Asset Liability Committee and Board of Directors.  The analysis provides a summary of the current liquidity measurements, projections, and future liquidity positions given various levels of liquidity stress.  Management also maintains a detailed Contingency Funding Plan designed to respond to overall stress in the financial condition of the banking industry or a liquidity problem specific to Mid Penn.

Subordinated Debt

Subordinated Debt Issued March 2020

On March 20, 2020, Mid Penn entered into agreements with accredited investors who purchased $15,000,000 aggregate principal amount of Mid Penn’s Subordinated Notes due 2030 (the “2020 Notes”), on a private placement basis, to accredited investors.  The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

The 2020 Notes bear interest at a rate of 4.0% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less than 4.25%.  Interest will be payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30.  The 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030.  Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes.  In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2020 Notes at 100% of the principal amount of the 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.  

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Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. 

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”).  In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000 which is being amortized through interest expense until the maturity date of November 30, 2025. The First Priority Notes are intended to be treated as Tier 2 capital for regulatory reporting purposes.

The First Priority Notes agreements were entered into by First Priority on November 13, 2015 with five accredited investors, pursuant to which First Priority issued subordinated notes totaling $9,500,000. The First Priority Notes have a maturity date of November 30, 2025, and bear interest at a fixed rate of 7.00% per annum.  The First Priority Notes are non-callable for an initial period of five years and include provisions for redemption pricing between 101.5% and 100.5% of the liquidation value, if called after five years but prior to the stated maturity date. 

Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its Subordinated Notes due 2028 (the “2017 Notes”). The 2017 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.  The offering closed in December 2017.

The 2017 Notes bear interest at a rate of 5.25% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2017 Notes may not accelerate the maturity of the 2017 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary.  

Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025.  The 2015 Notes are treated as Tier 2 capital for regulatory capital purposes.

The 2015 Notes bear interest at a rate of 5.15% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0%.  Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025.  Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if:  (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2015 Notes may not accelerate the maturity of the 2015 Notes, except upon Mid Penn’s or Mid Penn Bank’s bankruptcy, insolvency, liquidation, receivership or similar event.

Regulatory Capital Changes

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.  The final rules implemented higher minimum capital requirements, added a new common equity Tier 1 capital requirement, and established criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital.  Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements, which amount must be greater than 2.5% of total risk-weighted assets.  

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A summary of the payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer (as a % of risk-weighted assets)	Maximum Payout (as a % of eligible retained income)
> 2.5%	No payout limitation applies
≤2.5% and >1.875%	60%
≤1.875% and >1.25%	40%
≤1.25% and >0.625%	20%
≤0.625%	0%

The final rules allowed community banks to make a one-time election not to include the additional components of accumulated other comprehensive income (“AOCI”) in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital.  Mid Penn made the election not to include the additional components of AOCI in regulatory capital.

Consistent with the Dodd-Frank Act, the new rules replaced the ratings-based approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures.  Alternatively, banking organizations may use the existing gross-ups approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250% risk weight.

Under the new rules, mortgage servicing assets (“MSAs”) and certain deferred tax assets (“DTAs”) are subject to stricter limitations than those applicable under the current general risk-based capital rule.  The new rules also increase the risk weights for past-due loans, certain risk weights and credit conversion factors.

Mid Penn has implemented these changes in determining and reporting the regulatory ratios of Mid Penn and the Bank, and has concluded that the new rules do not have a material adverse effect on Mid Penn’s financial condition.

Capital Resources

Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets.  The greater a corporation’s capital resources, the more likely it is to meet its cash obligations and absorb unforeseen losses.  Too much capital, however, indicates that not enough of the corporation’s earnings have been invested in the continued growth of the business or paid to shareholders.  An excess capital position may make it difficult for a corporation to offer a competitive return on the shareholders’ capital going forward.  For these reasons capital adequacy and capital management have been, and will continue to be, of paramount importance.

Shareholders’ equity increased by $5,471,000 or 2 percent from $237,874,000 as of December 31, 2019 to $243,345,000 as of June 30, 2020. The increase in shareholders’ equity reflects the growth in retained earnings through year-to-date net income, net of dividends paid.  Some of the increase was offset by the initiation of Mid Penn’s treasury stock repurchase program, resulting in a treasury stock balance of $1,560,000 as of June 30, 2020.  Regulatory capital ratios for both Mid Penn and its banking subsidiary exceeded regulatory “well-capitalized” levels at both June 30, 2020 and December 31, 2019.

Banks are evaluated for capital adequacy based on the ratio of capital to risk-weighted assets and total assets.  The minimum capital to risk-weighted assets requirements, including the capital conservation buffers, which became effective for Mid Penn and the Bank on January 1, 2016 are illustrated below.  At June 30, 2020, regulatory capital ratios for both Mid Penn and the Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action, and exceeded the minimum capital requirements under Basel III.

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MID PENN BANCORP, INC.

Mid Penn and Mid Penn Bank maintained the following regulatory capital levels, leverage ratios, and risk-based capital ratios as of June 30, 2020 and December 31, 2019:

	Capital Adequacy
											To Be Well-Capitalized
(Dollars in thousands)											Under Prompt
						Minimum Capital					Corrective
	Actual:					Required:					Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Mid Penn Bancorp, Inc.
As of June 30, 2020:
Tier 1 Capital (to Average Assets)	$	174,941		6.6	%	$	105,830		4.0	%	N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		174,941		9.5	%		129,072		7.0	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		174,941		9.5	%		156,731		8.5	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		228,094		12.4	%		193,608		10.5	%	N/A		N/A
Mid Penn Bank
As of June 30, 2020:
Tier 1 Capital (to Average Assets)	$	193,774		7.3	%	$	105,805		4.0	%	$	132,256		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		193,774		10.5	%		128,993		7.0	%		119,779		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		193,774		10.5	%		156,635		8.5	%		147,421		8.0	%
Total Capital (to Risk Weighted Assets)		214,418		11.6	%		193,490		10.5	%		184,276		10.0	%
Mid Penn Bancorp, Inc.
As of December 31, 2019:
Tier 1 Capital (to Average Assets)	$	168,146		7.8	%	$	86,773		4.00	%	N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		168,146		9.8	%		120,020		7.00	%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		168,146		9.8	%		145,738		8.50	%	N/A		N/A
Total Capital (to Risk Weighted Assets)		204,811		11.9	%		180,030		10.50	%	N/A		N/A
Mid Penn Bank
As of December 31, 2019:
Tier 1 Capital (to Average Assets)	$	185,101		8.5	%	$	86,760		4.00	%	$	108,450		5.0	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		185,101		10.8	%		119,995		7.00	%		111,424		6.5	%
Tier 1 Capital (to Risk Weighted Assets)		185,101		10.8	%		145,708		8.50	%		137,137		8.0	%
Total Capital (to Risk Weighted Assets)		204,196		11.9	%		179,992		10.50	%		171,421		10.0	%

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a financial institution, Mid Penn’s primary source of market risk is interest rate risk.  Interest rate risk is the exposure to fluctuations in Mid Penn’s future earnings (earnings at risk) resulting from changes in interest rates.  This exposure or sensitivity is a function of the repricing characteristics of Mid Penn's portfolio of assets and liabilities.  Each asset and liability reprices either at maturity or during the life of the instrument.  Interest rate sensitivity is measured as the difference between the volume of assets and liabilities that are subject to repricing in a future period of time.

The principal purpose of asset-liability management is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements.  Net interest income is increased by increasing the net interest margin and by volume growth.  Thus, the goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.

Mid Penn utilizes an asset-liability management model to measure the impact of interest rate movements on its interest rate sensitivity position.  Mid Penn’s management also reviews the traditional maturity gap analysis regularly.  Mid Penn does not always attempt to achieve an exact match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest rate risk is inherent and appropriate in the management of Mid Penn’s profitability.

Modeling techniques and simulation analysis involve assumptions and estimates that inherently cannot be measured with complete precision.  Key assumptions in the analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing.  These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors.  However, the analyses are useful in quantifying risk and provide a relative gauge of Mid Penn’s interest rate risk position over time.

Management reviews interest rate risk on a quarterly basis.  This analysis includes earnings scenarios whereby interest rates are increased and decreased by 100, 200, and 300 basis points. These scenarios, detailed in the table below, indicate that Mid Penn would experience enhanced net interest income over a one-year time frame due to upward interest rate changes, while a reduction in interest rates would result in a decline in net interest income over a one-year time frame; however, actual results could vary significantly from the calculations prepared by management.  At June 30, 2020, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy.

June 30, 2020			December 31, 2019
	% Change in			% Change in
Change in	Net Interest	Policy	Change in	Net Interest	Policy
Basis Points	Income	Risk Limit	Basis Points	Income	Risk Limit
300	13.32%	≥ -20%	300	10.43%	≥ -20%
200	9.11%	≥ -15%	200	6.84%	≥ -15%
100	4.24%	≥ -10%	100	3.37%	≥ -10%
0			0
(100)	-4.30%	≥ -10%	(100)	-2.87%	≥ -10%
(200)	-9.39%	≥ -15%	(200)	-4.99%	≥ -15%
(300)	-14.46%	≥ -20%	(300)	-8.66%	≥ -20%

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Mid Penn maintains controls and procedures designed to ensure that information required to be disclosed in the reports that Mid Penn files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Based upon their evaluation of those controls and procedures as of June 30, 2020, Mid Penn’s management, with the participation of the Principal Executive Officer and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Controls

There were no changes in Mid Penn’s internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, Mid Penn’s internal control over financial reporting during the six months ended June 30, 2020.

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MID PENN BANCORP, INC.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Based on information currently available, management is not aware of any litigation that would reasonably be expected to have a material adverse effect on the consolidated financial position of Mid Penn or its subsidiaries taken as a whole.  There are no proceedings pending other than ordinary routine litigation occurring in the normal course of business.  In addition, management does not know of any material proceedings contemplated by governmental authorities against Mid Penn or any of its properties.

ITEM 1A – RISK FACTORS

Management has reviewed the risk factors that were previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019, to determine if there were material changes applicable to the three and six months ended June 30, 2020.  There are no material changes to such risk factors, other than as described below.

Interest rate volatility stemming from COVID-19 could negatively affect our net interest income, lending activities, deposits and profitability.

Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

For a more detailed description of these and other factors which would affect our results, please see Mid Penn’s filings with the SEC, including those risk factors identified in the "Risk Factors" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent filings.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5 – OTHER INFORMATION

None

ITEM 6 – EXHIBITS

• Exhibit 3(i) – The Registrant’s amended Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to Registrant’s Quarterly Report on Form 10-Q filed for the quarterly period ended June 30, 2019).

• Exhibit 3(ii) – The Registrant’s By-laws (Incorporated by reference to Exhibit 3(ii) to Registrant’s Current Report on Form 8-K filed with the SEC on August 30, 2010.)

• Exhibit 31.1 – Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section 302 of the Sarbanes-Oxley Act of 2002.

• Exhibit 31.2 - Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section 302 of the Sarbanes-Oxley Act of 2002.

• Exhibit 32 – Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002.

• Exhibit 101.SCH – Inline XBRL Taxonomy Extension Schema Document

• Exhibit 101.CAL – Inline XBRL Taxonomy Extension Calculation Linkbase Document

• Exhibit 101.DEF – Inline XBRL Taxonomy Extension Definition Linkbase Document

• Exhibit 101.LAB – Inline XBRL Taxonomy Extension Label Linkbase Document

• Exhibit 101.PRE – Inline XBRL Taxonomy Extension Presentation Linkbase Document

• Exhibit 104 – Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)

62

MID PENN BANCORP, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Mid Penn Bancorp, Inc. (Registrant)
By:	/s/ Rory G. Ritrievi
	Rory G. Ritrievi
	President and CEO
	(Principal Executive Officer)
Date:	August 7, 2020
By:	/s/ Michael D. Peduzzi, CPA
	Michael D. Peduzzi, CPA
	Senior Executive Vice President and Chief Financial Officer
Date:	August 7, 2020

63

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULES

13A-14(A)/15D-14(A) AS ADDED BY SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Rory G. Ritrievi, certify that:

1. I have reviewed this report on Form 10-Q of Mid Penn Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) Significant deficiencies and material weaknesses, if any, in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By:	/s/ Rory G. Ritrievi
	Rory G. Ritrievi
	President and CEO
Date:	August 7, 2020

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULES

13A-14(A)/15D-14(A) AS ADDED BY SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Michael D. Peduzzi, certify that:

1. I have reviewed this report on Form 10-Q of Mid Penn Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) Significant deficiencies and material weaknesses, if any, in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By:	/s/ Michael D. Peduzzi
	Michael D. Peduzzi, CPA
	Chief Financial Officer
Date:	August 7, 2020

EX-32

EXHIBIT 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADDED BY SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Mid Penn Bancorp, Inc. (the “Corporation”) on Form 10-Q for the period ending June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rory G. Ritrievi, President and CEO, and I, Michael D. Peduzzi, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as added pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

2. To my knowledge, the information contained in the Report fairly presents, in all material respects the financial condition and results of operations of Mid Penn Bancorp, Inc. as of the dates and for the periods expressed in the Report.

By:	/s/ Rory G. Ritrievi
	Rory G. Ritrievi
	President and CEO
Date:	August 7, 2020
By:	/s/ Michael D. Peduzzi
	Michael D. Peduzzi, CPA
	Chief Financial Officer
Date:	August 7, 2020

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

(1)Basis of Presentation

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. (“Mid Penn” or the “Corporation”) and its wholly-owned subsidiary, Mid Penn Bank (the “Bank”). During the first six months of 2020, Mid Penn established a non-bank subsidiary, MPB Financial Services, LLC under which two additional non-bank subsidiaries have been established: (i) MPB Wealth Management, LLC, created to expand the wealth management function of the Corporation, and (ii) MPB Risk Services, LLC, created to fulfill the insurance needs of both existing and potential customers of the Corporation. As of June 30, 2020, the accounts and activities of these three new non-bank subsidiaries were not material to warrant separate disclosure or segment reporting.  All material intercompany accounts and transactions have been eliminated in consolidation.

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Mid Penn believes the information presented is not misleading and the disclosures are adequate.  For comparative purposes, the period ending June 30, 2019 and December 31, 2019 balances have been reclassified, when necessary, to conform to the 2020 presentation.  Such reclassifications had no impact on net income. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.  Except for adjustments made related to the adoption of new accounting standards, in the opinion of management, all adjustments necessary for fair presentation of the periods presented have been reflected in the accompanying consolidated financial statements.  All such adjustments are of a normal, recurring nature.  These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019.  

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2020, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the issuance date of these consolidated financial statements.

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

(2)Summary of Significant Accounting Policies

The accounting and reporting policies of Mid Penn conform with accounting principles as required under GAAP and general practices within the financial industry.  The following is a description of the more significant accounting policies.

Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available for sale and carried at fair value.  Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, pledging requirements, and other factors related to effective portfolio management.  Securities to be held to maturity are carried at amortized cost.

For available-for-sale debt securities, realized gains and losses on dispositions are based on the difference between net proceeds and the amortized cost of the securities sold, using the specific identification method.  Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through Mid Penn’s consolidated statement of income for the respective period.

ASC Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired.  For debt securities, management must assess, in addition to the credit condition of the underlying issuer, whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.  These steps are done before assessing whether the Corporation will recover the cost basis of the investment.

In instances when a determination is made that other-than-temporary impairment exists but the Corporation does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.  The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Equity Securities

In accordance with Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, Mid Penn reports its equity securities with readily determinable fair values at fair value within other assets on the balance sheet, with realized and unrealized gains and losses reported in other expense on the income statement.  Mid Penn’s equity securities consisted of Community Reinvestment Act (“CRA”) funds totaling $518,000 and $507,000 as of June 30, 2020 and December 31, 2019, respectively.  No equity securities were sold during the three or six months ended June 30, 2020 or June 30, 2019.

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans, generally being amortized over the contractual life of the loan.  Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loan portfolio is segmented into commercial and consumer loans.  Commercial loans consist of the following classes:  commercial and industrial, commercial real estate, commercial real estate-construction and lease financing.  Consumer loans consist of the following classes:  residential mortgage loans, home equity loans and other consumer loans.

For all classes of loans, the accrual of interest generally is discontinued when the contractual payment of principal or interest has become 90 days or more past due, or management has serious doubts about further collectability of principal or interest even though the loan is currently performing.  A loan past due 90 days or more may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest is credited to income.  Interest received on nonaccrual loans, including impaired loans, is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.  Nonaccrual loans may be restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally, at least nine consecutive months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.  The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Commercial and Industrial Loans

Mid Penn originates commercial and industrial loans.  Most of the Bank’s commercial and industrial loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory, and accounts receivable.  Commercial loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.  Generally, the maximum term on non-mortgage lines of credit is one year.  The loan-to-value ratio on such loans and lines of credit generally may not exceed 80 percent of the value of the collateral securing the loan.  The Bank’s commercial business lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower.  Analysis of the borrower’s past, present, and future cash flows is also an important aspect of the Bank’s current credit analysis.  Nonetheless, such loans are believed to carry higher credit risk than other extensions of credit.

Commercial and industrial loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, which, in turn, is likely to be dependent upon the general economic environment.  Mid Penn’s commercial and industrial loans are usually, but not always, secured by business assets and personal guarantees.  However, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business.

Commercial Real Estate and Commercial Real Estate – Construction Loans

Commercial real estate and commercial real estate construction loans generally present a higher level of risk than loans secured by one-to-four family residences.  This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans.  In addition, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project.  If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Residential Mortgage Loans

Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction.  The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas.  Residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 percent of the lesser of the appraised value of the security property or the contract price.  Private mortgage insurance is generally required in an amount sufficient to reduce the Bank’s exposure to at or below the 85 percent loan to value level.  Residential mortgage loans generally do not include prepayment penalties.

In underwriting residential mortgage loans, the Bank evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan.  Most properties securing real estate loans made by Mid Penn are appraised by independent fee appraisers.  The Bank generally requires borrowers to obtain title insurance and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan.  Real estate loans originated by the Bank generally contain a “due on sale” clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property.

The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, Federal Home Loan Bank, or Pennsylvania Housing Finance Agency standards, with the intention of selling the

majority of residential mortgages originated into the secondary market.  In the event that the facts and circumstances surrounding a residential mortgage application do not meet the required underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request.  In the event that the loan is funded and held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

Consumer Loans, Including Home Equity Credits

Mid Penn offers a variety of secured consumer loans, including home equity, automobile, and deposit secured loans.  In addition, the Bank offers other secured and unsecured consumer loans.  Most consumer loans are originated in Mid Penn’s primary market and surrounding areas.

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit.  Substantially all home equity loans and lines of credit are secured by junior lien mortgages on principal residences.  The Bank will lend amounts, which, together with all prior liens, typically may be up to 85 percent of the appraised value of the property securing the loan.  Home equity term loans may have maximum terms up to 20 years, while home equity lines of credit generally have maximum terms of five years.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts, and an assessment of ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment.  In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance.  In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.  Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt.  Generally, foreclosure actions could become more prevalent if the real estate market weakens and property values deteriorate.

Payroll Protection Program (“PPP”) Loans

On March 27, 2020, in response to the novel coronavirus (“COVID-19”) pandemic, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law by President Donald Trump.  This legislation created the federal Paycheck Protection Program (“PPP”) which permitted eligible business entities to apply for loans through a participating financial institution to cover payroll, rent, and other business expenses during the COVID-19 pandemic.  The PPP loans, which are 100 percent guaranteed by the Small Business Administration (“SBA”), have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.  The vast majority of Mid Penn’s PPP loans have a two-year term to maturity.  The SBA may forgive the PPP loans if at least 60 percent of the proceeds are used for payroll costs.  Also, the borrowers will not have to make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the deferment period.   The SBA also provided a processing fee to financial institutions who participated in the PPP, with the amount of such fee pre-determined by the SBA dependent upon the size of each credit.  As of June 30, 2020, Mid Penn had received $20,329,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP initiative.   These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and will be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the loan.  During the three and six months ended June 30, 2020, Mid Penn recognized $2,371,000 of PPP processing fees within interest and fees on loans and leases on the Consolidated Statements of Income.  

As of June 30, 2020, Mid Penn had $588,667,000 of PPP loans outstanding, net of deferred PPP processing fees of $17,958,000 with all of these loans being recorded in the commercial and industrial loan portfolio classification.  

Allowance for Loan and Lease Losses

The allowance for credit losses (“allowance”) and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not required to adopted the current expected credit loss (“CECL”) accounting standard until January 1, 2023.  The allowance consists of (i) the allowance for loan and lease losses, and (ii) the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet.  The reserve for unfunded lending commitments was $77,000 at June 30, 2020 and $80,000 at December 31, 2019.  

The allowance is increased by the provision for loan and lease losses, and decreased by charge-offs, net of recoveries.  Loans deemed to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.  All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible.  Because all identified losses are immediately charged off, no portion of the allowance is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance.  The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components.  The specific component relates to loans that are classified as impaired.  For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.  These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in collateral values, changes in the experience of the lending staff and loan review systems, changes in lending policies and procedures (including underwriting standards), changes in the mix and volume of loans originated, the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio, shifting industry or portfolio concentrations, and other relevant factors.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.  Adjustments to the factors are supported through documentation of changes in conditions in relevant analyses and a narrative accompanying the allowance for loan loss calculation.

The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific and general components. For example, at times Mid Penn could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral.  Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses, including the unpredictable timing and amounts of charge-offs, the fact that historical loss averages don’t necessarily correlate to future loss trends, and unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors.

Mid Penn generally considers a commercial loan (consisting of commercial and industrial, commercial real estate, commercial real estate-construction, and lease financing loan classes) to be impaired when it becomes 90 days or more past due and not in the process of collection, or sooner when it is probable that Mid Penn will be unable to collect all contractual principal and interest due.  This methodology assumes the borrower cannot or will not continue to make additional payments.  At that time, the loan would generally be considered collateral dependent as the discounted cash flow method would generally indicate no operating income available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

In addition, Mid Penn’s rating system assumes any loans classified as nonaccrual, included in the substandard rating, to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis.  Policies that govern the recommendation for charge-off are unique to the type of loan being considered.  Commercial loans classified as substandard nonaccrual, doubtful, having probable loss will first have a collateral evaluation completed in accordance with the guidance on impaired loans.  Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation.  The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment.  Commercial real estate loans determined to be impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans.  An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value.  A specific allocation of allowance is made for any anticipated collateral shortfall. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  The process of charging off a residential mortgage loan begins when a loan becomes delinquent for 90 days and is not in the process of collection.  The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens.  A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible.  The collateral shortfall of the consumer loan is recommended for charge-off at this point.

As noted above, Mid Penn assesses a specific allocation for commercial loans and commercial real estate loans.  The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In addition, Mid Penn takes a preemptive step when any commercial loan becomes classified under its internal classification system.  A preliminary collateral evaluation, in accordance with the guidance on impaired loans, is prepared using the existing collateral information in the loan file.  This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation.  This collateral evaluation is preliminary, but allows Mid Penn to determine if any potential collateral shortfalls exist.

It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard nonaccrual.  Prior to receipt of the updated real estate valuation, Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation.  The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals.  To date, there have been no material time lapses noted with the above processes.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment.  In these circumstances, a collateral inspection is performed by Mid Penn personnel to determine an estimated value.  The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management.  Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales.  Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, the independent third party market valuations on the subject property obtained by Mid Penn as soon as practically possible following the credit being placed on nonaccrual status sometimes indicates that the loan-to-value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area.  These circumstances are determined on a case by case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans.  This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values.  All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, Mid Penn does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted concessions and it is deemed that those borrowers are experiencing financial difficulty.  Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date.  Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for nine consecutive months after modification.  Loans classified as troubled debt restructurings are designated as impaired.

The allowance calculation methodology includes segregation of loan classes into risk rating categories.  The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments.  Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss.  Loans criticized as special mention have potential weaknesses that deserve management’s close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.  Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.  Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses.  Any loans not classified as noted above are rated pass.

In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.  Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

As of June 30, 2020, Mid Penn had $588,667,000 of PPP loans outstanding, net of deferred fees, which are guaranteed by the Small Business Administration and, thus, have no loss reserve allocated to that pool.

Acquired Loans

Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses.  The balance of loans acquired at fair value and included in the balance of loans and leases, net of unearned interest on the Consolidated Balance Sheets totaled $324,159,000 and $414,498,000 as of June 30, 2020 and December 31, 2019, respectively.  The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.  The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount.  These loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.  The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan.  Subsequent decreases to the expected cash flows will require Mid Penn to evaluate the need for an additional allowance.  Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which Mid Penn will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows.  To the extent that the expected cash flows of a loan have decreased due to credit deterioration, Mid Penn establishes an allowance.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20.  These loans are initially recorded at fair value, and include credit and interest rate marks associated with acquisition accounting adjustments.  Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans.  There is no allowance for loan losses established at the acquisition date for acquired performing loans.  An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Mid Penn expects to fully collect the new carrying value (i.e. fair value) of the loans.  As such, Mid Penn may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount.  In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Loan-Level Interest Rate Swaps

Beginning during the second quarter of 2020, Mid Penn entered into loan-level interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs.  These swaps qualify as derivatives, but are not designated as hedging instruments.   A loan-level interest rate swap is a contract in which the series of interest rate flows (fixed and variable) are exchanged over the term of a loan with certain qualifying commercial loan customers, and Mid Penn simultaneously enters into an interest rate swap with a dealer counterparty with identical notional amounts and terms. The net result of these swaps is that the customer pays a fixed interest rate and Mid Penn receives a floating interest rate.  The swap positions with customers are equally offset with the dealer counterparties to minimize the potential impact on Mid Penn’s financial statements. 

Pursuant to our agreements with the dealer counterparties, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, including the possibility that we will incur a loss because a party to the agreements, which may be a dealer counterparty or a customer, fails to meet its contractual obligations. Derivative contracts may only be executed with dealer counterparties as approved by our Board of Directors.  Similarly, derivatives with customers may only be executed with customers within credit exposure limits as approved by our Board of Directors. Loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

Bank Premises and Equipment Held for Sale

Bank premises and equipment designated as held for sale are carried at the lower of cost or market value. There were no premises and equipment classified as held for sale as of June 30, 2020 or December 31, 2019. During 2019, Mid Penn sold the land and facility formerly used as a full-service retail banking property. An impairment charge of $105,000 was recorded during the first six months of 2019 related to this property and is included in other expenses on the Consolidated Statement of Income.  Similar impairment charges were not recorded during the six months ended June 30, 2020.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale consist primarily of real estate acquired through, or in lieu of, foreclosure in settlement of debt, and are recorded at fair value less the selling costs at the date of transfer, establishing a new cost basis.  Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses.  Subsequent to acquisition, foreclosed assets are carried at fair value less estimated costs of disposal, based upon periodic evaluations that consider changes in market conditions and development and disposal costs.  Operating results from assets acquired in satisfaction of debt, including rental income less operating costs and gains or losses on the sale of, or the periodic evaluation of foreclosed assets, are recorded in noninterest expense.  As of June 30, 2020, Mid Penn had $135,000 of residential real estate held in other real estate owned and $90,000 in loans for which formal foreclosure proceedings were in process.  As of December 31, 2019, Mid Penn had $78,000 of residential real estate held in other real estate owned and $84,000 in loans for which formal foreclosure proceedings were in process.

Leases

Mid Penn leases certain premises and equipment and, as of January 1, 2019, for all leases in effect upon adoption of Accounting Standards Update 2016-02, Leases (Topic 842), as well as any leases commencing thereafter, Mid Penn has recognized a right-of-use asset and a related lease liability for each distinct lease agreement.  The lease right-of-use asset consists of the amount of the initial measurement of the lease liability, adjusted for (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and (ii) any initial direct costs incurred by the lessee (defined as costs of a lease that would not have been incurred had the lease not been executed).  The related lease liability is equal to the present value of the future lease payments, discounted using the rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Given that the rate implicit in the lease is rarely available, all lease liability amounts were calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. As a result of the adoption of this standard, effective January 1, 2019, Mid Penn recognized (i) an operating lease ROU asset of $11,661,000, (ii) an operating lease liability of $12,866,000, and (iii) an opening adjustment to retained earnings of $316,000 to eliminate the remaining balance of the deferred sale/leaseback gain on two retail branch locations which had originally been recorded in 2016.  

Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.  Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.  Finance lease expense consists of the amortization of the right-of-use asset, recognized as a component of occupancy expense on the Consolidated Statements of Income, and interest expense on the lease liability, which is recorded as a component of other interest expense on the Consolidated Statements of Income.

In assessing whether a contract contains a lease, Mid Penn reviews third-party agreements to determine if the contract conveys the right to control the use of identified property, plant, or equipment (defined as an identified asset by Topic 842) for a period of time in exchange for consideration, and grants Mid Penn the right to both (i) obtain substantially all of the economic benefits from the identified asset’s use, and (ii) direct the use of the identified asset throughout the term of the agreement.  

Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the (i) lease components, consisting of consideration paid to transfer a good or service to Mid Penn, and (ii) non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance.  

Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term.  These renewal and extension options were not included in the calculation of the right-of-use assets and lease liabilities as Mid Penn is not reasonably certain that these renewals and extensions will be utilized.  Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of right-of-use assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred.

None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments.  Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations.

Investments in Limited Partnerships

Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania.  The carrying value of Mid Penn’s investment in the limited partnership was $168,000 at June 30, 2020, and $190,000 at December 31, 2019, net of amortization, using the straight-line method.  The investment in this limited partnership is reported in other assets on the Consolidated Balance Sheets, and Mid Penn’s maximum exposure to loss is limited to the carrying value of the investment.  

Mid Penn also has a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania.  The total investment in this limited partnership, net of amortization, was $7,061,000 and $7,249,000 on June 30, 2020 and December 31, 2019, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet.  All of the units are intended to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended.  Mid Penn’s limited partner capital contribution commitment is $7,579,000.  Investments made to date, and future payments under this commitment are paid in installments over the course of construction of the low-income housing facilities.  Each installment payment is conditional upon both Mid Penn’s review and approval of the installment payment certificate and continued compliance with the terms of the original partnership agreement. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period as the facilities became operational and began to be occupied beginning in December 2019.  The project has been conditionally awarded $861,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $8,613,000 to be awarded to Mid Penn over the ten-year amortization period.  Mid Penn’s commitment to initiate investments in the limited partnership interest was conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it deemed necessary. All such initial conditions were satisfied and Mid Penn began funding the investment during 2018 and the investment is expected to be fully funded in 2020.  Mid Penn recognizes the related amortization and tax credits using the cost amortization method over a ten-year period.  

Core Deposit Intangible

Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases.  The carrying amount of core deposit intangible was $4,907,000 and $5,526,000 at June 30, 2020 and December 31, 2019, respectively.  Core deposit amortization expense is reflected in the Consolidated Statements of Income in intangible amortization and was $619,000 and $695,000 for the six months ended June 30, 2020 and 2019, respectively.  Core deposit amortization expense was $309,000 and $347,000 for the three months ended June 30, 2020 and 2019, respectively.   The core deposit intangible for each respective acquisition (Phoenix in March 2015; Scottdale in January 2018; and First Priority in July 2018) is being amortized over a ten-year period starting at the respective acquisition date and using a sum-of-the-year’s digits basis.  Core deposit intangible assets are subject to impairment testing whenever events or changes in circumstances indicate the need for such evaluation.  During the first quarter of 2020 and continuing through the period subsequent to June 30, 2020, the novel coronavirus (“COVID-19”) global pandemic impacted the United States including the State of Pennsylvania and Mid Penn’s market area and communities and customers.  Accordingly, Mid Penn management evaluated whether this COVID-19 event resulted in any impairment to Mid Penn’s business and the value of its acquired consumer demand and savings deposit base.  Management’s determination was that there was no impairment to its core deposit intangible to date as a result of the pandemic or related factors.  Supporting this assertion, as reflected in the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, Mid Penn has recognized substantial total deposit growth of $413,919,000 or over 21 percent during the first six months of 2020, with none of this growth attributable to brokered deposits.  Subsequent to June 30, 2020, and through the date of this filing, these increased deposit levels were sustained and continued to reflect no evidence of impairment.

Goodwill

Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with past business acquisitions.  The goodwill balance was $62,840,000 at both June 30, 2020 and December 31, 2019, and was comprised of (i) $39,744,000 related to the July 31, 2018 First Priority acquisition, (ii) $19,178,000 related to the January 8, 2018 Scottdale acquisition and (iii) $3,918,000 recorded as a result of the Phoenix acquisition in 2015.  Goodwill is evaluated annually for impairment; however, if certain events occur which indicate goodwill might be impaired between annual tests, goodwill would be tested for impairment when such events occur.  In making a potential impairment assessment of goodwill, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc.  There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of goodwill impairment.  Mid Penn did not identify any impairment on its outstanding goodwill from its evaluation which was performed as of October 31, 2019 using a qualitative analysis.  Changes in economic and operating conditions could result in goodwill impairment in future periods.  During the first half of 2020, and in support of its March 31, 2020 financial reports, Mid Penn management performed a “Step One” goodwill analysis to determine whether the current or expected impact from the COVID-19 global pandemic resulted in any impairment to Mid Penn’s business and the recorded value of its goodwill intangible asset.  Based upon this goodwill analysis, Mid Penn management determined that there was no impairment to its goodwill. A subsequent “Step One” goodwill analysis was not performed as of June 30, 2020; however, in response to the continued presence of the COVID-19 pandemic event and its impacts on the capital markets and the economy, management reviewed the criteria supporting the “Step One” assessment performed for the first quarter of 2020, including economic projections, anticipated cash flows, and current market data. Mid Penn management determined there were no adverse changes to key considerations from this previous assessment, or additional events that occurred since this previous assessment, and affirmed its determination that there is no impairment to its goodwill as of June 30, 2020.  As the COVID-19 event continues and its implications to the country, the economy, and specifically Mid Penn evolve, management will perform additional goodwill evaluations as necessary.

Revenue from Contracts with Customers

Mid Penn recognizes revenues when earned based upon (i) contractual terms as transactions occur, or (ii) as related services are provided and collectability is reasonably assured. The largest source of revenue for Mid Penn is interest income, which is primarily recognized on an accrual basis according to a written contract, such as loan and lease agreements or investment securities contracts.  Mid Penn earns noninterest income through a variety of financial and transactional services such as trust and wealth management services, deposit account transaction fees, ATM debit card fees, and mortgage banking fees.  Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed.  In certain circumstances, noninterest income is reported net of associated expenses.

On January 1, 2018, Mid Penn adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU establishes principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods and services to customers.  Topic 606 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.  

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit card interchange income, merchant service fees and certain components of other income are within the scope of Topic 606 and are discussed in greater detail below.

Income from Fiduciary and Wealth Management Activities

Income from fiduciary and wealth management activities consist of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income.  Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned.  Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur.  Payment is typically received in the following month.  Estate fee income is recognized as services are performed over the service period, generally eighteen months.

Service Charges on Deposits

Service charges on deposits consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts.  Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs and the related service charge is subsequently processed.  Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts.

ATM Debit Card Interchange Income

ATM debit card interchange income consists of interchange fees earned when Mid Penn’s debit cards are processed through card payments networks.  The interchange fee is calculated as a percentage of the total electronic funds transfer (EFT) transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT transaction, and the type of business at which the transaction was processed.  Revenue is recognized daily as transactions occur and interchange fees are subsequently processed.  Payment for most interchange activity is received daily, while some fees are aggregated and payment is received in the following month.

Merchant Services Income

Merchant services income is processed through third party providers with whom Mid Penn has partnered to provide merchant services to its business customers.  Fees are charged to merchants to process their debit card transactions, cash advance services, and other related products.  Mid Penn receives a percentage of the revenue generated from each joint customer relationship after the respective third-party provider has collected the fee income from the merchant.  Payment is primarily received in the following month.

Other Income

Certain aspects of other income, such as credit card royalties, check orders, and letter of credit fees, are within the scope of Topic 606.  These fees are primarily transactional, and revenue is recognized when transactions occur and the related services are subsequently processed.  Payment is primarily received immediately or in the following month.  

Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied.  Mid Penn has not recognized any assets from the costs to obtain or fulfill a contract with customers for revenue streams that fall within the guidance of Topic 606.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income.  Mid Penn also recognizes other comprehensive income (loss) from an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees.  These plans utilize assumptions and methods to calculate the fair value of plan assets and Mid Penn recognizes the overfunded and underfunded status of the plans on its consolidated balance sheet.  Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment.

The components of accumulated other comprehensive income (loss), net of taxes, are as follows:

(Dollars in thousands)	Unrealized Gain (Loss) on Securities			Defined Benefit Plans			Accumulated Other Comprehensive (Loss) Income
Balance - June 30, 2020	$	9		$	(159	)	$	(150	)
Balance - December 31, 2019	$	(128	)	$	471		$	343

During the six months ended June 30, 2020, the fair value of plan assets in Mid Penn’s defined benefit pension plan was impacted by the economic implications of the COVID-19 pandemic, resulting in a decrease in the fair value of the plan assets and a corresponding decrease in accumulated other comprehensive (loss) income, net of taxes, of $620,000 when comparing December 31, 2019 to June 30, 2020.

Earnings Per Common Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus common shares that would have been outstanding if dilutive potential common shares, consisting of unvested restricted stock, had been issued.  The effect of dilutive unvested restricted stock was not material and did not result in a difference, when rounded to the whole cent, between the basic earnings per share compared to the diluted earnings per share for any of the periods presented. The following data shows the amounts used in computing basic and diluted earnings per common share.

(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2020			2019	2020				2019
Net income	$	6,833	$	4,403		$	10,651	$	8,480
Weighted average common shares outstanding (basic)		8,446,377		8,462,522			8,463,676		8,461,269
Effect of dilutive unvested restricted stock grants		3,973		5,689			4,528		4,015
Weighted average common shares outstanding (diluted)		8,450,350		8,468,211			8,468,204		8,465,284
Basic earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00
Diluted earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00

There were no antidilutive shares at June 30, 2020 and 2019.

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Investment Securities

6 Months Ended

Jun. 30, 2020

Securities Financing Transactions Disclosures [Abstract]

Investment Securities

(3) Investment Securities

The majority of the investment portfolio is comprised of securities issued by U.S. government agencies, and state and political subdivision obligations.  The amortized cost, fair value, and unrealized gains and losses on investment securities at June 30, 2020 and December 31, 2019 are as follows:

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
June 30, 2020
Available-for-sale debt securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	—	$	2
State and political subdivision obligations		7,014		36		—		7,050
Corporate debt securities		16,464		42		66		16,440
Total available-for-sale debt securities		23,480		78		66		23,492
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	24,004	$	228	$	—	$	24,232
Mortgage-backed U.S. government agencies		41,312		1,072		4		42,380
State and political subdivision obligations		60,525		2,642		23		63,144
Corporate debt securities		9,546		205		16		9,735
Total held-to-maturity debt securities		135,387		4,147		43		139,491
Total	$	158,867	$	4,225	$	109	$	162,983

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2019
Available-for-sale debt securities:
U.S. government agencies	$	22,894	$	6	$	70	$	22,830
Mortgage-backed U.S. government agencies		12,996		7		113		12,890
State and political subdivision obligations		30		—		—		30
Corporate debt securities		1,250		9		—		1,259
Total available-for-sale debt securities		37,170		22		183		37,009
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	50,210	$	46	$	220	$	50,036
Mortgage-backed U.S. government agencies		42,098		95		102		42,091
State and political subdivision obligations		44,169		1,193		13		45,349
Total held-to-maturity debt securities		136,477		1,334		335		137,476
Total	$	173,647	$	1,356	$	518	$	174,485

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 comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued.  Please refer to Note 7, Fair Value Measurement, for more information on the fair value of investment securities.

Investment securities having a fair value of $128,301,000 at June 30, 2020 and $147,283,000 at December 31, 2019 were pledged to secure public deposits, some trust account holdings, and certain other borrowings.  Mid Penn also obtains letters of credit from the Federal Home Loan Bank of Pittsburgh (“FHLB”) to secure certain public deposits.  These FHLB letter of credit commitments totaled $212,401,000 as of June 30, 2020 and $169,051,000 as of December 31, 2019.

The following tables present gross unrealized losses and fair value of debt security investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2020 and December 31, 2019.

(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total
	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
June 30, 2020	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Available-for-sale debt securities:
Corporate debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66
Total temporarily impaired available-for-sale debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66
Held-to-maturity debt securities:
Mortgage-backed U.S. government agencies	1	$	1,135	$	4	0	$	—	$	—	1	$	1,135	$	4
State and political subdivision obligations	2		2,668		23	0		—		—	2		2,668		23
Corporate debt securities	2		1,983		16	0		—		—	2		1,983		16
Total temporarily impaired held-to-maturity debt securities	5	$	5,786	$	43	0	$	—	$	—	5	$	5,786	$	43
Total	10	$	15,681	$	109	0	$	—	$	—	10	$	15,681	$	109

(Dollars in thousands)	Less Than 12 Months					12 Months or More						Total
	Number					Number						Number
	of	Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized
December 31, 2019	Securities	Value		Losses		Securities	Value		Losses			Securities	Value		Losses
Available-for-sale securities:
U.S. government agencies	4	$	4,652	$	24	7	$	11,982		$	46	11	$	16,634	$	70
Mortgage-backed U.S. government agencies	1		1,643		4	14		10,603			109	15		12,246		113
Total temporarily impaired available-for-sale securities	5	$	6,295	$	28	21	$	22,585		$	155	26	$	28,880	$	183
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies	18	$	29,024	$	219	1	$	2,999		$	1	19	$	32,023	$	220
Mortgage-backed U.S. government agencies	6		8,445		35	13		11,050			67	19		19,495		102
State and political subdivision obligations	3		1,383		13	0		—			—	3		1,383		13
Total temporarily impaired held to maturity securities	27	$	38,852	$	267	14	$	14,049		$	68	41	$	52,901	$	335
Total	32	$	45,147	$	295	35	$	36,634		$	223	67	$	81,781	$	518

Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such additional evaluation. Consideration is given to the length of time and the extent to which the fair value of the security has been less than amortized cost, as well as the overall financial condition of the issuer.  In addition, for debt securities, Mid Penn considers (i) whether management has the intent to sell the security, (ii) whether it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (iii) whether management expects to recover the entire amortized cost basis.  At both June 30, 2020 and December 31, 2019, the majority of available-for-sale securities and held-to-maturity securities in an unrealized loss position were corporate debt securities.

Mid Penn had no securities considered by management to be other-than-temporarily impaired as of June 30, 2020, December 31, 2019, or June 30, 2019, and did not record any securities impairment charges in the respective periods ended on these dates.  This determination reflects management’s assessment that no securities in its portfolio were impaired as a result of any COVID-19 pandemic impacts, to date, to the underlying issuers of securities.  Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality.

Gross realized gains and losses on sales of available-for-sale debt securities for the three and six months ended June 30, 2020 and 2019 are shown in the table below.

(Dollars in thousands)	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Realized gains		$	118			$	43			$	255			$	69
Realized losses			(7	)			(26	)			(12	)			(45	)
Net gains		$	111			$	17			$	243			$	24

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of June 30, 2020.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
June 30, 2020	Cost		Value		Cost		Value
Due in 1 year or less	$	—	$	—	$	3,162	$	3,191
Due after 1 year but within 5 years		2,975		2,994		19,478		20,195
Due after 5 years but within 10 years		17,679		17,667		67,984		70,266
Due after 10 years		2,824		2,829		3,451		3,459
		23,478		23,490		94,075		97,111
Mortgage-backed securities		2		2		41,312		42,380
	$	23,480	$	23,492	$	135,387	$	139,491

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Loans and Allowance for Loan and Lease Losses

6 Months Ended

Jun. 30, 2020

Accounts Notes Loans And Financing Receivable Gross Allowance And Net [Abstract]

Loans and Allowance for Loan and Lease Losses

(4) Loans and Allowance for Loan and Lease Losses

The types of loans in Mid Penn’s portfolio, summarized by those rated as “pass” (net of deferred fees and costs of $18,066,000 as of June 30, 2020 and $1,081,000 as of December 31, 2019), and the loans classified as “special mention” and “substandard” within Mid Penn’s internal risk rating system as of June 30, 2020 and December 31, 2019, are as follows:

(Dollars in thousands)			Special
June 30, 2020	Pass		Mention		Substandard		Total
Commercial and industrial	$	916,886	$	9,712	$	2,792	$	929,390
Commercial real estate		983,198		2,752		12,723		998,673
Commercial real estate - construction		224,325		—		32		224,357
Residential mortgage		216,948		54		1,350		218,352
Home equity		65,744		7		2,414		68,165
Consumer		6,828		—		—		6,828
	$	2,413,929	$	12,525	$	19,311	$	2,445,765

(Dollars in thousands)			Special
December 31, 2019	Pass		Mention		Substandard		Total
Commercial and industrial	$	326,573	$	9,558	$	3,016	$	339,147
Commercial real estate		913,001		2,426		13,711		929,138
Commercial real estate - construction		181,650		—		40		181,690
Residential mortgage		235,252		55		1,417		236,724
Home equity		68,224		—		47		68,271
Consumer		7,786		—		—		7,786
	$	1,732,486	$	12,039	$	18,231	$	1,762,756

The increase in deferred fees and costs from December 31, 2019 to June 30, 2020 was the result of collected but unearned PPP loan processing fees related to the PPP loans which Mid Penn processed and disbursed during the second quarter of 2020.  PPP loans are included in commercial and industrial loans and are fully guaranteed by the SBA, therefore all PPP loans outstanding are classified as “pass” within Mid Penn’s internal risk rating system as of June 30, 2020.  

Mid Penn had no loans classified as doubtful as of June 30, 2020 and December 31, 2019.

Impaired loans by loan portfolio class as of June 30, 2020 and December 31, 2019 are summarized as follows:

	June 30, 2020						December 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	1,012	$	1,061	$	—	$	890	$	890	$	—
Commercial real estate		7,126		7,465		—		7,973		8,366		—
Commercial real estate - construction		32		34		—		40		61		—
Residential mortgage		776		798		—		817		838		—
Home equity		2,406		2,436		—		25		27		—
Consumer		—		—		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	—	$	3	$	68	$	—
Commercial real estate		1,430		1,700		—		1,423		1,708		—
Commercial real estate - construction		—		—		—		—		—		—
Residential mortgage		354		494		—		381		578		—
Home equity		1		4		—		1		5		—
Consumer		—		—		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	198	$	198	$	53	$	—	$	—	$	—
Commercial real estate		902		944		190		338		380		166
Commercial real estate - construction		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,210	$	1,259	$	53	$	893	$	958	$	—
Commercial real estate		9,458		10,109		190		9,734		10,454		166
Commercial real estate - construction		32		34		—		40		61		—
Residential mortgage		1,130		1,292		—		1,198		1,416		—
Home equity		2,407		2,440		—		26		32		—
Consumer		—		—		—		—		—		—

The average recorded investment of impaired loans and related interest income recognized for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended
	June 30, 2020				June 30, 2019
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	955	$	—	$	—	$	—
Commercial real estate		7,004		—		2,273		—
Commercial real estate - construction		36		—		40		—
Residential mortgage		762		6		880		7
Home equity		1,215		—		29		—
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	29	$	—
Commercial real estate		1,423		—		1,602		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		360		—		1,222		—
Home equity		1		—		4		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	99	$	—	$	140	$	—
Commercial real estate		835		—		513		—
Commercial real estate - construction		—		—		183		—
Residential mortgage		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,054	$	—	$	169	$	—
Commercial real estate		9,262		—		4,388		—
Commercial real estate - construction		36		—		223		—
Residential mortgage		1,122		6		2,102		7
Home equity		1,216		—		33		—
Consumer		—		—		—		—

	Six Months Ended
	June 30, 2020				June 30, 2019
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	933	$	—	$	—	$	—
Commercial real estate		7,362		—		2,289		—
Commercial real estate - construction		37		—		27		—
Residential mortgage		780		13		857		14
Home equity		818		—		29		—
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	1	$	—	$	29	$	—
Commercial real estate		1,421		—		1,589		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		367		—		1,219		—
Home equity		1		—		4		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	66	$	—	$	1,603	$	3
Commercial real estate		634		—		477		—
Commercial real estate - construction		—		—		245		—
Residential mortgage		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,000	$	—	$	1,632	$	3
Commercial real estate		9,417		—		4,355		—
Commercial real estate - construction		37		—		272		—
Residential mortgage		1,147		13		2,076		14
Home equity		819		—		33		—
Consumer		—		—		—		—

Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of June 30, 2020 and December 31, 2019 are summarized as follows:

(Dollars in thousands)	June 30, 2020		December 31, 2019
Commercial and industrial	$	1,210	$	894
Commercial real estate		9,458		9,800
Commercial real estate - construction		32		40
Residential mortgage		697		711
Home equity		2,407		26
Consumer		—		—
	$	13,804	$	11,471

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.  The classes of the loan portfolio summarized by the past due status as of June 30, 2020 and December 31, 2019 are summarized as follows:

													Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and
June 30, 2020	Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	859	$	233	$	953	$	2,045	$	927,345	$	929,390	$	800
Commercial real estate		325		146		7,519		7,990		989,253		997,243		—
Commercial real estate - construction		—		—		—		—		224,357		224,357		—
Residential mortgage		99		49		250		398		217,600		217,998		—
Home equity		254		7		2,406		2,667		65,497		68,164		—
Consumer		4		—		—		4		6,824		6,828		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		—		—		—		—		—
Commercial real estate		—		—		1,419		1,419		11		1,430		—
Commercial real estate - construction		—		—		—		—		—		—		—
Residential mortgage		—		—		189		189		165		354		—
Home equity		—		—		—		—		1		1		—
Consumer		—		—		—		—		—		—		—
Total	$	1,541	$	435	$	12,736	$	14,712	$	2,431,053	$	2,445,765	$	800

													Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and
December 31, 2019	Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	—	$	1,059	$	890	$	1,949	$	337,195	$	339,144	$	—
Commercial real estate		1,298		11		7,819		9,128		918,587		927,715		—
Commercial real estate - construction		—		—		—		—		181,690		181,690		—
Residential mortgage		145		—		326		471		235,872		236,343		—
Home equity		34		—		—		34		68,236		68,270		—
Consumer		5		3		—		8		7,778		7,786		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		3		3		—		3		—
Commercial real estate		16		473		934		1,423		—		1,423		—
Commercial real estate - construction		—		—		—		—		—		—		—
Residential mortgage		5		—		203		208		173		381		—
Home equity		—		—		—		—		1		1		—
Consumer		—		—		—		—		—		—		—
Total	$	1,503	$	1,546	$	10,175	$	13,224	$	1,749,532	$	1,762,756	$	—

The allowance for loan losses and the related loan loss provision for the periods presented reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023.  PPP loans are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the Small Business Administration, no allowance for loan losses was recorded against the $588,667,000 balance of PPP loans outstanding as of June 30, 2020.

.  

The following tables summarize the allowance and recorded investments in loans receivable.

(Dollars in thousands)
As of, and for the three months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2020	$	2,427		$	6,630	$	57		$	436		$	448	$	2		$	14	$	10,014
Charge-offs		(1	)		—		(7	)		—			—		(4	)		—		(12	)
Recoveries		2			—		2			—			1		10			—		15
Provisions		358			611		13			(9	)		68		(6	)		15		1,050
Ending balance,
June 30, 2020	$	2,786		$	7,241	$	65		$	427		$	517	$	2		$	29	$	11,067
(Dollars in thousands)
As of, and for the six months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2020	$	2,341		$	6,259	$	51		$	417		$	442	$	2		$	3	$	9,515
Charge-offs		(45	)		—		(7	)		—			—		(18	)		—		(70	)
Recoveries		2			1		2			3			1		13			—		22
Provisions		488			981		19			7			74		5			26		1,600
Ending balance,
June 30, 2020		2,786			7,241		65			427			517		2			29		11,067
Individually evaluated for impairment		53			190		—			—			—		—			—		243
Ending balance:
collectively evaluated for impairment	$	2,733		$	7,051	$	65		$	427		$	517	$	2		$	29	$	10,824
Loans receivables:
Ending balance	$	929,390		$	998,673	$	224,357		$	218,352		$	68,165	$	6,828		$	—	$	2,445,765
Ending balance: individually evaluated for impairment		1,210			8,028		32			776			2,406		—			—		12,452
Ending balance: acquired with credit deterioration		—			1,430		—			354			1		—			—		1,785
Ending balance: collectively evaluated for impairment	$	928,180		$	989,215	$	224,325		$	217,222		$	65,758	$	6,828		$	—	$	2,431,528

(Dollars in thousands)
December 31, 2019	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Ending balance	$	2,341	$	6,259	$	51	$	417	$	442	$	2	$	3	$	9,515
Ending balance: individually evaluated for impairment		—		166		—		—		—		—		—		166
Ending balance: collectively evaluated for impairment	$	2,341	$	6,093	$	51	$	417	$	442	$	2	$	3	$	9,349
Loans receivable:
Ending balance	$	339,147	$	929,138	$	181,690	$	236,724	$	68,271	$	7,786	$	—	$	1,762,756
Ending balance: individually evaluated for impairment		890		8,311		40		817		25		—		—		10,083
Ending balance: acquired with credit deterioration		3		1,423		—		381		1		—		—		1,808
Ending balance: collectively evaluated for impairment	$	338,254	$	919,404	$	181,650	$	235,526	$	68,245	$	7,786	$	—	$	1,750,865

(Dollars in thousands)
As of, and for the three months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2019	$	2,443		$	5,031		$	81		$	477		$	450		$	6		$	14		$	8,502
Charge-offs		(205	)		—			(20	)		—			—			(38	)		—			(263	)
Recoveries		42			15			—			—			1			9			—			67
Provisions		168			266			(16	)		(1	)		31			30			(13	)		465
Ending balance,
June 30, 2019	$	2,448		$	5,312		$	45		$	476		$	482		$	7		$	1		$	8,771
(Dollars in thousands)
As of, and for the six months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2019		2,391			4,703			75			453			528			7			240		$	8,397
Charge-offs		(205	)		(12	)		(40	)		—			—			(47	)		—			(304	)
Recoveries		43			33			—			—			1			11			—			88
Provisions		219			588			10			23			(47	)		36			(239	)		590
Ending balance,
June 30, 2019		2,448			5,312			45			476			482			7			1			8,771
Individually evaluated for impairment		13			243			—			—			—			—			—			256
Ending balance:
collectively evaluated for impairment	$	2,435		$	5,069		$	45		$	476		$	482		$	7		$	1		$	8,515
Loans receivables:
Ending balance	$	301,271		$	883,317		$	173,900		$	249,114		$	70,442		$	10,129		$	—		$	1,688,173
Ending balance: individually evaluated for impairment		76			2,745			40			897			28			—			—			3,786
Ending balance: acquired with credit deterioration		29			1,616			—			1,234			4			—			—			2,883
Ending balance: collectively evaluated for impairment	$	301,166		$	878,956		$	173,860		$	246,983		$	70,410		$	10,129		$	—		$	1,681,504

Mid Penn entered into forbearance or modification agreements on all loans currently classified as troubled debt restructures and all of these agreements have resulted in additional principal repayment.  The terms of these forbearance agreements vary and generally involve modifications from the original loan agreements, including either a reduction in the amount of principal payments for certain or extended periods, interest rate reductions, and/or the intent for the loan to be repaid as collateral is sold.

Mid Penn’s troubled debt restructured loans at June 30, 2020 totaled $948,000 and included three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $477,000. The remaining $471,000 of troubled debt restructurings was attributable to seven loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  The balance of nonaccrual impaired troubled debt restructured loans as of June 30, 2020 was comprised of $420,000 in commercial real estate loans amongst two borrowers, one commercial real estate construction loan for $32,000, one residential mortgage loan for $11,000, and one commercial and industrial loan for $7,000.  As of June 30, 2020, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.  There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2020.  

Mid Penn’s troubled debt restructured loans at December 31, 2019 totaled $2,238,000, and included three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $490,000.  The remaining $1,748,000 of troubled debt restructurings was attributable to eight loans among five relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans.  One large relationship accounted for $1,252,000 of the total $1,748,000 in nonaccrual impaired troubled debt restructured loans.  As of December 31, 2019, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.  There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2019.

The recorded investments in troubled debt restructured loans at June 30, 2020 and December 31, 2019 are as follows:

(Dollars in thousands)	Pre-Modification		Post-Modification
June 30, 2020	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	8	$	8	$	7
Commercial real estate		1,214		1,115		420
Commercial real estate - construction		40		40		32
Residential mortgage		689		687		489
	$	1,951	$	1,850	$	948

(Dollars in thousands)	Pre-Modification		Post-Modification
December 31, 2019	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	3	$	3	$	3
Commercial real estate		2,562		2,463		1,705
Commercial real estate - construction		40		40		40
Residential mortgage		677		675		490
	$	3,282	$	3,181	$	2,238

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act provided that qualifying short-term modifications made in response to COVID-19 do not need to be accounted for as troubled debt restructurings. The federal financial institution regulatory agencies, in consultation with state financial regulators, affirmed the CARES Act provisions in a revised interagency statement issued on April 7, 2020. As of June 30, 2020, Mid Penn had provided loan modifications meeting the CARES Act qualifications to 1,019 borrowers with aggregate loans outstanding of $444,886,000.  Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications range from deferrals of both principal and interest payments for three to six months, or borrowers reverting to interest-only payments for a period of three to six months.  Interest will continue to accrue on loans modified under the CARES Act during the deferral period.  Mid Penn remains in communication with each of these borrowers to assess the ongoing credit status of the borrowers, and may make further adjustments to a borrower’s modification at some future time if warranted for the specific situation.

The following tables provide activity for the accretable yield of acquired impaired loans from the Phoenix Bancorp, Inc. (March 2015), Scottdale (January 2018), and First Priority (July 2018) acquisitions for the three and six months ended June 30, 2020.

(Dollars in thousands)
	Three Months Ended June 30,
	2020			2019
Accretable yield, beginning of period	$	72		$	254
Accretable yield amortized to interest income		(16	)		(57	)
Accretable yield, end of period	$	56		$	197

(Dollars in thousands)	Six Months Ended June 30,
	2020			2019
Accretable yield, beginning of period	$	89		$	309
Accretable yield amortized to interest income		(33	)		(112	)
Accretable yield, end of period	$	56		$	197

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Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

(5)Leases

On January 1, 2019, Mid Penn adopted ASU No. 2016-02, Leases (Topic 842), and all subsequent ASUs that modified Topic 842, which primarily affected the accounting treatment for operating lease agreements in which Mid Penn is the lessee.  As of the January 1, 2019 adoption date, Mid Penn leased twenty-four branch locations under non-cancelable operating leases, which expire at various dates through the year ending December 31, 2035.  Three of Mid Penn’s operating leases are with related parties.  Subsequent to the adoption of Topic 842, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039.

In 2016, Mid Penn entered into two subleasing agreements with unrelated parties on one of its properties under an operating lease.  Both subleases included escalation clauses.  The first sublease agreement began on April 1, 2016, while the second sublease began on July 1, 2016.  One sublease was terminated during the first quarter of 2019 due to the bankruptcy of the tenant.  The remaining sublease ends on March 31, 2021.  

Operating and finance lease right-of-use assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt.  Mid Penn has elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) or equipment leases (deemed immaterial) on the Consolidated Balance Sheet.

There were no sale and leaseback transactions, leveraged leases, or leases that had not commenced as of June 30, 2020.  

Below is a summary of the operating and finance lease right-of-use assets and related lease liabilities, as well as the weighted average lease term (in years) and weighted average discount rate for each of the lease classifications as of June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020						December 31, 2019
	Operating Leases			Finance Lease			Operating Leases			Finance Lease
Right of use asset	$	10,587		$	3,357		$	11,442		$	3,447
Lease liability	$	11,643		$	3,509		$	12,544		$	3,551
Weighted average remaining lease term (in years)		8.44			18.67			8.64			19.17
Weighted average discount rate		3.34	%		3.81	%		3.33	%		3.81	%

A summary of lease costs during the three and six months ended June 30, 2020 and 2019 are presented below.  Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income.

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Finance lease cost:
Amortization of right-of-use asset	$	45		$	45		$	90		$	60
Interest expense on lease liability		33			35			67			46
Total finance lease cost		78			80			157			106
Operating lease cost		505			515			1,033			1,030
Short-term and equipment lease cost		12			3			21			31
Variable lease cost		—			—			—			—
Sublease income		(4	)		(7	)		(10	)		(12	)
Total lease costs	$	591		$	591		$	1,201		$	1,155

A summary of cash paid for amounts included in the measurement of lease liabilities is presented below.

(Dollars in thousands)	Six Months Ended
	June 30, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	67	$	46
Operating cash flows from operating leases		1,064		1,087
Financing cash flows from finance leases		41		6

A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below.

(Dollars in thousands)	June 30, 2020
	Operating Leases			Finance Lease
Lease payments due:
Within one year	$	1,042		$	108
After one but within two years		1,868			216
After two but within three years		1,824			217
After three but within four years		1,572			217
After four but within five years		1,512			252
After five years		5,584			3,992
Total undiscounted cash flows		13,402			5,002
Discount on cash flows		(1,759	)		(1,493	)
Total lease liability	$	11,643		$	3,509

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Loan-Level Interest Rate Swaps

6 Months Ended

Jun. 30, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Loan-Level Interest Rate Swaps

(6) Loan-Level Interest Rate Swaps

Mid Penn enters into loan-level interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. Mid Penn simultaneously enters into 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.

The fair value, notional amount, and collateral posted related to loan-level interest rate swaps are presented below.

(Dollars in thousands)	June 30, 2020		December 31, 2019
Interest Rate Swap Contracts - Commercial Loans:
Gross Fair Value (a)	$	239	$	—
Notional Amount		8,907		—
Cash Collateral Posted (b)		250		—

(a) Included in other assets on the Consolidated Balance Sheet

(b) Included in cash and due from banks on the Consolidated Balance Sheet

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.

(Dollars in thousands)	June 30, 2020		December 31, 2019
Interest Rate Swap Contracts - Commercial Loans:
Gross amounts recognized	$	239	$	—
Gross amounts offset		239		—
Net Amounts Presented in the Consolidated Balance Sheets		—		—
Gross amounts not offset:
Financial instruments		—		—
Cash collateral		250		—
Net Amounts	$	250	$	—

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Fair Value Measurement

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurement

(7) Fair Value Measurement

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased.  Information on identifying circumstances when a transaction may not be considered orderly is also included within the guidance.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability.  When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance.

This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly.  In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly.  The guidance provides a list of circumstances that may indicate that a transaction is not orderly.  A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Inputs to valuation techniques refer to the assumptions that market participants would use in measuring the fair value of an asset or liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available in the circumstances.  Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement or disclosure.  The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

There were no transfers of assets between fair value Level 1 and Level 2 during the six months ended June 30, 2020 and 2019.

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

			Fair value measurements at June 30, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	2	$	—
State and political subdivision obligations		7,050		—		7,050		—
Corporate debt securities		16,440		—		16,440		—
Other assets:
Equity securities		518		518		—		—
Interest rate swap agreements		239		—		239		—
Total	$	24,249	$	518	$	23,731	$	—

			Fair value measurements at December 31, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. government agencies	$	22,830	$	—	$	22,830	$	—
Mortgage-backed U.S. government agencies		12,890		—		12,890		—
State and political subdivision obligations		30		—		30		—
Corporate debt securities		1,259		—		1,259		—
Other assets:
Equity securities		507		507		—		—
Total	$	37,516	$	507	$	37,009	$	—

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

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

			Fair value measurements at June 30, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	812	$	—	$	—	$	812

			Fair value measurements at December 31, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	271	$	—	$	—	$	271
Foreclosed Assets Held for Sale		122		—		—		122

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
June 30, 2020	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	812	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	26% - 100%	32%

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2019	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	271	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	26% - 85%	36%
Foreclosed Assets Held for Sale		122	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	8% - 27%	16%

(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.

There were no changes in unrealized gains and losses included in other comprehensive income for the six months ended June 30, 2020 related to Level 3 recurring fair value measurements as Mid Penn has no assets measured at fair value on a Level 3 recurring basis.

Mid Penn uses the following methodologies and assumptions to estimate the fair value of certain assets and liabilities.

Securities:

The fair value of securities classified as available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather, relying on the securities’ relationship to other benchmark quoted prices.

Interest Rate Swap Agreements:

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.

Impaired Loans (included in “Net Loans and Leases” in the following tables):

All performing troubled debt restructured loans and loans classified as nonaccrual are deemed to be impaired, and all of these loans are considered collateral dependent; therefore, all of Mid Penn’s impaired loans, whether reporting a specific allowance allocation or not, are considered collateral dependent.

It is Mid Penn’s policy to obtain updated third-party valuations on all impaired loans collateralized by real estate within 30 days of the credit being classified as substandard nonaccrual.  Prior to receipt of the updated real estate valuation, Mid Penn will use existing real estate valuations to determine any potential allowance for loan loss issues, and will update the allowance impact calculation upon receipt of the   updated real estate valuation.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment.  In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value.  The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management.  Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales.  Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary. Mid Penn considers the estimates used in its impairment analysis to be Level 3 inputs.

Mid Penn actively monitors the values of collateral on impaired loans.  This monitoring may require the modification of collateral values, either in a positive or negative way, due to the passage of time or some other change in one or more valuation inputs.  Collateral values for impaired loans will be reassessed by management at least every 12 months for possible revaluation by an independent third party.

Foreclosed Assets Held for Sale:

Certain assets included in foreclosed assets held for sale are carried at fair value and accordingly is presented as measured on a non-recurring basis.  Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.

The following table summarizes the carrying value and fair value of financial instruments at June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020				December 31, 2019
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	143,755	$	143,755	$	139,030	$	139,030
Available-for-sale investment securities		23,492		23,492		37,009		37,009
Held-to-maturity investment securities		135,387		139,491		136,477		137,476
Equity securities		518		518		507		507
Loans held for sale		21,812		22,120		8,422		8,630
Net loans and leases		2,434,698		2,522,315		1,753,241		1,789,402
Restricted investment in bank stocks		7,079		7,079		4,902		4,902
Accrued interest receivable		12,743		12,743		2,810		2,810
Interest rate swap agreements		239		239		—		—
Financial liabilities:
Deposits	$	2,326,313		2,336,221	$	1,912,394	$	1,916,624
Short-term borrowings		203,937		203,937		—		—
Long-term debt (a)		81,773		81,686		29,352		30,216
Subordinated debt		42,009		40,439		27,070		25,273
Accrued interest payable		2,590		2,590		2,208		2,208

(a) Long-term debt excludes finance lease obligations.

The Bank’s outstanding and unfunded credit commitments and financial standby letters of credit were deemed to have no significant fair value as of June 30, 2020 and December 31, 2019.

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of June 30, 2020 and December 31, 2019.  Carrying values approximate fair values for cash and cash equivalents, restricted investment in bank stocks, 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
June 30, 2020	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	135,387	$	139,491	$	—	$	139,491	$	—
Loans held for sale		21,812		22,120		—		22,120		—
Net loans and leases		2,434,698		2,522,315		—		—		2,522,315
Financial instruments -    liabilities
Deposits	$	2,326,313	$	2,336,221	$	—	$	2,336,221	$	—
Long-term debt (a)		81,773		81,686		—		81,686		—
Subordinated debt		42,009		40,439		—		40,439		—

					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, 2019	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	136,477	$	137,476	$	—	$	137,476	$	—
Loans held for sale		8,422		8,630		—		8,630		—
Net loans and leases		1,753,241		1,789,402		—		—		1,789,402
Financial instruments -    liabilities
Deposits	$	1,912,394	$	1,916,624	$	—	$	1,916,624	$	—
Long-term debt (a)		29,352		30,216		—		30,216		—
Subordinated debt		27,070		25,273		—		25,273		—

(a) Long-term debt excludes finance lease obligations.

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Guarantees, Commitments, and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments And Contingencies Disclosure [Abstract]

Guarantees, Commitments, and Contingencies

(8) Guarantees, Commitments, and Contingencies

Guarantees

In the normal course of business, Mid Penn makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying consolidated financial statements.  The commitments include various guarantees and commitments to extend credit.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Mid Penn evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer.  Standby letters of credit and financial guarantees written are conditional commitments to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued to support public and private borrowing arrangements.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.  Mid Penn had $28,589,000 and $26,574,000 of standby letters of credit outstanding as of June 30, 2020 and December 31, 2019, respectively.  Mid Penn does not anticipate any losses because of these transactions.  The amount of the liability as of June 30, 2020 and December 31, 2019 for payment under standby letters of credit issued was not material.

Commitments

Mid Penn also has a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania.  The total investment in this limited partnership, net of amortization, was $7,061,000 and $7,249,000 on June 30, 2020 and December 31, 2019, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet.  All of the units are intended to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended.  Mid Penn’s limited partner capital contribution commitment is $7,579,000.  Investments made to date, and future payments under this commitment are paid in installments over the course of construction of the low-income housing facilities.  Each installment payment is conditional upon both Mid Penn’s review and approval of the installment payment certificate and continued compliance with the terms of the original partnership agreement. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period as the facilities became operational and began to be occupied beginning in December 2019.  The project has been conditionally awarded $861,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $8,613,000 to be awarded to Mid Penn over the ten-year amortization period.  Mid Penn’s commitment to initiate investments in the limited partnership interest was conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it deemed necessary. All such initial conditions were satisfied and Mid Penn began funding the investment during 2018 and the investment is expected to be fully funded in 2020.  Mid Penn recognizes the related amortization and tax credits using the cost amortization method over a ten-year period.  

Contingencies

As of June 30, 2020, Mid Penn had received $20,329,000 of nonrefundable loan processing fees related to the loans disbursed as a result of the SBA’s Paycheck Protection Program (“PPP”) created when the CARES Act was signed into law on March 27, 2020.  These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and will be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the loan.  

The processing fees received from the SBA for administering the application for, and disbursing of, the PPP loans may be subject to clawback (or if the SBA has not yet paid the fee, the fee may not be paid), after full disbursement of a PPP loan if (i) the PPP loan is cancelled or voluntarily terminated and repaid after disbursement but before the borrower certification safe harbor date, (ii) the PPP loan is cancelled, terminated, or repaid after disbursement (and after the borrower certification safe harbor date) because the SBA conducted a loan review and determined that the borrower was ineligible for a PPP loan, or (iii) the lender has not fulfilled its obligations under the PPP regulations.

As of June 30, 2020, Mid Penn is not aware of any PPP loans outstanding, or for which fees have been received from the SBA, that have been cancelled, terminated, or repaid due to a borrower being determined to be ineligible for a PPP loan.

Litigation

Mid Penn is subject to lawsuits and claims arising out of its normal conduct of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of Mid Penn.

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Debt

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Debt

(9) Debt

Short-term FHLB and Correspondent Bank Borrowings

Short-term borrowings generally consist of federal funds purchased and advances from the FHLB with an original maturity of less than a year. Federal funds purchased from correspondent banks mature in one business day and reprice daily based on the Federal Funds rate. Advances from the FHLB are collateralized by our investment in the common stock of the FHLB and by a blanket lien on selected loan receivables comprised principally of real estate secured loans within the Bank’s portfolio totaling $1,168,684,000 at June 30, 2020.  The Bank had short-term borrowing capacity from the FHLB up to the Bank’s unused borrowing capacity of $814,982,000 at June 30, 2020 upon satisfaction of any stock purchase requirements of the FHLB.  No draws were outstanding on short-term FHLB or correspondent bank borrowings as of June 30, 2020 and December 31, 2019.

The Bank also has unused overnight lines of credit with other correspondent banks amounting to $35,000,000 at June 30, 2020.  No draws have been made on these lines of credit and on June 30, 2020 and December 31, 2019, the balance was zero.

Short-term PPPLF Borrowings

The entire balance of short-term borrowings of $203,937,000 at June 30, 2020 consisted of funding obtained from the Federal Reserve through the Paycheck Protection Program Liquidity Facility (“PPPLF”).  The PPPLF allows banks to pledge PPP loans as collateral to borrow funds for up to a term of two years (to match the term of the respective PPP loans) at an interest rate of 0.35%.  Draws of PPPLF funds must be repaid to the Federal Reserve immediately after the specific PPP loans collateralizing the related draws are repaid to the Bank.  Mid Penn had no short-term PPPLF borrowings as of December 31, 2019.

Long-term Debt

As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity.  As of June 30, 2020, and December 31, 2019, the Bank had long-term debt outstanding in the amount of $85,282,000 and $32,903,000, respectively, consisting of FHLB fixed rate instruments, and a finance lease obligation executed during the first quarter of 2019.  

The FHLB fixed rate instruments are secured under the terms of a blanket collateral agreement with the FHLB consisting of FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans.  Mid Penn also obtains letters of credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of credit. These FHLB letter of credit commitments totaled $212,401,000 as of June 30, 2020 and $169,051,000 as of December 31, 2019.  

The following table presents a summary of long-term debt as of June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020		December 31, 2019
FHLB fixed rate instruments:
Due June 2020, 1.72%	$	—	$	2,000
Due July 2020, 2.45%		—		5,000
Due August 2020, 3.05%		5,000		5,000
Due September 2020, 2.38%		—		2,500
Due October 2020, 3.06%		5,000		5,000
Due November 2020, 2.32%		—		3,000
Due December 2020, 1.78%		—		2,000
Due December 2020, 2.31%		—		3,000
Due April 2022, 0.86%		70,000		—
Due August 2026, 4.80%		1,728		1,846
Due February 2027, 6.71%		45		47
Less: fair value adjustments on debt assumed in acquisitions		—		(41	)
Total FHLB fixed rate instruments		81,773		29,352
Lease obligations included in long-term debt		3,509		3,551
Total long-term debt	$	85,282	$	32,903

Mid Penn prepaid $17,500,000 of FHLB fixed rate instruments originally due in 2020 and recognized prepayment penalties of $76,000 for the three months ended June 30, 2020, and $139,000 for the six months ended June 30, 2020. Prepayment penalties are included in other expenses on the Consolidated Statement of Income. No prepayment penalties were recognized during the three and six months ended June 30, 2019.

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Subordinated Debt

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Subordinated Debt

(10) Subordinated Debt

Subordinated Debt Issued March 2020

On March 20, 2020, Mid Penn entered into agreements with accredited investors who purchased $15,000,000 aggregate principal amount of Mid Penn Subordinated Notes due 2030 (the “2020 Notes”).  The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

The 2020 Notes bear interest at a rate of 4.0% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less than 4.25%.  Interest will be payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30.  The 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030.  Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes.  In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2020 Notes at 100% of the principal amount of the 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.  

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary.  Related parties held $1,700,000 of the 2020 Notes as of June 30, 2020.  

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On July 31, 2018, Mid Penn completed its acquisition of First Priority and assumed $9,500,000 of Subordinated Notes (the “First Priority Notes”).  In accordance with purchase accounting principles, the First Priority Notes were assigned a fair value premium of $247,000, which is amortized through interest expense until the maturity date of November 30, 2025. The First Priority Notes are intended to be treated as Tier 2 capital for regulatory reporting purposes.

The First Priority Notes agreements were entered into by First Priority, on November 13, 2015, with five accredited investors pursuant to which First Priority issued subordinated notes totaling $9,500,000. The First Priority Notes have a maturity date of November 30, 2025, and bear interest at a fixed rate of 7.00% per annum.  The First Priority Notes are non-callable for an initial period of five years and include provisions for redemption pricing between 101.5% and 100.5% of the liquidation value if called after five years but prior to the stated maturity date. 

Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its Subordinated Notes due 2028 (the “2017 Notes”). The 2017 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.  The offering closed in December 2017.

The 2017 Notes bear interest at a rate of 5.25% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2017 Notes may not accelerate the maturity of the 2017 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary.  Related parties held $1,450,000 of the 2017 Notes as of June 30, 2020 and December 31, 2019.  

Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025.  The 2015 Notes are treated as Tier 2 capital for regulatory capital purposes.

The 2015 Notes bear interest at a rate of 5.15% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0%.  Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025.  Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if:  (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2015 Notes may not accelerate the maturity of the 2015 Notes, except upon Mid Penn’s or Mid Penn Bank’s bankruptcy, insolvency, liquidation, receivership or similar event.  Related parties held $1,930,000 of the 2015 Notes as of June 30, 2020 and December 31, 2019.  

ASC Subtopic 835-30, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability.  The unamortized debt issuance costs associated with the 2015 Notes and the 2017 Notes were collectively $84,000 at June 30, 2020 and $103,000 at December 31, 2019.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Aug. 06, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2020
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020
Trading Symbol	MPB
Entity Registrant Name	MID PENN BANCORP INC
Entity Central Index Key	0000879635
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		8,420,624
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	1-13677
Entity Tax Identification Number	25-1666413
Entity Address, Address Line One	349 Union Street
Entity Address, City or Town	Millersburg
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	17061
City Area Code	1.866
Local Phone Number	642.7736
Entity Interactive Data Current	Yes
Entity Incorporation, State or Country Code	PA
Title of 12(b) Security	Common Stock, $1.00 par value per share
Security Exchange Name	NASDAQ
Document Quarterly Report	true
Document Transition Report	false

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Defined Benefit Plans

6 Months Ended

Jun. 30, 2020

Defined Benefit Plans And Other Postretirement Benefit Plans Disclosures [Abstract]

Defined Benefit Plans

(11) Defined Benefit Plans

Mid Penn has an unfunded noncontributory defined benefit retirement plan for directors.  The plan provides defined benefits based on years of service.  Mid Penn also sponsors a defined benefit healthcare plan that provides post-retirement medical benefits and life insurance to qualifying full-time employees.  These healthcare and life insurance plans are noncontributory and each plan uses a December 31 measurement date.  

As a result of the acquisition of Scottdale, Mid Penn has assumed a noncontributory defined benefit pension plan covering certain former employees of Scottdale.  Mid Penn estimates that it will contribute $200,000 to the defined benefit pension plan during 2020.  A December 31 measurement date for the plan is used.

The components of net periodic benefit costs from these defined benefit plans are as follows:

	Three Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits
	2020			2019			2020			2019
Service cost	$	45		$	36		$	1		$	1
Interest cost		60			65			6			4
Expected return on plan assets		(68	)		(63	)		—			—
Accretion of prior service cost		—			—			(5	)		(5	)
Amortization of net gain		—			(15	)		—			(1	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	59		$	(14	)	$	2		$	(1	)
	Six Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits
	2020			2019			2020			2019
Service cost	$	64		$	72		$	1		$	2
Interest cost		105			129			6			8
Expected return on plan assets		(136	)		(127	)		—			—
Accretion of prior service cost		—			—			(10	)		(10	)
Amortization of net gain		—			(30	)		—			(2	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	55		$	7		$	(3	)	$	(2	)

Service costs are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets, amortization (accretion) of prior service cost, and amortization of (gain) loss are reported as a component of other income.

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Common Stock

6 Months Ended

Jun. 30, 2020

Common Stock Number Of Shares Par Value And Other Disclosures [Abstract]

Common Stock

(12) Common Stock

Treasury Stock Repurchase Program

During the first quarter of 2020, Mid Penn announced the adoption of a treasury stock repurchase program authorizing the repurchase of up to $15,000,000 of Mid Penn’s outstanding common stock, which represents approximately 9.6% of the issued shares based on Mid Penn’s closing stock price and shares issued as of June 30, 2020.  Under the treasury stock purchase program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions.  Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors.  There is no guarantee as to the exact number of shares that Mid Penn may repurchase.  The repurchase plan became effective March 19, 2020 and is authorized to continue through March 19, 2021, unless otherwise extended by Mid Penn’s Board of Directors.  

The repurchase plan may be modified, suspended or terminated at any time, in Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate.  The repurchase program does not obligate Mid Penn to repurchase any shares.  

As of June 30, 2020, Mid Penn had repurchased 80,523 shares of common stock at an average price of $19.37 per share under the treasury stock repurchase program.

Authorized Shares

At the May 14, 2019 annual shareholder meeting, Mid Penn shareholders approved an amendment to the Articles of Incorporation to increase the number of authorized shares of common stock from 10,000,000 shares to 20,000,000 shares.

Restricted Stock Plan

On May 6, 2014, Mid Penn shareholders approved the 2014 Restricted Stock Plan (the “Plan”), which authorizes the issuance of awards that shall not exceed, in the aggregate, 100,000 shares of common stock.  Awards under the Plan are limited to employees and directors of the Corporation, and the recipients are selected by the Compensation Committee of the Board of Directors, to advance the best interest of Mid Penn and its shareholders.  

Share-based compensation expense relating to restricted stock is recognized on a straight-line basis over the vesting periods of the awards and is a component of salaries and benefits expense.  As of June 30, 2020, a total of 57,655 restricted shares were granted under the Plan, of which 2,446 shares were forfeited and available for reissuance, 27,271 shares were vested, and the remaining 27,938 shares were unvested. One hundred shares were forfeited due to a voluntary termination of an employee during the six months ended June 30, 2020, while no shares were forfeited during the six months ended June 30, 2019. The Plan shares granted and vested resulted in $96,000 in share-based compensation expense for the three months ended June 30, 2020, while $80,000 of share-based compensation expense was recorded for the three months ended June 30, 2019.  Compensation expense related to the Plan was $192,000 for the six months ended June 30, 2020 and $160,000 for the same period in 2019.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2020

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Recent Accounting Pronouncements

(13) Recent Accounting Pronouncements

Accounting Standards Adopted in 2020

ASU 2018-15: The FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Mid Penn adopted ASU 2018-15 effective January 1, 2020 on a prospective basis. ASU 2018-15 did not have a material impact on the results of operations.

ASU 2018-13:  The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures.

As a result of this ASU, several disclosures were removed from Topic 820, including: (i) disclosure of the valuation process for Level 3 fair value measurements, and (ii) amounts of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.  However, some additional disclosures are required as a result of this ASU, including the requirement to disclose the changes in unrealized gains and losses included in other comprehensive income for the period related to Level 3 recurring fair value measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.  Mid Penn adopted ASU 2018-13 effective January 1, 2020 on a prospective basis.  The adoption of this ASU resulted in disclosure changes only and did not impact Mid Penn’s overall financial condition.

Accounting Standards Pending Adoption

ASU 2016-13:  The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further amended.

The ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model).  Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities.  The allowance for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”) should be determined in a similar manner to other financial assets measured on an amortized cost basis.  However, upon initial recognition, the allowance is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis.  The subsequent accounting for PCD financial assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale debt securities.  For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.  Certain incremental disclosures are required.

Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, and ASU 2019-11 to clarify, improve, or defer the adoption of ASU 2016-13.

In October 2019, the FASB issued ASU 2019-10 which deferred the implementation date of ASU 2016-13 for smaller reporting companies (SRCs) until January 1, 2023.  The effective date for larger SEC filers would remain unchanged at January 1, 2020.  Mid Penn qualifies as an SRC as of the most recent measurement date of June 30, 2019; therefore, Mid Penn has chosen to delay the adoption of ASU 2016-13.  

Mid Penn is currently evaluating the details of this ASU and the impact the guidance will have on Mid Penn’s consolidated financial statements.  Mid Penn expects that it is possible that the ASU may result in an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities.  The amount of the change in the allowance for credit losses, if any, resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption.  Mid Penn will continue to collect the required data elements needed to perform the calculation in advance of the January 1, 2023 adoption date.

ASU 2018-14:  The FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to defined benefit pension and other postretirement plans by removing and adding certain disclosures.  

The ASU is effective for public business entities for fiscal years ending after December 15, 2020.  Early adoption is permitted.

As a result of this ASU, several disclosures were removed from Topic 715, including: (i) disclosures of the amounts in accumulated comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and (ii) the effects of a one-percentage point change in the assumed health care cost trend rates on the aggregate of service and interest cost components of net periodic postretirement health care benefit costs.  However, some additional disclosures will be required as a result of this ASU, including the requirement to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period.  Mid Penn is currently evaluating the impact of this ASU on our current disclosures.  The adoption of this standard will result in disclosure changes only and will not impact Mid Penn’s overall financial condition.

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COVID-19 Pandemic Implications

6 Months Ended

Jun. 30, 2020

Risks And Uncertainties [Abstract]

COVID-19 Pandemic Implications

(14)         COVID-19 Pandemic Implications

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due the Novel Coronavirus (“COVID-19”), and on March 11, 2020, the WHO classified COVID-19 as a pandemic based on the rapid increase in exposure globally.

To curtail the spread of the virus, beginning March 17, 2020, Mid Penn temporarily closed all bank branch lobbies, and the branch lobbies have remained closed through June 30, 2020 with no targeted time frame for reopening them. Our retail employees continue to work providing access to customers through drive-through banking services and night depositories.  Services that cannot be performed through drive-through (i.e. business cash orders, loan closings and new account openings) are accommodated in the branches by appointment.   We are continuously cleaning bank facilities during business hours with disinfecting wipes to sanitize all facets of our common areas, including door handles, work stations, ATM’s and service counters. We have mandated that all employees who handle cash use latex gloves when doing so, and we are requiring all employees to use hand sanitizer after each transaction and wash their hands with soap and hot water several times every hour.  Additionally, employees having face-to-face interaction with customers are required to wear a mask.  Importantly, we maintain appropriate social distancing standards when individuals are required by their job duties to be in the same location. 

Mid Penn was a significant lender under the federal Paycheck Protection Program (“PPP”) which was created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, by President Trump. Asset growth during the second quarter of 2020 included the significant volume of $588,667,000 of PPP loans still outstanding, net of deferred fees, as of June 30, 2020.  The Paycheck Protection Program permitted eligible business entities to apply for loans through a participating financial institution to cover payroll, rent, and other business expenses during the COVID-19 pandemic.  The PPP loans, which are 100 percent guaranteed by the SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.  The vast majority of Mid Penn’s PPP loans have a two-year term to maturity.  The SBA may forgive the PPP loans if at least 60 percent of the proceeds are used for payroll costs.  Also, the borrowers will not have to make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the deferment period.  

The SBA provided a processing fee to financial institutions who participated in the PPP, with the amount of such fee pre-determined by the SBA dependent upon the size of each credit.  As of June 30, 2020, Mid Penn had received $20,329,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP initiative.  These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs.  The PPP loan processing fees will be amortized over the life of the loan.  During the three and six months ended June 30, 2020, Mid Penn recognized $2,371,000 of PPP processing fees within interest and fees on loans and leases on the Consolidated Statements of Income.  As of June 30, 2020, the balance of deferred PPP processing fees totaled $17,958,000 and are offset against loan origination costs as a component of Loans and leases, net of unearned interest on the Consolidated Balance Sheet.

On March 22, 2020, the federal financial institution regulatory agencies and the state banking regulators issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications.  Concurrently, the Financial Accounting Standards Board (FASB) released a statement indicating that the interagency guidance was developed in consultation with the FASB staff.  The banking agencies encouraged financial institutions to work with borrowers, and indicated that they will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDRs).  The statement indicated that the agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.  Prior to this interagency guidance being issued, Mid Penn had proactively reached out to its borrowers to assess how the COVID-19 situation was impacting them, and was evaluating taking similar forbearance and payment deferral measures.  In response to these customer outreaches and respectful of the interagency guidance, Mid Penn has provided related loan modifications to over 1,000 borrowers, and as of June 30, 2020, the amount of loans outstanding which had such a deferral totaled $444,886,000.   Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications range from deferrals of both principal and interest payments for three to six months, or borrowers reverting to interest-only payments for a period of three to six months.  Interest will continue to accrue on loans modified under the CARES Act during the deferral period.  Mid Penn remains in communication with each of these borrowers to assess the ongoing credit status of the borrowers, and may make further adjustments to a borrower’s modification at some future time if warranted for the specific situation.

The full impact of the coronavirus continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Corporation’s financial condition, liquidity, capital position, and future results of operations. In addition, the adverse economic effects of the coronavirus may lead to an increase in credit risk on the Corporation’s commercial and residential loan portfolios.  Also, the Corporation is also monitoring the fluctuations in the markets as it pertains to interest rates and the fair value of our investments, as well as the impact of the pandemic of underlying bond issuers and the potential for OTTI.

 Management is actively monitoring the global situation on its financial condition, liquidity, capital position, operations, industry, and workforce. Given the daily evolution of the coronavirus and the global responses to curb its spread, the Corporation is not able to estimate the effects of the coronavirus on its results of operations, financial condition, capital position, or liquidity for fiscal year 2020.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Investment Securities

Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available for sale and carried at fair value.  Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, pledging requirements, and other factors related to effective portfolio management.  Securities to be held to maturity are carried at amortized cost.

For available-for-sale debt securities, realized gains and losses on dispositions are based on the difference between net proceeds and the amortized cost of the securities sold, using the specific identification method.  Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through Mid Penn’s consolidated statement of income for the respective period.

ASC Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired.  For debt securities, management must assess, in addition to the credit condition of the underlying issuer, whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.  These steps are done before assessing whether the Corporation will recover the cost basis of the investment.

In instances when a determination is made that other-than-temporary impairment exists but the Corporation does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.  The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Equity Securities

Equity Securities

In accordance with Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, Mid Penn reports its equity securities with readily determinable fair values at fair value within other assets on the balance sheet, with realized and unrealized gains and losses reported in other expense on the income statement.  Mid Penn’s equity securities consisted of Community Reinvestment Act (“CRA”) funds totaling $518,000 and $507,000 as of June 30, 2020 and December 31, 2019, respectively.  No equity securities were sold during the three or six months ended June 30, 2020 or June 30, 2019.

Loans

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans, generally being amortized over the contractual life of the loan.  Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loan portfolio is segmented into commercial and consumer loans.  Commercial loans consist of the following classes:  commercial and industrial, commercial real estate, commercial real estate-construction and lease financing.  Consumer loans consist of the following classes:  residential mortgage loans, home equity loans and other consumer loans.

For all classes of loans, the accrual of interest generally is discontinued when the contractual payment of principal or interest has become 90 days or more past due, or management has serious doubts about further collectability of principal or interest even though the loan is currently performing.  A loan past due 90 days or more may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest is credited to income.  Interest received on nonaccrual loans, including impaired loans, is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.  Nonaccrual loans may be restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally, at least nine consecutive months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.  The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Commercial and Industrial Loans

Mid Penn originates commercial and industrial loans.  Most of the Bank’s commercial and industrial loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory, and accounts receivable.  Commercial loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.  Generally, the maximum term on non-mortgage lines of credit is one year.  The loan-to-value ratio on such loans and lines of credit generally may not exceed 80 percent of the value of the collateral securing the loan.  The Bank’s commercial business lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower.  Analysis of the borrower’s past, present, and future cash flows is also an important aspect of the Bank’s current credit analysis.  Nonetheless, such loans are believed to carry higher credit risk than other extensions of credit.

Commercial and industrial loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, which, in turn, is likely to be dependent upon the general economic environment.  Mid Penn’s commercial and industrial loans are usually, but not always, secured by business assets and personal guarantees.  However, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business.

Commercial Real Estate and Commercial Real Estate – Construction Loans

Commercial real estate and commercial real estate construction loans generally present a higher level of risk than loans secured by one-to-four family residences.  This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans.  In addition, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project.  If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Residential Mortgage Loans

Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction.  The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas.  Residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 percent of the lesser of the appraised value of the security property or the contract price.  Private mortgage insurance is generally required in an amount sufficient to reduce the Bank’s exposure to at or below the 85 percent loan to value level.  Residential mortgage loans generally do not include prepayment penalties.

In underwriting residential mortgage loans, the Bank evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan.  Most properties securing real estate loans made by Mid Penn are appraised by independent fee appraisers.  The Bank generally requires borrowers to obtain title insurance and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan.  Real estate loans originated by the Bank generally contain a “due on sale” clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property.

The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, Federal Home Loan Bank, or Pennsylvania Housing Finance Agency standards, with the intention of selling the

majority of residential mortgages originated into the secondary market.  In the event that the facts and circumstances surrounding a residential mortgage application do not meet the required underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request.  In the event that the loan is funded and held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

Consumer Loans, Including Home Equity Credits

Mid Penn offers a variety of secured consumer loans, including home equity, automobile, and deposit secured loans.  In addition, the Bank offers other secured and unsecured consumer loans.  Most consumer loans are originated in Mid Penn’s primary market and surrounding areas.

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit.  Substantially all home equity loans and lines of credit are secured by junior lien mortgages on principal residences.  The Bank will lend amounts, which, together with all prior liens, typically may be up to 85 percent of the appraised value of the property securing the loan.  Home equity term loans may have maximum terms up to 20 years, while home equity lines of credit generally have maximum terms of five years.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts, and an assessment of ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment.  In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance.  In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.  Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt.  Generally, foreclosure actions could become more prevalent if the real estate market weakens and property values deteriorate.

Payroll Protection Program (“PPP”) Loans

On March 27, 2020, in response to the novel coronavirus (“COVID-19”) pandemic, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law by President Donald Trump.  This legislation created the federal Paycheck Protection Program (“PPP”) which permitted eligible business entities to apply for loans through a participating financial institution to cover payroll, rent, and other business expenses during the COVID-19 pandemic.  The PPP loans, which are 100 percent guaranteed by the Small Business Administration (“SBA”), have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.  The vast majority of Mid Penn’s PPP loans have a two-year term to maturity.  The SBA may forgive the PPP loans if at least 60 percent of the proceeds are used for payroll costs.  Also, the borrowers will not have to make any payments for six months following the date of disbursement of the loan, though interest will continue to accrue during the deferment period.   The SBA also provided a processing fee to financial institutions who participated in the PPP, with the amount of such fee pre-determined by the SBA dependent upon the size of each credit.  As of June 30, 2020, Mid Penn had received $20,329,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP initiative.   These fees are offset against loan origination costs, and are deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs and will be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the loan.  During the three and six months ended June 30, 2020, Mid Penn recognized $2,371,000 of PPP processing fees within interest and fees on loans and leases on the Consolidated Statements of Income.  

As of June 30, 2020, Mid Penn had $588,667,000 of PPP loans outstanding, net of deferred PPP processing fees of $17,958,000 with all of these loans being recorded in the commercial and industrial loan portfolio classification.  

Allowance for Loan and Lease Losses

Allowance for Loan and Lease Losses

The allowance for credit losses (“allowance”) and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not required to adopted the current expected credit loss (“CECL”) accounting standard until January 1, 2023.  The allowance consists of (i) the allowance for loan and lease losses, and (ii) the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet.  The reserve for unfunded lending commitments was $77,000 at June 30, 2020 and $80,000 at December 31, 2019.  

The allowance is increased by the provision for loan and lease losses, and decreased by charge-offs, net of recoveries.  Loans deemed to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.  All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible.  Because all identified losses are immediately charged off, no portion of the allowance is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance.  The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components.  The specific component relates to loans that are classified as impaired.  For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.  These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in collateral values, changes in the experience of the lending staff and loan review systems, changes in lending policies and procedures (including underwriting standards), changes in the mix and volume of loans originated, the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio, shifting industry or portfolio concentrations, and other relevant factors.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.  Adjustments to the factors are supported through documentation of changes in conditions in relevant analyses and a narrative accompanying the allowance for loan loss calculation.

The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific and general components. For example, at times Mid Penn could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral.  Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses, including the unpredictable timing and amounts of charge-offs, the fact that historical loss averages don’t necessarily correlate to future loss trends, and unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors.

Mid Penn generally considers a commercial loan (consisting of commercial and industrial, commercial real estate, commercial real estate-construction, and lease financing loan classes) to be impaired when it becomes 90 days or more past due and not in the process of collection, or sooner when it is probable that Mid Penn will be unable to collect all contractual principal and interest due.  This methodology assumes the borrower cannot or will not continue to make additional payments.  At that time, the loan would generally be considered collateral dependent as the discounted cash flow method would generally indicate no operating income available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

In addition, Mid Penn’s rating system assumes any loans classified as nonaccrual, included in the substandard rating, to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis.  Policies that govern the recommendation for charge-off are unique to the type of loan being considered.  Commercial loans classified as substandard nonaccrual, doubtful, having probable loss will first have a collateral evaluation completed in accordance with the guidance on impaired loans.  Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation.  The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment.  Commercial real estate loans determined to be impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans.  An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value.  A specific allocation of allowance is made for any anticipated collateral shortfall. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  The process of charging off a residential mortgage loan begins when a loan becomes delinquent for 90 days and is not in the process of collection.  The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens.  A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible.  The collateral shortfall of the consumer loan is recommended for charge-off at this point.

As noted above, Mid Penn assesses a specific allocation for commercial loans and commercial real estate loans.  The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured).  In addition, Mid Penn takes a preemptive step when any commercial loan becomes classified under its internal classification system.  A preliminary collateral evaluation, in accordance with the guidance on impaired loans, is prepared using the existing collateral information in the loan file.  This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation.  This collateral evaluation is preliminary, but allows Mid Penn to determine if any potential collateral shortfalls exist.

It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard nonaccrual.  Prior to receipt of the updated real estate valuation, Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation.  The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals.  To date, there have been no material time lapses noted with the above processes.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment.  In these circumstances, a collateral inspection is performed by Mid Penn personnel to determine an estimated value.  The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management.  Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales.  Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, the independent third party market valuations on the subject property obtained by Mid Penn as soon as practically possible following the credit being placed on nonaccrual status sometimes indicates that the loan-to-value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area.  These circumstances are determined on a case by case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans.  This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values.  All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, Mid Penn does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted concessions and it is deemed that those borrowers are experiencing financial difficulty.  Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date.  Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for nine consecutive months after modification.  Loans classified as troubled debt restructurings are designated as impaired.

The allowance calculation methodology includes segregation of loan classes into risk rating categories.  The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments.  Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss.  Loans criticized as special mention have potential weaknesses that deserve management’s close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.  Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.  Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses.  Any loans not classified as noted above are rated pass.

In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.  Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

As of June 30, 2020, Mid Penn had $588,667,000 of PPP loans outstanding, net of deferred fees, which are guaranteed by the Small Business Administration and, thus, have no loss reserve allocated to that pool.

Acquired Loans

Acquired Loans

Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses.  The balance of loans acquired at fair value and included in the balance of loans and leases, net of unearned interest on the Consolidated Balance Sheets totaled $324,159,000 and $414,498,000 as of June 30, 2020 and December 31, 2019, respectively.  The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.  The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount.  These loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.  The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan.  Subsequent decreases to the expected cash flows will require Mid Penn to evaluate the need for an additional allowance.  Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which Mid Penn will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows.  To the extent that the expected cash flows of a loan have decreased due to credit deterioration, Mid Penn establishes an allowance.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20.  These loans are initially recorded at fair value, and include credit and interest rate marks associated with acquisition accounting adjustments.  Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans.  There is no allowance for loan losses established at the acquisition date for acquired performing loans.  An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Mid Penn expects to fully collect the new carrying value (i.e. fair value) of the loans.  As such, Mid Penn may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount.  In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Loan-Level Interest Rate Swaps

Loan-Level Interest Rate Swaps

Beginning during the second quarter of 2020, Mid Penn entered into loan-level interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs.  These swaps qualify as derivatives, but are not designated as hedging instruments.   A loan-level interest rate swap is a contract in which the series of interest rate flows (fixed and variable) are exchanged over the term of a loan with certain qualifying commercial loan customers, and Mid Penn simultaneously enters into an interest rate swap with a dealer counterparty with identical notional amounts and terms. The net result of these swaps is that the customer pays a fixed interest rate and Mid Penn receives a floating interest rate.  The swap positions with customers are equally offset with the dealer counterparties to minimize the potential impact on Mid Penn’s financial statements. 

Pursuant to our agreements with the dealer counterparties, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, including the possibility that we will incur a loss because a party to the agreements, which may be a dealer counterparty or a customer, fails to meet its contractual obligations. Derivative contracts may only be executed with dealer counterparties as approved by our Board of Directors.  Similarly, derivatives with customers may only be executed with customers within credit exposure limits as approved by our Board of Directors. Loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

Bank Premises and Equipment Held for Sale

Bank Premises and Equipment Held for Sale

Bank premises and equipment designated as held for sale are carried at the lower of cost or market value. There were no premises and equipment classified as held for sale as of June 30, 2020 or December 31, 2019. During 2019, Mid Penn sold the land and facility formerly used as a full-service retail banking property. An impairment charge of $105,000 was recorded during the first six months of 2019 related to this property and is included in other expenses on the Consolidated Statement of Income.  Similar impairment charges were not recorded during the six months ended June 30, 2020.

Foreclosed Assets Held for Sale

Foreclosed Assets Held for Sale

Foreclosed assets held for sale consist primarily of real estate acquired through, or in lieu of, foreclosure in settlement of debt, and are recorded at fair value less the selling costs at the date of transfer, establishing a new cost basis.  Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses.  Subsequent to acquisition, foreclosed assets are carried at fair value less estimated costs of disposal, based upon periodic evaluations that consider changes in market conditions and development and disposal costs.  Operating results from assets acquired in satisfaction of debt, including rental income less operating costs and gains or losses on the sale of, or the periodic evaluation of foreclosed assets, are recorded in noninterest expense.  As of June 30, 2020, Mid Penn had $135,000 of residential real estate held in other real estate owned and $90,000 in loans for which formal foreclosure proceedings were in process.  As of December 31, 2019, Mid Penn had $78,000 of residential real estate held in other real estate owned and $84,000 in loans for which formal foreclosure proceedings were in process.

Leases

Leases

Mid Penn leases certain premises and equipment and, as of January 1, 2019, for all leases in effect upon adoption of Accounting Standards Update 2016-02, Leases (Topic 842), as well as any leases commencing thereafter, Mid Penn has recognized a right-of-use asset and a related lease liability for each distinct lease agreement.  The lease right-of-use asset consists of the amount of the initial measurement of the lease liability, adjusted for (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and (ii) any initial direct costs incurred by the lessee (defined as costs of a lease that would not have been incurred had the lease not been executed).  The related lease liability is equal to the present value of the future lease payments, discounted using the rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Given that the rate implicit in the lease is rarely available, all lease liability amounts were calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. As a result of the adoption of this standard, effective January 1, 2019, Mid Penn recognized (i) an operating lease ROU asset of $11,661,000, (ii) an operating lease liability of $12,866,000, and (iii) an opening adjustment to retained earnings of $316,000 to eliminate the remaining balance of the deferred sale/leaseback gain on two retail branch locations which had originally been recorded in 2016.  

Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.  Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.  Finance lease expense consists of the amortization of the right-of-use asset, recognized as a component of occupancy expense on the Consolidated Statements of Income, and interest expense on the lease liability, which is recorded as a component of other interest expense on the Consolidated Statements of Income.

In assessing whether a contract contains a lease, Mid Penn reviews third-party agreements to determine if the contract conveys the right to control the use of identified property, plant, or equipment (defined as an identified asset by Topic 842) for a period of time in exchange for consideration, and grants Mid Penn the right to both (i) obtain substantially all of the economic benefits from the identified asset’s use, and (ii) direct the use of the identified asset throughout the term of the agreement.  

Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the (i) lease components, consisting of consideration paid to transfer a good or service to Mid Penn, and (ii) non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance.  

Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term.  These renewal and extension options were not included in the calculation of the right-of-use assets and lease liabilities as Mid Penn is not reasonably certain that these renewals and extensions will be utilized.  Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of right-of-use assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred.

None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments.  Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations.

Investments in Limited Partnerships

Investments in Limited Partnerships

Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania.  The carrying value of Mid Penn’s investment in the limited partnership was $168,000 at June 30, 2020, and $190,000 at December 31, 2019, net of amortization, using the straight-line method.  The investment in this limited partnership is reported in other assets on the Consolidated Balance Sheets, and Mid Penn’s maximum exposure to loss is limited to the carrying value of the investment.  

Mid Penn also has a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania.  The total investment in this limited partnership, net of amortization, was $7,061,000 and $7,249,000 on June 30, 2020 and December 31, 2019, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet.  All of the units are intended to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended.  Mid Penn’s limited partner capital contribution commitment is $7,579,000.  Investments made to date, and future payments under this commitment are paid in installments over the course of construction of the low-income housing facilities.  Each installment payment is conditional upon both Mid Penn’s review and approval of the installment payment certificate and continued compliance with the terms of the original partnership agreement. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period as the facilities became operational and began to be occupied beginning in December 2019.  The project has been conditionally awarded $861,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $8,613,000 to be awarded to Mid Penn over the ten-year amortization period.  Mid Penn’s commitment to initiate investments in the limited partnership interest was conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it deemed necessary. All such initial conditions were satisfied and Mid Penn began funding the investment during 2018 and the investment is expected to be fully funded in 2020.  Mid Penn recognizes the related amortization and tax credits using the cost amortization method over a ten-year period.  

Core Deposit Intangible

Core Deposit Intangible

Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases.  The carrying amount of core deposit intangible was $4,907,000 and $5,526,000 at June 30, 2020 and December 31, 2019, respectively.  Core deposit amortization expense is reflected in the Consolidated Statements of Income in intangible amortization and was $619,000 and $695,000 for the six months ended June 30, 2020 and 2019, respectively.  Core deposit amortization expense was $309,000 and $347,000 for the three months ended June 30, 2020 and 2019, respectively.   The core deposit intangible for each respective acquisition (Phoenix in March 2015; Scottdale in January 2018; and First Priority in July 2018) is being amortized over a ten-year period starting at the respective acquisition date and using a sum-of-the-year’s digits basis.  Core deposit intangible assets are subject to impairment testing whenever events or changes in circumstances indicate the need for such evaluation.  During the first quarter of 2020 and continuing through the period subsequent to June 30, 2020, the novel coronavirus (“COVID-19”) global pandemic impacted the United States including the State of Pennsylvania and Mid Penn’s market area and communities and customers.  Accordingly, Mid Penn management evaluated whether this COVID-19 event resulted in any impairment to Mid Penn’s business and the value of its acquired consumer demand and savings deposit base.  Management’s determination was that there was no impairment to its core deposit intangible to date as a result of the pandemic or related factors.  Supporting this assertion, as reflected in the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, Mid Penn has recognized substantial total deposit growth of $413,919,000 or over 21 percent during the first six months of 2020, with none of this growth attributable to brokered deposits.  Subsequent to June 30, 2020, and through the date of this filing, these increased deposit levels were sustained and continued to reflect no evidence of impairment.

Goodwill

Goodwill

Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with past business acquisitions.  The goodwill balance was $62,840,000 at both June 30, 2020 and December 31, 2019, and was comprised of (i) $39,744,000 related to the July 31, 2018 First Priority acquisition, (ii) $19,178,000 related to the January 8, 2018 Scottdale acquisition and (iii) $3,918,000 recorded as a result of the Phoenix acquisition in 2015.  Goodwill is evaluated annually for impairment; however, if certain events occur which indicate goodwill might be impaired between annual tests, goodwill would be tested for impairment when such events occur.  In making a potential impairment assessment of goodwill, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc.  There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of goodwill impairment.  Mid Penn did not identify any impairment on its outstanding goodwill from its evaluation which was performed as of October 31, 2019 using a qualitative analysis.  Changes in economic and operating conditions could result in goodwill impairment in future periods.  During the first half of 2020, and in support of its March 31, 2020 financial reports, Mid Penn management performed a “Step One” goodwill analysis to determine whether the current or expected impact from the COVID-19 global pandemic resulted in any impairment to Mid Penn’s business and the recorded value of its goodwill intangible asset.  Based upon this goodwill analysis, Mid Penn management determined that there was no impairment to its goodwill. A subsequent “Step One” goodwill analysis was not performed as of June 30, 2020; however, in response to the continued presence of the COVID-19 pandemic event and its impacts on the capital markets and the economy, management reviewed the criteria supporting the “Step One” assessment performed for the first quarter of 2020, including economic projections, anticipated cash flows, and current market data. Mid Penn management determined there were no adverse changes to key considerations from this previous assessment, or additional events that occurred since this previous assessment, and affirmed its determination that there is no impairment to its goodwill as of June 30, 2020.  As the COVID-19 event continues and its implications to the country, the economy, and specifically Mid Penn evolve, management will perform additional goodwill evaluations as necessary.

Revenue from Contracts with Customers

Revenue from Contracts with Customers

Mid Penn recognizes revenues when earned based upon (i) contractual terms as transactions occur, or (ii) as related services are provided and collectability is reasonably assured. The largest source of revenue for Mid Penn is interest income, which is primarily recognized on an accrual basis according to a written contract, such as loan and lease agreements or investment securities contracts.  Mid Penn earns noninterest income through a variety of financial and transactional services such as trust and wealth management services, deposit account transaction fees, ATM debit card fees, and mortgage banking fees.  Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed.  In certain circumstances, noninterest income is reported net of associated expenses.

On January 1, 2018, Mid Penn adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU establishes principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods and services to customers.  Topic 606 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.  

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit card interchange income, merchant service fees and certain components of other income are within the scope of Topic 606 and are discussed in greater detail below.

Income from Fiduciary and Wealth Management Activities

Income from fiduciary and wealth management activities consist of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income.  Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned.  Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur.  Payment is typically received in the following month.  Estate fee income is recognized as services are performed over the service period, generally eighteen months.

Service Charges on Deposits

Service charges on deposits consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts.  Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs and the related service charge is subsequently processed.  Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts.

ATM Debit Card Interchange Income

ATM debit card interchange income consists of interchange fees earned when Mid Penn’s debit cards are processed through card payments networks.  The interchange fee is calculated as a percentage of the total electronic funds transfer (EFT) transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT transaction, and the type of business at which the transaction was processed.  Revenue is recognized daily as transactions occur and interchange fees are subsequently processed.  Payment for most interchange activity is received daily, while some fees are aggregated and payment is received in the following month.

Merchant Services Income

Merchant services income is processed through third party providers with whom Mid Penn has partnered to provide merchant services to its business customers.  Fees are charged to merchants to process their debit card transactions, cash advance services, and other related products.  Mid Penn receives a percentage of the revenue generated from each joint customer relationship after the respective third-party provider has collected the fee income from the merchant.  Payment is primarily received in the following month.

Other Income

Certain aspects of other income, such as credit card royalties, check orders, and letter of credit fees, are within the scope of Topic 606.  These fees are primarily transactional, and revenue is recognized when transactions occur and the related services are subsequently processed.  Payment is primarily received immediately or in the following month.  

Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied.  Mid Penn has not recognized any assets from the costs to obtain or fulfill a contract with customers for revenue streams that fall within the guidance of Topic 606.

Comprehensive Income

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income.  Mid Penn also recognizes other comprehensive income (loss) from an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees.  These plans utilize assumptions and methods to calculate the fair value of plan assets and Mid Penn recognizes the overfunded and underfunded status of the plans on its consolidated balance sheet.  Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment.

The components of accumulated other comprehensive income (loss), net of taxes, are as follows:

(Dollars in thousands)	Unrealized Gain (Loss) on Securities			Defined Benefit Plans			Accumulated Other Comprehensive (Loss) Income
Balance - June 30, 2020	$	9		$	(159	)	$	(150	)
Balance - December 31, 2019	$	(128	)	$	471		$	343

During the six months ended June 30, 2020, the fair value of plan assets in Mid Penn’s defined benefit pension plan was impacted by the economic implications of the COVID-19 pandemic, resulting in a decrease in the fair value of the plan assets and a corresponding decrease in accumulated other comprehensive (loss) income, net of taxes, of $620,000 when comparing December 31, 2019 to June 30, 2020.

Earnings Per Common Share

Earnings Per Common Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus common shares that would have been outstanding if dilutive potential common shares, consisting of unvested restricted stock, had been issued.  The effect of dilutive unvested restricted stock was not material and did not result in a difference, when rounded to the whole cent, between the basic earnings per share compared to the diluted earnings per share for any of the periods presented. The following data shows the amounts used in computing basic and diluted earnings per common share.

(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2020			2019	2020				2019
Net income	$	6,833	$	4,403		$	10,651	$	8,480
Weighted average common shares outstanding (basic)		8,446,377		8,462,522			8,463,676		8,461,269
Effect of dilutive unvested restricted stock grants		3,973		5,689			4,528		4,015
Weighted average common shares outstanding (diluted)		8,450,350		8,468,211			8,468,204		8,465,284
Basic earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00
Diluted earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00

There were no antidilutive shares at June 30, 2020 and 2019.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Components of Accumulated Other Comprehensive Income (Loss), Net of Taxes

The components of accumulated other comprehensive income (loss), net of taxes, are as follows:

(Dollars in thousands)	Unrealized Gain (Loss) on Securities			Defined Benefit Plans			Accumulated Other Comprehensive (Loss) Income
Balance - June 30, 2020	$	9		$	(159	)	$	(150	)
Balance - December 31, 2019	$	(128	)	$	471		$	343

Basic and Diluted Earnings Per Common Share

The following data shows the amounts used in computing basic and diluted earnings per common share.

(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2020			2019	2020				2019
Net income	$	6,833	$	4,403		$	10,651	$	8,480
Weighted average common shares outstanding (basic)		8,446,377		8,462,522			8,463,676		8,461,269
Effect of dilutive unvested restricted stock grants		3,973		5,689			4,528		4,015
Weighted average common shares outstanding (diluted)		8,450,350		8,468,211			8,468,204		8,465,284
Basic earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00
Diluted earnings per common share	$	0.81	$	0.52		$	1.26	$	1.00

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2020

Securities Financing Transactions Disclosures [Abstract]

Unrealized Gain (Loss) on Investments

The amortized cost, fair value, and unrealized gains and losses on investment securities at June 30, 2020 and December 31, 2019 are as follows:

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
June 30, 2020
Available-for-sale debt securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	—	$	2
State and political subdivision obligations		7,014		36		—		7,050
Corporate debt securities		16,464		42		66		16,440
Total available-for-sale debt securities		23,480		78		66		23,492
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	24,004	$	228	$	—	$	24,232
Mortgage-backed U.S. government agencies		41,312		1,072		4		42,380
State and political subdivision obligations		60,525		2,642		23		63,144
Corporate debt securities		9,546		205		16		9,735
Total held-to-maturity debt securities		135,387		4,147		43		139,491
Total	$	158,867	$	4,225	$	109	$	162,983

(Dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2019
Available-for-sale debt securities:
U.S. government agencies	$	22,894	$	6	$	70	$	22,830
Mortgage-backed U.S. government agencies		12,996		7		113		12,890
State and political subdivision obligations		30		—		—		30
Corporate debt securities		1,250		9		—		1,259
Total available-for-sale debt securities		37,170		22		183		37,009
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies	$	50,210	$	46	$	220	$	50,036
Mortgage-backed U.S. government agencies		42,098		95		102		42,091
State and political subdivision obligations		44,169		1,193		13		45,349
Total held-to-maturity debt securities		136,477		1,334		335		137,476
Total	$	173,647	$	1,356	$	518	$	174,485

Schedule of Fair Value and Unrealized Loss on Debt Security Investments in a Continuous Unrealized Loss Position

The following tables present gross unrealized losses and fair value of debt security investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2020 and December 31, 2019.

(Dollars in thousands)	Less Than 12 Months					12 Months or More					Total
	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
June 30, 2020	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Available-for-sale debt securities:
Corporate debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66
Total temporarily impaired available-for-sale debt securities	5	$	9,895	$	66	0	$	—	$	—	5	$	9,895	$	66
Held-to-maturity debt securities:
Mortgage-backed U.S. government agencies	1	$	1,135	$	4	0	$	—	$	—	1	$	1,135	$	4
State and political subdivision obligations	2		2,668		23	0		—		—	2		2,668		23
Corporate debt securities	2		1,983		16	0		—		—	2		1,983		16
Total temporarily impaired held-to-maturity debt securities	5	$	5,786	$	43	0	$	—	$	—	5	$	5,786	$	43
Total	10	$	15,681	$	109	0	$	—	$	—	10	$	15,681	$	109

(Dollars in thousands)	Less Than 12 Months					12 Months or More						Total
	Number					Number						Number
	of	Fair		Unrealized		of	Fair		Unrealized			of	Fair		Unrealized
December 31, 2019	Securities	Value		Losses		Securities	Value		Losses			Securities	Value		Losses
Available-for-sale securities:
U.S. government agencies	4	$	4,652	$	24	7	$	11,982		$	46	11	$	16,634	$	70
Mortgage-backed U.S. government agencies	1		1,643		4	14		10,603			109	15		12,246		113
Total temporarily impaired available-for-sale securities	5	$	6,295	$	28	21	$	22,585		$	155	26	$	28,880	$	183
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies	18	$	29,024	$	219	1	$	2,999		$	1	19	$	32,023	$	220
Mortgage-backed U.S. government agencies	6		8,445		35	13		11,050			67	19		19,495		102
State and political subdivision obligations	3		1,383		13	0		—			—	3		1,383		13
Total temporarily impaired held to maturity securities	27	$	38,852	$	267	14	$	14,049		$	68	41	$	52,901	$	335
Total	32	$	45,147	$	295	35	$	36,634		$	223	67	$	81,781	$	518

Schedule of Gross Realized Gains (Losses) on Sales of Available-For-Sale Debt Securities

Gross realized gains and losses on sales of available-for-sale debt securities for the three and six months ended June 30, 2020 and 2019 are shown in the table below.

(Dollars in thousands)	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Realized gains		$	118			$	43			$	255			$	69
Realized losses			(7	)			(26	)			(12	)			(45	)
Net gains		$	111			$	17			$	243			$	24

Investments Classified by Contractual Maturity Date

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of June 30, 2020.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
June 30, 2020	Cost		Value		Cost		Value
Due in 1 year or less	$	—	$	—	$	3,162	$	3,191
Due after 1 year but within 5 years		2,975		2,994		19,478		20,195
Due after 5 years but within 10 years		17,679		17,667		67,984		70,266
Due after 10 years		2,824		2,829		3,451		3,459
		23,478		23,490		94,075		97,111
Mortgage-backed securities		2		2		41,312		42,380
	$	23,480	$	23,492	$	135,387	$	139,491

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Loans and Allowance for Loan and Lease Losses (Tables)

6 Months Ended

Jun. 30, 2020

Accounts Notes Loans And Financing Receivable Gross Allowance And Net [Abstract]

Type of Loan Portfolio Summarized by the Aggregate Risk Rating

The types of loans in Mid Penn’s portfolio, summarized by those rated as “pass” (net of deferred fees and costs of $18,066,000 as of June 30, 2020 and $1,081,000 as of December 31, 2019), and the loans classified as “special mention” and “substandard” within Mid Penn’s internal risk rating system as of June 30, 2020 and December 31, 2019, are as follows:

(Dollars in thousands)			Special
June 30, 2020	Pass		Mention		Substandard		Total
Commercial and industrial	$	916,886	$	9,712	$	2,792	$	929,390
Commercial real estate		983,198		2,752		12,723		998,673
Commercial real estate - construction		224,325		—		32		224,357
Residential mortgage		216,948		54		1,350		218,352
Home equity		65,744		7		2,414		68,165
Consumer		6,828		—		—		6,828
	$	2,413,929	$	12,525	$	19,311	$	2,445,765

(Dollars in thousands)			Special
December 31, 2019	Pass		Mention		Substandard		Total
Commercial and industrial	$	326,573	$	9,558	$	3,016	$	339,147
Commercial real estate		913,001		2,426		13,711		929,138
Commercial real estate - construction		181,650		—		40		181,690
Residential mortgage		235,252		55		1,417		236,724
Home equity		68,224		—		47		68,271
Consumer		7,786		—		—		7,786
	$	1,732,486	$	12,039	$	18,231	$	1,762,756

Impaired Loans by Loan Portfolio Class

Impaired loans by loan portfolio class as of June 30, 2020 and December 31, 2019 are summarized as follows:

	June 30, 2020						December 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	1,012	$	1,061	$	—	$	890	$	890	$	—
Commercial real estate		7,126		7,465		—		7,973		8,366		—
Commercial real estate - construction		32		34		—		40		61		—
Residential mortgage		776		798		—		817		838		—
Home equity		2,406		2,436		—		25		27		—
Consumer		—		—		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	—	$	3	$	68	$	—
Commercial real estate		1,430		1,700		—		1,423		1,708		—
Commercial real estate - construction		—		—		—		—		—		—
Residential mortgage		354		494		—		381		578		—
Home equity		1		4		—		1		5		—
Consumer		—		—		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	198	$	198	$	53	$	—	$	—	$	—
Commercial real estate		902		944		190		338		380		166
Commercial real estate - construction		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,210	$	1,259	$	53	$	893	$	958	$	—
Commercial real estate		9,458		10,109		190		9,734		10,454		166
Commercial real estate - construction		32		34		—		40		61		—
Residential mortgage		1,130		1,292		—		1,198		1,416		—
Home equity		2,407		2,440		—		26		32		—
Consumer		—		—		—		—		—		—

Average Recorded Investment Of Impaired Loans And Related Interest Income By Loan Portfolio Class

The average recorded investment of impaired loans and related interest income recognized for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended
	June 30, 2020				June 30, 2019
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	955	$	—	$	—	$	—
Commercial real estate		7,004		—		2,273		—
Commercial real estate - construction		36		—		40		—
Residential mortgage		762		6		880		7
Home equity		1,215		—		29		—
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	—	$	—	$	29	$	—
Commercial real estate		1,423		—		1,602		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		360		—		1,222		—
Home equity		1		—		4		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	99	$	—	$	140	$	—
Commercial real estate		835		—		513		—
Commercial real estate - construction		—		—		183		—
Residential mortgage		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,054	$	—	$	169	$	—
Commercial real estate		9,262		—		4,388		—
Commercial real estate - construction		36		—		223		—
Residential mortgage		1,122		6		2,102		7
Home equity		1,216		—		33		—
Consumer		—		—		—		—

	Six Months Ended
	June 30, 2020				June 30, 2019
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	933	$	—	$	—	$	—
Commercial real estate		7,362		—		2,289		—
Commercial real estate - construction		37		—		27		—
Residential mortgage		780		13		857		14
Home equity		818		—		29		—
Consumer		—		—		—		—
With no related allowance recorded and acquired with credit deterioration:
Commercial and industrial	$	1	$	—	$	29	$	—
Commercial real estate		1,421		—		1,589		—
Commercial real estate - construction		—		—		—		—
Residential mortgage		367		—		1,219		—
Home equity		1		—		4		—
Consumer		—		—		—		—
With an allowance recorded:
Commercial and industrial	$	66	$	—	$	1,603	$	3
Commercial real estate		634		—		477		—
Commercial real estate - construction		—		—		245		—
Residential mortgage		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total Impaired Loans:
Commercial and industrial	$	1,000	$	—	$	1,632	$	3
Commercial real estate		9,417		—		4,355		—
Commercial real estate - construction		37		—		272		—
Residential mortgage		1,147		13		2,076		14
Home equity		819		—		33		—
Consumer		—		—		—		—

Non-accrual Loans by Classes of the Loan Portfolio Including Loans Acquired With Credit Deterioration

Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of June 30, 2020 and December 31, 2019 are summarized as follows:

(Dollars in thousands)	June 30, 2020		December 31, 2019
Commercial and industrial	$	1,210	$	894
Commercial real estate		9,458		9,800
Commercial real estate - construction		32		40
Residential mortgage		697		711
Home equity		2,407		26
Consumer		—		—
	$	13,804	$	11,471

Loan Portfolio Summarized by the Past Due Status

The classes of the loan portfolio summarized by the past due status as of June 30, 2020 and December 31, 2019 are summarized as follows:

													Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and
June 30, 2020	Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	859	$	233	$	953	$	2,045	$	927,345	$	929,390	$	800
Commercial real estate		325		146		7,519		7,990		989,253		997,243		—
Commercial real estate - construction		—		—		—		—		224,357		224,357		—
Residential mortgage		99		49		250		398		217,600		217,998		—
Home equity		254		7		2,406		2,667		65,497		68,164		—
Consumer		4		—		—		4		6,824		6,828		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		—		—		—		—		—
Commercial real estate		—		—		1,419		1,419		11		1,430		—
Commercial real estate - construction		—		—		—		—		—		—		—
Residential mortgage		—		—		189		189		165		354		—
Home equity		—		—		—		—		1		1		—
Consumer		—		—		—		—		—		—		—
Total	$	1,541	$	435	$	12,736	$	14,712	$	2,431,053	$	2,445,765	$	800

													Loans
(Dollars in thousands)	30-59		60-89		Greater								Receivable >
	Days Past		Days Past		than 90		Total Past						90 Days and
December 31, 2019	Due		Due		Days		Due		Current		Total Loans		Accruing
Commercial and industrial	$	—	$	1,059	$	890	$	1,949	$	337,195	$	339,144	$	—
Commercial real estate		1,298		11		7,819		9,128		918,587		927,715		—
Commercial real estate - construction		—		—		—		—		181,690		181,690		—
Residential mortgage		145		—		326		471		235,872		236,343		—
Home equity		34		—		—		34		68,236		68,270		—
Consumer		5		3		—		8		7,778		7,786		—
Loans acquired with credit deterioration:
Commercial and industrial		—		—		3		3		—		3		—
Commercial real estate		16		473		934		1,423		—		1,423		—
Commercial real estate - construction		—		—		—		—		—		—		—
Residential mortgage		5		—		203		208		173		381		—
Home equity		—		—		—		—		1		1		—
Consumer		—		—		—		—		—		—		—
Total	$	1,503	$	1,546	$	10,175	$	13,224	$	1,749,532	$	1,762,756	$	—

Allowance and Recorded Investment in Financing Receivables

The following tables summarize the allowance and recorded investments in loans receivable.

(Dollars in thousands)
As of, and for the three months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2020	$	2,427		$	6,630	$	57		$	436		$	448	$	2		$	14	$	10,014
Charge-offs		(1	)		—		(7	)		—			—		(4	)		—		(12	)
Recoveries		2			—		2			—			1		10			—		15
Provisions		358			611		13			(9	)		68		(6	)		15		1,050
Ending balance,
June 30, 2020	$	2,786		$	7,241	$	65		$	427		$	517	$	2		$	29	$	11,067
(Dollars in thousands)
As of, and for the six months ended, June 30, 2020	Commercial and industrial			Commercial real estate		Commercial real estate - construction			Residential mortgage			Home equity		Consumer			Unallocated		Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2020	$	2,341		$	6,259	$	51		$	417		$	442	$	2		$	3	$	9,515
Charge-offs		(45	)		—		(7	)		—			—		(18	)		—		(70	)
Recoveries		2			1		2			3			1		13			—		22
Provisions		488			981		19			7			74		5			26		1,600
Ending balance,
June 30, 2020		2,786			7,241		65			427			517		2			29		11,067
Individually evaluated for impairment		53			190		—			—			—		—			—		243
Ending balance:
collectively evaluated for impairment	$	2,733		$	7,051	$	65		$	427		$	517	$	2		$	29	$	10,824
Loans receivables:
Ending balance	$	929,390		$	998,673	$	224,357		$	218,352		$	68,165	$	6,828		$	—	$	2,445,765
Ending balance: individually evaluated for impairment		1,210			8,028		32			776			2,406		—			—		12,452
Ending balance: acquired with credit deterioration		—			1,430		—			354			1		—			—		1,785
Ending balance: collectively evaluated for impairment	$	928,180		$	989,215	$	224,325		$	217,222		$	65,758	$	6,828		$	—	$	2,431,528

(Dollars in thousands)
December 31, 2019	Commercial and industrial		Commercial real estate		Commercial real estate - construction		Residential mortgage		Home equity		Consumer		Unallocated		Total
Allowance for loan and lease losses:
Ending balance	$	2,341	$	6,259	$	51	$	417	$	442	$	2	$	3	$	9,515
Ending balance: individually evaluated for impairment		—		166		—		—		—		—		—		166
Ending balance: collectively evaluated for impairment	$	2,341	$	6,093	$	51	$	417	$	442	$	2	$	3	$	9,349
Loans receivable:
Ending balance	$	339,147	$	929,138	$	181,690	$	236,724	$	68,271	$	7,786	$	—	$	1,762,756
Ending balance: individually evaluated for impairment		890		8,311		40		817		25		—		—		10,083
Ending balance: acquired with credit deterioration		3		1,423		—		381		1		—		—		1,808
Ending balance: collectively evaluated for impairment	$	338,254	$	919,404	$	181,650	$	235,526	$	68,245	$	7,786	$	—	$	1,750,865

(Dollars in thousands)
As of, and for the three months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
April 1, 2019	$	2,443		$	5,031		$	81		$	477		$	450		$	6		$	14		$	8,502
Charge-offs		(205	)		—			(20	)		—			—			(38	)		—			(263	)
Recoveries		42			15			—			—			1			9			—			67
Provisions		168			266			(16	)		(1	)		31			30			(13	)		465
Ending balance,
June 30, 2019	$	2,448		$	5,312		$	45		$	476		$	482		$	7		$	1		$	8,771
(Dollars in thousands)
As of, and for the six months ended, June 30, 2019	Commercial and industrial			Commercial real estate			Commercial real estate - construction			Residential mortgage			Home equity			Consumer			Unallocated			Total
Allowance for loan and lease losses:
Beginning balance,
January 1, 2019		2,391			4,703			75			453			528			7			240		$	8,397
Charge-offs		(205	)		(12	)		(40	)		—			—			(47	)		—			(304	)
Recoveries		43			33			—			—			1			11			—			88
Provisions		219			588			10			23			(47	)		36			(239	)		590
Ending balance,
June 30, 2019		2,448			5,312			45			476			482			7			1			8,771
Individually evaluated for impairment		13			243			—			—			—			—			—			256
Ending balance:
collectively evaluated for impairment	$	2,435		$	5,069		$	45		$	476		$	482		$	7		$	1		$	8,515
Loans receivables:
Ending balance	$	301,271		$	883,317		$	173,900		$	249,114		$	70,442		$	10,129		$	—		$	1,688,173
Ending balance: individually evaluated for impairment		76			2,745			40			897			28			—			—			3,786
Ending balance: acquired with credit deterioration		29			1,616			—			1,234			4			—			—			2,883
Ending balance: collectively evaluated for impairment	$	301,166		$	878,956		$	173,860		$	246,983		$	70,410		$	10,129		$	—		$	1,681,504

Troubled Debt Restructurings

The recorded investments in troubled debt restructured loans at June 30, 2020 and December 31, 2019 are as follows:

(Dollars in thousands)	Pre-Modification		Post-Modification
June 30, 2020	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	8	$	8	$	7
Commercial real estate		1,214		1,115		420
Commercial real estate - construction		40		40		32
Residential mortgage		689		687		489
	$	1,951	$	1,850	$	948

(Dollars in thousands)	Pre-Modification		Post-Modification
December 31, 2019	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Commercial and industrial	$	3	$	3	$	3
Commercial real estate		2,562		2,463		1,705
Commercial real estate - construction		40		40		40
Residential mortgage		677		675		490
	$	3,282	$	3,181	$	2,238

Schedule of Accretion of Purchased Impaired Loan

The following tables provide activity for the accretable yield of acquired impaired loans from the Phoenix Bancorp, Inc. (March 2015), Scottdale (January 2018), and First Priority (July 2018) acquisitions for the three and six months ended June 30, 2020.

(Dollars in thousands)
	Three Months Ended June 30,
	2020			2019
Accretable yield, beginning of period	$	72		$	254
Accretable yield amortized to interest income		(16	)		(57	)
Accretable yield, end of period	$	56		$	197

(Dollars in thousands)	Six Months Ended June 30,
	2020			2019
Accretable yield, beginning of period	$	89		$	309
Accretable yield amortized to interest income		(33	)		(112	)
Accretable yield, end of period	$	56		$	197

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Summary of Operating and Finance Lease Right-of-Use Assets and Related Lease Liabilities

Below is a summary of the operating and finance lease right-of-use assets and related lease liabilities, as well as the weighted average lease term (in years) and weighted average discount rate for each of the lease classifications as of June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020						December 31, 2019
	Operating Leases			Finance Lease			Operating Leases			Finance Lease
Right of use asset	$	10,587		$	3,357		$	11,442		$	3,447
Lease liability	$	11,643		$	3,509		$	12,544		$	3,551
Weighted average remaining lease term (in years)		8.44			18.67			8.64			19.17
Weighted average discount rate		3.34	%		3.81	%		3.33	%		3.81	%

Summary of Lease Costs

A summary of lease costs during the three and six months ended June 30, 2020 and 2019 are presented below.  Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income.

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Finance lease cost:
Amortization of right-of-use asset	$	45		$	45		$	90		$	60
Interest expense on lease liability		33			35			67			46
Total finance lease cost		78			80			157			106
Operating lease cost		505			515			1,033			1,030
Short-term and equipment lease cost		12			3			21			31
Variable lease cost		—			—			—			—
Sublease income		(4	)		(7	)		(10	)		(12	)
Total lease costs	$	591		$	591		$	1,201		$	1,155

Summary of Cash Paid for Amounts Included in Measurement of Lease Liabilities

A summary of cash paid for amounts included in the measurement of lease liabilities is presented below.

(Dollars in thousands)	Six Months Ended
	June 30, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	67	$	46
Operating cash flows from operating leases		1,064		1,087
Financing cash flows from finance leases		41		6

Summary of Maturity Analysis of Operating and Finance Lease Liabilities and Reconciliation of Undiscounted Cash Flows

A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below.

(Dollars in thousands)	June 30, 2020
	Operating Leases			Finance Lease
Lease payments due:
Within one year	$	1,042		$	108
After one but within two years		1,868			216
After two but within three years		1,824			217
After three but within four years		1,572			217
After four but within five years		1,512			252
After five years		5,584			3,992
Total undiscounted cash flows		13,402			5,002
Discount on cash flows		(1,759	)		(1,493	)
Total lease liability	$	11,643		$	3,509

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Loan-Level Interest Rate Swaps (Tables)

6 Months Ended

Jun. 30, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Notional Amount, and Collateral Posted Related to Loan-level Interest Rate Swaps

The fair value, notional amount, and collateral posted related to loan-level interest rate swaps are presented below.

(Dollars in thousands)	June 30, 2020		December 31, 2019
Interest Rate Swap Contracts - Commercial Loans:
Gross Fair Value (a)	$	239	$	—
Notional Amount		8,907		—
Cash Collateral Posted (b)		250		—

(a) Included in other assets on the Consolidated Balance Sheet

(b) Included in cash and due from banks on the Consolidated Balance Sheet

Schedule of Gross Amounts of Commercial Loan Swap Derivatives, Amounts Offset and Carrying Values

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.

(Dollars in thousands)	June 30, 2020		December 31, 2019
Interest Rate Swap Contracts - Commercial Loans:
Gross amounts recognized	$	239	$	—
Gross amounts offset		239		—
Net Amounts Presented in the Consolidated Balance Sheets		—		—
Gross amounts not offset:
Financial instruments		—		—
Cash collateral		250		—
Net Amounts	$	250	$	—

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Consolidated Balance Sheets - USD ($)	Jun. 30, 2020	Dec. 31, 2019
ASSETS
Cash and due from banks	$ 33,495,000	$ 25,746,000
Interest-bearing balances with other financial institutions	3,322,000	4,657,000
Federal funds sold	106,938,000	108,627,000
Total cash and cash equivalents	143,755,000	139,030,000
Investment securities available for sale, at fair value	23,492,000	37,009,000
Investment securities held to maturity, at amortized cost (fair value $139,491 and $137,476)	135,387,000	136,477,000
Loans held for sale	21,812,000	8,422,000
Loans and leases, net of unearned interest	2,445,765,000	1,762,756,000
Less: Allowance for loan and lease losses	(11,067,000)	(9,515,000)
Net loans and leases	2,434,698,000	1,753,241,000
Bank premises and equipment, net	26,038,000	24,937,000
Operating lease right of use asset	10,587,000	11,442,000
Finance lease right of use asset	3,357,000	3,447,000
Cash surrender value of life insurance	17,033,000	16,881,000
Restricted investment in bank stocks	7,079,000	4,902,000
Accrued interest receivable	12,743,000	7,964,000
Deferred income taxes	1,533,000	2,810,000
Goodwill	62,840,000	62,840,000
Core deposit and other intangibles, net	5,108,000	5,758,000
Foreclosed assets held for sale	1,718,000	196,000
Other assets	15,185,000	15,819,000
Total Assets	2,922,365,000	2,231,175,000
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits: Noninterest-bearing demand	564,834,000	310,036,000
Deposits: Interest-bearing demand	518,857,000	458,451,000
Deposits: Money Market	632,439,000	488,748,000
Deposits: Savings	189,465,000	177,737,000
Deposits: Time	420,718,000	477,422,000
Total Deposits	2,326,313,000	1,912,394,000
Short-term borrowings	203,937,000
Long-term debt	85,282,000	32,903,000
Subordinated debt	42,009,000	27,070,000
Operating lease liability	11,643,000	12,544,000
Accrued interest payable	2,590,000	2,208,000
Other liabilities	7,246,000	6,182,000
Total Liabilities	2,679,020,000	1,993,301,000
Shareholders' Equity:
Common stock, par value $1.00 per share; 20,000,000 shares authorized; Shares issued: 8,488,924 at June 30, 2020 and 8,480,938 at December 31, 2019; and shares outstanding: 8,408,401 at June 30, 2020 and 8,480,938 at December 31, 2019	8,489,000	8,481,000
Additional paid-in capital	178,497,000	178,159,000
Retained earnings	58,069,000	50,891,000
Accumulated other comprehensive (loss) income	(150,000)	343,000
Treasury stock, at cost; 80,523 shares at June 30, 2020	(1,560,000)
Total Shareholders’ Equity	243,345,000	237,874,000
Total Liabilities and Shareholders' Equity	$ 2,922,365,000	$ 2,231,175,000

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

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 June 30, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Mortgage-backed U.S. government agencies	$	2	$	—	$	2	$	—
State and political subdivision obligations		7,050		—		7,050		—
Corporate debt securities		16,440		—		16,440		—
Other assets:
Equity securities		518		518		—		—
Interest rate swap agreements		239		—		239		—
Total	$	24,249	$	518	$	23,731	$	—

			Fair value measurements at December 31, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U.S. government agencies	$	22,830	$	—	$	22,830	$	—
Mortgage-backed U.S. government agencies		12,890		—		12,890		—
State and political subdivision obligations		30		—		30		—
Corporate debt securities		1,259		—		1,259		—
Other assets:
Equity securities		507		507		—		—
Total	$	37,516	$	507	$	37,009	$	—

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 June 30, 2020 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	June 30, 2020		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	812	$	—	$	—	$	812

			Fair value measurements at December 31, 2019 using:
(Dollars in thousands)	Total carrying value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
Assets:	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Impaired Loans	$	271	$	—	$	—	$	271
Foreclosed Assets Held for Sale		122		—		—		122

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
June 30, 2020	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	812	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	26% - 100%	32%

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2019	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired Loans	$	271	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	26% - 85%	36%
Foreclosed Assets Held for Sale		122	Appraisal of collateral (a), (b)	Appraisal adjustments (b)	8% - 27%	16%

(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.

Fair Value, by Balance Sheet Grouping

The following table summarizes the carrying value and fair value of financial instruments at June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020				December 31, 2019
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	143,755	$	143,755	$	139,030	$	139,030
Available-for-sale investment securities		23,492		23,492		37,009		37,009
Held-to-maturity investment securities		135,387		139,491		136,477		137,476
Equity securities		518		518		507		507
Loans held for sale		21,812		22,120		8,422		8,630
Net loans and leases		2,434,698		2,522,315		1,753,241		1,789,402
Restricted investment in bank stocks		7,079		7,079		4,902		4,902
Accrued interest receivable		12,743		12,743		2,810		2,810
Interest rate swap agreements		239		239		—		—
Financial liabilities:
Deposits	$	2,326,313		2,336,221	$	1,912,394	$	1,916,624
Short-term borrowings		203,937		203,937		—		—
Long-term debt (a)		81,773		81,686		29,352		30,216
Subordinated debt		42,009		40,439		27,070		25,273
Accrued interest payable		2,590		2,590		2,208		2,208

(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 June 30, 2020 and December 31, 2019.  Carrying values approximate fair values for cash and cash equivalents, restricted investment in bank stocks, 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
June 30, 2020	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	135,387	$	139,491	$	—	$	139,491	$	—
Loans held for sale		21,812		22,120		—		22,120		—
Net loans and leases		2,434,698		2,522,315		—		—		2,522,315
Financial instruments -    liabilities
Deposits	$	2,326,313	$	2,336,221	$	—	$	2,336,221	$	—
Long-term debt (a)		81,773		81,686		—		81,686		—
Subordinated debt		42,009		40,439		—		40,439		—

					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, 2019	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial instruments - assets
Held-to-maturity investment    securities	$	136,477	$	137,476	$	—	$	137,476	$	—
Loans held for sale		8,422		8,630		—		8,630		—
Net loans and leases		1,753,241		1,789,402		—		—		1,789,402
Financial instruments -    liabilities
Deposits	$	1,912,394	$	1,916,624	$	—	$	1,916,624	$	—
Long-term debt (a)		29,352		30,216		—		30,216		—
Subordinated debt		27,070		25,273		—		25,273		—

(a) Long-term debt excludes finance lease obligations.

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Debt (Tables)

6 Months Ended

Jun. 30, 2020

Maturities Of Long Term Debt [Abstract]

Long-term Debt Outstanding by Due Date

The following table presents a summary of long-term debt as of June 30, 2020 and December 31, 2019.

(Dollars in thousands)	June 30, 2020		December 31, 2019
FHLB fixed rate instruments:
Due June 2020, 1.72%	$	—	$	2,000
Due July 2020, 2.45%		—		5,000
Due August 2020, 3.05%		5,000		5,000
Due September 2020, 2.38%		—		2,500
Due October 2020, 3.06%		5,000		5,000
Due November 2020, 2.32%		—		3,000
Due December 2020, 1.78%		—		2,000
Due December 2020, 2.31%		—		3,000
Due April 2022, 0.86%		70,000		—
Due August 2026, 4.80%		1,728		1,846
Due February 2027, 6.71%		45		47
Less: fair value adjustments on debt assumed in acquisitions		—		(41	)
Total FHLB fixed rate instruments		81,773		29,352
Lease obligations included in long-term debt		3,509		3,551
Total long-term debt	$	85,282	$	32,903

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Defined Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2020

Defined Benefit Plans And Other Postretirement Benefit Plans Disclosures [Abstract]

Schedule of Net Periodic Benefit Costs

The components of net periodic benefit costs from these defined benefit plans are as follows:

	Three Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits
	2020			2019			2020			2019
Service cost	$	45		$	36		$	1		$	1
Interest cost		60			65			6			4
Expected return on plan assets		(68	)		(63	)		—			—
Accretion of prior service cost		—			—			(5	)		(5	)
Amortization of net gain		—			(15	)		—			(1	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	59		$	(14	)	$	2		$	(1	)
	Six Months Ended June 30,
(Dollars in thousands)	Pension Benefits						Other Benefits
	2020			2019			2020			2019
Service cost	$	64		$	72		$	1		$	2
Interest cost		105			129			6			8
Expected return on plan assets		(136	)		(127	)		—			—
Accretion of prior service cost		—			—			(10	)		(10	)
Amortization of net gain		—			(30	)		—			(2	)
Settlement loss (gain)		22			(37	)		—			—
Net periodic benefit expense (income)	$	55		$	7		$	(3	)	$	(2	)

Service costs are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets, amortization (accretion) of prior service cost, and amortization of (gain) loss are reported as a component of other income.

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Summary of Significant Accounting Policies (Narrative) (Details)		3 Months Ended		6 Months Ended		12 Months Ended
	Oct. 31, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($) Apartment shares	Jun. 30, 2019 USD ($) shares	Dec. 31, 2019 USD ($)	Jan. 02, 2019 USD ($)	Jan. 01, 2019 USD ($) Branch
Loans and leases receivable, gross, carrying amount		$ 2,445,765,000	$ 1,688,173,000	$ 2,445,765,000	$ 1,688,173,000	$ 1,762,756,000
Loans and leases, net of unearned interest		324,159,000		324,159,000		414,498,000
Bank premises and equipment held for sale		0		$ 0		0
Asset held for sale, description				Bank premises and equipment designated as held for sale are carried at the lower of cost or market value. There were no premises and equipment classified as held for sale as of June 30, 2020 or December 31, 2019. During 2019, Mid Penn sold the land and facility formerly used as a full-service retail banking property.
Residential real estate held in other real estate owned		135,000		$ 135,000		78,000
Foreclosure proceedings in process		90,000		90,000		84,000
Operating lease right of use asset		10,587,000		10,587,000		11,442,000
Operating lease liability		11,643,000		11,643,000		12,544,000
Retained earnings		58,069,000		58,069,000		50,891,000
Carrying value of investment in limited partnership		168,000		$ 168,000		$ 190,000
Number of apartments under the project | Apartment				37
Limited partner capital contribution commitment		7,579,000		$ 7,579,000
Project investment amortization period				10 years		10 years
Annual LIHTCs mount awarded for the project				$ 861,000
Total anticipated LIHTCs amount under the housing project		8,613,000		8,613,000
Amortization expense		326,000	360,000	649,000	$ 723,000
Goodwill		62,840,000		62,840,000		$ 62,840,000
Goodwill, Impairment Loss	$ 0			0
Decrease in fair value of plan assets				(620,000)
Decrease in accumulated other comprehensive (loss) income, net of taxes				$ (620,000)
Number of antidilutive shares | shares				0	0
First Priority Financial Corp. [Member]
Goodwill acquired				$ 39,744,000		39,744,000
Scottdale Bank and Trust Company [Member]
Goodwill acquired				19,178,000		19,178,000
Phoenix Bancorp Incorporated [Member]
Goodwill acquired				3,918,000		3,918,000
Core Deposit Intangible [Member]
Intangible assets, net		4,907,000		4,907,000		5,526,000
Amortization expense		309,000	347,000	$ 619,000	$ 695,000
Core Deposit Intangible, Amortization Period				10 years
Impairment of core deposit intangible				$ 0
Intangible assets, growth recognized				$ 413,919,000
Finite Lived Intangible Assets Growth Percentage				21.00%
Other Assets [Member]
Carrying value of investment in limited partnership		7,061,000		$ 7,061,000		7,249,000
Non Interest Expense [Member]
Asset held for sale, impairment charge				0	105,000
Reserve for Off-balance Sheet Activities [Member]
Valuation allowances and reserves, balance		$ 77,000		$ 77,000		77,000
Maximum [Member]
Non-residential consumer loans charged off on contractual basis in event of bankruptcy, in period		120 days		120 days
Commercial Portfolio [Member]
Loan terms				1 year
Loan to value ratio		80.00%		80.00%
Loans and leases receivable, gross, carrying amount			301,271,000		301,271,000
Residential Portfolio [Member] | Maximum [Member]
Loan terms				30 years
Loan to value ratio		100.00%		100.00%
Loan to value ratio, exposure after private mortgage insurance				85.00%
Small Business Administration [Member] | PPP Loans [Member]
Loan guarantee description				The PPP loans, which are 100 percent guaranteed by the Small Business Administration (“SBA”), have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.
Nonrefundable loan processing fees received				$ 20,329,000
Loan processing fees				2,371,000
Loans and leases receivable, gross, carrying amount		$ 588,667,000		588,667,000
Deferred loan processing fees		17,958,000		17,958,000
Loss reserve				$ 0
Small Business Administration [Member] | Maximum [Member] | PPP Loans [Member]
Loans maturity term				2 years
ASU 842 [Member]
Operating lease right of use asset								$ 11,661,000
Operating lease liability								$ 12,866,000
Number of retail branch location | Branch								2
ASU 842 [Member] | Adjustment [Member]
Retained earnings							$ 316,000
Equity Securities [Member]
Equity securities, fair value		518,000		$ 518,000		507,000
Equity Securities [Member] | ASU 2016-01 [Member]
Equity securities, fair value		518,000		518,000		$ 507,000
Equity securities sold		$ 0	$ 0	$ 0	$ 0
Home equity lines of credit [Member] | Maximum [Member]
Loan terms				20 years
Loan to value ratio		85.00%		85.00%
Home Equity Lines Of Credit [Member] | Maximum [Member]
Loan terms				5 years

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Summary of Significant Accounting Policies - (Components of Accumulated Other Comprehensive Income (Loss), Net of Taxes) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]
Unrealized Gain (Loss) on Securities	$ 9	$ (128)
Defined Benefit Plans	(159)	471
Accumulated Other Comprehensive (Loss) Income	$ (150)	$ 343

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Summary of Significant Accounting Policies (Basic and Diluted Earnings Per Common Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share [Abstract]
Net income	$ 6,833	$ 3,818	$ 4,403	$ 4,077	$ 10,651	$ 8,480
Weighted average common shares outstanding (basic)	8,446,377		8,462,522		8,463,676	8,461,269
Effect of dilutive unvested restricted stock grants	3,973		5,689		4,528	4,015
Weighted average common shares outstanding (diluted)	8,450,350		8,468,211		8,468,204	8,465,284
Basic earnings per common share	$ 0.81		$ 0.52		$ 1.26	$ 1.00
Diluted earnings per common share	$ 0.81		$ 0.52		$ 1.26	$ 1.00

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Investment Securities (Unrealized Gain (Loss) on Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	$ 23,480	$ 37,170
Available-for-sale debt securities, Unrealized Gains	78	22
Available-for-sale debt securities, Unrealized Losses	66	183
Available-for-sale debt securities, Fair Value	23,492	37,009
Held-to-maturity debt securities, Amortized Cost	135,387	136,477
Held-to-maturity debt securities, Unrealized Gains	4,147	1,334
Held-to-maturity debt securities, Unrealized Losses	43	335
Held-to-maturity debt securities, Fair Value	139,491	137,476
Available-for-sale securities and Held-to-maturity debt securities, Amortized Cost	158,867	173,647
Available-for-sale securities and Held-to-maturity debt securities, Unrealized Gains	4,225	1,356
Available-for-sale securities and Held-to-maturity debt securities, Unrealized Losses	109	518
Available-for-sale securities and Held-to-maturity debt securities, Fair Value	162,983	174,485
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost		22,894
Available-for-sale debt securities, Unrealized Gains		6
Available-for-sale debt securities, Unrealized Losses		70
Available-for-sale debt securities, Fair Value		22,830
U.S. Treasury and U.S. government agencies [Member]
Schedule of Investments [Line Items]
Held-to-maturity debt securities, Amortized Cost	24,004	50,210
Held-to-maturity debt securities, Unrealized Gains	228	46
Held-to-maturity debt securities, Unrealized Losses		220
Held-to-maturity debt securities, Fair Value	24,232	50,036
Mortgage-backed U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	2	12,996
Available-for-sale debt securities, Unrealized Gains		7
Available-for-sale debt securities, Unrealized Losses		113
Available-for-sale debt securities, Fair Value	2	12,890
Held-to-maturity debt securities, Amortized Cost	41,312	42,098
Held-to-maturity debt securities, Unrealized Gains	1,072	95
Held-to-maturity debt securities, Unrealized Losses	4	102
Held-to-maturity debt securities, Fair Value	42,380	42,091
State and political subdivision obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	7,014	30
Available-for-sale debt securities, Unrealized Gains	36
Available-for-sale debt securities, Fair Value	7,050	30
Held-to-maturity debt securities, Amortized Cost	60,525	44,169
Held-to-maturity debt securities, Unrealized Gains	2,642	1,193
Held-to-maturity debt securities, Unrealized Losses	23	13
Held-to-maturity debt securities, Fair Value	63,144	45,349
Corporate debt securities [Member]
Schedule of Investments [Line Items]
Available-for-sale debt securities, Amortized Cost	16,464	1,250
Available-for-sale debt securities, Unrealized Gains	42	9
Available-for-sale debt securities, Unrealized Losses	66
Available-for-sale debt securities, Fair Value	16,440	$ 1,259
Held-to-maturity debt securities, Amortized Cost	9,546
Held-to-maturity debt securities, Unrealized Gains	205
Held-to-maturity debt securities, Unrealized Losses	16
Held-to-maturity debt securities, Fair Value	$ 9,735

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Investment Securities (Narrative) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Schedule of Investments [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 128,301,000	$ 147,283,000
Debt Securities, Available-for-sale, Restriction Type [Extensible List]	us-gaap:CollateralPledgedMember	us-gaap:CollateralPledgedMember
FHLB [Member]
Schedule of Investments [Line Items]
Letter of credit outstanding, amount	$ 212,401,000	$ 169,051,000

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Investment Securities (Schedule of Fair Value and Unrealized Loss on Debt Security Investments in a Continuous Unrealized Loss Position) (Details) $ in Thousands	Jun. 30, 2020 USD ($) security	Dec. 31, 2019 USD ($) security
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security	5	5
Available-for-sale securities, Less than 12 Months: Fair Value	$ 9,895	$ 6,295
Available-for-sale securities, Less than 12 Months: Unrealized Losses	$ 66	$ 28
Available-for-sale securities, 12 Months or More: Number of Securities | security	0	21
Available-for-sale securities, 12 Months or More: Fair Value		$ 22,585
Available-for-sale securities, 12 Months or More: Unrealized Losses		$ 155
Available-for-sale securities, Total: Number of Securities | security	5	26
Available-for-sale securities, Total: Fair Value	$ 9,895	$ 28,880
Available-for-sale securities, Total: Unrealized Losses	$ 66	$ 183
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	5	27
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 5,786	$ 38,852
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 43	$ 267
Held-to-maturity securities, 12 Months or More: Number of Securities | security	0	14
Held-to-maturity securities, 12 Months or More: Fair Value		$ 14,049
Held-to-maturity securities, 12 Months or More: Unrealized Losses		$ 68
Held-to-maturity securities, Total: Number of Securities | security	5	41
Held-to-maturity securities, Total: Fair Value	$ 5,786	$ 52,901
Held-to-maturity securities, Total: Unrealized Losses	$ 43	$ 335
Available-for-sale securities and Held-to-maturity securities, Less than 12 Months: Number of Securities | security	10	32
Available-for-sale securities and Held-to-maturity securities, Less than 12 Months: Fair Value	$ 15,681	$ 45,147
Available-for-sale securities and Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 109	$ 295
Available-for-sale securities and Held-to-maturity securities,, 12 Months or More: Number of Securities | security	0	35
Available-for-sale securities and Held-to-maturity securities, 12 Months or More: Fair Value		$ 36,634
Available-for-sale securities and Held-to-maturity securities, 12 Months or More: Unrealized Losses		$ 223
Available-for-sale securities and Held-to-maturity securities, Total: Number of Securities | security	10	67
Available-for-sale securities and Held-to-maturity securities, Total: Fair Value	$ 15,681	$ 81,781
Available-for-sale securities and Held-to-maturity securities, Total: Unrealized Losses	$ 109	$ 518
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security		4
Available-for-sale securities, Less than 12 Months: Fair Value		$ 4,652
Available-for-sale securities, Less than 12 Months: Unrealized Losses		$ 24
Available-for-sale securities, 12 Months or More: Number of Securities | security		7
Available-for-sale securities, 12 Months or More: Fair Value		$ 11,982
Available-for-sale securities, 12 Months or More: Unrealized Losses		$ 46
Available-for-sale securities, Total: Number of Securities | security		11
Available-for-sale securities, Total: Fair Value		$ 16,634
Available-for-sale securities, Total: Unrealized Losses		$ 70
U.S. Treasury and U.S. government agencies [Member]
Schedule of Investments [Line Items]
Held-to-maturity securities, Less than 12 Months: Number of Securities | security		18
Held-to-maturity securities, Less than 12 Months: Fair Value		$ 29,024
Held-to-maturity securities, Less than 12 Months: Unrealized Losses		$ 219
Held-to-maturity securities, 12 Months or More: Number of Securities | security		1
Held-to-maturity securities, 12 Months or More: Fair Value		$ 2,999
Held-to-maturity securities, 12 Months or More: Unrealized Losses		$ 1
Held-to-maturity securities, Total: Number of Securities | security		19
Held-to-maturity securities, Total: Fair Value		$ 32,023
Held-to-maturity securities, Total: Unrealized Losses		$ 220
Corporate debt securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security	5
Available-for-sale securities, Less than 12 Months: Fair Value	$ 9,895
Available-for-sale securities, Less than 12 Months: Unrealized Losses	$ 66
Available-for-sale securities, 12 Months or More: Number of Securities | security	0
Available-for-sale securities, Total: Number of Securities | security	5
Available-for-sale securities, Total: Fair Value	$ 9,895
Available-for-sale securities, Total: Unrealized Losses	$ 66
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	2
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 1,983
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 16
Held-to-maturity securities, 12 Months or More: Number of Securities | security	0
Held-to-maturity securities, Total: Number of Securities | security	2
Held-to-maturity securities, Total: Fair Value	$ 1,983
Held-to-maturity securities, Total: Unrealized Losses	$ 16
Mortgage-backed U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Less than 12 Months: Number of Securities | security		1
Available-for-sale securities, Less than 12 Months: Fair Value		$ 1,643
Available-for-sale securities, Less than 12 Months: Unrealized Losses		$ 4
Available-for-sale securities, 12 Months or More: Number of Securities | security		14
Available-for-sale securities, 12 Months or More: Fair Value		$ 10,603
Available-for-sale securities, 12 Months or More: Unrealized Losses		$ 109
Available-for-sale securities, Total: Number of Securities | security		15
Available-for-sale securities, Total: Fair Value		$ 12,246
Available-for-sale securities, Total: Unrealized Losses		$ 113
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	1	6
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 1,135	$ 8,445
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 4	$ 35
Held-to-maturity securities, 12 Months or More: Number of Securities | security	0	13
Held-to-maturity securities, 12 Months or More: Fair Value		$ 11,050
Held-to-maturity securities, 12 Months or More: Unrealized Losses		$ 67
Held-to-maturity securities, Total: Number of Securities | security	1	19
Held-to-maturity securities, Total: Fair Value	$ 1,135	$ 19,495
Held-to-maturity securities, Total: Unrealized Losses	$ 4	$ 102
State and political subdivision obligations [Member]
Schedule of Investments [Line Items]
Held-to-maturity securities, Less than 12 Months: Number of Securities | security	2	3
Held-to-maturity securities, Less than 12 Months: Fair Value	$ 2,668	$ 1,383
Held-to-maturity securities, Less than 12 Months: Unrealized Losses	$ 23	$ 13
Held-to-maturity securities, 12 Months or More: Number of Securities | security	0	0
Held-to-maturity securities, Total: Number of Securities | security	2	3
Held-to-maturity securities, Total: Fair Value	$ 2,668	$ 1,383
Held-to-maturity securities, Total: Unrealized Losses	$ 23	$ 13

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Investment Securities (Schedule of Gross Realized Gains (Losses) on Sales of Available-For-Sale Debt Securities) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Securities Financing Transactions Disclosures [Abstract]
Realized gains	$ 118	$ 43	$ 255	$ 69
Realized losses	(7)	(26)	(12)	(45)
Net gains	$ 111	$ 17	$ 243	$ 24

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Investment securities held-to-maturity, fair value	$ 139,491	$ 137,476
Common Stock, Par Value	$ 1.00	$ 1.00
Common Stock, Shares Authorized	20,000,000	20,000,000
Common Stock, Shares, Issued	8,488,924	8,480,938
Common Stock, Shares, Outstanding	8,408,401	8,480,938
Treasury Stock, Shares	80,523

XML

Investment Securities (Investments Classified by Contractual Maturity Date) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost, Due in 1 year or less	$ 2,975
Available-for-sale Securities, Amortized Cost, Due in 1 year or less	17,679
Available-for-sale Securities, Amortized Cost, Due after 10 years	2,824
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis, Total	23,478
Available-for-sale debt securities, Amortized Cost	23,480	$ 37,170
Available-for-sale Securities, Fair Value, Due after 1 year but within 5 years	2,994
Available-for-sale Securities, Fair Value, Due after 5 years but within 10 years	17,667
Available-for-sale Securities, Fair Value, Due after 10 years	2,829
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Fair Value, Total	23,490
Available-for-sale debt securities, Fair Value	23,492	37,009
Held-to-maturity, Due in 1 year or less, Amortized Cost	3,162
Held-to-maturity, Due after 1 year through 5 years, Amortized Cost	19,478
Held-to-maturity, Due after 5 years through 10 years, Amortized Cost	67,984
Held-to-maturity, Due after 10 years, Amortized Cost	3,451
Held-to-maturity Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis	94,075
Held-to-maturity debt securities, Amortized Cost	135,387	136,477
Held-to-maturity, Due in 1 year or less, Fair Value	3,191
Held-to-maturity, Due after 1 year through 5, Fair Value	20,195
Held-to-maturity, Due after 5 years through 10 years, Fair Value	70,266
Held-to-maturity, Due after 10 years, Fair Value	3,459
Held-to-maturity Securities, Debt Maturities, Single Maturity Date, Fair Value	97,111
Held-to-maturity, Fair Value	139,491	$ 137,476
Mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities without a Single Maturity Date, Amortized Cost	2
Available-for-sale securities without a Single Maturity Date, Fair Value	2
Held-to-maturity without Single Maturity Date, Amortized Cost	41,312
Held-to-maturity without Single Maturity Date, Fair Value	$ 42,380

XML

Loans and Allowance for Loan and Lease Losses (Narrative) (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2020 USD ($) Loan Borrower	Dec. 31, 2019 USD ($) Loan	Jun. 30, 2019 USD ($)
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable deferred fees and costs	$ 18,066,000	$ 1,081,000
Allowance for loan losses	11,067,000	9,515,000
Loans outstanding	2,445,765,000	1,762,756,000	$ 1,688,173,000
Financing receivable, modifications, recorded investment	$ 948,000	$ 2,238,000
Number of troubled debt restructured loans | Loan	0	0
Number of borrowers | Borrower	1,019
Aggregate loans outstanding	$ 444,886,000
Nonaccruing [Member] | Seven Loans with Five Relationships [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment	471,000
Nonaccruing [Member] | Eight Loans with Five Relationships [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment		$ 1,748,000
Nonaccruing [Member] | One Large Relationships [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment		1,252,000
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans outstanding	218,352,000	236,724,000	$ 249,114,000
Financing receivable, modifications, recorded investment	489,000	490,000
Residential Portfolio [Member] | Residential Mortgage [Member] | Accruing | Three Unrelated Borrowers [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment	477,000	$ 490,000
Residential Portfolio [Member] | Residential Mortgage [Member] | Nonaccruing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment	11,000
PPP Loans [Member] | Small Business Administration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses	0
Loans outstanding	588,667,000
Commercial Real Estate [Member] | Residential Portfolio [Member] | Residential Mortgage [Member] | Nonaccruing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment	420,000
Commercial Real Estate - Construction [Member] | Residential Portfolio [Member] | Residential Mortgage [Member] | Nonaccruing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment	32,000
Commercial and Industrial [Member] | Residential Portfolio [Member] | Residential Mortgage [Member] | Nonaccruing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing receivable, modifications, recorded investment	$ 7,000

XML

Loans and Allowance for Loan and Lease Losses (Classes Of The Loan Portfolio Summarized By The Aggregate Risk Rating) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	$ 2,445,765	$ 1,762,756	$ 1,688,173
Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	68,165	68,271	70,442
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	2,413,929	1,732,486
Pass [Member] | Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	65,744	68,224
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	12,525	12,039
Special Mention [Member] | Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	7
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	19,311	18,231
Substandard [Member] | Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	2,414	47
Commercial Portfolio [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount			301,271
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	929,390	339,147
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	998,673	929,138	883,317
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	224,357	181,690	173,900
Commercial Portfolio [Member] | Pass [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	916,886	326,573
Commercial Portfolio [Member] | Pass [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	983,198	913,001
Commercial Portfolio [Member] | Pass [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	224,325	181,650
Commercial Portfolio [Member] | Special Mention [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	9,712	9,558
Commercial Portfolio [Member] | Special Mention [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	2,752	2,426
Commercial Portfolio [Member] | Substandard [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	2,792	3,016
Commercial Portfolio [Member] | Substandard [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	12,723	13,711
Commercial Portfolio [Member] | Substandard [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	32	40
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	218,352	236,724	249,114
Residential Portfolio [Member] | Pass [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	216,948	235,252
Residential Portfolio [Member] | Special Mention [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	54	55
Residential Portfolio [Member] | Substandard [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	1,350	1,417
Consumer Portfolio [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	6,828	7,786	$ 10,129
Consumer Portfolio [Member] | Pass [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivable, gross, carrying amount	$ 6,828	$ 7,786

XML

Loans and Allowance for Loan and Lease Losses (Impaired Loans by Loan Portfolio Class) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	$ 2,406	$ 25
Impaired Loans with No Allowance: Unpaid Principal Balance	2,436	27
Impaired Loans: Total Recorded Investment	2,407	26
Impaired Loans: Total Unpaid Principal Balance	2,440	32
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	1	1
Impaired Loans with No Allowance: Unpaid Principal Balance	4	5
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	1,012	890
Impaired Loans with No Allowance: Unpaid Principal Balance	1,061	890
Impaired Loans with Allowance: Recorded Investment	198
Impaired Loans with Allowance: Unpaid Principal Balance	198
Impaired Loans with Allowance: Related Allowance	53
Impaired Loans: Total Recorded Investment	1,210	893
Impaired Loans: Total Unpaid Principal Balance	1,259	958
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment		3
Impaired Loans with No Allowance: Unpaid Principal Balance		68
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	7,126	7,973
Impaired Loans with No Allowance: Unpaid Principal Balance	7,465	8,366
Impaired Loans with Allowance: Recorded Investment	902	338
Impaired Loans with Allowance: Unpaid Principal Balance	944	380
Impaired Loans with Allowance: Related Allowance	190	166
Impaired Loans: Total Recorded Investment	9,458	9,734
Impaired Loans: Total Unpaid Principal Balance	10,109	10,454
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	1,430	1,423
Impaired Loans with No Allowance: Unpaid Principal Balance	1,700	1,708
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	32	40
Impaired Loans with No Allowance: Unpaid Principal Balance	34	61
Impaired Loans: Total Recorded Investment	32	40
Impaired Loans: Total Unpaid Principal Balance	34	61
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	776	817
Impaired Loans with No Allowance: Unpaid Principal Balance	798	838
Impaired Loans: Total Recorded Investment	1,130	1,198
Impaired Loans: Total Unpaid Principal Balance	1,292	1,416
Residential Portfolio [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Recorded Investment	354	381
Impaired Loans with No Allowance: Unpaid Principal Balance	$ 494	$ 578

XML

Loans and Allowance for Loan and Lease Losses (Average Recorded Investment Of Impaired Loans And Related Interest Income By Loan Portfolio Class) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	$ 1,215	$ 29	$ 818	$ 29
Impaired Financing Receivable, Average Recorded Investment, Total	1,216	33	819	33
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	1	4	1	4
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	955		933
Impaired Loans with Allowance: Average Recorded Investment	99	140	66	1,603
Impaired Loans with Allowance: Interest Income Recognized				3
Impaired Financing Receivable, Average Recorded Investment, Total	1,054	169	1,000	1,632
Impaired Financing Receivable, Interest Income Recognized, Total				3
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment		29	1	29
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	36	40	37	27
Impaired Loans with Allowance: Average Recorded Investment		183		245
Impaired Financing Receivable, Average Recorded Investment, Total	36	223	37	272
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	7,004	2,273	7,362	2,289
Impaired Loans with Allowance: Average Recorded Investment	835	513	634	477
Impaired Financing Receivable, Average Recorded Investment, Total	9,262	4,388	9,417	4,355
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	1,423	1,602	1,421	1,589
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	762	880	780	857
Impaired Loans with No Allowance: Interest Income Recognized	6	7	13	14
Impaired Financing Receivable, Average Recorded Investment, Total	1,122	2,102	1,147	2,076
Impaired Financing Receivable, Interest Income Recognized, Total	6	7	13	14
Residential Portfolio [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Allowance: Average Recorded Investment	$ 360	$ 1,222	$ 367	$ 1,219

XML

Loans and Allowance for Loan and Lease Losses (Non-accrual Loans by Classes of the Loan Portfolio Including Loans Acquired With Credit Deterioration) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing receivable, recorded investment, nonaccrual status	$ 13,804	$ 11,471
Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing receivable, recorded investment, nonaccrual status	2,407	26
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing receivable, recorded investment, nonaccrual status	1,210	894
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing receivable, recorded investment, nonaccrual status	9,458	9,800
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing receivable, recorded investment, nonaccrual status	32	40
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing receivable, recorded investment, nonaccrual status	$ 697	$ 711

XML

Loans and Allowance for Loan and Lease Losses (Loan Portfolio Summarized By The Past Due Status) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	$ 14,712	$ 13,224
Financing Receivable, Recorded Investment, Current	2,431,053	1,749,532
Total Loans	2,445,765	1,762,756	$ 1,688,173
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	800
Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	1,785	1,808	2,883
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,541	1,503
Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	435	1,546
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	12,736	10,175
Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	68,165	68,271	70,442
Home Equity [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	2,667	34
Financing Receivable, Recorded Investment, Current	65,497	68,236
Total Loans	68,164	68,270
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	1	1
Total Loans	1	1	4
Home Equity [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	254	34
Home Equity [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	7
Home Equity [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	2,406
Commercial Portfolio [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans			301,271
Commercial Portfolio [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans			29
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	929,390	339,147
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	2,045	1,949
Financing Receivable, Recorded Investment, Current	927,345	337,195
Total Loans	929,390	339,144
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	800
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		3
Total Loans		3
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	859
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	233	1,059
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	953	890
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		3
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	998,673	929,138	883,317
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	7,990	9,128
Financing Receivable, Recorded Investment, Current	989,253	918,587
Total Loans	997,243	927,715
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,419	1,423
Financing Receivable, Recorded Investment, Current	11
Total Loans	1,430	1,423	1,616
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	325	1,298
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		16
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	146	11
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		473
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	7,519	7,819
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,419	934
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	224,357	181,690	173,900
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	224,357	181,690
Total Loans	224,357	181,690
Consumer Portfolio [Member] | Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	6,828	7,786	10,129
Consumer Portfolio [Member] | Consumer [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4	8
Financing Receivable, Recorded Investment, Current	6,824	7,778
Total Loans	6,828	7,786
Consumer Portfolio [Member] | Consumer [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4	5
Consumer Portfolio [Member] | Consumer [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		3
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	218,352	236,724	249,114
Residential Portfolio [Member] | Residential Mortgage [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	398	471
Financing Receivable, Recorded Investment, Current	217,600	235,872
Total Loans	217,998	236,343
Residential Portfolio [Member] | Residential Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	189	208
Financing Receivable, Recorded Investment, Current	165	173
Total Loans	354	381	$ 1,234
Residential Portfolio [Member] | Residential Mortgage [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	99	145
Residential Portfolio [Member] | Residential Mortgage [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		5
Residential Portfolio [Member] | Residential Mortgage [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	49
Residential Portfolio [Member] | Residential Mortgage [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Excluded Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	250	326
Residential Portfolio [Member] | Residential Mortgage [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	$ 189	$ 203

XML

Loans and Allowance for Loan and Lease Losses (Allowance And Recorded Investment In Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	$ 10,014	$ 8,502	$ 9,515	$ 8,397
Charge-offs	(12)	(263)	(70)	(304)
Recoveries	15	67	22	88
Provisions	1,050	465	1,600	590
Allowance for Loan Losses, Ending balance	11,067	8,771	11,067	8,771
Allowance for loan losses: Ending balance: individually evaluated for impairment	243	256	243	256	$ 166
Allowance for loan losses: Ending balance: collectively evaluated for impairment	10,824	8,515	10,824	8,515	9,349
Loans receivables, Ending balance	2,445,765	1,688,173	2,445,765	1,688,173	1,762,756
Loans receivables: Ending balance: individually evaluated for impairment	12,452	3,786	12,452	3,786	10,083
Loans Receivable: Ending balance: collectively evaluated for impairment	2,431,528	1,681,504	2,431,528	1,681,504	1,750,865
Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending balance	1,785	2,883	1,785	2,883	1,808
Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	448	450	442	528
Recoveries	1	1	1	1
Provisions	68	31	74	(47)
Allowance for Loan Losses, Ending balance	517	482	517	482
Allowance for loan losses: Ending balance: collectively evaluated for impairment	517	482	517	482	442
Loans receivables, Ending balance	68,165	70,442	68,165	70,442	68,271
Loans receivables: Ending balance: individually evaluated for impairment	2,406	28	2,406	28	25
Loans Receivable: Ending balance: collectively evaluated for impairment	65,758	70,410	65,758	70,410	68,245
Home Equity [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending balance	1	4	1	4	1
Commercial Portfolio [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance		2,443		2,391
Charge-offs		(205)		(205)
Recoveries		42		43
Provisions		168		219
Allowance for Loan Losses, Ending balance		2,448		2,448
Allowance for loan losses: Ending balance: individually evaluated for impairment		13		13
Allowance for loan losses: Ending balance: collectively evaluated for impairment		2,435		2,435
Loans receivables, Ending balance		301,271		301,271
Loans receivables: Ending balance: individually evaluated for impairment		76		76
Loans Receivable: Ending balance: collectively evaluated for impairment		301,166		301,166
Commercial Portfolio [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending balance		29		29
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	2,427		2,341
Charge-offs	(1)		(45)
Recoveries	2		2
Provisions	358		488
Allowance for Loan Losses, Ending balance	2,786		2,786
Allowance for loan losses: Ending balance: individually evaluated for impairment	53		53
Allowance for loan losses: Ending balance: collectively evaluated for impairment	2,733		2,733		2,341
Loans receivables, Ending balance	929,390		929,390		339,147
Loans receivables: Ending balance: individually evaluated for impairment	1,210		1,210		890
Loans Receivable: Ending balance: collectively evaluated for impairment	928,180		928,180		338,254
Commercial Portfolio [Member] | Commercial and Industrial [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending balance					3
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	6,630	5,031	6,259	4,703
Charge-offs				(12)
Recoveries		15	1	33
Provisions	611	266	981	588
Allowance for Loan Losses, Ending balance	7,241	5,312	7,241	5,312
Allowance for loan losses: Ending balance: individually evaluated for impairment	190	243	190	243	166
Allowance for loan losses: Ending balance: collectively evaluated for impairment	7,051	5,069	7,051	5,069	6,093
Loans receivables, Ending balance	998,673	883,317	998,673	883,317	929,138
Loans receivables: Ending balance: individually evaluated for impairment	8,028	2,745	8,028	2,745	8,311
Loans Receivable: Ending balance: collectively evaluated for impairment	989,215	878,956	989,215	878,956	919,404
Commercial Portfolio [Member] | Commercial Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending balance	1,430	1,616	1,430	1,616	1,423
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	57	81	51	75
Charge-offs	(7)	(20)	(7)	(40)
Recoveries	2		2
Provisions	13	(16)	19	10
Allowance for Loan Losses, Ending balance	65	45	65	45
Allowance for loan losses: Ending balance: collectively evaluated for impairment	65	45	65	45	51
Loans receivables, Ending balance	224,357	173,900	224,357	173,900	181,690
Loans receivables: Ending balance: individually evaluated for impairment	32	40	32	40	40
Loans Receivable: Ending balance: collectively evaluated for impairment	224,325	173,860	224,325	173,860	181,650
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	436	477	417	453
Recoveries			3
Provisions	(9)	(1)	7	23
Allowance for Loan Losses, Ending balance	427	476	427	476
Allowance for loan losses: Ending balance: collectively evaluated for impairment	427	476	427	476	417
Loans receivables, Ending balance	218,352	249,114	218,352	249,114	236,724
Loans receivables: Ending balance: individually evaluated for impairment	776	897	776	897	817
Loans Receivable: Ending balance: collectively evaluated for impairment	217,222	246,983	217,222	246,983	235,526
Residential Portfolio [Member] | Financial Asset Acquired with Credit Deterioration [Member] | Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans receivables, Ending balance	354	1,234	354	1,234	381
Consumer Portfolio [Member] | Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	2	6	2	7
Charge-offs	(4)	(38)	(18)	(47)
Recoveries	10	9	13	11
Provisions	(6)	30	5	36
Allowance for Loan Losses, Ending balance	2	7	2	7
Allowance for loan losses: Ending balance: collectively evaluated for impairment	2	7	2	7	2
Loans receivables, Ending balance	6,828	10,129	6,828	10,129	7,786
Loans Receivable: Ending balance: collectively evaluated for impairment	6,828	10,129	6,828	10,129	7,786
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan and lease losses, Beginning balance	14	14	3	240
Provisions	15	(13)	26	(239)
Allowance for Loan Losses, Ending balance	29	1	29	1
Allowance for loan losses: Ending balance: collectively evaluated for impairment	$ 29	$ 1	$ 29	$ 1	$ 3

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Loans and Allowance for Loan and Lease Losses (Troubled Debt Restructurings) (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	$ 1,951,000	$ 3,282,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	1,850,000	3,181,000
Financing Receivable, Modifications, Recorded Investment	948,000	2,238,000
Commercial Portfolio [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	8,000	3,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	8,000	3,000
Financing Receivable, Modifications, Recorded Investment	7,000	3,000
Commercial Portfolio [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	1,214,000	2,562,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	1,115,000	2,463,000
Financing Receivable, Modifications, Recorded Investment	420,000	1,705,000
Commercial Portfolio [Member] | Commercial Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	40,000	40,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	40,000	40,000
Financing Receivable, Modifications, Recorded Investment	32,000	40,000
Residential Portfolio [Member] | Residential Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Pre-Modification Recorded Investment	689,000	677,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	687,000	675,000
Financing Receivable, Modifications, Recorded Investment	$ 489,000	$ 490,000

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Loans and Allowance for Loan and Lease Losses (Schedule of Accretion of Purchased Impaired Loan) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Accounts Notes Loans And Financing Receivable Gross Allowance And Net [Abstract]
Accretable yield, beginning balance	$ 72	$ 254	$ 89	$ 309
Accretable yield amortized to interest income	(16)	(57)	(33)	(112)
Accretable yield, ending balance	$ 56	$ 197	$ 56	$ 197

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
INTEREST INCOME
Interest and fees on loans and leases	$ 25,116	$ 22,214	$ 47,365	$ 43,292
Interest on interest-bearing balances	18	27	33	57
Interest on federal funds sold	23	130	413	198
Interest and dividends on investment securities:
U.S. Treasury and government agencies	460	839	1,131	1,732
State and political subdivision obligations, tax-exempt	248	584	469	1,203
Other securities	323	204	476	382
Total Interest Income	26,188	23,998	49,887	46,864
INTEREST EXPENSE
Interest on deposits	4,009	5,276	9,389	9,862
Interest on short-term borrowings	45	157	45	389
Interest on long-term and subordinated debt	788	795	1,442	1,537
Total Interest Expense	4,842	6,228	10,876	11,788
Net Interest Income	21,346	17,770	39,011	35,076
PROVISION FOR LOAN AND LEASE LOSSES	1,050	465	1,600	590
Net Interest Income After Provision for Loan and Lease Losses	20,296	17,305	37,411	34,486
NONINTEREST INCOME
Net gain on sales of SBA loans	178	233	262	435
Earnings from cash surrender value of life insurance	76	79	152	157
Net gain on sales of investment securities	111	17	243	24
Other income	510	419	882	749
Total Noninterest Income	3,622	2,874	6,556	4,923
NONINTEREST EXPENSE
Salaries and employee benefits	7,986	7,786	16,267	15,545
Occupancy expense, net	1,333	1,344	2,772	2,745
Equipment expense	722	658	1,435	1,285
Pennsylvania bank shares tax expense	55	245	460	381
FDIC Assessment	357	314	669	673
Legal and professional fees	349	471	701	893
Marketing and advertising expense	98	226	302	405
Software licensing and utilization	1,297	1,111	2,518	2,132
Telephone expense	137	161	271	315
Loss on sale or write-down of foreclosed assets, net		18		14
Intangible amortization	326	360	649	723
Other expenses	2,743	2,102	4,940	3,988
Total Noninterest Expense	15,403	14,796	30,984	29,099
INCOME BEFORE PROVISION FOR INCOME TAXES	8,515	5,383	12,983	10,310
Provision for income taxes	1,682	980	2,332	1,830
NET INCOME	$ 6,833	$ 4,403	$ 10,651	$ 8,480
PER COMMON SHARE DATA:
Basic and Diluted Earnings Per Common Share	$ 0.81	$ 0.52	$ 1.26	$ 1.00
Cash Dividends Paid	$ 0.18	$ 0.18	$ 0.41	$ 0.43
Income from Fiduciary and Wealth Management Activities [Member]
NONINTEREST INCOME
Non-interest Income	$ 421	$ 347	$ 805	$ 706
Service Charges on Deposits [Member]
NONINTEREST INCOME
Non-interest Income	115	218	320	435
Mortgage Banking Income [Member]
NONINTEREST INCOME
Non-interest Income	1,638	1,077	2,820	1,514
ATM Debit Card Interchange Income [Member]
NONINTEREST INCOME
Non-interest Income	475	380	891	714
Merchant Services Income [Member]
NONINTEREST INCOME
Non-interest Income	$ 98	$ 104	$ 181	$ 189

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Leases - Addititonal Information (Details)	Jun. 30, 2020 USD ($)
Lease Cost [Abstract]
Sale and leaseback transactions	$ 0
Leveraged leases	$ 0

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Leases - Summary of Operating and Finance Lease Right-of-use Assets and Related Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Operating Leases
Right of use asset	$ 10,587	$ 11,442
Lease liability	$ 11,643	$ 12,544
Weighted average remaining lease term (in years)	8 years 5 months 8 days	8 years 7 months 20 days
Weighted average discount rate	3.34%	3.33%
Finance Lease
Right of use asset	$ 3,357	$ 3,447
Lease liability	$ 3,509	$ 3,551
Weighted average remaining lease term (in years)	18 years 8 months 1 day	19 years 2 months 1 day
Weighted average discount rate	3.81%	3.81%

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Leases - Summary of Lease Costs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Finance lease cost:
Amortization of right-of-use asset	$ 45	$ 45	$ 90	$ 60
Interest expense on lease liability	33	35	67	46
Total finance lease cost	78	80	157	106
Operating lease cost	505	515	1,033	1,030
Short-term and equipment lease cost	12	3	21	31
Sublease income	(4)	(7)	(10)	(12)
Total lease costs	$ 591	$ 591	$ 1,201	$ 1,155

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Leases - Summary of Cash Paid for Amounts Included in Measurement of Lease Liabilities (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$ 67	$ 46
Operating cash flows from operating leases	1,064	1,087
Financing cash flows from finance leases	$ 41	$ 6

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Leases - Summary of Maturity Analysis of Operating and Finance Lease Liabilities and Reconciliation of Undiscounted Cash Flows (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Operating lease payments due:
Within one year	$ 1,042
After one but within two years	1,868
After two but within three years	1,824
After three but within four years	1,572
After four but within five years	1,512
After five years	5,584
Total undiscounted cash flows	13,402
Discount on cash flows	(1,759)
Total lease liability	11,643	$ 12,544
Finance lease payments due:
Within one year	108
After one but within two years	216
After two but within three years	217
After three but within four years	217
After four but within five years	252
After five years	3,992
Total undiscounted cash flows	5,002
Discount on cash flows	(1,493)
Total lease liability	$ 3,509	$ 3,551

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Loan-Level Interest Rate Swaps (Notional Amount, and Collateral Posted Related to Loan-level Interest Rate Swaps) (Details) - Commercial Loan [Member] - Not Designated as Hedging [Member] $ in Thousands	Jun. 30, 2020 USD ($)
Other Assets [Member]
Derivative [Line Items]
Interest Rate Swap Contracts - Commercial Loans, Gross Fair Value (a)	$ 239	[1]
Interest Rate Swaps {Member]
Derivative [Line Items]
Interest Rate Swap Contracts - Commercial Loans, Notional Amount	8,907
Interest Rate Swap Contracts - Commercial Loans, Cash Collateral Posted (b)	$ 250	[2]

[1] Included in other assets on the Consolidated Balance Sheet

[2] Included in cash and due from banks on the Consolidated Balance Sheet

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Loan-Level Interest Rate Swaps (Schedule of Gross Amounts of Commercial Loan Swap Derivatives, Amounts Offset and Carrying Values) (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Gross amounts not offset:
Cash collateral	$ 250
Net Amounts	250
Interest Rate Swaps {Member] | Commercial Loan [Member]
Derivative [Line Items]
Gross amounts recognized	239
Gross amounts offset	$ 239

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Fair Value Measurement (Assets Measured at Fair Value on Recurring Basis) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	$ 23,492	$ 37,009
Available-for-sale securities	24,249	37,516
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	518	507
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	23,731	37,009
Mortgage-backed U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	2	12,890
Mortgage-backed U.S. Government Agencies [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	2	12,890
State and political subdivision obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	7,050	30
State and political subdivision obligations [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	7,050	30
Corporate debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	16,440	1,259
Corporate debt securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities	16,440	1,259
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale equity securities	518	507
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale equity securities	518	507
Interest Rate Swap Agreements [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale interest rate swap agreements	239
Interest Rate Swap Agreements [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale interest rate swap agreements	$ 239
U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities		22,830
U.S. Government Agencies [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt securities		$ 22,830

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Fair Value Measurement (Fair Value Measurements, Nonrecurring) (Details) - Nonrecurring [Member] - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Impaired Loan [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 812	$ 271
Foreclosed Assets Held for Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		122
Level 3 [Member] | Impaired Loan [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 812	271
Level 3 [Member] | Foreclosed Assets Held for Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 122

XML

Fair Value Measurement (Fair Value Inputs, Assets, Quantitative Information) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Impaired Loan [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques	Appraisal of collateral	Appraisal of collateral
Fair Value Disclosure, Unobservable Input Range	Appraisal adjustments	Appraisal adjustments
Impaired Loan [Member] | Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 812	$ 271
Impaired Loan [Member] | Nonrecurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 812	$ 271
Foreclosed Assets Held for Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques		Appraisal of collateral
Fair Value Disclosure, Unobservable Input Range		Appraisal adjustments
Foreclosed Assets Held for Sale [Member] | Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 122
Foreclosed Assets Held for Sale [Member] | Nonrecurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 122
Minimum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Impaired Loan [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	26.00%	26.00%
Minimum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Foreclosed Assets Held for Sale [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		8.00%
Maximum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Impaired Loan [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	100.00%	85.00%
Maximum [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Foreclosed Assets Held for Sale [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		27.00%
Weighted Average [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Impaired Loan [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	32.00%	36.00%
Weighted Average [Member] | Discount Rate [Member] | Appraisal of Collateral [Member] | Foreclosed Assets Held for Sale [Member] | Unobservable Input - Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		16.00%

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]
Net income		$ 6,833	$ 4,403	$ 10,651	$ 8,480
Other comprehensive (loss) income:
Unrealized income arising during the period on available-for-sale securities, net of income taxes impact, respectively		79	1,179	329	2,998
Reclassification adjustment for net gain on sales of available-for-sale securities included in net income, net of income taxes impact, respectively	[1]	(88)	(14)	(192)	(19)
Change in defined benefit plans, net of income taxes impact, respectively	[2]	(102)	(339)	(639)	(346)
Reclassification adjustment for settlement gains and activity related on benefit plans, net of income taxes, respectively	[3]	13	(29)	9	(29)
Total other comprehensive (loss) income		(98)	797	(493)	2,604
Total comprehensive income		$ 6,735	$ 5,200	$ 10,158	$ 11,084

[1] Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate element within total noninterest income.

[2] The change in defined benefit plans consists primarily of unrecognized actuarial (losses) gains on defined benefit plans during the period.

[3] The reclassification adjustment for benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss.  Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.  Please reference Note 11 – Defined Benefit Plans, for more information.

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Fair Value Measurement (Fair Value, by Balance Sheet Grouping) (Details) - USD ($)		Jun. 30, 2020	Dec. 31, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale investment securities		$ 23,492,000	$ 37,009,000
Held-to-maturity investment securities		139,491,000	137,476,000
Net loans and leases		324,159,000	414,498,000
Carrying Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents		143,755,000	139,030,000
Available-for-sale investment securities		23,492,000	37,009,000
Held-to-maturity investment securities		135,387,000	136,477,000
Equity securities		518,000	507,000
Loans held for sale		21,812,000	8,422,000
Net loans and leases		2,434,698,000	1,753,241,000
Restricted investment in bank stocks		7,079,000	4,902,000
Accrued interest receivable		12,743,000	2,810,000
Net Amounts Presented in the Consolidated Balance Sheets		239,000
Deposits		2,326,313,000	1,912,394,000
Short-term borrowings		203,937,000
Long-term debt	[1]	81,773,000	29,352,000
Subordinated debt		42,009,000	27,070,000
Accrued interest payable		2,590,000	2,208,000
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents		143,755,000	139,030,000
Available-for-sale investment securities		23,492,000	37,009,000
Held-to-maturity investment securities		139,491,000	137,476,000
Equity securities		518,000	507,000
Loans held for sale		22,120,000	8,630,000
Net loans and leases		2,522,315,000	1,789,402,000
Restricted investment in bank stocks		7,079,000	4,902,000
Accrued interest receivable		12,743,000	2,810,000
Net Amounts Presented in the Consolidated Balance Sheets		239,000
Deposits		2,336,221,000	1,916,624,000
Short-term borrowings		203,937,000
Long-term debt	[1]	81,686,000	30,216,000
Subordinated debt		40,439,000	25,273,000
Accrued interest payable		$ 2,590,000	$ 2,208,000

[1] Long-term debt excludes finance lease obligations.

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Fair Value Measurements (Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis) (Details) - USD ($)		Jun. 30, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities		$ 139,491,000	$ 137,476,000
Net loans and leases		324,159,000	414,498,000
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities		139,491,000	137,476,000
Loans held for sale		22,120,000	8,630,000
Deposits		2,336,221,000	1,916,624,000
Long-term debt	[1]	81,686,000	30,216,000
Subordinated debt		40,439,000	25,273,000
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net loans and leases		2,522,315,000	1,789,402,000
Carrying Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities		135,387,000	136,477,000
Loans held for sale		21,812,000	8,422,000
Net loans and leases		2,434,698,000	1,753,241,000
Deposits		2,326,313,000	1,912,394,000
Long-term debt	[1]	81,773,000	29,352,000
Subordinated debt		42,009,000	27,070,000
Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity investment securities		139,491,000	137,476,000
Loans held for sale		22,120,000	8,630,000
Net loans and leases		2,522,315,000	1,789,402,000
Deposits		2,336,221,000	1,916,624,000
Long-term debt	[1]	81,686,000	30,216,000
Subordinated debt		$ 40,439,000	$ 25,273,000

[1] Long-term debt excludes finance lease obligations.

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Guarantees, Commitments, and Contingencies (Narrative) (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2020 USD ($) Apartment	Dec. 31, 2019 USD ($)
Commitments, Contingencies and Guarantees [Line Items]
Number of apartments under the project | Apartment	37
Total investment in limited partnership, net of amortization	$ 168,000	$ 190,000
Limited partner capital contribution commitment	7,579,000
Annual LIHTCs mount awarded for the project	861,000
Total anticipated LIHTCs amount under the housing project	$ 8,613,000
Project investment amortization period	10 years	10 years
PPP Loans [Member] | Small Business Administration [Member]
Commitments, Contingencies and Guarantees [Line Items]
Nonrefundable loan processing fees received	$ 20,329,000
Other Assets [Member]
Commitments, Contingencies and Guarantees [Line Items]
Total investment in limited partnership, net of amortization	7,061,000	$ 7,249,000
Financial Standby Letters of Credit [Member]
Commitments, Contingencies and Guarantees [Line Items]
Commitments to extend credit	$ 28,589,000	$ 26,574,000

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Debt (Narrative) (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Debt Instrument [Line Items]
Maturity of federal funds purchased from correspondent banks			one business day
Real estate secured loans	$ 1,168,684,000		$ 1,168,684,000
Current borrowing available	814,982,000		814,982,000
Short term borrowings	203,937,000		203,937,000
Long-term debt outstanding	85,282,000		85,282,000		$ 32,903,000
FHLB prepayment	17,500,000		17,500,000
FHLB prepayment penalties	76,000	$ 0	139,000	$ 0
FHLB [Member]
Debt Instrument [Line Items]
Letter of credit outstanding, amount	212,401,000		212,401,000		169,051,000
Paycheck Protection Program Liquidity Facility [Member]
Debt Instrument [Line Items]
Short term borrowings	$ 203,937,000		$ 203,937,000		0
Short-term borrowings, term			two years
Short-term borrowings, interest Rate	0.35%		0.35%
Other Correspondent Banks [Member]
Debt Instrument [Line Items]
Outstanding drawings			$ 0		0
Line of credit facility, remaining borrowing capacity	$ 35,000,000		35,000,000
Short term borrowings	$ 0		0		0
FHLB Short-Term Borrowings [Member]
Debt Instrument [Line Items]
Outstanding drawings			$ 0		$ 0

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Debt (Long-term Debt Outstanding by Due Date) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Less: fair value adjustments on debt assumed in acquisitions		$ (41)
Total FHLB fixed rate instruments	$ 81,773	29,352
Lease obligations included in long-term debt	3,509	3,551
Total long-term debt	$ 85,282	32,903
Due in June 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding		$ 2,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	1.72%	1.72%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-06	2020-06
Due in July 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding		$ 5,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	2.45%	2.45%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-07	2020-07
Due in August 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding	$ 5,000	$ 5,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	3.05%	3.05%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-08	2020-08
Due in September 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding		$ 2,500
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	2.38%	2.38%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-09	2020-09
Due in October 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding	$ 5,000	$ 5,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	3.06%	3.06%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-10	2020-10
Due in November 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding		$ 3,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	2.32%	2.32%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-11	2020-11
Due in December 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding		$ 2,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	1.78%	1.78%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-12	2020-12
Due in December 2020 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding		$ 3,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	2.31%	2.31%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2020-12	2020-12
Due in April 2022 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding	$ 70,000
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	0.86%	0.86%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2022-04	2022-04
Due in August 2026 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding	$ 1,728	$ 1,846
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	4.80%	4.80%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2026-08	2026-08
Due in February 2027 [Member]
Debt Instrument [Line Items]
Long-term debt outstanding	$ 45	$ 47
Federal Home Loan Bank, advances, branch of FHLB bank, interest rate	6.71%	6.71%
Federal Home Loan Bank, advances, branch of FHLB bank, due date	2027-02	2027-02

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Subordinated Debt (Narrative) (Details) - Subordinated Debt [Member] - USD ($)				1 Months Ended	6 Months Ended
	Mar. 20, 2020	Dec. 19, 2017	Dec. 09, 2015	Jul. 31, 2018	Jun. 30, 2020	Dec. 31, 2019
Subordinated Notes Due 2030 [Member]
Subordinated debt issuance	$ 15,000,000
Subordinated Notes Due 2020 [Member]
Debt instrument, interest rate, effective percentage	4.00%
Debt Instrument, Description of Variable Rate Basis					The 2020 Notes bear interest at a rate of 4.0% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the 2020 Notes are floating will at no time be less than 4.25%.
Debt instrument, payment terms					Interest will be payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30.
Debt instrument, maturity date					Mar. 30, 2030
Debt instrument, redemption, description					The 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030.  Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes.  In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2020 Notes at 100% of the principal amount of the 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.
Notes payable to related parties					$ 1,700,000
Subordinated Notes Due 2020 [Member] | WSJ Prime Rate [Member] | Maximum [Member]
Debt instrument, interest rate, effective percentage	4.25%
Subordinated Notes Due 2025 [Member]
Subordinated debt issuance			$ 7,500,000
Debt instrument, interest rate, effective percentage			5.15%
Debt Instrument, Description of Variable Rate Basis					2015 Notes bear interest at a rate of 5.15% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0%.
Debt instrument, payment terms					Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016.
Debt instrument, maturity date					Dec. 09, 2025
Debt instrument, redemption, description					The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025.  Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if:  (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.
Notes payable to related parties					$ 1,930,000	$ 1,930,000
Unamortized debt issuance cost					$ 84,000	103,000
Subordinated Notes Due 2025 [Member] | First Priority Financial Corp. [Member]
Subordinated debt issuance				$ 9,500,000
Debt instrument, interest rate, effective percentage				7.00%
Debt Instrument, Description of Variable Rate Basis					The First Priority Notes are non-callable for an initial period of five years and include provisions for redemption pricing between 101.5% and 100.5% of the liquidation value if called after five years but prior to the stated maturity date
Debt instrument, maturity date					Nov. 30, 2025
Subordinated debt acquired				$ 9,500,000
Subordinated debt fair value premium				$ 247,000
Debt instrument, issuance date					Nov. 13, 2015
Debt instrument non-callable period				5 years
Subordinated Notes Due 2025 [Member] | Maximum [Member] | First Priority Financial Corp. [Member]
Debt instrument redemption price percentage				101.50%
Subordinated Notes Due 2025 [Member] | Minimum [Member] | First Priority Financial Corp. [Member]
Debt instrument redemption price percentage				100.50%
Subordinated Notes Due 2025 [Member] | WSJ Prime Rate [Member]
Debt instrument, basis spread on variable rate			0.50%
Subordinated Notes Due 2025 [Member] | WSJ Prime Rate [Member] | Maximum [Member]
Debt instrument, interest rate, effective percentage			4.00%
Subordinated Notes Due 2028 [Member]
Subordinated debt issuance		$ 10,000,000
Debt instrument, interest rate, effective percentage		5.25%
Debt Instrument, Description of Variable Rate Basis					The 2017 Notes bear interest at a rate of 5.25% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0%.
Debt instrument, payment terms					Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15.
Debt instrument, maturity date					Jan. 01, 2028
Debt instrument, redemption, description					The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.
Notes payable to related parties					$ 1,450,000	1,450,000
Unamortized debt issuance cost					$ 84,000	$ 103,000
Subordinated Notes Due 2028 [Member] | WSJ Prime Rate [Member]
Debt instrument, basis spread on variable rate		0.50%
Subordinated Notes Due 2028 [Member] | WSJ Prime Rate [Member] | Maximum [Member]
Debt instrument, interest rate, effective percentage		5.00%

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Defined Benefit Plans (Narrative) (Details)	6 Months Ended
	Jun. 30, 2020 USD ($)
Defined Benefit Plans And Other Postretirement Benefit Plans Disclosures [Abstract]
Contributions by employer to defined benefit plan	$ 200,000

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Defined Benefit Plans (Net Periodic Benefit Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Pension Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 45	$ 36	$ 64	$ 72
Interest cost	60	65	105	129
Expected return on plan assets	(68)	(63)	(136)	(127)
Amortization of net gain		(15)		(30)
Settlement loss (gain)	22	(37)	22	(37)
Net periodic benefit expense (income)	59	(14)	55	7
Other Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	1	1	1	2
Interest cost	6	4	6	8
Accretion of prior service cost	(5)	(5)	(10)	(10)
Amortization of net gain		(1)		(2)
Net periodic benefit expense (income)	$ 2	$ (1)	$ (3)	$ (2)

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Common Stock (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019	May 14, 2019	May 13, 2019	May 06, 2014
Class of Stock [Line Items]
Common stock, shares authorized	20,000,000		20,000,000		20,000,000	20,000,000	10,000,000
2014 Restricted Stock Plan [Member]
Class of Stock [Line Items]
Shares authorized per plan								100,000
Shares granted			57,655
Allocated share-based compensation expense	$ 96,000	$ 80,000	$ 192,000	$ 160,000
Shares forfeited and available for reissuance			2,446
Restricted shares vested during period			27,271
Granted shares unvested	27,938		27,938
Shares forfeited			100	0
Treasury Stock Repurchase Program [Member]
Class of Stock [Line Items]
Stock repurchase program, authorized amount	$ 15,000,000		$ 15,000,000
Percentage of issued shares based on closing stock price	9.60%		9.60%
Stock repurchase program expiration date			Mar. 19, 2021
Stock repurchased during period, shares			80,523
Stock repurchased at average price per share	$ 19.37		$ 19.37

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COVID-19 Pandemic Implications (Narrative) (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2020 USD ($) Borrower	Dec. 31, 2019 USD ($)	Jun. 30, 2019 USD ($)
Unusual Risk Or Uncertainty [Line Items]
Loans and leases receivable, gross, carrying amount	$ 2,445,765,000	$ 2,445,765,000	$ 1,762,756,000	$ 1,688,173,000
Loan modifications to number of borrowers affected by Covid | Borrower		1,000
COVID-19 Pandemic Implications [Member]
Unusual Risk Or Uncertainty [Line Items]
Loans and leases receivable, gross, carrying amount	444,886,000	$ 444,886,000
Maximum [Member] | COVID-19 Pandemic Implications [Member]
Unusual Risk Or Uncertainty [Line Items]
Modification from deferrals of principal and interest payments		6 months
Borrowers reverting to interest only payments		6 months
Minimum [Member] | COVID-19 Pandemic Implications [Member]
Unusual Risk Or Uncertainty [Line Items]
Modification from deferrals of principal and interest payments		3 months
Borrowers reverting to interest only payments		3 months
PPP Loans [Member] | Small Business Administration [Member]
Unusual Risk Or Uncertainty [Line Items]
Loans and leases receivable, gross, carrying amount	588,667,000	$ 588,667,000
Loan guarantee description		The PPP loans, which are 100 percent guaranteed by the Small Business Administration (“SBA”), have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.
Nonrefundable loan processing fees received		$ 20,329,000
Loan processing fees		2,371,000
Deferred loan processing fees	17,958,000	$ 17,958,000
Amortization of loan processing fees description		The PPP loan processing fees will be amortized over the life of the loan.
PPP Loans [Member] | Small Business Administration [Member] | Interest and Fees on Loans and Leases [Member]
Unusual Risk Or Uncertainty [Line Items]
Loan processing fees	2,371,000	$ 2,371,000
PPP Loans [Member] | Small Business Administration [Member] | Loan Origination Cost [Member]
Unusual Risk Or Uncertainty [Line Items]
Deferred loan processing fees	$ 17,958,000	$ 17,958,000
PPP Loans [Member] | Small Business Administration [Member] | Maximum [Member]
Unusual Risk Or Uncertainty [Line Items]
Loans maturity term		2 years

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Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]
Unrealized income arising during the period on available for sale securities, tax	$ 21	$ 313	$ 87	$ 796
Reclassification adjustment for net gain on sales of available for sale securities included in net income, tax	(23)	(3)	(51)	(5)
Change in defined benefit plans, tax	(27)	(90)	(170)	(91)
Reclassification adjustment for settlement gains on benefit plans, tax	$ 4	$ (8)	$ 3	$ (8)

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Consolidated Statements of Changes In Shareholders' Equity - USD ($) $ in Thousands	Total	Previously Reported [Member]	Impact of Adoption of New Accounting Standard [Member]	[1]	Common Stock [Member]	Common Stock [Member] Previously Reported [Member]	Additional Paid-in Capital [Member]	Additional Paid-in Capital [Member] Previously Reported [Member]	Retained Earnings [Member]	Retained Earnings [Member] Previously Reported [Member]	Retained Earnings [Member] Impact of Adoption of New Accounting Standard [Member]	[1]	Accumulated Other Comprehensive Income (Loss) [Member]	Accumulated Other Comprehensive Income (Loss) [Member] Previously Reported [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2018	$ 223,525	$ 223,209	$ 316		$ 8,460	$ 8,460	$ 177,565	$ 177,565	$ 39,878	$ 39,562	$ 316		$ (2,378)	$ (2,378)
Accounting Standards Update [Extensible List]	us-gaap:AccountingStandardsUpdate201601Member				us-gaap:AccountingStandardsUpdate201601Member		us-gaap:AccountingStandardsUpdate201601Member		us-gaap:AccountingStandardsUpdate201601Member				us-gaap:AccountingStandardsUpdate201601Member		us-gaap:AccountingStandardsUpdate201601Member
Net income	$ 4,077								$ 4,077
Total other comprehensive (loss) income, net of taxes	1,807												$ 1,807
Common stock dividends declared	(2,113)								(2,113)
Employee Stock Purchase Plan	28				$ 1		$ 27
Director Stock Purchase Plan	33				1		32
Restricted stock activity	80						80
Balance at Mar. 31, 2019	227,437				8,462		177,704		41,842				(571)
Balance at Dec. 31, 2018	223,525	$ 223,209	$ 316		8,460	$ 8,460	177,565	$ 177,565	39,878	$ 39,562	$ 316		(2,378)	$ (2,378)
Net income	8,480
Total other comprehensive (loss) income, net of taxes	2,604
Balance at Jun. 30, 2019	231,262				8,465		177,850		44,721				226
Balance at Mar. 31, 2019	227,437				8,462		177,704		41,842				(571)
Net income	4,403								4,403
Total other comprehensive (loss) income, net of taxes	797												797
Common stock dividends declared	(1,524)								(1,524)
Employee Stock Purchase Plan	36				2		34
Director Stock Purchase Plan	33				1		32
Restricted stock activity	80						80
Balance at Jun. 30, 2019	231,262				8,465		177,850		44,721				226
Balance at Dec. 31, 2019	$ 237,874				$ 8,481		$ 178,159		$ 50,891				$ 343
Accounting Standards Update [Extensible List]	us-gaap:AccountingStandardsUpdate201601Member				us-gaap:AccountingStandardsUpdate201601Member		us-gaap:AccountingStandardsUpdate201601Member		us-gaap:AccountingStandardsUpdate201601Member				us-gaap:AccountingStandardsUpdate201601Member		us-gaap:AccountingStandardsUpdate201601Member
Net income	$ 3,818								$ 3,818
Total other comprehensive (loss) income, net of taxes	(395)												$ (395)
Common stock dividends declared	(1,950)								(1,950)
Employee Stock Purchase Plan	33				$ 1		$ 32
Director Stock Purchase Plan	35				2		33
Restricted stock activity	96						96
Balance at Mar. 31, 2020	239,511				8,484		178,320		52,759				(52)
Balance at Dec. 31, 2019	237,874				8,481		178,159		50,891				343
Net income	10,651
Total other comprehensive (loss) income, net of taxes	(493)
Balance at Jun. 30, 2020	243,345				8,489		178,497		58,069				(150)		$ (1,560)
Balance at Mar. 31, 2020	239,511				8,484		178,320		52,759				(52)
Net income	6,833								6,833
Total other comprehensive (loss) income, net of taxes	(98)												(98)
Common stock dividends declared	(1,523)								(1,523)
Repurchased stock (80,523 shares)	(1,560)														(1,560)
Employee Stock Purchase Plan	45				3		42
Director Stock Purchase Plan	41				2		39
Restricted stock activity	96						96
Balance at Jun. 30, 2020	$ 243,345				$ 8,489		$ 178,497		$ 58,069				$ (150)		$ (1,560)

[1] Represents the impact of adopting Accounting Standard Update ASU 2016-02, Leases. See Note 2 to the consolidated financial statements for more information.

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Consolidated Statements of Changes In Shareholders' Equity (Parenthetical) - shares	3 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019
Repurchased stock, Shares	80,523
Stock issued during period shares, Director Stock Purchase Plans	2,231	1,743	1,336	1,361
Common Stock [Member]
Stock issued during period, shares, Employee Stock Purchase Plans	2,365	1,647	1,411	1,152

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating Activities:
Net Income	$ 10,651	$ 8,480
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan and lease losses	1,600	590
Depreciation	1,576	1,398
Amortization of intangibles	649	723
Net amortization of security discounts/premiums	362	196
Amortization of operating lease right of use assets	855	826
Amortization of finance lease right of use asset	90	60
Gain on sales of investment securities	(243)	(24)
Earnings on cash surrender value of life insurance	(152)	(174)
Mortgage loans originated for sale	(114,714)	(65,989)
Proceeds from sales of mortgage loans originated for sale	104,144	61,066
Gain on sale of mortgage loans	(2,820)	(1,514)
SBA loans originated for sale	(2,446)	(7,109)
Proceeds from sales of SBA loans originated for sale	2,708	7,544
Gain on sale of SBA loans	(262)	(435)
Loss on write-down or disposal of property, plant, and equipment	10	163
Loss on sale or write-down of foreclosed assets, net		14
Stock compensation expense	192	160
Deferred income tax expense (benefit)	611	(388)
Increase in accrued interest receivable	(4,779)	(639)
Decrease (increase) in other assets	353	(4,296)
Increase in accrued interest payable	382	434
Net change in operating lease liability	(901)	(883)
Increase (decrease) in other liabilities	1,065	(81)
Net Cash (Used In) Provided By Operating Activities	(1,069)	122
Investing Activities:
Proceeds from the sale of available-for-sale securities	68,811	40,455
Proceeds from the maturity or call of available-for-sale securities	8,513	3,436
Purchases of available-for-sale securities	(63,503)	(11,556)
Proceeds from the maturity or call of held-to-maturity securities	82,001	10,968
Purchases of held-to-maturity securities	(80,880)	(2,997)
(Purchases) redemptions of restricted investment in bank stock	(2,177)	166
Net increase in loans and leases	(684,579)	(64,616)
Proceeds from bank owned life insurance		140
Purchases of bank premises and equipment	(2,687)	(1,115)
Proceeds from the sale of foreclosed assets		907
Net Cash Used In Investing Activities	(674,501)	(24,212)
Financing Activities:
Net increase in deposits	413,919	52,375
Net increase (decrease) in short-term borrowings	203,937	(30,100)
Common stock dividends paid	(3,473)	(3,637)
Treasury stock purchased	(1,560)
Net change in finance lease liability	(41)	(6)
Proceeds from the issuance of subordinated debt	15,000
Issuance of long-term debt	70,000	13,500
Long-term debt repayment	(17,641)	(92)
Net Cash Provided By Financing Activities	680,295	32,170
Net increase in cash and cash equivalents	4,725	8,080
Cash and cash equivalents, beginning of period	139,030	40,065
Cash and cash equivalents, end of period	143,755	48,145
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	10,494	11,354
Cash paid for income taxes	1,060	2,200
Supplemental Noncash Disclosures:
Recognition of operating lease right of use assets		11,661
Recognition of operating lease liabilities		12,866
Recognition of finance lease right of use asset		3,597
Recognition of finance lease liability		3,597
Asset transferred to bank premises and equipment held for sale		1,274
Loans transferred to foreclosed assets held for sale	1,522	294
Employee [Member]
Financing Activities:
Proceeds from Stock Purchase Plan stock issuance	78	63
Director [Member]
Financing Activities:
Proceeds from Stock Purchase Plan stock issuance	$ 76	$ 67