Derivative Financial Instruments

3 Months Ended

Mar. 31, 2022

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

(7) Derivative Financial Instruments

As of March 31, 2022 and December 31, 2021, Mid Penn did not designate any derivative financial instruments as formal hedging relationships. Mid Penn’s free-standing derivative financial instruments are required to be carried at their fair value on Consolidated Balance Sheets.

Mortgage Banking Derivative Financial Instruments

In connection with its mortgage banking activities, Mid Penn enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, Mid Penn enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured.

The notional amount and fair value of Mid Penn’s mortgage banking derivative financial instruments as of March 31, 2022 and December 31, 2021 are presented below.

	March 31, 2021				December 31, 2021
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest Rate Lock Commitments	$	19,707	$	131	$	16,107	$	56
Forward Commitments		21,217		29		20,521		32

The following table presents Mid Penn’s mortgage banking derivative financial instruments, their fair values, and their location in the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.

	March 31, 2021				December 31, 2021
(Dollars in thousands)	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest Rate Lock Commitments	$	—	$	131	$	56	$	—
Forward Commitments		—		29		32		—
Total	$	—	$	160	$	88	$	—

The following table presents Mid Penn’s mortgage banking derivative financial instruments and the amount of the net gains or losses recognized within other noninterest income on the Consolidated Statements of Income for the three months ended March 31, 2022 and 2021.

	Three months ended
(Dollars in thousands)	March 31, 2022			March 31, 2021
Interest Rate Lock Commitments	$	(187	)	$	—
Forward Commitments		753			—
Total	$	566		$	—

Loan-level Interest Rate Swaps

Mid Penn enters into loan-level interest rate swaps with certain qualifying, creditworthy commercial loan customers to provide a loan pricing structure that meets both Mid Penn’s and the customer’s interest rate risk management needs. Mid Penn simultaneously enters into parallel interest rate swaps with a dealer counterparty, 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)	March 31, 2022		December 31, 2021
Interest Rate Swap Contracts - Commercial Loans:
Fair Value (a)	$	5,298	$	102
Notional Amount		112,543		109,577
Cash Collateral Posted (b)		1,600		1,600

(a) Represents the total of the equal and offsetting fair value assets and liabilities related to the loan level interest rate swaps

(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)	March 31, 2022		December 31, 2021
Interest Rate Swap Contracts - Commercial Loans:
Gross amounts recognized	$	5,298	$	102
Gross amounts offset		5,298		102
Net Amounts Presented in the Consolidated Balance Sheets		—		—
Gross amounts not offset:
Financial instruments		—		—
Cash collateral		1,600		1,600
Net Amounts	$	1,600	$	1,600