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



x☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~for the quarterly period ended March 31, 2019.~~

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

(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

~~Not applicable~~

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

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 every Interactive Data File required to be submitted 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 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		~~29,287,509~~29,305,447
(Title of Class)		(Number of shares outstanding at ~~April 30,~~July 31, 2019)

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX



			Page Number
Part I.	Financial Information:

	Item 1.	Financial Statements (Unaudited)

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

		Condensed Consolidated Statements of Income for the Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018	3

		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018	4

		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018	5

		~~Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018~~	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	8

		Notes to Condensed Consolidated Financial Statements	79

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4348

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5863

	Item 4.	Controls and Procedures	5864

Part II.	Other Information

	Item 1.	Legal Proceedings	5964

	Item 1A.	Risk Factors	5964

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5964

	Item 3.	Defaults Upon Senior Securities	5965

	Item 4.	Mine Safety Disclosures	5965

	Item 5.	Other Information	6065

	Item 6.	Exhibits	6166

Signatures			6267

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	(UNAUDITED)						(UNAUDITED)
(Dollars in thousands, except share data)	At March 31, 2019			At December 31, 2018			At June 30, 2019			At December 31, 2018
ASSETS
Cash and due from banks	$	46,465		$	61,573		$	55,223		$	61,573
Interest-earning deposits with other banks	19,676			47,847			29,344			47,847
Cash and cash equivalents	66,141			109,420			84,567			109,420
Investment securities held-to-maturity (fair value $148,960 and $141,575 at March 31, 2019 and December 31, 2018, respectively)	148,470			142,634
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	315,648			328,507			293,022			328,507
Investments in equity securities	2,765			2,165			2,865			2,165
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	32,699			28,337			32,755			28,337
Loans held for sale	921			1,754			1,498			1,754
Loans and leases held for investment	4,067,879			4,006,574			4,167,904			4,006,574
Less: Reserve for loan and lease losses	(31,602		)	(29,364		)	(32,600		)	(29,364		)
Net loans and leases held for investment	4,036,277			3,977,210			4,135,304			3,977,210
Premises and equipment, net	59,091			59,559			58,292			59,559
Operating lease right-of-use assets	36,099			—			35,508			—
Goodwill	172,559			172,559			172,559			172,559
Other intangibles, net of accumulated amortization	11,530			11,990			10,995			11,990
Bank owned life insurance	112,551			111,599			113,294			111,599
Accrued interest receivable and other assets	40,776			38,613			40,693			38,613
Total assets	$	5,035,527		$	4,984,347		$	5,154,298		$	4,984,347
LIABILITIES
Noninterest-bearing deposits	$	1,103,674		$	1,055,919		$	1,166,301		$	1,055,919
Interest-bearing deposits:
Demand deposits	1,441,540			1,377,171			1,424,288			1,377,171
Savings deposits	819,255			782,766			822,084			782,766
Time deposits	638,684			670,077			709,437			670,077
Total deposits	4,003,153			3,885,933			4,122,110			3,885,933
Short-term borrowings	73,185			189,768			39,350			189,768
Long-term debt	145,263			145,330			170,195			145,330
Subordinated notes	94,635			94,574			94,696			94,574
Operating lease liabilities	39,102			—			38,608			—
Accrued interest payable and other liabilities	42,583			44,609			37,669			44,609
Total liabilities	4,397,921			4,360,214			4,502,628			4,360,214
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at March 31, 2019 and December 31, 2018; 31,556,799 shares issued at March 31, 2019 and December 31, 2018; 29,272,502 and 29,270,852 shares outstanding at March 31, 2019 and December 31, 2018, 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	293,255			292,401			293,947			292,401
Retained earnings	256,746			248,167			267,357			248,167
Accumulated other comprehensive loss, net of tax benefit	(24,238		)	(28,416		)	(21,949		)	(28,416		)
Treasury stock, at cost; 2,284,297 and 2,285,947 shares at March 31, 2019 and December 31, 2018, respectively	(45,941		)	(45,803		)
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	637,606			624,133			651,670			624,133
Total liabilities and shareholders’ equity	$	5,035,527		$	4,984,347		$	5,154,298		$	4,984,347

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

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,				Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands, except per share data)	2019		2018		2019		2018			2019		2018
Interest income
Interest and fees on loans and leases:
Taxable	$	45,682	$	37,950	$	47,151	$	40,637		$	92,833	$	78,587
Exempt from federal income taxes	2,683		2,347		2,759		2,421			5,442		4,768
Total interest and fees on loans and leases	48,365		40,297		49,910		43,058			98,275		83,355
Interest and dividends on investment securities:
Taxable	2,713		2,189		2,645		2,268			5,358		4,457
Exempt from federal income taxes	431		468		401		477			832		945
Interest on deposits with other banks	269		76		569		148			838		224
Interest and dividends on other earning assets	586		504		535		509			1,121		1,013
Total interest income	52,364		43,534		54,060		46,460			106,424		89,994
Interest expense
Interest on deposits	8,203		3,691		9,111		4,542			17,314		8,233
Interest on short-term borrowings	638		645		217		958			855		1,603
Interest on long-term debt and subordinated notes	2,000		1,926		2,097		1,970			4,097		3,896
Total interest expense	10,841		6,262		11,425		7,470			22,266		13,732
Net interest income	41,523		37,272		42,635		38,990			84,158		76,262
Provision for loan and lease losses	2,685		2,053		2,076		15,409			4,761		17,462
Net interest income after provision for loan and lease losses	38,838		35,219		40,559		23,581			79,397		58,800
Noninterest income
Trust fee income	1,887		1,996		2,054		2,044			3,941		4,040
Service charges on deposit accounts	1,435		1,327		1,447		1,335			2,882		2,662
Investment advisory commission and fee income	3,789		3,683		4,055		3,778			7,844		7,461
Insurance commission and fee income	5,144		4,888		3,941		3,712			9,085		8,600
Other service fee income	2,267		2,169		2,590		2,431			4,857		4,600
Bank owned life insurance income	952		669		743		1,210			1,695		1,879
Net gain on sales of investment securities	1		10		7		—			8		10
Net gain on mortgage banking activities	483		716		796		942			1,279		1,658
Other income	339		124
Other income (loss)					723		(138		)	1,062		(14		)
Total noninterest income	16,297		15,582		16,356		15,314			32,653		30,896
Noninterest expense
Salaries, benefits and commissions	21,564		20,647		22,089		20,065			43,653		40,712
Net occupancy	2,611		2,757		2,601		2,533			5,212		5,290
Equipment	990		1,023		1,065		1,067			2,055		2,090
Data processing	2,514		2,232		2,627		2,091			5,141		4,323
Professional fees	1,264		1,355		1,307		1,331			2,571		2,686
Marketing and advertising	316		381		622		526			938		907
Deposit insurance premiums	452		391		430		452			882		843
Intangible expenses	426		612		417		594			843		1,206
Restructuring charges	—		571		—		—			—		571
Other expense	5,420		5,156		5,620		5,688			11,040		10,844
Total noninterest expense	35,557		35,125		36,778		34,347			72,335		69,472
Income before income taxes	19,578		15,676		20,137		4,548			39,715		20,224
Income tax expense	3,499		2,826		3,669		191			7,168		3,017
Net income	$	16,079	$	12,850	$	16,468	$	4,357		$	32,547	$	17,207
Net income per share:
Basic	$	0.55	$	0.44	$	0.56	$	0.15		$	1.11	$	0.59
Diluted	0.55		0.44		0.56		0.15			1.11		0.58

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

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,																		Three Months Ended June 30,
(Dollars in thousands)	2019									2018									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	$	19,578		$	3,499		$	16,079		$	15,676		$	2,826		$	12,850		$	20,137		$	3,669		$	16,468		$	4,548		$	191		$	4,357
Other comprehensive income:
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period	5,120			1,075			4,045			(6,338		)	(1,331		)	(5,007		)	2,933			616			2,317			(1,911		)	(401		)	(1,510		)
Less: reclassification adjustment for net gains on sales realized in net income (1)	(1		)	—			(1		)	(10		)	(2		)	(8		)	(7		)	(2		)	(5		)	—			—			—
Total net unrealized gains (losses) on available-for-sale investment securities	5,119			1,075			4,044			(6,348		)	(1,333		)	(5,015		)	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	(168		)	(36		)	(132		)	212			45			167			(263		)	(55		)	(208		)	154			32			122
Less: reclassification adjustment for net (gains) losses realized in net income (2)	(16		)	(3		)	(13		)	20			4			16			(14		)	(3		)	(11		)	6			1			5
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges	(184		)	(39		)	(145		)	232			49			183			(277		)	(58		)	(219		)	160			33			127
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)	294			62			232			281			59			222			294			62			232			282			58			224
Accretion of prior service cost included in net periodic pension costs (3)	(45		)	(9		)	(36		)	(71		)	(15		)	(56		)	(46		)	(10		)	(36		)	(71		)	(14		)	(57		)
Total defined benefit pension plans	249			53			196			210			44			166			248			52			196			211			44			167
Other comprehensive income (loss)	5,184			1,089			4,095			(5,906		)	(1,240		)	(4,666		)	2,897			608			2,289			(1,540		)	(324		)	(1,216		)
Total comprehensive income	$	24,762		$	4,588		$	20,174		$	9,770		$	1,586		$	8,184
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

(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

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(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 March 31, 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 —
—
—
16,079
—
—
16,079
Other comprehensive income, net of income tax —
—
—
—
4,095
—
4,095
Cash dividends declared ($0.20 per share) —
—
—
(5,853 ) —
—
(5,853 )
Stock issued under dividend reinvestment and employee stock purchase plans 25,743
—
30
—
—
541
571
Exercise of stock options 30,500
—
(91 ) —
—
612
521
Stock-based compensation —
—
574
—
—
—
574
Purchases of treasury stock (37,244 ) —
—
—
—
(950 ) (950 )
Cancellations of performance-based restricted stock awards (17,349 ) —
341
—
—
(341 ) —
Balance at March 31, 2019 29,272,502
$ 157,784
$ 293,255
$ 256,746
$ (24,238 ) $ (45,941 ) $ 637,606

(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
Three Months Ended March 31, 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 —
—
—
12,850
—
—
12,850
Other comprehensive loss, net of income tax benefit —
—
—
—
(4,666 ) —
(4,666 )
Cash dividends declared ($0.20 per share) —
—
—
(5,868 ) —
—
(5,868 )
Stock issued under dividend reinvestment and employee stock purchase plans 20,253
—
44
—
—
525
569
Exercise of stock options 14,158
—
(9 ) —
—
277
268
Stock-based compensation —
—
847
—
—
—
847
Purchases of treasury stock (23,539 ) —
—
—
—
(655 ) (655 )
Restricted stock awards granted, net of cancellations 46,203
—
(920 ) —
—
920
—
Balance at March 31, 2018 29,391,934
$ 157,784
$ 290,095
$ 228,097
$ (26,791 ) $ (42,466 ) $ 606,719



(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	—		—		—			16,468			—			—			16,468
Other comprehensive income, net of income tax	—		—		—			—			2,289			—			2,289
Cash dividends declared ($0.20 per share)	—		—		—			(5,858		)	—			—			(5,858		)
Stock issued under dividend reinvestment and employee stock purchase plans	22,440		—		47			1			—			516			564
Exercise of stock options	9,000		—		(11		)	—			—			181			170
Stock-based compensation	—		—		656			—			—			—			656
Purchases of treasury stock	(9,000	)	—		—			—			—			(225		)	(225		)
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 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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019			2018
Cash flows from operating activities:
Net income	$	16,079		$	12,850		$	32,547		$	17,207
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	2,685			2,053			4,761			17,462
Depreciation of premises and equipment	1,318			1,408			2,651			2,795
Net amortization of investment securities premiums and discounts	379			402			834			779
Net gain on sales of investment securities	(1		)	(10		)	(8		)	(10		)
Net gain on mortgage banking activities	(483		)	(716		)	(1,279		)	(1,658		)
Bank owned life insurance income	(952		)	(669		)	(1,695		)	(1,879		)
Net accretion of acquisition accounting fair value adjustments	(60		)	(146		)	(247		)	(495		)
Stock-based compensation	577			847			1,256			1,719
Intangible expenses	426			612			843			1,206
Other adjustments to reconcile net income to cash used in operating activities	(145		)	(18		)
Other adjustments to reconcile net income to cash (used in) provided by operating activities							(461		)	190
Originations of loans held for sale	(30,422		)	(35,151		)	(69,323		)	(74,695		)
Proceeds from the sale of loans held for sale	31,745			37,003			70,603			76,263
Contributions to pension and other postretirement benefit plans	(66		)	(67		)	(132		)	(133		)
Increase in accrued interest receivable and other assets	(3,709		)	(3,307		)	(3,921		)	(3,089		)
(Decrease) increase in accrued interest payable and other liabilities	(316		)	2,805			(4,872		)	814
Net cash provided by operating activities	17,055			17,896			31,557			36,476
Cash flows from investing activities:
Net capital expenditures	(850		)	(1,009		)	(1,432		)	(1,347		)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	4,288			1,721			11,054			4,253
Proceeds from maturities, calls and principal repayments of securities available-for-sale	17,085			19,423			27,784			34,824
Proceeds from sales of securities available-for-sale	491			1,010			15,494			1,010
Purchases of investment securities held-to-maturity	(10,309		)	(30,641		)	(41,808		)	(45,349		)
Purchases of investment securities available-for-sale	—			(1,487		)	(498		)	(1,485		)
Proceeds from sales of money market mutual funds	10			1,016			523			10,706
Purchases of money market mutual funds	(606		)	(6,205		)	(1,203		)	(6,284		)
Net increase in other investments	(4,362		)	(5,597		)	(4,418		)	(5,564		)
Net increase in loans and leases	(61,582		)	(69,830		)	(162,169		)	(211,534		)
Proceeds from sales of other real estate owned	599			—			599			21
Purchases of bank owned life insurance	—			(777		)	—			(776		)
Proceeds from bank owned life insurance							—			1,374
Net cash used in investing activities	(55,236		)	(92,376		)	(156,074		)	(220,151		)
Cash flows from financing activities:
Net increase (decrease) in deposits	117,239			(57,575		)
Net increase in deposits							236,213			65,963
Net (decrease) increase in short-term borrowings	(116,583		)	110,995			(150,418		)	126,422
Proceeds from issuance of long-term debt							25,000			—
Payment of contingent consideration on acquisitions	(33		)	(34		)	(65		)	(67		)
Purchases of treasury stock	(950		)	(655		)	(1,175		)	(1,259		)
Stock issued under dividend reinvestment and employee stock purchase plans	571			569			1,135			1,173
Proceeds from exercise of stock options	521			268			691			711
Cash dividends paid	(5,863		)	(5,866		)	(11,717		)	(11,734		)
Net cash (used in) provided by financing activities	(5,098		)	47,702
Net cash provided by financing activities							99,664			181,209
Net decrease in cash and cash equivalents	(43,279		)	(26,778		)	(24,853		)	(2,466		)
Cash and cash equivalents at beginning of year	109,420			75,409			109,420			75,409
Cash and cash equivalents at end of period	$	66,141		$	48,631		$	84,567		$	72,943
Supplemental disclosures of cash flow information:
Cash paid for interest	$	10,629		$	6,361		$	22,002		$	13,190
Cash paid for income taxes, net of refunds	25			145			9,883			1,060
Non cash transactions:
Transfer of loans to other real estate owned							$	—		$	402

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

UNIVEST FINANCIAL CORPORATION 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 (the 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 three-month or six-month period ended ~~March 31,~~June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 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, 2018, which was filed with the SEC on 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.

Accounting Pronouncements Adopted in 2019

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)" and subsequent related updates to revise the accounting 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 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 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 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, effective January 1, 2019.

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 was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the Corporation. At December 31, 2018, the Corporation had $11.3 million of callable debt securities. 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 resulting in a reduction in the unamortized premium balance for certain callable debt securities of $49 thousand and a reduction in retained earnings of approximately $39 thousand, net of tax, for the 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.”~~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.

Note 2. Earnings per Share

The Corporation uses the two-class method to calculate earnings per share as the unvested restricted stock 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 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.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
March 31,
(Dollars and shares in thousands, except per share data) 2019 2018
Numerator:
Net income $ 16,079
$ 12,850
Net income allocated to unvested restricted stock awards (67 ) (97 )
Net income allocated to common shares $ 16,012
$ 12,753
Denominator:
Weighted average shares outstanding 29,277
29,355
Average unvested restricted stock awards (131 ) (215 )
Denominator for basic earnings per share—weighted-average shares outstanding
29,146
29,140
Effect of dilutive securities—employee stock options and restricted stock units 59
94
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,205
29,234
Basic earnings per share $ 0.55
$ 0.44
Diluted earnings per share $ 0.55
$ 0.44
Average anti-dilutive options and restricted stock units excluded from computation of diluted earnings per share 348
217

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 ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 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
$ —
$ (46 ) $ 6,951
$ 6,996
$ —
$ (104 ) $ 6,892
6,997
—
(46 ) 6,951
6,996
—
(104 ) 6,892
Residential mortgage-backed securities:
After 5 years to 10 years 11,005
23
(54 ) 10,974
11,573
—
(135 ) 11,438
Over 10 years 130,468
852
(285 ) 131,035
124,065
287
(1,107 ) 123,245
141,473
875
(339 ) 142,009
135,638
287
(1,242 ) 134,683
Total $ 148,470
$ 875
$ (385 ) $ 148,960
$ 142,634
$ 287
$ (1,346 ) $ 141,575
Securities Available-for-Sale
U.S. government corporations and agencies:
Within 1 year $ 10,067
$ —
$ (41 ) $ 10,026
$ 15,108
$ —
$ (90 ) $ 15,018
After 1 year to 5 years 302
—
(5 ) 297
303
—
(6 ) 297

10,369
—
(46 ) 10,323
15,411
—
(96 ) 15,315
State and political subdivisions:
Within 1 year 3,483
6
—
3,489
5,900
4
(6 ) 5,898
After 1 year to 5 years 17,439
83
(1 ) 17,521
15,459
36
(56 ) 15,439
After 5 years to 10 years 40,506
458
—
40,964
43,923
318
(163 ) 44,078

61,428
547
(1 ) 61,974
65,282
358
(225 ) 65,415
Residential mortgage-backed securities:
After 1 year to 5 years 6,204
11
(75 ) 6,140
5,799
3
(70 ) 5,732
After 5 years to 10 years 46,409
14
(711 ) 45,712
49,904
6
(1,381 ) 48,529
Over 10 years 97,524
52
(1,663 ) 95,913
100,873
26
(3,398 ) 97,501

150,137
77
(2,449 ) 147,765
156,576
35
(4,849 ) 151,762
Collateralized mortgage obligations:
After 5 years to 10 years 1,589
—
(60 ) 1,529
1,677
—
(78 ) 1,599
Over 10 years 1,260
—
(3 ) 1,257
1,305
—
(16 ) 1,289

2,849
—
(63 ) 2,786
2,982
—
(94 ) 2,888
Corporate bonds:
Within 1 year 8,299
—
(42 ) 8,257
7,806
—
(68 ) 7,738
After 1 year to 5 years 16,512
7
(104 ) 16,415
18,508
1
(332 ) 18,177
After 5 years to 10 years 15,139
—
(289 ) 14,850
16,146
—
(392 ) 15,754
Over 10 years 60,000
—
(6,722 ) 53,278
60,000
—
(8,542 ) 51,458

99,950
7
(7,157 ) 92,800
102,460
1
(9,334 ) 93,127
Total $ 324,733
$ 631
$ (9,716 ) $ 315,648
$ 342,711
$ 394
$ (14,598 ) $ 328,507

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 ~~$374.5~~$379.0 million and $344.5 million at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and other contractual obligations. In addition, securities of ~~$298 thousand~~$9.9 million and $296 thousand were pledged to secure credit derivatives and interest rate swaps at ~~March 31,~~June 30, 2019 and December 31, 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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 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

Three Months Ended March 31,
(Dollars in thousands) 2019 2018
Securities available-for-sale:
Proceeds from sales $ 491
$ 1,010
Gross realized gains on sales 1
10
Tax expense related to net realized gains on sales —
2

At ~~March 31,~~June 30, 2019 and December 31, 2018, there were no reportable investments in any single 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 ~~March 31,~~June 30, 2019 and December 31, 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 and ~~are not~~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 March 31, 2019
Securities Held-to-Maturity
U.S. government corporations and agencies $ —
$ —
$ 6,951
$ (46 ) $ 6,951
$ (46 )
Residential mortgage-backed securities 8,054
(2 ) 40,353
(337 ) 48,407
(339 )
Total $ 8,054
$ (2 ) $ 47,304
$ (383 ) $ 55,358
$ (385 )
Securities Available-for-Sale
U.S. government corporations and agencies $ —
$ —
$ 10,323
$ (46 ) $ 10,323
$ (46 )
State and political subdivisions 1,045
—
1,018
(1 ) 2,063
(1 )
Residential mortgage-backed securities —
—
141,650
(2,449 ) 141,650
(2,449 )
Collateralized mortgage obligations —
—
2,786
(63 ) 2,786
(63 )
Corporate bonds 1,489
(10 ) 88,304
(7,147 ) 89,793
(7,157 )
Total $ 2,534
$ (10 ) $ 244,081
$ (9,706 ) $ 246,615
$ (9,716 )
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 )

At ~~March 31,~~June 30, 2019, gross unrealized losses for securities available-for-sale in an unrealized loss position for twelve months or longer, totaled ~~$9.7~~$7.2 million. Three federal agency bonds, ~~thirty-three~~sixteen investment grade corporate bonds, ~~122~~ninety federal agency residential mortgage securities ~~two investment grade municipal bonds~~ and ~~two~~one collateralized mortgage obligation bonds had respective unrealized loss positions of ~~$46~~$16 thousand, ~~$7.1~~$6.2 million, ~~$2.4~~$1.0 million ~~$1 thousand~~ and ~~$63~~$31 thousand, respectively. The fair value of these ~~162~~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 ~~three~~six months ended ~~March 31,~~June 30, 2019 ~~and~~or 2018.

The Corporation recognized a $4$20 thousand net gain and $4$33 thousand net ~~loss~~gain on equity securities during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively, in other noninterest income. There were no sales of equity securities during the ~~three~~six months ended ~~March 31,~~June 30, 2019 or ~~March 31,~~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 March 31, 2019
(Dollars in thousands) Originated Acquired Total
Commercial, financial and agricultural $ 910,493
$ 17,145
$ 927,638
Real estate-commercial 1,576,250
222,955
1,799,205
Real estate-construction 216,964
—
216,964
Real estate-residential secured for business purpose 304,574
56,348
360,922
Real estate-residential secured for personal purpose 361,488
47,652
409,140
Real estate-home equity secured for personal purpose 172,587
8,311
180,898
Loans to individuals 32,462
141
32,603
Lease financings 140,509
—
140,509
Total loans and leases held for investment, net of deferred income $ 3,715,327
$ 352,552
$ 4,067,879
Imputed interest on lease financings, included in the above table $ (15,082 ) $ —
$ (15,082 )
Net deferred costs, included in the above table 4,426
—
4,426
Overdraft deposits included in the above table 208
—
208



	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, 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

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 ~~March 31,~~June 30, 2019 totaled ~~$352.6~~$332.7 million, including ~~$301.3~~$289.2 million of loans from the Fox Chase acquisition and ~~$51.3~~$43.5 million from the Valley Green Bank acquisition. At ~~March 31,~~June 30, 2019, loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled ~~$693~~$569 thousand representing ~~$62~~$61 thousand from the Fox Chase acquisition and ~~$631~~$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 ~~March 31,~~June 30, 2019 and December 31, 2018 were as follows:


(Dollars in thousands)	At March 31, 2019		At December 31, 2018		At June 30, 2019		At December 31, 2018
Outstanding principal balance	$	871	$	893	$	677	$	893
Carrying amount	693		695		569		695
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	$	—		$	—

Three Months Ended March 31,
(Dollars in thousands) 2019 2018
Beginning of period $ —
$ 11
Reclassification from nonaccretable discount 142
81
Accretable yield amortized to interest income (142 ) (87 )
End of period $ —
$ 5

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 ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 2019
Commercial, financial and agricultural $ 1,661
$ 210
$ 1,952
$ 3,823
$ 923,815
$ —
$ 927,638
$ —
Real estate—commercial real estate and construction:
Commercial real estate 2,133
647
5,518
8,298
1,790,701
206
1,799,205
—
Construction 341
—
106
447
216,517
—
216,964
—
Real estate—residential and home equity:
Residential secured for business purpose 1,521
515
1,138
3,174
357,323
425
360,922
—
Residential secured for personal purpose 3,346
—
1,811
5,157
403,921
62
409,140
325
Home equity secured for personal purpose 304
90
1,389
1,783
179,115
—
180,898
—
Loans to individuals 173
94
54
321
32,282
—
32,603
54
Lease financings 723
438
477
1,638
138,871
—
140,509
257
Total $ 10,202
$ 1,994
$ 12,445
$ 24,641
$ 4,042,545
$ 693
$ 4,067,879
$ 636
At December 31, 2018
Commercial, financial and agricultural $ 1,043
$ 270
$ 2,228
$ 3,541
$ 934,144
$ —
$ 937,685
$ —
Real estate—commercial real estate and construction:
Commercial real estate 5,425
1,538
1,599
8,562
1,732,436
206
1,741,204
—
Construction 2,163
106
—
2,269
213,244
—
215,513
—
Real estate—residential and home equity:
Residential secured for business purpose 2,497
777
1,164
4,438
357,932
426
362,796
—
Residential secured for personal purpose 2,334
—
1,586
3,920
384,427
63
388,410
—
Home equity secured for personal purpose 305
96
1,341
1,742
184,509
—
186,251
—
Loans to individuals 207
29
55
291
32,468
—
32,759
55
Lease financings 2,460
411
307
3,178
138,778
—
141,956
137
Total $ 16,434
$ 3,227
$ 8,280
$ 27,941
$ 3,977,938
$ 695
$ 4,006,574
$ 192

Nonperforming Loans and Leases

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


	At March 31, 2019								At December 31, 2018								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	$	2,904	$	270	$	—	$	3,174	$	3,365	$	382	$	—	$	3,747	$	2,150	$	—	$	—	$	2,150	$	3,365	$	382	$	—	$	3,747
Real estate—commercial real estate and construction:
Commercial real estate	18,361		—		—		18,361		18,214		—		—		18,214		17,739		—		516		18,255		18,214		—		—		18,214
Construction	106		—		—		106		106		—		—		106		106		—		230		336		106		—		—		106
Real estate—residential and home equity:
Residential secured for business purpose	1,232		—		—		1,232		1,318		160		—		1,478		1,596		—		434		2,030		1,318		160		—		1,478
Residential secured for personal purpose	1,636		—		325		1,961		1,587		—		—		1,587		2,167		—		—		2,167		1,587		—		—		1,587
Home equity secured for personal purpose	1,493		—		—		1,493		1,448		—		—		1,448		1,289		55		—		1,344		1,448		—		—		1,448
Loans to individuals	—		—		54		54		—		—		55		55		—		—		129		129		—		—		55		55
Lease financings	220		—		257		477		170		—		137		307		100		—		70		170		170		—		137		307
Total	$	25,952	$	270	$	636	$	26,858	$	26,208	$	542	$	192	$	26,942	$	25,147	$	55	$	1,379	$	26,581	$	26,208	$	542	$	192	$	26,942

* Includes nonaccrual troubled debt restructured loans of ~~$3.2~~$2.6 million and $1.3 million at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively.

Credit Quality Indicators

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

The Corporation employs a risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business 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). 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.	Pass—Loans considered satisfactory with no indications of deterioration


2.	Special Mention—Potential weakness that deserves management's close attention


3.	Substandard—Well-defined weakness or weaknesses that jeopardize the liquidation of the debt


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

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		Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At March 31, 2019
At June 30, 2019
Grade:
1. Pass	$	871,541	$	1,528,969	$	216,858	$	300,736	$	2,918,104	$	874,098	$	1,622,980	$	228,421	$	309,658	$	3,035,157
2. Special Mention	16,680		26,608		—		755		44,043		27,036		17,773		1,932		1,705		48,446
3. Substandard	22,272		20,673		106		3,083		46,134		20,048		9,299		106		3,266		32,719
4. Doubtful	—		—		—		—		—		—		—		—		—		—
Total	$	910,493	$	1,576,250	$	216,964	$	304,574	$	3,008,281	$	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	$	882,736	$	1,455,234	$	215,407	$	298,356	$	2,851,733
2. Special Mention	23,287		31,791		—		721		55,799		23,287		31,791		—		721		55,799
3. Substandard	7,143		20,554		106		3,316		31,119		7,143		20,554		106		3,316		31,119
4. Doubtful	—		—		—		—		—		—		—		—		—		—
Total	$	913,166	$	1,507,579	$	215,513	$	302,393	$	2,938,651	$	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 March 31, 2019
Grade:
1. Pass $ 17,145
$ 210,240
$ —
$ 55,598
$ 282,983
2. Special Mention —
—
—
—
—
3. Substandard —
12,715
—
750
13,465
4. Doubtful —
—
—
—
—
Total $ 17,145
$ 222,955
$ —
$ 56,348
$ 296,448
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

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 March 31, 2019
At June 30, 2019
Performing	$	360,486	$	172,143	$	32,408	$	140,032	$	705,069	$	372,578	$	170,172	$	32,216	$	142,117	$	717,083
Nonperforming	1,002		444		54		477		1,977		1,214		310		129		170		1,823
Total	$	361,488	$	172,587	$	32,462	$	140,509	$	707,046	$	373,792	$	170,482	$	32,345	$	142,287	$	718,906
At December 31, 2018
Performing	$	337,762	$	177,139	$	32,562	$	141,649	$	689,112	$	337,762	$	177,139	$	32,562	$	141,649	$	689,112
Nonperforming	689		384		55		307		1,435		689		384		55		307		1,435
Total	$	338,451	$	177,523	$	32,617	$	141,956	$	690,547	$	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 March 31, 2019
Performing $ 46,693
$ 7,262
$ 141
$ —
$ 54,096
Nonperforming 959
1,049
—
—
2,008
Total $ 47,652
$ 8,311
$ 141
$ —
$ 56,104
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

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 six months ended ~~March 31,~~June 30, 2019 and 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 March 31, 2019
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																									$	7,983		$	13,903		$	2,236	$	3,199		$	484		$	1,288		$	271		$	29,364
Charge-offs																									(1,486		)	(74		)	—		(15		)	(136		)	(214		)	N/A			(1,925		)
Recoveries																									101			91			10		12			38			148			N/A			400
Provision																									2,531			1,558			232		321			95			19			4			4,760
Provision for acquired credit impaired loans																									—			—			—		1			—			—			—			1
Ending balance																									$	9,129		$	15,478		$	2,478	$	3,518		$	481		$	1,241		$	275		$	32,600
Six Months Ended June 30, 2018
Reserve for loan and lease losses:
Beginning balance	$	7,983		$	13,903		$	2,236		$	3,199		$	484		$	1,288		$	271		$	29,364		$	6,742		$	9,839		$	1,661	$	1,754		$	373		$	1,132		$	54		$	21,555
Charge-offs	(468		)	(41		)	—			(11		)	(85		)	(104		)	N/A			(709		)	(13,649		)	(40		)	—		—			(171		)	(305		)	N/A			(14,165		)
Recoveries	82			91			4			5			22			58			N/A			262			249			73			258		65			46			109			N/A			800
Provision (recovery of provision)	1,353			1,028			62			185			48			33			(25		)	2,684			13,916			2,455			85		674			199			135			(3		)	17,461
Provision for acquired credit impaired loans	—			—			—			1			—			—			—			1			—			—			—		1			—			—			—			1
Ending balance	$	8,950		$	14,981		$	2,302		$	3,379		$	469		$	1,275		$	246		$	31,602		$	7,258		$	12,327		$	2,004	$	2,494		$	447		$	1,071		$	51		$	25,652
Three Months Ended March 31, 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	(601		)	(40		)	—			—			(92		)	(136		)	N/A			(869		)
Recoveries	226			73			251			57			30			34			N/A			671
Provision (recovery of provision)	575			1,306			(41		)	96			61			49			6			2,052
Provision for acquired credit impaired loans	—			—			—			1			—			—			—			1
Ending balance	$	6,942		$	11,178		$	1,871		$	1,908		$	372		$	1,079		$	60		$	23,410

N/A – Not applicable

Charge-offs for the three and six months ended June 30, 2018 included a charge-off of $12.7 million for a commercial loan relationship related to fraudulent activities perpetrated by employees of 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 represented the entire principal amount owed to the Bank.

The following presents, by portfolio segment, 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 ~~March 31,~~June 30, 2019 and 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 March 31, 2019
At June 30, 2019
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	243	$	925	$	—	$	335	$	—	$	—	N/A		$	1,503	$	99	$	1,840	$	165	$	335	$	—	$	—	N/A		$	2,439
Ending balance: collectively evaluated for impairment	8,707		14,049		2,302		3,044		469		1,275		246		30,092		9,030		13,630		2,313		3,183		481		1,241		275		30,153
Ending balance: acquired non-credit impaired loans evaluated for impairment	—		7		—		—		—		—		—		7		—		8		—		—		—		—		—		8
Total ending balance	$	8,950	$	14,981	$	2,302	$	3,379	$	469	$	1,275	$	246	$	31,602	$	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	$	3,174	$	18,467	$	1,232	$	3,129	$	—	$	—			$	26,002
Ending balance: individually evaluated for impairment (1)																	$	2,150	$	17,845	$	1,596	$	3,511	$	—	$	—			$	25,102
Ending balance: collectively evaluated for impairment	907,319		1,772,999		303,342		530,946		32,462		140,509				3,687,577		919,032		1,873,296		313,291		542,751		32,345		142,287				3,823,002
Loans measured at fair value	—		1,748		—		—		—		—				1,748		—		1,725		—		—		—		—				1,725
Acquired non-credit impaired loans	17,145		222,749		55,923		55,901		141		—				351,859
Acquired non-impaired loans																	15,967		199,534		50,451		51,414		140		—				317,506
Acquired credit impaired loans	—		206		425		62		—		—				693		—		206		302		61		—		—				569
Total ending balance	$	927,638	$	2,016,169	$	360,922	$	590,038	$	32,603	$	140,509			$	4,067,879	$	937,149	$	2,092,606	$	365,640	$	597,737	$	32,485	$	142,287			$	4,167,904
At March 31, 2018
At June 30, 2018
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	34	$	684	$	14	$	—	$	—	$	—	N/A		$	732	$	646	$	866	$	12	$	—	$	—	$	—	N/A		$	1,524
Ending balance: collectively evaluated for impairment	6,776		10,378		1,815		1,908		372		1,079		60		22,388		6,612		11,420		1,951		2,494		447		1,071		51		24,046
Ending balance: acquired non-credit impaired loans evaluated for impairment	132		116		42		—		—		—		—		290		—		41		41		—		—		—		—		82
Total ending balance	$	6,942	$	11,178	$	1,871	$	1,908	$	372	$	1,079	$	60	$	23,410	$	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	$	6,560	$	30,573	$	2,173	$	1,284	$	—	$	1,250			$	41,840
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	849,690		1,441,709		249,015		449,827		28,112		128,490				3,146,843		875,390		1,569,475		265,283		470,994		31,048		131,872				3,344,062
Loans measured at fair value	—		1,895		—		—		—		—				1,895		—		1,847		—		—		—		—				1,847
Acquired non-credit impaired loans	51,310		295,420		81,587		69,325		143		—				497,785
Acquired non-impaired loans																	44,265		259,998		70,837		62,318		143		—				437,561
Acquired credit impaired loans	378		356		586		205		—		—				1,525		267		206		460		65		—		—				998
Total ending balance	$	907,938	$	1,769,953	$	333,361	$	520,641	$	28,255	$	129,740			$	3,689,888	$	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 does not provide a reserve for loan loss for acquired loans 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.

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 ~~March 31,~~June 30, 2019 and December 31, 2018. The impaired loans exclude acquired credit impaired loans.


	At March 31, 2019						At December 31, 2018						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	$	2,581	$	3,195			$	2,776	$	3,361			$	1,980	$	2,590			$	2,776	$	3,361
Real estate—commercial real estate	5,600		6,569				6,578		7,516				5,158		6,163				6,578		7,516
Real estate—construction	106		111				106		111				106		111				106		111
Real estate—residential secured for business purpose	1,232		1,417				1,478		1,660				829		1,006				1,478		1,660
Real estate—residential secured for personal purpose	911		975				863		911				1,443		1,516				863		911
Real estate—home equity secured for personal purpose	1,418		1,469				1,373		1,404				1,269		1,329				1,373		1,404
Total impaired loans with no related reserve recorded	$	11,848	$	13,736			$	13,174	$	14,963			$	10,785	$	12,715			$	13,174	$	14,963
Impaired loans with a reserve recorded:
Commercial, financial and agricultural	$	593	$	939	$	243	$	971	$	1,024	$	413	$	170	$	170	$	99	$	971	$	1,024	$	413
Real estate—commercial real estate	12,761		13,423		925		11,637		12,162		675		12,581		13,336		1,840		11,637		12,162		675
Real estate—residential secured for business purpose													767		769		165		—		—		—
Real estate—residential secured for personal purpose	725		725		260		724		724		252		724		724		260		724		724		252
Real estate—home equity secured for personal purpose	75		75		75		75		75		75		75		75		75		75		75		75
Total impaired loans with a reserve recorded	$	14,154	$	15,162	$	1,503	$	13,407	$	13,985	$	1,415	$	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 $ 3,174
$ 4,134
$ 243
$ 3,747
$ 4,385
$ 413
Real estate—commercial real estate 18,361
19,992
925
18,215
19,678
675
Real estate—construction 106
111
—
106
111
—
Real estate—residential secured for business purpose 1,232
1,417
—
1,478
1,660
—
Real estate—residential secured for personal purpose 1,636
1,700
260
1,587
1,635
252
Real estate—home equity secured for personal purpose 1,493
1,544
75
1,448
1,479
75
Total impaired loans $ 26,002
$ 28,898
$ 1,503
$ 26,581
$ 28,948
$ 1,415

Impaired loans include nonaccrual loans and accruing troubled debt restructured 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.

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 March 31, 2019						Three Months Ended March 31, 2018						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	$	3,650	$	5	$	54	$	7,703	$	40	$	77	$	2,509	$	12	$	49	$	6,394	$	32	$	134
Real estate—commercial real estate	18,245		3		254		19,916		172		287		18,058		—		242		22,914		18		265
Real estate—construction	106		—		1		183		—		2		106		—		2		56		—		3
Real estate—residential secured for business purpose	1,277		—		20		2,217		5		24		1,557		—		36		1,966		5		23
Real estate—residential secured for personal purpose	1,619		—		25		544		1		11		1,937		—		29		889		2		33
Real estate—home equity secured for personal purpose	1,426		—		23		549		—		8		1,358		1		20		1,033		—		31
Total	$	26,323	$	8	$	377	$	31,112	$	218	$	409	$	25,525	$	13	$	378	$	33,252	$	57	$	489


*	Includes interest income recognized on a cash basis for nonaccrual loans of $3$12 thousandand$62 thousand for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of $5$1 thousand and ~~$212~~$55 thousand for the three months ended ~~March 31,~~June 30, 2019 and 2018, 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



*											Includes interest income recognized on a cash basis for nonaccrual loans of $15 thousandand$8 thousand for the six months ended June 30, 2019 and 2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of $6 thousand and $267 thousand for the six months ended June 30, 2019 and 2018, respectively.

Impaired Leases

The Corporation had no impaired leases at ~~March 31,~~June 30, 2019 ~~and~~or December 31, 2018.

Troubled Debt Restructured Loans

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


	Three Months Ended March 31, 2019							Three Months Ended March 31, 2018							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		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:
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	$	—



	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	$	—

* 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 six months ended ~~March 31,~~June 30, 2019 and 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

Amortization Period Extension Total Concessions
Granted
(Dollars in thousands) No. of
Loans Amount No. of
Loans Amount
Three Months Ended March 31, 2019
Accruing Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural 2
$ 956
2
$ 956
Real estate—commercial real estate 1
1,313
1
1,313
Total 3
$ 2,269
3
$ 2,269
Three Months Ended March 31, 2018
Accruing Troubled Debt Restructured Loans:
Total —
$ —
—
$ —
Nonaccrual Troubled Debt Restructured Loans:
Total —
$ —
—
$ —

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

The Corporation held no foreclosed residential real estate property at ~~March 31,~~June 30, 2019 and December 31, 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 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 ~~March 31,~~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 by 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 March 31, 2019 At December 31, 2018
2019 (excluding the three months ended March 31, 2019) $ 42,206
$ 55,201
2020 46,128
43,355
2021 32,719
29,678
2022 20,447
17,687
2023 8,895
6,674
Thereafter 2,647
1,975
Total future minimum lease payments receivable 153,042
154,570
Plus: Unguaranteed residual 672
600
Plus: Initial direct costs 1,877
1,904
Less: Imputed interest (15,082 ) (15,118 )
Lease financings $ 140,509
$ 141,956

Included within the "2019 (excluding the ~~three~~six months ended ~~March 31,~~June 30, 2019)" line item above as of ~~March 31,~~June 30, 2019 and December 31, 2018 are $7$20 thousand and $0 thousand, respectively, of receivables related to an operating lease contract.

For the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, the Corporation recognized ~~$2.0~~$4.0 million and ~~$1.8~~$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 ~~three~~six months ended ~~March 31,~~June 30, 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, 2018 $ 138,476
$ 15,434
$ 18,649
$ 172,559
Addition to goodwill from acquisitions —
—
—
—
Balance at March 31, 2019 $ 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 March 31, 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
3,376
3,412
6,788
3,143
3,645
Customer related intangibles 8,819
7,426
1,393
12,381
10,804
1,577
Servicing rights 17,639
10,914
6,725
17,314
10,546
6,768
Total amortized intangible assets $ 33,246
$ 21,716
$ 11,530
$ 37,193
$ 25,203
$ 11,990

The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of 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 2019 $ 1,148
2020 1,200
2021 923
2022 666
2023 409
Thereafter 459

The Corporation has originated mortgage servicing rights, which are included in other intangible assets on the consolidated balance 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 ~~$10.3~~$8.8 million at ~~March 31,~~June 30, 2019 and $11.5 million at December 31, 2018. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at ~~March 31,~~June 30, 2019 and December 31, 2018. The Corporation also records servicing rights on small business administration (SBA) loans. The value of these servicing rights was ~~$62~~$135 thousand and $42 thousand at ~~March 31,~~June 30, 2019 and December 31, 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 March 31,
(Dollars in thousands) 2019 2018
Beginning of period $ 6,768
$ 6,573
Servicing rights capitalized 266
337
Amortization of servicing rights (309 ) (305 )
End of period $ 6,725
$ 6,605
Residential mortgage and SBA loans serviced for others $ 1,037,948
$ 1,012,677
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 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 2019 $ 1,017
2020 883
2021 759
2022 650
2023 555
Thereafter 2,861

Note 6. Deposits

Deposits and their respective weighted average interest rate at ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 2019 At December 31, 2018
Weighted Average Interest Rate Amount Weighted Average Interest Rate Amount
(Dollars in thousands)
Noninterest-bearing deposits — % $ 1,103,674
— % $ 1,055,919
Demand deposits 1.17
1,441,540
1.01
1,377,171
Savings deposits 0.45
819,255
0.33
782,766
Time deposits 1.86
638,684
1.76
670,077
Total 0.81 % $ 4,003,153
0.73 % $ 3,885,933

The aggregate amount of time deposits in denominations of $100 thousand or more was ~~$252.4~~$339.3 million at ~~March 31,~~June 30, 2019 and $283.4 million at December 31, 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 ~~$102.1~~$177.2 million at ~~March 31,~~June 30, 2019 and $129.5 million at December 31, 2018.

At ~~March 31,~~June 30, 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 2019 $ 285,656
2020 167,034
2021 66,896
2022 37,394
2023 72,105
Thereafter 9,599
Total $ 638,684

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 March 31, 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 55,000
2.55
60,000
2.60
Customer repurchase agreements 18,185
0.05
21,468
0.05

Long-term debt:
FHLB advances $ 125,000
1.92 % $ 125,000
1.92 %
Security repurchase agreements 20,263
2.83
20,330
2.71

Subordinated notes $ 94,635
5.33 % $ 94,574
5.33 %

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (FHLB) with a maximum borrowing capacity of approximately $1.7 billion. Advances from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At ~~March 31,~~June 30, 2019 and December 31, 2018, the Bank had outstanding short-term letters of credit with the FHLB totaling ~~$336.9~~$408.3 million and $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 that totaled $504.0 million and $367.0 million at ~~March 31,~~June 30, 2019 and December 31, ~~2018.~~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 ~~$104.9~~$104.6 million and $69.5 million at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. At ~~March 31,~~June 30, 2019 and December 31, 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 ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 2019 Weighted Average Rate
Remainder of 2019 $ 10,000
1.35 %
2020 40,000
1.70
2021 55,000
1.94
2022 10,000
2.09
2023 10,000
3.02
Thereafter —
—
Total $ 125,000
1.92 %

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 March 31, 2019 Weighted Average Rate
Remainder of 2019 $ 10,076
2.83 %
2020 10,187
2.82
2021 —
—
2022 —
—
2023 —
—
Thereafter —
—
Total $ 20,263
2.83 %

Long-term debt under security repurchase agreements totaling ~~$20.3~~$20.2 million are variable based on the one-month LIBOR rate plus a spread.

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 plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new 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 the 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants. All current participants are now retired.

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


	Three Months Ended March 31,										Three Months Ended June 30,
	2019			2018			2019		2018		2019			2018			2019		2018
(Dollars in thousands)	Retirement Plans						Other Post Retirement Benefits				Retirement Plans						Other Post Retirement Benefits
Service cost	$	109		$	140		$	17	$	22	$	110		$	140		$	16	$	22
Interest cost	476			441			23		23		476			439			24		23
Expected return on plan assets	(771		)	(796		)	—		—		(770		)	(795		)	—		—
Amortization of net actuarial loss	294			280			—		1		294			281			—		1
Accretion of prior service cost	(45		)	(71		)	—		—		(46		)	(71		)	—		—
Net periodic benefit cost (income)	$	63		$	(6	)	$	40	$	46	$	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

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 previously disclosed in its financial statements for the year ended December 31, 2018 that it expected to make contributions of $157 thousand to its non-qualified retirement plans and $89 thousand to its other postretirement benefit plans in 2019. During the ~~three~~six months ended ~~March 31,~~June 30, 2019, the Corporation contributed ~~$40~~$80 thousand to its non-qualified retirement plans and ~~$26~~$52 thousand to its other postretirement plans. During the ~~three~~six months ended ~~March 31,~~June 30, 2019, ~~$647 thousand~~$1.3 million was paid to participants from the retirement plans and ~~$26~~$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. 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 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 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 awards.

The following is a summary of the Corporation's stock option activity and related information for the ~~three~~six months ended ~~March 31,~~June 30, 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 March 31, 2019
Outstanding at December 31, 2018 597,405
$ 23.98

Expired (7,756 ) 22.99

Forfeited (6,500 ) 25.53

Exercised (30,500 ) 17.06

Outstanding at March 31, 2019 552,649
24.36
7.2 $ 1,321
Exercisable at March 31, 2019 384,220
22.65
6.6 1,312

The following is a summary of nonvested stock options at ~~March 31,~~June 30, 2019 including changes during the ~~three~~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, 2018 344,230
$ 6.48
Vested (169,301 ) 6.44
Forfeited (6,500 ) 6.40
Nonvested stock options at March 31, 2019 168,429
6.52

The following aggregated assumptions were used to estimate the fair value of options granted during the ~~three~~six months ended ~~March 31,~~June 30, 2018. The Corporation did not issue stock options during the ~~three~~six months ended ~~March 31,~~June 30, 2019.



	~~Three~~Six Months Ended ~~March 31,~~
	June 30, 2018
	~~Actual~~
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

The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at ~~March 31,~~June 30, 2019 including changes during the ~~three~~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 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 March 31, 2019 220,994
26.46

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

Three Months Ended March 31,
(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

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 ~~March 31,~~June 30, 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 $ 965
1.6
Restricted stock awards and units 4,148
2.4
$ 5,113
2.3

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

Three Months Ended March 31,
(Dollars in thousands) 2019 2018
Stock-based compensation expense:
Stock options $ 216
$ 228
Restricted stock awards and units 361
619
Employee stock purchase plan 17
15
Total $ 594
$ 862
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options $ 165
$ 243

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, 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) 4,044
(145 ) 196
4,095
Balance, March 31, 2019 $ (7,177 ) $ 19
$ (17,080 ) $ (24,238 )

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 (5,015 ) 183
166
(4,666 )
Balance, March 31, 2018 $ (10,477 ) $ 194
$ (16,508 ) $ (26,791 )

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 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 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 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 ~~March 31,~~June 30, 2019, approximately ~~$81~~$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 ~~March 31,~~June 30, 2019. At ~~March 31,~~June 30, 2019, the notional amount of the interest rate swap was ~~$16.9~~$16.7 million, with a ~~positive~~negative fair value of ~~$24~~$254 thousand.

The Corporation has an interest rate swap classified as a fair value hedge with a current notional amount of $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. 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 ~~operations.~~income. Prior to January 1, 2019, the difference between changes in the fair values of the interest rate swap agreement and the hedged loan represented hedge ineffectiveness and was 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 ~~$390~~$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 ~~March 31,~~June 30, 2019, the Corporation has ~~twenty-two~~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 ~~$150.1~~$186.7 million and remaining maturities ranging from less than one year to 10 years. At ~~March 31,~~June 30, 2019, the fair value of the swaps to the customers was a net liability of ~~$2.8~~$8.2 million and ~~$87.7~~$119.7 million of notional amount of the swaps were in paying positions while ~~$62.4~~$67.0 million were in receiving positions to the third-party financial institution. At ~~March 31,~~June 30, 2019, the fair value of the Corporation's interest rate swap credit derivatives was a liability of ~~$79~~$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 ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 2019
Interest rate swap - cash flow hedge $ 16,881
Other assets $ 24
$ —
Interest rate swap - fair value hedge 1,335
—
Other liabilities 4
Total $ 18,216
$ 24
$ 4
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
$ —

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 2019
Interest rate swap $ 390
$ —
Other liabilities $ 19
Credit derivatives 150,118
—
Other liabilities 79
Interest rate locks with customers 21,904
Other assets 455
—
Forward loan sale commitments 22,814
—
Other liabilities 121
Total $ 195,226
$ 455
$ 219
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

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
March 31,
(Dollars in thousands) 2019 2018
Interest rate swap—cash flow hedge—net interest payments Interest expense $ (16 ) $ 20
Interest rate swap—fair value hedge—effectiveness Interest income 1
—
Total net gain (loss) $ 17
$ (20 )

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 March 31,						Statement of Income Classification	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	Statement of Income Classification	2019			2018			Statement of Income Classification	2019			2018			2019			2018
Credit derivatives	Other noninterest income	$	264		$	4		Other noninterest income	$	318		$	34		$	582		$	38
Interest rate locks with customers	Net loss on mortgage banking activities	(35		)	(132		)	Net gain on mortgage banking activities	343			237			308			105
Forward loan sale commitments	Net gain (loss) on mortgage banking activities	29			(49		)	Net loss on mortgage banking activities	(76		)	(104		)	(47		)	(153		)
Total net gain (loss)		$	258		$	(177	)		$	585		$	167		$	843		$	(10	)

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at ~~March 31,~~June 30, 2019 and December 31, 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 Income At March 31, 2019 At December 31, 2018
Interest rate swap—cash flow hedge Fair value, net of taxes $ 19
$ 80
Total $ 19
$ 80

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 ~~March 31,~~June 30, 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 ~~$28~~$45 thousand at ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2019 and December 31, 2018, classified using the fair value hierarchy:


	At March 31, 2019								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	$	—	$	10,323	$	—	$	10,323	$	—	$	10,316	$	—	$	10,316
State and political subdivisions	—		61,974		—		61,974		—		44,172		—		44,172
Residential mortgage-backed securities	—		147,765		—		147,765		—		141,815		—		141,815
Collateralized mortgage obligations	—		2,786		—		2,786		—		2,677		—		2,677
Corporate bonds	—		66,161		26,639		92,800		—		67,117		26,925		94,042
Total available-for-sale securities	—		289,009		26,639		315,648		—		266,097		26,925		293,022
Equity securities:
Equity securities - financial services industry	927		—		—		927		943		—		—		943
Money market mutual funds	1,838		—		—		1,838		1,922		—		—		1,922
Total equity securities	2,765		—		—		2,765		2,865		—		—		2,865
Loans*	—		—		1,748		1,748		—		—		1,725		1,725
Interest rate swaps*	—		24		—		24
Interest rate locks with customers*	—		455		—		455		—		798		—		798
Total assets	$	2,765	$	289,488	$	28,387	$	320,640	$	2,865	$	266,895	$	28,650	$	298,410
Liabilities:
Contingent consideration liability	$	—	$	—	$	235	$	235	$	—	$	—	$	211	$	211
Interest rate swaps*	—		23		—		23		—		293		—		293
Credit derivatives*	—		—		79		79		—		—		160		160
Forward loan sale commitments*	—		121		—		121		—		197		—		197
Total liabilities	$	—	$	144	$	314	$	458	$	—	$	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, 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

* 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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 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

Three Months Ended March 31, 2019
(Dollars in thousands) Balance at
December 31,
2018 Purchases/additions Sales Payments received Premium amortization, net Increase (decrease) in value Balance at March 31, 2019
Corporate bonds $ 25,729
$ —
$ —
$ —
$ —
$ 910
$ 26,639
Loans 1,779
—
—
(39 ) —
8
1,748
Credit derivatives (72 ) (271 ) —
—
—
264
(79 )
Net total $ 27,436
$ (271 ) $ —
$ (39 ) $ —
$ 1,182
$ 28,308



	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

Three Months Ended March 31, 2018
(Dollars in thousands) Balance at
December 31,
2017 Purchases/additions Sales Payments received Premium amortization, net (Decrease) increase in value Balance at March 31, 2018
Corporate bonds $ 27,986
$ —
$ —
$ —
$ —
$ (1,064 ) $ 26,922
Loans 1,958
—
—
(37 ) —
(26 ) 1,895
Credit derivatives (36 ) —
—
—
—
5
(31 )
Net total $ 29,908
$ —
$ —
$ (37 ) $ —
$ (1,085 ) $ 28,786

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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018:


	Three Months Ended March 31, 2019										Six Months Ended June 30, 2019
(Dollars in thousands)	Balance at December 31, 2018		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at March 31, 2019		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	$	259	$	—	$	33	$	9	$	235	$	259	$	—	$	65	$	17	$	211
Total contingent consideration liability	$	259	$	—	$	33	$	9	$	235	$	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

Three Months Ended March 31, 2018
(Dollars in thousands) Balance at
December 31,
2017 Contingent
Consideration
from New
Acquisition Payment of
Contingent
Consideration Adjustment
of Contingent
Consideration Balance at March 31, 2018
Girard Partners $ 339
$ —
$ 34
$ 17
$ 322
Total contingent consideration liability $ 339
$ —
$ 34
$ 17
$ 322

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 ~~March 31,~~June 30, 2019 and December 31, 2018:


	At March 31, 2019								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	$	—	$	—	$	24,499	$	24,499	$	—	$	—	$	22,663	$	22,663
Other real estate owned	—		—		540		540		—		—		540		540
Total	$	—	$	—	$	25,039	$	25,039	$	—	$	—	$	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, 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

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 ~~March 31,~~June 30, 2019 and December 31, 2018. The disclosed fair values are classified using the fair value hierarchy.


	At March 31, 2019												At June 30, 2019
(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	$	66,141	$	—		$	—	$	66,141		$	66,141	$	84,567	$	—		$	—	$	84,567		$	84,567
Held-to-maturity securities	—		148,960			—		148,960			148,470		—		175,296			—		175,296			172,946
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA			NA		NA			32,699		NA		NA			NA		NA			32,755
Loans held for sale	—		948			—		948			921		—		1,531			—		1,531			1,498
Net loans and leases held for investment	—		—			4,020,771		4,020,771			4,010,030		—		—			4,121,087		4,121,087			4,110,916
Servicing rights	—		—			10,362		10,362			6,725		—		—			8,911		8,911			6,599
Total assets	$	66,141	$	149,908		$	4,031,133	$	4,247,182		$	4,264,986	$	84,567	$	176,827		$	4,129,998	$	4,391,392		$	4,409,281
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	3,364,469	$	—		$	—	$	3,364,469		$	3,364,469	$	3,412,673	$	—		$	—	$	3,412,673		$	3,412,673
Time deposits	—		635,255			—		635,255			638,684		—		712,030			—		712,030			709,437
Total deposits	3,364,469		635,255			—		3,999,724			4,003,153		3,412,673		712,030			—		4,124,703			4,122,110
Short-term borrowings	—		73,185			—		73,185			73,185		—		39,350			—		39,350			39,350
Long-term debt	—		144,717			—		144,717			145,263		—		171,177			—		171,177			170,195
Subordinated notes	—		96,394			—		96,394			94,635		—		96,572			—		96,572			94,696
Total liabilities	$	3,364,469	$	949,551		$	—	$	4,314,020		$	4,316,236	$	3,412,673	$	1,019,129		$	—	$	4,431,802		$	4,426,351
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(7,988	)	$	—	$	(7,988	)	$	—	$	—	$	(8,066	)	$	—	$	(8,066	)	$	—



	At December 31, 2018
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	109,420	$	—		$	—	$	109,420		$	109,420
Held-to-maturity securities	—		141,575			—		141,575			142,634
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA			NA		NA			28,337
Loans held for sale	—		1,798			—		1,798			1,754
Net loans and leases held for investment	—		—			3,924,329		3,924,329			3,950,265
Servicing rights	—		—			11,496		11,496			6,768
Total assets	$	109,420	$	143,373		$	3,935,825	$	4,188,618		$	4,239,178
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	3,215,856	$	—		$	—	$	3,215,856		$	3,215,856
Time deposits	—		664,738			—		664,738			670,077
Total deposits	3,215,856		664,738			—		3,880,594			3,885,933
Short-term borrowings	—		189,768			—		189,768			189,768
Long-term debt	—		144,021			—		144,021			145,330
Subordinated notes	—		95,113			—		95,113			94,574
Total liabilities	$	3,215,856	$	1,093,640		$	—	$	4,309,496		$	4,315,605
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(2,516	)	$	—	$	(2,516	)	$	—

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 ~~March 31,~~June 30, 2019 and December 31, 2018.

Loans and leases held for investment: The 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.Loans and leases are classified within Level 3 in the fair value 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 ~~March 31,~~June 30, 2019, impaired loans held for investment had a carrying amount of ~~$24.5~~$25.1 million with a valuation allowance of ~~$1.5~~$2.4 million. At December 31, 2018, impaired loans held for investment had a carrying amount of $26.6 million with a valuation allowance of ~~$$1.4~~$1.4 million. The Corporation had no impaired leases at ~~March 31,~~June 30, 2019 and December 31, 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 ~~March 31,~~June 30, 2019, ~~and December 31, 2018,~~ servicing rights had a carrying amount of $6.6 million with a valuation allowance of $21 thousand. At December 31, 2018, servicing rights carrying amount of $6.7 million ~~and $6.7 million, respectively,~~ 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 ~~three~~six months ended ~~March 31,~~June 30, 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 ~~three~~six months ended ~~March 31,~~June 30, 2019, one property was sold with total proceeds of $599 thousand. At ~~March 31,~~June 30, 2019 and December 31, 2018, OREO had a carrying amount of $540 thousand and $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 ~~March 31,~~June 30, 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 individuals, businesses, municipalities and 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 March 31, 2019		At December 31, 2018		At March 31, 2018		At June 30, 2019		At December 31, 2018		At June 30, 2018
Banking	$	4,942,539	$	4,895,732	$	4,519,423	$	5,059,733	$	4,895,732	$	4,656,201
Wealth Management	40,910		39,090		36,848		42,024		39,090		37,227
Insurance	31,837		30,117		28,651		32,256		30,117		29,295
Other	20,241		19,408		29,037		20,285		19,408		26,458
Consolidated assets	$	5,035,527	$	4,984,347	$	4,613,959	$	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 six months ended ~~March 31,~~June 30, 2019 and 2018.


	Three Months Ended												Three Months Ended
	March 31, 2019												June 30, 2019
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated		Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	52,346		$	10	$	—	$	8		$	52,364	$	54,041		$	11	$	—	$	8		$	54,060
Interest expense	9,580			—		—		1,261			10,841		10,164			—		—		1,261			11,425
Net interest income	42,766			10		—		(1,253		)	41,523		43,877			11		—		(1,253		)	42,635
Provision for loan and lease losses	2,685			—		—		—			2,685		2,076			—		—		—			2,076
Noninterest income	4,971			5,720		5,353		253			16,297		6,014			6,155		4,145		42			16,356
Intangible expenses	233			105		88		—			426		233			105		79		—			417
Other noninterest expense	27,779			3,794		3,126		432			35,131		28,098			3,788		3,072		1,403			36,361
Intersegment (revenue) expense*	(299		)	166		133		—			—		(295		)	161		134		—			—
Income (expense) before income taxes	17,339			1,665		2,006		(1,432		)	19,578		19,779			2,112		860		(2,614		)	20,137
Income tax (benefit) expense	3,120			314		193		(128		)	3,499
Income tax expense (benefit)													3,660			409		70		(470		)	3,669
Net income (loss)	$	14,219		$	1,351	$	1,813	$	(1,304	)	$	16,079	$	16,119		$	1,703	$	790	$	(2,144	)	$	16,468
Capital expenditures	$	765		$	39	$	25	$	21		$	850	$	371		$	35	$	39	$	137		$	582


	Three Months Ended												Three Months Ended
	March 31, 2018												June 30, 2018
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated		Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	43,522		$	5	$	—	$	7		$	43,534	$	46,444		$	8	$	—	$	8		$	46,460
Interest expense	5,001			—		—		1,261			6,262		6,209			—		—		1,261			7,470
Net interest income	38,521			5		—		(1,254		)	37,272		40,235			8		—		(1,253		)	38,990
Provision for loan and lease losses	2,053			—		—		—			2,053		15,409			—		—		—			15,409
Noninterest income	4,789			5,740		5,086		(33		)	15,582		5,461			5,862		3,904		87			15,314
Intangible expenses	329			142		141		—			612		329			137		128		—			594
Restructuring charges	571			—		—		—			571
Other noninterest expense	27,661			3,658		3,245		(622		)	33,942		26,723			3,628		3,093		309			33,753
Intersegment (revenue) expense*	(291		)	153		138		—			—		(295		)	156		139		—			—
Income (expense) before income taxes	12,987			1,792		1,562		(665		)	15,676		3,530			1,949		544		(1,475		)	4,548
Income tax expense (benefit)	1,998			545		456		(173		)	2,826
Income tax (benefit) expense													(162		)	597		163		(407		)	191
Net income (loss)	$	10,989		$	1,247	$	1,106	$	(492	)	$	12,850	$	3,692		$	1,352	$	381	$	(1,068	)	$	4,357
Capital expenditures	$	970		$	49	$	7	$	55		$	1,081	$	820		$	40	$	2	$	10		$	872



	Six Months Ended
	June 30, 2019
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	106,387		$	21	$	—	$	16		$	106,424
Interest expense	19,744			—		—		2,522			22,266
Net interest income	86,643			21		—		(2,506		)	84,158
Provision for loan and lease losses	4,761			—		—		—			4,761
Noninterest income	10,985			11,875		9,498		295			32,653
Intangible expenses	466			210		167		—			843
Other noninterest expense	55,877			7,582		6,198		1,835			71,492
Intersegment (revenue) expense*	(594		)	327		267		—			—
Income (expense) before income taxes	37,118			3,777		2,866		(4,046		)	39,715
Income tax expense (benefit)	6,780			723		263		(598		)	7,168
Net income (loss)	$	30,338		$	3,054	$	2,603	$	(3,448	)	$	32,547
Capital expenditures	$	1,136		$	74	$	64	$	158		$	1,432



	Six Months Ended
	June 30, 2018
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	89,966		$	13	$	—	$	15		$	89,994
Interest expense	11,210			—		—		2,522			13,732
Net interest income	78,756			13		—		(2,507		)	76,262
Provision for loan and lease losses	17,462			—		—		—			17,462
Noninterest income	10,250			11,602		8,990		54			30,896
Intangible expenses	658			279		269		—			1,206
Restructuring charges	571			—		—		—			571
Other noninterest expense	54,384			7,286		6,338		(313		)	67,695
Intersegment (revenue) expense*	(586		)	309		277		—			—
Income (expense) before income taxes	16,517			3,741		2,106		(2,140		)	20,224
Income tax expense (benefit)	1,836			1,142		619		(580		)	3,017
Net income (loss)	$	14,681		$	2,599	$	1,487	$	(1,560	)	$	17,207
Capital expenditures	$	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. Leases

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 through a cumulative-effect adjustment to retained earnings at January 1, 2019. 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 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 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 terminate the lease when it is reasonably certain that the Corporation will exercise that option and begins when the Corporation has control and possession of the leased property, which may be before rental payments are due under the lease. Right-of use assets and operating lease liabilities are recognized based on the present value of lease payments, discounted using the Corporation’s incremental

borrowing rate, over the lease term at the commencement date. The Corporation determines its incremental borrowing rate using publicly available information available for debt issuers with similar credit ratings as the Bank, as the majority of the Corporation’s leases are related to properties of the 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 Corporation's leases, which generally have escalating rental payments over the term of the lease, is recognized on a 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 ~~March 31,~~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		%

Three Months Ended March 31,
(Dollars in thousands) 2019
Lease cost $ 947
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from leases 873

At March 31, 2019
Weighted-average remaining lease term in years 15.4
Weighted-average discount rate 4.23 %

At ~~March 31,~~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

Maturity of Lease Liabilities (Dollars in thousands) Amount
Remainder of 2019 $ 2,663
2020 3,632
2021 3,688
2022 3,660
2023 3,610
Thereafter 37,389
Total lease payments 54,642
Less: imputed interest (15,540 )
Present value of lease liabilities $ 39,102

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

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. 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 composition and 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 (the Corporation) Annual Report on Form 10-K for the year ended December 31, 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 as ~~areas with~~ critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation’s 2018 Annual Report on Form 10-K.

General

The Corporation is a Pennsylvania corporation organized in 1973 and registered as a bank holding company 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 consolidated financial statements include the accounts of the Corporation and the Bank.

Through its wholly-owned subsidiaries, the Bank provides a variety of financial services for individuals, businesses, municipalities and non-profit organizations. Effective January 1, 2019, the Bank's wealth management segment was re-branded under the Girard name with associated name changes of 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.

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 and services. The Corporation operates in attractive 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 March 31,						Change				Three Months Ended June 30,						Change			Six Months Ended June 30,						Change
(Dollars in thousands, except per share data)	2019			2018			Amount		Percent		2019			2018			Amount		Percent	2019			2018			Amount		Percent
Net income	$	16,079		$	12,850		$	3,229	25.1	%	$	16,468		$	4,357		$	12,111	N/M	$	32,547		$	17,207		$	15,340	89.1	%
Net income per share:
Basic	$	0.55		$	0.44		$	0.11	25.0		$	0.56		$	0.15		$	0.41	N/M	$	1.11		$	0.59		$	0.52	88.1
Diluted	0.55			0.44			0.11		25.0		0.56			0.15			0.41		N/M	1.11			0.58			0.53		91.4
Return on average assets	1.30		%	1.14		%	16 BP		14.0		1.28		%	0.37		%	91 BP		N/M	1.29		%	0.75		%	54 BP		72.0
Return on average equity	10.32			8.60			172 BP		20.0		10.23			2.86			737 BP		N/M	10.28			5.70			458 BP		80.4

The Corporation reported net income of ~~$16.1~~$16.5 million, or ~~$0.55~~$0.56 diluted earnings per share, for the three months ended ~~March 31,~~June 30, 2019, compared to net income of ~~$12.9~~$4.4 million, or ~~$0.44~~$0.15 diluted earnings per share, for the three months ended ~~March 31,~~June 30, 2018. Net income for the six months ended June 30, 2019 was $32.5 million, or $1.11 diluted earnings per share, compared to net income of $17.2 million, or $0.58 diluted earnings per share, for the six months ended June 30, 2018.

The ~~first quarter~~financial results for the three and six months ended 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), which represented $0.34 diluted earnings per share in each period, related to fraudulent activities by employees of a borrower. In addition, the three and six months ended June 30, 2018 included a tax-free bank owned life insurance (BOLI) death benefit of $446 thousand, which represented $0.02 diluted earnings per share for each period. The six months ended June 30, 2018 included restructuring costs related to financial center closures of $451 thousand, net of tax, orrecognized in the first quarter of 2018, which represented $0.02 of diluted earnings per share. ~~There were no restructuring costs during the quarter ended March 31, 2019.~~

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, interest expense, the tax-equivalent yields earned on average assets, the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the three and six months ended ~~March 31,~~June 30, 2019 and 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- 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.

~~Three~~six months ended ~~March 31,~~June 30, 2019 versus 2018

Net interest income on a tax-equivalent basis for the three months ended ~~March 31,~~June 30, 2019 was ~~$42.2~~$43.3 million, an increase of ~~$4.2~~$3.6 million, or ~~11.2%~~9.2%, compared to the three months ended ~~March 31,~~June 30, 2018. Net interest income on a tax-equivalent basis for the six months ended June 30, 2019 was $85.5 million, an increase of $7.9 million, or 10.1%, compared to the same period in 2018. The increase in tax-equivalent net interest income for the three and six months ended ~~March 31,~~June 30, 2019 compared to the same ~~period~~periods in 2018 was primarily due to the growth in average loans of ~~10.5% as well as modest net interest margin expansion.~~10.1% and 10.3%, respectively.

The net interest margin on a tax-equivalent basis for the ~~first~~second quarter of 2019 was ~~3.75%~~3.67%, compared to 3.73% for the second quarter of 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 six months ended June 30, 2019 was 3.71%, compared to 3.72% for the ~~first quarter of~~six months ended June 30, 2018. The favorable impact of purchase accounting accretion was one basis point for the three months ended ~~March 31,~~June 30, 2019, compared to three basis points for the three months ended June 30, 2018. The favorable impact of purchase accounting accretion was one basis point for the six months ended June 30, 2019, compared to two basis points for the ~~three~~six months ended ~~March 31,~~June 30, 2018.

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


	Three Months Ended March 31,														Three Months Ended June 30,
	2019							2018							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	$	42,566		$	269	2.56	%	$	19,184		$	76	1.61	%	$	102,623		$	569	2.22	%	$	37,254		$	148	1.59	%
U.S. government obligations	20,039			82		1.66		23,921			94		1.59		17,315			73		1.69		23,183			91		1.57
Obligations of states and political subdivisions	64,167			546		3.45		74,554			593		3.23		59,267			507		3.43		71,092			603		3.40
Other debt and equity securities	385,990			2,631		2.76		359,451			2,095		2.36		394,840			2,572		2.61		356,100			2,177		2.45
Federal funds sold and other earning assets	32,360			586		7.34		29,057			504		7.03
Total interest-earning deposits, investments, federal funds sold and other earning assets	545,122			4,114		3.06		506,167			3,362		2.69
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	811,071			10,758		5.38		782,200			8,900		4.61		820,009			10,589		5.18		810,610			9,750		4.82
Real estate—commercial and construction loans	1,822,276			21,559		4.80		1,600,394			17,618		4.46		1,912,248			23,110		4.85		1,661,198			19,044		4.60
Real estate—residential loans	938,299			11,412		4.93		837,495			9,675		4.69		941,712			11,483		4.89		853,769			10,046		4.72
Loans to individuals	32,524			518		6.46		27,960			413		5.99		31,939			510		6.40		28,985			444		6.14
Municipal loans and leases	332,299			3,221		3.93		311,752			2,892		3.76		335,399			3,305		3.95		313,181			2,961		3.79
Lease financings	80,893			1,435		7.19		74,709			1,344		7.30		81,762			1,459		7.16		75,452			1,353		7.19
Gross loans and leases	4,017,362			48,903		4.94		3,634,510			40,842		4.56		4,123,069			50,456		4.91		3,743,195			43,598		4.67
Total interest-earning assets	4,562,484			53,017		4.71		4,140,677			44,204		4.33		4,729,052			54,712		4.64		4,263,612			47,126		4.43
Cash and due from banks	44,714							42,506							46,868							45,158
Reserve for loan and lease losses	(30,111		)					(22,022		)					(31,847		)					(23,914		)
Premises and equipment, net	59,179							61,738							58,873							61,234
Operating lease right-of-use assets	37,129							—							35,821							—
Other assets	330,858							333,078							331,681							336,737
Total assets	$	5,004,253						$	4,555,977						$	5,170,448						$	4,682,827
Liabilities:
Interest-bearing checking deposits	$	478,927		$	714	0.60		$	425,027		$	292	0.28		$	457,231		$	457	0.40		$	463,156		$	383	0.33
Money market savings	918,487			3,748		1.65		658,367			1,343		0.83		982,440			4,234		1.73		694,734			1,758		1.01
Regular savings	789,033			814		0.42		834,375			557		0.27		818,523			1,013		0.50		803,586			582		0.29
Time deposits	655,303			2,927		1.81		541,478			1,499		1.12		688,897			3,407		1.98		553,579			1,819		1.32
Total time and interest-bearing deposits	2,841,750			8,203		1.17		2,459,247			3,691		0.61		2,947,091			9,111		1.24		2,515,055			4,542		0.72
Short-term borrowings	117,664			638		2.20		175,824			645		1.49		48,312			217		1.80		217,327			958		1.77
Long-term debt	145,299			739		2.06		155,765			665		1.73		159,572			836		2.10		155,628			709		1.83
Subordinated notes	94,603			1,261		5.41		94,359			1,261		5.42		94,663			1,261		5.34		94,420			1,261		5.36
Total borrowings	357,566			2,638		2.99		425,948			2,571		2.45		302,547			2,314		3.07		467,375			2,928		2.51
Total interest-bearing liabilities	3,199,316			10,841		1.37		2,885,195			6,262		0.88		3,249,638			11,425		1.41		2,982,430			7,470		1.00
Noninterest-bearing deposits	1,089,449							1,024,797							1,198,320							1,048,901
Operating lease liabilities	40,090							—							38,873							—
Accrued expenses and other liabilities	43,824							40,012							38,079							39,829
Total liabilities	4,372,679							3,950,004							4,524,910							4,071,160
Shareholders’ Equity:
Common stock	157,784							157,784							157,784							157,784
Additional paid-in capital	292,746							290,209							293,496							290,517
Retained earnings and other equity	181,044							157,980							194,258							163,366
Total shareholders’ equity	631,574							605,973							645,538							611,667
Total liabilities and shareholders’ equity	$	5,004,253						$	4,555,977						$	5,170,448						$	4,682,827
Net interest income				$	42,176						$	37,942						$	43,287						$	39,656
Net interest spread						3.34							3.45							3.23							3.43
Effect of net interest-free funding sources						0.41							0.27							0.44							0.30
Net interest margin						3.75	%						3.72	%						3.67	%						3.73	%
Ratio of average interest-earning assets to average interest-bearing liabilities	142.61		%					143.51		%					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 ~~March 31,~~June 30, 2019 and 2018 have been calculated using the Corporation's federal applicable rate of 21%.



	Six Months Ended June 30,
	2019							2018
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	72,760		$	838	2.32	%	$	28,269		$	224	1.60	%
U.S. government obligations	18,669			155		1.67		23,550			185		1.58
Obligations of states and political subdivisions	61,703			1,053		3.44		72,814			1,196		3.31
Other debt and equity securities	390,440			5,203		2.69		357,766			4,272		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	815,565			21,347		5.28		796,483			18,650		4.72
Real estate—commercial and construction loans	1,867,510			44,669		4.82		1,630,964			36,662		4.53
Real estate—residential loans	940,015			22,895		4.91		845,677			19,721		4.70
Loans to individuals	32,230			1,028		6.43		28,475			857		6.07
Municipal loans and leases	333,858			6,526		3.94		312,470			5,853		3.78
Lease financings	81,330			2,894		7.18		75,083			2,697		7.24
Gross loans and leases	4,070,508			99,359		4.92		3,689,152			84,440		4.62
Total interest-earning assets	4,646,228			107,729		4.68		4,202,484			91,330		4.38
Cash and due from banks	45,797							43,839
Reserve for loan and lease losses	(30,984		)					(22,973		)
Premises and equipment, net	59,025							61,485
Operating lease right-of-use assets	36,472							—
Other assets	331,272							334,879
Total assets	$	5,087,810						$	4,619,714
Liabilities:
Interest-bearing checking deposits	$	468,019		$	1,171	0.50		$	444,197		$	675	0.31
Money market savings	950,641			7,982		1.69		676,651			3,101		0.92
Regular savings	803,859			1,827		0.46		818,895			1,139		0.28
Time deposits	672,193			6,334		1.90		547,562			3,318		1.22
Total time and interest-bearing deposits	2,894,712			17,314		1.21		2,487,305			8,233		0.67
Short-term borrowings	82,796			855		2.08		196,690			1,603		1.64
Long-term debt	152,475			1,575		2.08		155,697			1,374		1.78
Subordinated notes	94,633			2,522		5.37		94,390			2,522		5.39
Total borrowings	329,904			4,952		3.03		446,777			5,499		2.48
Total interest-bearing liabilities	3,224,616			22,266		1.39		2,934,082			13,732		0.94
Noninterest-bearing deposits	1,144,185							1,036,916
Operating lease liabilities	39,478							—
Accrued expenses and other liabilities	40,936							39,881
Total liabilities	4,449,215							4,010,879
Shareholders’ Equity:
Common stock	157,784							157,784
Additional paid-in capital	293,123							290,363
Retained earnings and other equity	187,688							160,688
Total shareholders’ equity	638,595							608,835
Total liabilities and shareholders’ equity	$	5,087,810						$	4,619,714
Net interest income				$	85,463						$	77,598
Net interest spread						3.29							3.44
Effect of net interest-free funding sources						0.42							0.28
Net interest margin						3.71	%						3.72	%
Ratio of average interest-earning assets to average interest-bearing liabilities	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 six months ended June 30, 2019 and 2018 have been calculated using the Corporation's federal applicable rate of 21%.

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									Three Months Ended									Six Months Ended
	March 31, 2019 Versus 2018									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
Interest income:
Interest-earning deposits with other banks	$	130		$	63		$	193		$	343		$	78		$	421		$	477		$	137		$	614
U.S. government obligations	(16		)	4			(12		)	(25		)	7			(18		)	(40		)	10			(30		)
Obligations of states and political subdivisions	(86		)	39			(47		)	(101		)	5			(96		)	(188		)	45			(143		)
Other debt and equity securities	162			374			536			247			148			395			409			522			931
Federal funds sold and other earning assets	59			23			82
Interest on deposits, investments, federal funds sold and other earning assets	249			503			752
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	336			1,522			1,858			113			726			839			453			2,244			2,697
Real estate—commercial and construction loans	2,543			1,398			3,941			2,991			1,075			4,066			5,555			2,452			8,007
Real estate—residential loans	1,219			518			1,737			1,065			372			1,437			2,266			908			3,174
Loans to individuals	71			34			105			46			20			66			118			53			171
Municipal loans and leases	195			134			329			216			128			344			416			257			673
Lease financings	111			(20		)	91			112			(6		)	106			219			(22		)	197
Interest and fees on loans and leases	4,475			3,586			8,061			4,543			2,315			6,858			9,027			5,892			14,919
Total interest income	4,724			4,089			8,813			4,994			2,592			7,586			9,726			6,673			16,399
Interest expense:
Interest-bearing checking deposits	42			380			422			(5		)	79			74			40			456			496
Money market savings	687			1,718			2,405			909			1,567			2,476			1,591			3,290			4,881
Regular savings	(32		)	289			257			11			420			431			(22		)	710			688
Time deposits	363			1,065			1,428			521			1,067			1,588			875			2,141			3,016
Interest on time and interest-bearing deposits	1,060			3,452			4,512			1,436			3,133			4,569			2,484			6,597			9,081
Short-term borrowings	(255		)	248			(7		)	(757		)	16			(741		)	(1,098		)	350			(748		)
Long-term debt	(47		)	121			74			19			108			127			(28		)	229			201
Interest on borrowings	(302		)	369			67			(738		)	124			(614		)	(1,126		)	579			(547		)
Total interest expense	758			3,821			4,579			698			3,257			3,955			1,358			7,176			8,534
Net interest income	$	3,966		$	268		$	4,234		$	4,296		$	(665	)	$	3,631		$	8,368		$	(503	)	$	7,865

Interest Income

Three and six months ended ~~March 31,~~June 30, 2019 versus 2018

Interest income on a tax-equivalent basis for the three months ended ~~March 31,~~June 30, 2019 was ~~$53.0~~$54.7 million, an increase of ~~$8.8~~$7.6 million, or ~~19.9%~~16.1%, from the same period in 2018. Interest income on a tax-equivalent basis for the six months ended June 30, 2019 was $107.7 million, an increase of $16.4 million, or 18.0%, from the same period in 2018. The increase in interest income for the three and six months ended ~~March 31,~~June 30, 2019 was primarily due to organic loan growth in commercial real estate and residential real estate loans and an increase in loan yields primarily for commercial business and commercial real estate loans as the Federal Reserve increased interest rates 100 basis points in 2018. The favorable impact of purchase accounting accretion on interest-earning assets was one basis point for the three and six months ended ~~March 31,~~June 30, 2019, compared to one basis point for the three months ended June 30, 2018 and no impact on the yield on interest-earning assets for the ~~same period in the prior year.~~six months ended June 30, 2018.

Interest Expense

Three and six months ended ~~March 31,~~June 30, 2019 versus 2018

Interest expense for the three months ended ~~March 31,~~June 30, 2019 was ~~$10.8~~$11.4 million, an increase of ~~$4.6~~$4.0 million, or ~~73.1%~~52.9%, from the same period in 2018. Interest expense for the six months ended June 30, 2019 was $22.3 million, an increase of $8.5 million, or

62.1%, from the same period in 2018. The increase in interest expense for the three and six months ended ~~March 31,~~June 30, 2019 was primarily due to higher deposit costs, which were impacted by the Federal Reserve interest rate increases in 2018. In addition, average deposits grew ~~15.6%~~17.2% and 16.4%, respectively, for the three and six months ended ~~March 31, 2019~~June 30, 219 compared to the same ~~period~~periods in 2018. The favorable impact of purchase accounting amortization on interest-bearing liabilities was one basis point for the three and six months ended ~~March 31,~~June 30, 2019, compared to a favorable impact of three basis points for the ~~same period in the prior year.~~three and six months ended June 30, 2018.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the three and six months ended ~~March 31,~~June 30, 2019 was ~~$2.7~~$2.1 million and $4.8 million, respectively, compared to ~~$2.1~~$15.4 million and $17.5 million, respectively, for the same ~~period~~periods in 2018. The provision for 2019 includes the impact of downgrading one $14.6 million shared national credit loan from pass to substandard. Incremental provision and general reserve recorded during the first quarter of 2019 was $1.5 million for this loan. Net loan and lease charge-offs for the three and six months ended ~~March 31,~~June 30, 2019 were ~~$447 thousand~~$1.1 million and $1.5 million, respectively, compared to ~~$198 thousand~~$13.2 million and $13.4 million, respectively, for the same ~~period~~periods in the prior year. Both net loan and lease charge-offs and the provision for loan and lease losses during 2018 included the previously discussed $12.7 million commercial loan charge-off.

Noninterest Income

The following table presents noninterest income for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:


	Three Months Ended March 31,				Change					Three Months Ended June 30,					Change					Six Months Ended June 30,					Change
(Dollars in thousands)	2019		2018		Amount			Percent		2019		2018			Amount			Percent		2019		2018			Amount			Percent
Trust fee income	$	1,887	$	1,996	$	(109	)	(5.5	)%	$	2,054	$	2,044		$	10		0.5	%	$	3,941	$	4,040		$	(99	)	(2.5	)%
Service charges on deposit accounts	1,435		1,327		108			8.1		1,447		1,335			112			8.4		2,882		2,662			220			8.3
Investment advisory commission and fee income	3,789		3,683		106			2.9		4,055		3,778			277			7.3		7,844		7,461			383			5.1
Insurance commission and fee income	5,144		4,888		256			5.2		3,941		3,712			229			6.2		9,085		8,600			485			5.6
Other service fee income	2,267		2,169		98			4.5		2,590		2,431			159			6.5		4,857		4,600			257			5.6
Bank owned life insurance income	952		669		283			42.3		743		1,210			(467		)	(38.6	)	1,695		1,879			(184		)	(9.8	)
Net gain on sales of investment securities	1		10		(9		)	(90.0	)	7		—			7			N/M		8		10			(2		)	(20.0	)
Net gain on mortgage banking activities	483		716		(233		)	(32.5	)	796		942			(146		)	(15.5	)	1,279		1,658			(379		)	(22.9	)
Other income	339		124		215			N/M
Other income (loss)										723		(138		)	861			N/M		1,062		(14		)	1,076			N/M
Total noninterest income	$	16,297	$	15,582	$	715		4.6	%	$	16,356	$	15,314		$	1,042		6.8	%	$	32,653	$	30,896		$	1,757		5.7	%

Three and six months ended ~~March 31,~~June 30, 2019 versus 2018

Noninterest income for the three months ended ~~March 31,~~June 30, 2019 was ~~$16.3~~$16.4 million, an increase of ~~$715 thousand,~~$1.0 million, or ~~4.6%~~6.8%, from the three months ended ~~March 31,~~June 30, 2018. Noninterest income for the six months ended June 30, 2019 was $32.7 million, an increase of $1.8 million, or 5.7%, from the comparable period in the prior year.

Investment advisory commission and fee income increased ~~$106~~$277 thousand, or ~~2.9%~~7.3%, for the three months and $383 thousand, or 5.1%, for the six months ended June 30, 2019, primarily due to new customer relationships. Insurance commission and fee income increased $229 thousand, or 6.2%, for the three months ended March 31, 2019, primarily due to new customer relationships, which were partially offset by market declines in the fourth quarter of 2018. Insurance commission and fee income increased $256 thousand, or 5.2%, for the three months ended March 31,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 ~~commercial lines and an increase in~~ contingent commission income of $111 thousand, which was $1.5 million for the three months ended March 31, 2019 compared to $1.4 million for the three months ended March 31, 2018. Contingent commission income is largely recognized in the first quarter of the year.income. Service charges on deposit accounts increased ~~$108~~$112 thousand, or ~~8.1%~~8.4%, for the three months and $220 thousand, or 8.3%, for the six months ended ~~March 31,~~June 30, 2019, primarily due to increased fee income on commercial cash management accounts. Other service fee income increased ~~$98~~$159 thousand, or ~~4.5%~~6.5%, for the three months and $257 thousand, or 5.6%, for the six months ended ~~March 31,~~June 30, 2019, primarily due to increases in debit card interchange ~~income, wire transfer fees and human resource consulting services within the insurance line of business. BOLI~~income.

Other income increased ~~$283~~$861 thousand ~~or 42.3%,~~ for the three months and $1.1 million for the six months ended ~~March 31, 2019, primarily due to an increase in value of our non-qualified annuity portfolio of $249~~ t~~housand in the first quarter of 2019 compared to a decrease of $29~~June 30, 2019. Fees on risk participation agreements increased $284 thousand in the first quarter of 2018. The value of the non-qualified annuity portfolio declined $287 thousand in the fourth quarter of 2018. During the first quarter of 2019, in order to reduce future volatility, the Corporation transferred the funds invested within the non-qualified annuity portfolio to a stable fund investment strategy. Other income increased $215 thousand, or 173.4%, for the three months and $543 thousand for the six months ended ~~March 31,~~June 30, 2019 ~~primarily due to fees~~driven by increased customer activity. Gain on ~~risk participation agreements~~sale of ~~$264~~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 ~~customer activity~~SBA loan sale activity. Net loss on valuations and sales of other real estate owned was $55 thousand for the six months ended June 30, 2019 compared to ~~fees of $4~~$482 thousand infor the ~~same period of the prior year.~~three and six months ended June 30, 2018.

These increases were partially offset by a decrease in BOLI income of $467 thousand, or 38.6%, for the three months and $184 thousand, or 9.8%, for the six months ended June 30, 2019. These decreases were primarily due to proceeds from BOLI death benefits of $446 thousand recognized in the second quarter of 2018. The net gain on mortgage banking activities ~~of $233~~decreased $146 thousand, or ~~32.5%~~15.5%, for the three months and $379 thousand, or 22.9% for the six months ended ~~March 31,~~June 30, 2019, primarily due to ~~the Bank retaining, on balance-sheet, a higher percentage of its mortgage originations, as well as a~~ contraction in margins to remain price competitive. Such on balance-sheet loans are predominantly hybrid adjustable rate mortgages. Trust fee income decreased $109 thousand, or 5.5%, for the three months ended March 31, 2019 compared to March 31, 2018, primarily due to a decrease in activity-based trust estate fees and assets under management.

Noninterest Expense

The following table presents noninterest expense for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:


	Three Months Ended March 31,				Change					Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
(Dollars in thousands)	2019		2018		Amount			Percent		2019		2018		Amount			Percent		2019		2018		Amount			Percent
Salaries, benefits and commissions	$	21,564	$	20,647	$	917		4.4	%	$	22,089	$	20,065	$	2,024		10.1	%	$	43,653	$	40,712	$	2,941		7.2	%
Net occupancy	2,611		2,757		(146		)	(5.3	)	2,601		2,533		68			2.7		5,212		5,290		(78		)	(1.5	)
Equipment	990		1,023		(33		)	(3.2	)	1,065		1,067		(2		)	(0.2	)	2,055		2,090		(35		)	(1.7	)
Data processing	2,514		2,232		282			12.6		2,627		2,091		536			25.6		5,141		4,323		818			18.9
Professional fees	1,264		1,355		(91		)	(6.7	)	1,307		1,331		(24		)	(1.8	)	2,571		2,686		(115		)	(4.3	)
Marketing and advertising	316		381		(65		)	(17.1	)	622		526		96			18.3		938		907		31			3.4
Deposit insurance premiums	452		391		61			15.6		430		452		(22		)	(4.9	)	882		843		39			4.6
Intangible expenses	426		612		(186		)	(30.4	)	417		594		(177		)	(29.8	)	843		1,206		(363		)	(30.1	)
Restructuring charges	—		571		(571		)	N/M		—		—		—			—		—		571		(571		)	N/M
Other expense	5,420		5,156		264			5.1		5,620		5,688		(68		)	(1.2	)	11,040		10,844		196			1.8
Total noninterest expense	$	35,557	$	35,125	$	432		1.2	%	$	36,778	$	34,347	$	2,431		7.1	%	$	72,335	$	69,472	$	2,863		4.1	%

Three and six months ended ~~March 31,~~June 30, 2019 versus 2018

Noninterest expense for the three months ended ~~March 31,~~June 30, 2019 was ~~$35.6~~$36.8 million, an increase of ~~$432 thousand,~~$2.4 million, or ~~1.2%~~7.1%, from the three months ended ~~March 31,~~June 30, 2018. Noninterest expense for the six months ended June 30, 2019 was $72.3 million, an increase of $2.9 million, or 4.1%, from the comparable period in the prior year.

Salaries, benefits and commissions increased ~~$917 thousand,~~$2.0 million, or ~~4.4%~~10.1%, for the three months and $2.9 million, or 7.2%, for the six months ended June 30, 2019, primarily attributable to additional staff hired to support revenue generation across all business

lines, expansion of our commercial lending ~~group in Lancaster County~~groups and annual merit increases. During the first quarter ~~ended March 31,~~of 2019, ~~the Corporation~~Univest hired a team of eight commercial lenders and support staff ~~which will~~to focus on increasing ~~the Bank's~~Univest’s presence in Western Lancaster and York ~~Counties.~~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 ~~$282~~$536 thousand, or ~~12.6%~~25.6%, for the three months and $818 thousand, or 18.9%, for the six months ended ~~March 31,~~June 30, 2019, primarily due to continued investments in customer relationship management software, internal infrastructure improvements and outsourced

data processing solutions. ~~Other expense increased $264 thousand, or 5.1%, for the three months ended March 31, 2019, primarily due to increases in interchange expense and corporate development expense.~~

These increases were partially offset by a decrease in ~~net occupancy and equipment~~intangibles expense ~~totaling $179~~of $177 thousand, or ~~4.7%~~29.8%, ~~primarily due to~~for the ~~closure of~~ three ~~financial service locations during April 2018. Intangibles expense decreased $186~~months and $363 thousand, or ~~30.4%~~30.1%, for the six months ended June 30, 2019 due to run-off of the intangible assets. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the ~~three months ended March 31,~~first quarter of 2018. ~~There were no restructuring costs during the three months ended March 31, 2019.~~

Tax Provision

The provision for income taxes for the three months ended ~~March 31,~~June 30, 2019 and 2018 was ~~$3.5~~$3.7 million and ~~$2.8~~$191 thousand, at effective rates of 18.2% and 4.2%, respectively. The provision for income taxes for the six months ended June 30, 2019 and 2018

was $7.2 million and $3.0 million, at effective rates of ~~17.9%~~18.0% and ~~18.0%~~14.9%, respectively. The Corporation's effective income tax rates ~~for the three months ended March 31, 2019 and 2018~~ were favorably impacted by discrete tax benefits. Excluding these items, the effective tax rate was ~~18.2%~~18.3% and ~~18.8%~~18.2% for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Financial Condition

Assets

The following table presents assets at the dates indicated:


	At March 31, 2019			At December 31, 2018			Change					At June 30, 2019			At December 31, 2018			Change
(Dollars in thousands)	At March 31, 2019			At December 31, 2018			Amount			Percent		At June 30, 2019			At December 31, 2018			Amount			Percent
Cash and interest-earning deposits	$	66,141		$	109,420		$	(43,279	)	(39.6	)	$	84,567		$	109,420		$	(24,853	)	(22.7	)%
Investment securities	466,883			473,306			(6,423		)	(1.4	)	468,833			473,306			(4,473		)	(0.9	)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	32,699			28,337			4,362			15.4		32,755			28,337			4,418			15.6
Loans held for sale	921			1,754			(833		)	(47.5	)	1,498			1,754			(256		)	(14.6	)
Loans and leases held for investment	4,067,879			4,006,574			61,305			1.5		4,167,904			4,006,574			161,330			4.0
Reserve for loan and lease losses	(31,602		)	(29,364		)	(2,238		)	(7.6	)	(32,600		)	(29,364		)	(3,236		)	(11.0	)
Premises and equipment, net	59,091			59,559			(468		)	(0.8	)	58,292			59,559			(1,267		)	(2.1	)
Operating lease right-of-use assets	36,099			—			36,099			N/M		35,508			—			35,508			N/M
Goodwill and other intangibles, net	184,089			184,549			(460		)	(0.2	)	183,554			184,549			(995		)	(0.5	)
Bank owned life insurance	112,551			111,599			952			0.9		113,294			111,599			1,695			1.5
Accrued interest receivable and other assets	40,776			38,613			2,163			5.6		40,693			38,613			2,080			5.4
Total assets	$	5,035,527		$	4,984,347		$	51,180		1.0	%	$	5,154,298		$	4,984,347		$	169,951		3.4	%

Investment Securities

Total investments securities at ~~March 31,~~June 30, 2019 decreased ~~$6.4~~$4.5 million from December 31, 2018. Maturities and pay-downs of ~~$20.6~~$36.2 million, calls of ~~$770 thousand,~~$3.1 million, sales of ~~$491 thousand,~~$15.5 million and net amortization of purchased premiums and discounts of ~~$537 thousand~~$1.2 million were partially offset by purchases of ~~$10.9~~$43.5 million and increases in the fair value of available-for-sale investment securities of ~~$5.1~~$8.0 million. The increase in the fair value of available-for-sale investment securities was due to the 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 $18.0 million and $13.6 million at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. FHLB stock increased $4.4 million mainly due to purchase requirements related to the increase in FHLB borrowing volume during the ~~quarter.~~year.

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

Loans and Leases

Gross loans and leases held for investment grew ~~$61.3~~$161.3 million, or ~~1.5%~~4.0%, from December 31, 2018. The growth in loans was primarily in commercial real estate 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 ~~March 31,~~June 30, 2019, the recorded investment in loans held for investment that were considered to be impaired was ~~$26.0~~$25.1 million. The related reserve for loan losses was ~~$1.5~~$2.4 million. At December 31, 2018, the recorded investment in loans that were considered to be impaired was $26.6 million. The related reserve for loan losses was $1.4 million. The impaired loan balances consisted mainly of commercial real estate, ~~loans~~residential real estate and business loans. Impaired loans include nonaccrual loans and leases and accruing troubled debt restructured loans and lease modifications 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 $540 thousand at ~~March 31,~~June 30, 2019, compared to $1.2 million at December 31, 2018. During the first quarter of 2019, a commercial real estate property with a carrying value of $654 thousand was sold for a loss of $55 thousand.

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 in the portfolio. The Corporation does not provide a reserve for loan losses for acquired loans 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 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 ~~$421~~$418 thousand and $426 thousand at ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 2019			At December 31, 2018			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	$	2,904		$	3,365		$	2,150		$	3,365
Real estate—commercial	18,361			18,214			17,739			18,214
Real estate—construction	106			106			106			106
Real estate—residential	4,361			4,353			5,052			4,353
Lease financings	220			170			100			170
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	25,952			26,208			25,147			26,208
Accruing troubled debt restructured loans and lease modifications not included in the above	270			542			55			542
Accruing loans and leases 90 days or more past due:
Real estate—commercial							516			—
Real estate—construction							230			—
Real estate—residential	325			—			434			—
Loans to individuals	54			55			129			55
Lease financings	257			137			70			137
Total accruing loans and leases, 90 days or more past due	636			192			1,379			192
Total nonperforming loans and leases	26,858			26,942			26,581			26,942
Other real estate owned	540			1,187			540			1,187
Total nonperforming assets	$	27,398		$	28,129		$	27,121		$	28,129
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.64		%	0.65		%	0.60		%	0.65		%
Nonperforming loans and leases / loans and leases held for investment	0.66			0.67			0.64			0.67
Nonperforming assets / total assets	0.54			0.56			0.53			0.56

Allowance for loan and lease losses	$	31,602		$	29,364		$	32,600		$	29,364
Allowance for loan and lease losses / loans and leases held for investment	0.78		%	0.73		%	0.78		%	0.73		%
Allowance for loan and lease losses / loans and leases held for investment (excluding acquired loans at period-end)	0.85			0.81			0.85			0.81
Allowance for loan and lease losses / nonaccrual loans and leases held for investment	121.77			112.04			129.64			112.04
Allowance for loan and lease losses / nonperforming loans and leases held for investment	117.66			108.99			122.64			108.99
Acquired credit impaired loans	$	693		$	695		$	569		$	695

Nonperforming loans and leases and acquired credit impaired loans / loans and leases held for investment	0.68		%	0.69		%	0.65		%	0.69		%
Nonperforming assets and acquired credit impaired loans / total assets	0.56			0.58			0.54			0.58
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	3,240		$	1,284		$	2,573		$	1,284

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


(Dollars in thousands)	At March 31, 2019			At December 31, 2018			At June 30, 2019		At December 31, 2018
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	25,952		$	26,208		$	25,147	$	26,208
Nonaccrual loans and leases with partial charge-offs	2,730			2,210			2,302		2,210
Life-to-date partial charge-offs on nonaccrual loans and leases	1,612			1,320			1,353		1,320
Charge-off rate of nonaccrual loans and leases with partial charge-offs	37.1		%	37.4		%
Specific reserves on impaired loans	$	1,503		$	1,415		$	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 ~~$725~~$835 thousand and ~~$899~~$885 thousand for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively. The amortization of intangible assets was $1.6 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively. See Note 5 to the Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at ~~March 31,~~June 30, 2019 and December 31, 2018.

The Corporation also has goodwill with a net carrying value of $172.6 million at ~~March 31,~~June 30, 2019 and December 31, 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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018. Since the last annual impairment analysis during 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 March 31, 2019		At December 31, 2018		Change					At June 30, 2019		At December 31, 2018		Change
(Dollars in thousands)	At March 31, 2019		At December 31, 2018		Amount			Percent		At June 30, 2019		At December 31, 2018		Amount			Percent
Deposits	$	4,003,153	$	3,885,933	$	117,220		3.0	%	$	4,122,110	$	3,885,933	$	236,177		6.1	%
Short-term borrowings	73,185		189,768		(116,583		)	(61.4	)	39,350		189,768		(150,418		)	(79.3	)
Long-term debt	145,263		145,330		(67		)	—		170,195		145,330		24,865			17.1
Subordinated notes	94,635		94,574		61			0.1		94,696		94,574		122			0.1
Operating lease liabilities	39,102		—		39,102			N/M		38,608		—		38,608			N/M
Accrued interest payable and other liabilities	42,583		44,609		(2,026		)	(4.5	)	37,669		44,609		(6,940		)	(15.6	)
Total liabilities	$	4,397,921	$	4,360,214	$	37,707		0.9	%	$	4,502,628	$	4,360,214	$	142,414		3.3	%

Deposits

Total deposits increased ~~$117.2~~$236.2 million, or ~~3.0%~~6.1%, from December 31, 2018, primarily due to increases in commercial, public funds and consumer deposits.

Borrowings

Total borrowings decreased ~~$116.6~~$125.4 million, or ~~27.1%~~29.2%, from December 31, 2018, primarily due to a decrease in short-term borrowings of ~~$116.6~~$150.4 million. The increase in deposits 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 March 31, 2019			At December 31, 2018			Change					At June 30, 2019			At December 31, 2018			Change
(Dollars in thousands)	At March 31, 2019			At December 31, 2018			Amount			Percent		At June 30, 2019			At December 31, 2018			Amount		Percent
Common stock	$	157,784		$	157,784		$	—		—	%	$	157,784		$	157,784		$	—	—	%
Additional paid-in capital	293,255			292,401			854			0.3		293,947			292,401			1,546		0.5
Retained earnings	256,746			248,167			8,579			3.5		267,357			248,167			19,190		7.7
Accumulated other comprehensive loss	(24,238		)	(28,416		)	4,178			14.7		(21,949		)	(28,416		)	6,467		22.8
Treasury stock	(45,941		)	(45,803		)	(138		)	(0.3	)	(45,469		)	(45,803		)	334		0.7
Total shareholders’ equity	$	637,606		$	624,133		$	13,473		2.2	%	$	651,670		$	624,133		$	27,537	4.4	%

The increase in shareholder's equity at ~~March 31,~~June 30, 2019 of ~~$13.5~~$27.5 million, or ~~2.2%~~4.4%, from December 31, 2018 was primarily related to an increase in retained earnings of ~~$8.6~~$19.2 million. Retained earnings at ~~March 31,~~June 30, 2019 was impacted by the ~~three~~six months of net income of ~~$16.1~~$32.5 million partially offset by the related adjustments to the January 1, 2019 adoption of ASU No. 2016-02 of $1.5 million and cash dividends declared of ~~$5.9~~$11.7 million. Accumulated other comprehensive loss decreased by ~~$4.2~~$6.5 million mainly attributable to increases in the fair value of available-for-sale investment securities of ~~$4.0~~$6.4 million, net of 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 Notes to the 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, ~~reports~~reported pre-tax income of ~~$17.3~~$19.8 million and ~~$13.0~~$3.5 million for the three months ended ~~March 31,~~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 the Consolidated Financial Statements, ~~reports~~reported pre-tax income of ~~$1.7~~$2.1 million and ~~$1.8~~$1.9 million for the three months ended ~~March 31,~~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 ~~decrease~~increase in pre-tax income ~~is primarily attributable to higher~~and noninterest ~~expense in~~income for the three and six months ended ~~March 31,~~June 30, 2019 as compared to the three and six months ended ~~March 31, 2018. Noninterest income remained flat at $5.7 million for both the three months ended March 31, 2019 and 2018. Wealth Management~~June 30, 2018 was primarily due to an increase in assets under management. Assets under management and supervision were ~~$3.6~~$3.7 billion as of ~~March 31,~~June 30, 2019 and ~~$3.4~~$3.5 billion as of ~~March 31,~~June 30, 2018. The increase in assets under management and supervision as of ~~March 31,~~June 30, 2019, as compared to ~~March 31,~~June 30, 2018, was primarily driven by new customer ~~relationships and an increase in the equity markets as of each respective period-end.~~relationships.

The Insurance segment, as presented in Note 13 in the Notes to the Consolidated Financial Statements, ~~reports~~reported pre-tax income of ~~$2.0~~$860 thousand and $544 thousand for the three months ended June 30, 2019 and 2018, respectively, and $2.9 million and ~~$1.6~~$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 ~~March 31,~~June 30, 2019 and 2018, respectively, and ~~noninterest income of $5.4~~$9.5 million and ~~$5.1~~$9.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively. Noninterest income ~~has~~ 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 beginning January 1, 2016 and were fully applicable on January 1, 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. Beginning in the first quarter of 2019, the Corporation and the Bank must hold a capital conservation buffer greater than 2.50% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. 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 ~~March 31,~~June 30, 2019 and December 31, 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 March 31, 2019
At June 30, 2019
Total Capital (to Risk-Weighted Assets):
Corporation	$	616,154	13.77	%	$	357,939	8.00	%	$	447,424	10.00	%	$	629,324	13.79	%	$	364,990	8.00	%	$	456,238	10.00	%
Bank	517,223		11.61		356,329		8.00		445,412		10.00		529,106		11.65		363,289		8.00		454,112		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	489,197		10.93		268,454		6.00		357,939		8.00		501,310		10.99		273,743		6.00		364,990		8.00
Bank	484,901		10.89		267,247		6.00		356,329		8.00		495,788		10.92		272,467		6.00		363,289		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	489,197		10.93		201,341		4.50		290,825		6.50		501,310		10.99		205,307		4.50		296,554		6.50
Bank	484,901		10.89		200,435		4.50		289,518		6.50		495,788		10.92		204,350		4.50		295,173		6.50
Tier 1 Capital (to Average Assets):
Corporation	489,197		10.10		193,769		4.00		242,211		5.00		501,310		10.01		200,268		4.00		250,336		5.00
Bank	484,901		10.05		192,972		4.00		241,215		5.00		495,788		9.95		199,407		4.00		249,258		5.00
At December 31, 2018
Total Capital (to Risk-Weighted Assets):
Corporation	$	604,213	13.70	%	$	352,764	8.00	%	$	440,955	10.00	%	$	604,213	13.70	%	$	352,764	8.00	%	$	440,955	10.00	%
Bank	506,728		11.54		351,220		8.00		439,026		10.00		506,728		11.54		351,220		8.00		439,026		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	479,550		10.88		264,573		6.00		352,764		8.00		479,550		10.88		264,573		6.00		352,764		8.00
Bank	476,639		10.86		263,415		6.00		351,220		8.00		476,639		10.86		263,415		6.00		351,220		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	479,550		10.88		198,430		4.50		286,621		6.50		479,550		10.88		198,430		4.50		286,621		6.50
Bank	476,639		10.86		197,561		4.50		285,367		6.50		476,639		10.86		197,561		4.50		285,367		6.50
Tier 1 Capital (to Average Assets):
Corporation	479,550		10.13		189,374		4.00		236,718		5.00		479,550		10.13		189,374		4.00		236,718		5.00
Bank	476,639		10.12		188,487		4.00		235,609		5.00		476,639		10.12		188,487		4.00		235,609		5.00

At ~~March 31,~~June 30, 2019 and December 31, 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. Beginning in the first quarter of 2019, 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 2.50% of total risk-weighted assets in order to avoid limitations on capital distributions. The Corporation and the Bank were in compliance with these requirements at March 31, 2019. 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 ~~March 31,~~

June 30, 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 new accounting rules, such as 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 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. Management's objective with regard to 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 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 expense, and capital 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~~ 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.

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 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 $1.7 billion. At ~~March 31,~~June 30, 2019 and December 31, 2018, the carrying amount of overnight borrowings with the FHLB was $0 and $108.3 million, respectively. At ~~March 31,~~June 30, 2019 and December 31, 2018, the carrying amount of long-term borrowings with the FHLB was $150.0 million and $125.0 ~~million.~~million, respectively. At ~~March 31,~~June 30, 2019 and December 31, 2018, the Bank had outstanding short-term letters of credit with the FHLB totaling ~~$336.9~~$408.3 million and $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 that totaled $504.0 million and $367.0 million at ~~March 31, 2019 and December 31, 2018. At March 31,~~June 30, 2019 and December 31, 2018, respectively. At June 30, 2019 and December 31,

2018, the Corporation had ~~$55.0~~$20.0 million and $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 April 2, 2019, the SEC issued Release No. 33-10618; 34-85381, "FAST Act Modernization and Simplification of Regulation S-K." The amendments under this rule modernize and simplify certain disclosure requirements in a manner that reduces the costs and burdens on registrants while continuing to provide material information to 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 ~~are~~were effective on May 2, 2019, except for specific amendments that are effective after May 2, 2019 as cited in the rule. The Corporation provided the additional disclosures on the Form 10-Q cover page for the quarter ~~ending~~ended March 31, 2019. 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.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

No material changes in the Corporation’s market risk 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, 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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, 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
~~January~~April 1 – 30, 2019	—	$	—	—	864,246
May 1 – 31, 2019	—	—		—	864,246
June 1 – 30, 2019	—	—		—	864,246
Total	—	$	—	—	~~864,246~~
~~February 1 – 28, 2019~~	—	—		—	~~864,246~~
~~March 1 – 31, 2019~~	—	—		—	~~864,246~~
~~Total~~	—	$	—	—

On October 23, 2013, the Corporation’s Board of Directors approved a 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 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 ~~for~~upon the vesting of restricted stock awards ~~vests~~ and may use a stock swap to exercise non-qualified stock options. Shares withheld to pay income taxes onupon the vesting of restricted stock awards ~~vests~~ 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. ~~Shares~~There were no shares repurchased pursuant to these plans during the three months ended ~~March 31, 2019 were as follows:~~June 30, 2019.

Period Total Number of Shares Repurchased Average Price Paid per Share
January 1 – 31, 2019 —
$ —
February 1 – 28, 2019 7,110
24.93
March 1 – 31, 2019 1,085
25.62
Total 8,195
$ 25.02


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 10-K, filed with the SEC on February 28, 2019.

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

	Exhibit 10.1	Form of Restricted Stock Unit Agreement for Directors (Service Based) ~~Subject to~~under the Amended and Restated Univest 2013 Long-Term Incentive ~~Plan.~~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 ~~Subject to~~under the Amended and Restated Univest 2013 Long-Term Incentive ~~Plan.~~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) ~~Subject to~~under the Amended and Restated Univest 2013 Long-Term Incentive ~~Plan.~~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
	(Registrant)

Date: ~~May 3,~~August 2, 2019	/s/ Jeffrey M. Schweitzer
	Jeffrey M. Schweitzer President and Chief Executive Officer (Principal Executive Officer)

Date: ~~May 3,~~August 2, 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)

6267



	Amortization Period Extension			Total Concessions Granted
(Dollars in thousands)	No. of Loans	Amount		No. of Loans	Amount
Three Months Ended March 31, 2019
Accruing Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	2	$	956	2	$	956
Real estate—commercial real estate	1	1,313		1	1,313
Total	3	$	2,269	3	$	2,269
Three Months Ended March 31, 2018
Accruing Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—



(Dollars in thousands)	As of March 31, 2019		Weighted Average Rate
Remainder of 2019	$	10,000	1.35	%
2020	40,000		1.70
2021	55,000		1.94
2022	10,000		2.09
2023	10,000		3.02
Thereafter	—		—
Total	$	125,000	1.92	%



(Dollars in thousands)	Accumulated Other Comprehensive Income	At March 31, 2019		At December 31, 2018
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	19	$	80
Total		$	19	$	80



Period	Total Number of Shares Repurchased	Average Price Paid per Share
January 1 – 31, 2019	—	$	—
February 1 – 28, 2019	7,110	24.93
March 1 – 31, 2019	1,085	25.62
Total	8,195	$	25.02