0000102212 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

~~Form 10-Q~~



x☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~for the quarterly period ended September 30, 2018.~~

For the quarterly period ended June 30, 2019



¨☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~for the transition period from~~ to .

For the transition period from __________ to __________

Commission File Number: 0-7617

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~

(Exact name of registrant as specified in its charter)



Pennsylvania		23-1886144
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

14 North Main Street, Souderton, Pennsylvania18964

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: ~~(215)~~ (215) 721-2400

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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



Title of class	Trading symbol	Name of exchange on which registered
Common Stock, $5 par value	UVSP	The NASDAQ Stock Market

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 x☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x☒	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 new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, $5 par value		~~29,314,818~~29,305,447
(Title of Class)		(Number of shares outstanding at ~~October~~July 31, ~~2018)~~



	2019)

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~ AND SUBSIDIARIES

INDEX



			Page Number
Part I.	Financial Information:

	Item 1.	Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	2

		Condensed Consolidated Statements of Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	3

		Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4

		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	6

		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~	7

		~~Notes to Condensed Consolidated Financial Statements~~2018	8

		Notes to Condensed Consolidated Financial Statements	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4948

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

	Item 4.	Controls and Procedures	64

Part II.	Other Information

	Item 1.	Legal Proceedings	64

	Item 1A.	Risk Factors	64

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

	Item 3.	Defaults Upon Senior Securities	65

	Item 4.	~~Controls and Procedures~~Mine Safety Disclosures	66

~~Part II.~~	~~Other Information~~

	~~Item 1.~~	~~Legal Proceedings~~	67

	~~Item 1A.~~	~~Risk Factors~~	67

	~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	67

	~~Item 3.~~	~~Defaults Upon Senior Securities~~	67

	~~Item 4.~~	~~Mine Safety Disclosures~~	6765

	Item 5.	Other Information	6765

	Item 6.	Exhibits	6866

Signatures			6967

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~

CONDENSED CONSOLIDATED BALANCE SHEETS


	(UNAUDITED)						(UNAUDITED)
(Dollars in thousands, except share data)	At September 30, 2018			At December 31, 2017			At June 30, 2019			At December 31, 2018
ASSETS
Cash and due from banks	$	52,200		$	46,721		$	55,223		$	61,573
Interest-earning deposits with other banks	31,910			28,688			29,344			47,847
Investment securities held-to-maturity (fair value $105,642 and $55,320 at September 30, 2018 and December 31, 2017, respectively)	108,142			55,564
Cash and cash equivalents							84,567			109,420
Investment securities held-to-maturity (fair value $175,296 and $141,575 at June 30, 2019 and December 31, 2018, respectively)							172,946			142,634
Investment securities available-for-sale	336,933			391,457			293,022			328,507
Investments in equity securities	2,264			7,061			2,865			2,165
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	33,071			27,204			32,755			28,337
Loans held for sale	106			1,642			1,498			1,754
Loans and leases held for investment	3,866,169			3,620,067			4,167,904			4,006,574
Less: Reserve for loan and lease losses	(27,371		)	(21,555		)	(32,600		)	(29,364		)
Net loans and leases held for investment	3,838,798			3,598,512			4,135,304			3,977,210
Premises and equipment, net	60,393			61,797			58,292			59,559
Operating lease right-of-use assets							35,508			—
Goodwill	172,559			172,559			172,559			172,559
Other intangibles, net of accumulated amortization and fair value adjustments of $24,423 and $21,825 at September 30, 2018 and December 31, 2017, respectively	12,405			13,909
Other intangibles, net of accumulated amortization							10,995			11,990
Bank owned life insurance	110,392			108,246			113,294			111,599
Accrued interest receivable and other assets	42,825			41,502			40,693			38,613
Total assets	$	4,801,998		$	4,554,862		$	5,154,298		$	4,984,347
LIABILITIES
Noninterest-bearing deposits	$	1,047,081		$	1,040,026		$	1,166,301		$	1,055,919
Interest-bearing deposits:
Demand deposits	1,350,720			1,109,438			1,424,288			1,377,171
Savings deposits	750,764			830,706			822,084			782,766
Time deposits	671,483			574,749			709,437			670,077
Total deposits	3,820,048			3,554,919			4,122,110			3,885,933
Short-term borrowings	86,765			105,431			39,350			189,768
Long-term debt	145,430			155,828			170,195			145,330
Subordinated notes	94,514			94,331			94,696			94,574
Operating lease liabilities							38,608			—
Accrued interest payable and other liabilities	40,999			40,979			37,669			44,609
Total liabilities	4,187,756			3,951,488			4,502,628			4,360,214
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at September 30, 2018 and December 31, 2017; 31,556,799 shares issued at September 30, 2018 and December 31, 2017; 29,407,076 and 29,334,859 shares outstanding at September 30, 2018 and December 31, 2017, respectively	157,784			157,784
Common stock, $5 par value: 48,000,000 shares authorized at June 30, 2019 and December 31, 2018; 31,556,799 shares issued at June 30, 2019 and December 31, 2018; 29,294,942 and 29,270,852 shares outstanding at June 30, 2019 and December 31, 2018, respectively							157,784			157,784
Additional paid-in capital	291,992			290,133			293,947			292,401
Retained earnings	235,658			216,761			267,357			248,167
Accumulated other comprehensive loss, net of tax benefit	(28,664		)	(17,771		)	(21,949		)	(28,416		)
Treasury stock, at cost; 2,149,723 and 2,221,940 shares at September 30, 2018 and December 31, 2017, respectively	(42,528		)	(43,533		)
Treasury stock, at cost; 2,261,857 and 2,285,947 shares at June 30, 2019 and December 31, 2018, respectively							(45,469		)	(45,803		)
Total shareholders’ equity	614,242			603,374			651,670			624,133
Total liabilities and shareholders’ equity	$	4,801,998		$	4,554,862		$	5,154,298		$	4,984,347

Note: See accompanying notes to the unaudited condensed consolidated financial statements.

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands, except per share data)	2018		2017		2018		2017		2019		2018			2019		2018
Interest income
Interest and fees on loans and leases:
Taxable	$	43,066	$	37,153	$	121,653	$	105,955	$	47,151	$	40,637		$	92,833	$	78,587
Exempt from federal income taxes	2,501		2,106		7,269		6,225		2,759		2,421			5,442		4,768
Total interest and fees on loans and leases	45,567		39,259		128,922		112,180		49,910		43,058			98,275		83,355
Interest and dividends on investment securities:
Taxable	2,348		1,855		6,805		5,376		2,645		2,268			5,358		4,457
Exempt from federal income taxes	459		550		1,404		1,725		401		477			832		945
Interest on deposits with other banks	397		133		621		188		569		148			838		224
Interest and dividends on other earning assets	484		375		1,497		1,129		535		509			1,121		1,013
Total interest income	49,255		42,172		139,249		120,598		54,060		46,460			106,424		89,994
Interest expense
Interest on deposits	6,278		3,068		14,511		7,720		9,111		4,542			17,314		8,233
Interest on short-term borrowings	584		169		2,187		756		217		958			855		1,603
Interest on long-term debt and subordinated notes	1,970		2,048		5,866		5,652		2,097		1,970			4,097		3,896
Total interest expense	8,832		5,285		22,564		14,128		11,425		7,470			22,266		13,732
Net interest income	40,423		36,887		116,685		106,470		42,635		38,990			84,158		76,262
Provision for loan and lease losses	2,745		2,689		20,207		7,900		2,076		15,409			4,761		17,462
Net interest income after provision for loan and lease losses	37,678		34,198		96,478		98,570		40,559		23,581			79,397		58,800
Noninterest income
Trust fee income	1,960		1,924		6,000		5,847		2,054		2,044			3,941		4,040
Service charges on deposit accounts	1,454		1,371		4,116		3,927		1,447		1,335			2,882		2,662
Investment advisory commission and fee income	3,785		3,455		11,246		9,969		4,055		3,778			7,844		7,461
Insurance commission and fee income	3,643		3,492		12,243		11,530		3,941		3,712			9,085		8,600
Other service fee income	2,284		2,123		6,884		6,355		2,590		2,431			4,857		4,600
Bank owned life insurance income	865		742		2,744		3,147		743		1,210			1,695		1,879
Net gain on sales of investment securities	—		7		10		43		7		—			8		10
Net gain on mortgage banking activities	754		908		2,412		3,558		796		942			1,279		1,658
Other income	116		87		102		712
Other income (loss)									723		(138		)	1,062		(14		)
Total noninterest income	14,861		14,109		45,757		45,088		16,356		15,314			32,653		30,896
Noninterest expense
Salaries, benefits and commissions	20,321		19,185		61,033		56,652		22,089		20,065			43,653		40,712
Net occupancy	2,515		2,523		7,805		7,872		2,601		2,533			5,212		5,290
Equipment	1,042		1,019		3,132		3,043		1,065		1,067			2,055		2,090
Data processing	2,339		2,118		6,662		6,257		2,627		2,091			5,141		4,323
Professional fees	1,370		1,447		4,056		3,934		1,307		1,331			2,571		2,686
Marketing and advertising	461		271		1,368		1,125		622		526			938		907
Deposit insurance premiums	544		409		1,387		1,262		430		452			882		843
Intangible expenses	479		690		1,685		1,895		417		594			843		1,206
Restructuring charges	—		—		571		—		—		—			—		571
Other expense	5,300		5,033		16,144		15,233		5,620		5,688			11,040		10,844
Total noninterest expense	34,371		32,695		103,843		97,273		36,778		34,347			72,335		69,472
Income before income taxes	18,168		15,612		38,392		46,385		20,137		4,548			39,715		20,224
Income tax expense	3,204		4,416		6,221		12,555		3,669		191			7,168		3,017
Net income	$	14,964	$	11,196	$	32,171	$	33,830	$	16,468	$	4,357		$	32,547	$	17,207
Net income per share:
Basic	$	0.51	$	0.42	$	1.10	$	1.27	$	0.56	$	0.15		$	1.11	$	0.59
Diluted	0.51		0.42		1.09		1.27		0.56		0.15			1.11		0.58
Dividends declared	0.20		0.20		0.60		0.60

Note: See accompanying notes to the unaudited condensed consolidated financial statements.

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,																		Three Months Ended June 30,
(Dollars in thousands)	2018									2017									2019									2018
	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Income	$	18,168		$	3,204		$	14,964		$	15,612		$	4,416		$	11,196		$	20,137		$	3,669		$	16,468		$	4,548		$	191		$	4,357
Other comprehensive (loss) income:
Net unrealized (losses) gains on available-for-sale investment securities:
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period																			2,933			616			2,317			(1,911		)	(401		)	(1,510		)
Less: reclassification adjustment for net gains on sales realized in net income (1)																			(7		)	(2		)	(5		)	—			—			—
Total net unrealized gains (losses) on available-for-sale investment securities																			2,926			614			2,312			(1,911		)	(401		)	(1,510		)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
Net unrealized holding (losses) gains arising during the period	(1,122		)	(236		)	(886		)	1,030			362			668			(263		)	(55		)	(208		)	154			32			122
Less: reclassification adjustment for net gains on sales realized in net income (1)	—			—			—			(7		)	(2		)	(5		)
Total net unrealized (losses) gains on available-for-sale investment securities	(1,122		)	(236		)	(886		)	1,023			360			663
Net unrealized gains (losses) on interest rate swaps used in cash flow hedges:
Net unrealized holding gains (losses) arising during the period	79			17			62			(20		)	(7		)	(13		)
Less: reclassification adjustment for net losses realized in net income (2)	1			—			1			41			14			27
Total net unrealized gains on interest rate swaps used in cash flow hedges	80			17			63			21			7			14
Less: reclassification adjustment for net (gains) losses realized in net income (2)																			(14		)	(3		)	(11		)	6			1			5
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges																			(277		)	(58		)	(219		)	160			33			127
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)	281			60			221			320			112			208			294			62			232			282			58			224
Accretion of prior service cost included in net periodic pension costs (3)	(70		)	(15		)	(55		)	(71		)	(25		)	(46		)	(46		)	(10		)	(36		)	(71		)	(14		)	(57		)
Total defined benefit pension plans	211			45			166			249			87			162			248			52			196			211			44			167
Other comprehensive (loss) income	(831		)	(174		)	(657		)	1,293			454			839
Total comprehensive income	$	17,337		$	3,030		$	14,307		$	16,905		$	4,870		$	12,035
Other comprehensive income (loss)																			2,897			608			2,289			(1,540		)	(324		)	(1,216		)
Total comprehensive income (loss)																			$	23,034		$	4,277		$	18,757		$	3,008		$	(133	)	$	3,141

(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).

(2) Included in interest expense on deposits on the consolidated statements of income (before tax amount).

(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.

Note: See accompanying notes to the unaudited condensed consolidated financial statements.



	Six Months Ended June 30,
(Dollars in thousands)	2019									2018
(Dollars in thousands)	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Income	$	39,715		$	7,168		$	32,547		$	20,224		$	3,017		$	17,207
Other comprehensive income:
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period	8,053			1,691			6,362			(8,249		)	(1,732		)	(6,517		)
Less: reclassification adjustment for net gains on sales realized in net income (1)	(8		)	(2		)	(6		)	(10		)	(2		)	(8		)
Total net unrealized gains (losses) on available-for-sale investment securities	8,045			1,689			6,356			(8,259		)	(1,734		)	(6,525		)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
Net unrealized holding (losses) gains arising during the period	(431		)	(91		)	(340		)	366			77			289
Less: reclassification adjustment for net (gains) losses realized in net income (2)	(30		)	(6		)	(24		)	26			5			21
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges	(461		)	(97		)	(364		)	392			82			310
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)	588			124			464			563			117			446
Accretion of prior service cost included in net periodic pension costs (3)	(91		)	(19		)	(72		)	(142		)	(29		)	(113		)
Total defined benefit pension plans	497			105			392			421			88			333
Other comprehensive income (loss)	8,081			1,697			6,384			(7,446		)	(1,564		)	(5,882		)
Total comprehensive income	$	47,796		$	8,865		$	38,931		$	12,778		$	1,453		$	11,325

Nine Months Ended September 30,
(Dollars in thousands) 2018 2017
Before
Tax
Amount

Tax
Expense
(Benefit)

Net of
Tax
Amount

Before
Tax
Amount

Tax
Expense
(Benefit)

Net of
Tax
Amount
Income $ 38,392
$ 6,221
$ 32,171
$ 46,385
$ 12,555
$ 33,830
Other comprehensive (loss) income:
Net unrealized (losses) gains on available-for-sale investment securities:
Net unrealized holding (losses) gains arising during the period (9,371 ) (1,968 ) (7,403 ) 4,082
1,430
2,652
Less: reclassification adjustment for net gains on sales realized in net income (1) (10 ) (2 ) (8 ) (43 ) (15 ) (28 )
Total net unrealized (losses) gains on available-for-sale investment securities (9,381 ) (1,970 ) (7,411 ) 4,039
1,415
2,624
Net unrealized gains on interest rate swaps used in cash flow hedges:

Net unrealized holding gains (losses) arising during the period 445
93
352
(105 ) (37 ) (68 )
Less: reclassification adjustment for net losses realized in net income (2) 27
6
21
148
52
96
Total net unrealized gains on interest rate swaps used in cash flow hedges 472
99
373
43
15
28
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3) 844
177
667
918
321
597
Accretion of prior service cost included in net periodic pension costs (3) (212 ) (44 ) (168 ) (212 ) (74 ) (138 )
Total defined benefit pension plans 632
133
499
706
247
459
Other comprehensive (loss) income (8,277 ) (1,738 ) (6,539 ) 4,788
1,677
3,111
Total comprehensive income $ 30,115
$ 4,483
$ 25,632
$ 51,173
$ 14,232
$ 36,941

(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).

(2) Included in interest expense on deposits on the consolidated statements of income (before tax amount).

Note: See accompanying notes to the unaudited condensed consolidated financial statements.

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except share and per share data) Common
Shares
Outstanding Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Nine Months Ended September 30, 2018
Balance at December 31, 2017 29,334,859
$ 157,784
$ 290,133
$ 216,761
$ (17,771 ) $ (43,533 ) $ 603,374
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value (1) —
—
—
433
(433 ) —
—
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges (1) —
—
—
3,921
(3,921 ) —
—
Net income —
—
—
32,171
—
—
32,171
Other comprehensive loss, net of income tax benefit —
—
—
—
(6,539 ) —
(6,539 )
Cash dividends declared ($0.60 per share) —
—
—
(17,629 ) —
—
(17,629 )
Stock issued under dividend reinvestment and employee stock purchase plans 62,271
—
140
1
—
1,598
1,739
Exercise of stock options 59,750
—
(43 ) —
—
1,174
1,131
Stock-based compensation —
—
2,379
—
—
—
2,379
Purchases of treasury stock (83,977 ) —
—
—
—
(2,384 ) (2,384 )
Restricted stock awards granted, net of cancellations 34,173
—
(617 ) —
—
617
—
Balance at September 30, 2018 29,407,076
$ 157,784
$ 291,992
$ 235,658
$ (28,664 ) $ (42,528 ) $ 614,242


(Dollars in thousands, except share and per share data)	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total
Nine Months Ended September 30, 2017
Balance at December 31, 2016	26,589,353		$	144,559	$	230,494		$	194,516		$	(19,454	)	$	(44,906	)	$	505,209
(Dollars in thousands, except per share data)																				Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total
Three Months Ended June 30, 2019
Balance at March 31, 2019																				29,272,502		$	157,784	$	293,255		$	256,746		$	(24,238	)	$	(45,941	)	$	637,606
Net income	—		—		—			33,830			—			—			33,830			—		—		—			16,468			—			—			16,468
Other comprehensive income, net of income tax	—		—		—			—			3,111			—			3,111			—		—		—			—			2,289			—			2,289
Cash dividends declared ($0.60 per share)	—		—		—			(15,983		)	—			—			(15,983		)
Cash dividends declared ($0.20 per share)																				—		—		—			(5,858		)	—			—			(5,858		)
Stock issued under dividend reinvestment and employee stock purchase plans	63,683		—		130			—			—			1,709			1,839			22,440		—		47			1			—			516			564
Exercise of stock options	84,870		—		(121		)	—			—			1,648			1,527			9,000		—		(11		)	—			—			181			170
Stock-based compensation	—		—		2,550			—			—			—			2,550			—		—		656			—			—			—			656
Purchases of treasury stock	(112,393	)	—		—			—			—			(3,285		)	(3,285		)	(9,000	)	—		—			—			—			(225		)	(225		)
Restricted stock awards granted, net of cancellations	45,823		—		(881		)	—			—			881			—
Balance at September 30, 2017	26,671,336		$	144,559	$	232,172		$	212,363		$	(16,343	)	$	(43,953	)	$	528,798
Balance at June 30, 2019																				29,294,942		$	157,784	$	293,947		$	267,357		$	(21,949	)	$	(45,469	)	$	651,670



(Dollars in thousands, except per share data)	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Three Months Ended June 30, 2018
Balance at March 31, 2018	29,391,934		$	157,784	$	290,095		$	228,097		$	(26,791	)	$	(42,466	)	$	606,719
Net income	—		—		—			4,357			—			—			4,357
Other comprehensive loss, net of income tax benefit	—		—		—			—			(1,216		)	—			(1,216		)
Cash dividends declared ($0.20 per share)	—		—		—			(5,881		)	—			—			(5,881		)
Stock issued under dividend reinvestment and employee stock purchase plans	21,686		—		54			1			—			549			604
Exercise of stock options	22,832		—		(5		)	—			—			448			443
Stock-based compensation	—		—		872			—			—			—			872
Purchases of treasury stock	(20,814	)	—		—			—			—			(604		)	(604		)
Cancellations of restricted stock awards	(9,188	)	—		222			—			—			(222		)	—
Balance at June 30, 2018	29,406,450		$	157,784	$	291,238		$	226,574		$	(28,007	)	$	(42,295	)	$	605,294



(Dollars in thousands, except per share data)	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total
Six Months Ended June 30, 2019
Balance at December 31, 2018	29,270,852		$	157,784	$	292,401		$	248,167		$	(28,416	)	$	(45,803	)	$	624,133
Adjustment to initially apply ASU No. 2016-02 for leases (1)	—		—		—			(1,525		)	—			—			(1,525		)
Adjustment to initially apply ASU No. 2017-12 for derivatives (1)	—		—		—			(83		)	83			—			—
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities (1)	—		—		—			(39		)	—			—			(39		)
Net income	—		—		—			32,547			—			—			32,547
Other comprehensive income, net of income tax	—		—		—			—			6,384			—			6,384
Cash dividends declared ($0.40 per share)	—		—		—			(11,711		)	—			—			(11,711		)
Stock issued under dividend reinvestment and employee stock purchase plans	48,183		—		77			1			—			1,057			1,135
Exercise of stock options	39,500		—		(102		)	—			—			793			691
Stock-based compensation	—		—		1,230			—			—			—			1,230
Purchases of treasury stock	(46,244	)	—		—			—			—			(1,175		)	(1,175		)
Cancellations of performance-based restricted stock awards	(17,349	)	—		341			—			—			(341		)	—
Balance at June 30, 2019	29,294,942		$	157,784	$	293,947		$	267,357		$	(21,949	)	$	(45,469	)	$	651,670

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in ~~2018"~~2019" for additional information.



(Dollars in thousands, except share and per share data)	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Six Months Ended June 30, 2018
Balance at December 31, 2017	29,334,859		$	157,784	$	290,133		$	216,761		$	(17,771	)	$	(43,533	)	$	603,374
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value	—		—		—			433			(433		)	—			—
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges	—		—		—			3,921			(3,921		)	—			—
Net income	—		—		—			17,207			—			—			17,207
Other comprehensive loss, net of income tax benefit	—		—		—			—			(5,882		)	—			(5,882		)
Cash dividends declared ($0.40 per share)	—		—		—			(11,749		)	—			—			(11,749		)
Stock issued under dividend reinvestment and employee stock purchase plans	41,939		—		98			1			—			1,074			1,173
Exercise of stock options	36,990		—		(14		)	—			—			725			711
Stock-based compensation	—		—		1,719			—			—			—			1,719
Purchases of treasury stock	(44,353	)	—		—			—			—			(1,259		)	(1,259		)
Restricted stock awards granted, net of cancellations	37,015		—		(698		)	—			—			698			—
Balance at June 30, 2018	29,406,450		$	157,784	$	291,238		$	226,574		$	(28,007	)	$	(42,295	)	$	605,294

Note: See accompanying notes to the unaudited condensed consolidated financial statements.

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
(Dollars in thousands)	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	32,171		$	33,830		$	32,547		$	17,207
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	20,207			7,900			4,761			17,462
Depreciation of premises and equipment	4,180			4,151			2,651			2,795
Net amortization of investment securities premiums and discounts	1,193			1,416			834			779
Net gain on sales of investment securities	(10		)	(43		)	(8		)	(10		)
Net gain on mortgage banking activities	(2,412		)	(3,558		)	(1,279		)	(1,658		)
Bank owned life insurance income	(2,744		)	(3,147		)	(1,695		)	(1,879		)
Net accretion of acquisition accounting fair value adjustments	(838		)	(2,572		)	(247		)	(495		)
Stock-based compensation	2,379			2,550			1,256			1,719
Intangible expenses	1,685			1,895			843			1,206
Other adjustments to reconcile net income to cash provided by (used in) operating activities	117			(286		)
Other adjustments to reconcile net income to cash (used in) provided by operating activities							(461		)	190
Originations of loans held for sale	(95,665		)	(105,557		)	(69,323		)	(74,695		)
Proceeds from the sale of loans held for sale	99,842			112,602			70,603			76,263
Contributions to pension and other postretirement benefit plans	(3,199		)	(2,206		)	(132		)	(133		)
Decrease in accrued interest receivable and other assets	379			1,395
Increase (decrease) in accrued interest payable and other liabilities	4,021			(3,620		)
Increase in accrued interest receivable and other assets							(3,921		)	(3,089		)
(Decrease) increase in accrued interest payable and other liabilities							(4,872		)	814
Net cash provided by operating activities	61,306			44,750			31,557			36,476
Cash flows from investing activities:
Net capital expenditures	(2,596		)	(5,040		)	(1,432		)	(1,347		)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	7,846			21,796			11,054			4,253
Proceeds from maturities, calls and principal repayments of securities available-for-sale	44,603			49,271			27,784			34,824
Proceeds from sales of securities available-for-sale	1,010			3,538			15,494			1,010
Purchases of investment securities held-to-maturity	(60,784		)	(42,585		)	(41,808		)	(45,349		)
Purchases of investment securities available-for-sale	(1,986		)	(9,974		)	(498		)	(1,485		)
Proceeds from sales of money market mutual funds	11,215			23,035			523			10,706
Purchases of money market mutual funds	(6,392		)	(18,875		)	(1,203		)	(6,284		)
Net increase in other investments	(5,867		)	(2,375		)	(4,418		)	(5,564		)
Net increase in loans and leases	(260,012		)	(204,866		)	(162,169		)	(211,534		)
Net increase in interest-earning deposits	(3,222		)	(22,546		)
Proceeds from sales of other real estate owned	362			3,996			599			21
Purchases of bank owned life insurance	(776		)	—			—			(776		)
Proceeds from bank owned life insurance	1,374			2,937			—			1,374
Net cash used in investing activities	(275,225		)	(201,688		)	(156,074		)	(220,151		)
Cash flows from financing activities:
Net increase in deposits	265,260			261,402			236,213			65,963
Net decrease in short-term borrowings	(18,666		)	(164,080		)
Net (decrease) increase in short-term borrowings							(150,418		)	126,422
Proceeds from issuance of long-term debt	—			95,000			25,000			—
Repayment of long-term debt	(10,000		)	(15,000		)
Payment of contingent consideration on acquisitions	(67		)	(5,380		)	(65		)	(67		)
Purchases of treasury stock	(2,384		)	(3,285		)	(1,175		)	(1,259		)
Stock issued under dividend reinvestment and employee stock purchase plans	1,739			1,839			1,135			1,173
Proceeds from exercise of stock options	1,131			1,527			691			711
Cash dividends paid	(17,615		)	(15,966		)	(11,717		)	(11,734		)
Net cash provided by financing activities	219,398			156,057			99,664			181,209
Net increase (decrease) in cash and due from banks	5,479			(881		)
Cash and due from banks at beginning of year	46,721			48,757
Cash and due from banks at end of period	$	52,200		$	47,876
Net decrease in cash and cash equivalents							(24,853		)	(2,466		)
Cash and cash equivalents at beginning of year							109,420			75,409
Cash and cash equivalents at end of period							$	84,567		$	72,943
Supplemental disclosures of cash flow information:
Cash paid for interest	$	21,647		$	15,458		$	22,002		$	13,190
Cash paid for income taxes, net of refunds	1,315			12,448			9,883			1,060
Non cash transactions:
Transfer of loans to other real estate owned	$	477		$	649		$	—		$	402

Note: See accompanying notes to the unaudited condensed consolidated financial statements.

UNIVEST FINANCIAL CORPORATION ~~OF PENNSYLVANIA~~ AND SUBSIDIARIES

Notes to the Condensed Unaudited Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Univest Financial Corporation ~~of Pennsylvania~~ (the ~~Corporation or Univest)~~Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations for interim financial information. The accompanying unaudited consolidated financial statements reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods presented. Certain prior period amounts have been reclassified to conform to the current-year presentation. Operating results for the ~~nine-month~~three-month or six-month period ended ~~September~~June 30, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2018~~2019 or for any other period. ~~It is suggested that these~~These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the registrant’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which was filed with the SEC on ~~March 1, 2018.~~February 28, 2019.

Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include fair value measurement of investment securities available-for-sale and the calculation of the reserve for loan and lease ~~losses and purchase accounting.~~losses.

Accounting Pronouncements Adopted in ~~2018~~2019

In February ~~2018,~~2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. ~~2018-02,~~ 2016-02, "~~Income Statement – Reporting Comprehensive Income~~Leases (Topic ~~220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~842)"~~This ASUclarifies~~ and subsequent related updates to revise the accounting ~~treatment~~for leases. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases based on the present value of future lease payments using an estimated incremental borrowing rate. Lessor accounting activities are largely unchanged from existing lease accounting. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This new guidance was effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019 for the Corporation.

The Corporation adopted this guidance, and subsequent related updates, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings, representing the difference between the value of the ~~reclassification~~Corporation’s lease liabilities and related right-of-use assets and the existing deferred rent liability, at January 1, 2019. The Corporation elected the package of ~~certain~~practical expedients, which includes a provision which allows for the grandfathering of lease classification, among other items, and the hindsight practical expedient to determine the lease term. All leases in which the Corporation is the lessee were classified as operating leases and continue to be classified as such. On January 1, 2019, the Corporation recorded $39.6 million of operating lease liabilities and $36.6 million of related right-of-use assets and released $1.0 million of existing deferred rent liability. The resulting cumulative effect adjustment of $1.5 million, net of tax, was recorded to retained earnings at January 1, 2019. The initial and continued impact of the recording of operating lease assets had and will continue to have a negative impact on all Corporation and Bank regulatory capital ratios. Additionally, the Corporation early adopted (ASU) No. 2019-01, "Codification Improvements" , as of January 1, 2019, which serves as an an update to (ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 4, "Loans and Leases" and Note 14, "Leases" for applicable disclosures including quantitative and qualitative information about the Corporation’s leases.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" and subsequent related updates. The amendments in this update expand and refine hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU amends the presentation and disclosure requirements and changes how entities assess effectiveness. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires all items that affect earnings be presented in the same income ~~tax effects~~statement line as the hedged items. The

amendments in this guidance permit the use of the Overnight Index Swap rate based on Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes to facilitate the LIBOR to SOFR transition. This guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities, or January 1, 2019 for the Corporation. The amended presentation and disclosure guidance was required only prospectively. The Corporation adopted this guidance on a modified retrospective basis through a cumulative-effect adjustment to retained earnings effective January 1, 2019. The Corporation recorded a cumulative-effect adjustment of $83 thousand related to ineffectiveness on a cash flow hedge, which was reclassified from retained earnings to accumulated other comprehensive income, ~~as a result of the Tax Cuts and Jobs Act. The Corporation elected to early adopt this guidance~~ effective January 1, 2018 for all stranded tax effects resulting from tax reform and reclassified stranded tax effects, totaling $3.9 million, from accumulated other comprehensive income to retained earnings. The Corporation's policy for releasing income tax effects from accumulated other comprehensive income is to release such effects on an individual basis as each item is liquidated, sold or extinguished. See Note 10, "Accumulated Other Comprehensive (Loss) Income" for additional detail.2019.

In March 2017, the FASB issued ASU No. ~~2017-07,~~ ~~"Compensation~~2017-08, “Receivables – ~~Retirement Benefits (Topic 715)~~Nonrefundable Fees and Other Costs (Subtopic 310-20): ~~Improving~~Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the ~~Presentation~~amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date rather than the maturity of ~~Net Periodic Pension Cost~~the security. Securities within the scope of this guidance are those that have explicit, non-contingent call features that are callable at fixed prices and ~~Net Periodic Postretirement Benefit Cost."~~on preset dates. The amendments ~~in this ASU~~do not require ~~that~~ an ~~employer that sponsors defined benefit pension plans and other postretirement plans present~~accounting change for securities held at a discount; the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are requireddiscount continues to be ~~presented in~~amortized to maturity. The guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the ~~income statement separately from~~Corporation. At December 31, 2018, the ~~service cost component and outside a subtotal~~Corporation had $11.3 million of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.callable debt securities. The Corporation adopted this guidance ~~effective January 1, 2018 with~~on a modified retrospective application for prior period presentation. Effective January 1, 2018, components of net benefit income other than the service cost component are presented in the Corporation's statement of income in other noninterest expense rather than in salaries, benefits and commission expense. Prior period components of net benefit income other than the service cost component were reclassed to other noninterest expense in the Corporation's statement of income.

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~“Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities."~~ This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income. At December 31, 2017, the Corporation had financial services equity securities with a carrying value of $1.1 million which included an unrealized net gain of $666 thousand. At December 31, 2017, $433 thousand

was recorded in accumulated other comprehensive income which represented the unrealized net gain, net of income taxes, based on the Corporation’s statutory tax rate as of December 31, 2017. In addition, at December 31, 2017, the Corporation had money market mutual funds with a fair value and amortized cost of $6.0 million which were reclassified to equity securities under this guidance. The Corporation adopted this guidance effective January 1, 2018 withbasis through a cumulative-effect adjustment ~~to the balance sheet as of January 1, 2018. The balance in accumulated other comprehensive income of $433 thousand was reclassified~~ to retained earnings effective January 1, ~~2018.~~2019. The ~~carrying value~~Corporation recorded a cumulative-effect adjustment resulting in a reduction in the unamortized premium balance for certain callable debt securities of ~~the equity securities, at January 1, 2018, did not change; however, any future increases or decreases~~$49 thousand and a reduction in ~~fair value is recorded as an increase or decrease to the carrying value and recognized in other noninterest income. During the nine months ended September 30, 2018, the Corporation recognized a $26~~retained earnings of approximately $39 thousand, net ~~gain on equity securities in other noninterest income.~~

~~In May 2014,~~of tax, for the ~~FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)”~~ and subsequent related updates. The Corporation adopted the guidance effective January 1, 2018 using the modified retrospective method though no adjustments were made to retained earnings as a result of the adoption. The Corporation provided expanded disclosures related to recognition of revenue from contracts with customers. See Note 14, "Revenue from Contracts with Customers."incremental amortization.

Recent Accounting Pronouncements Yet to Be Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent related updates. This ASU requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which other-than-temporary impairment has been recognized before the effective date. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or January 1, 2020 for the Corporation. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the reserve for loan and lease losses will increase upon adoption of CECL and that the increased reserve level will decrease shareholders' equity and impact regulatory capital and ratios.

In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Financial Instruments (Topic 825)." The amendments to Topic 326 are the most significant and address how a company considers recoveries and extension options when estimating expected credit losses. The ASU clarifies that a company’s estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off. The ASU clarifies that a company should consider contractual extension or renewal options that it cannot unconditionally cancel when determining the contractual term over which expected credit losses are measured. ASU No. 2019-04 is effective for the Corporation for reporting periods beginning January 1, 2020. The Corporation does not expect the adoption of the amendments related to Topics 815 and 825 will have a material impact on the Corporation's financial statements. For additional detail related to amendments to Topic 326, see previous discussion of ASU No. 2016-13.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that calculate net asset value. Additional disclosures required by this ASU include: 1) change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The prospective method

of transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1, 2020 for the Corporation. Early adoption is permitted. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements but will result in revised disclosures for fair value.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This ASU eliminates Step 2 of the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or for the Corporation's goodwill impairment test in 2020. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit plans or other postretirement plans. Disclosures removed by this ASU include the following: 1) amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year; 2) amount and timing of plan assets expected to be returned to the employer; and 3) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. Additional disclosures required by this ASU include: 1) the weighted-average interest crediting rates used in an entity's cash balance pension plans and other similar plans and 2) explanations for reasons for significant changes in the benefit obligation or plan assets. All amendments should be applied retrospectively. This ASU is effective for fiscal years ending after December 15, 2020 or December 31, 2020 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statement disclosures but will result in revised disclosures for retirement plans and other postretirement benefits.

~~In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement."~~ This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that calculate net asset value. Additional disclosures required by this ASU include: 1) change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The prospective method of transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1, 2020 for the Corporation. Early adoption is permitted. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements but will result in revised disclosures for fair value.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~“Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~" The amendments in this update expand and refine hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additional hedging strategies permitted for hedge accounting include: hedges of contractually-specified price components of commodity purchases or sales, hedges of the benchmark rate component of the contractual coupon cash flows of fixed-rate assets or liabilities, hedges of the portion of a closed portfolio of prepayable assets not expected to prepay, and partial-term hedges of fixed-rate assets or liabilities. The ASU amends the presentation and disclosure requirements and changes how entities assess effectiveness. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires all items that affect earnings be presented in the same income statement line as the hedged items. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the entity can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. The amended presentation and disclosure guidance is required only prospectively. The Corporation will adopt this ASU on January 1, 2019 and does not expect the adoption will have a material impact on the Corporation's financial statements.

~~In March 2017, the FASB issued ASU No. 2017-08,~~ ~~“Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.”~~ This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date rather than the maturity of the security. ~~Securities within the scope of this guidance are those that have explicit, non-contingent call features that are callable at fixed prices and on preset dates.~~ The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. This ASU is to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. At September 30, 2018, the Corporation had $11.3 million of callable debt securities. Upon implementation, using the modified retrospective basis effective January 1, 2019, the Corporation expects to record a cumulative-effect adjustment resulting in a reduction in the unamortized premium balance for certain callable debt securities of approximately $50 thousand and a reduction in retained earnings of approximately $40 thousand, net of tax, for the incremental amortization. This estimate could change due to changes in the Corporation's investments in callable securities prior to the adoption date. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~"Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment."~~ This ASU eliminates Step 2 of the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or for the Corporation's goodwill impairment test in 2020. Early adoption is permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

~~In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”~~ This ASU requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or January 1, 2020 for the Corporation. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the reserve for loan and lease losses will increase upon adoption of CECL and that the increased reserve level will decrease shareholders' equity and regulatory capital and ratios.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~"Leases (Topic 842)"~~ and subsequent related updates to revise the accounting for leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases based on the present value of future lease payments. Lessor accounting activities are largely unchanged from existing lease accounting. Disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Early adoption is permitted. This new guidance is effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019 for the Corporation.

The Corporation expects to adopt this new guidance effective January 1, 2019, retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings at January 1, 2019. The Corporation expects to elect the package of practical expedients permitted under the transition guidance which among other things, allows carry forward of the

historical lease classification. All leases in which the Corporation is the lessee are classified as operating leases and will continue to be classified as such. The Corporation expects to continue to separately account for lease and non-lease components as historically reported and expects to elect the hindsight practical expedient to determine the lease term for existing leases. The Corporation is currently implementing a third party lease accounting system to assist with the measurement of lease liabilities and related right-of-use assets, the post-implementation administration aspect of lease accounting, and the applicable disclosures related to the new guidance. The Corporation has completed the initial scoping phase of the project, including the identification and review of lease contracts applicable to the new guidance, and is in the process of determining the estimated financial statement impact of the new guidance at the transition date. While the Corporation is continuing to assess the impact of this new guidance on the balance sheet and income statement, the Corporation expects to record between $30.0 million to $40.0 million of operating lease liabilities and related right-of-use assets at January 1, 2019, with any difference between these amounts, net of the deferred tax impact, recorded as an adjustment to opening retained earnings. These estimates, based on our active lease portfolio, may change as the Corporation continues through the implementation process, or due to changes in the lease portfolio, which could include new leases, changes in lease commencement dates, and changes to renewal options and lease termination expectations. The initial and continued impact of the recording of operating lease assets will have a negative impact on all Corporation and Bank capital ratios under current regulatory guidance and possibly equity ratios.

Note 2. Earnings per Share

The Corporation uses the two-class method to calculate earnings per share as the unvested restricted stock ~~issued~~awards outstanding under the Corporation's equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if options on common shares had been exercised, as well as any adjustment to income that would result from the assumed issuance, and if restricted stock units were vested. Potential common shares that may be issued by the Corporation relate to outstanding stock options and restricted stock units, and are determined using the treasury stock method. The ~~table also notes anti-dilutive~~effects of options to issue common stock and unvested restricted stock units are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.Anti-dilutive options are those options with weighted average exercise prices in excess of the weighted average market ~~value~~value.Anti-dilutive restricted stock units are those with hypothetical repurchases of shares, under the treasury stock method, exceeding the average restricted stock units outstanding for the periods presented.

The following table sets forth the computation of basic and diluted earnings per share:



	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars and shares in thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net income	$	16,468		$	4,357		$	32,547		$	17,207
Net income allocated to unvested restricted stock awards	(60		)	(33		)	(128		)	(132		)
Net income allocated to common shares	$	16,408		$	4,324		$	32,419		$	17,075
Denominator:
Weighted average shares outstanding	29,288			29,404			29,283			29,380
Average unvested restricted stock awards	(107		)	(228		)	(119		)	(221		)
Denominator for basic earnings per share—weighted-average shares outstanding	29,181			29,176			29,164			29,159
Effect of dilutive securities—employee stock options and restricted stock units	62			95			59			95
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding	29,243			29,271			29,223			29,254
Basic earnings per share	$	0.56		$	0.15		$	1.11		$	0.59
Diluted earnings per share	$	0.56		$	0.15		$	1.11		$	0.58
Average anti-dilutive options and restricted stock units excluded from computation of diluted earnings per share	325			369			327			294

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars and shares in thousands, except per share data) 2018 2017 2018 2017
Numerator:
Net income $ 14,964
$ 11,196
$ 32,171
$ 33,830
Net income allocated to unvested restricted stock (86 ) (96 ) (225 ) (330 )
Net income allocated to common shares $ 14,878
$ 11,100
$ 31,946
$ 33,500
Denominator:
Weighted average shares outstanding 29,402
26,666
29,387
26,653
Average unvested restricted stock (170 ) (229 ) (204 ) (265 )
Denominator for basic earnings per share—weighted-average shares outstanding
29,232
26,437
29,183
26,388
Effect of dilutive securities—employee stock options 86
105
92
102
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,318
26,542
29,275
26,490
Basic earnings per share $ 0.51
$ 0.42
$ 1.10
$ 1.27
Diluted earnings per share $ 0.51
$ 0.42
$ 1.09
$ 1.27
Average anti-dilutive options excluded from computation of diluted earnings per share 359
185
315
166

Note 3. Investment Securities

The following table shows the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, by contractual maturity within each type:



	At June 30, 2019									At December 31, 2018
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
After 1 year to 5 years	$	6,997	$	55	$	—		$	7,052	$	6,996	$	—	$	(104	)	$	6,892
	6,997		55		—			7,052		6,996		—		(104		)	6,892
Residential mortgage-backed securities:
After 5 years to 10 years	10,379		102		—			10,481		11,573		—		(135		)	11,438
Over 10 years	155,570		2,253		(60		)	157,763		124,065		287		(1,107		)	123,245
	165,949		2,355		(60		)	168,244		135,638		287		(1,242		)	134,683
Total	$	172,946	$	2,410	$	(60	)	$	175,296	$	142,634	$	287	$	(1,346	)	$	141,575
Securities Available-for-Sale
U.S. government corporations and agencies:
Within 1 year	$	10,332	$	—	$	(16	)	$	10,316	$	15,108	$	—	$	(90	)	$	15,018
After 1 year to 5 years	—		—		—			—		303		—		(6		)	297
	10,332		—		(16		)	10,316		15,411		—		(96		)	15,315
State and political subdivisions:
Within 1 year	1,395		3		—			1,398		5,900		4		(6		)	5,898
After 1 year to 5 years	5,732		63		—			5,795		15,459		36		(56		)	15,439
After 5 years to 10 years	36,550		429		—			36,979		43,923		318		(163		)	44,078
	43,677		495		—			44,172		65,282		358		(225		)	65,415
Residential mortgage-backed securities:
After 1 year to 5 years	5,420		20		(5		)	5,435		5,799		3		(70		)	5,732
After 5 years to 10 years	43,799		52		(237		)	43,614		49,904		6		(1,381		)	48,529
Over 10 years	93,324		172		(730		)	92,766		100,873		26		(3,398		)	97,501
	142,543		244		(972		)	141,815		156,576		35		(4,849		)	151,762
Collateralized mortgage obligations:
After 5 years to 10 years	1,497		—		(31		)	1,466		1,677		—		(78		)	1,599
Over 10 years	1,200		11		—			1,211		1,305		—		(16		)	1,289
	2,697		11		(31		)	2,677		2,982		—		(94		)	2,888
Corporate bonds:
Within 1 year	10,817		—		(33		)	10,784		7,806		—		(68		)	7,738
After 1 year to 5 years	29,115		320		(27		)	29,408		18,508		1		(332		)	18,177
After 5 years to 10 years	—		—					—		16,146		—		(392		)	15,754
Over 10 years	60,000		—		(6,150		)	53,850		60,000		—		(8,542		)	51,458
	99,932		320		(6,210		)	94,042		102,460		1		(9,334		)	93,127
Total	$	299,181	$	1,070	$	(7,229	)	$	293,022	$	342,711	$	394	$	(14,598	)	$	328,507

At September 30, 2018 At December 31, 2017
(Dollars in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
After 1 year to 5 years $ 6,996
$ —
$ (214 ) $ 6,782
$ 6,995
$ —
$ (77 ) $ 6,918
6,996
—
(214 ) 6,782
6,995
—
(77 ) 6,918
Residential mortgage-backed securities:
After 5 years to 10 years 12,190
—
(279 ) 11,911
8,944
—
(51 ) 8,893
Over 10 years 88,956
—
(2,007 ) 86,949
39,625
44
(160 ) 39,509
101,146
—
(2,286 ) 98,860
48,569
44
(211 ) 48,402
Total $ 108,142
$ —
$ (2,500 ) $ 105,642
$ 55,564
$ 44
$ (288 ) $ 55,320
Securities Available-for-Sale
U.S. government corporations and agencies:
Within 1 year $ 15,153
$ —
$ (131 ) $ 15,022
$ 1,499
$ —
$ (3 ) $ 1,496
After 1 year to 5 years 303
—
(9 ) 294
15,590
—
(125 ) 15,465

15,456
—
(140 ) 15,316
17,089
—
(128 ) 16,961
State and political subdivisions:
Within 1 year 5,943
—
(11 ) 5,932
2,721
1
(6 ) 2,716
After 1 year to 5 years 12,569
15
(97 ) 12,487
16,787
33
(44 ) 16,776
After 5 years to 10 years 46,803
303
(631 ) 46,475
54,846
897
(73 ) 55,670
Over 10 years 3,120
—
(122 ) 2,998
3,120
15
—
3,135

68,435
318
(861 ) 67,892
77,474
946
(123 ) 78,297
Residential mortgage-backed securities:
After 1 year to 5 years 4,887
—
(102 ) 4,785
3,913
12
(26 ) 3,899
After 5 years to 10 years 53,041
6
(2,231 ) 50,816
51,428
5
(852 ) 50,581
Over 10 years 105,808
22
(5,017 ) 100,813
133,237
87
(2,383 ) 130,941

163,736
28
(7,350 ) 156,414
188,578
104
(3,261 ) 185,421
Collateralized mortgage obligations:
After 5 years to 10 years 1,772
—
(108 ) 1,664
2,103
—
(82 ) 2,021
Over 10 years 1,347
—
(30 ) 1,317
1,567
14
—
1,581

3,119
—
(138 ) 2,981
3,670
14
(82 ) 3,602
Corporate bonds:
Within 1 year 2,506
—
(10 ) 2,496
10,006
—
(5 ) 10,001
After 1 year to 5 years 23,824
21
(442 ) 23,403
24,885
20
(147 ) 24,758
After 5 years to 10 years 16,152
2
(537 ) 15,617
16,669
71
(296 ) 16,444
Over 10 years 60,000
—
(7,186 ) 52,814
60,000
—
(4,027 ) 55,973

102,482
23
(8,175 ) 94,330
111,560
91
(4,475 ) 107,176
Equity securities:*
No stated maturity N/A
N/A
N/A
N/A
6,395
667
(1 ) 7,061

N/A
N/A
N/A
N/A
6,395
667
(1 ) 7,061
Total $ 353,228
$ 369
$ (16,664 ) $ 336,933
$ 404,766
$ 1,822
$ (8,070 ) $ 398,518

* Equity securities at December 31, 2017 include $6.0 million of money market mutual funds and $1.1 million of financial services equity securities. In accordance with ASU 2016-01, beginning January 1, 2018, such amounts were reclassified from investment securities available-for-sale to investments in equity securities on the Corporation's Condensed Consolidated Balance Sheets.

Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties and mortgage-backed securities typically prepay at a rate faster than contractually due.

Securities with a carrying value of ~~$362.0~~$379.0 million and ~~$345.1~~$344.5 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, were pledged to secure public deposits and other contractual obligations. In addition, securities of ~~$295~~$9.9 million and $296 thousand ~~and $1.8 million~~ were pledged to secure credit derivatives and interest rate swaps at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. See Note 11, "Derivative Instruments and Hedging Activities" for additional information.

The following table presents information related to sales of securities available-for-sale during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:



	Six Months Ended June 30,
(Dollars in thousands)	2019		2018
Securities available-for-sale:
Proceeds from sales	$	15,494	$	1,010
Gross realized gains on sales	29		10
Gross realized losses on sales	21		—
Tax expense related to net realized gains on sales	2		2

Nine Months Ended September 30,
(Dollars in thousands) 2018 2017
Securities available-for-sale:
Proceeds from sales $ 1,010
$ 3,538
Gross realized gains on sales 10
43
Tax expense related to net realized gains on sales 2
15

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there were no reportable investments in any single ~~non-federal~~ issuer representing more than 10% of shareholders’ equity.

The following table shows the fair value of securities that were in an unrealized loss position at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 by the length of time those securities were in a continuous loss position. For the investment securities in an unrealized loss position, the Corporation has concluded, based on its analysis, that the unrealized losses are primarily caused by the movement of interest rates and current market ~~conditions.~~conditions and there is no other-than temporary impairment of the securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. It is more likely than not that the Corporation will not be required to sell the investments before a recovery of carrying value.



	Less than Twelve Months					Twelve Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
At June 30, 2019
Securities Held-to-Maturity
Residential mortgage-backed securities	$	15,022	$	(39	)	$	3,652	$	(21	)	$	18,674	$	(60	)
Total	$	15,022	$	(39	)	$	3,652	$	(21	)	$	18,674	$	(60	)
Securities Available-for-Sale
U.S. government corporations and agencies	$	—	$	—		$	10,316	$	(16	)	$	10,316	$	(16	)
Residential mortgage-backed securities	—		—			99,801		(972		)	99,801		(972		)
Collateralized mortgage obligations	—		—			1,466		(31		)	1,466		(31		)
Corporate bonds	1,497		(4		)	71,109		(6,206		)	72,606		(6,210		)
Total	$	1,497	$	(4	)	$	182,692	$	(7,225	)	$	184,189	$	(7,229	)
At December 31, 2018
Securities Held-to-Maturity
U.S. government corporations and agencies	$	—	$	—		$	6,892	$	(104	)	$	6,892	$	(104	)
Residential mortgage-backed securities	48,192		(472		)	34,501		(770		)	82,693		(1,242		)
Total	$	48,192	$	(472	)	$	41,393	$	(874	)	$	89,585	$	(1,346	)
Securities Available-for-Sale
U.S. government corporations and agencies	$	—	$	—		$	15,315	$	(96	)	$	15,315	$	(96	)
State and political subdivisions	9,311		(61		)	15,302		(164		)	24,613		(225		)
Residential mortgage-backed securities	7,099		(106		)	141,924		(4,743		)	149,023		(4,849		)
Collateralized mortgage obligations	1,289		(16		)	1,599		(78		)	2,888		(94		)
Corporate bonds	16,896		(235		)	75,730		(9,099		)	92,626		(9,334		)
Total	$	34,595	$	(418	)	$	249,870	$	(14,180	)	$	284,465	$	(14,598	)

Less than
Twelve Months Twelve Months
or Longer Total
(Dollars in thousands) Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
At September 30, 2018
Securities Held-to-Maturity
U.S. government corporations and agencies $ —
$ —
$ 6,782
$ (214 ) $ 6,782
$ (214 )
Residential mortgage-backed securities 89,833
(1,963 ) 9,027
(323 ) 98,860
(2,286 )
Total $ 89,833
$ (1,963 ) $ 15,809
$ (537 ) $ 105,642
$ (2,500 )
Securities Available-for-Sale
U.S. government corporations and agencies $ —
$ —
$ 15,316
$ (140 ) $ 15,316
$ (140 )
State and political subdivisions 33,509
(777 ) 7,476
(84 ) 40,985
(861 )
Residential mortgage-backed securities 27,331
(972 ) 127,441
(6,378 ) 154,772
(7,350 )
Collateralized mortgage obligations 1,317
(30 ) 1,664
(108 ) 2,981
(138 )
Corporate bonds 21,162
(467 ) 69,644
(7,708 ) 90,806
(8,175 )
Total $ 83,319
$ (2,246 ) $ 221,541
$ (14,418 ) $ 304,860
$ (16,664 )
At December 31, 2017
Securities Held-to-Maturity
U.S. government corporations and agencies $ 6,919
$ (77 ) $ —
$ —
$ 6,919
$ (77 )
Residential mortgage-backed securities 40,881
(211 ) —
—
40,881
(211 )
Total $ 47,800
$ (288 ) $ —
$ —
$ 47,800
$ (288 )
Securities Available-for-Sale
U.S. government corporations and agencies $ 5,213
$ (38 ) $ 11,749
$ (90 ) $ 16,962
$ (128 )
State and political subdivisions 18,457
(91 ) 6,332
(32 ) 24,789
(123 )
Residential mortgage-backed securities 32,217
(210 ) 141,371
(3,051 ) 173,588
(3,261 )
Collateralized mortgage obligations —
—
2,021
(82 ) 2,021
(82 )
Corporate bonds 18,464
(1,016 ) 71,957
(3,459 ) 90,421
(4,475 )
Equity securities —
(1 ) 4
—
4
(1 )
Total $ 74,351
$ (1,356 ) $ 233,434
$ (6,714 ) $ 307,785
$ (8,070 )

At ~~September~~June 30, ~~2018,~~2019, gross unrealized losses for securities available-for-sale in an unrealized loss position for twelve months or longer, totaled ~~$14.4~~$7.2 million. ~~Four~~Three federal agency bonds, sixteen investment grade corporate bonds, ~~114~~ninety federal agency residential mortgage securities ~~nine investment grade municipal bonds~~ and one collateralized mortgage obligation ~~bond~~bonds had respective unrealized loss positions of ~~$140~~$16 thousand, ~~$7.7~~$6.2 million, ~~$6.4~~$1.0 million ~~$84 thousand~~ and ~~$108~~$31 thousand, respectively. The fair value of these ~~114~~110 securities fluctuate with changes in market conditions which for these underlying securities is primarily due to changes in the interest rate environment. The Corporation does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. Upon review of the attributes of the individual securities, the Corporation concluded these

securities were not other-than-temporarily impaired. The Corporation did not recognize any other-than-temporary impairment charges on debt securities for the ~~nine~~six months ended ~~September~~June 30, ~~2018 and 2017.~~2019 or 2018.

~~In conjunction with the adoption of ASU 2016-01, the~~The Corporation recognized a ~~$26~~$20 thousand net gain and $33 thousand net gain on equity securities during the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, respectively, in other noninterest ~~income and the net unrealized gain on~~income. There were no sales of equity securities ~~held at September~~during the six months ended June 30, ~~2018 was $26 thousand. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2018" for additional information.~~2019 or June 30, 2018.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories



	At June 30, 2019
(Dollars in thousands)	Originated			Acquired		Total
Commercial, financial and agricultural	$	921,182		$	15,967	$	937,149
Real estate-commercial	1,650,052			212,095		1,862,147
Real estate-construction	230,459			—		230,459
Real estate-residential secured for business purpose	314,629			51,011		365,640
Real estate-residential secured for personal purpose	373,792			46,017		419,809
Real estate-home equity secured for personal purpose	170,482			7,446		177,928
Loans to individuals	32,345			140		32,485
Lease financings	142,287			—		142,287
Total loans and leases held for investment, net of deferred income	$	3,835,228		$	332,676	$	4,167,904
Imputed interest on lease financings, included in the above table	$	(15,415	)	$	—	$	(15,415	)
Net deferred costs, included in the above table	4,701			—		4,701
Overdraft deposits included in the above table	127			—		127

At September 30, 2018
(Dollars in thousands) Originated Acquired Total
Commercial, financial and agricultural $ 867,636
$ 26,686
$ 894,322
Real estate-commercial 1,442,681
254,462
1,697,143
Real estate-construction 188,895
3,742
192,637
Real estate-residential secured for business purpose 279,800
66,531
346,331
Real estate-residential secured for personal purpose 327,833
52,676
380,509
Real estate-home equity secured for personal purpose 177,632
9,349
186,981
Loans to individuals 32,096
142
32,238
Lease financings 136,008
—
136,008
Total loans and leases held for investment, net of deferred income $ 3,452,581
$ 413,588
$ 3,866,169
Unearned lease income, included in the above table $ (15,079 ) $ —
$ (15,079 )
Net deferred costs, included in the above table 4,064
—
4,064
Overdraft deposits included in the above table 156
—
156



	At December 31, 2018
(Dollars in thousands)	Originated			Acquired		Total
Commercial, financial and agricultural	$	913,166		$	24,519	$	937,685
Real estate-commercial	1,507,579			233,625		1,741,204
Real estate-construction	215,513			—		215,513
Real estate-residential secured for business purpose	302,393			60,403		362,796
Real estate-residential secured for personal purpose	338,451			49,959		388,410
Real estate-home equity secured for personal purpose	177,523			8,728		186,251
Loans to individuals	32,617			142		32,759
Lease financings	141,956			—		141,956
Total loans and leases held for investment, net of deferred income	$	3,629,198		$	377,376	$	4,006,574
Imputed interest on lease financings, included in the above table	$	(15,118	)	$	—	$	(15,118	)
Net deferred costs, included in the above table	3,930			—		3,930
Overdraft deposits included in the above table	139			—		139

At December 31, 2017
(Dollars in thousands) Originated Acquired Total
Commercial, financial and agricultural $ 833,100
$ 63,111
$ 896,211
Real estate-commercial 1,235,681
306,460
1,542,141
Real estate-construction 171,244
4,592
175,836
Real estate-residential secured for business purpose 250,800
91,167
341,967
Real estate-residential secured for personal purpose 260,654
60,920
321,574
Real estate-home equity secured for personal purpose 171,884
12,386
184,270
Loans to individuals 28,156
144
28,300
Lease financings 129,768
—
129,768
Total loans and leases held for investment, net of deferred income $ 3,081,287
$ 538,780
$ 3,620,067
Unearned lease income, included in the above table $ (14,243 ) $ —
$ (14,243 )
Net deferred costs, included in the above table 4,669
—
4,669
Overdraft deposits included in the above table 222
—
222

Overdraft deposits are re-classified as loans and are included in the total loans and leases on the balance sheet.

The carrying amount of acquired loans at ~~September~~June 30, ~~2018~~2019 totaled ~~$413.6~~$332.7 million, including ~~$339.3~~$289.2 million of loans from the Fox Chase acquisition and ~~$74.3~~$43.5 million from the Valley Green Bank acquisition. At ~~September~~June 30, ~~2018,~~2019, loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled ~~$900~~$569 thousand representing ~~$246~~$61 thousand from the Fox Chase acquisition and ~~$654~~$508 thousand from the Valley Green Bank acquisition. Acquired credit impaired loans are accounted for in accordance with Accounting Standards Codification (ASC) Topic 310-30.

The outstanding principal balance and carrying amount for acquired credit impaired loans at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:


(Dollars in thousands)	At September 30, 2018		At December 31, 2017		At June 30, 2019		At December 31, 2018
Outstanding principal balance	$	1,218	$	2,325	$	677	$	893
Carrying amount	900		1,583		569		695
Allowance for loan losses	—		—
Reserve for loan losses					—		—

The following table presents the changes in accretable yield on acquired credit impaired loans:



	Six Months Ended June 30,
(Dollars in thousands)	2019			2018
Beginning of period	$	—		$	11
Reclassification from nonaccretable discount	215			375
Accretable yield amortized to interest income	(215		)	(386		)
End of period	$	—		$	—

Nine Months Ended September 30,
(Dollars in thousands) 2018 2017
Beginning of period $ 11
$ 50
Reclassification from nonaccretable discount 453
823
Accretable discount amortized to interest income (464 ) (850 )
Disposals —
(4 )
End of period $ —
$ 19

Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current, acquired credit impaired loans and ~~the recorded investment in~~nonaccrual loans and leases ~~90 days or more past due which are accruing interest~~ at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:



	Accruing Loans and Leases
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Acquired Credit Impaired		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At June 30, 2019
Commercial, financial and agricultural	$	527	$	274	$	—	$	801	$	934,198	$	934,999	$	—	$	2,150	$	937,149
Real estate—commercial real estate and construction:
Commercial real estate	2,057		6,190		516		8,763		1,835,439		1,844,202		206		17,739		1,862,147
Construction	500		1,158		230		1,888		228,465		230,353		—		106		230,459
Real estate—residential and home equity:
Residential secured for business purpose	919		2,284		434		3,637		360,105		363,742		302		1,596		365,640
Residential secured for personal purpose	1,529		258		—		1,787		415,794		417,581		61		2,167		419,809
Home equity secured for personal purpose	206		—		—		206		176,433		176,639		—		1,289		177,928
Loans to individuals	101		47		129		277		32,208		32,485		—		—		32,485
Lease financings	620		195		70		885		141,302		142,187		—		100		142,287
Total	$	6,459	$	10,406	$	1,379	$	18,244	$	4,123,944	$	4,142,188	$	569	$	25,147	$	4,167,904
At December 31, 2018
Commercial, financial and agricultural	$	1,043	$	122	$	—	$	1,165	$	933,155	$	934,320	$	—	$	3,365	$	937,685
Real estate—commercial real estate and construction:
Commercial real estate	4,995		1,538		—		6,533		1,716,251		1,722,784		206		18,214		1,741,204
Construction	2,163		—		—		2,163		213,244		215,407		—		106		215,513
Real estate—residential and home equity:
Residential secured for business purpose	2,497		728		—		3,225		357,827		361,052		426		1,318		362,796
Residential secured for personal purpose	2,334		—		—		2,334		384,426		386,760		63		1,587		388,410
Home equity secured for personal purpose	305		96		—		401		184,402		184,803		—		1,448		186,251
Loans to individuals	207		29		55		291		32,468		32,759		—		—		32,759
Lease financings	2,460		411		137		3,008		138,778		141,786		—		170		141,956
Total	$	16,004	$	2,924	$	192	$	19,120	$	3,960,551	$	3,979,671	$	695	$	26,208	$	4,006,574

(Dollars in thousands) 30-59
Days
Past Due 60-89
Days
Past Due 90 Days
or more
Past Due Total
Past Due Current Acquired Credit Impaired Total Loans
and Leases
Held for
Investment Recorded
Investment 90
Days or more
Past Due and
Accruing
Interest
At September 30, 2018
Commercial, financial and agricultural $ 661
$ 9,151
$ 1,003
$ 10,815
$ 883,325
$ 182
$ 894,322
$ —
Real estate—commercial real estate and construction:
Commercial real estate 1,168
373
1,313
2,854
1,694,083
206
1,697,143
83
Construction —
—
—
—
192,637
—
192,637
—
Real estate—residential and home equity:
Residential secured for business purpose 2,221
47
1,265
3,533
342,350
448
346,331
—
Residential secured for personal purpose 2,403
981
1,419
4,803
375,642
64
380,509
—
Home equity secured for personal purpose 406
189
1,329
1,924
185,057
—
186,981
128
Loans to individuals 101
32
165
298
31,940
—
32,238
165
Lease financings 897
1,639
2,390
4,926
131,082
—
136,008
848
Total $ 7,857
$ 12,412
$ 8,884
$ 29,153
$ 3,836,116
$ 900
$ 3,866,169
$ 1,224
At December 31, 2017
Commercial, financial and agricultural $ 2,182
$ 1,440
$ 1,509
$ 5,131
$ 890,658
$ 422
$ 896,211
$ —
Real estate—commercial real estate and construction:
Commercial real estate 733
548
1,410
2,691
1,539,094
356
1,542,141
—
Construction 1,970
—
365
2,335
173,501
—
175,836
—
Real estate—residential and home equity:
Residential secured for business purpose 1,651
315
1,355
3,321
338,061
585
341,967
162
Residential secured for personal purpose 4,368
1,118
23
5,509
315,845
220
321,574
—
Home equity secured for personal purpose 1,414
333
464
2,211
182,059
—
184,270
148
Loans to individuals 221
139
195
555
27,745
—
28,300
195
Lease financings 1,143
392
1,855
3,390
126,378
—
129,768
256
Total $ 13,682
$ 4,285
$ 7,176
$ 25,143
$ 3,593,341
$ 1,583
$ 3,620,067
$ 761

Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. Nonperforming loans exclude acquired credit impaired loans from Fox Chase and Valley Green.


	At September 30, 2018								At December 31, 2017								At June 30, 2019								At December 31, 2018
(Dollars in thousands)	Nonaccrual Loans and Leases*		Accruing Troubled Debt Restructured Loans and Lease Modifications		Loans and Leases 90 Days or more Past Due and Accruing Interest		Total Nonperforming Loans and Leases		Nonaccrual Loans and Leases*		Accruing Troubled Debt Restructured Loans and Lease Modifications		Loans and Leases 90 Days or more Past Due and Accruing Interest		Total Nonperforming Loans and Leases		Nonaccrual Loans and Leases*		Accruing Troubled Debt Restructured Loans and Lease Modifications		Loans and Leases 90 Days or more Past Due and Accruing Interest		Total Nonperforming Loans and Leases		Nonaccrual Loans and Leases*		Accruing Troubled Debt Restructured Loans and Lease Modifications		Loans and Leases 90 Days or more Past Due and Accruing Interest		Total Nonperforming Loans and Leases
Commercial, financial and agricultural	$	2,795	$	595	$	—	$	3,390	$	4,448	$	921	$	—	$	5,369	$	2,150	$	—	$	—	$	2,150	$	3,365	$	382	$	—	$	3,747
Real estate—commercial real estate and construction:
Commercial real estate	18,425		—		83		18,508		4,285		10,266		—		14,551		17,739		—		516		18,255		18,214		—		—		18,214
Construction	106		—		—		106		365		—		—		365		106		—		230		336		106		—		—		106
Real estate—residential and home equity:
Residential secured for business purpose	1,416		171		—		1,587		2,843		206		162		3,211		1,596		—		434		2,030		1,318		160		—		1,478
Residential secured for personal purpose	1,815		—		—		1,815		466		42		—		508		2,167		—		—		2,167		1,587		—		—		1,587
Home equity secured for personal purpose	1,460		—		128		1,588		511		—		148		659		1,289		55		—		1,344		1,448		—		—		1,448
Loans to individuals	—		—		165		165		—		—		195		195		—		—		129		129		—		—		55		55
Lease financings	1,542		—		848		2,390		1,599		—		256		1,855		100		—		70		170		170		—		137		307
Total	$	27,559	$	766	$	1,224	$	29,549	$	14,517	$	11,435	$	761	$	26,713	$	25,147	$	55	$	1,379	$	26,581	$	26,208	$	542	$	192	$	26,942

* Includes nonaccrual troubled debt restructured loans of $2.6 million and ~~lease modifications of~~ $1.3 million ~~and $2.5 million~~ at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Accruing troubled debt restructuring loans of $11.4 million at December 31, 2017 includes balances of $10.3 million related to one borrower which were classified as troubled debt restructurings as the related loans were granted amortization period extensions. These troubled debt restructured loans were returned to performing status during the first quarter of 2018 as the borrower was in compliance with the modified terms of the restructurings for the required time period. At September 30, 2018, commercial real estate nonaccrual loans and leases includes an $11.8 million loan that was placed on nonaccrual status during the first quarter of 2018. A specific reserve of $645 thousand was recorded for this loan as of September 30, 2018.

Credit Quality Indicators

The following tables present by class, the recorded investment in loans and leases held for investment by credit quality indicator at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

The Corporation employs a ~~ten (10) grade~~ risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business ~~purpose of which the first six categories are pass categories (credits not adversely rated).~~purpose. The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with a relationship balance of less than $1 million are reviewed on a performance basis, with the primary monitored metrics being delinquency (60 days or more past due) ~~and revolving stagnancy.~~. Loans with relationships greater than $1 million are reviewed at least annually. Loan relationships ~~exceeding $15 million~~with a higher risk profile or classified as special mention or substandard are reviewed at least quarterly, or more frequently based on management’s discretion.


1.	~~Cash Secured—No credit risk~~Pass—Loans considered satisfactory with no indications of deterioration


2.	~~Fully Secured—Negligible credit risk~~Special Mention—Potential weakness that deserves management's close attention


3.	~~Strong—Minimal credit risk~~Substandard—Well-defined weakness or weaknesses that jeopardize the liquidation of the debt


4.	~~Satisfactory—Nominal credit risk~~


5.	~~Acceptable—Moderate credit risk~~


6.	~~Pre-Watch—Marginal, but stable credit risk~~


7.	~~Special Mention—Potential weakness~~


8.	~~Substandard—Well-defined weakness~~


9.	Doubtful—Collection or liquidation in-full, on the basis of current existing facts, conditions and values, highly questionable and improbable


~~10.~~	~~Loss—Considered uncollectible~~

Commercial Credit Exposure Credit Risk by Internally Assigned Grades

The following table presents classifications for originated loans:

(Dollars in thousands) Commercial,
Financial and
Agricultural Real Estate—
Commercial Real Estate—
Construction Real Estate—
Residential Secured
for Business Purpose Total
At September 30, 2018
Grade:
1. Cash secured/ 2. Fully secured $ 2,789
$ —
$ 23,290
$ —
$ 26,079
3. Strong 14,369
699
—
—
15,068
4. Satisfactory 18,511
24,325
—
265
43,101
5. Acceptable 575,671
1,072,909
77,773
236,261
1,962,614
6. Pre-watch 222,325
287,933
86,326
38,090
634,674
7. Special Mention 26,323
35,402
1,400
2,203
65,328
8. Substandard 7,648
21,413
106
2,981
32,148
9. Doubtful —
—
—
—
—
10.Loss —
—
—
—
—
Total $ 867,636
$ 1,442,681
$ 188,895
$ 279,800
$ 2,779,012
At December 31, 2017
Grade:
1. Cash secured/ 2. Fully secured $ 2,521
$ —
$ 20,420
$ —
$ 22,941
3. Strong 9,206
1,821
—
—
11,027
4. Satisfactory 30,283
26,950
—
274
57,507
5. Acceptable 593,205
960,258
76,899
215,750
1,846,112
6. Pre-watch 179,990
209,844
72,168
29,738
491,740
7. Special Mention 4,027
12,974
1,392
296
18,689
8. Substandard 13,868
23,834
365
4,742
42,809
9. Doubtful —
—
—
—
—
10.Loss —
—
—
—
—
Total $ 833,100
$ 1,235,681
$ 171,244
$ 250,800
$ 2,490,825



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At June 30, 2019
Grade:
1. Pass	$	874,098	$	1,622,980	$	228,421	$	309,658	$	3,035,157
2. Special Mention	27,036		17,773		1,932		1,705		48,446
3. Substandard	20,048		9,299		106		3,266		32,719
4. Doubtful	—		—		—		—		—
Total	$	921,182	$	1,650,052	$	230,459	$	314,629	$	3,116,322
At December 31, 2018
Grade:
1. Pass	$	882,736	$	1,455,234	$	215,407	$	298,356	$	2,851,733
2. Special Mention	23,287		31,791		—		721		55,799
3. Substandard	7,143		20,554		106		3,316		31,119
4. Doubtful	—		—		—		—		—
Total	$	913,166	$	1,507,579	$	215,513	$	302,393	$	2,938,651

The following table presents classifications for acquired loans:



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At June 30, 2019
Grade:
1. Pass	$	15,967	$	199,560	$	—	$	50,446	$	265,973
2. Special Mention	—		—		—		—		—
3. Substandard	—		12,535		—		565		13,100
4. Doubtful	—		—		—		—		—
Total	$	15,967	$	212,095	$	—	$	51,011	$	279,073
December 31, 2018
Grade:
1. Pass	$	24,450	$	220,911	$	—	$	59,567	$	304,928
2. Special Mention	—		—		—		—		—
3. Substandard	69		12,714		—		836		13,619
4. Doubtful	—		—		—		—		—
Total	$	24,519	$	233,625	$	—	$	60,403	$	318,547

(Dollars in thousands) Commercial,
Financial and
Agricultural Real Estate—
Commercial Real Estate—
Construction Real Estate—
Residential Secured
for Business Purpose Total
At September 30, 2018
Grade:
1. Cash secured/ 2. Fully secured $ —
$ —
$ —
$ —
$ —
3. Strong —
—
—
—
—
4. Satisfactory —
—
—
—
—
5. Acceptable 23,085
155,221
—
56,107
234,413
6. Pre-watch 2,475
81,048
3,742
9,115
96,380
7. Special Mention 838
4,421
—
—
5,259
8. Substandard 288
13,772
—
1,309
15,369
9. Doubtful —
—
—
—
—
10.Loss —
—
—
—
—
Total $ 26,686
$ 254,462
$ 3,742
$ 66,531
$ 351,421
December 31, 2017
Grade:
1. Cash secured/ 2. Fully secured $ 1,120
$ —
$ —
$ —
$ 1,120
3. Strong —
—
—
—
—
4. Satisfactory 125
482
—
—
607
5. Acceptable 49,949
183,490
—
73,402
306,841
6. Pre-watch 6,183
98,977
4,592
15,861
125,613
7. Special Mention 1,007
17,028
—
—
18,035
8. Substandard 4,727
6,483
—
1,904
13,114
9. Doubtful —
—
—
—
—
10.Loss —
—
—
—
—
Total $ 63,111
$ 306,460
$ 4,592
$ 91,167
$ 465,330

Credit Exposure—Real Estate—Residential Secured for Personal Purpose, Real Estate—Home Equity Secured for Personal Purpose, Loans to individuals, Lease Financing Credit Risk Profile by Payment Activity

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans secured for a personal purpose, home equity loans secured for a personal purpose, loans to individuals and lease financings. Nonperforming loans and leases are loans and leases past due 90 days or more, loans and leases on nonaccrual of interest and troubled debt restructured loans and lease modifications. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss.

The following table presents classifications for originated loans:


(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total		Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At September 30, 2018
At June 30, 2019
Performing	$	327,138	$	177,115	$	31,931	$	133,618	$	669,802	$	372,578	$	170,172	$	32,216	$	142,117	$	717,083
Nonperforming	695		517		165		2,390		3,767		1,214		310		129		170		1,823
Total	$	327,833	$	177,632	$	32,096	$	136,008	$	673,569	$	373,792	$	170,482	$	32,345	$	142,287	$	718,906
At December 31, 2017
At December 31, 2018
Performing	$	260,589	$	171,527	$	27,961	$	127,913	$	587,990	$	337,762	$	177,139	$	32,562	$	141,649	$	689,112
Nonperforming	65		357		195		1,855		2,472		689		384		55		307		1,435
Total	$	260,654	$	171,884	$	28,156	$	129,768	$	590,462	$	338,451	$	177,523	$	32,617	$	141,956	$	690,547

The following table presents classifications for acquired loans:



(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At June 30, 2019
Performing	$	45,064	$	6,412	$	140	$	—	$	51,616
Nonperforming	953		1,034		—		—		1,987
Total	$	46,017	$	7,446	$	140	$	—	$	53,603
At December 31, 2018
Performing	$	49,061	$	7,664	$	142	$	—	$	56,867
Nonperforming	898		1,064		—		—		1,962
Total	$	49,959	$	8,728	$	142	$	—	$	58,829

(Dollars in thousands) Real Estate—
Residential
Secured for
Personal Purpose Real Estate—
Home Equity
Secured for
Personal Purpose Loans to
Individuals Lease
Financings Total
At September 30, 2018
Performing $ 51,556
$ 8,278
$ 142
$ —
$ 59,976
Nonperforming 1,120
1,071
—
—
2,191
Total $ 52,676
$ 9,349
$ 142
$ —
$ 62,167
At December 31, 2017
Performing $ 60,477
$ 12,084
$ 144
$ —
$ 72,705
Nonperforming 443
302
—
—
745
Total $ 60,920
$ 12,386
$ 144
$ —
$ 73,450

Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the reserve for loan and lease losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:


(Dollars in thousands)	Commercial, Financial and Agricultural			Real Estate— Commercial and Construction			Real Estate— Residential Secured for Business Purpose			Real Estate— Residential and Home Equity Secured for Personal Purpose			Loans to Individuals			Lease Financings			Unallocated			Total			Commercial, Financial and Agricultural			Real Estate— Commercial and Construction			Real Estate— Residential Secured for Business Purpose		Real Estate— Residential and Home Equity Secured for Personal Purpose			Loans to Individuals			Lease Financings			Unallocated			Total
Three Months Ended September 30, 2018
Three Months Ended June 30, 2019
Reserve for loan and lease losses:
Beginning balance																									$	8,950		$	14,981		$	2,302	$	3,379		$	469		$	1,275		$	246		$	31,602
Charge-offs																									(1,018		)	(33		)	—		(4		)	(51		)	(110		)	N/A			(1,216		)
Recoveries																									19			—			6		7			16			90			N/A			138
Provision (recovery of provision)																									1,178			530			170		136			47			(14		)	29			2,076
Ending balance																									$	9,129		$	15,478		$	2,478	$	3,518		$	481		$	1,241		$	275		$	32,600
Three Months Ended June 30, 2018
Reserve for loan and lease losses:
Beginning balance																									$	6,942		$	11,178		$	1,871	$	1,908		$	372		$	1,079		$	60		$	23,410
Charge-offs																									(13,048		)	—			—		—			(79		)	(169		)	N/A			(13,296		)
Recoveries																									23			—			7		8			16			75			N/A			129
Provision (recovery of provision)																									13,341			1,149			126		578			138			86			(9		)	15,409
Ending balance																									$	7,258		$	12,327		$	2,004	$	2,494		$	447		$	1,071		$	51		$	25,652
Six Months Ended June 30, 2019
Reserve for loan and lease losses:
Beginning balance	$	7,258		$	12,327		$	2,004		$	2,494		$	447		$	1,071		$	51		$	25,652		$	7,983		$	13,903		$	2,236	$	3,199		$	484		$	1,288		$	271		$	29,364
Charge-offs	(904		)	—			(30		)	—			(82		)	(123		)	N/A			(1,139		)	(1,486		)	(74		)	—		(15		)	(136		)	(214		)	N/A			(1,925		)
Recoveries	22			1			8			6			25			51			N/A			113			101			91			10		12			38			148			N/A			400
Provision	813			906			72			527			82			138			206			2,744			2,531			1,558			232		321			95			19			4			4,760
Provision for acquired credit impaired loans	—			—			—			1			—			—			—			1			—			—			—		1			—			—			—			1
Ending balance	$	7,189		$	13,234		$	2,054		$	3,028		$	472		$	1,137		$	257		$	27,371		$	9,129		$	15,478		$	2,478	$	3,518		$	481		$	1,241		$	275		$	32,600
Three Months Ended September 30, 2017
Six Months Ended June 30, 2018
Reserve for loan and lease losses:
Beginning balance	$	8,313		$	8,468		$	1,129		$	974		$	329		$	1,660		$	37		$	20,910		$	6,742		$	9,839		$	1,661	$	1,754		$	373		$	1,132		$	54		$	21,555
Charge-offs	(290		)	—			(56		)	(83		)	(61		)	(3,097		)	N/A			(3,587		)	(13,649		)	(40		)	—		—			(171		)	(305		)	N/A			(14,165		)
Recoveries	325			1			29			68			35			73			N/A			531			249			73			258		65			46			109			N/A			800
(Recovery of provision) provision	(1,732		)	787			204			756			51			2,654			(30		)	2,690
Recovery of provision for acquired credit impaired loans	—			—			(1		)	—			—			—			—			(1		)
Ending balance	$	6,616		$	9,256		$	1,305		$	1,715		$	354		$	1,290		$	7		$	20,543
Nine Months Ended September 30, 2018
Reserve for loan and lease losses:
Beginning balance	$	6,742		$	9,839		$	1,661		$	1,754		$	373		$	1,132		$	54		$	21,555
Charge-offs	(14,553		)	(40		)	(30		)	—			(253		)	(428		)	N/A			(15,304		)
Recoveries	271			74			266			71			71			160			N/A			913
Provision	14,729			3,361			157			1,201			281			273			203			20,205
Provision (recovery of provision)																									13,916			2,455			85		674			199			135			(3		)	17,461
Provision for acquired credit impaired loans	—			—			—			2			—			—			—			2			—			—			—		1			—			—			—			1
Ending balance	$	7,189		$	13,234		$	2,054		$	3,028		$	472		$	1,137		$	257		$	27,371		$	7,258		$	12,327		$	2,004	$	2,494		$	447		$	1,071		$	51		$	25,652
Nine Months Ended September 30, 2017
Reserve for loan and lease losses:
Beginning balance	$	7,037		$	7,505		$	774		$	993		$	364		$	788		$	38		$	17,499
Charge-offs	(576		)	(30		)	(1,237		)	(177		)	(301		)	(3,681		)	N/A			(6,002		)
Recoveries	722			4			47			89			116			168			N/A			1,146
(Recovery of provision) provision	(567		)	1,777			1,722			808			175			4,015			(31		)	7,899
(Recovery of provision) provision for acquired credit impaired loans	—			—			(1		)	2			—			—			—			1
Ending balance	$	6,616		$	9,256		$	1,305		$	1,715		$	354		$	1,290		$	7		$	20,543

N/A – Not applicable

Charge-offs for the ~~nine~~three and six months ended ~~September~~June 30, 2018 ~~include~~included a charge-off of $12.7 million ~~during the second quarter of 2018~~ for a commercial loan relationship related to ~~alleged~~ fraudulent activities perpetrated by ~~one or more~~ employees of ~~the~~

a borrower. The Bank owned a participating interest which originally totaled $13.0 million in an approximately $80.0 million commercial lending facility. The charge-off ~~represents~~represented the entire principal amount owed to the Bank.

The following presents, by portfolio segment, ~~a summary of~~ the balance in the reserve for loan and lease losses disaggregated on the basis of impairment method and the recorded investment in loans and leases disaggregated on the basis of impairment method at ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:


(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial and Construction		Real Estate— Residential Secured for Business Purpose		Real Estate— Residential and Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Unallocated		Total		Commercial, Financial and Agricultural		Real Estate— Commercial and Construction		Real Estate— Residential Secured for Business Purpose		Real Estate— Residential and Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Unallocated		Total
At September 30, 2018
At June 30, 2019
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	211	$	645	$	—	$	192	$	—	$	—	N/A		$	1,048	$	99	$	1,840	$	165	$	335	$	—	$	—	N/A		$	2,439
Ending balance: collectively evaluated for impairment	6,978		12,504		2,014		2,836		472		1,137		257		26,198		9,030		13,630		2,313		3,183		481		1,241		275		30,153
Ending balance: acquired credit impaired loans evaluated for impairment	—		85		40		—		—		—		—		125
Ending balance: acquired non-credit impaired loans evaluated for impairment																	—		8		—		—		—		—		—		8
Total ending balance	$	7,189	$	13,234	$	2,054	$	3,028	$	472	$	1,137	$	257	$	27,371	$	9,129	$	15,478	$	2,478	$	3,518	$	481	$	1,241	$	275	$	32,600
Loans and leases held for investment:
Ending balance: individually evaluated for impairment	$	4,889	$	18,970	$	1,588	$	3,275	$	—	$	1,250			$	29,972
Ending balance: individually evaluated for impairment (1)																	$	2,150	$	17,845	$	1,596	$	3,511	$	—	$	—			$	25,102
Ending balance: collectively evaluated for impairment	862,747		1,610,805		278,212		502,190		32,096		134,758				3,420,808		919,032		1,873,296		313,291		542,751		32,345		142,287				3,823,002
Loans measured at fair value	—		1,801		—		—		—		—				1,801		—		1,725		—		—		—		—				1,725
Acquired non-credit impaired loans	26,504		257,998		66,083		61,961		142		—				412,688
Acquired non-impaired loans																	15,967		199,534		50,451		51,414		140		—				317,506
Acquired credit impaired loans	182		206		448		64		—		—				900		—		206		302		61		—		—				569
Total ending balance	$	894,322	$	1,889,780	$	346,331	$	567,490	$	32,238	$	136,008			$	3,866,169	$	937,149	$	2,092,606	$	365,640	$	597,737	$	32,485	$	142,287			$	4,167,904
At September 30, 2017
At June 30, 2018
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	15	$	40	$	33	$	—	$	—	$	—	N/A		$	88	$	646	$	866	$	12	$	—	$	—	$	—	N/A		$	1,524
Ending balance: collectively evaluated for impairment	6,601		9,216		1,272		1,715		354		1,290		7		20,455		6,612		11,420		1,951		2,494		447		1,071		51		24,046
Ending balance: acquired non-credit impaired loans evaluated for impairment																	—		41		41		—		—		—		—		82
Total ending balance	$	6,616	$	9,256	$	1,305	$	1,715	$	354	$	1,290	$	7	$	20,543	$	7,258	$	12,327	$	2,004	$	2,494	$	447	$	1,071	$	51	$	25,652
Loans and leases held for investment:
Ending balance: individually evaluated for impairment	$	7,883	$	17,274	$	4,471	$	932	$	—	$	1,250			$	31,810
Ending balance: individually evaluated for impairment (1)																	$	6,238	$	21,004	$	2,132	$	3,306	$	—	$	1,250			$	33,930
Ending balance: collectively evaluated for impairment	774,886		1,307,585		209,340		415,161		27,297		122,888				2,857,157		875,390		1,569,475		265,283		470,994		31,048		131,872				3,344,062
Loans measured at fair value	—		2,014		—		—		—		—				2,014		—		1,847		—		—		—		—				1,847
Acquired non-credit impaired loans	75,983		344,818		95,625		77,991		144		—				594,561
Acquired non-impaired loans																	44,265		259,998		70,837		62,318		143		—				437,561
Acquired credit impaired loans	465		356		584		217		—		—				1,622		267		206		460		65		—		—				998
Total ending balance	$	859,217	$	1,672,047	$	310,020	$	494,301	$	27,441	$	124,138			$	3,487,164	$	926,160	$	1,852,530	$	338,712	$	536,683	$	31,191	$	133,122			$	3,818,398

(1) Includes $14.6 million and $17.9 million of acquired loans which were individually evaluated for impairment at June 30, 2019 and 2018, respectively.

N/A – Not applicable

The Corporation ~~records~~does not provide a ~~provision~~reserve for loan loss for ~~the~~ acquired ~~non-impaired~~ loans ~~only when~~unless additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan ~~loss, resulting in an increase to the allowance.~~loss.

Impaired Loans (excludes Lease Financings)

The following presents, by class of loans, the recorded investment and unpaid principal balance of impaired loans, the amounts of the impaired loans for which there is not a reserve for credit losses and the amounts for which there is a reserve for credit losses at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The impaired loans exclude acquired credit impaired loans.


	At September 30, 2018						At December 31, 2017						At June 30, 2019						At December 31, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Reserve		Recorded Investment		Unpaid Principal Balance		Related Reserve		Recorded Investment		Unpaid Principal Balance		Related Reserve		Recorded Investment		Unpaid Principal Balance		Related Reserve
Impaired loans with no related reserve recorded:
Commercial, financial and agricultural	$	3,958	$	4,535			$	7,019	$	8,301			$	1,980	$	2,590			$	2,776	$	3,361
Real estate—commercial real estate	7,110		7,976				15,621		16,507				5,158		6,163				6,578		7,516
Real estate—construction	106		111				365		365				106		111				106		111
Real estate—residential secured for business purpose	1,588		1,776				3,430		4,620				829		1,006				1,478		1,660
Real estate—residential secured for personal purpose	1,091		1,142				508		566				1,443		1,516				863		911
Real estate—home equity secured for personal purpose	1,460		1,488				511		523				1,269		1,329				1,373		1,404
Total impaired loans with no related reserve recorded	$	15,313	$	17,028			$	27,454	$	30,882			$	10,785	$	12,715			$	13,174	$	14,963
Impaired loans with a reserve recorded:
Commercial, financial and agricultural	$	931	$	984	$	211	$	60	$	60	$	31	$	170	$	170	$	99	$	971	$	1,024	$	413
Real estate—commercial real estate	11,754		12,138		645		933		933		99		12,581		13,336		1,840		11,637		12,162		675
Real estate—residential secured for business purpose	—		—		—		35		37		1		767		769		165		—		—		—
Real estate—residential secured for personal purpose	724		724		192		—		—		—		724		724		260		724		724		252
Real estate—home equity secured for personal purpose													75		75		75		75		75		75
Total impaired loans with a reserve recorded	$	13,409	$	13,846	$	1,048	$	1,028	$	1,030	$	131	$	14,317	$	15,074	$	2,439	$	13,407	$	13,985	$	1,415



Total impaired loans:
Commercial, financial and agricultural	$	2,150	$	2,760	$	99	$	3,747	$	4,385	$	413
Real estate—commercial real estate	17,739		19,499		1,840		18,215		19,678		675
Real estate—construction	106		111		—		106		111		—
Real estate—residential secured for business purpose	1,596		1,775		165		1,478		1,660		—
Real estate—residential secured for personal purpose	2,167		2,240		260		1,587		1,635		252
Real estate—home equity secured for personal purpose	1,344		1,404		75		1,448		1,479		75
Total impaired loans	$	25,102	$	27,789	$	2,439	$	26,581	$	28,948	$	1,415

Total impaired loans:
Commercial, financial and agricultural $ 4,889
$ 5,519
$ 211
$ 7,079
$ 8,361
$ 31
Real estate—commercial real estate 18,864
20,114
645
16,554
17,440
99
Real estate—construction 106
111
—
365
365
—
Real estate—residential secured for business purpose 1,588
1,776
—
3,465
4,657
1
Real estate—residential secured for personal purpose 1,815
1,866
192
508
566
—
Real estate—home equity secured for personal purpose 1,460
1,488
—
511
523
—
Total impaired loans $ 28,722
$ 30,874
$ 1,048
$ 28,482
$ 31,912
$ 131

Impaired loans include nonaccrual loans and accruing troubled debt restructured ~~loans and other accruing impaired~~ loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. These loans are individually measured to determine the amount of potential impairment. The loans are reviewed for impairment based on the fair value of the collateral for collateral dependent loans and for certain loans based on discounted cash flows using the loans’ initial effective interest rates. Impaired loans include other accruing impaired loans of $1.9 million and $4.1 million at September 30, 2018 and December 31, 2017, respectively. Specific reserves on other accruing impaired loans were $0 thousand and $99 thousand at September 30, 2018 and December 31, 2017, respectively.

The following presents by class of loans, the average recorded investment in impaired loans and an analysis of interest on impaired loans. A loan may remain on accrual status if it is an accruing troubled debt restructured loan or if it is in the process of collection and is either guaranteed or well secured. Therefore, interest income on accruing impaired loans is recognized using the accrual method.


	Three Months Ended September 30, 2018						Three Months Ended September 30, 2017						Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms
Commercial, financial and agricultural	$	5,671	$	31	$	58	$	10,211	$	52	$	92	$	2,509	$	12	$	49	$	6,394	$	32	$	134
Real estate—commercial real estate	19,878		22		261		18,583		201		69		18,058		—		242		22,914		18		265
Real estate—construction	108		—		2		365		—		5		106		—		2		56		—		3
Real estate—residential secured for business purpose	1,844		4		32		3,579		16		34		1,557		—		36		1,966		5		23
Real estate—residential secured for personal purpose	1,850		—		26		635		1		8		1,937		—		29		889		2		33
Real estate—home equity secured for personal purpose	1,507		—		21		288		—		5		1,358		1		20		1,033		—		31
Total	$	30,858	$	57	$	400	$	33,661	$	270	$	213	$	25,525	$	13	$	378	$	33,252	$	57	$	489

Includes interest income recognized on a cash basis for nonaccrual loans of $5$12 thousandand$02 thousand for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of ~~$52~~$1 thousand and ~~$270~~$55 thousand for the three months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively.



	Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms
Commercial, financial and agricultural	$	3,066	$	17	$	103	$	7,090	$	72	$	211
Real estate—commercial real estate	18,122		3		496		20,105		190		552
Real estate—construction	106		—		3		137		—		5
Real estate—residential secured for business purpose	1,443		—		56		2,107		10		47
Real estate—residential secured for personal purpose	1,792		—		54		720		3		44
Real estate—home equity secured for personal purpose	1,384		1		43		819		—		39
Total	$	25,913	$	21	$	755	$	30,978	$	275	$	898

Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
(Dollars in thousands) Average
Recorded
Investment Interest
Income
Recognized* Additional
Interest Income
That Would
Have Been
Recognized
Under Original
Terms Average
Recorded
Investment Interest
Income
Recognized* Additional
Interest Income
That Would
Have Been
Recognized
Under Original
Terms
Commercial, financial and agricultural $ 6,589
$ 103
$ 269
$ 11,030
$ 162
$ 263
Real estate—commercial real estate 19,935
212
813
21,120
618
223
Real estate—construction 128
—
7
219
—
15
Real estate—residential secured for business purpose 2,018
14
79
4,053
53
139
Real estate—residential secured for personal purpose 1,064
3
70
629
2
31
Real estate—home equity secured for personal purpose 1,026
—
60
391
—
15
Total $ 30,760
$ 332
$ 1,298
$ 37,442
$ 835
$ 686

Includes interest income recognized on a cash basis for nonaccrual loans of ~~$13~~$15 thousandand $4$8 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of ~~$319~~$6 thousand and ~~$831~~$267 thousand for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively.

Impaired Leases

The Corporation had no impaired leases ~~of $1.3 million~~ at ~~September~~June 30, ~~2018 and~~2019 or December 31, ~~2017 with no related reserves. See discussion in~~ ~~Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases.~~2018.

Troubled Debt Restructured Loans

The following presents, by class of loans, information regarding accruing and nonaccrual loans that were restructured:

~~Three Months Ended September 30, 2018~~

~~Three Months Ended September 30, 2017~~

~~(Dollars in thousands)~~

~~Number~~
of
~~Loans~~

~~Pre-~~
~~Restructuring~~
~~Outstanding~~
~~Recorded~~
~~Investment~~

~~Post-~~
~~Restructuring~~
~~Outstanding~~
~~Recorded~~
~~Investment~~

~~Related~~
~~Reserve~~

~~Number~~
of
~~Loans~~

~~Pre-~~
~~Restructuring~~
~~Outstanding~~
~~Recorded~~
~~Investment~~

~~Post-~~
~~Restructuring~~
~~Outstanding~~
~~Recorded~~
~~Investment~~

~~Related~~
~~Reserve~~

~~Accruing Troubled Debt Restructured Loans:~~

~~Total~~

—

~~Nonaccrual Troubled Debt Restructured Loans:~~

~~Total~~

—



	Three Months Ended June 30, 2019							Three Months Ended June 30, 2018
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Reserve		Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Reserve
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose	1	$	55	$	55	$	—	—	$	—	$	—	$	—
Total	1	$	55	$	55	$	—	—	$	—	$	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose	—	$	—	$	—	$	—	1	$	66	$	66	$	—
Total	—	$	—	$	—	$	—	1	$	66	$	66	$	—



	Six Months Ended June 30, 2019							Six Months Ended June 30, 2018
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Allowance		Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Allowance
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose	1	$	55	$	55	$	—	—	$	—	$	—	$	—
Total	1	$	55	$	55	$	—	—	$	—	$	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural*	2	$	956	$	956	$	—	—	$	—	$	—	$	—
Real estate—commercial real estate*	1	1,313		1,313		—		—	—		—		—
Real estate—residential secured for personal purpose	—	—		—		—		1	66		66		—
Total	3	$	2,269	$	2,269	$	—	1	$	66	$	66	$	—

Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
(Dollars in thousands) Number
of
Loans Pre-
Restructuring
Outstanding
Recorded
Investment Post-
Restructuring
Outstanding
Recorded
Investment Related
Allowance Number
of
Loans Pre-
Restructuring
Outstanding
Recorded
Investment Post-
Restructuring
Outstanding
Recorded
Investment Related
Allowance
Accruing Troubled Debt Restructured Loans:
Real estate—commercial real estate —
$ —
$ —
$ —
3
$ 9,206
$ 9,206
$ —
Total —
$ —
$ —
$ —
3
$ 9,206
$ 9,206
$ —
Nonaccrual Troubled Debt Restructured Loans:
Real estate—commercial real estate —
$ —
$ —
$ —
1
$ 328
$ 328
$ —
Real estate—residential secured for personal purpose 1
66
66
—
—
—
—
—
Total 1
$ 66
$ 66
$ —
1
$ 328
$ 328
$ —
* The three nonaccrual troubled debt restructured loans during the six months ended June 30, 2019 in the above table were modified via the execution of a forbearance agreement. These loans relate to one borrower and were on nonaccrual status at the time of modification.

The Corporation grants concessions to existing borrowers primarily related to extensions of interest-only payment periods and an occasional payment modification. These modifications typically are for up to one year. The goal when restructuring a credit is to establish a reasonable period of time to provide cash flow relief to customers experiencing cash flow difficulties. Accruing troubled debt restructured loans are primarily comprised of loans on which interest is being accrued under the restructured terms, and the loans are current or less than ninety days past due.

The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.



	Amortization Period Extension
(Dollars in thousands)	No. of Loans	Amount
Three Months Ended June 30, 2019
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose	1	$	55
Total	1	$	55
Nonaccrual Troubled Debt Restructured Loans:
Total	—	$	—
Three Months Ended June 30, 2018
Accruing Troubled Debt Restructured Loans:
Total	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose	1	$	66
Total	1	$	66
Six Months Ended June 30, 2019
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose	1	$	55
Total	1	$	55
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	2	$	956
Real estate—commercial real estate	1	1,313
Total	3	$	2,269
Six Months Ended June 30, 2018
Accruing Troubled Debt Restructured Loans:
Total	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose	1	$	66
Total	1	$	66

Maturity Date
Extension Amortization Period Extension Total Concessions
Granted
(Dollars in thousands) No. of
Loans Amount No. of
Loans Amount No. of
Loans Amount
Three Months Ended September 30, 2018
Accruing Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
—
$ —
Nonaccrual Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
—
$ —
Three Months Ended September 30, 2017
Accruing Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
—
$ —
Nonaccrual Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
—
$ —
Nine Months Ended September 30, 2018
Accruing Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
—
$ —
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose —
$ —
1
$ 66
1
$ 66
Total —
$ —
1
$ 66
1
$ 66
Nine Months Ended September 30, 2017
Accruing Troubled Debt Restructured Loans:
Real estate—commercial real estate —
$ —
3
$ 9,206
3
$ 9,206
Total —
$ —
3
$ 9,206
3
$ 9,206
Nonaccrual Troubled Debt Restructured Loans:
Real estate—commercial real estate 1
$ 328
—
$ —
1
$ 328
Total 1
$ 328
—
$ —
1
$ 328

The following presents, by class of loans, information regarding accruing and nonaccrual troubled debt restructured loans, for which there were payment defaults within twelve months of the restructuring date:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(Dollars in thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Accruing Troubled Debt Restructured Loans:
Commercial, financial and agricultural	—	$	—	—	$	—	—	$	—	1	$	953
Total	—	$	—	—	$	—	—	$	—	1	$	953
Nonaccrual Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—	—	$	—	—	$	—

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(Dollars in thousands) Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
Accruing Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
—
$ —
—
$ —
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural —
$ —
—
$ —
1
$ 953
—
$ —
Total —
$ —
—
$ —
1
$ 953
—
$ —

The following presents, by class of loans, information regarding consumer mortgages collateralized by residential real estate property that are in the process of foreclosure at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:



(Dollars in thousands)	At June 30, 2019		At December 31, 2018
Real estate-residential secured for personal purpose	$	714	$	563
Real estate-home equity secured for personal purpose	1,134		1,134
Total	$	1,848	$	1,697

(Dollars in thousands) At September 30, 2018 At December 31, 2017
Real estate-residential secured for personal purpose $ —
$ 31
Real estate-home equity secured for personal purpose 812
—
Total $ 812
$ 31

The ~~following presents~~Corporation held no foreclosed residential real estate property ~~included in other real estate owned~~ at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Lease Financings

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", and subsequent related updates, to revise the accounting for leases. The Corporation adopted this guidance effective January 1, 2019 on a modified retrospective basis at January 1, 2019. Additionally, the Corporation early adopted (ASU) No. 2019-01, "Codification Improvements", as of January 1, 2019, which serves as an update to (ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information. Lessor accounting was largely unchanged as a result of the standard. Additional disclosures required under the standard are included in the following section.

The Corporation, through Univest Capital, Inc., an equipment financing business and a subsidiary of the Bank, provides lease financing to customers primarily in the form of sales-type leases with fixed payment terms and $1.00 dollar buyout clauses. A minor number of contracts are classified as either direct financing leases or operating leases. The fair value of the identified assets within sales-type and direct financing leases are equal to the carrying amount such that there is no profit or loss recorded or deferred upon lease commencement. All receivables related to the equipment financing business are recorded within lease financings as of June 30, 2019.

The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk by primarily using $1.00 buyout leases, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term for the majority of its lease portfolio.

Lease financings are stated at net investment amount, consisting of the present value of lease payments and unguaranteed residual value, plus initial direct costs. Initial direct costs, comprised of commissions paid that would not have been incurred if the lease had not been obtained, are deferred and amortized over the life of the contract, and are presented within net interest income on leases.

The following presents the schedule of minimum lease payments receivable:



(Dollars in thousands)	At June 30, 2019			At December 31, 2018
2019 (excluding the six months ended June 30, 2019)	$	29,479		$	55,201
2020	49,897			43,355
2021	36,433			29,678
2022	23,877			17,687
2023	11,722			6,674
Thereafter	3,478			1,975
Total future minimum lease payments receivable	154,886			154,570
Plus: Unguaranteed residual	823			600
Plus: Initial direct costs	1,993			1,904
Less: Imputed interest	(15,415		)	(15,118		)
Lease financings	$	142,287		$	141,956

(Dollars in thousands) At September 30, 2018 At December 31, 2017
Foreclosed residential real estate $ 57
$ 80

Included within the "2019 (excluding the six months ended June 30, 2019)" line item above as of June 30, 2019 and December 31, 2018 are $20 thousand and $0 thousand, respectively, of receivables related to an operating lease contract.

For the six months ended June 30, 2019 and 2018, the Corporation recognized $4.0 million and $3.7 million, respectively, of interest income on lease financings within total interest and fees on loans and leases on the condensed consolidated statements of income. The Corporation did not record any profit or loss upon the commencement date of its leases or any lease income related to variable lease payments.

Note 5. Goodwill and Other Intangible Assets

The Corporation has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The Corporation also has goodwill which is deemed to be an indefinite intangible asset and is not amortized.

Changes in the carrying amount of the Corporation's goodwill by business segment for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 were as follows:



(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated
Balance at December 31, 2018	$	138,476	$	15,434	$	18,649	$	172,559
Addition to goodwill from acquisitions	—		—		—		—
Balance at June 30, 2019	$	138,476	$	15,434	$	18,649	$	172,559

(Dollars in thousands) Banking Wealth Management Insurance Consolidated
Balance at December 31, 2017 $ 138,476
$ 15,434
$ 18,649
$ 172,559
Addition to goodwill from acquisitions —
—
—
—
Balance at September 30, 2018 $ 138,476
$ 15,434
$ 18,649
$ 172,559

The following table reflects the components of intangible assets at the dates indicated:



	At June 30, 2019						At December 31, 2018
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Covenants not to compete	$	—	$	—	$	—	$	710	$	710	$	—
Core deposit intangibles	6,788		3,609		3,179		6,788		3,143		3,645
Customer related intangibles	8,819		7,602		1,217		12,381		10,804		1,577
Servicing rights	17,960		11,361		6,599		17,314		10,546		6,768
Total amortized intangible assets	$	33,567	$	22,572	$	10,995	$	37,193	$	25,203	$	11,990

At September 30, 2018 At December 31, 2017
(Dollars in thousands) Gross Carrying Amount Accumulated Amortization and Fair Value Adjustments Net Carrying Amount Gross Carrying Amount Accumulated Amortization and Fair Value Adjustments Net Carrying Amount
Amortized intangible assets:
Covenants not to compete $ 710
$ 710
$ —
$ 710
$ 580
$ 130
Core deposit intangibles 6,788
2,903
3,885
6,788
2,135
4,653
Customer related intangibles 12,381
10,576
1,805
12,381
9,828
2,553
Servicing rights 16,949
10,234
6,715
15,855
9,282
6,573
Total amortized intangible assets $ 36,828
$ 24,423
$ 12,405
$ 35,734
$ 21,825
$ 13,909

The estimated aggregate amortization expense for core deposit and ~~customer related~~customer-related intangibles for the remainder of ~~2018~~2019 and the succeeding fiscal years is as follows:



Year	(Dollars in thousands)	Amount
Remainder of 2019		$	739
2020		1,200
2021		923
2022		666
2023		409
Thereafter		459

Year (Dollars in thousands) Amount
Remainder of 2018 $ 468
2019 1,565
2020 1,200
2021 923
2022 666
Thereafter 868

The Corporation has originated mortgage servicing rights, which are included in other intangible assets on the consolidated balance ~~sheets.~~sheet. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are subject to impairment testing on a quarterly basis. The aggregate fair value of these rights was ~~$11.9~~$8.8 million at ~~September~~June 30, ~~2018~~2019 and ~~$10.0~~$11.5 million at December 31, ~~2017.~~2018. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The Corporation also records servicing rights on small business administration (SBA) loans. The value of these servicing rights was ~~$32~~$135 thousand and ~~$21~~$42 thousand at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Changes in the servicing rights balance are summarized as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019			2018
Beginning of period	$	6,725		$	6,605		$	6,768		$	6,573
Servicing rights capitalized	321			350			587			687
Amortization of servicing rights	(426		)	(305		)	(735		)	(610		)
Changes in valuation allowance	(21		)	—			(21		)	—
End of period	$	6,599		$	6,650		$	6,599		$	6,650
Residential mortgage and SBA loans serviced for others	$	1,042,438		$	1,019,233		$	1,042,438		$	1,019,233

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2018 2017 2018 2017
Beginning of period $ 6,650
$ 6,548
$ 6,573
$ 6,485
Servicing rights capitalized 406
376
1,093
1,106
Amortization of servicing rights (341 ) (368 ) (951 ) (1,035 )
End of period $ 6,715
$ 6,556
$ 6,715
$ 6,556
Residential mortgage and SBA loans serviced for others $ 1,024,229
$ 997,169
$ 1,024,229
$ 997,169
Activity in the valuation allowance for mortgage servicing rights was as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2019			2018		2019			2018
Valuation allowance, beginning of period	$	—		$	—	$	—		$	—
Additions	(21		)	—		(21		)	—
Valuation allowance, end of period	$	(21	)	$	—	$	(21	)	$	—

The estimated amortization expense of servicing rights for the remainder of ~~2018~~2019 and the succeeding fiscal years is as follows:



Year	(Dollars in thousands)	Amount
Remainder of 2019		$	1,174
2020		993
2021		822
2022		678
2023		535
Thereafter		2,397

Year (Dollars in thousands) Amount
Remainder of 2018 $ 858
2019 770
2020 682
2021 603
2022 533
Thereafter 3,269

Note 6. Deposits

Deposits and their respective weighted average interest rate at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 consist of the following:



	At June 30, 2019				At December 31, 2018
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Dollars in thousands)
Noninterest-bearing deposits	—	%	$	1,166,301	—	%	$	1,055,919
Demand deposits	1.20		1,424,288		1.01		1,377,171
Savings deposits	0.48		822,084		0.33		782,766
Time deposits	2.02		709,437		1.76		670,077
Total	0.86	%	$	4,122,110	0.73	%	$	3,885,933

At September 30, 2018 At December 31, 2017
Weighted Average Interest Rate Amount Weighted Average Interest Rate Amount
(Dollars in thousands)
Noninterest-bearing deposits — % $ 1,047,081
— % $ 1,040,026
Demand deposits 0.93
1,350,720
0.43
1,109,438
Savings deposits 0.28
750,764
0.26
830,706
Time deposits 1.66
671,483
1.12
574,749
Total 0.67 % $ 3,820,048
0.38 % $ 3,554,919

The aggregate amount of time deposits in denominations of $100 thousand or more was ~~$276.6~~$339.3 million at ~~September~~June 30, ~~2018~~2019 and ~~$250.0~~$283.4 million at December 31, ~~2017.~~2018. Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently up to $250 thousand. The aggregate amount of time deposits in denominations over $250 thousand was ~~$126.7~~$177.2 million at ~~September~~June 30, ~~2018~~2019 and ~~$118.4~~$129.5 million at December 31, ~~2017.~~2018.

At ~~September~~June 30, ~~2018,~~2019, the scheduled maturities of time deposits are as follows:



Year	(Dollars in thousands)	Amount
Remainder of 2019		$	280,027
2020		215,587
2021		79,504
2022		40,832
2023		72,125
Thereafter		21,362
Total		$	709,437

Year (Dollars in thousands) Amount
Remainder of 2018 $ 92,465
2019 335,088
2020 114,034
2021 32,865
2022 33,222
Thereafter 63,809
Total $ 671,483

Note 7. Borrowings

The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less. The long-term debt balances and weighted average interest rates include purchase accounting fair value adjustments, net of related amortization, from the Fox Chase acquisition.



	At June 30, 2019				At December 31, 2018
(Dollars in thousands)	Balance at End of Period		Weighted Average Interest Rate at End of Period		Balance at End of Period		Weighted Average Interest Rate at End of Period
Short-term borrowings:
FHLB borrowings	$	—	—	%	$	108,300	2.62	%
Federal funds purchased	20,000		2.43		60,000		2.60
Customer repurchase agreements	19,350		0.05		21,468		0.05

Long-term debt:
FHLB advances	$	150,000	1.99	%	$	125,000	1.92	%
Security repurchase agreements	20,195		2.82		20,330		2.71

Subordinated notes	$	94,696	5.33	%	$	94,574	5.33	%

At September 30, 2018 At December 31, 2017
(Dollars in thousands) Balance at End of Period Weighted Average Interest Rate at End of Period Balance at End of Period Weighted Average Interest Rate at End of Period
Short-term borrowings:
FHLB borrowings $ 16,980
2.38 % $ 30,225
1.54 %
Federal funds purchased 50,000
2.33
55,000
1.56
Customer repurchase agreements 19,785
0.05
20,206
0.05

Long-term debt:
FHLB advances $ 115,000
1.82 % $ 125,036
1.73 %
Security repurchase agreements 30,430
2.14
30,792
1.52

Subordinated notes $ 94,514
5.34 % $ 94,331
5.35 %

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (FHLB) with a maximum borrowing capacity of approximately ~~$1.6~~$1.7 billion. Advances from the FHLB are ~~collateralized~~secured by ~~a blanket floating lien on all first~~qualifying commercial real estate and residential mortgage loans, ~~of the Bank, FHLB capital stock owned by the Bank~~investments and ~~any funds on deposit with the FHLB.~~other assets. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank had outstanding short-term letters of credit with the FHLB totaling ~~$382.9~~$408.3 million and ~~$234.2~~$347.5 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.

The Corporation, through the Bank, maintains uncommitted federal fund credit lines with several correspondent banks ~~totaling~~that totaled $504.0 million and $367.0 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia in order to access the Discount Window Lending program. The collateral consisting of investment securities was valued at ~~$66.2~~$104.6 million and ~~$52.0~~$69.5 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Corporation had no outstanding borrowings under this program.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Corporation had no outstanding borrowings under this line.

Long-term advances with the FHLB of Pittsburgh mature as follows:



(Dollars in thousands)	As of June 30, 2019		Weighted Average Rate
Remainder of 2019	$	10,000	1.35	%
2020	40,000		1.70
2021	80,000		2.07
2022	10,000		2.09
2023	10,000		3.02
Thereafter	—		—
Total	$	150,000	1.99	%

(Dollars in thousands) As of September 30, 2018 Weighted Average Rate
Remainder of 2018 $ —
— %
2019 10,000
1.35
2020 40,000
1.70
2021 55,000
1.94
2022 10,000
2.09
Thereafter —
—
Total $ 115,000
1.82 %

Long-term debt under security repurchase agreements with large commercial banks mature as follows:



(Dollars in thousands)	As of June 30, 2019		Weighted Average Rate
Remainder of 2019	$	10,038	2.83	%
2020	10,157		2.81
2021	—		—
2022	—		—
2023	—		—
Thereafter	—		—
Total	$	20,195	2.82	%

(Dollars in thousands) As of September 30, 2018 Weighted Average Rate
Remainder of 2018 $ 10,032
1.52 %
2019 10,152
2.45
2020 10,246
2.44
2021 —
—
2022 —
—
Thereafter —
—
Total $ 30,430
2.14 %

Long-term debt under security repurchase agreements totaling ~~$25.4~~$20.2 million are variable based on the one-month LIBOR rate plus a spread. ~~One borrowing for $5.0 million has a fixed interest rate and may be called by the lender based on the underlying agreement.~~

Note 8. Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax ~~law; these~~law. These plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new ~~participants;~~participants and all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

The Corporation also provides certain postretirement healthcare and life insurance benefits for retired employees. Information on these benefits is reported under “Other Postretirement Benefits” within this footnote.

The Corporation sponsors a Supplemental Non-Qualified Pension Plan, which was established in 1981 prior to the existence of athe 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new ~~participants; all~~participants. All current participants are now retired.

Components of net periodic benefit cost (income) were as follows:


	Three Months Ended September 30,										Three Months Ended June 30,
	2018			2017			2018		2017		2019			2018			2019		2018
(Dollars in thousands)	Retirement Plans						Other Post Retirement Benefits				Retirement Plans						Other Post Retirement Benefits
Service cost	$	140		$	124		$	22	$	12	$	110		$	140		$	16	$	22
Interest cost	440			487			23		29		476			439			24		23
Expected return on plan assets	(849		)	(797		)	—		—		(770		)	(795		)	—		—
Amortization of net actuarial loss	280			309			1		11		294			281			—		1
Accretion of prior service cost	(70		)	(71		)	—		—		(46		)	(71		)	—		—
Net periodic benefit (income) cost	$	(59	)	$	52		$	46	$	52
Net periodic benefit cost (income)											$	64		$	(6	)	$	40	$	46



	Six Months Ended June 30,
	2019			2018			2019		2018
(Dollars in thousands)	Retirement Plans						Other Post Retirement Benefits
Service cost	$	219		$	280		$	33	$	44
Interest cost	952			880			47		46
Expected return on plan assets	(1,541		)	(1,591		)	—		—
Amortization of net actuarial loss	588			561			—		2
Accretion of prior service cost	(91		)	(142		)	—		—
Net periodic benefit cost (income)	$	127		$	(12	)	$	80	$	92

Nine Months Ended September 30,
2018 2017 2018 2017
(Dollars in thousands) Retirement Plans Other Post Retirement
Benefits
Service cost $ 420
$ 399
$ 66
$ 36
Interest cost 1,320
1,439
69
88
Expected return on plan assets (2,440 ) (2,298 ) —
—
Amortization of net actuarial loss 841
886
3
32
Accretion of prior service cost (212 ) (212 ) —
—
Net periodic benefit (income) cost $ (71 ) $ 214
$ 138
$ 156

The components of net periodic benefit cost other than the service cost component are included in other noninterest expense in the consolidated statements of income.

~~The Corporation made a contribution of $3.0 million to its qualified retirement plan on July 5, 2018.~~ The Corporation previously disclosed in its financial statements for the year ended December 31, ~~2017~~2018 that it expected to make contributions of ~~$158~~$157 thousand to its non-qualified retirement plans and ~~$80~~$89 thousand to its other postretirement benefit plans in ~~2018.~~2019. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Corporation contributed ~~$120~~$80 thousand to its non-qualified retirement plans and ~~$79~~$52 thousand to its other postretirement plans. During the ~~nine~~six months ended ~~September~~June 30, ~~2018, $2.0~~2019, $1.3 million was paid to participants from the retirement plans and ~~$79~~$52 thousand was paid to participants from the other postretirement plans.

Note 9. Stock-Based Incentive Plan

The Corporation has a shareholder approved 2013 Long-Term Incentive Plan, which replaced the expired 2003 Long-Term Incentive Plan. ~~Under~~In December 2018, the Corporation's Board of Directors approved an Amended and Restated Univest 2013 Long-Term Incentive Plan (the Plan) to allow for the issuance of restricted stock units.

During the three months ended March 31, 2019, the Corporation ~~may~~issued to directors and employees (“grantees”) restricted stock units rather than restricted stock awards or stock options, which were issued to grantees in prior reporting periods. Restricted stock units differ from restricted stock awards in that Corporation stock is not issued to grantees at the date of the grant ~~up to 3,698,974 options~~and the grantee does not have voting or dividend rights during the vesting period. In the following schedules, issued restricted stock units have been combined with restricted stock awards, as the determination of the value at the grant date and methodology for recording stock-based compensation expense is the same for restricted stock units and restricted stock to employees and non-employee directors, which includes 330,625 shares as a result of the Corporation's common stock issuance in 2017, 857,191 shares as a result of the completion of the acquisition of Fox Chase in 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank in 2015.awards.

The following is a summary of the Corporation's stock option activity and related information for the ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:



(Dollars in thousands, except per share data)	Shares Under Option		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value at June 30, 2019
Outstanding at December 31, 2018	597,405		$	23.98
Expired	(9,756	)	23.61
Forfeited	(8,000	)	26.06
Exercised	(39,500	)	17.48
Outstanding at June 30, 2019	540,149		24.44		7.0	$	1,658
Exercisable at June 30, 2019	373,220		22.72		6.4	1,644

(Dollars in thousands, except per share data) Shares Under Option Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value at September 30, 2018
Outstanding at December 31, 2017 512,735
$ 21.90

Granted 192,278
28.50

Expired (500 ) 28.15

Forfeited (20,418 ) 26.14

Exercised (59,750 ) 18.92

Outstanding at September 30, 2018 624,345
24.08
7.5 $ 2,150
Exercisable at September 30, 2018 259,031
20.41
5.9 1,662

The following is a summary of nonvested stock options at ~~September~~June 30, ~~2018~~2019 including changes during the ~~nine~~six months then ended:



(Dollars in thousands, except per share data)	Nonvested Stock Options		Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2018	344,230		$	6.48
Vested	(169,301	)	6.44
Forfeited	(8,000	)	6.43
Nonvested stock options at June 30, 2019	166,929		6.52

(Dollars in thousands, except per share data) Nonvested Stock Options Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2017 352,142
$ 6.47
Granted 192,278
6.46
Vested (158,688 ) 6.43
Forfeited (20,418 ) 6.49
Nonvested stock options at September 30, 2018 365,314
6.48

The following aggregated assumptions were used to estimate the fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2018 and 2017:~~2018. The Corporation did not issue stock options during the six months ended June 30, 2019.



	Six Months Ended June 30, 2018
Expected option life in years	6.6
Risk free interest rate	2.80	%
Expected dividend yield	2.81	%
Expected volatility	27.15	%
Fair value of options	$6.46

Nine months ended September 30,
2018 2017
Actual
Expected option life in years 6.6
6.9
Risk free interest rate 2.80 % 2.30 %
Expected dividend yield 2.81 % 2.84 %
Expected volatility 27.15 % 29.75 %
Fair value of options $6.46 $6.72

The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at ~~September~~June 30, ~~2018~~2019 including changes during the ~~nine~~six months then ended:



(Dollars in thousands, except per share data)	Nonvested Stock Awards and Units		Weighted Average Grant Date Fair Value
Nonvested stock awards at December 31, 2018	157,579		$	25.33
Granted	113,729		25.66
Vested	(32,965	)	21.86
Cancelled	(17,349	)	19.68
Nonvested stock awards and units at June 30, 2019	220,994		26.46

(Dollars in thousands, except per share data) Nonvested Share Awards Weighted Average Grant Date Fair Value
Nonvested share awards at December 31, 2017 229,026
$ 21.93
Granted 59,953
28.39
Vested (94,867 ) 19.94
Forfeited (25,780 ) 21.63
Nonvested share awards at September 30, 2018 168,332
25.41

The fair value of restricted stock awards and units is equivalent to the fair value of the Corporation's stock on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock awards and units is summarized below for the periods indicated:



	Six Months Ended June 30,
(Dollars in thousands, except per share data)	2019		2018
Restricted stock awards and units granted	113,729		59,953
Weighted average grant date fair value	$	25.66	$	28.39
Intrinsic value of awards vested	$	809	$	1,193

Nine months ended September 30,
(Dollars in thousands, except per share data) 2018 2017
Shares granted 59,953
61,823
Weighted average grant date fair value $ 28.39
$ 28.08
Intrinsic value of awards vested $ 2,648
$ 2,914

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested stock options and nonvested restricted stock awards and units at ~~September~~June 30, ~~2018~~2019 is presented below:



(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Stock options	$	793	1.4
Restricted stock awards and units	3,631		2.3
	$	4,424	2.1

(Dollars in thousands) Unrecognized Compensation Cost Weighted-Average Period Remaining (Years)
Stock options $ 1,592
1.9
Restricted stock awards 2,107
1.8
$ 3,699
1.9

The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:



	Six Months Ended June 30,
(Dollars in thousands)	2019		2018
Stock-based compensation expense:
Stock options	$	378	$	515
Restricted stock awards and units	878		1,204
Employee stock purchase plan	36		34
Total	$	1,292	$	1,753
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	$	284	$	413

Nine months ended September 30,
(Dollars in thousands) 2018 2017
Stock-based compensation expense:
Stock options $ 797
$ 678
Restricted stock awards 1,582
1,872
Employee stock purchase plan 51
47
Total $ 2,430
$ 2,597
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options $ 624
$ 1,263

Note 10. Accumulated Other Comprehensive (Loss) Income

The following table shows the components of accumulated other comprehensive (loss) income, net of taxes, for the periods presented:



(Dollars in thousands)	Net Unrealized (Losses) Gains on Available-for-Sale Investment Securities			Net Change Related to Derivatives Used for Cash Flow Hedges			Net Change Related to Defined Benefit Pension Plans			Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2018	$	(11,221	)	$	81		$	(17,276	)	$	(28,416	)
Adjustment to initially apply ASU No. 2017-12 for derivatives (1)	—			83			—			83
Other comprehensive income (loss)	6,356			(364		)	392			6,384
Balance, June 30, 2019	$	(4,865	)	$	(200	)	$	(16,884	)	$	(21,949	)

Balance, December 31, 2017	$	(4,061	)	$	9		$	(13,719	)	$	(17,771	)
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value	(433		)	—			—			(433		)
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges	(968		)	2			(2,955		)	(3,921		)
Other comprehensive (loss) income	(6,525		)	310			333			(5,882		)
Balance, June 30, 2018	$	(11,987	)	$	321		$	(16,341	)	$	(28,007	)

(Dollars in thousands) Net Unrealized
(Losses) Gains on
Available-for-Sale
Investment
Securities Net Change
Related to
Derivatives Used for Cash Flow Hedges Net Change
Related to
Defined Benefit
Pension Plans Accumulated
Other
Comprehensive
(Loss) Income
Balance, December 31, 2017 $ (4,061 ) $ 9
$ (13,719 ) $ (17,771 )
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value (1) (433 ) —
—
(433 )
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges (1) (968 ) 2
(2,955 ) (3,921 )
Other comprehensive (loss) income (7,411 ) 373
499
(6,539 )
Balance, September 30, 2018 $ (12,873 ) $ 384
$ (16,175 ) $ (28,664 )

Balance, December 31, 2016 $ (4,988 ) $ (141 ) $ (14,325 ) $ (19,454 )
Net Change 2,624
28
459
3,111
Balance, September 30, 2017 $ (2,364 ) $ (113 ) $ (13,866 ) $ (16,343 )

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in ~~2018"~~2019" for additional information.

Note 11. Derivative Instruments and Hedging Activities

Interest Rate Swaps

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" and subsequent related updates. The Corporation adopted this guidance effective January 1, 2019, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at January 1, 2019. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information.

The Corporation may use interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying ~~forecasted~~ transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk, adjusts the carrying amount of the hedge item and is recognized in earnings.

In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year ~~maturity~~ fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. At ~~September~~June 30, ~~2018,~~2019, approximately ~~$95~~$21 thousand in net deferred ~~gains,~~losses, net of tax, recorded in accumulated other comprehensive loss are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to ~~September~~June 30, ~~2018.~~2019. At ~~September~~June 30, ~~2018,~~2019, the notional amount of the interest rate swap was ~~$17.3~~$16.7 million, with a ~~positive~~negative fair value of ~~$485~~$254 thousand.

The Corporation has an interest rate swap classified as a fair value hedge with a current notional amount of ~~$1.4~~$1.3 million to hedge a 10-year fixed rate loan that is earning interest at 5.83%. The Corporation pays a fixed rate of 5.83% and receives a floating rate based on the one-month LIBOR plus 350 basis points. The swap matures in October 2021. ~~The~~Effective January 1, 2019, the entire change in the fair values of the interest rate swap and the hedged loan included in the assessment of hedge effectiveness is

recorded in interest income in the consolidated statements of income. Prior to January 1, 2019, the difference between changes in the fair values of the interest rate swap agreement and the hedged loan ~~represents~~represented hedge ineffectiveness and iswas recorded in other noninterest income in the consolidated statements of ~~operations.~~income.

The Corporation has an interest rate swap with a current notional amount of ~~$445~~$361 thousand, for a 15-year fixed rate loan that is earning interest at 7.43%. The Corporation pays a fixed rate of 7.43% and receives a floating rate based on the one-month LIBOR plus 224 basis points. The swap matures in April 2022. The interest rate swap is carried at fair value in accordance with

FASB ASC 815 "Derivatives and Hedging." The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 "Financial Instruments."

Credit Derivatives

The Corporation has agreements with third-party financial institutions whereby the third-party financial institution enters into interest rate derivative contracts with loan customers referred to them by the Corporation. By the terms of the agreements, the third-party financial institution has recourse to the Corporation for any exposure created under each swap contract in the event the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. These transactions represent credit derivatives and are a customary arrangement that allows the Corporation to provide access to interest rate transactions for customers without creating the swap. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of income.

At ~~September~~June 30, ~~2018,~~2019, the Corporation has ~~sixteen~~twenty-eight variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of ~~$84.7~~$186.7 million and remaining maturities ranging from less than one year to 10 years. At ~~September~~June 30, ~~2018,~~2019, the fair value of the swaps to the customers was a net liability of ~~$24 thousand~~$8.2 million and ~~all~~$119.7 million of notional amount of the swaps were in paying positions while $67.0 million were in receiving positions to the third-party financial institution. At June 30, 2019, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $160 thousand.

The maximum potential payments by the Corporation to the third-party financial institution under these credit derivatives are not estimable as they are contingent on future interest rates and the agreement does not provide for a limitation of the maximum potential payment amount.

Mortgage Banking Derivatives

Derivative loan commitments represent agreements for delayed delivery of financial instruments in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument at a specified price or yield. The Corporation’s derivative loan commitments are commitments to sell loans secured by 1-to 4-family residential properties whose predominant risk characteristic is interest rate risk. The fair values of these derivative loan commitments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties.

Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.



			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2019
Interest rate swap - cash flow hedge	$	16,685		$	—	Other liabilities	$	254
Interest rate swap - fair value hedge	1,324			—		Other liabilities	20
Total	$	18,009		$	—		$	274
At December 31, 2018
Interest rate swap - cash flow hedge	$	17,076	Other assets	$	185		$	—
Interest rate swap - fair value hedge	1,346		Other assets	4			—
Total	$	18,422		$	189		$	—

Derivative Assets Derivative Liabilities
(Dollars in thousands) Notional
Amount Balance Sheet
Classification Fair
Value Balance Sheet
Classification Fair
Value
At September 30, 2018
Interest rate swap - cash flow hedge $ 17,269
Other assets $ 485
$ —
Interest rate swap - fair value hedge 1,357
Other assets 20
—
Total $ 18,626
$ 505
$ —
At December 31, 2017
Interest rate swap - cash flow hedge $ 17,836
Other assets $ 13
$ —
Interest rate swap - fair value hedge 1,388
—
Other liabilities 12
Total $ 19,224
$ 13
$ 12

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:



			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2019
Interest rate swap	$	361		$	—	Other liabilities	$	19
Credit derivatives	186,688			—		Other liabilities	160
Interest rate locks with customers	38,175		Other assets	798			—
Forward loan sale commitments	39,657			—		Other liabilities	197
Total	$	264,881		$	798		$	376
At December 31, 2018
Interest rate swap	$	418		$	—	Other liabilities	$	20
Credit derivatives	122,410			—		Other liabilities	72
Interest rate locks with customers	21,494		Other assets	490			—
Forward loan sale commitments	23,227			—		Other liabilities	150
Total	$	167,549		$	490		$	242

Derivative Assets Derivative Liabilities
(Dollars in thousands) Notional
Amount Balance Sheet
Classification Fair
Value Balance Sheet
Classification Fair
Value
At September 30, 2018
Interest rate swap $ 445
$ —
Other liabilities $ 20
Credit derivatives 84,709
—
Other liabilities 24
Interest rate locks with customers 23,529
Other assets 305
—
Forward loan sale commitments 23,884
Other assets 53
—
Total $ 132,567
$ 358
$ 44
At December 31, 2017
Interest rate swap $ 523

$ —
Other liabilities $ 38
Credit derivatives 75,622

—
Other liabilities 36
Interest rate locks with customers 27,411
Other assets 527
—
Forward loan sale commitments 29,037
Other assets 61
—
Total $ 132,593
$ 588
$ 74

The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:



	Statement of Income Classification	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	Statement of Income Classification	2019			2018			2019			2018
Interest rate swap—cash flow hedge—net interest payments	Interest expense	$	(14	)	$	6		$	(30	)	$	26
Interest rate swap—fair value hedge—effectiveness	Interest income	—			—			1			—
Interest rate swap—fair value hedge—ineffectiveness	Other noninterest income	—			2			—			2
Total net gain (loss)		$	14		$	(4	)	$	31		$	(24	)

Statement of Income
Classification Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2018 2017 2018 2017
Interest rate swap—cash flow hedge—net interest payments Interest expense $ 1
$ 41
$ 27
$ 148
Interest rate swap—fair value hedge—ineffectiveness Other noninterest income 1
—
3
5
Net loss $ —
$ (41 ) $ (24 ) $ (143 )

The following table presents amounts included in the consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:


	Statement of Income Classification	Three Months Ended September 30,						Nine Months Ended September 30,						Statement of Income Classification	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	Statement of Income Classification	2018			2017			2018			2017			Statement of Income Classification	2019			2018			2019			2018
Credit derivatives	Other noninterest income	$	48		$	25		$	87		$	149		Other noninterest income	$	318		$	34		$	582		$	38
Interest rate locks with customers	Net (loss) gain on mortgage banking activities	(328		)	(129		)	(223		)	433			Net gain on mortgage banking activities	343			237			308			105
Forward loan sale commitments	Net gain (loss) on mortgage banking activities	144			(166		)	(8		)	(258		)	Net loss on mortgage banking activities	(76		)	(104		)	(47		)	(153		)
Total		$	(136	)	$	(270	)	$	(144	)	$	324
Total net gain (loss)															$	585		$	167		$	843		$	(10	)

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:



(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At June 30, 2019			At December 31, 2018
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(201	)	$	80
Total		$	(201	)	$	80

(Dollars in thousands) Accumulated Other
Comprehensive (Loss) Income At September 30, 2018 At December 31, 2017
Interest rate swap—cash flow hedge Fair value, net of taxes $ 383
$ 9
Total $ 383
$ 9

Note 12. Fair Value Disclosures

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Corporation determines the fair value of financial instruments based on the fair value hierarchy. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Corporation. Unobservable inputs are inputs that reflect the Corporation’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement. Transfers between levels are recognized at the end of the reporting period.

Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2: Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include U.S. Treasury securities, most equity securities and money market mutual funds. Mutual funds are registered investment companies which are valued at net asset value of shares on a market exchange at the end of each trading day. Level 2 of the valuation hierarchy includes securities issued by U.S. Government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds and certain equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy.

Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation’s independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available

trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing service’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does not have sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.

Certain corporate bonds owned by the Corporation are classified as Level 3 as they are not traded in active markets. The fair value of each bond is estimated by benchmarking similar transactions of structure, yield and credit which are owned by the Corporation and are actively traded in the market.

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at ~~September~~June 30, ~~2018.~~

2019.

Derivative Financial Instruments

The fair values of derivative financial instruments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate swaps and mortgage banking derivative financial instruments are classified within Level 2 of the valuation hierarchy. Credit derivatives are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore classified in Level 3 of the valuation hierarchy.

Two commercial loans associated with interest rate swaps are classified in Level 3 of the valuation hierarchy since lending credit risk is not an observable input for these loans. The unrealized gain on the two loans was $6$45 thousand at ~~September~~June 30, ~~2018.~~2019.

Contingent Consideration Liability

The Corporation estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on projected revenue related to the acquired business. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on projected revenue of the acquired business affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the projected revenue, the contingent consideration liability is classified within Level 3 of the valuation hierarchy. An increase in the projected revenue may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the projected revenue may result in a lower estimated fair value of the contingent consideration liability.

The following table presents the assets and liabilities measured at fair value on a recurring basis at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, classified using the fair value hierarchy:


	At September 30, 2018								At June 30, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value		Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies	$	—	$	15,316	$	—	$	15,316	$	—	$	10,316	$	—	$	10,316
State and political subdivisions	—		67,892		—		67,892		—		44,172		—		44,172
Residential mortgage-backed securities	—		156,414		—		156,414		—		141,815		—		141,815
Collateralized mortgage obligations	—		2,981		—		2,981		—		2,677		—		2,677
Corporate bonds	—		67,923		26,407		94,330		—		67,117		26,925		94,042
Total available-for-sale securities	—		310,526		26,407		336,933		—		266,097		26,925		293,022
Equity securities:
Equity securities - financial services industry	1,103		—		—		1,103		943		—		—		943
Money market mutual funds	1,161		—		—		1,161		1,922		—		—		1,922
Total equity securities	2,264		—		—		2,264		2,865		—		—		2,865
Loans*	—		—		1,801		1,801		—		—		1,725		1,725
Interest rate swaps*	—		505		—		505
Interest rate locks with customers*	—		305		—		305		—		798		—		798
Forward loan sale commitments*	—		53		—		53
Total assets	$	2,264	$	311,389	$	28,208	$	341,861	$	2,865	$	266,895	$	28,650	$	298,410
Liabilities:
Contingent consideration liability	$	—	$	—	$	310	$	310	$	—	$	—	$	211	$	211
Interest rate swaps*	—		20		—		20		—		293		—		293
Credit derivatives*	—		—		24		24		—		—		160		160
Forward loan sale commitments*									—		197		—		197
Total liabilities	$	—	$	20	$	334	$	354	$	—	$	490	$	371	$	861



	At December 31, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies	$	—	$	15,315	$	—	$	15,315
State and political subdivisions	—		65,415		—		65,415
Residential mortgage-backed securities	—		151,762		—		151,762
Collateralized mortgage obligations	—		2,888		—		2,888
Corporate bonds	—		67,398		25,729		93,127
Total available-for-sale securities	—		302,778		25,729		328,507
Equity securities:
Equity securities - financial services industry	924		—		—		924
Money market mutual funds	1,241		—		—		1,241
Total equity securities	2,165		—		—		2,165
Loans*	—		—		1,779		1,779
Interest rate swap*	—		189		—		189
Interest rate locks with customers*	—		490		—		490
Total assets	$	2,165	$	303,457	$	27,508	$	333,130
Liabilities:
Contingent consideration liability	$	—	$	—	$	259	$	259
Interest rate swaps*	—		20		—		20
Credit derivatives*	—		—		72		72
Forward loan sale commitments*	—		150		—		150
Total liabilities	$	—	$	170	$	331	$	501

At December 31, 2017
(Dollars in thousands) Level 1 Level 2 Level 3 Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies $ —
$ 16,961
$ —
$ 16,961
State and political subdivisions —
78,297
—
78,297
Residential mortgage-backed securities —
185,421
—
185,421
Collateralized mortgage obligations —
3,602
—
3,602
Corporate bonds —
79,190
27,986
107,176
Total available-for-sale securities —
363,471
27,986
391,457
Equity securities:
Equity securities - financial services industry 1,076
—
—
1,076
Money market mutual funds 5,985
—
—
5,985
Total equity securities 7,061
—
—
7,061
Loans* —

—
1,958

1,958
Interest rate swap* —
13
—
13
Interest rate locks with customers* —
527
—
527
Forward loan sale commitments* —
61
—
61
Total assets $ 7,061
$ 364,072
$ 29,944
$ 401,077
Liabilities:
Contingent consideration liability $ —
$ —
$ 339
$ 339
Interest rate swaps* —
50
—
50
Credit derivatives* —
—
36
36
Total liabilities $ —
$ 50
$ 375
$ 425

* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."

The following table includes a rollforward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:



	Six Months Ended June 30, 2019
(Dollars in thousands)	Balance at December 31, 2018			Purchases/additions			Sales		Payments received			Premium amortization, net		Increase (decrease) in value		Balance at June 30, 2019
Corporate bonds	$	25,729		$	—		$	—	$	—		$	—	$	1,196	$	26,925
Loans	1,779			—			—		(78		)	—		24		1,725
Credit derivatives	(72		)	(670		)	—		—			—		582		(160		)
Net total	$	27,436		$	(670	)	$	—	$	(78	)	$	—	$	1,802	$	28,490

Nine Months Ended September 30, 2018
(Dollars in thousands) Balance at
December 31,
2017 Purchases/additions Sales Payments received Premium amortization, net (Decrease) increase in value Balance at September 30, 2018
Corporate bonds $ 27,986
$ —
$ —
$ —
$ —
$ (1,579 ) $ 26,407
Loans 1,958
—
—
(110 ) —
(47 ) 1,801
Credit derivatives (36 ) (75 ) —
—
—
87
(24 )
Net total $ 29,908
$ (75 ) $ —
$ (110 ) $ —
$ (1,539 ) $ 28,184



	Six Months Ended June 30, 2018
(Dollars in thousands)	Balance at December 31, 2017			Purchases/additions			Sales		Payments received			Premium amortization, net		(Decrease) increase in value			Balance at June 30, 2018
Corporate bonds	$	27,986		$	—		$	—	$	—		$	—	$	(1,600	)	$	26,386
Loans	1,958			—			—		(73		)	—		(38		)	1,847
Credit derivatives	(36		)	(40		)	—		—			—		39			(37		)
Net total	$	29,908		$	(40	)	$	—	$	(73	)	$	—	$	(1,599	)	$	28,196

Nine Months Ended September 30, 2017
(Dollars in thousands) Balance at
December 31,
2016 Purchases/additions Sales Payments received Premium amortization, net (Decrease) increase in value Balance at September 30, 2017
Corporate bonds $ 28,778
$ —
$ —
$ —
$ —
$ (233 ) $ 28,545
Loans 2,138
—
—
(102 ) —
(22 ) 2,014
Credit derivatives (9 ) (272 ) —
—
—
149
(132 )
Net total $ 30,907
$ (272 ) $ —
$ (102 ) $ —
$ (106 ) $ 30,427

The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:


	Nine Months Ended September 30, 2018										Six Months Ended June 30, 2019
(Dollars in thousands)	Balance at December 31, 2017		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at September 30, 2018		Balance at December 31, 2018		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at June 30, 2019
Girard Partners	339		—		67		38		310		$	259	$	—	$	65	$	17	$	211
Total contingent consideration liability	$	339	$	—	$	67	$	38	$	310	$	259	$	—	$	65	$	17	$	211



	Six Months Ended June 30, 2018
(Dollars in thousands)	Balance at December 31, 2017		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at June 30, 2018
Girard Partners	$	339	$	—	$	67	$	28	$	300
Total contingent consideration liability	$	339	$	—	$	67	$	28	$	300

Nine Months Ended September 30, 2017
(Dollars in thousands) Balance at
December 31,
2016 Contingent
Consideration
from New
Acquisition Payment of
Contingent
Consideration Adjustment
of Contingent
Consideration Balance at September 30, 2017
Sterner Insurance Associates $ 331
$ —
$ 30
$ (301 ) $ —
Girard Partners 5,668
—
5,350
41
359
Total contingent consideration liability $ 5,999
$ —
$ 5,380
$ (260 ) $ 359

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or impairment charges of individual assets. The following table represents assets measured at fair value on a non-recurring basis at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:


	At September 30, 2018								At June 30, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value		Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment	$	—	$	—	$	27,674	$	27,674	$	—	$	—	$	22,663	$	22,663
Impaired leases held for investment	—		—		1,250		1,250
Other real estate owned	—		—		1,433		1,433		—		—		540		540
Total	$	—	$	—	$	30,357	$	30,357	$	—	$	—	$	23,203	$	23,203



	At December 31, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment	$	—	$	—	$	25,166	$	25,166
Other real estate owned	—		—		1,187		1,187
Total	$	—	$	—	$	26,353	$	26,353

At December 31, 2017
(Dollars in thousands) Level 1 Level 2 Level 3 Assets at
Fair Value
Impaired loans held for investment $ —
$ —
$ 28,351
$ 28,351
Impaired leases held for investment —
—
1,250
1,250
Other real estate owned —
—
1,843
1,843
Total $ —
$ —
$ 31,444
$ 31,444

The following table presents assets and liabilities and off-balance sheet items not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required to be disclosed at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The disclosed fair values are classified using the fair value hierarchy.



	At June 30, 2019
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	84,567	$	—		$	—	$	84,567		$	84,567
Held-to-maturity securities	—		175,296			—		175,296			172,946
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA			NA		NA			32,755
Loans held for sale	—		1,531			—		1,531			1,498
Net loans and leases held for investment	—		—			4,121,087		4,121,087			4,110,916
Servicing rights	—		—			8,911		8,911			6,599
Total assets	$	84,567	$	176,827		$	4,129,998	$	4,391,392		$	4,409,281
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	3,412,673	$	—		$	—	$	3,412,673		$	3,412,673
Time deposits	—		712,030			—		712,030			709,437
Total deposits	3,412,673		712,030			—		4,124,703			4,122,110
Short-term borrowings	—		39,350			—		39,350			39,350
Long-term debt	—		171,177			—		171,177			170,195
Subordinated notes	—		96,572			—		96,572			94,696
Total liabilities	$	3,412,673	$	1,019,129		$	—	$	4,431,802		$	4,426,351
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(8,066	)	$	—	$	(8,066	)	$	—


	At September 30, 2018												At December 31, 2018
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount		Level 1		Level 2			Level 3		Fair Value			Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	84,110	$	—		$	—	$	84,110		$	84,110	$	109,420	$	—		$	—	$	109,420		$	109,420
Held-to-maturity securities	—		105,642			—		105,642			108,142		—		141,575			—		141,575			142,634
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA			NA		NA			33,071		NA		NA			NA		NA			28,337
Loans held for sale	—		114			—		114			106		—		1,798			—		1,798			1,754
Net loans and leases held for investment	—		—			3,794,987		3,794,987			3,808,073		—		—			3,924,329		3,924,329			3,950,265
Servicing rights	—		—			11,935		11,935			6,715		—		—			11,496		11,496			6,768
Total assets	$	84,110	$	105,756		$	3,806,922	$	3,996,788		$	4,040,217	$	109,420	$	143,373		$	3,935,825	$	4,188,618		$	4,239,178
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	3,148,565	$	—		$	—	$	3,148,565		$	3,148,565	$	3,215,856	$	—		$	—	$	3,215,856		$	3,215,856
Time deposits	—		661,806			—		661,806			671,483		—		664,738			—		664,738			670,077
Total deposits	3,148,565		661,806			—		3,810,371			3,820,048		3,215,856		664,738			—		3,880,594			3,885,933
Short-term borrowings	—		86,765			—		86,765			86,765		—		189,768			—		189,768			189,768
Long-term debt	—		142,862			—		142,862			145,430		—		144,021			—		144,021			145,330
Subordinated notes	—		96,063			—		96,063			94,514		—		95,113			—		95,113			94,574
Total liabilities	$	3,148,565	$	987,496		$	—	$	4,136,061		$	4,146,757	$	3,215,856	$	1,093,640		$	—	$	4,309,496		$	4,315,605
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(2,508	)	$	—	$	(2,508	)	$	—	$	—	$	(2,516	)	$	—	$	(2,516	)	$	—

At December 31, 2017
(Dollars in thousands) Level 1 Level 2 Level 3 Fair
Value Carrying
Amount
Assets:
Cash and short-term interest-earning assets $ 75,409
$ —
$ —
$ 75,409
$ 75,409
Held-to-maturity securities —
55,320
—
55,320
55,564
Federal Home Loan Bank, Federal Reserve Bank and other stock NA
NA
NA
NA
27,204
Loans held for sale —
1,676
—
1,676
1,642
Net loans and leases held for investment —
—
3,547,451
3,547,451
3,566,953
Servicing rights —
—
10,046
10,046
6,573
Total assets $ 75,409
$ 56,996
$ 3,557,497
$ 3,689,902
$ 3,733,345
Liabilities:
Deposits:
Demand and savings deposits, non-maturity $ 2,980,170
$ —
$ —
$ 2,980,170
$ 2,980,170
Time deposits —
574,737
—
574,737
574,749
Total deposits 2,980,170
574,737
—
3,554,907
3,554,919
Short-term borrowings —
105,431
—
105,431
105,431
Long-term debt —
156,834
—
156,834
155,828
Subordinated notes —
98,075
—
98,075
94,331
Total liabilities $ 2,980,170
$ 935,077
$ —
$ 3,915,247
$ 3,910,509
Off-Balance-Sheet:
Commitments to extend credit $ —
$ (2,414 ) $ —
$ (2,414 ) $ —

The following valuation methods and assumptions were used by the Corporation in estimating the fair value for financial instruments measured at fair value on a non-recurring basis and financial instruments not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required to be disclosed:

Cash and short-term interest-earning assets: The carrying amounts reported in the balance sheet for cash and due from banks, interest-earning deposits with other banks ~~federal funds sold~~ and other short-term investments is their stated value. Cash and short-term interest-earning assets are classified within Level 1 in the fair value hierarchy.

Held-to-maturity securities: Fair values for the held-to-maturity investment securities are estimated by using pricing models or quoted prices of securities with similar characteristics and are classified in Level 2 in the fair value hierarchy.

Federal Home Loan Bank, Federal Reserve Bank and other stock: It is not practical to determine the fair values of Federal Home Loan Bank, Federal Reserve Bank and other stock, due to restrictions placed on their transferability.

Loans held for sale: The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. Loans held for sale are carried at the lower of cost or estimated fair value. There were no valuation adjustments for loans held for sale at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Loans and leases held for investment: ~~As of September 30, 2018, t~~heThe fair values for loans and leases held for investment are estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers, adjusted as appropriate to consider credit, liquidity and marketability factors to arrive at a fair value that represents the Corporation's exit price at which these instruments would be sold or transferred. ~~As of December 31, 2017, t~~he fair values for loans and leases held for investment were estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers and include components for credit risk, operating expense and embedded prepayment options. An overall valuation adjustment was made for specific credit risks in addition to general portfolio risk and is significant to the valuation.Loans and leases are classified within Level 3 in the fair value ~~hierarchy.~~hierarchy since credit risk is not an observable input.

Impaired loans and leases held for investment: For impaired loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At ~~September~~June 30, 2019, impaired loans held for investment had a carrying amount of $25.1 million with a valuation allowance of $2.4 million. At December 31, 2018, impaired loans held for investment had a carrying amount of ~~$28.7~~$26.6 million with a valuation allowance of ~~$1.0~~$1.4 million. ~~At December 31, 2017, impaired loans held for investment had a carrying amount of $28.5 million with a valuation allowance of $131 thousand.~~ The Corporation had no impaired leases ~~of $1.3 million with no reserve~~ at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Servicing rights: The Corporation estimates the fair value of mortgage servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Mortgage servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the mortgage servicing rights portfolio on a quarterly basis for impairment and the mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. The Corporation also records servicing rights on SBA loans. At ~~September~~June 30, ~~2018 and December 31, 2017,~~2019, servicing rights had a carrying amount of ~~$6.7 million and~~ $6.6 million ~~respectively,~~with a valuation allowance of $21 thousand. At December 31, 2018, servicing rights carrying amount of $6.7 million with no valuation allowance.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, there were no triggering events that required valuation of goodwill and other identifiable intangible assets.

Other real estate owned: The fair value of other real estate owned (OREO) is originally estimated based upon the appraised value less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. Subsequently, OREO is reported at the lower of the original cost or the current fair value less cost to sell. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the capitalized expenses may not increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost to sell. New appraisals are generally obtained on an annual basis if an agreement of sale does not exist. During the ~~nine~~six months ended ~~September~~June 30, ~~2018, two properties had write-downs totaling $503 thousand, four properties were transferred into OREO with a fair value of $477 thousand and three properties were~~2019, one property was sold with total proceeds of ~~$362~~$599 thousand. At ~~September~~June 30,

~~2018~~ 2019 and December 31, ~~2017,~~2018, OREO had a carrying amount of ~~$1.4 million~~$540 thousand and ~~$1.8~~$1.2 million, respectively. Other real estate owned is classified within Level 3 of the valuation hierarchy due to the unique characteristics of the collateral for each loan.

Deposit liabilities: The fair values for demand and savings accounts, with no stated maturities, is the amount payable on demand at the reporting date (carrying value) and are classified within Level 1 in the fair value hierarchy. The fair values for time

deposits with fixed maturities are estimated by discounting the final maturity using interest rates currently offered for deposits with similar remaining maturities. Time deposits are classified within Level 2 in the fair value hierarchy.

Short-term borrowings: The fair value of short-term borrowings are estimated using current market rates for similar borrowings and are classified within Level 2 in the fair value hierarchy.

Long-term debt: The fair value of long-term debt is estimated by using discounted cash flow analysis, based on current market rates for debt with similar terms and remaining maturities. Long-term debt is classified within Level 2 in the fair value hierarchy.

Subordinated notes: The fair value of the subordinated notes are estimated by discounting the principal balance using the treasury yield curve for the term to the call date as the Corporation has the option to call the subordinated notes. The subordinated notes are classified within Level 2 in the fair value hierarchy.

Off-balance-sheet instruments: Fair values for the Corporation’s off-balance-sheet instruments are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing and are classified within Level 2 in the fair value hierarchy.

Note 13. Segment Reporting

At ~~September~~June 30, ~~2018,~~2019, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.

The Corporation's Banking segment consists of commercial, consumer and mortgage banking as well as lease financing. The Wealth Management segment consists of investment advisory services, retirement plan services, trust, municipal pension services and broker/dealer services. The Insurance segment consists of commercial lines, personal lines, benefits and human resources consulting.

Each segment generates revenue from a variety of products and services it provides. Examples of products and services provided for each reportable segment are indicated below.



●	The Banking segment provides financial services to ~~consumer~~individuals, businesses, municipalities and ~~commercial customers and governmental units.~~nonprofit organizations. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing.
●	The Wealth Management segment offers trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions.
●	The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions, personal insurance lines and human resources consulting.

The following table provides total assets by reportable business segment as of the dates indicated.


(Dollars in thousands)	At September 30, 2018		At December 31, 2017		At September 30, 2017		At June 30, 2019		At December 31, 2018		At June 30, 2018
Banking	$	4,711,093	$	4,466,301	$	4,327,920	$	5,059,733	$	4,895,732	$	4,656,201
Wealth Management	38,042		34,600		34,903		42,024		39,090		37,227
Insurance	29,299		27,846		25,139		32,256		30,117		29,295
Other	23,564		26,115		29,401		20,285		19,408		26,458
Consolidated assets	$	4,801,998	$	4,554,862	$	4,417,363	$	5,154,298	$	4,984,347	$	4,749,181

The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.


	Three Months Ended												Three Months Ended
	September 30, 2018												June 30, 2019
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated		Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	49,238		$	9	$	—	$	8		$	49,255	$	54,041		$	11	$	—	$	8		$	54,060
Interest expense	7,571			—		—		1,261			8,832		10,164			—		—		1,261			11,425
Net interest income	41,667			9		—		(1,253		)	40,423		43,877			11		—		(1,253		)	42,635
Provision for loan and lease losses	2,745			—		—		—			2,745		2,076			—		—		—			2,076
Noninterest income	5,070			5,795		3,845		151			14,861		6,014			6,155		4,145		42			16,356
Intangible expenses	240			136		103		—			479		233			105		79		—			417
Other noninterest expense	26,542			3,547		3,087		716			33,892		28,098			3,788		3,072		1,403			36,361
Intersegment (revenue) expense*	(512		)	377		135		—			—		(295		)	161		134		—			—
Income (expense) before income taxes	17,722			1,744		520		(1,818		)	18,168		19,779			2,112		860		(2,614		)	20,137
Income tax (benefit) expense	3,171			493		156		(616		)	3,204
Income tax expense (benefit)													3,660			409		70		(470		)	3,669
Net income (loss)	$	14,551		$	1,251	$	364	$	(1,202	)	$	14,964	$	16,119		$	1,703	$	790	$	(2,144	)	$	16,468
Capital expenditures	$	570		$	73	$	16	$	86		$	745	$	371		$	35	$	39	$	137		$	582


	Three Months Ended												Three Months Ended
	September 30, 2017												June 30, 2018
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated		Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	42,161		$	4	$	—	$	7		$	42,172	$	46,444		$	8	$	—	$	8		$	46,460
Interest expense	4,031			—		—		1,254			5,285		6,209			—		—		1,261			7,470
Net interest income	38,130			4		—		(1,247		)	36,887		40,235			8		—		(1,253		)	38,990
Provision for loan and lease losses	2,689			—		—		—			2,689		15,409			—		—		—			15,409
Noninterest income	4,993			5,428		3,620		68			14,109		5,461			5,862		3,904		87			15,314
Intangible expenses	357			168		165		—			690		329			137		128		—			594
Other noninterest expense	25,733			3,472		2,803		(3		)	32,005		26,723			3,628		3,093		309			33,753
Intersegment (revenue) expense*	(264		)	146		118		—			—		(295		)	156		139		—			—
Income (expense) before income taxes	14,608			1,646		534		(1,176		)	15,612		3,530			1,949		544		(1,475		)	4,548
Income tax expense (benefit)	4,033			648		224		(489		)	4,416
Income tax (benefit) expense													(162		)	597		163		(407		)	191
Net income (loss)	$	10,575		$	998	$	310	$	(687	)	$	11,196	$	3,692		$	1,352	$	381	$	(1,068	)	$	4,357
Capital expenditures	$	582		$	5	$	3	$	178		$	768	$	820		$	40	$	2	$	10		$	872


	Nine Months Ended												Six Months Ended
	September 30, 2018												June 30, 2019
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated		Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	139,204		$	22	$	—	$	23		$	139,249	$	106,387		$	21	$	—	$	16		$	106,424
Interest expense	18,781			—		—		3,783			22,564		19,744			—		—		2,522			22,266
Net interest income	120,423			22		—		(3,760		)	116,685		86,643			21		—		(2,506		)	84,158
Provision for loan and lease losses	20,207			—		—		—			20,207		4,761			—		—		—			4,761
Noninterest income	15,320			17,397		12,835		205			45,757		10,985			11,875		9,498		295			32,653
Intangible expenses	898			415		372		—			1,685		466			210		167		—			843
Restructuring charges	571			—		—		—			571
Other noninterest expense	80,790			10,969		9,425		403			101,587		55,877			7,582		6,198		1,835			71,492
Intersegment (revenue) expense*	(1,098		)	686		412		—			—		(594		)	327		267		—			—
Income (expense) before income taxes	34,375			5,349		2,626		(3,958		)	38,392		37,118			3,777		2,866		(4,046		)	39,715
Income tax expense (benefit)	5,006			1,636		775		(1,196		)	6,221		6,780			723		263		(598		)	7,168
Net income (loss)	$	29,369		$	3,713	$	1,851	$	(2,762	)	$	32,171	$	30,338		$	3,054	$	2,603	$	(3,448	)	$	32,547
Capital expenditures	$	2,360		$	162	$	25	$	151		$	2,698	$	1,136		$	74	$	64	$	158		$	1,432


	Nine Months Ended												Six Months Ended
	September 30, 2017												June 30, 2018
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated		Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	120,575		$	6	$	—	$	17		$	120,598	$	89,966		$	13	$	—	$	15		$	89,994
Interest expense	10,352			—		—		3,776			14,128		11,210			—		—		2,522			13,732
Net interest income	110,223			6		—		(3,759		)	106,470		78,756			13		—		(2,507		)	76,262
Provision for loan and lease losses	7,900			—		—		—			7,900		17,462			—		—		—			17,462
Noninterest income	16,945			15,965		11,913		265			45,088		10,250			11,602		8,990		54			30,896
Intangible expenses	1,151			506		238		—			1,895		658			279		269		—			1,206
Restructuring charges													571			—		—		—			571
Other noninterest expense	74,949			10,404		8,718		1,307			95,378		54,384			7,286		6,338		(313		)	67,695
Intersegment (revenue) expense*	(792		)	438		354		—			—		(586		)	309		277		—			—
Income (expense) before income taxes	43,960			4,623		2,603		(4,801		)	46,385		16,517			3,741		2,106		(2,140		)	20,224
Income tax expense (benefit)	11,754			1,812		1,095		(2,106		)	12,555		1,836			1,142		619		(580		)	3,017
Net income (loss)	$	32,206		$	2,811	$	1,508	$	(2,695	)	$	33,830	$	14,681		$	2,599	$	1,487	$	(1,560	)	$	17,207
Capital expenditures	$	6,921		$	27	$	202	$	262		$	7,412	$	1,790		$	89	$	9	$	65		$	1,953

*Includes an allocation of general and administrative expenses from both the parent holding company and the Bank. These expenses are generally allocated based upon number of employees and square footage utilized.

Note 14. ~~Revenue from Contracts with Customers~~Leases

In ~~May 2014,~~February 2016, the FASB issued ASU No. ~~2014-09,~~ 2016-02, "~~Revenue from Contracts with Customers~~Leases (Topic ~~606)”~~842)", and subsequent related ~~updates.~~updates, to revise the accounting for leases. The Corporation adopted ~~the~~this guidance effective January 1, ~~2018 using the~~2019, on a modified retrospective ~~method though no adjustments were made~~basis through a cumulative-effect adjustment to retained earnings as a result of the adoption. The Corporation’s revenue is the sum of net interest income and noninterest income. Revenues are recognized when obligations under the terms of contracts with customers are satisfied, including the transfer of control of the promised goods or services to customers, in an amount that reflects the considerationat January 1, 2019. Additionally, the Corporation ~~expects~~early adopted (ASU) No. 2019-01, "Codification Improvements", as of January 1, 2019, which serves as an update to ~~be entitled~~(ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information.

The Corporation and its subsidiaries are obligated under non-cancelable operating leases for premises for certain financial centers and other office locations The Corporation determines if an arrangement is a lease at inception by assessing whether a contract contains a right to control an identified asset for a period of time in exchange for ~~those goods~~consideration. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheet commencing at January 1, 2019. For purposes of calculating operating lease liabilities, lease terms include options to extend or ~~services. The~~terminate the lease when it is reasonably certain that the Corporation ~~provides services to customers which have related performance obligations~~will exercise that ~~are completed to recognize revenue. The Corporation's revenues are generally recognized either immediately upon~~option and begins when the ~~completion~~Corporation has control and possession of the ~~services or over time as~~leased property, which may be before rental payments are due under the services are performed. Any services performed over time generally require services to be rendered each period and therefore progress in completing these services is measured based upon the passage of time.

~~The following tables disaggregate the Corporation's revenue by major source for the three and nine months ended September 30, 2018 and 2017.~~

Three Months Ended
September 30, 2018
(Dollars in thousands) Banking Wealth Management Insurance Other Consolidated
Net interest income (1) $ 41,667
$ 9
$ —
$ (1,253 ) $ 40,423

Noninterest income:
Trust fee income —
1,960
—
—
1,960
Service charges on deposit accounts 1,454
—
—
—
1,454
Investment advisory commission and fee income —
3,785
—
—
3,785
Insurance commission and fee income —
—
3,643
—
3,643
Other service fee income (2) 2,032
50
202
—
2,284
Bank owned life insurance income (1) 708
—
—
157
865
Net gain on mortgage banking activities (1) 754
—
—
—
754
Other (loss) income (2) 122
—
—
(6 ) 116
Total noninterest income $ 5,070
$ 5,795
$ 3,845
$ 151
$ 14,861

Three Months Ended
September 30, 2017
(Dollars in thousands) Banking Wealth Management Insurance Other Consolidated
Net interest income (1) $ 38,130
$ 4
$ —
$ (1,247 ) $ 36,887

Noninterest income:
Trust fee income —
1,924
—
—
1,924
Service charges on deposit accounts 1,371
—
—
—
1,371
Investment advisory commission and fee income —
3,455
—
—
3,455
Insurance commission and fee income —
—
3,492
—
3,492
Other service fee income (2) 1,947
49
127
—
2,123
Bank owned life insurance income (1) 675
—
—
67
742
Net gain on sales of investment securities (1) 6
—
—
1
7
Net gain on mortgage banking activities (1) 908
—
—
—
908
Other income (2) 86
—
1
—
87
Total noninterest income $ 4,993
$ 5,428
$ 3,620
$ 68
$ 14,109

Nine Months Ended
September 30, 2018
(Dollars in thousands) Banking Wealth Management Insurance Other Consolidated
Net interest income (1) $ 120,423
$ 22
$ —
$ (3,760 ) $ 116,685

Noninterest income:
Trust fee income —
6,000
—
—
6,000
Service charges on deposit accounts 4,116
—
—
—
4,116
Investment advisory commission and fee income —
11,246
—
—
11,246
Insurance commission and fee income —
—
12,243
—
12,243
Other service fee income (2) 6,139
151
594
—
6,884
Bank owned life insurance income (1) 2,567
—
—
177
2,744
Net gain on sales of investment securities (1) 10
—
—
—
10
Net gain on mortgage banking activities (1) 2,412
—
—
—
2,412
Other (loss) income (2) 76
—
(2 ) 28
102
Total noninterest income $ 15,320
$ 17,397
$ 12,835
$ 205
$ 45,757

Nine Months Ended
September 30, 2017
(Dollars in thousands) Banking Wealth Management Insurance Other Consolidated
Net interest income (1) $ 110,223
$ 6
$ —
$ (3,759 ) $ 106,470

Noninterest income:
Trust fee income —
5,847
—
—
5,847
Service charges on deposit accounts 3,927
—
—
—
3,927
Investment advisory commission and fee income —
9,969
—
—
9,969
Insurance commission and fee income —
—
11,530
—
11,530
Other service fee income (2) 5,825
149
381
—
6,355
Bank owned life insurance income (1) 2,886
—
—
261
3,147
Net gain on sales of investment securities (1) 39
—
—
4
43
Net gain on mortgage banking activities (1) 3,558
—
—
—
3,558
Other income (2) 710
—
2
—
712
Total noninterest income $ 16,945
$ 15,965
$ 11,913
$ 265
$ 45,088


~~(1)~~	Net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives are excluded from the scope of the standard. Noninterest income streams that are out-of-scope of the standard include bank owned life insurance income, sales of investment securities and mortgage banking activities.


~~(2)~~	~~Other service fee income and other income include certain items that are in scope and certain items that are out of scope of the standard and are described further in the following paragraphs.~~

~~Banking Segment~~

The Banking segment provides financial services to consumer and commercial customers and governmental units. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing.

~~Service charges on deposit accounts~~ are generally earned on depository accounts for commercial and consumer customers and primarily includes fees for account services, overdraft services, and cash management services for commercial customers. Account services include fees for event-driven services such as ATM transactions and fees for periodic account maintenance activities. Cash management services for commercial customers include fees for event-driven services such as lockbox processing and line sweep services and fees for periodic account maintenance activities. The Corporation's obligation for event-driven services is satisfied at the time of the event when the service is delivered, while the obligation for periodic services is satisfied over the course of each month. Obligations for overdraft services is satisfied at the time of the overdraft.

~~Other service fee income~~ is earned from commercial and consumer customers and primarily includes credit and debit card interchange and merchant revenues, mortgage servicing income, which is out of scope of the standard, and other deposit related service fee income such as wire transfers, check services and safe deposit boxes. Interchange and merchant revenues are recognized concurrently with the delivery of services on a monthly basis. Other deposit related service fee income include fees for event-driven services, such as wire transfers and check services, and fees for periodic services such as safe deposit box services. The obligation for event-driven services is satisfied at the time of the event when the service is delivered, while the obligation for periodic services is satisfied over the course of each month.

~~Other income~~ ~~primarilyincludes net gains or losses from the sales of loans and leases, net gains or losses from the sales or disposition of fixed~~lease. Right-of use assets and ~~net gains or losses on interest rate swaps, all of which~~operating lease liabilities are ~~out of scope of the standard, and net gains or losses on sales and write-downs of other real estate owned. Net gains or losses on sales of other real estate owned are~~ recognized ~~at the point in time in which control of the other real estate owned is transferred.~~

~~Wealth Management Segment~~

The wealth management segment offers trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions.

~~Trust fee income~~ is earned for providing trust, investment management and other related services. Obligations for trust and other related services are generally satisfied over time but may be satisfied at points in time for certain activities that are transactional in nature and obligations for investment management services are generally performed over time. Fees for trust fee income are typically based on a tiered scale relative to the market value of assets under management and are recognized in conjunction with the delivery of services.

~~Investment advisory commission and fee income~~ include fees for financial planning, guardian and custodian of employee benefits, investment advisory, and brokerage services. Obligations for financial planning, guardian and custodian of employee benefits, and investment advisory services are generally satisfied over time and fees, typically based on a tiered scale relative to the market value of assets under management are recognized in conjunction with the delivery of services. Brokerage services are typically event driven and are based on the ~~size and number~~present value of ~~transactions executed~~lease payments, discounted using the Corporation’s incremental borrowing rate, over the lease term at the ~~client’s direction and recognized on~~commencement date. The Corporation determines its incremental borrowing rate using publicly available information available for debt issuers with similar credit ratings as the ~~trade date.~~

~~Insurance Segment~~

The insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions, personal insurance lines and human resources consulting.

~~Insurance commission and fee income~~ ~~is derived primarily from commissions from~~Bank, as the ~~sale of insurance policies, which are generally calculated as a percentage~~majority of the ~~policy premium, and contingent income, which is calculated based on the performance~~Corporation’s leases are related to properties of the ~~policies held by each carrier. Obligations~~Bank. The Corporation continues to separately account for lease and non-lease components (such as property taxes, insurance, and maintenance costs) as historically reported. Rent expense for the ~~sale~~Corporation's leases, which generally have escalating rental payments over the term of ~~insurance policies are generally satisfied at~~ the ~~point in time which the policy~~lease, is ~~executed and are recognized at the point in time in which the amounts are known~~and collection is reasonably assured. Obligations for contingent income are generally satisfied over time and are recognized at the point in time in which the amounts are known and collection is reasonably assured.

~~Other service fee income~~ ~~is earned from human resources consulting services. These obligations are generally satisfied over time and are~~ recognized on a ~~periodic basis.~~straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms generally containing one or more five-year renewal options. At June 30, 2019, the Corporation's leases have remaining terms of 1 to 24 years. The Corporation does not currently have any leases with an initial term of 12 months or less, including reasonably certain renewal terms; any such future leases will be recorded on the balance sheet.

Information with respect to operating leases for the under FASB ASC 842 "Leases" follows:



(Dollars in thousands)	Three months ended June 30, 2019			Six months ended June 30, 2019
Lease cost	$	947		$	1,894
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from leases				1,739


	At June 30, 2019
Weighted-average remaining lease term in years	15.2
Weighted-average discount rate	4.24		%

At June 30, 2019, maturities of lease liabilities under FASB ASC 842 "Leases" are as follows:



Maturity of Lease Liabilities	(Dollars in thousands)	Amount
Remainder of 2019		$	1,797
2020		3,633
2021		3,689
2022		3,662
2023		3,611
Thereafter		37,298
Total lease payments		53,690
Less: imputed interest		(15,082		)
Present value of lease liabilities		$	38,608

At December 31, 2018, a summary of the future minimum rental commitments under non-cancelable operating leases with original or remaining terms greater than one year under FASB ASC 840 "Leases" was as follows:




Year	(Dollars in thousands)	Amount
2019		$	3,536
2020		3,632
2021		3,688
2022		3,660
2023		3,610
Thereafter		37,389
Total		$	55,515

Note 15. ~~Restructuring Charges~~

During January 2018, the Corporation announced the closure of two owned financial centers and one leased financial center and reduced staff associated with these financial centers, resulting in accruing a loss of $571 thousand related to the Banking business segment. These financial centers were closed in April 2018. The remaining accrued restructuring expense at January 1, 2018 of $23 thousand relates to 2016 restructuring charges.

~~A roll-forward of the remaining accrued restructuring expense for the nine months ended September 30, 2018 is as follows:~~

(Dollars in thousands) Severance expenses Write-downs and retirements of fixed assets Lease cancellations Total
Accrued at January 1, 2018 $ —
$ —
$ 23
$ 23
Restructuring charges 366
48
157
571
Payments (284 ) —
(30 ) (314 )
Non-cash settlement —
(48 ) —
(48 )
Accrued at September 30, 2018 $ 82
$ —
$ 150
$ 232

~~Note 16.~~ Contingencies

The Corporation is periodically subject to various pending and threatened legal actions, which involve claims for monetary relief. Based upon information presently available to the Corporation, it is the Corporation's opinion that any legal and financial responsibility arising from such claims will not have a material adverse effect on the Corporation's results of operations, financial position or cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(All dollar amounts presented in tables are in thousands, except per share data. “BP” equates to “basis points”; ~~“N/ M”~~NM equates to “not meaningful”; “—” equates to “zero” or “doesn’t round to a reportable number”; and “N/A” equates to “not applicable.” Certain prior period amounts have been reclassified to conform to the current-year presentation.)

Forward-Looking Statements

The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words “believe,” “anticipate,” “estimate,” “expect,” “project,” “target,” “goal” and similar expressions are intended to identify forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including but not limited to those set forth below:

Operating, legal and regulatory risks;

Economic, political and competitive forces impacting various lines of business;

Legislative, regulatory and accounting changes;

Demand for our financial products and services in our market area;

Volatility in interest rates;

The ~~quality~~composition and ~~composition~~credit quality of our loan and investment portfolios;

Our ability to access cost-effective funding;

Our ability to continue to implement our business strategies;

Our ability to manage market risk, credit risk and operational risk;

Timing of revenues and expenditures;

~~Returns~~Return on investment decisions;

System failures or cyber-security breaches of our information technology infrastructure and those of our third-party service providers;

Our ability to retain key employees;

Other risks and uncertainties, including those occurring in the U.S. and world financial systems; and

The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These and other risk factors are more fully described in this report and in the Univest Financial Corporation ~~of Pennsylvania~~ (the Corporation) Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 under the section entitled "Item 1A --- Risk Factors," and from time to time in other filings made by the Corporation with the SEC.

These forward-looking statements speak only at the date of the report. The Corporation expressly disclaims any obligation to publicly release any updates or revisions to reflect any change in the Corporation’s expectations with regard to any change in events, conditions or circumstances on which any such statement is based.

Critical Accounting Policies

Management, in order to prepare the Corporation’s financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation’s financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies ~~discussed below,~~ could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the reserve for loan and lease losses ~~and purchase accounting~~ as ~~areas with~~ critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation’s ~~2017~~2018 Annual Report on Form 10-K.

General

The Corporation is a Pennsylvania corporation organized in 1973 and registered as a bank holding company ~~and~~pursuant to the

Bank Holding Company Act of 1956. Effective January 1, 2019, the name of the Corporation was changed from Univest Corporation of Pennsylvania to Univest Financial Corporation. The Corporation owns all of the capital stock of Univest Bank and Trust Co. ~~(the Bank).~~The consolidated financial statements include the accounts of the Corporation and the Bank.

The Bank is engaged in the commercial and consumer banking business and provides a full range of banking and trust services to customers. The Bank is the parent company of Delview, Inc., which is the parent company of Univest Insurance, Inc., an independent insurance agency, Univest Investments, Inc., a full-service broker-dealer and investment advisory firm, and Girard Partners Ltd. (Girard Partners), a registered investment advisory firm. The Bank is also the parent company of Univest Capital, Inc., an equipment financing business, and TCG Investment Advisory, a registered investment advisor, which provides discretionary investment consulting and management services.

Through its wholly-owned subsidiaries, the Bank provides a variety of financial services tofor individuals, businesses, municipalities and ~~businesses throughout~~non-profit organizations. Effective January 1, 2019, the Bank's ~~markets~~wealth management segment was re-branded under the Girard name with associated name changes of ~~operation.~~several subsidiaries while continuing to provide fiduciary services, investment management, and financial and retirement planning. The Bank is the parent company of Girard Investment Services, LLC (formerly Univest Investments, Inc.), a full-service registered broker-dealer and a licensed insurance agency, Girard Advisory Services, LLC (formerly Girard Partners Ltd.), a registered investment advisory firm, and Girard Pension Services, LLC (formerly TCG Investment Advisory, Inc.), a registered investment advisor, which provides investment consulting and management services to municipal entities. The Bank is also the parent company of Univest Insurance, LLC, an independent insurance agency and Univest Capital, Inc., an equipment financing business. The Bank's former subsidiary, Delview, Inc. was dissolved effective January 1, 2019.

The Corporation earns revenue primarily from the margins and fees generated from lending and depository services to customers as well as fee-based income from trust, insurance, mortgage banking and investment services to customers. The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting exposure to credit and interest rate ~~risk to Board of Directors approved levels.~~risk.

The Corporation seeks to establish itself as the financial provider of choice in the markets it serves. The Corporation plans to achieve this goal by offering a broad range of high quality financial products and services and by increasing market awareness of its brand and the benefits that can be derived from its ~~products.~~products and services. The Corporation operates in an attractive ~~market~~markets for financial services but also faces intense competition from domestic and international banking organizations and other insurance and wealth management providers. The Corporation has taken initiatives to achieve its business objectives by acquiring banks, ~~and~~ other financial service providers and lending teams in strategic markets, through marketing, public relations and advertising, by establishing standards of service excellence for customers, and by using technology to ensure that the needs of customers are understood and satisfied.

Executive Overview

The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change			Six Months Ended June 30,						Change
(Dollars in thousands, except per share data)	2018			2017			Amount		Percent		2018			2017			Amount			Percent		2019			2018			Amount		Percent	2019			2018			Amount		Percent
Net income	$	14,964		$	11,196		$	3,768	33.7	%	$	32,171		$	33,830		$	(1,659	)	(4.9	)%	$	16,468		$	4,357		$	12,111	N/M	$	32,547		$	17,207		$	15,340	89.1	%
Net income per share:
Basic	$	0.51		$	0.42		$	0.09	21.4		$	1.10		$	1.27		$	(0.17	)	(13.4	)	$	0.56		$	0.15		$	0.41	N/M	$	1.11		$	0.59		$	0.52	88.1
Diluted	0.51			0.42			0.09		21.4		1.09			1.27			(0.18		)	(14.2	)	0.56			0.15			0.41		N/M	1.11			0.58			0.53		91.4
Return on average assets	1.23		%	1.01		%	22 BP		21.8		0.92		%	1.05		%	(13) BP			(12.4	)	1.28		%	0.37		%	91 BP		N/M	1.29		%	0.75		%	54 BP		72.0
Return on average equity	9.70			8.43			127 BP		15.1		7.05			8.73			(168) BP			(19.2	)	10.23			2.86			737 BP		N/M	10.28			5.70			458 BP		80.4

The Corporation reported net income of ~~$15.0~~$16.5 million, or ~~$0.51~~$0.56 diluted earnings per share, for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to net income of ~~$11.2~~$4.4 million, or ~~$0.42~~$0.15 diluted earnings per share, for the three months ended ~~September~~June 30, ~~2017.~~2018. Net income for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$32.2~~$32.5 million, or ~~$1.09~~$1.11 diluted earnings per share, compared to net income of ~~$33.8~~$17.2 million, or ~~$1.27~~$0.58 diluted earnings per share, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

The financial results for the ~~nine~~three and six months ended ~~September~~June 30, 2018 included a pre-tax charge to the provision for loan and lease losses of $12.7 million (after-tax charge of $10.1 million) ~~in the second quarter of 2018,~~, which represented $0.34 diluted earnings per share in each period, related to ~~alleged~~ fraudulent activities ~~perpetrated~~ by ~~one or more~~ employees of a borrower. In addition, the ~~financial results for the nine~~three and six months ended ~~September~~June 30, 2018 included a tax-free bank owned life insurance ~~("BOLI")~~(BOLI) death benefit ~~claims~~ of $446 thousand, ~~during the second quarter of 2018,~~ which represented $0.02 diluted earnings per share ~~as well as~~for each period. The six months ended June 30, 2018 included restructuring costs related to financial center closures of $451 thousand, net of tax, ~~or $0.02 of diluted earnings per share,~~ recognized in the first quarter of ~~2018. There were no restructuring costs during the nine months ended September 30, 2017~~

~~The financial results for the nine months ended September 30, 2017 included a tax-free BOLI death benefit claim of $889 thousand recognized in the second quarter of 2017,~~2018, which represented ~~$0.03~~$0.02 diluted earnings per share.

The financial results for the three and nine months ended September 30, 2018 also included a reduction in the Corporation's statutory federal income tax rate from 35% to 21% effective January 1, 2018 in accordance with the Tax Cuts and Jobs Act of 2017 (“TCJA”).

Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on loans and leases, investments and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. Net interest income is the principal source of the Corporation’s revenue. Table 1 presents a summary of the Corporation’s average balances, tax-equivalent interest income, ~~and~~ interest expense, ~~and~~ the tax-equivalent yields earned on average assets, ~~and~~ the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread represents the weighted average tax-equivalent yield on interest-earning assets less the weighted average cost of interest-bearing liabilities. The effect of net ~~interest~~interest- free funding sources represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.

~~Table 1, Table 2,~~Three and the interest income and net interest income analysis contain tax-equivalent financial information and measures determined by methods other than in accordance with U.S. GAAP. The management of the Corporation uses this non-GAAP financial information and measures in its analysis of the Corporation's performance. This financial information and measures should not be considered a substitute for GAAP basis financial information or measures nor should they be viewed as a substitute for operating results determined in accordance with GAAP. Management believes the presentation of the non-GAAP financial information and measures provide useful information that is essential to a proper understanding of the financial results of the Corporation.

~~The statutory federal tax rate utilized in the respective tables and analyses was 21% for the three and nine~~six months ended ~~September~~June 30, 2019 versus 2018 ~~and was 35% for the three and nine months ended September 30, 2017.~~

~~Three and nine months ended September 30, 2018 versus 2017~~

~~Reported net interest income for the three months ended September 30, 2018 was $40.4 million, an increase of $3.5 million, or 9.6%, compared to the three months ended September 30, 2017.~~ Net interest income on a tax-equivalent basis for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$41.1~~$43.3 million, an increase of ~~$2.8~~$3.6 million, or ~~7.3%~~9.2%, compared to the three months ended ~~September~~June 30, ~~2017. Reported net interest income for the nine months ended September 30, 2018 was $116.7 million, an increase of $10.2 million, or 9.6%, compared to the same period in 2017.~~2018. Net interest income on a tax-equivalent basis for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$118.7~~$85.5 million, an increase of ~~$8.0~~$7.9 million, or ~~7.2%~~10.1%, compared to the same period in ~~2017.~~

2018. The increase in ~~reported and~~ tax-equivalent net interest income for the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019 compared to the same ~~period~~periods in ~~2017~~2018 was primarily due to the growth in average loans of ~~10.2%~~10.1% and ~~interest free funding through growth in average equity of 17.7%.~~10.3%, respectively.

The net interest margin on a tax-equivalent basis for the ~~third~~second quarter of ~~2018~~2019 was ~~3.71%~~3.67%, compared to ~~3.80%~~3.73% for the ~~third~~second quarter of ~~2017.~~2018. During the three and six months ended June 30, 2019, excess liquidity reduced net interest margin by approximately 5 basis points and 3 basis points, respectively. This excess liquidity was primarily driven by strong deposit growth. The net interest margin on a tax-equivalent basis for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~3.72%~~3.71%, compared to ~~3.78%~~3.72% for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The favorable impact of purchase accounting accretion was ~~three~~one basis ~~points ($343 thousand)~~point for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to 11three basis points ~~($1.1 million)~~ for the three months ended ~~September~~June 30, ~~2017.~~2018. The favorable impact of purchase accounting accretion was ~~three~~one basis point for the six months ended June 30, 2019, compared to two basis points ~~($838 thousand)~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2018, compared to nine basis points ($2.6 million) for the nine months ended September 30, 2017.~~2018.

Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis


	Three Months Ended September 30,														Three Months Ended June 30,
	2018							2017							2019							2018
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	80,678		$	398	1.96	%	$	43,941		$	133	1.20	%	$	102,623		$	569	2.22	%	$	37,254		$	148	1.59	%
U.S. government obligations	22,331			90		1.60		31,126			110		1.40		17,315			73		1.69		23,183			91		1.57
Obligations of states and political subdivisions	68,703			581		3.36		81,114			846		4.14		59,267			507		3.43		71,092			603		3.40
Other debt and equity securities	362,388			2,258		2.47		347,622			1,745		1.99		394,840			2,572		2.61		356,100			2,177		2.45
Federal funds sold and other earning assets	31,107			484		6.17		28,063			375		5.30
Total interest-earning deposits, investments, federal funds sold and other earning assets	565,207			3,811		2.68		531,866			3,209		2.39
Federal Home Loan Bank, Federal Reserve Bank and other stock															31,938			535		6.72		32,788			509		6.23
Total interest-earning deposits, investments and other interest-earning assets															605,983			4,256		2.82		520,417			3,528		2.72
Commercial, financial and agricultural loans	796,593			10,184		5.07		762,418			8,656		4.50		820,009			10,589		5.18		810,610			9,750		4.82
Real estate—commercial and construction loans	1,729,538			20,527		4.71		1,549,799			17,999		4.61		1,912,248			23,110		4.85		1,661,198			19,044		4.60
Real estate—residential loans	880,589			10,447		4.71		770,839			8,751		4.50		941,712			11,483		4.89		853,769			10,046		4.72
Loans to individuals	32,057			499		6.18		27,509			416		6.00		31,939			510		6.40		28,985			444		6.14
Municipal loans and leases	316,149			3,037		3.81		281,509			3,208		4.52		335,399			3,305		3.95		313,181			2,961		3.79
Lease financings	77,369			1,409		7.23		75,161			1,331		7.03		81,762			1,459		7.16		75,452			1,353		7.19
Gross loans and leases	3,832,295			46,103		4.77		3,467,235			40,361		4.62		4,123,069			50,456		4.91		3,743,195			43,598		4.67
Total interest-earning assets	4,397,502			49,914		4.50		3,999,101			43,570		4.32		4,729,052			54,712		4.64		4,263,612			47,126		4.43
Cash and due from banks	48,737							46,969							46,868							45,158
Reserve for loan and lease losses	(26,099		)					(21,425		)					(31,847		)					(23,914		)
Premises and equipment, net	60,622							65,025							58,873							61,234
Operating lease right-of-use assets															35,821							—
Other assets	336,559							326,662							331,681							336,737
Total assets	$	4,817,321						$	4,416,332						$	5,170,448						$	4,682,827
Liabilities:
Interest-bearing checking deposits	$	465,992		$	541	0.46		$	438,956		$	132	0.12		$	457,231		$	457	0.40		$	463,156		$	383	0.33
Money market savings	813,769			2,664		1.30		587,590			919		0.62		982,440			4,234		1.73		694,734			1,758		1.01
Regular savings	787,383			581		0.29		904,528			646		0.28		818,523			1,013		0.50		803,586			582		0.29
Time deposits	633,552			2,492		1.56		557,757			1,371		0.98		688,897			3,407		1.98		553,579			1,819		1.32
Total time and interest-bearing deposits	2,700,696			6,278		0.92		2,488,831			3,068		0.49		2,947,091			9,111		1.24		2,515,055			4,542		0.72
Short-term borrowings	129,365			584		1.79		72,719			169		0.92		48,312			217		1.80		217,327			958		1.77
Long-term debt	148,323			709		1.90		207,057			794		1.52		159,572			836		2.10		155,628			709		1.83
Subordinated notes	94,480			1,261		5.30		94,238			1,254		5.28		94,663			1,261		5.34		94,420			1,261		5.36
Total borrowings	372,168			2,554		2.72		374,014			2,217		2.35		302,547			2,314		3.07		467,375			2,928		2.51
Total interest-bearing liabilities	3,072,864			8,832		1.14		2,862,845			5,285		0.73		3,249,638			11,425		1.41		2,982,430			7,470		1.00
Noninterest-bearing deposits	1,091,931							991,487							1,198,320							1,048,901
Operating lease liabilities															38,873							—
Accrued expenses and other liabilities	40,723							34,968							38,079							39,829
Total liabilities	4,205,518							3,889,300							4,524,910							4,071,160
Shareholders’ Equity:
Common stock	157,784							144,559							157,784							157,784
Additional paid-in capital	291,499							231,575							293,496							290,517
Retained earnings and other equity	162,520							150,898							194,258							163,366
Total shareholders’ equity	611,803							527,032							645,538							611,667
Total liabilities and shareholders’ equity	$	4,817,321						$	4,416,332						$	5,170,448						$	4,682,827
Net interest income				$	41,082						$	38,285						$	43,287						$	39,656
Net interest spread						3.36							3.59							3.23							3.43
Effect of net interest-free funding sources						0.35							0.21							0.44							0.30
Net interest margin						3.71	%						3.80	%						3.67	%						3.73	%
Ratio of average interest-earning assets to average interest-bearing liabilities	143.11		%					139.69		%					145.53		%					142.96		%

Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs, purchase accounting adjustments,

and unearned discount.

Nonaccrual loans and leases have been included in the average loan and lease balances.

Loans held for sale have been included in the average loan balances.

Tax-equivalent amounts for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 have been calculated using the

~~Corporation’s~~ Corporation's federal applicable rate of 21% ~~and 35%, respectively.~~.


	Nine Months Ended September 30,														Six Months Ended June 30,
	2018							2017							2019							2018
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	45,931		$	622	1.81	%	$	23,624		$	188	1.06	%	$	72,760		$	838	2.32	%	$	28,269		$	224	1.60	%
U.S. government obligations	23,139			275		1.59		32,862			329		1.34		18,669			155		1.67		23,550			185		1.58
Obligations of states and political subdivisions	71,429			1,777		3.33		83,424			2,654		4.25		61,703			1,053		3.44		72,814			1,196		3.31
Other debt and equity securities	359,324			6,530		2.43		349,930			5,047		1.93		390,440			5,203		2.69		357,766			4,272		2.41
Federal funds sold and other earning assets	30,992			1,497		6.46		27,952			1,129		5.40
Total interest-earning deposits, investments, federal funds sold and other earning assets	530,815			10,701		2.70		517,792			9,347		2.41
Federal Home Loan Bank, Federal Reserve Bank and other stock															32,148			1,121		7.03		30,933			1,013		6.60
Total interest-earning deposits, investments and other interest-earning assets															575,720			8,370		2.93		513,332			6,890		2.71
Commercial, financial and agricultural loans	796,520			28,834		4.84		748,489			24,669		4.41		815,565			21,347		5.28		796,483			18,650		4.72
Real estate—commercial and construction loans	1,664,183			57,189		4.59		1,504,024			50,368		4.48		1,867,510			44,669		4.82		1,630,964			36,662		4.53
Real estate—residential loans	857,442			30,168		4.70		753,186			25,466		4.52		940,015			22,895		4.91		845,677			19,721		4.70
Loans to individuals	29,683			1,356		6.11		28,304			1,222		5.77		32,230			1,028		6.43		28,475			857		6.07
Municipal loans and leases	313,710			8,890		3.79		281,347			9,513		4.52		333,858			6,526		3.94		312,470			5,853		3.78
Lease financings	75,853			4,106		7.24		77,050			4,230		7.34		81,330			2,894		7.18		75,083			2,697		7.24
Gross loans and leases	3,737,391			130,543		4.67		3,392,400			115,468		4.55		4,070,508			99,359		4.92		3,689,152			84,440		4.62
Total interest-earning assets	4,268,206			141,244		4.42		3,910,192			124,815		4.27		4,646,228			107,729		4.68		4,202,484			91,330		4.38
Cash and due from banks	45,490							44,257							45,797							43,839
Reserve for loan and lease losses	(24,027		)					(20,045		)					(30,984		)					(22,973		)
Premises and equipment, net	61,194							65,076							59,025							61,485
Operating lease right-of-use assets															36,472							—
Other assets	335,433							328,010							331,272							334,879
Total assets	$	4,686,296						$	4,327,490						$	5,087,810						$	4,619,714
Liabilities:
Interest-bearing checking deposits	$	451,542		$	1,216	0.36		$	437,099		$	355	0.11		$	468,019		$	1,171	0.50		$	444,197		$	675	0.31
Money market savings	722,859			5,765		1.07		560,071			2,177		0.52		950,641			7,982		1.69		676,651			3,101		0.92
Regular savings	808,276			1,720		0.28		849,629			1,441		0.23		803,859			1,827		0.46		818,895			1,139		0.28
Time deposits	576,540			5,810		1.35		565,437			3,747		0.89		672,193			6,334		1.90		547,562			3,318		1.22
Total time and interest-bearing deposits	2,559,217			14,511		0.76		2,412,236			7,720		0.43		2,894,712			17,314		1.21		2,487,305			8,233		0.67
Short-term borrowings	174,002			2,187		1.68		120,390			756		0.84		82,796			855		2.08		196,690			1,603		1.64
Long-term debt	153,211			2,083		1.82		185,315			1,876		1.35		152,475			1,575		2.08		155,697			1,374		1.78
Subordinated notes	94,420			3,783		5.36		94,177			3,776		5.36		94,633			2,522		5.37		94,390			2,522		5.39
Total borrowings	421,633			8,053		2.55		399,882			6,408		2.14		329,904			4,952		3.03		446,777			5,499		2.48
Total interest-bearing liabilities	2,980,850			22,564		1.01		2,812,118			14,128		0.67		3,224,616			22,266		1.39		2,934,082			13,732		0.94
Noninterest-bearing deposits	1,055,456							960,797							1,144,185							1,036,916
Operating lease liabilities															39,478							—
Accrued expenses and other liabilities	40,154							36,581							40,936							39,881
Total liabilities	4,076,460							3,809,496							4,449,215							4,010,879
Shareholders’ Equity:
Common stock	157,784							144,559							157,784							157,784
Additional paid-in capital	290,746							230,793							293,123							290,363
Retained earnings and other equity	161,306							142,642							187,688							160,688
Total shareholders’ equity	609,836							517,994							638,595							608,835
Total liabilities and shareholders’ equity	$	4,686,296						$	4,327,490						$	5,087,810						$	4,619,714
Net interest income				$	118,680						$	110,687						$	85,463						$	77,598
Net interest spread						3.41							3.60							3.29							3.44
Effect of net interest-free funding sources						0.31							0.18							0.42							0.28
Net interest margin						3.72	%						3.78	%						3.71	%						3.72	%
Ratio of average interest-earning assets to average interest-bearing liabilities	143.19		%					139.05		%					144.09		%					143.23		%

Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs, purchase accounting adjustments,

and unearned discount.

Nonaccrual loans and leases have been included in the average loan and lease balances.

Loans held for sale have been included in the average loan balances.

Tax-equivalent amounts for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 have been calculated using the

~~Corporation’s~~ Corporation's federal applicable rate of 21% ~~and 35%, respectively.~~.

Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.


	Three Months Ended									Nine Months Ended									Three Months Ended									Six Months Ended
	September 30, 2018 Versus 2017									September 30, 2018 Versus 2017									June 30, 2019 Versus 2018									June 30, 2019 Versus 2018
(Dollars in thousands)	Volume Change			Rate Change			Total			Volume Change			Rate Change			Total			Volume Change			Rate Change			Total			Volume Change			Rate Change			Total
Interest income:
Interest-earning deposits with other banks	$	151		$	114		$	265		$	248		$	186		$	434		$	343		$	78		$	421		$	477		$	137		$	614
U.S. government obligations	(34		)	14			(20		)	(108		)	54			(54		)	(25		)	7			(18		)	(40		)	10			(30		)
Obligations of states and political subdivisions	(119		)	(146		)	(265		)	(350		)	(527		)	(877		)	(101		)	5			(96		)	(188		)	45			(143		)
Other debt and equity securities	77			436			513			140			1,343			1,483			247			148			395			409			522			931
Federal funds sold and other earning assets	43			66			109			131			237			368
Interest on deposits, investments, federal funds sold and other earning assets	118			484			602			61			1,293			1,354
Federal Home Loan Bank, Federal Reserve Bank and other stock																			(13		)	39			26			41			67			108
Interest on deposits, investments and other earning assets																			451			277			728			699			781			1,480
Commercial, financial and agricultural loans	400			1,128			1,528			1,653			2,512			4,165			113			726			839			453			2,244			2,697
Real estate—commercial and construction loans	2,129			399			2,528			5,543			1,278			6,821			2,991			1,075			4,066			5,555			2,452			8,007
Real estate—residential loans	1,277			419			1,696			3,652			1,050			4,702			1,065			372			1,437			2,266			908			3,174
Loans to individuals	71			12			83			61			73			134			46			20			66			118			53			171
Municipal loans and leases	368			(539		)	(171		)	1,019			(1,642		)	(623		)	216			128			344			416			257			673
Lease financings	40			38			78			(66		)	(58		)	(124		)	112			(6		)	106			219			(22		)	197
Interest and fees on loans and leases	4,285			1,457			5,742			11,862			3,213			15,075			4,543			2,315			6,858			9,027			5,892			14,919
Total interest income	4,403			1,941			6,344			11,923			4,506			16,429			4,994			2,592			7,586			9,726			6,673			16,399
Interest expense:
Interest-bearing checking deposits	9			400			409			12			849			861			(5		)	79			74			40			456			496
Money market savings	453			1,292			1,745			773			2,815			3,588			909			1,567			2,476			1,591			3,290			4,881
Regular savings	(87		)	22			(65		)	(65		)	344			279			11			420			431			(22		)	710			688
Time deposits	209			912			1,121			76			1,987			2,063			521			1,067			1,588			875			2,141			3,016
Interest on time and interest-bearing deposits	584			2,626			3,210			796			5,995			6,791			1,436			3,133			4,569			2,484			6,597			9,081
Short-term borrowings	187			228			415			441			990			1,431			(757		)	16			(741		)	(1,098		)	350			(748		)
Long-term debt	(256		)	171			(85		)	(364		)	571			207			19			108			127			(28		)	229			201
Subordinated notes	3			4			7			7			—			7
Interest on borrowings	(66		)	403			337			84			1,561			1,645			(738		)	124			(614		)	(1,126		)	579			(547		)
Total interest expense	518			3,029			3,547			880			7,556			8,436			698			3,257			3,955			1,358			7,176			8,534
Net interest income	$	3,885		$	(1,088	)	$	2,797		$	11,043		$	(3,050	)	$	7,993		$	4,296		$	(665	)	$	3,631		$	8,368		$	(503	)	$	7,865

Interest Income

Three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 versus ~~2017~~2018

Interest income on a tax-equivalent basis for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$49.9~~$54.7 million, an increase of ~~$6.3~~$7.6 million, or ~~14.6%~~16.1%, from the same period in ~~2017.~~2018. Interest income on a tax-equivalent basis for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$141.2~~$107.7 million, an increase of $16.4 million, or ~~13.2%~~18.0%, from the same period in ~~2017.~~2018. The increase in interest income ~~(tax-equivalent)~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was primarily due to organic loan growth in commercial real estate ~~commercial business~~ and residential real estate ~~loans. In addition,~~loans and an increase in loan yields ~~increased~~primarily for commercial business and commercial real estate loans as the Federal Reserve increased interest rates ~~75 basis points in 2017 and 75~~100 basis points in 2018. The favorable impact of purchase accounting accretion on interest-earning assets was one basis point ~~($182 thousand)~~for the three and six months ended June 30, 2019, compared to one basis point for the three months ended ~~September~~June 30, 2018 ~~compared to a favorable~~and no impact ~~of five basis points ($527 thousand) for~~on the ~~same period in the prior year. The favorable impact of purchase accounting accretion~~yield on interest-earning assets ~~was one basis point ($308 thousand)~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2018, compared to a favorable impact of three basis points ($837 thousand) for the same period in the prior year.~~2018.

Interest Expense

Three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 versus ~~2017~~2018

Interest expense for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$8.8~~$11.4 million, an increase of ~~$3.5~~$4.0 million, or ~~67.1%~~52.9%, from the same period in ~~2017.~~2018. Interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$22.6~~$22.3 million, an increase of ~~$8.4~~$8.5 million, or ~~59.7%~~

62.1%, from the same period in ~~2017.~~2018. The increase in interest expense for the three and six months ended ~~September~~June 30, ~~2018~~2019 was primarily due to higher deposit ~~and borrowing~~ costs, which were impacted by the Federal Reserve interest rate increases in ~~2017~~2018. In addition, average deposits grew 17.2% and 16.4%, respectively, for the three and six months ended June 30, 219 compared to the same periods in 2018. The favorable impact of purchase accounting amortization on interest-bearing liabilities was ~~two~~one basis ~~points ($161 thousand)~~point for the three and six months ended ~~September~~June 30, ~~2018,~~2019, compared to a favorable impact of ~~eight basis points ($539 thousand) for the same period in the prior year. The favorable impact of purchase accounting amortization on interest-bearing liabilities was~~ three basis points ~~($529 thousand)~~ for the ~~nine~~three and six months ended ~~September~~June 30, ~~2018, compared to a favorable impact of eight basis points ($1.7 million) for the same period in the prior year.~~2018.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the three and six months ended ~~September~~June 30, ~~2018~~2019 was ~~$2.7~~$2.1 million ~~consistent with the same period in 2017. Net~~ and ~~lease charge-offs for the three months ended September 30, 2018 were $1.0~~$4.8 million, respectively, compared to ~~$3.1~~$15.4 million and $17.5 million, respectively, for the same ~~period~~periods in ~~the prior year.~~

~~The provision for loan and lease losses for the nine months ended September 30, 2018 was $20.2 million compared to $7.9 million for the same period in 2017.~~2018. Net loan and lease charge-offs for the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019 were ~~$14.4~~$1.1 million and $1.5 million, respectively, compared to ~~$4.9~~$13.2 million and $13.4 million, respectively, for the same ~~period~~periods in the prior year. ~~The increase in both~~Both net loan and lease charge-offs and the provision for loan and ~~leases~~lease losses ~~and loan and lease charge-offs for~~during 2018 included the ~~nine months ended September 30, 2018 was primarily due to the~~previously discussed $12.7 million commercial loan ~~charge-off during the second quarter of 2018 previously discussed in the Executive Overview.~~

charge-off.

Noninterest Income

The following table presents noninterest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:


	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change					Three Months Ended June 30,					Change					Six Months Ended June 30,					Change
(Dollars in thousands)	2018		2017		Amount			Percent		2018		2017		Amount			Percent		2019		2018			Amount			Percent		2019		2018			Amount			Percent
Trust fee income	$	1,960	$	1,924	$	36		1.9	%	$	6,000	$	5,847	$	153		2.6	%	$	2,054	$	2,044		$	10		0.5	%	$	3,941	$	4,040		$	(99	)	(2.5	)%
Service charges on deposit accounts	1,454		1,371		83			6.1		4,116		3,927		189			4.8		1,447		1,335			112			8.4		2,882		2,662			220			8.3
Investment advisory commission and fee income	3,785		3,455		330			9.6		11,246		9,969		1,277			12.8		4,055		3,778			277			7.3		7,844		7,461			383			5.1
Insurance commission and fee income	3,643		3,492		151			4.3		12,243		11,530		713			6.2		3,941		3,712			229			6.2		9,085		8,600			485			5.6
Other service fee income	2,284		2,123		161			7.6		6,884		6,355		529			8.3		2,590		2,431			159			6.5		4,857		4,600			257			5.6
Bank owned life insurance income	865		742		123			16.6		2,744		3,147		(403		)	(12.8	)	743		1,210			(467		)	(38.6	)	1,695		1,879			(184		)	(9.8	)
Net gain on sales of investment securities	—		7		(7		)	N/M		10		43		(33		)	(76.7	)	7		—			7			N/M		8		10			(2		)	(20.0	)
Net gain on mortgage banking activities	754		908		(154		)	(17.0	)	2,412		3,558		(1,146		)	(32.2	)	796		942			(146		)	(15.5	)	1,279		1,658			(379		)	(22.9	)
Other income	116		87		29			33.3		102		712		(610		)	(85.7	)
Other income (loss)																			723		(138		)	861			N/M		1,062		(14		)	1,076			N/M
Total noninterest income	$	14,861	$	14,109	$	752		5.3	%	$	45,757	$	45,088	$	669		1.5	%	$	16,356	$	15,314		$	1,042		6.8	%	$	32,653	$	30,896		$	1,757		5.7	%

Three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 versus ~~2017~~2018

Noninterest income for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$14.9~~$16.4 million, an increase of ~~$752 thousand,~~$1.0 million, or ~~5.3%~~6.8%, from the three months ended ~~September~~June 30, ~~2017.~~2018. Noninterest income for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$45.8~~$32.7 million, an increase of ~~$669 thousand,~~$1.8 million, or ~~1.5%~~5.7%, from the ~~same~~comparable period in the prior year.

Investment advisory commission and fee income increased ~~$330~~$277 thousand, or ~~9.6%~~7.3%, for the three months and ~~$1.3 million,~~$383 thousand, or ~~12.8%~~5.1%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily due to new customer ~~relationships and continued favorable market performance.~~relationships. Insurance commission and fee income increased ~~$151~~$229 thousand, or ~~4.3%~~6.2%, for the three months ended June 30, 2019, primarily due to an increase in premiums for commercial lines and group life and health. Insurance commission and fee income increased $485 thousand, or 5.6%, for the six months ended June 30, 2019, primarily due to an increase in premiums for commercial lines, group life and health and contingent commission income. Service charges on deposit accounts increased $112 thousand, or 8.4%, for the three months and ~~$713~~$220 thousand, or ~~6.2%~~8.3%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~an increase in group life and health premiums and an increase in contingent commission~~increased fee income ~~of $374 thousand, which is largely recognized in the first quarter of the year.~~on commercial cash management accounts. Other service fee income increased ~~$161~~$159 thousand, or ~~7.6%~~6.5%, for the three months and ~~$529~~$257 thousand, or ~~8.3%~~5.6%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily due to increases in debit card interchange income.

Other income ~~mortgage servicing fees~~increased $861 thousand for the three months and ~~human resource~~$1.1 million for the six months ended June 30, 2019. Fees on risk participation agreements increased $284 thousand for the three months and ~~payroll consulting services within~~$543 thousand for the ~~insurance line~~six months ended June 30, 2019 driven by increased customer activity. Gain on sale of ~~business. Service charges~~small business administration (SBA) loans increased $259 thousand for the three months and $313 thousand for the six months ended June 30, 2019 related to increased SBA loan sale activity. Net loss on ~~deposit accounts increased $83~~valuations and sales of other real estate owned was $55 thousand for the six months ended June 30, 2019 compared to $482 thousand for the three and six months ended June 30, 2018.

These increases were partially offset by a decrease in BOLI income of $467 thousand, or ~~6.1%~~38.6%, for the three months and ~~$189~~$184 thousand, or ~~4.8%~~9.8%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018, primarily due to increased fee income on cash management accounts.~~

~~BOLI income decreased $403 thousand for the nine months ended September 30, 2018~~2019. These decreases were primarily due to proceeds from BOLI death benefits of $446 thousand recognized in the second quarter of ~~2018 compared to $889 thousand in the second quarter of 2017.~~2018. The net gain on mortgage banking activities decreased ~~$154~~$146 thousand, or ~~17.0%~~15.5%, for the three months and ~~$1.1 million,~~$379 thousand, or ~~32.2%,~~22.9% for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~a decrease~~contraction in refinance mortgage volume, a shortage of housing supply and the Bank retaining, on balance-sheet, a higher percentage of its mortgage originations. Such on balance-sheet loans are predominantly hybrid adjustable rate mortgages. Other income decreased $610 thousand, or 85.7%, for the nine months ended September 30, 2018. The decrease in the nine months ended September 30, 2018 was primarily duemargins to a net loss of $325 thousand related to valuations and sales of other real estate owned and sales of closed branches as compared to a net gain of $245 thousand of such assets in the nine months ended September 30, 2017.

remain price competitive.

Noninterest Expense

The following table presents noninterest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:


	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change					Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
(Dollars in thousands)	2018		2017		Amount			Percent		2018		2017		Amount			Percent		2019		2018		Amount			Percent		2019		2018		Amount			Percent
Salaries, benefits and commissions	$	20,321	$	19,185	$	1,136		5.9	%	$	61,033	$	56,652	$	4,381		7.7	%	$	22,089	$	20,065	$	2,024		10.1	%	$	43,653	$	40,712	$	2,941		7.2	%
Net occupancy	2,515		2,523		(8		)	(0.3	)	7,805		7,872		(67		)	(0.9	)	2,601		2,533		68			2.7		5,212		5,290		(78		)	(1.5	)
Equipment	1,042		1,019		23			2.3		3,132		3,043		89			2.9		1,065		1,067		(2		)	(0.2	)	2,055		2,090		(35		)	(1.7	)
Data processing	2,339		2,118		221			10.4		6,662		6,257		405			6.5		2,627		2,091		536			25.6		5,141		4,323		818			18.9
Professional fees	1,370		1,447		(77		)	(5.3	)	4,056		3,934		122			3.1		1,307		1,331		(24		)	(1.8	)	2,571		2,686		(115		)	(4.3	)
Marketing and advertising	461		271		190			70.1		1,368		1,125		243			21.6		622		526		96			18.3		938		907		31			3.4
Deposit insurance premiums	544		409		135			33.0		1,387		1,262		125			9.9		430		452		(22		)	(4.9	)	882		843		39			4.6
Intangible expenses	479		690		(211		)	(30.6	)	1,685		1,895		(210		)	(11.1	)	417		594		(177		)	(29.8	)	843		1,206		(363		)	(30.1	)
Restructuring charges	—		—		—			—		571		—		571			N/M		—		—		—			—		—		571		(571		)	N/M
Other expense	5,300		5,033		267			5.3		16,144		15,233		911			6.0		5,620		5,688		(68		)	(1.2	)	11,040		10,844		196			1.8
Total noninterest expense	$	34,371	$	32,695	$	1,676		5.1	%	$	103,843	$	97,273	$	6,570		6.8	%	$	36,778	$	34,347	$	2,431		7.1	%	$	72,335	$	69,472	$	2,863		4.1	%

Three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 versus ~~2017~~2018

Noninterest expense for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$34.4~~$36.8 million, an increase of ~~$1.7~~$2.4 million, or ~~5.1%~~7.1%, from the three months ended ~~September~~June 30, ~~2017.~~2018. Noninterest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$103.8~~$72.3 million, an increase of ~~$6.6~~$2.9 million, or ~~6.8%~~4.1%, from the comparable period in the prior year.

Salaries, benefits and commissions increased ~~$1.1~~$2.0 million, or ~~5.9%~~10.1%, for the three months and ~~$4.4~~$2.9 million, or ~~7.7%~~7.2%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily attributable to additional staff hired to support revenue generation across all business

lines, expansion of our ~~financial center footprint in Lancaster County~~commercial lending groups and annual merit increases. During the first quarter of 2019, Univest hired a team of eight commercial lenders and support staff to focus on increasing Univest’s presence in Western Lancaster and York Counties, Pennsylvania. During the second quarter of 2019, a team of three commercial lenders was hired to help expand Univest’s presence in the New Jersey suburbs of Philadelphia. Data processing expense increased ~~$221~~$536 thousand, or 25.6%, for the three months and ~~$405~~$818 thousand, or 18.9%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019, primarily due to ~~increased~~continued investments in customer relationship management software, internal infrastructure improvements and outsourced data processing solutions. ~~Marketing and advertising~~

These increases were partially offset by a decrease in intangibles expense ~~increased $190~~of $177 thousand, or 29.8%, for the three months and ~~$243~~$363 thousand, or 30.1%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018 primarily related to deposit product campaigns. Other expense increased $267 thousand for the three months and $911 thousand for the nine months ended September 30, 2018 primarily~~2019 due to ~~increases in Bank shares tax, loan processing expenses and increased corporate development expenses. Restructuring~~run-off of the intangible assets. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the first quarter of 2018. There were no restructuring costs during the nine months ended September 30, 2017. Excluding restructuring costs, noninterest expense for the nine months increased $6.0 million or 6.2% from the comparable period in 2017.

Tax Provision

The provision for income taxes for the three months ended ~~September~~June 30, 2019 and 2018 ~~and 2017~~ was ~~$3.2~~$3.7 million and ~~$4.4 million,~~$191 thousand, at effective rates of ~~17.6%~~18.2% and ~~28.3%~~4.2%, respectively. The provision for income taxes for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~ 2018

was ~~$6.2~~$7.2 million and ~~$12.6~~$3.0 million, at effective rates of ~~16.2%~~18.0% and ~~27.1%~~14.9%, respectively. ~~As previously discussed, the Corporation's statutory federal tax rate was reduced to 21% effective January 1, 2018 in accordance with the TCJA.~~ The Corporation's effective income tax ~~rate for the nine months ended September 30, 2018 was~~rates were favorably impacted by discrete tax ~~benefits and proceeds from BOLI death~~ benefits. Excluding these ~~discrete~~ items, the effective tax rate was 18.3% and 18.2% for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~which reflects the impact of the Corporation's level of tax-exempt income for the period relative to the overall level of taxable income.~~respectively.

Financial Condition

Assets

The following table presents assets at the dates indicated:


	At September 30, 2018			At December 31, 2017			Change					At June 30, 2019			At December 31, 2018			Change
(Dollars in thousands)	At September 30, 2018			At December 31, 2017			Amount			Percent		At June 30, 2019			At December 31, 2018			Amount			Percent
Cash and interest-earning deposits	$	84,110		$	75,409		$	8,701		11.5		$	84,567		$	109,420		$	(24,853	)	(22.7	)%
Investment securities	447,339			454,082			(6,743		)	(1.5	)	468,833			473,306			(4,473		)	(0.9	)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	33,071			27,204			5,867			21.6		32,755			28,337			4,418			15.6
Loans held for sale	106			1,642			(1,536		)	(93.5	)	1,498			1,754			(256		)	(14.6	)
Loans and leases held for investment	3,866,169			3,620,067			246,102			6.8		4,167,904			4,006,574			161,330			4.0
Reserve for loan and lease losses	(27,371		)	(21,555		)	(5,816		)	(27.0	)	(32,600		)	(29,364		)	(3,236		)	(11.0	)
Premises and equipment, net	60,393			61,797			(1,404		)	(2.3	)	58,292			59,559			(1,267		)	(2.1	)
Operating lease right-of-use assets												35,508			—			35,508			N/M
Goodwill and other intangibles, net	184,964			186,468			(1,504		)	(0.8	)	183,554			184,549			(995		)	(0.5	)
Bank owned life insurance	110,392			108,246			2,146			2.0		113,294			111,599			1,695			1.5
Accrued interest receivable and other assets	42,825			41,502			1,323			3.2		40,693			38,613			2,080			5.4
Total assets	$	4,801,998		$	4,554,862		$	247,136		5.4	%	$	5,154,298		$	4,984,347		$	169,951		3.4	%

Investment Securities

Total investments securities at ~~September~~June 30, ~~2018~~2019 decreased ~~$6.7~~$4.5 million from December 31, ~~2017.~~2018. Maturities and pay-downs of ~~$55.3~~$36.2 million, calls of ~~$8.4~~$3.1 million, sales of ~~$1.0~~$15.5 million and ~~decreases~~net amortization of purchased premiums and discounts of $1.2 million were partially offset by purchases of $43.5 million and increases in the fair value of available-for-sale investment securities of ~~$9.4 million were partially off-set by purchases of $69.2~~$8.0 million. The ~~decrease~~increase in the fair value of available-for-sale investment securities was due to ~~increased interest rates during~~ the ~~year.~~flattening of the yield curve.

Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost

The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of ~~$18.3~~$18.0 million and ~~$12.5~~$13.6 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. FHLB stock increased ~~$5.8~~$4.4 million mainly due to purchase requirements related to the increase in FHLB borrowing volume during the year.

The Bank held $14.6 million in Federal Reserve Bank stock as required by the Federal Reserve Bank at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Loans and Leases

Gross loans and leases held for investment grew ~~$246.1~~$161.3 million, or ~~6.8%~~4.0%, from December 31, ~~2017.~~2018. The growth in loans was primarily in commercial real estate ~~commercial business~~ and residential real estate loans.

Asset Quality

The Bank's strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans and leases. Performance of the loan and lease portfolio is monitored on a regular basis by Bank management and lending officers.

Loans and leases are deemed impaired when, based on current information and events, it is probable that the Bank will be unable to collect all proceeds due according to the original contractual terms of the agreement or when a loan or lease is classified as a troubled debt restructuring. Factors considered by management in determining impairment include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due.

When a loan or lease, including a loan or lease that is impaired, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease is typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest,

even though the loan or lease is currently performing. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of net deferred fees and costs is suspended. Interest payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the ultimate collectability of principal.

Loans or leases are usually restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

At ~~September~~June 30, ~~2018,~~2019, the recorded investment in loans ~~and leases~~ held for investment that were considered to be impaired was ~~$30.0~~$25.1 million. The related reserve for loan ~~and lease~~ losses was ~~$1.0~~$2.4 million. At December 31, ~~2017,~~2018, the recorded investment in loans ~~and leases~~ that were considered to be impaired was ~~$29.7~~$26.6 million. The related reserve for loan ~~and lease~~ losses was $131 thousand. During the first quarter of 2018, one commercial real-estate loan totaling $12.3 million was placed on non-accrual status. This was partially offset by troubled debt restructured commercial real estate loans for another borrower totaling $10.3 million being returned to performing status during the first quarter of 2018 as the borrower was in compliance with the modified terms of the restructuring for the required time period.$1.4 million. The impaired loan ~~and lease~~ balances consisted mainly of commercial real estate, ~~loans~~residential real estate and business loans. Impaired loans ~~and leases~~ include nonaccrual loans and leases and accruing troubled debt restructured loans and lease modifications ~~and other accruing impaired loans~~ for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. The amount of the specific reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits. Specific reserves have been established based on current facts and management’s judgments about the ultimate outcome of these credits.

Other real estate owned was ~~$1.4 million~~$540 thousand at ~~September~~June 30, ~~2018,~~2019, compared to ~~$1.8~~$1.2 million at December 31, ~~2017.~~2018. During the ~~nine months ended September 30, 2018, two residential properties~~first quarter of 2019, a commercial real estate property with a carrying value of ~~$403~~$654 thousand ~~and two parcels of land with a carrying value of $74 thousand~~ was ~~transferred to other real estate owned and three residential properties with a carrying value of $366 thousand were~~ sold for a ~~net~~ loss of $4$55 thousand. Additionally, the market value of a parcel of land was written down by $460 thousand based on a potential agreement to sell the property and the market value of a residential property was written down by $43 thousand to reflect current market conditions.

Reserve for Loan and Lease Losses

The reserve for loan and lease losses is maintained at a level representing management's best estimate of known risks and inherent losses in the portfolio, based upon management's evaluation of the portfolio's collectability. Management evaluates the need to establish reserves against losses on loans and leases on a quarterly basis. When changes in the reserve are necessary, an adjustment is made.

The reserve for loan and lease losses consists of a reserve for impaired loans and leases and a general valuation allowance on the remainder of the originated portfolio. Although management determines the amount of each element of the reserve separately, the entire reserve for loan and lease losses is available for losses onin the portfolio. The Corporation ~~records~~does not provide a ~~provision~~reserve for loan ~~loss~~losses for ~~the~~ acquired ~~non-impaired~~ loans ~~only when~~unless additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan ~~loss, resulting in an increase to the allowance.~~losses.

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve for these off-balance sheet credits was ~~$437~~$418 thousand and ~~$390~~$426 thousand at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Table 3—Nonaccrual and Past Due Loans and Leases; Troubled Debt Restructured Loans and Lease Modifications; Other Real Estate Owned; and Related Ratios

The following table details information pertaining to the Corporation’s nonperforming assets at the dates indicated. Nonperforming loans and assets exclude acquired credit impaired loans from Fox Chase and Valley Green.


(Dollars in thousands)	At September 30, 2018			At December 31, 2017			At June 30, 2019			At December 31, 2018
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:
Commercial, financial and agricultural	$	2,795		$	4,448		$	2,150		$	3,365
Real estate—commercial	18,425			4,285			17,739			18,214
Real estate—construction	106			365			106			106
Real estate—residential	4,691			3,820			5,052			4,353
Lease financings	1,542			1,599			100			170
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	27,559			14,517			25,147			26,208
Accruing troubled debt restructured loans and lease modifications not included in the above	766			11,435			55			542
Accruing loans and leases 90 days or more past due:
Real estate—commercial	83			—			516			—
Real estate—construction							230			—
Real estate—residential	128			310			434			—
Loans to individuals	165			195			129			55
Lease financings	848			256			70			137
Total accruing loans and leases, 90 days or more past due	1,224			761			1,379			192
Total nonperforming loans and leases	29,549			26,713			26,581			26,942
Other real estate owned	1,433			1,843			540			1,187
Total nonperforming assets	$	30,982		$	28,556		$	27,121		$	28,129
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.71		%	0.40		%	0.60		%	0.65		%
Nonperforming loans and leases / loans and leases held for investment	0.76			0.74			0.64			0.67
Nonperforming assets / total assets	0.65			0.63			0.53			0.56

Allowance for loan and lease losses	$	27,371		$	21,555		$	32,600		$	29,364
Allowance for loan and lease losses / loans and leases held for investment	0.71		%	0.60		%	0.78		%	0.73		%
Allowance for loan and lease losses / loans and leases held for investment (excluding acquired loans at period-end)	0.79			0.70			0.85			0.81
Allowance for loan and lease losses / nonaccrual loans and leases held for investment	99.32			148.48			129.64			112.04
Allowance for loan and lease losses / nonperforming loans and leases held for investment	92.63			80.69			122.64			108.99
Acquired credit impaired loans	$	900		$	1,583		$	569		$	695


Nonperforming loans and leases and acquired credit impaired loans / loans and leases held for investment	0.79		%	0.78		%	0.65		%	0.69		%
Nonperforming assets and acquired credit impaired loans / total assets	0.66			0.66			0.54			0.58
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	1,324		$	2,513		$	2,573		$	1,284

The following table provides additional information on the Corporation’s nonaccrual loans held for investment:


(Dollars in thousands)	At September 30, 2018			At December 31, 2017			At June 30, 2019		At December 31, 2018
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	27,559		$	14,517		$	25,147	$	26,208
Nonaccrual loans and leases with partial charge-offs	3,490			5,397			2,302		2,210
Life-to-date partial charge-offs on nonaccrual loans and leases	2,667			4,107			1,353		1,320
Charge-off rate of nonaccrual loans and leases with partial charge-offs	43.3		%	43.2		%
Specific reserves on impaired loans	$	1,048		$	131		$	2,439	$	1,415

Goodwill and Other Intangible Assets

Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions. The Corporation has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The amortization of intangible assets was ~~$812~~$835 thousand and ~~$1.0 million~~$885 thousand for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The amortization of intangible assets was ~~$2.6~~$1.6 million and ~~$3.2~~$1.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. See Note 5 to the Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~ 2018.

The Corporation also has goodwill with a net carrying value of $172.6 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, which is deemed to be an indefinite intangible asset and is not amortized.

The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often, if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018. Since the last annual impairment analysis during ~~2017,~~2018, there have been no circumstances to indicate impairment. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Liabilities

The following table presents liabilities at the dates indicated:


(Dollars in thousands)	At September 30, 2018		At December 31, 2017		Change					At June 30, 2019		At December 31, 2018		Change
(Dollars in thousands)	At September 30, 2018		At December 31, 2017		Amount			Percent		At June 30, 2019		At December 31, 2018		Amount			Percent
Deposits	$	3,820,048	$	3,554,919	$	265,129		7.5	%	$	4,122,110	$	3,885,933	$	236,177		6.1	%
Short-term borrowings	86,765		105,431		(18,666		)	(17.7	)	39,350		189,768		(150,418		)	(79.3	)
Long-term debt	145,430		155,828		(10,398		)	(6.7	)	170,195		145,330		24,865			17.1
Subordinated notes	94,514		94,331		183			0.2		94,696		94,574		122			0.1
Operating lease liabilities										38,608		—		38,608			N/M
Accrued interest payable and other liabilities	40,999		40,979		20			N/M		37,669		44,609		(6,940		)	(15.6	)
Total liabilities	$	4,187,756	$	3,951,488	$	236,268		6.0	%	$	4,502,628	$	4,360,214	$	142,414		3.3	%

Deposits

Total deposits increased ~~$265.1~~$236.2 million, or ~~7.5%~~6.1%, from December 31, ~~2017,~~2018, primarily due to increases in commercial, public funds and consumer ~~time~~ deposits.

Borrowings

Total borrowings decreased ~~$28.9~~$125.4 million, or 29.2%, from December 31, ~~2017,~~2018, primarily due to a decrease in short-term borrowings of ~~$18.7 million and repayment of long-term FHLB debt of $10.0 million in the third quarter of 2018.~~$150.4 million. The increase in ~~seasonal public funds~~ deposits ~~and time deposits reduce~~reduced the need to borrow short-term funds.

Shareholders’ Equity

The following table presents total shareholders’ equity at the dates indicated:


(Dollars in thousands)	At September 30, 2018			At December 31, 2017			Change					At June 30, 2019			At December 31, 2018			Change
(Dollars in thousands)	At September 30, 2018			At December 31, 2017			Amount			Percent		At June 30, 2019			At December 31, 2018			Amount		Percent
Common stock	$	157,784		$	157,784		$	—		N/M		$	157,784		$	157,784		$	—	—	%
Additional paid-in capital	291,992			290,133			1,859			0.6		293,947			292,401			1,546		0.5
Retained earnings	235,658			216,761			18,897			8.7		267,357			248,167			19,190		7.7
Accumulated other comprehensive loss	(28,664		)	(17,771		)	(10,893		)	(61.3	)	(21,949		)	(28,416		)	6,467		22.8
Treasury stock	(42,528		)	(43,533		)	1,005			2.3		(45,469		)	(45,803		)	334		0.7
Total shareholders’ equity	$	614,242		$	603,374		$	10,868		1.8	%	$	651,670		$	624,133		$	27,537	4.4	%

The increase in shareholder's equity at ~~September~~June 30, ~~2018~~2019 of ~~$10.9~~$27.5 million, or 4.4%, from December 31, ~~2017~~2018 was primarily related to an increase in retained earnings of ~~$18.9~~$19.2 million. Retained earnings at ~~September~~June 30, ~~2018 were~~2019 was impacted by the ~~nine~~six months of net income of ~~$32.2~~$32.5 million ~~and~~partially offset by the ~~reclassification of $3.9 million and $433 thousand from accumulated other comprehensive income~~ related adjustments to the January 1, ~~2018~~2019 adoption of ASU ~~2016-01~~No. 2016-02 of $1.5 million and ~~ASU 2018-02, respectively, partially offset by~~ cash dividends declared of ~~$17.6~~$11.7 million. Accumulated other comprehensive loss ~~increased~~decreased by ~~$10.9~~$6.5 million mainly attributable to ~~decreases~~increases in the fair value of available-for-sale investment securities of ~~$7.4~~$6.4 million, net of ~~tax,~~tax.

Discussion of Segments

The Corporation has three operating segments: Banking, Wealth Management and Insurance. Detailed segment information appears in Note 13, "Segment Reporting" included in the ~~reclassification to retained earnings from the previously discussed adoption of ASU 2016-01 and ASU 2018-02 ($3.0 million related~~Notes to the ~~defined benefit pension plans~~Consolidated Financial Statements under Item 1 of this Quarterly Report on Form 10-Q (Note 13 in the Notes to the Consolidated Financial Statements).

The Banking segment, as presented in Note 13 in the Notes to the Consolidated Financial Statements, reported pre-tax income of $19.8 million and ~~$1.4~~$3.5 million ~~related~~for the three months ended June 30, 2019 and 2018, respectively, and $37.1 million and $16.5 million for the six months ended June 30, 2019 and 2018, respectively. See the section of this MD&A under the heading “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for Loan and Lease Losses” for a discussion of the Banking Segment.

The Wealth Management segment, as presented in Note 13 in the Notes to ~~investment securities). Treasury stock decreased by $1.0~~the Consolidated Financial Statements, reported pre-tax income of $2.1 million and $1.9 million for the three months ended June 30, 2019 and 2018, respectively, and $3.8 million and $3.7 million for the six months ended June 30, 2019 and 2018, respectively. Noninterest income was $6.2 million and $5.9 million for the three months ended June 30, 2019 and 2018, respectively, and $11.9 million and $11.6 million for the six months ended June 30, 2019 and 2018, respectively. The increase in pre-tax income and noninterest income for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018 was primarily due to an increase in assets under management. Assets under management and supervision were $3.7 billion as of June 30, 2019 and $3.5 billion as of June 30, 2018. The increase in assets under management and supervision as of June 30, 2019, as compared to June 30, 2018, was primarily driven by new customer relationships.

The Insurance segment, as presented in Note 13 in the ~~issuance~~Notes to the Consolidated Financial Statements, reported pre-tax income of ~~restricted stock.~~$860 thousand and $544 thousand for the three months ended June 30, 2019 and 2018, respectively, and $2.9 million and $2.1 million for the six months ended June 30, 2019 and 2018, respectively. Noninterest income was $4.1 million and $3.9 million for the three months ended June 30, 2019 and 2018, respectively, and $9.5 million and $9.0 million for the six months ended June 30, 2019 and 2018, respectively. Noninterest income increased primarily due to increases in commercial lines and group life and health premiums and contingent commission income.

Capital Adequacy

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements. Capital adequacy guidelines, and additionally for the Bank the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total capital, Tier 1 capital and Tier 1 common capital (as defined

in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), or leverage ratio.

In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The new minimum capital requirements were effective on January 1, 2015. Under ~~the new~~current 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 in an amount greater than 2.5% of total risk-weighted assets. The ~~capital conservation buffer requirements began to be phased in over a four-year period beginning January 1, 2016 with final phase in occurring 2019.~~

The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules, primarily relating to regulatory deductions and adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a four-year period beginning January 1, 2015. Under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. During 2018, the Corporation and the Bank must hold a capital conservation buffer greater than 1.875% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. It is the Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer which ~~would~~ require Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50% beginning in the first quarter of 2019. The Corporation and the Bank were in compliance with these requirements at March 31, 2019 and June 30, 2019.

Table 4—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 under regulatory capital rules were as follows.


	Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Provisions				Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
At September 30, 2018
At June 30, 2019
Total Capital (to Risk-Weighted Assets):
Corporation	$	591,928	13.87	%	$	341,489	8.00	%	$	426,861	10.00	%	$	629,324	13.79	%	$	364,990	8.00	%	$	456,238	10.00	%
Bank	491,854		11.59		339,613		8.00		424,516		10.00		529,106		11.65		363,289		8.00		454,112		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	469,309		10.99		256,117		6.00		341,489		8.00		501,310		10.99		273,743		6.00		364,990		8.00
Bank	463,749		10.92		254,709		6.00		339,613		8.00		495,788		10.92		272,467		6.00		363,289		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	469,309		10.99		192,087		4.50		277,460		6.50		501,310		10.99		205,307		4.50		296,554		6.50
Bank	463,749		10.92		191,032		4.50		275,935		6.50		495,788		10.92		204,350		4.50		295,173		6.50
Tier 1 Capital (to Average Assets):
Corporation	469,309		10.07		186,356		4.00		232,944		5.00		501,310		10.01		200,268		4.00		250,336		5.00
Bank	463,749		10.01		185,237		4.00		231,546		5.00		495,788		9.95		199,407		4.00		249,258		5.00
At December 31, 2017
At December 31, 2018
Total Capital (to Risk-Weighted Assets):
Corporation	$	563,797	14.00	%	$	322,148	8.00	%	$	402,685	10.00	%	$	604,213	13.70	%	$	352,764	8.00	%	$	440,955	10.00	%
Bank	464,851		11.62		320,003		8.00		400,004		10.00		506,728		11.54		351,220		8.00		439,026		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	447,228		11.11		241,611		6.00		322,148		8.00		479,550		10.88		264,573		6.00		352,764		8.00
Bank	442,613		11.07		240,002		6.00		320,003		8.00		476,639		10.86		263,415		6.00		351,220		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	447,228		11.11		181,208		4.50		261,745		6.50		479,550		10.88		198,430		4.50		286,621		6.50
Bank	442,613		11.07		180,002		4.50		260,002		6.50		476,639		10.86		197,561		4.50		285,367		6.50
Tier 1 Capital (to Average Assets):
Corporation	447,228		10.48		170,753		4.00		213,441		5.00		479,550		10.13		189,374		4.00		236,718		5.00
Bank	442,613		10.45		169,453		4.00		211,816		5.00		476,639		10.12		188,487		4.00		235,609		5.00

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. The Corporation, like other bank holding companies, currently is required to maintain Tier 1 capital and Total capital equal to at least 6.0% and 8.0%, respectively, of total risk-weighted assets (including various off-balance-sheet items). The Bank, like other depository institutions, is required to maintain similar capital levels under capital adequacy guidelines. During 2018, the Corporation and the Bank must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 1.875% of total risk-weighted assets in order to avoid limitations on capital distributions. For a depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective action, Tier 1 and Total capital ratios must be at least 8.0% and 10.0% on a risk-adjusted basis, respectively. At ~~September~~

June 30, ~~2018,~~2019, the Bank is categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. The January 1, 2019 adoption of ASU No. 2016-02 had and will continue to have a negative impact on all Corporation and Bank regulatory capital ratios. The Corporation will continue to analyze the impact of ~~the phase in of the capital conservation buffer as well as the impact of~~ new accounting rules, such as ~~Lease Accounting (ASU No. 2016-02~~) ~~and~~ CECL (ASU No. 2016-13) on its regulatory capital ratios.

In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as the beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts would be calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the transitional amounts are phased in over each of the next two years and at the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital. The election must be made in the first reporting period that CECL is adopted. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Yet to ~~the financial statements included in Part I, Item I of this Form 10-Q~~Be Adopted" for additional information.

Asset/Liability Management

The primary functions of Asset/Liability Management are to assure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities. ~~Liquidity management involves the ability to meet cash flow requirements of customers and corporate needs.~~ Management's objective with regard to ~~address~~ interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.

The Corporation uses ~~both interest-sensitivity~~ gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a simulation model to measure the short-term rate exposures. The Corporation runs various earnings simulation scenarios to quantify the impact of declining or rising interest rates on net interest income over a one-year and two-year horizon. The simulation uses expected cash flows and repricing characteristics for all financial instruments at a point in time and incorporates ~~company developed,~~company-developed, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets that banks hold ~~will~~ tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold ~~will~~ tend to increase in value.

Liquidity

The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks. Liquidity refers to the Corporation’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy demand for loans, deposit withdrawals, repayment of borrowings and certificates of deposit at maturity, operating ~~expenditures,~~expense, and capital ~~expansion.~~expenditures. The Corporation manages liquidity risk by measuring and monitoring liquidity sources and estimated funding needs on a daily basis. The Corporation has a contingency funding plan in place to address liquidity needs in the event of an institution-specific or a systemic financial crisis.

Sources of Funds

Core deposits continue to be the largest significant funding source for the Corporation. These deposits are primarily generated from ~~a base of consumer, business,~~individuals, businesses, municipalities and non-profit customers located in our primary service areas. The Corporation faces increased competition for these deposits from a large array of financial market participants, including banks, credit unions, savings institutions, mutual funds, security dealers and others.

~~The~~As part of its diversified funding strategy, the Corporation also utilizes a mix of short-term and long-term wholesale funding providers. Wholesale funding includes federal funds purchases from correspondent ~~bank borrowings,~~banks, secured borrowing lines from the Federal Home Loan Bank of Pittsburgh, the Federal Reserve Bank of Philadelphia and, at times, brokered deposits and other similar sources.

The Corporation, through the Bank, has a credit facility with the FHLB with a maximum borrowing capacity of approximately ~~$1.6~~$1.7 billion. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the carrying amount of overnight borrowings with the FHLB was ~~$17.0 million~~$0 and ~~$30.2~~$108.3 million, respectively. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the carrying amount of long-term borrowings with the FHLB was ~~$115.0~~$150.0 million and $125.0 million, respectively. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank had outstanding short-term letters of credit with the FHLB totaling ~~$382.9~~$408.3 million and ~~$234.2~~$347.5 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.

The Corporation, through the Bank, maintains uncommitted federal fund lines with several correspondent banks ~~totaling~~that totaled $504.0 million and $367.0 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~

2018, the Corporation had ~~$50.0~~$20.0 million and ~~$55.0~~$60.0 million, respectively, of outstanding federal funds purchased with these correspondent banks. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

Cash Requirements

The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The most significant contractual obligation, in both the under and over ~~one year~~one-year time period, is for the Bank to repay certificates of deposit and short-term and long-term borrowings. The Bank anticipates meeting these obligations by continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.

Commitments to extend credit are the Bank’s most significant commitment in both the under and over ~~one year~~one-year time periods. These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

Recent Regulatory and Legislative Developments

SEC FAST Act Modernization and Simplification of Regulation S-K

On ~~August 17, 2018,~~April 2, 2019, the SEC issued Release No. ~~33-10532, "Disclosure Update~~33-10618; 34-85381, "FAST Act Modernization and ~~Simplification.~~Simplification of Regulation S-K." ~~This~~The amendments under this rule ~~amends~~modernize and simplify certain disclosure requirements ~~that were redundant with or superseded by other SEC disclosure requirements or~~ ~~U.S. GAAP~~ or for changes in the information environment. The changes are generally expected to reduce or eliminate some of a SEC registrant's disclosures in certain topics but some provisions require additional disclosures. The rule extends to interim periods the annual disclosure requirement under Regulation S-X of presenting changes in shareholders' equity for the current and comparative year-to-date interim periods. Under the amendments, an analysis of changes in each caption of shareholders' equity presented in the balance sheet must be provided in a ~~note or separate statement. The analysis should include a reconciliation of~~manner that reduces the ~~beginning balance~~costs and burdens on registrants while continuing to ~~the ending balance for each period for which a statement of comprehensive income is required~~provide material information to ~~be filed.~~investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. The amendments were effective on ~~November 5, 2018.~~ May 2, 2019, except for specific amendments that are effective after May 2, 2019 as cited in the rule. The Corporation ~~currently includes year-to-date changes in shareholders' equity in~~provided the additional disclosures on the Form 10-Q ~~and will additionally provide the quarterly changes in shareholders' equity in the Form 10-Q~~cover page for the quarter ~~ending~~ended March 31, ~~2019. T~~he2019. The Corporation continues to analyze the amended disclosure requirements under this rule, but does not believe that such changes will materially impact the Corporation’s ~~disclosures.~~

~~Economic Growth, Regulatory Relief, and Consumer Protection Act~~

On May 24, 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Most of the changes made by the new Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation. Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a community bank leverage ratio of tangible equity to average consolidated assets of not less than 8% or more than 10%, and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings. The Corporation continues to analyze the changes implemented by the Act, but does not believe that such changes will materially impact the Corporation’s business, operations, or financial results. disclosures.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

No material changes in the Corporation’s market risk ~~or market strategy~~ occurred during the current period. A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of ~~September~~June 30, ~~2018.~~2019.

Changes in Internal Control over Financial Reporting

There were no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended ~~September~~June 30, ~~2018~~2019 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings


Item 1A.	Risk Factors

There have been no material changes in risk factors from those disclosed under Item 1A, “Risk Factors” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information on repurchases by the Corporation of its common stock under the Corporation's Board approved program.

ISSUER PURCHASES OF EQUITY SECURITIES

Period

Total Number

of Shares

Purchased

Average

Price Paid

per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

Maximum Number of

Shares that May Yet Be

Purchased Under the

Plans or Programs

~~July~~April 1 – ~~31, 2018~~30, 2019

—

~~1,014,246~~864,246

~~August~~May 1 – 31, ~~2018~~2019

—

~~1,014,246~~864,246

~~September~~June 1 – 30, ~~2018~~2019

—

~~1,014,246~~864,246

Total

—


1.	~~Transactions are reported as of trade dates.~~

On October 23, 2013, the Corporation’s Board of Directors approved a ~~new~~ stock repurchase plan for the repurchase of up to 800,000 shares, or approximately 5% of the shares outstanding. On May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares available for repurchase under the Corporation's share repurchase program, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. The repurchased shares ~~limit~~plan does not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

In addition to the repurchases disclosed above, participants in the Corporation's stock-based incentive plans may have shares withheld to cover income taxes upon the vesting of restricted stock awards and may use a stock swap to exercise non-qualified stock options. Shares withheld to pay income taxes upon the vesting of restricted stock awards and stock swaps to exercise stock options are repurchased pursuant to the terms of the applicable plan and not under the Corporation's share repurchase program. There were no shares repurchased pursuant to these plans during the three months ended June 30, 2019.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not Applicable.


Item 5.	Other Information

None.


Item 6.	Exhibits



a.	Exhibits

	Exhibit 3.1	Amended and Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of Form ~~8-K,~~10-K, filed with the SEC on ~~April 22, 2015.~~February 28, 2019.

	Exhibit 3.2	Amended By-Laws ~~effective November 23, 2016~~ are incorporated by reference to Exhibit 3.2 of Form ~~8-K,~~10-K, filed with the SEC on ~~November 23, 2016.~~February 28, 2019.

	Exhibit 10.1	Form of Restricted Stock Unit Agreement for Directors (Service Based) under the Amended and Restated Univest 2013 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.1 of Form 10-Q, filed with the SEC on May 3, 2019.

	Exhibit 10.2	Form of Performance Based Restricted Stock Unit Agreement for Employees under the Amended and Restated Univest 2013 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.2 of Form 10-Q, filed with the SEC on May 3, 2019.

	Exhibit 10.3	Form of Restricted Stock Unit Agreement for Employees (Service Based) under the Amended and Restated Univest 2013 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.3 of Form 10-Q, filed with the SEC on May 3, 2019.

	Exhibit 10.4	Form of Change in Control Agreement, dated December 3, 2018, entered into between Univest Corporation of Pennsylvania and Brian J. Richardson.

	Exhibit 31.1	Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 31.2	Certification of ~~Roger S. Deacon, Senior~~Brian J. Richardson, Executive Vice President and Chief Financial Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32.1	Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32.2	Certification of ~~Roger S. Deacon, Senior~~Brian J. Richardson, Executive Vice President and Chief Financial Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

	Exhibit ~~101.INS~~101	~~XBRL Instance Document~~The following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholder's Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

	Exhibit ~~101.SCH~~104	~~XBRL Taxonomy Extension Schema Document~~

	~~Exhibit 101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

	~~Exhibit 101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~

	~~Exhibit 101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

	~~Exhibit 101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~The cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL.

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.



	Univest Financial Corporation ~~of Pennsylvania~~
	(Registrant)

Date: ~~November~~August 2, ~~2018~~2019	/s/ Jeffrey M. Schweitzer
	Jeffrey M. Schweitzer President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November~~August 2, ~~2018~~2019	/s/ ~~Roger S. Deacon~~Brian J. Richardson
	~~Roger S. Deacon~~Brian J. Richardson ~~Senior~~ Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

6967



	Maturity Date Extension			Amortization Period Extension			Total Concessions Granted
(Dollars in thousands)	No. of Loans	Amount		No. of Loans	Amount		No. of Loans	Amount
Three Months Ended September 30, 2018
Accruing Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—	—	$	—
Three Months Ended September 30, 2017
Accruing Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—	—	$	—
Nine Months Ended September 30, 2018
Accruing Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose	—	$	—	1	$	66	1	$	66
Total	—	$	—	1	$	66	1	$	66
Nine Months Ended September 30, 2017
Accruing Troubled Debt Restructured Loans:
Real estate—commercial real estate	—	$	—	3	$	9,206	3	$	9,206
Total	—	$	—	3	$	9,206	3	$	9,206
Nonaccrual Troubled Debt Restructured Loans:
Real estate—commercial real estate	1	$	328	—	$	—	1	$	328
Total	1	$	328	—	$	—	1	$	328



(Dollars in thousands)	As of September 30, 2018		Weighted Average Rate
Remainder of 2018	$	—	—	%
2019	10,000		1.35
2020	40,000		1.70
2021	55,000		1.94
2022	10,000		2.09
Thereafter	—		—
Total	$	115,000	1.82	%



(Dollars in thousands, except per share data)	Nonvested Share Awards		Weighted Average Grant Date Fair Value
Nonvested share awards at December 31, 2017	229,026		$	21.93
Granted	59,953		28.39
Vested	(94,867	)	19.94
Forfeited	(25,780	)	21.63
Nonvested share awards at September 30, 2018	168,332		25.41



	Nine Months Ended September 30, 2017
(Dollars in thousands)	Balance at December 31, 2016			Purchases/additions			Sales		Payments received			Premium amortization, net		(Decrease) increase in value			Balance at September 30, 2017
Corporate bonds	$	28,778		$	—		$	—	$	—		$	—	$	(233	)	$	28,545
Loans	2,138			—			—		(102		)	—		(22		)	2,014
Credit derivatives	(9		)	(272		)	—		—			—		149			(132		)
Net total	$	30,907		$	(272	)	$	—	$	(102	)	$	—	$	(106	)	$	30,427



(Dollars in thousands)	Severance expenses			Write-downs and retirements of fixed assets			Lease cancellations			Total
Accrued at January 1, 2018	$	—		$	—		$	23		$	23
Restructuring charges	366			48			157			571
Payments	(284		)	—			(30		)	(314		)
Non-cash settlement	—			(48		)	—			(48		)
Accrued at September 30, 2018	$	82		$	—		$	150		$	232