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.~~

orFor the quarterly period ended March 31, 2020



¨☐			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, Pennsylvania 18964

(Address of principal executive offices)(Zip Code)

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

~~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)

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


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

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

Indicate by check mark whether the registrant has submitted electronically 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 any 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~~29,187,293
(Title of Class)						(Number of shares outstanding at April 30, ~~2019)~~2020)

Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

Page Number

Part I.

Financial Information:

~~Page Number~~

~~Part I.~~Item 1.

~~Financial Information:~~

~~Item 1.~~

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at March 31, ~~2019~~2020 and December 31, ~~2018~~2019

Condensed Consolidated Statements of Income for the Three Months Ended March 31 ~~2019~~, 20 20 and ~~2018~~2019

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended ~~March 31, 2019~~Marc h 3 1 , 20 20 and ~~2018~~2019

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March ~~31, 2019~~ 3 1 , 20 20 and ~~2018~~2019

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March ~~31, 2019~~ 3 1 , 20 20 and ~~2018~~2019

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4344

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

5861

Item 4.

Controls and Procedures

Part II.

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

5963

Item 3.

Defaults Upon Senior Securities

5963

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I. FINANCIAL INFORMATION


Item 1.Financial Statements ~~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			(Dollars in thousands, except share data)	At March 31, 2020		At December 31, 2019
ASSETS							ASSETS
Cash and due from banks	$	46,465		$	61,573		Cash and due from banks	$	49,008	$	50,571
Interest-earning deposits with other banks	19,676			47,847			Interest-earning deposits with other banks	133,894		74,557
Cash and cash equivalents	66,141			109,420			Cash and cash equivalents	182,902		125,128
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 available-for-sale	315,648			328,507

Investment securities held-to-maturity (fair value $229,552 and $194,886 at March 31, 2020 and December 31, 2019, respectively)							Investment securities held-to-maturity (fair value $229,552 and $194,886 at March 31, 2020 and December 31, 2019, respectively)	222,389		192,052
Investment securities available-for-sale (amortized cost $208,636, net of allowance for credit losses of $897 at March 31, 2020)							Investment securities available-for-sale (amortized cost $208,636, net of allowance for credit losses of $897 at March 31, 2020)	198,886		246,924
Investments in equity securities	2,765			2,165			Investments in equity securities	2,246		2,623
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	32,699			28,337			Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	28,465		28,254
Loans held for sale	921			1,754			Loans held for sale	11,417		5,504
Loans and leases held for investment	4,067,879			4,006,574			Loans and leases held for investment	4,448,825		4,386,836
Less: Reserve for loan and lease losses	(31,602		)	(29,364		)
Less: Reserve for credit losses, loans and leases							Less: Reserve for credit losses, loans and leases	(68,216)		(35,331)
Net loans and leases held for investment	4,036,277			3,977,210			Net loans and leases held for investment	4,380,609		4,351,505
Premises and equipment, net	59,091			59,559			Premises and equipment, net	55,789		56,676
Operating lease right-of-use assets	36,099			—			Operating lease right-of-use assets	34,679		34,418
Goodwill	172,559			172,559			Goodwill	172,559		172,559
Other intangibles, net of accumulated amortization	11,530			11,990			Other intangibles, net of accumulated amortization	9,773		10,284
Bank owned life insurance	112,551			111,599			Bank owned life insurance	115,512		114,778

Accrued interest receivable and other assets	40,776			38,613			Accrued interest receivable and other assets	49,542		40,219
Total assets	$	5,035,527		$	4,984,347		Total assets	$	5,464,768	$	5,380,924
LIABILITIES							LIABILITIES
Noninterest-bearing deposits	$	1,103,674		$	1,055,919		Noninterest-bearing deposits	$	1,318,270	$	1,279,681
Interest-bearing deposits:							Interest-bearing deposits:
Demand deposits	1,441,540			1,377,171			Demand deposits	1,615,979		1,677,682
Savings deposits	819,255			782,766			Savings deposits	836,042		796,702
Time deposits	638,684			670,077			Time deposits	637,012		606,010
Total deposits	4,003,153			3,885,933			Total deposits	4,407,303		4,360,075
Short-term borrowings	73,185			189,768			Short-term borrowings	18,415		18,680
Long-term debt	145,263			145,330			Long-term debt	210,069		150,098
Subordinated notes	94,635			94,574			Subordinated notes	94,879		94,818
Operating lease liabilities	39,102			—			Operating lease liabilities	37,919		37,617
Accrued interest payable and other liabilities	42,583			44,609			Accrued interest payable and other liabilities	44,632		44,514
Total liabilities	4,397,921			4,360,214			Total liabilities	4,813,217		4,705,802
SHAREHOLDERS’ EQUITY							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 March 31, 2020 and December 31, 2019; 31,556,799 shares issued at March 31, 2020 and December 31, 2019; 29,164,782 and 29,334,629 shares outstanding at March 31, 2020 and December 31, 2019, respectively							Common stock, $5 par value: 48,000,000 shares authorized at March 31, 2020 and December 31, 2019; 31,556,799 shares issued at March 31, 2020 and December 31, 2019; 29,164,782 and 29,334,629 shares outstanding at March 31, 2020 and December 31, 2019, respectively	157,784		157,784
Additional paid-in capital	293,255			292,401			Additional paid-in capital	295,439		294,999
Retained earnings	256,746			248,167			Retained earnings	272,478		288,803
Accumulated other comprehensive loss, net of tax benefit	(24,238		)	(28,416		)	Accumulated other comprehensive loss, net of tax benefit	(25,628)		(21,730)
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; 2,392,017 and 2,222,170 shares at March 31, 2020 and December 31, 2019, respectively							Treasury stock, at cost; 2,392,017 and 2,222,170 shares at March 31, 2020 and December 31, 2019, respectively	(48,522)		(44,734)
Total shareholders’ equity	637,606			624,133			Total shareholders’ equity	651,551		675,122
Total liabilities and shareholders’ equity	$	5,035,527		$	4,984,347		Total liabilities and shareholders’ equity	$	5,464,768	$	5,380,924

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

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended March 31,
(Dollars in thousands)	2020															2019
			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Income	$	232		$	(606)		$	838		$	19,578		$	3,499		$	16,079
Other comprehensive loss:
Net unrealized (losses) gains on available-for-sale investment securities:
Net unrealized holding (losses) gains arising during the period	(4,965)			(1,042)			(3,923)			5,120			1,075			4,045
Provision for credit losses	597			125			472			—			—			—
Less: reclassification adjustment for net gains on sales realized in net income (1)	(695)			(146)			(549)			(1)			—			(1)

Total net unrealized (losses) gains on available-for-sale investment securities	(5,063)			(1,063)			(4,000)			5,119			1,075			4,044
Net unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period	(497)			(104)			(393)			(168)			(36)			(132)
Less: reclassification adjustment for net losses (gains) realized in net income (2)	29			6			23			(16)			(3)			(13)
Total net unrealized losses on interest rate swaps used in cash flow hedges	(468)			(98)			(370)			(184)			(39)			(145)
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)	297			62			235			294			62			232
Accretion of prior service cost included in net periodic pension costs (3)	—			—			—			(45)			(9)			(36)
Total defined benefit pension plans	297			62			235			249			53			196
Other comprehensive (loss) income	(5,234)			(1,099)			(4,135)			5,184			1,089			4,095
Total comprehensive (loss) income	$	(5,002)		$	(1,705)		$	(3,297)		$	24,762		$	4,588		$	20,174

Three Months Ended March 31,
(Dollars in thousands) 2019 2018
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
Other comprehensive income:
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 )
Less: reclassification adjustment for net gains on sales realized in net income (1) (1 ) —
(1 ) (10 ) (2 ) (8 )
Total net unrealized gains (losses) on available-for-sale investment securities 5,119
1,075
4,044
(6,348 ) (1,333 ) (5,015 )
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
Less: reclassification adjustment for net (gains) losses realized in net income (2) (16 ) (3 ) (13 ) 20
4
16
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges (184 ) (39 ) (145 ) 232
49
183
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3) 294
62
232
281
59
222
Accretion of prior service cost included in net periodic pension costs (3) (45 ) (9 ) (36 ) (71 ) (15 ) (56 )
Total defined benefit pension plans 249
53
196
210
44
166
Other comprehensive income (loss) 5,184
1,089
4,095
(5,906 ) (1,240 ) (4,666 )
Total comprehensive income $ 24,762
$ 4,588
$ 20,174
$ 9,770
$ 1,586
$ 8,184

(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.

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in ~~2019"~~2020" for additional information.

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
(Dollars in thousands)	2020		2019
Cash flows from operating activities:
Net income	$	838	$	16,079
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	21,049		2,685
Depreciation of premises and equipment	1,258		1,318
Net amortization of investment securities premiums and discounts	383		379
Net gain on sales of investment securities	(695)		(1)
Net gain on mortgage banking activities	(2,744)		(483)



Bank owned life insurance income	(734)		(952)
Stock-based compensation	435		577
Intangible expenses	330		426
Other adjustments to reconcile net income to cash provided by (used in) operating activities	273		(205)

Originations of loans held for sale	(63,730)		(30,422)
Proceeds from the sale of loans held for sale	58,959		31,745
Contributions to pension and other postretirement benefit plans	(68)		(66)
Increase in accrued interest receivable and other assets	(2,752)		(3,709)
Decrease in accrued interest payable and other liabilities	(1,750)		(316)
Net cash provided by operating activities	11,052		17,055
Cash flows from investing activities:


Net capital expenditures	(379)		(850)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	12,475		4,288
Proceeds from maturities, calls and principal repayments of securities available-for-sale	12,896		17,085
Proceeds from sales of securities available-for-sale	62,276		491
Purchases of investment securities held-to-maturity	(43,116)		(10,309)
Purchases of investment securities available-for-sale	(32,242)		—
Proceeds from sales of money market mutual funds	4,753		10
Purchases of money market mutual funds	(4,644)		(606)
Net increase in other investments	(211)		(4,362)


Net increase in loans and leases	(62,368)		(61,582)
Proceeds from sales of other real estate owned	—		599



Net cash used in investing activities	(50,560)		(55,236)
Cash flows from financing activities:
Net increase in deposits	47,229		117,239
Net decrease in short-term borrowings	(265)		(116,583)
Proceeds from issuance of long-term debt	125,000		—
Repayment of long-term debt	(65,000)		—



Payment of contingent consideration on acquisitions	(31)		(33)

Purchases of treasury stock	(4,438)		(950)
Stock issued under dividend reinvestment and employee stock purchase plans	572		571
Proceeds from exercise of stock options	94		521
Cash dividends paid	(5,879)		(5,863)
Net cash provided by (used in) financing activities	97,282		(5,098)
Net increase (decrease) in cash and cash equivalents	57,774		(43,279)
Cash and cash equivalents at beginning of year	125,128		109,420
Cash and cash equivalents at end of period	$	182,902	$	66,141



Supplemental disclosures of cash flow information:
Cash paid for interest	$	9,420	$	10,629
Cash paid for income taxes, net of refunds	32		25

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,
(Dollars in thousands) 2019 2018
Cash flows from operating activities:
Net income $ 16,079
$ 12,850
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses 2,685
2,053
Depreciation of premises and equipment 1,318
1,408
Net amortization of investment securities premiums and discounts 379
402
Net gain on sales of investment securities (1 ) (10 )
Net gain on mortgage banking activities (483 ) (716 )
Bank owned life insurance income (952 ) (669 )
Net accretion of acquisition accounting fair value adjustments (60 ) (146 )
Stock-based compensation 577
847
Intangible expenses 426
612
Other adjustments to reconcile net income to cash used in operating activities (145 ) (18 )
Originations of loans held for sale (30,422 ) (35,151 )
Proceeds from the sale of loans held for sale 31,745
37,003
Contributions to pension and other postretirement benefit plans (66 ) (67 )
Increase in accrued interest receivable and other assets (3,709 ) (3,307 )
(Decrease) increase in accrued interest payable and other liabilities (316 ) 2,805
Net cash provided by operating activities 17,055
17,896
Cash flows from investing activities:
Net capital expenditures (850 ) (1,009 )
Proceeds from maturities, calls and principal repayments of securities held-to-maturity 4,288
1,721
Proceeds from maturities, calls and principal repayments of securities available-for-sale 17,085
19,423
Proceeds from sales of securities available-for-sale 491
1,010
Purchases of investment securities held-to-maturity (10,309 ) (30,641 )
Purchases of investment securities available-for-sale —
(1,487 )
Proceeds from sales of money market mutual funds 10
1,016
Purchases of money market mutual funds (606 ) (6,205 )
Net increase in other investments (4,362 ) (5,597 )
Net increase in loans and leases (61,582 ) (69,830 )
Proceeds from sales of other real estate owned 599
—
Purchases of bank owned life insurance —
(777 )
Net cash used in investing activities (55,236 ) (92,376 )
Cash flows from financing activities:
Net increase (decrease) in deposits 117,239
(57,575 )
Net (decrease) increase in short-term borrowings (116,583 ) 110,995
Payment of contingent consideration on acquisitions (33 ) (34 )
Purchases of treasury stock (950 ) (655 )
Stock issued under dividend reinvestment and employee stock purchase plans 571
569
Proceeds from exercise of stock options 521
268
Cash dividends paid (5,863 ) (5,866 )
Net cash (used in) provided by financing activities (5,098 ) 47,702
Net decrease in cash and cash equivalents (43,279 ) (26,778 )
Cash and cash equivalents at beginning of year 109,420
75,409
Cash and cash equivalents at end of period $ 66,141
$ 48,631
Supplemental disclosures of cash flow information:
Cash paid for interest $ 10,629
$ 6,361
Cash paid for income taxes, net of refunds 25
145

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

Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed ~~Unaudited~~ Consolidated Financial Statements (Unaudited)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed 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~~condensed 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 period ended March 31, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2019~~2020 or for any other period. ~~It is suggested that these~~These unaudited condensed 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,~~2019, which was filed with the SEC on February 28, ~~2019.~~2020.

Use of Estimates

The preparation of the unaudited condensed 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~~credit losses.

Accounting Pronouncements Adopted in ~~2019~~2020

~~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 replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets ~~such as~~measured at amortized cost, including loans and held-to-maturity securities, net investments in leases ~~certain~~accounted for under ASC 842, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities ~~bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases~~to be presented as an allowance rather than as a write-down when management does not intend to sell or believes 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 informationnot more likely than not they will be required 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~~sell. This new 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~~results reported for periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards. See Note 1, "Summary of Significant Accounting Polices - Reserve for Loan and Lease Losses" in the ~~process of evaluating~~Annual Report on Form 10-K for the ~~impact of~~year ended December 31, 2019, which was filed with the ~~adoption of this guidance~~SEC on February 28, 2020, for further information on the Corporation's ~~financial statements; however, it is anticipated that the~~ reserve for loan and lease losses ~~will increase upon adoption~~methodology under the incurred loss model.

The Corporation adopted this guidance, and subsequent related updates, for all financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, available-for-sale debt securities and unfunded commitments using the modified retrospective approach. On January 1, 2020, the Corporation recorded a cumulative effect decrease to retained earnings of $11.3 million, net of tax, of which $10.2 million related to loans and net investment in leases, $905 thousand related to unfunded commitments, and $237 thousand related to available-for-sale securities.

The Corporation adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $84 thousand of the allowance for credit losses (ACL).

Table of Contents

The Corporation adopted ASC 326 using the prospective transition approach for presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2020, though no such charges had been recorded on the securities held by the Corporation as of the date of adoption.

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 also 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. This new guidance 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 adopted ASU No. 2019-04 and incorporated the applicable items described as follows into the CECL model. Management addressed the provision in ASU No. 2019-04 related to how a company considers recoveries by performing an analysis to estimate recoveries that could be reasonably expected based on historical experience as described further below. Management addressed the provision in ASU No. 2019-04 related to how a company considers extension options when estimating expected credit losses as described further below. Management reviewed the provision in the ASU No. 2019-04 related to Topics 815 and ~~that~~825 and determined these amendments did not have a material impact on the ~~increased reserve level will decrease shareholders' equity and~~Corporation's financial statements.

The Corporation expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk. The impact ~~regulatory capital and ratios.~~of the change from the incurred loss model to the current expected credit loss model is detailed below.


	January 1, 2020
	Pre-adoption	Adoption Impact	As Reported
Assets:



ACL on debt securities: available-for-sale:
Corporate bonds	—	300	300
ACL on loans and leases:
Commercial, financial and agricultural	8,759	5,284	14,043
Real estate-commercial	15,750	6,208	21,958
Real estate-construction	2,446	29	2,475
Real estate-residential secured for business purpose	2,622	2,502	5,124
Real estate-residential secured for personal purpose	2,713	(706)	2,007
Real estate-home equity secured for personal purpose	1,076	(364)	712
Loans to individuals	470	104	574
Lease financings	1,311	(135)	1,176
Unallocated	184	—	184
Total ACL on loans and leases	35,331	12,922	48,253

Liabilities:
Reserve for unfunded commitments	420	1,145	1,565

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 certain disclosures relating to investments in certain entities that calculate net asset ~~value. Additional disclosures required by this ASU include: 1) change~~value, changes 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~~Corporation adopted this guidance and the related 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 ordisclosures prospectively on January 1, ~~2020 for the Corporation. Early adoption is permitted. The Corporation does not expect the adoption~~2020.

Table of ~~this ASU will have a material impact on the Corporation's financial statements but will result in revised disclosures for fair value.~~Contents

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~~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~~adopted this guidance as of January 1, 2020; the adoption ~~of this ASU will~~did not have a material impact on the Corporation's financial statements.

Recent Accounting Pronouncements Yet to Be Adopted

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~~beginning after December 15, 2020 or ~~December 31, 2020~~January 1, 2021 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statement disclosures but will result in revised disclosures for retirement plans and other postretirement benefits.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The ASU adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. This ASU is effective for fiscal years beginning after December 15, 2020 or January 1, 2021 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In January 2020, the FASB issued ASU No. 2020-01, "Investments—Equity Securities (Topic 321): Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." This ASU 2020-01 clarifies the interactions between ASC 321, ASC 323 and ASC 815 and addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. This ASU is effective for fiscal years beginning after December 15, 2021 or January 1, 2022 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance allows for companies to: (1) account for certain contract modifications as a continuation of the existing contract without additional analysis; (2) continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness; and (3) make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading. This ASU is available for adoption effective immediately, or as of January 1, 2020 or any date thereafter for the Corporation, and applies prospectively to contract modifications and hedging relationships. The one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made at any time after March 12, 2020. The Corporation anticipates adopting this ASU and will continue to analyze the provisions of the ASU in connection with ongoing procedures to monitor the work of the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York in identifying an alternative U.S. dollar reference interest rate. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Corporation's financial statements.

Table of Contents

Investment Securities

Securities are classified as investment securities held-to-maturity and carried at amortized cost if management has the positive intent and ability to hold the securities to maturity. Securities purchased with the intention of recognizing short-term profits are placed in the trading account and are carried at fair value. Securities classified as available-for-sale are those securities that the Corporation intends to hold for an indefinite period of time but not necessarily to maturity. Securities available-for-sale are carried at fair value with unrealized gains and losses, net of estimated income taxes, reflected in accumulated other comprehensive income, a separate component of shareholders' equity, and credit losses recognized in earnings. Any decision to sell a security classified as available-for-sale would be based on various factors, including interest rates, changes in the maturity or mix of the Corporation's assets and liabilities, liquidity needs, regulatory capital considerations and other factors. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

Purchase premiums and discounts are recognized in interest income using the interest method over the expected life of the securities except for premiums on callable debt securities which are amortized to the earliest call date. Due to volatility in the financial markets, there is the risk that any future fair value could vary from that disclosed in the accompanying financial statements. Realized gains and losses on the sale of investment securities are recorded on the trade date, determined using the specific identification method and are included in the consolidated statements of income.

The Corporation measures expected credit losses on held-to-maturity debt securities, which are comprised of U.S. government agency securities and residential mortgage-backed securities. The Corporation's residential mortgage-backed security holdings are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses.

Accrued interest receivable on held-to-maturity debt securities totaled $600 thousand at March 31, 2020 and is included within Accrued interest receivable and other assets. This amount is excluded from the estimate of expected credit losses. Held-to-maturity debt securities are 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. When held-to-maturity debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

The Corporation measures expected credit losses on available-for-sale debt securities when the Corporation does not intend to sell, or when it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Corporation considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate the present value of expected cash flows.The forecast data is obtained via a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the Corporation believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale debt securities totaled $875 thousand at March 31, 2020 and is included within Accrued interest receivable and other assets. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are 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. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Equity securities are measured at fair value with changes in fair value recognized in net income.

Loans and Leases

Loans that the Corporation has the intent and ability to hold for the foreseeable future or until maturity or payoff are

Table of Contents

reported at amortized cost, which is the principal amount, net of deferred fees and costs, and the allowance for credit losses. Lease financings are stated at net investment amount, consisting of the present value of lease payments and unguaranteed residual value, plus initial direct costs. Loan commitments are made to accommodate the financial needs of the customers. These commitments represent off-balance sheet items that are unfunded. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments. Accrual of interest income on loans and leases ceases when collectability of interest and/or principal is questionable. If it is determined that the collection of interest previously accrued is uncertain, such accrual is reversed and charged to current earnings. Loans and leases are considered past due based upon the failure to comply with contractual terms.

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. When a loan or lease is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. 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 the 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 and 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.

A loan or lease is classified as a troubled debt restructuring when a concession has been granted to an existing borrower experiencing financial difficulties. 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 90 days past due.

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

Loan and Lease Fees

Fees collected upon loan or lease origination and certain direct costs of originating loans and leases are deferred and recognized over the contractual lives of the related loans and leases as yield adjustments using the interest method. Upon prepayment or other disposition of the underlying loans and leases before their contractual maturities, any associated unearned fees or unamortized costs are recognized. 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 classified within net interest income on leases.

Allowance for Credit Losses on Loans and Leases

The allowance for credit losses (ACL) on loans and leases is a valuation account that is used to present the net amount expected to be collected on a loan or lease. The ACL for loans and leases is adjusted through provision for credit losses as a charge against, or credit to, earnings. Loans and leases deemed to be uncollectible are charged against the ACL on loans and leases, and any subsequent recoveries are credited to the ACL. Management evaluates the ACL on a quarterly basis. When changes in the reserve are necessary, an adjustment is made.

Management utilizes a discounted cash flow (DCF) model to calculate the present value of the expected cash flows for pools of loans and leases that share similar risk characteristics and compares the results of this calculation to the amortized cost basis to determine its allowance for credit loss balance.

Management uses relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts in calculating its ACL. Historical credit loss experience provides the basis for the estimation of expected credit losses. Management determines whether there is a need to make qualitative adjustments to historical loss information by monitoring certain factors including differences in current loan-specific risk characteristics as well as for changes in external or environmental conditions, or other relevant factors.

The contractual term used in projecting the cash flows of a loan is based on the maturity date of a loan, and is adjusted for prepayment or curtailment assumptions which may shorten that contractual time period. Options to extend are considered by management in determining the contractual term.

Table of Contents

The key inputs to the DCF model are (1) probability of default, (2) loss given default, (3) prepayment and curtailment rates, (4) reasonable and supportable economic forecasts, (5) forecast reversion period, (6) expected recoveries on charged off loans, and (7) discount rate.

Probability of Default (PD)

In order to incorporate economic factors into forecasting within the DCF model, management elected to use the Loss Driver method to generate the PD rate inputs. The Loss Driver method analyzes how one or more economic factors change the default rate using a statistical regression analysis.Management selected economic factors that had strong correlations to historical default rates.

Loss Given Default (LGD)

Management elected to use the Frye Jacobs parameter for determining the LGD input, which is an estimation technique that derives a LGD input from segment specific risk curves that correlates LGD with PD.

Prepayment and Curtailment rates

PrepaymentRates: Loan level transaction data is used to calculate a quarterly prepayment rate for each of the most recent four quarters prior to the measurement date. Those quarterly rates are annualized and the average of the annualized rates is used in the DCF calculation for fixed payment or term loans. Rates are calculated for each pool.

Curtailment Rates: Loan level transaction data is used to calculate annual curtailment rates using any available historical loan level data. The average of the historical rates is used in the DCF model for interest only payment or line of credit type loans. Rates are calculated for each pool.

Reasonable and Supportable Forecasts

The forecast data used in the DCF model is obtained via a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario.

Forecast Reversion Period

Management uses forecasts to predict how economic factors will perform and has determined to use a four quarter forecast period as well as a four quarter straight-line reversion period to historical averages (also commonly referred to as the mean reversion period).

Expected Recoveries on Charged-off Loans

Management performs an analysis to estimate recoveries that could be reasonably expected based on historical experience in order to account for expected recoveries on loans that have already been fully charged-off and are not included in the ACL calculation.

Discount Rate

The effective interest rate of the underlying loans and leases of the Corporation serves as the discount rate applied to the expected periodic cash flows. Management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

Individual Evaluation

Management evaluates individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. Instruments will not be included in both collective and individual analyses. Individual analysis will establish a specific reserve for instruments in scope. All loans on nonaccrual status are individually evaluated for a specific reserve.

Table of Contents

Management considers a financial asset as collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral, based on management's assessment as of the reporting date.

Accrued Interest Receivable on Loans and Leases

Accrued interest receivable on loans and leases held for investment totaled $12.4 million at March 31, 2020 and is included within Accrued interest receivable and other assets. This amount is excluded from the estimate of expected credit losses.

Reserve for Unfunded Commitments

The Corporation maintains a reserve in Accrued expenses and other liabilities for off-balance sheet credit exposures such as unfunded commitments that are currently unfunded in categories with historical loss experience. Management calculates funding rates using loan level data history at the portfolio level. The most recent quarter’s (the actual measurement quarter) funding rate is subtracted from the maximum historical funding rate which is then applied to each pool’s total available line of credit. The applicable pool level loss rates for the current quarter is then applied to calculate the reserve for unfunded commitments liability each period.

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:~~share. For additional information on the calculation of basic and diluted earnings per share, see Note 1, "Summary of Significant Accounting Policies - Earnings per Share" of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019.


	Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2020		2019
Numerator:
Net income	$	838	$	16,079
Net income allocated to unvested restricted stock awards	—		(67)
Net income allocated to common shares	$	838	$	16,012
Denominator:
Weighted average shares outstanding	29,286		29,277
Average unvested restricted stock awards	(68)		(131)
Denominator for basic earnings per share—weighted-average shares outstanding	29,218		29,146
Effect of dilutive securities—employee stock options and restricted stock units	65		59
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding	29,283		29,205
Basic earnings per share	$	0.03	$	0.55
Diluted earnings per share	$	0.03	$	0.55
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share	329		348

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

Table of Contents

Note 3. Investment Securities

The following table shows the amortized cost, the estimated fair value and the allowance for credit losses of the held-to-maturity securities and available-for-sale securities at March 31, 2020 and the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at ~~March~~December 31, 2019, ~~and December 31, 2018,~~ by contractual maturity within each type:


	At March 31, 2019									At December 31, 2018										At March 31, 2020																		At December 31, 2019
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Held-to-Maturity																			Securities Held-to-Maturity
U.S. government corporations and agencies:																			U.S. government corporations and agencies:
After 1 year to 5 years	$	6,997	$	—	$	(46	)	$	6,951	$	6,996	$	—	$	(104	)	$	6,892	After 1 year to 5 years	$	6,998	$	229	$	—	$	—	$	7,227	$	6,997	$	66	$	—	$	7,063
	6,997		—		(46		)	6,951		6,996		—		(104		)	6,892			6,998		229		—		—		7,227		6,997		66		—		7,063
Residential mortgage-backed securities:																			Residential mortgage-backed securities:
After 5 years to 10 years	11,005		23		(54		)	10,974		11,573		—		(135		)	11,438		After 5 years to 10 years	8,449		310		—		—		8,759		9,083		129		—		9,212
Over 10 years	130,468		852		(285		)	131,035		124,065		287		(1,107		)	123,245		Over 10 years	206,942		6,624		—		—		213,566		175,972		2,749		(110)		178,611
	141,473		875		(339		)	142,009		135,638		287		(1,242		)	134,683			215,391		6,934		—		—		222,325		185,055		2,878		(110)		187,823

Total	$	148,470	$	875	$	(385	)	$	148,960	$	142,634	$	287	$	(1,346	)	$	141,575	Total	$	222,389	$	7,163	$	—	$	—	$	229,552	$	192,052	$	2,944	$	(110)	$	194,886
Securities Available-for-Sale																			Securities Available-for-Sale

U.S. government corporations and agencies:																			U.S. government corporations and agencies:
Within 1 year	$	10,067	$	—	$	(41	)	$	10,026	$	15,108	$	—	$	(90	)	$	15,018	Within 1 year	$	300	$	—	$	—	—		$	300	$	301	$	—	$	(1)	$	300
After 1 year to 5 years	302		—		(5		)	297		303		—		(6		)	297

	10,369		—		(46		)	10,323		15,411		—		(96		)	15,315			300		—		—		—		300		301		—		(1)		300
State and political subdivisions:																			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 1 year to 5 years	5,062		35		—		—		5,097		4,717		23		—		4,740
After 5 years to 10 years	40,506		458		—			40,964		43,923		318		(163		)	44,078		After 5 years to 10 years	25,305		198		—		—		25,503		29,563		292		—		29,855
	61,428		547		(1		)	61,974		65,282		358		(225		)	65,415
																				30,367		233		—		—		30,600		34,280		315		—		34,595
Residential mortgage-backed securities:																			Residential mortgage-backed securities:
Within 1 year																			Within 1 year	185		9		—		��		194		304		9		—		313
After 1 year to 5 years	6,204		11		(75		)	6,140		5,799		3		(70		)	5,732		After 1 year to 5 years	136		4		—		—		140		611		3		(1)		613
After 5 years to 10 years	46,409		14		(711		)	45,712		49,904		6		(1,381		)	48,529		After 5 years to 10 years	2,534		72		—		—		2,606		36,893		107		(21)		36,979
Over 10 years	97,524		52		(1,663		)	95,913		100,873		26		(3,398		)	97,501		Over 10 years	80,291		2,192		(1)		—		82,482		80,630		378		(453)		80,555
	150,137		77		(2,449		)	147,765		156,576		35		(4,849		)	151,762			83,146		2,277		(1)		—		85,422		118,438		497		(475)		118,460
Collateralized mortgage obligations:																			Collateralized mortgage obligations:

After 5 years to 10 years	1,589		—		(60		)	1,529		1,677		—		(78		)	1,599		After 5 years to 10 years	974		4		—		—		978		2,377		6		(22)		2,361
Over 10 years	1,260		—		(3		)	1,257		1,305		—		(16		)	1,289

	2,849		—		(63		)	2,786		2,982		—		(94		)	2,888			974		4		—		—		978		2,377		6		(22)		2,361
Corporate bonds:																			Corporate bonds:
Within 1 year	8,299		—		(42		)	8,257		7,806		—		(68		)	7,738		Within 1 year	4,503		3		(5)		(4)		4,497		6,012		1		(4)		6,009
After 1 year to 5 years	16,512		7		(104		)	16,415		18,508		1		(332		)	18,177		After 1 year to 5 years	28,847		486		(385)		(46)		28,902		29,606		596		(61)		30,141
After 5 years to 10 years	15,139		—		(289		)	14,850		16,146		—		(392		)	15,754		After 5 years to 10 years	499		22		—		—		521		—		—		—		—
Over 10 years	60,000		—		(6,722		)	53,278		60,000		—		(8,542		)	51,458		Over 10 years	60,000		—		(11,487)		(847)		47,666		60,000		—		(4,942)		55,058
	99,950		7		(7,157		)	92,800		102,460		1		(9,334		)	93,127			93,849		511		(11,877)		(897)		81,586		95,618		597		(5,007)		91,208
Total	$	324,733	$	631	$	(9,716	)	$	315,648	$	342,711	$	394	$	(14,598	)	$	328,507	Total	$	208,636	$	3,025	$	(11,878)	$	(897)	$	198,886	$	251,014	$	1,415	$	(5,505)	$	246,924

Gross unrealized gains and losses are recognized in accumulated other comprehensive income (loss) and changes in the allowance for credit loss are recorded in the provision for credit loss expense. 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~~$335.5 million and ~~$344.5~~$340.8 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, were pledged to secure public funds deposits and other contractual obligations. In addition, securities of ~~$298 thousand~~$30.2

Table of Contents

million and ~~$296 thousand~~$12.5 million were pledged to secure credit derivatives and interest rate swaps at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31,
(Dollars in thousands)	2020		2019
Securities available-for-sale:
Proceeds from sales	$	62,276	$	491
Gross realized gains on sales	709		1
Gross realized losses on sales	14		—
Tax expense related to net realized gains on sales	146		—

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, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no0 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 for which an allowance for credit losses has not been recorded at March 31, ~~2019~~2020 and December 31, ~~2018~~2019, by the length of time those securities were in a continuous loss position. ~~For~~


	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, 2020





Securities Available-for-Sale



Residential mortgage-backed securities	$	466	$	(1)	$	35	$	—	$	501	$	(1)


Total	$	466	$	(1)	$	35	$	—	$	501	$	(1)
At December 31, 2019
Securities Held-to-Maturity

Residential mortgage-backed securities	$	26,767	$	(110)	$	—	$	—	$	26,767	$	(110)

Total	$	26,767	$	(110)	$	—	$	—	$	26,767	$	(110)
Securities Available-for-Sale

U.S. government corporations and agencies	$	—	$	—	$	300	$	(1)	$	300	$	(1)

Residential mortgage-backed securities	21,827		(62)		48,672		(413)		70,499		(475)
Collateralized mortgage obligations	—		—		1,295		(22)		1,295		(22)
Corporate bonds	998		—		65,506		(5,007)		66,504		(5,007)
Total	$	22,825	$	(62)	$	115,773	$	(5,443)	$	138,598	$	(5,505)

At March 31, 2020, the ~~investment~~fair value of available-for-sale securities in an unrealized loss position ~~the Corporation~~for which an allowance for credit losses has ~~concluded, based on its analysis, that the~~not been recorded was $501 thousand, including unrealized losses of $1 thousand. These holdings were comprised of 4 federal agency mortgage-backed securities, which are ~~primarily caused~~U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the ~~movement~~U.S. government, are highly rated by major rating agencies and have a long history of ~~interest rates and current market conditions and are~~no credit losses. The Corporation does not 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 requiredintend 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 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, 2019, gross unrealized losses for~~ securities ~~available-for-sale~~ 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. The Corporation concluded that the decline in the value of these securities was not indicative of a credit loss. The Corporation did not recognize any credit losses on these available-for-sale debt securities for the three months ended March 31, 2020 or other-than-temporary impairment charges for the three months ended March 31, 2019.

At March 31, 2020, no held-to-maturity securities held by the Corporation were in a unrealized loss position. The Corporation did not recognize any credit losses on these held-to-maturity debt securities for the three months ended March 31, 2020 or other-than-temporary impairment charges for the three months ended March 31, 2019.

Table of Contents

The table below presents a rollforward by major security type for the three months ended March 31, 2020 of the allowance for credit losses on securities available-for-sale.


	Corporate Bonds
Three months ended March 31, 2020
Securities Available-for-Sale
Beginning balance	$	—
Adjustment to initially apply ASU No. 2016-13 for CECL	(300)
Additions for securities for which no previous expected credit losses were recognized	(25)
Change in securities for which a previous expected credit loss was recognized	(572)
Ending balance	$	(897)

At March 31, 2020, the fair value of available-for-sale securities in an unrealized loss position was $63.2 million, including unrealized losses of $11.9 million, and allowance for credit losses of $897 thousand. These holdings include available-for-sale securities with a fair value of $47.7 million which were in an unrealized loss position of $11.5 million for a period of greater than twelve ~~months or longer, totaled $9.7 million. Three federal agency bonds, thirty-three~~months. These holdings were comprised of NaN investment grade corporate bonds 122 federal agency residential mortgage securities, two investment grade municipal bonds and two collateralized mortgage obligation bonds had respective unrealized loss positions of $46 thousand, $7.1 million, $2.4 million, $1 thousand and $63 thousand, respectively. The fairwhich fluctuate in value ~~of these 162 securities fluctuate with~~based on changes in market conditions, which for these underlying securities is primarily due to changes in the interest rate environment. The Corporation does not ~~intend~~have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery. The underlying issuers continue to make timely principal and interest payments on the securities. The Corporation concluded that a portion of decline in ~~an unrealized loss position~~

~~and is unlikely to be required to sell~~the value of these securities ~~before~~was indicative of 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.~~credit loss. The Corporation ~~did not recognize any other-than-temporary impairment charges~~recorded a provision for credit losses of $597 thousand on these available-for-sale debt securities for the three months ended March 31, ~~2019 and 2018.~~2020. The Corporation did not record any other-than-temporary impairment charges for the three months ended March 31, 2019.

The Corporation recognized a $4$268 thousand net ~~gain~~loss and $4 thousand net ~~loss~~gain on equity securities during the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, in other noninterest income. There were no0 sales of equity securities during the three months ended March 31, ~~2019~~2020 or March 31, ~~2018.~~2019.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories


	At March 31, 2019
(Dollars in thousands)	Originated			Acquired		Total			(Dollars in thousands)	At March 31, 2020		At December 31, 2019
Commercial, financial and agricultural	$	910,493		$	17,145	$	927,638		Commercial, financial and agricultural	$	944,189	$	947,029
Real estate-commercial	1,576,250			222,955		1,799,205			Real estate-commercial	2,100,699		2,040,441
Real estate-construction	216,964			—		216,964			Real estate-construction	215,150		232,595
Real estate-residential secured for business purpose	304,574			56,348		360,922			Real estate-residential secured for business purpose	377,644		373,973
Real estate-residential secured for personal purpose	361,488			47,652		409,140			Real estate-residential secured for personal purpose	454,998		439,059
Real estate-home equity secured for personal purpose	172,587			8,311		180,898			Real estate-home equity secured for personal purpose	177,405		174,435
Loans to individuals	32,462			141		32,603			Loans to individuals	29,170		29,883
Lease financings	140,509			—		140,509			Lease financings	149,570		149,421
Total loans and leases held for investment, net of deferred income	$	3,715,327		$	352,552	$	4,067,879		Total loans and leases held for investment, net of deferred income	$	4,448,825	$	4,386,836
Imputed interest on lease financings, included in the above table	$	(15,082	)	$	—	$	(15,082	)	Imputed interest on lease financings, included in the above table	$	(16,106)	$	(16,340)
Net deferred costs, included in the above table	4,426			—		4,426			Net deferred costs, included in the above table	5,754		5,999
Overdraft deposits included in the above table	208			—		208			Overdraft deposits included in the above table	314		407

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~~Table of acquired loans at March 31, 2019 totaled $352.6 million, including $301.3 million of loans from the Fox Chase acquisition and $51.3 million from the Valley Green Bank acquisition. At March 31, 2019, loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled $693 thousand representing $62 thousand from the Fox Chase acquisition and $631 thousand from the Valley Green Bank acquisition. Acquired credit impaired loans are accounted for in accordance with Accounting Standards Codification (ASC) Topic 310-30.Contents

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

(Dollars in thousands) At March 31, 2019 At December 31, 2018
Outstanding principal balance $ 871
$ 893
Carrying amount 693
695
Reserve for loan losses —
—

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

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 and ~~the recorded investment in~~nonaccrual loans and leases ~~90 days or more past due which are accruing interest~~ at March 31, ~~2019~~2020:


	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		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At March 31, 2020
Commercial, financial and agricultural	$	1,621	$	709	$	—	$	2,330	$	937,925	$	940,255	$	3,934	$	944,189
Real estate—commercial real estate and construction:
Commercial real estate	23,325		2,091		722		26,138		2,045,734		2,071,872		28,827		2,100,699
Construction	4,076		—		—		4,076		211,074		215,150		—		215,150
Real estate—residential and home equity:
Residential secured for business purpose	4,479		1,164		400		6,043		370,331		376,374		1,270		377,644
Residential secured for personal purpose	5,258		1,486		426		7,170		446,548		453,718		1,280		454,998
Home equity secured for personal purpose	819		107		—		926		175,659		176,585		820		177,405
Loans to individuals	219		31		63		313		28,857		29,170		—		29,170
Lease financings	709		81		166		956		148,119		149,075		495		149,570
Total	$	40,506	$	5,669	$	1,777	$	47,952	$	4,364,247	$	4,412,199	$	36,626	$	4,448,825

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 nonaccrual loans and leases at December 31, ~~2018:~~2019:


	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 December 31, 2019
Commercial, financial and agricultural	$	2,602	$	150	$	20	$	2,772	$	940,815	$	943,587	$	—	$	3,442	$	947,029
Real estate—commercial real estate and construction:
Commercial real estate	3,473		266		—		3,739		2,008,568		2,012,307		206		27,928		2,040,441
Construction	—		—		—		—		232,338		232,338		—		257		232,595
Real estate—residential and home equity:
Residential secured for business purpose	2,078		2,442		—		4,520		366,473		370,993		—		2,980		373,973
Residential secured for personal purpose	2,969		446		—		3,415		433,548		436,963		58		2,038		439,059
Home equity secured for personal purpose	605		297		—		902		172,106		173,008		—		1,427		174,435
Loans to individuals	157		73		74		304		29,579		29,883		—		—		29,883
Lease financings	1,409		296		49		1,754		147,161		148,915		—		506		149,421
Total	$	13,293	$	3,970	$	143	$	17,406	$	4,330,588	$	4,347,994	$	264	$	38,578	$	4,386,836

(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

Table of Contents

Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at March 31, ~~2019~~2020 and December 31, ~~2018. Nonperforming loans exclude acquired credit impaired loans from Fox Chase and Valley Green.~~2019.


	At March 31, 2020														At December 31, 2019
(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


Commercial, financial and agricultural	$	3,934	$	—	$	—	$	3,934	$	3,442	$	—	$	20	$	3,462
Real estate—commercial real estate and construction:
Commercial real estate	28,827		—		722		29,549		27,928		—		—		27,928
Construction	—		—		—		—		257		—		—		257
Real estate—residential and home equity:
Residential secured for business purpose	1,270		—		400		1,670		2,980		—		—		2,980
Residential secured for personal purpose	1,280		—		426		1,706		2,038		—		—		2,038
Home equity secured for personal purpose	820		54		—		874		1,427		54		—		1,481
Loans to individuals	—		—		63		63		—		—		74		74
Lease financings	495		—		166		661		506		—		49		555
Total	$	36,626	$	54	$	1,777	$	38,457	$	38,578	$	54	$	143	$	38,775

At March 31, 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
Commercial, financial and agricultural $ 2,904
$ 270
$ —
$ 3,174
$ 3,365
$ 382
$ —
$ 3,747
Real estate—commercial real estate and construction:
Commercial real estate 18,361
—
—
18,361
18,214
—
—
18,214
Construction 106
—
—
106
106
—
—
106
Real estate—residential and home equity:
Residential secured for business purpose 1,232
—
—
1,232
1,318
160
—
1,478
Residential secured for personal purpose 1,636
—
325
1,961
1,587
—
—
1,587
Home equity secured for personal purpose 1,493
—
—
1,493
1,448
—
—
1,448
Loans to individuals —
—
54
54
—
—
55
55
Lease financings 220
—
257
477
170
—
137
307
Total $ 25,952
$ 270
$ 636
$ 26,858
$ 26,208
$ 542
$ 192
$ 26,942

* Includes nonaccrual troubled debt restructured loans of ~~$3.2~~$13.7 million and ~~$1.3~~$13.8 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

The following table presents the amortized cost basis of loans and leases on nonaccrual status and loans 90 days or more past due and still accruing as of March 31, 2020.


(Dollars in thousands)	Nonaccrual With No ACL		Nonaccrual With ACL		Total Nonaccrual		Loans 90 Days or more Past Due and Accruing Interest
At March 31, 2020
Commercial, financial and agricultural	$	2,690	$	1,244	$	3,934	$	—
Real estate-commercial	17,174		11,653		28,827		722

Real estate-residential secured for business purpose	1,010		260		1,270		400
Real estate-residential secured for personal purpose	718		562		1,280		426
Real estate-home equity secured for personal purpose	820		—		820		—
Loans to individuals	—		—		—		63
Lease financings	—		495		495		166
Total	$	22,412	$	14,214	$	36,626	$	1,777

Table of Contents

The following table presents the amortized cost basis of collateral-dependent nonaccrual loans by class of loans as of March 31, 2020.


(Dollars in thousands)	Real Estate		Other ⁽¹⁾		None ⁽²⁾		Total
At March 31, 2020
Commercial, financial and agricultural	$	2,002	$	1,351	$	581	$	3,934
Real estate-commercial	28,827		—		—		28,827

Real estate-residential secured for business purpose	1,270		—		—		1,270
Real estate-residential secured for personal purpose	1,280		—		—		1,280
Real estate-home equity secured for personal purpose	820		—		—		820

Total	$	34,199	$	1,351	$	581	$	36,131

(1) Business assets including accounts receivable and personal property.

(2) Loans fully reserved given lack of collateral.

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, ~~2019~~2020 and December 31, ~~2018.~~2019.

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).~~status. 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,~~quarterly. The Corporation reviews credit quality indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2019.

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 ~~more frequently based~~weaknesses that jeopardize the liquidation of the debt

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


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~~

Table of Contents

Commercial Credit Exposure Credit Risk by Internally Assigned Grades

The following ~~table presents classifications~~tables present by class, the recorded investment in loans and leases held for ~~originated loans:~~investment by credit quality indicator at March 31, 2020 under ASC 326.


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
At March 31, 2020
Commercial, Financial and Agricultural
Risk Rating
1. Pass	$	52,864	$	146,722	$	99,263	$	65,395	$	34,880	$	89,984	$	420,193	$	909,301
2. Special Mention	3		970		1,979		2,841		1,621		1,685		9,678		18,777
3. Substandard	—		1,144		1,356		61		—		628		12,922		16,111

Total	$	52,867	$	148,836	$	102,598	$	68,297	$	36,501	$	92,297	$	442,793	$	944,189

Real Estate-Commercial
Risk Rating
1. Pass	$	161,322	$	613,240	$	358,038	$	357,068	$	194,772	$	305,101	$	44,969	$	2,034,510
2. Special Mention	1,754		12,432		—		1,134		5,092		2,918		582		23,912
3. Substandard	—		944		941		11,219		—		26,424		2,749		42,277

Total	$	163,076	$	626,616	$	358,979	$	369,421	$	199,864	$	334,443	$	48,300	$	2,100,699

Real Estate-Construction
Risk Rating
1. Pass	$	22,374	$	91,509	$	55,864	$	10,987	$	2,950	$	—	$	4,372	$	188,056
2. Special Mention	20,109		—		—		—		—		—		—		20,109
3. Substandard	—		—		6,985		—		—		—		—		6,985

Total	$	42,483	$	91,509	$	62,849	$	10,987	$	2,950	$	—	$	4,372	$	215,150

Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass	$	24,846	$	87,962	$	69,936	$	56,391	$	48,747	$	55,682	$	29,802	$	373,366
2. Special Mention	1,121		475		—		79		743		480		—		2,898
3. Substandard	—		24		—		82		552		654		68		1,380

Total	$	25,967	$	88,461	$	69,936	$	56,552	$	50,042	$	56,816	$	29,870	$	377,644

(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 $ 871,541
$ 1,528,969
$ 216,858
$ 300,736
$ 2,918,104
2. Special Mention 16,680
26,608
—
755
44,043
3. Substandard 22,272
20,673
106
3,083
46,134
4. Doubtful —
—
—
—
—
Total $ 910,493
$ 1,576,250
$ 216,964
$ 304,574
$ 3,008,281
At December 31, 2018
Grade:
1. Pass $ 882,736
$ 1,455,234
$ 215,407
$ 298,356
$ 2,851,733
2. Special Mention 23,287
31,791
—
721
55,799
3. Substandard 7,143
20,554
106
3,316
31,119
4. Doubtful —
—
—
—
—
Total $ 913,166
$ 1,507,579
$ 215,513
$ 302,393
$ 2,938,651

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at March 31, 2020. The Corporation had 0 loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at March 31, 2020.

The following ~~table presents classifications~~tables present by class, the recorded investment in loans and leases held for ~~acquired loans:~~investment by credit quality indicator at December 31, 2019 under ASC 310.


(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At December 31, 2019
Grade:
1. Pass	$	911,848	$	1,974,561	$	201,424	$	367,122	$	3,454,955
2. Special Mention	18,843		24,199		20,987		3,769		67,798
3. Substandard	16,338		41,681		10,184		3,082		71,285

Total	$	947,029	$	2,040,441	$	232,595	$	373,973	$	3,594,038

(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

Table of Contents

Credit Exposure—Real Estate—Residential Secured for Personal Purpose, Real Estate—Home Equity Secured for Personal Purpose, Loans to individuals, Lease ~~Financing~~Financings 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 and loans to individuals and lease financings. ~~Nonperforming loans and leases are loans~~Loans and leases past due 90 days or more, loans and leases on nonaccrual ~~of interest~~status and troubled debt restructured loans and lease ~~modifications. Performing loans and leases~~modifications are ~~reviewed only if the loan becomes 60 days or more past due.~~considered nonperforming. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due. The Corporation reviews credit quality indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2019.

The following table presents classification of loans at March 31, 2020.


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
At March 31, 2020
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing	$	27,745	$	93,752	$	87,429	$	71,235	$	53,602	$	117,858	$	1,671	$	453,292
2. Nonperforming	—		426		57		—		—		1,223		—		1,706
Total	$	27,745	$	94,178	$	87,486	$	71,235	$	53,602	$	119,081	$	1,671	$	454,998

Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing	$	164	$	1,104	$	1,707	$	1,702	$	692	$	3,583	$	167,579	$	176,531
2. Nonperforming	—		—		108		—		—		30		736		874
Total	$	164	$	1,104	$	1,815	$	1,702	$	692	$	3,613	$	168,315	$	177,405

Loans to Individuals
Payment Performance
1. Performing	$	630	$	2,282	$	1,464	$	821	$	481	$	2,736	$	20,693	$	29,107
2. Nonperforming	—		—		—		—		—		63		—		63
Total	$	630	$	2,282	$	1,464	$	821	$	481	$	2,799	$	20,693	$	29,170

Lease Financings
Payment Performance
1. Performing	$	15,187	$	58,670	$	43,587	$	19,482	$	9,488	$	2,495	$	—	$	148,909
2. Nonperforming	—		27		129		396		43		66		—		661
Total	$	15,187	$	58,697	$	43,716	$	19,878	$	9,531	$	2,561	$	—	$	149,570

The following table presents classifications ~~for originated loans:~~of loans at December 31, 2019.


(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 December 31, 2019
Performing	$	437,021	$	172,954	$	29,809	$	148,866	$	788,650
Nonperforming	2,038		1,481		74		555		4,148
Total	$	439,059	$	174,435	$	29,883	$	149,421	$	792,798

(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 $ 360,486
$ 172,143
$ 32,408
$ 140,032
$ 705,069
Nonperforming 1,002
444
54
477
1,977
Total $ 361,488
$ 172,587
$ 32,462
$ 140,509
$ 707,046
At December 31, 2018
Performing $ 337,762
$ 177,139
$ 32,562
$ 141,649
$ 689,112
Nonperforming 689
384
55
307
1,435
Total $ 338,451
$ 177,523
$ 32,617
$ 141,956
$ 690,547

~~The following table presents classifications for acquired loans:~~

Table of Contents

(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~~Credit Losses on Loans and ~~Lease Losses~~Leases and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the reserve for ~~loan~~credit losses, loans and ~~lease losses~~leases, for the three months ended March 31, ~~2019~~2020 and ~~2018:~~

~~N/A – Not applicable~~

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, 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
At March 31, 2019
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment $ 243
$ 925
$ —
$ 335
$ —
$ —
N/A
$ 1,503
Ending balance: collectively evaluated for impairment 8,707
14,049
2,302
3,044
469
1,275
246
30,092
Ending balance: acquired non-credit impaired loans evaluated for impairment —
7
—
—
—
—
—
7
Total ending balance $ 8,950
$ 14,981
$ 2,302
$ 3,379
$ 469
$ 1,275
$ 246
$ 31,602
Loans and leases held for investment:
Ending balance: individually evaluated for impairment $ 3,174
$ 18,467
$ 1,232
$ 3,129
$ —
$ —
$ 26,002
Ending balance: collectively evaluated for impairment 907,319
1,772,999
303,342
530,946
32,462
140,509
3,687,577
Loans measured at fair value —
1,748
—
—
—
—
1,748
Acquired non-credit impaired loans 17,145
222,749
55,923
55,901
141
—
351,859
Acquired credit impaired loans —
206
425
62
—
—
693
Total ending balance $ 927,638
$ 2,016,169
$ 360,922
$ 590,038
$ 32,603
$ 140,509
$ 4,067,879
At March 31, 2018
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment $ 34
$ 684
$ 14
$ —
$ —
$ —
N/A
$ 732
Ending balance: collectively evaluated for impairment 6,776
10,378
1,815
1,908
372
1,079
60
22,388
Ending balance: acquired non-credit impaired loans evaluated for impairment 132
116
42
—
—
—
—
290
Total ending balance $ 6,942
$ 11,178
$ 1,871
$ 1,908
$ 372
$ 1,079
$ 60
$ 23,410
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: collectively evaluated for impairment 849,690
1,441,709
249,015
449,827
28,112
128,490
3,146,843
Loans measured at fair value —
1,895
—
—
—
—
1,895
Acquired non-credit impaired loans 51,310
295,420
81,587
69,325
143
—
497,785
Acquired credit impaired loans 378
356
586
205
—
—
1,525
Total ending balance $ 907,938
$ 1,769,953
$ 333,361
$ 520,641
$ 28,255
$ 129,740
$ 3,689,888

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

At March 31, 2019 At December 31, 2018
(Dollars in thousands) 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

Real estate—commercial real estate 5,600
6,569
6,578
7,516

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 911
975
863
911

Real estate—home equity secured for personal purpose 1,418
1,469
1,373
1,404

Total impaired loans with no related reserve recorded $ 11,848
$ 13,736
$ 13,174
$ 14,963

Impaired loans with a reserve recorded:
Commercial, financial and agricultural $ 593
$ 939
$ 243
$ 971
$ 1,024
$ 413
Real estate—commercial real estate 12,761
13,423
925
11,637
12,162
675
Real estate—residential secured for personal purpose 725
725
260
724
724
252
Real estate—home equity secured for personal purpose 75
75
75
75
75
75
Total impaired loans with a reserve recorded $ 14,154
$ 15,162
$ 1,503
$ 13,407
$ 13,985
$ 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
(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 $ 3,650
$ 5
$ 54
$ 7,703
$ 40
$ 77
Real estate—commercial real estate 18,245
3
254
19,916
172
287
Real estate—construction 106
—
1
183
—
2
Real estate—residential secured for business purpose 1,277
—
20
2,217
5
24
Real estate—residential secured for personal purpose 1,619
—
25
544
1
11
Real estate—home equity secured for personal purpose 1,426
—
23
549
—
8
Total $ 26,323
$ 8
$ 377
$ 31,112
$ 218
$ 409


*	~~Includes interest income recognized on a cash basis for nonaccrual loans of $3 thousandand~~$6 thousand for the three months ended March 31, 2019 and 2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of $5 thousand and $212 thousand for the three months ended March 31, 2019 and 2018, respectively.

2019:

~~Impaired Leases~~

~~The Corporation had no impaired leases at March 31, 2019 and 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
(Dollars in thousands) Number
of
Loans Pre-
Restructuring
Outstanding
Recorded
Investment Post-
Restructuring
Outstanding
Recorded
Investment Related
Reserve Number
of
Loans Pre-
Restructuring
Outstanding
Recorded
Investment Post-
Restructuring
Outstanding
Recorded
Investment Related
Reserve
Accruing Troubled Debt Restructured Loans:
Total —
$ —
$ —
$ —
—
$ —
$ —
$ —
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural* 2
$ 956
$ 956
$ —
—
$ —
$ —
$ —
Real estate—commercial real estate* 1
1,313
1,313
—
—
—
—
—
Total 3
$ 2,269
$ 2,269
$ —
—
$ —
$ —
$ —

* The three loans 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.


(Dollars in thousands)	Beginning balance, prior to adoption of ASU No. 2016-13 for CECL		Adjustment to initially apply ASU No. 2016-13 for CECL		Provision (recovery of provision) for credit losses		Charge-offs		Recoveries		Ending balance
Three Months Ended March 31, 2020
Reserve for credit losses, loans and leases:
Commercial, Financial and Agricultural	$	8,759	$	5,284	$	5,630	$	(481)	$	52	$	19,244
Real Estate-Commercial	15,750		6,208		12,817		—		35		34,810
Real Estate-Construction	2,446		29		642		—		—		3,117
Real Estate-Residential Secured for Business Purpose	2,622		2,502		782		(3)		3		5,906
Real Estate-Residential Secured for Personal Purpose	2,713		(706)		114		—		—		2,121
Real Estate-Home Equity Secured for Personal Purpose	1,076		(364)		78		—		5		795
Loans to Individuals	470		104		47		(35)		14		600
Lease Financings	1,311		(135)		376		(152)		73		1,473
Unallocated	184		—		(34)		N/A		N/A		150
Total	$	35,331	$	12,922	$	20,452	$	(671)	$	182	$	68,216
Three Months Ended March 31, 2019
Reserve for credit losses, loans and leases:
Commercial, Financial and Agricultural	$	7,983	$	—	$	1,353	$	(468)	$	82	$	8,950
Real Estate-Commercial and Construction	13,903		—		1,028		(41)		91		14,981
Real Estate-Residential Secured for Business Purpose	2,236		—		62		—		4		2,302
Real Estate-Residential and Home Equity Secured for Personal Purpose	3,199		—		186		(11)		5		3,379
Loans to Individuals	484		—		48		(85)		22		469
Lease Financings	1,288		—		33		(104)		58		1,275
Unallocated	271		—		(25)		N/A		N/A		246
Total	$	29,364	$	—	$	2,685	$	(709)	$	262	$	31,602

N/A – Not applicable

Table of Contents

The ~~Corporation grants concessions to existing borrowers primarily related to extensions~~following presents, by portfolio segment, the balance in the ACL on loans and leases, disaggregated on the basis of ~~interest-only payment periods~~whether the loan or lease was measured for credit loss as a pooled loan or lease or if it was individually analyzed for a reserve at March 31, 2020 and ~~an occasional payment modification. These modifications typically are for up to one year.~~ 2019:


	Allowance for credit losses, loans and leases										Loans and leases held for investment
(Dollars in thousands)	Ending balance: individually analyzed		Ending balance: pooled		Total ending balance		Ending balance: individually analyzed		Ending balance: pooled		Loans measured at fair value		Total ending balance
At March 31, 2020
Commercial, Financial and Agricultural	$	698	$	18,546	$	19,244	$	3,934	$	940,255	$	—	$	944,189
Real Estate-Commercial	1,547		33,263		34,810		28,827		2,071,584		288		2,100,699
Real Estate-Construction	—		3,117		3,117		—		215,150		—		215,150
Real Estate-Residential Secured for Business Purpose	95		5,811		5,906		1,270		376,374		—		377,644
Real Estate-Residential Secured for Personal Purpose	195		1,926		2,121		1,280		453,718		—		454,998
Real Estate-Home Equity Secured for Personal Purpose	—		795		795		820		176,585		—		177,405
Loans to Individuals	—		600		600		—		29,170		—		29,170
Lease Financings	—		1,473		1,473		—		149,570		—		149,570
Unallocated	N/A		150		150		N/A		N/A		N/A		N/A
Total	$	2,535	$	65,681	$	68,216	$	36,131	$	4,412,406	$	288	$	4,448,825
At March 31, 2019
Commercial, Financial and Agricultural	$	243	$	8,707	$	8,950	$	3,174	$	924,464	$	—	$	927,638
Real Estate-Commercial and Construction	925		14,056		14,981		18,467		1,995,954		1,748		2,016,169
Real Estate-Residential Secured for Business Purpose	—		2,302		2,302		1,232		359,690		—		360,922
Real Estate-Residential and Home Equity Secured for Personal Purpose	335		3,044		3,379		3,129		586,909		—		590,038
Loans to Individuals	—		469		469		—		32,603		—		32,603
Lease Financings	—		1,275		1,275		—		140,509		—		140,509
Unallocated	N/A		246		246		N/A		N/A		N/A		N/A
Total	$	1,503	$	30,099	$	31,602	$	26,002	$	4,040,129	$	1,748	$	4,067,879

N/A – Not applicable

Table of Contents

Troubled Debt Restructured Loans

The ~~goal when restructuring a credit is to establish a reasonable period~~following presents, by class of ~~time to provide cash flow relief to customers experiencing cash flow difficulties. Accruing~~loans, information regarding accruing and nonaccrual loans that were restructured:


	Three Months Ended March 31, 2020								Three Months Ended March 31, 2019
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment
Accruing Troubled Debt Restructured Loans:





Total	—	$	—	$	—	—	$	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural*	—	$	—	$	—	2	$	956	$	956
Real estate—commercial real estate*	—	—		—		1	1,313		1,313


Total	—	$	—	$	—	3	$	2,269	$	2,269

* The three nonaccrual troubled debt restructured loans ~~are primarily comprised~~in the above table totaling $2.3 million were modified via the execution of a forbearance agreement during the three months ended March 31, 2019. These loans relate to one borrower and were on ~~which~~nonaccrual status at the time of modification.

As of March 31, 2020, the Corporation modified 46 loans with principal balances totaling $10.7 million via principal and/or interest ~~is being accrued under~~deferrals. These modifications were done in accordance with Section 4013 of the ~~restructured terms,~~CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customer Affected by the Coronavirus. Accordingly, these loans ~~are current or less than ninety days past due.~~were not categorized as troubled debt restructurings.

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 months ended March 31, ~~2019~~2020 and ~~2018.~~2019.


	Amortization Period Extension
(Dollars in thousands)	No. of Loans	Amount
Three Months Ended March 31, 2020
Accruing Troubled Debt Restructured Loans:




Total	—	$	—
Nonaccrual Troubled Debt Restructured Loans:



Total	—	$	—
Three Months Ended March 31, 2019
Accruing Troubled Debt Restructured Loans:




Total	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	2	$	956
Real estate—commercial real estate	1	1,313


Total	3	$	2,269

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~~There were no accruing ~~and~~or nonaccrual troubled debt restructured loans for which there were payment defaults within twelve months of the restructuring ~~date:~~date for the three months ended March 31, 2020 or March 31, 2019.

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, ~~2019~~2020 and December 31, ~~2018:~~2019:


(Dollars in thousands)	At March 31, 2020		At December 31, 2019
Real estate-residential secured for personal purpose	$	714	$	714
Real estate-home equity secured for personal purpose	247		1,058
Total	$	961	$	1,772

Table of Contents

(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~~following presents foreclosed residential real estate property included in other real estate owned at March 31, ~~2019 and~~2020 or December 31, ~~2018.~~

2019.


(Dollars in thousands)	At March 31, 2020		At December 31, 2019
Foreclosed residential real estate	$	71	$	71

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, 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 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.financings.

The following presents the schedule of minimum lease payments receivable:


(Dollars in thousands)	At March 31, 2020		At December 31, 2019
2020 (excluding the three months ended March 31, 2020)	$	44,780	$	57,515
2021	48,877		45,510
2022	35,510		32,233
2023	21,384		18,345
2024	9,172		6,639
Thereafter	2,836		2,259
Total future minimum lease payments receivable	162,559		162,501
Plus: Unguaranteed residual	877		886
Plus: Initial direct costs	2,240		2,374
Less: Imputed interest	(16,106)		(16,340)
Lease financings	$	149,570	$	149,421

(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 months ended March 31, 2019)" line item above as of March 31, 2019 and December 31, 2018 are $7 thousand and $0 thousand, respectively, of receivables related to an operating lease contract.

For the three months ended March 31, 2019 and 2018, the Corporation recognized $2.0 million and $1.8 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 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 months ended March 31, ~~2019~~2020 were as follows:


(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated
Balance at December 31, 2019	$	138,476	$	15,434	$	18,649	$	172,559
Addition to goodwill from acquisitions	—		—		—		—
Balance at March 31, 2020	$	138,476	$	15,434	$	18,649	$	172,559

Table of Contents

(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 March 31, 2019						At December 31, 2018							At March 31, 2020										At December 31, 2019
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:													Amortized intangible assets:
Covenants not to compete	$	—	$	—	$	—	$	710	$	710	$	—

Core deposit intangibles	6,788		3,376		3,412		6,788		3,143		3,645		Core deposit intangibles	$	6,788	$	4,229	$	2,559	$	6,788	$	4,026	$	2,762
Customer related intangibles	8,819		7,426		1,393		12,381		10,804		1,577		Customer related intangibles	7,604		6,830		774		8,819		7,923		896
Servicing rights	17,639		10,914		6,725		17,314		10,546		6,768		Servicing rights	19,686		13,246		6,440		19,160		12,534		6,626
Total amortized intangible assets	$	33,246	$	21,716	$	11,530	$	37,193	$	25,203	$	11,990	Total amortized intangible assets	$	34,078	$	24,305	$	9,773	$	34,767	$	24,483	$	10,284

The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of ~~2019~~2020 and the succeeding fiscal years is as follows:


Year	(Dollars in thousands)	Amount
Remainder of 2020		$	875
2021		923
2022		666
2023		409
2024		267
Thereafter		193

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~~mortgage servicing rights was ~~$10.3~~$6.5 million and $9.2 million at March 31, ~~2019~~2020 and ~~$11.5 million at~~ December 31, ~~2018.~~2019, respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at March 31, ~~2019~~2020 and December 31, 2018. The Corporation also records servicing rights on small business administration (SBA) loans. The value of these servicing rights was $62 thousand and $42 thousand at March 31, 2019 and December 31, 2018, respectively.2019.

Changes in the servicing rights balance are summarized as follows:


	Three Months Ended March 31,
(Dollars in thousands)	2020		2019
Beginning of period	$	6,626	$	6,768
Servicing rights capitalized	526		266

Amortization of servicing rights	(657)		(309)
Changes in valuation allowance	(55)		—
End of period	$	6,440	$	6,725
Loans serviced for others	$	1,087,174	$	1,037,948

Activity in the valuation allowance for mortgage servicing rights was as follows:


	Three Months Ended March 31,
(Dollars in thousands)	2020		2019
Valuation allowance, beginning of period	$	—	$	—
Additions	(55)		—


Valuation allowance, end of period	$	(55)	$	—

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

Table of Contents

The estimated amortization expense of servicing rights for the remainder of ~~2019~~2020 and the succeeding fiscal years is as follows:


Year	(Dollars in thousands)	Amount
Remainder of 2020		$	1,585
2021		1,190
2022		908
2023		690
2024		467
Thereafter		1,600

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, ~~2019~~2020 and December 31, ~~2018 consist~~2019 consisted of the following:


	At March 31, 2019				At December 31, 2018					At March 31, 2020						At December 31, 2019
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Dollars in thousands)									(Dollars in thousands)
Noninterest-bearing deposits	—	%	$	1,103,674	—	%	$	1,055,919	Noninterest-bearing deposits	—	%	$	1,318,270	—	%	$	1,279,681
Demand deposits	1.17		1,441,540		1.01		1,377,171		Demand deposits	0.23		1,615,979		0.96		1,677,682
Savings deposits	0.45		819,255		0.33		782,766		Savings deposits	0.18		836,042		0.37		796,702
Time deposits	1.86		638,684		1.76		670,077		Time deposits	1.86		637,012		1.95		606,010
Total	0.81	%	$	4,003,153	0.73	%	$	3,885,933	Total	0.39	%	$	4,407,303	0.71	%	$	4,360,075

The aggregate amount of time deposits in denominations of $100 thousand or more was ~~$252.4~~$329.0 million at March 31, ~~2019~~2020 and ~~$283.4~~$293.2 million at December 31, ~~2018.~~2019. 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~~$183.8 million at March 31, ~~2019~~2020 and ~~$129.5~~$143.0 million at December 31, ~~2018.~~2019.

At March 31, ~~2019,~~2020, the scheduled maturities of time deposits are as follows:


Year	(Dollars in thousands)	Amount
Remainder of 2020		$	339,988
2021		129,137
2022		64,816
2023		76,407
2024		23,002
Thereafter		3,662
Total		$	637,012

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

Table of Contents

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 March 31, 2020						At December 31, 2019
(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:


Customer repurchase agreements	$	18,415	0.05	%	$	18,680	0.05	%


Long-term debt:
FHLB advances	$	200,000	1.44	%	$	140,000	2.04	%
Security repurchase agreements	10,069		1.75		10,098		2.07

Subordinated notes	$	94,879	5.49	%	$	94,818	5.32	%

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~~$1.9 billion. ~~Advances~~All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had outstanding short-term letters of credit with the FHLB totaling ~~$336.9~~$435.1 million and ~~$347.5~~$535.6 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 available borrowing capacity from the FHLB totaled $1.3 billion at March 31, 2020.

The Corporation, through the Bank, maintains uncommitted federal fund credit lines with several correspondent banks that totaled ~~$367.0~~$504.0 million at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. 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~~$85.3 million and ~~$69.5~~$94.8 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Corporation had no0 outstanding borrowings under this program.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Corporation had no0 outstanding borrowings under this line.

The Corporation and the Bank have a total of $2.0 billion and $1.9 billion of committed borrowing capacity at March 31, 2020 and December 31, 2019, respectively, of which $1.4 billion and $1.2 billion was available as of March 31, 2020 and December 31, 2019, respectively. The Corporation, through the Bank, also has access to $504.0 million of uncommitted funding sources from correspondent banks, which were fully available at March 31, 2020 and December 31, 2019.

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


(Dollars in thousands)	As of March 31, 2020		Weighted Average Rate
Remainder of 2020	$	10,000	1.47	%
2021	45,000		1.93
2022	35,000		1.17
2023	50,000		1.73
2024	60,000		0.98
Thereafter	—		—
Total	$	200,000	1.44	%

(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 %

Table of Contents

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


(Dollars in thousands)	As of March 31, 2019		Weighted Average Rate		(Dollars in thousands)	As of March 31, 2020		Weighted Average Rate
Remainder of 2019	$	10,076	2.83	%
2020	10,187		2.82
Remainder of 2020					Remainder of 2020	$	10,069	1.75	%
2021	—		—		2021	—		—
2022	—		—		2022	—		—
2023	—		—		2023	—		—
2024					2024	—		—
Thereafter	—		—		Thereafter	—		—
Total	$	20,263	2.83	%	Total	$	10,069	1.75	%

Long-term debt under security repurchase agreements totaling ~~$20.3~~$10.1 million hold variable interest rates and 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~~This plan is a non-qualified benefit ~~plans. These~~plan. This non-qualified benefit ~~plans are~~plan is 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.


	Three Months Ended March 31,
	2020		2019		2020		2019
(Dollars in thousands)	Retirement Plans						Other Post Retirement Benefits
Service cost	$	117	$	109	$	28	$	17
Interest cost	417		476		24		23
Expected return on plan assets	(816)		(771)		—		—
Amortization of net actuarial loss	291		294		6		—
Accretion of prior service cost	—		(45)		—		—
Net periodic benefit cost	$	9	$	63	$	58	$	40

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

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~~2019 that it expected to make contributions of ~~$157~~$159 thousand to its non-qualified retirement plans and $89 thousand to its other postretirement benefit plans in ~~2019.~~2020. During the three months ended March 31, ~~2019,~~2020, the Corporation contributed $40 thousand to its non-qualified retirement plans and ~~$26~~$28 thousand to its other postretirement plans. During the three months ended March 31, ~~2019, $647~~2020, $664 thousand was paid to participants from the retirement plans and ~~$26~~$28 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~~permit the issuance of restricted stock units.

~~During the three months ended March 31,~~Beginning in 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 months ended March 31, ~~2019:~~2020:


(Dollars in thousands, except per share data)	Nonvested Stock Options	Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2019	163,261	$	6.54

Vested	(106,131)	6.58
Forfeited	(3,152)	6.50
Nonvested stock options at March 31, 2020	53,978	6.46

~~The following aggregated assumptions were used to estimate the fair value of options granted during the three months ended March 31, 2018.~~ The Corporation did not issue stock options during the three months ended March 31, 2020 or March 31, 2019.


(Dollars in thousands, except per share data)	Nonvested Stock Awards and Units	Weighted Average Grant Date Fair Value
Nonvested stock awards and units at December 31, 2019	209,378	$	26.76
Granted	179,080	18.62
Vested	(57,355)	27.23
Cancelled	(19,367)	27.72

Nonvested stock awards and units at March 31, 2020	311,736	21.94

(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:


	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2020		2019
Restricted stock awards and units granted	179,080		113,729
Weighted average grant date fair value	$	18.62	$	25.66
Intrinsic value of awards granted	$	2,923	$	2,782
Restricted stock awards and units vested	57,355		32,965
Weighted average grant date fair value	$	27.23	$	21.86
Intrinsic value of awards vested	$	1,335	$	809

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

Table of Contents

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, ~~2019~~2020 is presented below:


	Three Months Ended March 31,
(Dollars in thousands)	2020		2019
Stock-based compensation expense:
Stock options	$	108	$	216
Restricted stock awards and units	327		361
Employee stock purchase plan	20		17
Total	$	455	$	594
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	$	106	$	165

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:

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in ~~2019"~~2020" for additional information.

Note 11. Derivative Instruments and Hedging Activities

~~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, ~~2019,~~2020, approximately ~~$81~~$218 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, ~~2019.~~2020. At March 31, ~~2019,~~2020, the notional amount of the interest rate swap was ~~$16.9~~$16.1 million ~~with a positive~~and the fair value was a liability of ~~$24~~$702 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. 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.

The Corporation has an interest rate swap with a current notional amount of ~~$390~~$273 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."

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, ~~2019,~~2020, the Corporation ~~has twenty-two~~had NaN 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~~$317.7 million and remaining maturities ranging from less than one year to 10 years. At March 31, 2019, the fair value of the swaps to the customers was a net liability of $2.8 million and $87.7 million of notional amount of the swaps were in paying positions while $62.4 million were in receiving positions to the third-party financial institution. At March 31, 2019,2020, the fair value of the Corporation's interest rate swap credit derivatives was a liability of ~~$79 thousand.~~$1.1 million. At March 31, 2020, the fair value of the swaps to the customers was a net liability of $29.6 million and these swaps were in paying positions to the third-party financial institution.

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.

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, ~~2019~~2020 and December 31, ~~2018.~~2019. 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 March 31, 2020
Interest rate swap - cash flow hedge	$	16,084		$	—	Other liabilities	$	702

Total	$	16,084		$	—		$	702
At December 31, 2019
Interest rate swap - cash flow hedge	$	16,286		$	—	Other liabilities	$	235

Total	$	16,286		$	—		$	235

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
$ —

Table of Contents

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, ~~2019~~2020 and December 31, ~~2018:~~2019:


			Derivative Assets				Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At March 31, 2020
Interest rate swap	$	273		$	—	Other liabilities	$	15
Credit derivatives	317,741			—		Other liabilities	1,109
Interest rate locks with customers	100,673		Other assets	2,911			—
Forward loan sale commitments	104,091			—		Other liabilities	886
Total	$	522,778		$	2,911		$	2,010
At December 31, 2019
Interest rate swap	$	303		$	—	Other liabilities	$	14
Credit derivatives	270,147			—		Other liabilities	176
Interest rate locks with customers	19,966		Other assets	399			—
Forward loan sale commitments	21,846			—		Other liabilities	19
Total	$	312,262		$	399		$	209

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
				March 31,
(Dollars in thousands)				2020		2019

Interest rate swap—cash flow hedge—net interest payments	Interest expense	$	29	$	(16)

Interest rate swap—fair value hedge—effectiveness	Interest income	—		1

Total net (loss) gain		$	(29)	$	17

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,
(Dollars in thousands)				2020		2019

Credit derivatives	Other noninterest income	$	140	$	264
Interest rate locks with customers	Net gain (loss) on mortgage banking activities	2,512		(35)
Forward loan sale commitments	Net (loss) gain on mortgage banking activities	(867)		29
Total net gain		$	1,785	$	258

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

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~~were recognized at the end of the reporting ~~period.~~period for the year ended December 31, 2019.

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, ~~2019.~~2020.

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.

One commercial ~~loans~~loan associated with an interest rate ~~swaps are~~swap is classified in Level 3 of the valuation hierarchy at March 31, 2020 since lending credit risk is not an observable input for ~~these loans.~~this loan. The unrealized gain on the ~~two loans~~1 loan was ~~$28~~$15 thousand at March 31, ~~2019.~~2020.

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, ~~2019~~2020 and December 31, ~~2018,~~2019, classified using the fair value hierarchy:

The Corporation recorded no unrealized gains and losses within other comprehensive income for recurring Level 3 fair value measurements held at March 31, 2020. The $1.1 million of credit derivatives liability represents the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of 46 interest rate swaps with a current notional amount of $317.7 million. The March 31, 2020 CVA assumes a zero-deal recovery percentage based on the most recent index credit curve.

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 months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31, 2020
(Dollars in thousands)	Balance at December 31, 2019		Purchases/additions		Sales		Payments received		Premium amortization, net		Increase in value		Balance at March 31, 2020

Loans	$	317	$	—	$	—	$	(30)	$	—	$	1	$	288
Credit derivatives	(176)		(1,073)		—		—		—		140		(1,109)
Net total	$	141	$	(1,073)	$	—	$	(30)	$	—	$	141	$	(821)


	Three Months Ended March 31, 2019
(Dollars in thousands)	Balance at December 31, 2018		Purchases/additions		Sales		Payments received		Premium amortization, net		Increase 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

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

Table of Contents

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 months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31, 2020
(Dollars in thousands)	Balance at December 31, 2019		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at March 31, 2020
Girard Partners	$	160	$	—	$	31	$	6	$	135
Total contingent consideration liability	$	160	$	—	$	31	$	6	$	135


	Three Months Ended March 31, 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
Girard Partners	$	259	$	—	$	33	$	9	$	235
Total contingent consideration liability	$	259	$	—	$	33	$	9	$	235

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~~changes in the value of loans held for investment analyzed on an individual ~~assets.~~basis. The following table represents assets measured at fair value on a non-recurring basis at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


	At March 31, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Individually analyzed loans held for investment	$	—	$	—	$	33,596	$	33,596

Other real estate owned	—		—		516		516
Total	$	—	$	—	$	34,112	$	34,112

At March 31, 2019
(Dollars in thousands) Level 1 Level 2 Level 3 Assets at
Fair Value
Impaired loans held for investment $ —
$ —
$ 24,499
$ 24,499
Other real estate owned —
—
540
540
Total $ —
$ —
$ 25,039
$ 25,039

Table of Contents

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, ~~2019~~2020 and December 31, ~~2018.~~2019. The disclosed fair values are classified using the fair value hierarchy.


	At March 31, 2019													At March 31, 2020
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount		(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:													Assets:
Cash and short-term interest-earning assets	$	66,141	$	—		$	—	$	66,141		$	66,141	Cash and short-term interest-earning assets	$	182,902	$	—	$	—	$	182,902	$	182,902

Held-to-maturity securities	—		148,960			—		148,960			148,470		Held-to-maturity securities	—		229,552		—		229,552		222,389
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA			NA		NA			32,699		Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,465
Loans held for sale	—		948			—		948			921		Loans held for sale	—		11,525		—		11,525		11,417
Net loans and leases held for investment	—		—			4,020,771		4,020,771			4,010,030		Net loans and leases held for investment	—		—		4,454,495		4,454,495		4,346,725
Servicing rights	—		—			10,362		10,362			6,725		Servicing rights	—		—		6,684		6,684		6,440

Total assets	$	66,141	$	149,908		$	4,031,133	$	4,247,182		$	4,264,986	Total assets	$	182,902	$	241,077	$	4,461,179	$	4,885,158	$	4,798,338
Liabilities:													Liabilities:
Deposits:													Deposits:
Demand and savings deposits, non-maturity	$	3,364,469	$	—		$	—	$	3,364,469		$	3,364,469	Demand and savings deposits, non-maturity	$	3,770,291	$	—	$	—	$	3,770,291	$	3,770,291
Time deposits	—		635,255			—		635,255			638,684		Time deposits	—		647,933		—		647,933		637,012
Total deposits	3,364,469		635,255			—		3,999,724			4,003,153		Total deposits	3,770,291		647,933		—		4,418,224		4,407,303
Short-term borrowings	—		73,185			—		73,185			73,185		Short-term borrowings	—		18,415		—		18,415		18,415
Long-term debt	—		144,717			—		144,717			145,263		Long-term debt	—		214,492		—		214,492		210,069
Subordinated notes	—		96,394			—		96,394			94,635		Subordinated notes	—		91,872		—		91,872		94,879
Total liabilities	$	3,364,469	$	949,551		$	—	$	4,314,020		$	4,316,236	Total liabilities	$	3,770,291	$	972,712	$	—	$	4,743,003	$	4,730,666
Off-Balance-Sheet:													Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(7,988	)	$	—	$	(7,988	)	$	—	Commitments to extend credit	$	—	$	(8,033)	$	—	$	(8,033)	$	—

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 ) $ —

Table of Contents


	At December 31, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	125,128	$	—	$	—	$	125,128	$	125,128
Held-to-maturity securities	—		194,886		—		194,886		192,052
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,254
Loans held for sale	—		5,560		—		5,560		5,504
Net loans and leases held for investment	—		—		4,309,208		4,309,208		4,314,893
Servicing rights	—		—		9,340		9,340		6,626

Total assets	$	125,128	$	200,446	$	4,318,548	$	4,644,122	$	4,672,457
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	3,754,065	$	—	$	—	$	3,754,065	$	3,754,065
Time deposits	—		609,387		—		609,387		606,010
Total deposits	3,754,065		609,387		—		4,363,452		4,360,075
Short-term borrowings	—		18,680		—		18,680		18,680
Long-term debt	—		151,343		—		151,343		150,098
Subordinated notes	—		96,663		—		96,663		94,818
Total liabilities	$	3,754,065	$	876,073	$	—	$	4,630,138	$	4,623,671
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(8,070)	$	—	$	(8,070)	$	—

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, 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~~

Individually analyzed loans and leases held for investment: For ~~impaired~~individually analyzed 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, 2020, individually analyzed loans held for investment had a carrying amount of

Table of Contents

$36.1 million with a valuation allowance of $2.5 million. At December 31, 2019, impaired loans held for investment had a carrying amount of ~~$24.5~~$38.1 million with a valuation allowance of ~~$1.5 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~~$2.1 million. The Corporation had ~~no impaired~~0 individually analyzed leases at March 31, ~~2019 and~~2020. The Corporation had impaired leases of $277 thousand with no reserve at December 31, ~~2018.~~2019.

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, ~~2019 and December 31, 2018,~~2020, servicing rights had a carrying amount of ~~$6.7~~$6.4 million ~~and $6.7~~with a valuation allowance of $55 thousand. At December 31, 2019, servicing rights carrying amount of $6.6 million ~~respectively,~~ with no0 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 months ended March 31, ~~2019,~~2020, there were no ~~triggering events that~~ required valuation adjustments 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 months ended March 31, 2019, one property was sold with total proceeds of $599 thousand.~~ At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, OREO had a carrying amount of ~~$540 thousand and $1.2 million, respectively.~~$516 thousand. 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.

Table of Contents

Note 13. Segment Reporting

At March 31, ~~2019,~~2020, the Corporation has ~~three~~3 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		(Dollars in thousands)	At March 31, 2020		At December 31, 2019		At March 31, 2019
Banking	$	4,942,539	$	4,895,732	$	4,519,423	Banking	$	5,362,279	$	5,282,505	$	4,942,539
Wealth Management	40,910		39,090		36,848		Wealth Management	45,786		44,591		40,910
Insurance	31,837		30,117		28,651		Insurance	35,935		34,291		31,837
Other	20,241		19,408		29,037		Other	20,768		19,537		20,241
Consolidated assets	$	5,035,527	$	4,984,347	$	4,613,959	Consolidated assets	$	5,464,768	$	5,380,924	$	5,035,527

The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.


	Three Months Ended
	March 31, 2020
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	52,004	$	7	$	—	$	8	$	52,019
Interest expense	8,276		—		—		1,275		9,551
Net interest income	43,728		7		—		(1,267)		42,468
Provision for credit losses	21,049		—		—		—		21,049
Noninterest income	7,552		6,187		4,887		(242)		18,384
Intangible expenses	202		78		50		—		330

Other noninterest expense	31,839		4,100		3,146		156		39,241
Intersegment (revenue) expense*	(282)		152		130		—		—
(Loss) income before income taxes	(1,528)		1,864		1,561		(1,665)		232
Income tax (benefit) expense	(844)		382		336		(480)		(606)
Net (loss) income	$	(684)	$	1,482	$	1,225	$	(1,185)	$	838

Capital expenditures	$	371	$	5	$	3	$	—	$	379

Table of Contents


	Three Months Ended													Three Months Ended
	March 31, 2019													March 31, 2019
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated		(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	52,346		$	10	$	—	$	8		$	52,364	Interest income	$	52,346	$	10	$	—	$	8	$	52,364
Interest expense	9,580			—		—		1,261			10,841		Interest expense	9,580		—		—		1,261		10,841
Net interest income	42,766			10		—		(1,253		)	41,523		Net interest income	42,766		10		—		(1,253)		41,523
Provision for loan and lease losses	2,685			—		—		—			2,685
Provision for credit losses													Provision for credit losses	2,685		—		—		—		2,685
Noninterest income	4,971			5,720		5,353		253			16,297		Noninterest income	4,971		5,720		5,353		253		16,297
Intangible expenses	233			105		88		—			426		Intangible expenses	233		105		88		—		426

Other noninterest expense	27,779			3,794		3,126		432			35,131		Other noninterest expense	27,779		3,794		3,126		432		35,131
Intersegment (revenue) expense*	(299		)	166		133		—			—		Intersegment (revenue) expense*	(299)		166		133		—		—
Income (expense) before income taxes	17,339			1,665		2,006		(1,432		)	19,578		Income (expense) before income taxes	17,339		1,665		2,006		(1,432)		19,578
Income tax (benefit) expense	3,120			314		193		(128		)	3,499
Income tax expense (benefit)													Income tax expense (benefit)	3,120		314		193		(128)		3,499
Net income (loss)	$	14,219		$	1,351	$	1,813	$	(1,304	)	$	16,079	Net income (loss)	$	14,219	$	1,351	$	1,813	$	(1,304)	$	16,079

Capital expenditures	$	765		$	39	$	25	$	21		$	850	Capital expenditures	$	765	$	39	$	25	$	21	$	850

Three Months Ended
March 31, 2018
(Dollars in thousands) Banking Wealth Management Insurance Other Consolidated
Interest income $ 43,522
$ 5
$ —
$ 7
$ 43,534
Interest expense 5,001
—
—
1,261
6,262
Net interest income 38,521
5
—
(1,254 ) 37,272
Provision for loan and lease losses 2,053
—
—
—
2,053
Noninterest income 4,789
5,740
5,086
(33 ) 15,582
Intangible expenses 329
142
141
—
612
Restructuring charges
571
—
—
—
571
Other noninterest expense 27,661
3,658
3,245
(622 ) 33,942
Intersegment (revenue) expense* (291 ) 153
138
—
—
Income (expense) before income taxes 12,987
1,792
1,562
(665 ) 15,676
Income tax expense (benefit) 1,998
545
456
(173 ) 2,826
Net income (loss) $ 10,989
$ 1,247
$ 1,106
$ (492 ) $ 12,850
Capital expenditures $ 970
$ 49
$ 7
$ 55
$ 1,081

*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~~following table provides 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, 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 the Corporation's operating ~~leases under FASB ASC 842 "Leases" follows:~~leases:


	Three months ended March 31,
(Dollars in thousands)	2020			2019
Operating lease cost	$	953		$	947
Short-term lease cost	3			—
Variable lease cost	1			—
Total lease cost	$	957		$	947
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from leases	$	910		$	873

	At March 31, 2020			At December 31, 2019
Weighted-average remaining lease term in years	14.7			14.8
Weighted-average discount rate	4.21		%	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, ~~2019,~~2020, maturities of lease liabilities ~~under FASB ASC 842 "Leases"~~ are as follows:


Maturity of Lease Liabilities	(Dollars in thousands)	Amount
Remainder of 2020		$	2,759
2021		3,732
2022		3,727
2023		3,677
2024		3,547
Thereafter		34,555
Total lease payments		51,997
Less: imputed interest		(14,078)
Present value of lease liabilities		$	37,919

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~~Table 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:~~Contents

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.

Table of Contents

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. These forward-looking statements include but are not limited to: statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. 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;

•Fluctuations in real estate values in our market area;

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

•Changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loans losses;

•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~~•Adverse change in the securities markets;

•Our ability to enter new markets successfully and capitalize on growth opportunities;

•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.

In December 2019, coronavirus (COVID-19) was first reported in China. On March 11, 2020, the World Health Organization declared a worldwide pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, our forward-looking statements are subject to the following risks, uncertainties and assumptions:

•Demand for our products and services may decline;

Table of Contents

•If the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase;

•Collateral for loans, especially real estate, may decline in value;

•Our allowance for credit losses on loans and leases may have to be increased if borrowers experience financial difficulties;

•The net worth and liquidity of loan guarantors may decline;

•As a result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities;

•A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

•Our wealth management revenues may decline with continuing market turmoil;

•Our cyber security risks are increased as a result of an increase in the number of employees working remotely; and

•FDIC premiums may increase if the agency experience additional resolution costs.

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~~2019 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~~2019 Annual Report on Form 10-K. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of ASC 326, which changes the methodology under which management calculates its reserve for loans and leases, now referred to as the allowance for credit losses. Management considers the measurement of the allowance for credit losses to be a critical accounting policy.

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 introducing 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.~~services. 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~~

Table 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 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.Contents

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
(Dollars in thousands, except per share data)	2020			2019			Amount		Percent
Net income	$	838		$	16,079		$	(15,241)	(94.8	%)
Net income per share:
Basic	$	0.03		$	0.55		$	(0.52)	(94.5)
Diluted	0.03			0.55			(0.52)		(94.5)
Return on average assets	0.06		%	1.30		%	(124 BP)		(95.4)
Return on average equity	0.50		%	10.32		%	(982 BP)		(95.2)

Three Months Ended
March 31, Change
(Dollars in thousands, except per share data) 2019 2018 Amount Percent
Net income $ 16,079
$ 12,850
$ 3,229
25.1 %
Net income per share:
Basic $ 0.55
$ 0.44
$ 0.11
25.0
Diluted 0.55
0.44
0.11
25.0
Return on average assets 1.30 % 1.14 % 16 BP
14.0
Return on average equity 10.32
8.60
172 BP
20.0

The Corporation reported net income of $838 thousand, or $0.03 diluted earnings per share, for the three months ended March 31, 2020, compared to net income of $16.1 million, or $0.55 diluted earnings per share, for the three months ended March 31, ~~2019, compared to net income~~2019.

The Corporation adopted CECL effective January 1, 2020, as discussed in Note 1. Summary of Significant Accounting Policies. Upon adoption, the allowance for credit losses on loans and leases increased by $12.9 million, the allowance for credit losses on investments increased by $300 thousand, and the reserve for unfunded commitments increased by $1.1 million, which, in the aggregate, resulted in an after-tax retained earnings adjustment of $11.3 million.

During the three months ended March 31, 2020, the Corporation recorded a provision for credit losses on loans and leases of $20.4 million, a provision for credit losses on investment securities of $597 thousand and a reserve for unfunded commitments of $794 thousand. Included within the $21.8 million in provision for credit losses and reserve for unfunded commitments is $20.3 million (after-tax charge of $16.1 million), or ~~$0.44~~$0.55 diluted earnings per share, of expense related to COVID-19, which was the result of economic assumptions within the Corporation’s CECL model. This charge included a provision for credit losses on loans and leases of $19.4 million, a provision for credit losses on investment securities of $536 thousand and a reserve for unfunded commitments of $384 thousand. During the three months ended March 31, 2019, the Corporation recorded a provision for loan and lease losses of $2.7 million. The provision for 2019 included the impact of downgrading one $14.6 million shared national credit loan from pass to substandard.

The results for the three months ended March 31, ~~2018.~~

~~The first quarter of 2018~~2020, included ~~restructuring costs related to financial center closures of $451~~a $652 thousand ~~net of tax,~~($515 thousand after-tax), or $0.02 of diluted earnings per ~~share. There were no restructuring costs during~~share, gain on the ~~quarter ended March 31, 2019.~~sale of investment securities and a $656 thousand ($518 thousand after-tax), or $0.02 diluted earnings per share, charge in other expense related to the extinguishment of long-term debt.

Table of Contents

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~~investment securities and interest paid on deposits and ~~other interest-bearing liabilities.~~borrowings. 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 months ended March 31, ~~2019~~2020 and ~~2018.~~2019. 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~~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, 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 months ended March 31, ~~2019~~2020 versus ~~2018~~2019

Net interest income on a tax-equivalent basis for the three months ended March 31, ~~2019~~2020 was ~~$42.2~~$43.1 million, an increase of ~~$4.2 million,~~$945 thousand, or ~~11.2%~~2.2%, compared to the three months ended March 31, ~~2018.~~2019. The increase in tax-equivalent net interest income for the three months ended March 31, ~~2019~~2020 compared to the same period in ~~2018~~2019 was primarily due to ~~the~~lower deposit and borrowing costs and growth in ~~average~~ loans ~~of 10.5% as well as modest net interest margin expansion.~~partially offset by a decrease in yield on loans.

The net interest margin on a tax-equivalent basis for the ~~first quarter of 2019~~three months ended March 31, 2020 was ~~3.75%~~3.48%, compared to ~~3.72%~~3.75% for the ~~first quarter of 2018.~~three months ended March 31, 2019. During the three months ended March 31, 2020, excess liquidity reduced net interest margin by approximately six basis points and had no impact on the three months ended March 31, 2019. The excess liquidity was primarily driven by strong deposit growth in the period. Purchase accounting accretion had no impact on the net interest margin for the three months ended March 31, 2020 compared to a favorable impact of ~~purchase accounting accretion was~~approximately one basis point for the three months ended March 31, ~~2019, compared to two~~2019. Excluding purchase accounting accretion and the impact of excess liquidity, the net interest margin, on a tax-equivalent basis, ~~points~~was 3.54% for the three months ended March 31, ~~2018.~~2020 and 3.74% for the three months ended March 31, 2019.

Table of Contents

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


	Three Months Ended March 31,															Three Months Ended March 31,
	2019							2018								2020												2019
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate		(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:															Assets:
Interest-earning deposits with other banks	$	42,566		$	269	2.56	%	$	19,184		$	76	1.61	%	Interest-earning deposits with other banks	$	118,108		$	325	1.11	%	$	42,566		$	269	2.56	%
U.S. government obligations	20,039			82		1.66		23,921			94		1.59		U.S. government obligations	7,298			37		2.04		20,039			82		1.66
Obligations of states and political subdivisions	64,167			546		3.45		74,554			593		3.23		Obligations of states and political subdivisions	33,595			289		3.46		64,167			546		3.45
Other debt and equity securities	385,990			2,631		2.76		359,451			2,095		2.36		Other debt and equity securities	401,007			2,668		2.68		385,990			2,631		2.76
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															Federal Home Loan Bank, Federal Reserve Bank and other stock	31,450			527		6.74		32,360			586		7.34
Total interest-earning deposits, investments and other interest-earning assets															Total interest-earning deposits, investments and other interest-earning assets	591,458			3,846		2.62		545,122			4,114		3.06
Commercial, financial and agricultural loans	811,071			10,758		5.38		782,200			8,900		4.61		Commercial, financial and agricultural loans	821,267			8,631		4.23		811,071			10,758		5.38
Real estate—commercial and construction loans	1,822,276			21,559		4.80		1,600,394			17,618		4.46		Real estate—commercial and construction loans	2,139,369			23,917		4.50		1,822,276			21,559		4.80
Real estate—residential loans	938,299			11,412		4.93		837,495			9,675		4.69		Real estate—residential loans	991,550			11,052		4.48		938,299			11,412		4.93
Loans to individuals	32,524			518		6.46		27,960			413		5.99		Loans to individuals	30,016			407		5.45		32,524			518		6.46
Municipal loans and leases	332,299			3,221		3.93		311,752			2,892		3.76		Municipal loans and leases	317,006			3,265		4.14		332,299			3,221		3.93
Lease financings	80,893			1,435		7.19		74,709			1,344		7.30		Lease financings	89,376			1,554		6.99		80,893			1,435		7.19
Gross loans and leases	4,017,362			48,903		4.94		3,634,510			40,842		4.56		Gross loans and leases	4,388,584			48,826		4.47		4,017,362			48,903		4.94
Total interest-earning assets	4,562,484			53,017		4.71		4,140,677			44,204		4.33		Total interest-earning assets	4,980,042			52,672		4.25		4,562,484			53,017		4.71
Cash and due from banks	44,714							42,506							Cash and due from banks	50,891							44,714
Reserve for loan and lease losses	(30,111		)					(22,022		)
Reserve for credit losses, loans and leases															Reserve for credit losses, loans and leases	(44,372)							(30,111)
Premises and equipment, net	59,179							61,738							Premises and equipment, net	56,399							59,179
Operating lease right-of-use assets	37,129							—							Operating lease right-of-use assets	34,545							37,129
Other assets	330,858							333,078							Other assets	332,056							330,858
Total assets	$	5,004,253						$	4,555,977						Total assets	$	5,409,561						$	5,004,253
Liabilities:															Liabilities:
Interest-bearing checking deposits	$	478,927		$	714	0.60		$	425,027		$	292	0.28		Interest-bearing checking deposits	$	584,391		$	796	0.55		$	478,927		$	714	0.60
Money market savings	918,487			3,748		1.65		658,367			1,343		0.83		Money market savings	1,057,336			2,903		1.10		918,487			3,748		1.65
Regular savings	789,033			814		0.42		834,375			557		0.27		Regular savings	816,760			792		0.39		789,033			814		0.42
Time deposits	655,303			2,927		1.81		541,478			1,499		1.12		Time deposits	602,903			2,915		1.94		655,303			2,927		1.81
Total time and interest-bearing deposits	2,841,750			8,203		1.17		2,459,247			3,691		0.61		Total time and interest-bearing deposits	3,061,390			7,406		0.97		2,841,750			8,203		1.17
Short-term borrowings	117,664			638		2.20		175,824			645		1.49		Short-term borrowings	40,126			106		1.06		117,664			638		2.20
Long-term debt	145,299			739		2.06		155,765			665		1.73		Long-term debt	169,205			764		1.82		145,299			739		2.06
Subordinated notes	94,603			1,261		5.41		94,359			1,261		5.42		Subordinated notes	94,847			1,275		5.41		94,603			1,261		5.41
Total borrowings	357,566			2,638		2.99		425,948			2,571		2.45		Total borrowings	304,178			2,145		2.84		357,566			2,638		2.99
Total interest-bearing liabilities	3,199,316			10,841		1.37		2,885,195			6,262		0.88		Total interest-bearing liabilities	3,365,568			9,551		1.14		3,199,316			10,841		1.37
Noninterest-bearing deposits	1,089,449							1,024,797							Noninterest-bearing deposits	1,288,594							1,089,449
Operating lease liabilities	40,090							—							Operating lease liabilities	37,766							40,090
Accrued expenses and other liabilities	43,824							40,012							Accrued expenses and other liabilities	44,173							43,824
Total liabilities	4,372,679							3,950,004							Total liabilities	4,736,101							4,372,679
Shareholders’ Equity:															Shareholders’ Equity:
Common stock	157,784							157,784							Common stock	157,784							157,784
Additional paid-in capital	292,746							290,209							Additional paid-in capital	295,318							292,746
Retained earnings and other equity	181,044							157,980							Retained earnings and other equity	220,358							181,044
Total shareholders’ equity	631,574							605,973							Total shareholders’ equity	673,460							631,574
Total liabilities and shareholders’ equity	$	5,004,253						$	4,555,977						Total liabilities and shareholders’ equity	$	5,409,561						$	5,004,253
Net interest income				$	42,176						$	37,942			Net interest income				$	43,121						$	42,176
Net interest spread						3.34							3.45		Net interest spread						3.11							3.34
Effect of net interest-free funding sources						0.41							0.27		Effect of net interest-free funding sources						0.37							0.41
Net interest margin						3.75	%						3.72	%	Net interest margin						3.48	%						3.75	%
Ratio of average interest-earning assets to average interest-bearing liabilities	142.61		%					143.51		%					Ratio of average interest-earning assets to average interest-bearing liabilities	147.97		%					142.61		%

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

~~and unearned discount.~~adjustments. 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, ~~2019~~2020 and ~~2018~~2019 have been calculated using the Corporation's federal applicable rate of 21%.

Table of Contents

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
	March 31, 2020 Versus 2019
(Dollars in thousands)	Volume Change		Rate Change		Total
Interest income:
Interest-earning deposits with other banks	$	274	$	(218)	$	56
U.S. government obligations	(61)		16		(45)
Obligations of states and political subdivisions	(259)		2		(257)
Other debt and equity securities	109		(72)		37
Federal Home Loan Bank, Federal Reserve Bank and other stock	(15)		(44)		(59)
Interest on deposits, investments and other earning assets	48		(316)		(268)
Commercial, financial and agricultural loans	138		(2,265)		(2,127)
Real estate—commercial and construction loans	3,726		(1,368)		2,358
Real estate—residential loans	664		(1,024)		(360)
Loans to individuals	(37)		(74)		(111)
Municipal loans and leases	(139)		183		44
Lease financings	158		(39)		119
Interest and fees on loans and leases	4,510		(4,587)		(77)
Total interest income	4,558		(4,903)		(345)
Interest expense:
Interest-bearing checking deposits	145		(63)		82
Money market savings	517		(1,362)		(845)
Regular savings	31		(53)		(22)
Time deposits	(229)		217		(12)
Interest on time and interest-bearing deposits	464		(1,261)		(797)
Short-term borrowings	(299)		(233)		(532)
Long-term debt	116		(91)		25
Subordinated notes	14		—		14
Interest on borrowings	(169)		(324)		(493)
Total interest expense	295		(1,585)		(1,290)
Net interest income	$	4,263	$	(3,318)	$	945

Three Months Ended
March 31, 2019 Versus 2018
(Dollars in thousands) Volume
Change Rate
Change Total
Interest income:
Interest-earning deposits with other banks $ 130
$ 63
$ 193
U.S. government obligations (16 ) 4
(12 )
Obligations of states and political subdivisions (86 ) 39
(47 )
Other debt and equity securities 162
374
536
Federal funds sold and other earning assets 59
23
82
Interest on deposits, investments, federal funds sold and other earning assets 249
503
752
Commercial, financial and agricultural loans 336
1,522
1,858
Real estate—commercial and construction loans 2,543
1,398
3,941
Real estate—residential loans 1,219
518
1,737
Loans to individuals 71
34
105
Municipal loans and leases 195
134
329
Lease financings 111
(20 ) 91
Interest and fees on loans and leases 4,475
3,586
8,061
Total interest income 4,724
4,089
8,813
Interest expense:
Interest-bearing checking deposits 42
380
422
Money market savings 687
1,718
2,405
Regular savings (32 ) 289
257
Time deposits 363
1,065
1,428
Interest on time and interest-bearing deposits 1,060
3,452
4,512
Short-term borrowings (255 ) 248
(7 )
Long-term debt (47 ) 121
74
Interest on borrowings (302 ) 369
67
Total interest expense 758
3,821
4,579
Net interest income $ 3,966
$ 268
$ 4,234

Table of Contents

Interest Income

Three months ended March 31, ~~2019~~2020 versus ~~2018~~2019

Interest income on a tax-equivalent basis for the three months ended March 31, ~~2019~~2020 was ~~$53.0~~$52.7 million, ~~an increase~~a decrease of ~~$8.8 million,~~$345 thousand, or ~~19.9%~~0.7%, from the same period in ~~2018.~~2019. The ~~increase~~slight decrease in interest income for the three months ended March 31, ~~2019~~2020 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~~rate reductions of 75 basis in the third and fourth quarter of 2019 and 150 basis points in ~~2018. The~~the first quarter of 2020, offset by increases of $371.2 million in average gross loans and leases held for investment. Purchase accounting accretion had no impact on the rate on interest-earning assets for the three months ended March 31, 2020, compared to a favorable impact of ~~purchase accounting accretion on interest-earning assets was~~ one basis point for the three months ended March 31, ~~2019, compared to no impact on the yield on interest-earning assets for the same period in the prior year.~~2019.

Interest Expense

Three months ended March 31, ~~2019~~2020 versus ~~2018~~2019

Interest expense for the three months ended March 31, ~~2019~~2020 was ~~$10.8~~$9.6 million, ~~an increase~~a decrease of ~~$4.6~~$1.3 million, or ~~73.1%~~11.9%, from the same period in ~~2018. The increase in interest~~2019. Interest expense on average interest-bearing deposits decreased $797 thousand, or 9.7%, for the three months ended March 31, ~~2019 was~~2020 primarily due to ~~higher deposit costs, which were impacted by~~ the Federal Reserve interest rate ~~increases~~decreases in ~~2018. In addition,~~2019 and 2020, offset by the growth in average interest-bearing deposits ~~grew 15.6%~~of $219.6 million, or 7.7%. Additionally, interest expense on borrowings decreased $492 thousand, or 18.7%, for the three months ended March 31, ~~2019 compared to~~2020 from the same period in ~~2018. The favorable impact of purchase accounting amortization on interest-bearing liabilities was one basis point for the three months ended March 31,~~ 2019, ~~compared~~due to a ~~favorable impact~~decrease of ~~three basis points for the same period~~$77.5 million, or 65.9%, in the ~~prior year.~~average balance of short-term borrowings.

Provision for ~~Loan and Lease~~Credit Losses

The provision for ~~loan and lease~~credit losses for the three months ended March 31, ~~2019~~2020 was ~~$2.7~~$21.0 million compared to ~~$2.1~~$2.7 million for the same period 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.prior year. Net loan and lease charge-offs for the three months ended March 31, ~~2019~~2020 were ~~$447~~$489 thousand compared to ~~$198~~$447 thousand for the same period in the prior year. Refer to the Executive Overview for discussion of the drivers of provision expense for the three months ended March 31, 2020 and 2019.

Noninterest Income

The following table presents noninterest income for the three months ended March 31, ~~2019~~2020 and ~~2018:~~

2019:


											Three Months Ended
	Three Months Ended March 31,				Change						March 31,						Change
(Dollars in thousands)	2019		2018		Amount			Percent		(Dollars in thousands)	2020		2019		Amount		Percent
Trust fee income	$	1,887	$	1,996	$	(109	)	(5.5	)%	Trust fee income	$	1,890	$	1,887	$	3	0.2	%
Service charges on deposit accounts	1,435		1,327		108			8.1		Service charges on deposit accounts	1,397		1,435		(38)		(2.6)
Investment advisory commission and fee income	3,789		3,683		106			2.9		Investment advisory commission and fee income	4,255		3,789		466		12.3
Insurance commission and fee income	5,144		4,888		256			5.2		Insurance commission and fee income	4,732		5,144		(412)		(8.0)
Other service fee income	2,267		2,169		98			4.5		Other service fee income	1,870		2,267		(397)		(17.5)
Bank owned life insurance income	952		669		283			42.3		Bank owned life insurance income	734		952		(218)		(22.9)
Net gain on sales of investment securities	1		10		(9		)	(90.0	)	Net gain on sales of investment securities	695		1		694		N/M
Net gain on mortgage banking activities	483		716		(233		)	(32.5	)	Net gain on mortgage banking activities	2,744		483		2,261		N/M

Other income	339		124		215			N/M		Other income	67		339		(272)		(80.2)
Total noninterest income	$	16,297	$	15,582	$	715		4.6	%	Total noninterest income	$	18,384	$	16,297	$	2,087	12.8	%

Three months ended March 31, ~~2019~~2020 versus ~~2018~~2019

Noninterest income for the three months ended March 31, ~~2019~~2020 was ~~$16.3~~$18.4 million, an increase of ~~$715 thousand,~~$2.1 million, or ~~4.6%~~12.8%, from the three months ended March 31, ~~2018. Investment advisory commission and fee income~~2019.

The net gain on mortgage banking activities increased ~~$106 thousand,~~$2.3 million, or ~~2.9%~~468.1%, for the three months ended March 31, ~~2019,~~2020, primarily due to an increase in mortgage volume and an expansion of margins. Net gain on sales of investment securities increased $694 thousand for the quarter primarily due to a $652 thousand gain on the sale of $58.3 million of agency backed mortgage backed securities. Investment advisory commission and fee income increased $466 thousand, or 12.3%, for the three

Table of Contents

months ended March 31, 2020, primarily due to new customer relationships ~~which were partially offset by market declines in~~and appreciation of assets under management, as a majority of investment advisory fees are billed based on the ~~fourth quarter of 2018.~~ prior quarter-end assets under management balance.

Insurance commission and fee income ~~increased $256~~decreased $412 thousand, or ~~5.2%~~8.0%, for the three months ended March 31, ~~2019,~~2020, primarily due to ~~an increase in premiums for group life and health and commercial lines and an increase~~a decrease in contingent commission income of ~~$111~~$389 thousand, which was ~~$1.5~~$1.1 million for the three months ended March 31, ~~2019~~2020, compared to ~~$1.4~~$1.5 million for the ~~three months~~quarter ended March 31, ~~2018. Contingent commission~~2019. Other service fee income ~~is largely recognized in the first quarter of the year. Service charges on deposit accounts increased $108~~decreased $397 thousand, or ~~8.1%~~17.5%, for the three months ended March 31, ~~2019,~~2020, primarily due to ~~increased fee~~an increase of $331 thousand of mortgage servicing rights amortization. The increase in amortization for the three months ended March 31, 2020, was primarily driven by the decline in interest rates and their impact on prepayment activity. BOLI income ~~on cash management accounts. Other service fee income increased $98~~decreased $218 thousand, or ~~4.5%~~22.9%, for the three months ended March 31, 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 increased $283 thousand, or 42.3%, for the three months ended March 31, 2019,2020, 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~~$26 thousand in the ~~first quarter~~three months ended March 31, 2020, compared to an increase of ~~2018. The value of~~$249 thousand for the ~~non-qualified annuity portfolio declined $287 thousand in the fourth quarter of 2018.~~three months ended March 31, 2019. 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~~decreased $272 thousand, or ~~173.4%~~80.2%, for the three months ended March 31, ~~2019,~~2020, primarily ~~due to fees on risk participation agreements of $264 thousand related to increased customer activity compared to fees of $4 thousand~~driven by a loss in the ~~same period~~value of ~~the prior year.~~

~~These increases were partially offset by a decrease in net gain on mortgage banking activities~~equity securities measured at fair value of ~~$233~~$268 thousand ~~or 32.5%,~~ for the three months ended March 31, ~~2019, primarily due~~2020 compared to ~~the Bank retaining, on balance-sheet,~~ a ~~higher percentage~~gain 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$4 thousand ~~or 5.5%,~~ for the ~~three months~~quarter ended March 31, ~~2019 compared to March 31, 2018, primarily due to a decrease in activity-based trust estate fees and assets under management.~~2019.

Noninterest Expense

The following table presents noninterest expense for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended
	March 31,						Change
(Dollars in thousands)	2020		2019		Amount		Percent
Salaries, benefits and commissions	$	23,836	$	21,546	$	2,290	10.6	%
Net occupancy	2,574		2,611		(37)		(1.4)
Equipment	995		990		5		0.5
Data processing	2,760		2,514		246		9.8
Professional fees	1,317		1,264		53		4.2
Marketing and advertising	402		540		(138)		(25.6)
Deposit insurance premiums	504		452		52		11.5
Intangible expenses	330		426		(96)		(22.5)



Other expense	6,853		5,214		1,639		31.4
Total noninterest expense	$	39,571	$	35,557	$	4,014	11.3	%

Three Months Ended
March 31, Change
(Dollars in thousands) 2019 2018 Amount Percent
Salaries, benefits and commissions $ 21,564
$ 20,647
$ 917
4.4 %
Net occupancy 2,611
2,757
(146 ) (5.3 )
Equipment 990
1,023
(33 ) (3.2 )
Data processing 2,514
2,232
282
12.6
Professional fees 1,264
1,355
(91 ) (6.7 )
Marketing and advertising 316
381
(65 ) (17.1 )
Deposit insurance premiums 452
391
61
15.6
Intangible expenses 426
612
(186 ) (30.4 )
Restructuring charges —
571
(571 ) N/M
Other expense 5,420
5,156
264
5.1
Total noninterest expense $ 35,557
$ 35,125
$ 432
1.2 %

Three months ended March 31, ~~2019~~2020 versus ~~2018~~2019

Noninterest expense for the three months ended March 31, ~~2019~~2020 was ~~$35.6~~$39.6 million, an increase of ~~$432 thousand,~~$4.0 million, or ~~1.2%~~11.3%, from the three months ended March 31, ~~2018.~~ 2019.

Salaries, benefits and commissions increased ~~$917 thousand,~~$2.3 million, or ~~4.4%~~10.6%, for the three months ended March 31, 2020, primarily attributable to additional staff hired, primarily during 2019, to support revenue generation across all business lines, expansion of our commercial lending ~~group~~groups in ~~Lancaster County~~the first and second quarter of 2019, annual merit ~~increases. During the quarter ended March 31, 2019, the Corporation hired a team of eight commercial lenders~~increases and ~~support staff which will focus on increasing the Bank's presence in Western Lancaster and York Counties.~~increased variable compensation due to strong mortgage banking activity. Data processing expense increased ~~$282~~$246 thousand, or ~~12.6%~~9.8%, for the three months ended March 31, ~~2019,~~2020, primarily due to continued investments in customer relationship management software and internal infrastructure improvements ~~and~~as well as outsourced

data processing solutions. Other expense increased ~~$264 thousand,~~$1.6 million, or ~~5.1%~~31.4%, for the three months ended March 31, ~~2019,~~2020, primarily due to ~~increases in interchange expense and corporate development expense.~~

~~These increases were partially offset by~~ a ~~decrease in net occupancy and equipment expense totaling $179~~one-time $656 thousand ~~or 4.7%, primarily due~~charge related to the ~~closure~~extinguishment of ~~three financial service locations during April 2018. Intangibles expense decreased $186~~long-term debt and an increase of $794 thousand ~~or 30.4%, due to run-off~~in the reserve for unfunded commitments, which resulted from the adoption of intangible assets. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the three months ended March 31, 2018. There were no restructuring costs during the three months ended March 31, 2019.CECL.

Table of Contents

Tax Provision

The provision for income taxes for the three months ended March 31, 2020 and 2019 was $(606) thousand and ~~2018 was~~ $3.5 million, at an effective rate of (261.2)% and ~~$2.8 million, at effective rates of~~ 17.9% ~~and 18.0%~~, respectively. The negative effective tax rate for the three months ended March 31, 2020 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. The calculation of the effective tax rate for income taxes for the three months ended March 31, 2020 is based on the actual effective tax rate for the year-to-date period, given the uncertainty of the impact of COVID-19 and its potential impact on the Corporation’s estimate of the annual effective tax rate. The Corporation's effective income tax rates for the three months ended March 31, 2019 ~~and 2018 were~~was favorably impacted by discrete tax benefits. Excluding these items, the effective tax rate was 18.2% ~~and 18.8%~~ for the three months ended March 31, ~~2019 and 2018, respectively.~~2019.

Financial Condition

Assets

The following table presents assets at the dates indicated:


	At March 31, 2020		At December 31, 2019		Change
(Dollars in thousands)									Amount	Percent
Cash and interest-earning deposits	$	182,902	$	125,128	$	57,774	46.2	%
Investment securities, net of allowance for credit losses	423,521		441,599		(18,078)		(4.1)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	28,465		28,254		211		0.7
Loans held for sale	11,417		5,504		5,913		N/M
Loans and leases held for investment	4,448,825		4,386,836		61,989		1.4
Reserve for credit losses, loans and leases	(68,216)		(35,331)		(32,885)		(93.1)
Premises and equipment, net	55,789		56,676		(887)		(1.6)
Operating lease right-of-use assets	34,679		34,418		261		0.8
Goodwill and other intangibles, net	182,332		182,843		(511)		(0.3)
Bank owned life insurance	115,512		114,778		734		0.6

Accrued interest receivable and other assets	49,542		40,219		9,323		23.2
Total assets	$	5,464,768	$	5,380,924	$	83,844	1.6	%

At March 31,
2019 At December 31,
2018 Change
(Dollars in thousands) Amount Percent
Cash and interest-earning deposits $ 66,141
$ 109,420
$ (43,279 ) (39.6 )
Investment securities 466,883
473,306
(6,423 ) (1.4 )
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost 32,699
28,337
4,362
15.4
Loans held for sale 921
1,754
(833 ) (47.5 )
Loans and leases held for investment 4,067,879
4,006,574
61,305
1.5
Reserve for loan and lease losses (31,602 ) (29,364 ) (2,238 ) (7.6 )
Premises and equipment, net 59,091
59,559
(468 ) (0.8 )
Operating lease right-of-use assets 36,099
—
36,099
N/M
Goodwill and other intangibles, net 184,089
184,549
(460 ) (0.2 )
Bank owned life insurance 112,551
111,599
952
0.9
Accrued interest receivable and other assets 40,776
38,613
2,163
5.6
Total assets $ 5,035,527
$ 4,984,347
$ 51,180
1.0 %
Cash and Interest-Earning Deposits

Cash and interest-earning deposits increased $57.8 million, or 46.2%, from December 31, 2019, primarily due to increased interest-earning deposits at the Federal Reserve Bank of $56.8 million.

Investment Securities

Total investments securities at March 31, ~~2019~~2020 decreased ~~$6.4~~$18.1 million from December 31, ~~2018. Maturities~~2019. Sales of $67.0 million, maturities and pay-downs of ~~$20.6~~$18.4 million, calls of ~~$770 thousand, sales of $491 thousand, net amortization of purchased premiums and discounts of $537 thousand were partially offset by purchases of $10.9~~$6.9 million, ~~and increases~~decreases in the fair value of available-for-sale investment securities of ~~$5.1~~$4.8 million, provision for credit losses of $897 thousand and net amortization of purchased premiums and discounts of $446 thousand were partially offset by purchases of $80.0 million. The ~~increase~~decrease in the fair value of available-for-sale investment securities was ~~due to~~primarily recorded on the ~~flattening of~~variable rate corporate bond portfolio which was negatively impacted by the sudden decrease in interest rates and 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, 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.

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

Loans and Leases

Gross loans and leases held for investment grew ~~$61.3~~$62.0 million, or ~~1.5%~~1.4%, from December 31, ~~2018.~~2019. The growth in loans was primarily in commercial real estate and residential real estate loans.

Table of Contents

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, 2019, the recorded investment in loans held for investment that were considered to be impaired was $26.0 million. The related reserve for loan losses was $1.5 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 and business loans. Impaired loans include nonaccrualNonaccrual loans and leases and accruing troubled debt restructured loans ~~and lease modifications~~are loans or leases for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. Factors considered by management in determining accrual status include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due.

At March 31, 2020, nonaccrual loans and leases and accruing troubled debt restructured loans were $36.7 million. The related allowance for credit losses on loans and leases was $2.5 million. At December 31, 2019, loans that were considered to be impaired was $38.4 million. The related reserve for loan losses was $2.1 million. Individual reserves have been established based on current facts and management's judgements about the ultimate outcome of these credits. During the first quarter of 2020, three residential real estate loans totaling $710 thousand and two home equity loans totaling $741 thousand were returned to accruing status as these loans have maintained a period of repayment performance in accordance with the Corporation's policy. The amount of the ~~specific~~individual 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~~$516 thousand at March 31, ~~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 thousand and $426 thousand at March 31, 20192020 and December 31, ~~2018, respectively.~~2019.

Table of Contents

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, 2020			At December 31, 2019
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:


Commercial, financial and agricultural	$	3,934		$	3,442
Real estate—commercial	28,827			27,928
Real estate—construction	—			257
Real estate—residential	3,370			6,445

Lease financings	495			506
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	36,626			38,578
Accruing troubled debt restructured loans and lease modifications not included in the above	54			54
Accruing loans and leases 90 days or more past due:
Commercial, financial and agricultural	—			20
Real estate—commercial	722			—

Real estate—residential	826			—
Loans to individuals	63			74
Lease financings	166			49
Total accruing loans and leases, 90 days or more past due	1,777			143
Total nonperforming loans and leases	38,457			38,775
Other real estate owned	516			516
Total nonperforming assets	$	38,973		$	39,291
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.82		%	0.88		%
Nonperforming loans and leases / loans and leases held for investment	0.86		%	0.88		%
Nonperforming assets / total assets	0.71		%	0.73		%

Allowance for credit losses, loans and leases	$	68,216		$	35,331
Allowance for credit losses, loans and leases / loans and leases held for investment	1.53		%	0.81		%
Allowance for credit losses, loans and leases / nonaccrual loans and leases held for investment	186.25		%	91.58		%
Allowance for credit losses, loans and leases / nonperforming loans and leases held for investment	177.38		%	91.12		%

* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	13,680		$	13,817

(Dollars in thousands) At March 31, 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
Real estate—commercial 18,361
18,214
Real estate—construction 106
106
Real estate—residential 4,361
4,353
Lease financings 220
170
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications* 25,952
26,208
Accruing troubled debt restructured loans and lease modifications not included in the above 270
542
Accruing loans and leases 90 days or more past due:
Real estate—residential 325
—
Loans to individuals 54
55
Lease financings 257
137
Total accruing loans and leases, 90 days or more past due 636
192
Total nonperforming loans and leases 26,858
26,942
Other real estate owned 540
1,187
Total nonperforming assets $ 27,398
$ 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 %
Nonperforming loans and leases / loans and leases held for investment 0.66
0.67
Nonperforming assets / total assets 0.54
0.56

Allowance for loan and lease losses $ 31,602
$ 29,364
Allowance for loan and lease losses / loans and leases held for investment 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
Allowance for loan and lease losses / nonaccrual loans and leases held for investment 121.77
112.04
Allowance for loan and lease losses / nonperforming loans and leases held for investment 117.66
108.99
Acquired credit impaired loans $ 693
$ 695

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

Table of Contents

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			(Dollars in thousands)	At March 31, 2020		At December 31, 2019
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	25,952		$	26,208		Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	36,626	$	38,578
Nonaccrual loans and leases with partial charge-offs	2,730			2,210			Nonaccrual loans and leases with partial charge-offs	2,830		1,966
Life-to-date partial charge-offs on nonaccrual loans and leases	1,612			1,320			Life-to-date partial charge-offs on nonaccrual loans and leases	1,532		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
Specific reserves on individually analyzed loans							Specific reserves on individually analyzed loans	2,535		2,108

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~~$982 thousand and ~~$899~~$725 thousand for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

The Corporation also has goodwill with a net carrying value of $172.6 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 months ended March 31, ~~2019~~2020 and ~~2018. Since the last annual impairment analysis during 2018, there have been no circumstances to indicate impairment.~~2019. 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, 2020		At December 31, 2019		Change
									Amount	Percent
Deposits	$	4,407,303	$	4,360,075	$	47,228	1.1	%
Short-term borrowings	18,415		18,680		(265)		(1.4)
Long-term debt	210,069		150,098		59,971		40.0
Subordinated notes	94,879		94,818		61		0.1
Operating lease liabilities	37,919		37,617		302		0.8
Accrued interest payable and other liabilities	44,632		44,514		118		0.3
Total liabilities	$	4,813,217	$	4,705,802	$	107,415	2.3	%

(Dollars in thousands) At March 31, 2019 At December 31, 2018 Change
Amount Percent
Deposits $ 4,003,153
$ 3,885,933
$ 117,220
3.0 %
Short-term borrowings 73,185
189,768
(116,583 ) (61.4 )
Long-term debt 145,263

145,330
(67 ) —
Subordinated notes 94,635
94,574
61
0.1
Operating lease liabilities 39,102
—
39,102
N/M
Accrued interest payable and other liabilities 42,583
44,609
(2,026 ) (4.5 )
Total liabilities $ 4,397,921
$ 4,360,214
$ 37,707
0.9 %

Deposits

Total deposits increased ~~$117.2~~$47.2 million, or ~~3.0%~~1.1%, from December 31, ~~2018,~~2019, primarily due to increases in commercial and consumer deposits partially offset by a seasonal decrease in public funds deposits.

Borrowings

Total borrowings ~~decreased $116.6~~increased $59.8 million, or ~~27.1%~~22.7%, from December 31, ~~2018,~~2019, primarily due to ~~a decrease~~an increase in ~~short-term~~long-term borrowings of ~~$116.6 million.~~$60.0 to fund future loan growth.

Other liabilities

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 $2.4 million and $420 thousand at March 31, 2020 and December 31, 2019, respectively. The increase ~~in deposits reduced~~of $1.9 million relates to the ~~need to borrow short-term funds.~~implementation of ASU 2016-03.

Table of Contents

Shareholders’ Equity

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


(Dollars in thousands)	At March 31, 2020		At December 31, 2019		Change
									Amount	Percent
Common stock	$	157,784	$	157,784	$	—	—	%
Additional paid-in capital	295,439		294,999		440		0.1
Retained earnings	272,478		288,803		(16,325)		(5.7)
Accumulated other comprehensive loss	(25,628)		(21,730)		(3,898)		(17.9)
Treasury stock	(48,522)		(44,734)		(3,788)		(8.5)
Total shareholders’ equity	$	651,551	$	675,122	$	(23,571)	(3.5	%)

(Dollars in thousands) At March 31, 2019 At December 31, 2018 Change
Amount Percent
Common stock $ 157,784
$ 157,784
$ —
— %
Additional paid-in capital 293,255
292,401
854
0.3
Retained earnings 256,746
248,167
8,579
3.5
Accumulated other comprehensive loss (24,238 ) (28,416 ) 4,178
14.7
Treasury stock (45,941 ) (45,803 ) (138 ) (0.3 )
Total shareholders’ equity $ 637,606
$ 624,133
$ 13,473
2.2 %

The ~~increase~~decrease in ~~shareholder's~~shareholders' equity at March 31, ~~2019~~2020 of ~~$13.5~~$23.6 million, or ~~2.2%~~3.5%, from December 31, ~~2018~~2019 was primarily related to ~~an increase~~a decrease in retained earnings of ~~$8.6~~$16.3 million. Retained earnings at March 31, ~~2019~~2020 was ~~impacted~~decreased by $11.3 million upon adoption of CECL and by $5.9 million of cash dividends declared which was partially offset by the three months of net income of ~~$16.1 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 million.~~$838 thousand. Accumulated other comprehensive loss ~~decreased~~increased by ~~$4.2~~$3.9 million mainly attributable to ~~increases~~decreases in the fair value of available-for-sale investment securities of ~~$4.0~~$3.8 million, net of tax. Treasury stock increased $3.8 million from December 31, 2019 primarily related to purchases of $4.0 million under the Corporation's share repurchase program.

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 Condensed Unaudited Consolidated Financial Statements under Item 1 of this Quarterly Report on Form ~~10-Q (Note 13 in the Notes to the Consolidated Financial Statements).~~10-Q.

The Banking segment ~~as presented in Note 13 in the Notes to the Consolidated Financial Statements, reports~~reported pre-tax loss of $1.5 million and a pre-tax income of $17.3 ~~million and $13.0~~ million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. See the section of this MD&A under the heading “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for ~~Loan and Lease~~Credit 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~~$1.9 million and ~~$1.8~~$1.7 million for the three months ended March 31, 2020 and 2019, respectively. Noninterest income was $6.2 million and ~~2018, respectively. The decrease in pre-tax income is primarily attributable to higher noninterest expense in~~$5.7 million for the three months ended March 31, 2020 and 2019, asrespectively. The increase in pre-tax income and noninterest income for the three months ended March 31, 2020 compared to the three months ended March 31, ~~2018. Noninterest income remained flat at $5.7 million for both the three months ended March 31,~~ 2019 was primarily due to new client relationships and ~~2018. Wealth Management~~appreciation of assets under management and supervision, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management and supervision balance. Assets under management and supervision were $3.3 billion as of March 31, 2020, $3.8 billion as of December 31, 2019 and $3.6 billion as of March 31, ~~2019 and $3.4 billion as of March 31, 2018.~~2019. The ~~increase~~decrease in assets under management and supervision as of ~~March~~$511 million for the period from December 31, 2019 ~~as compared~~ to March 31, ~~2018,~~2020 was primarily ~~driven by new customer relationships and an increase~~due to the general downturn in the equity markets asin March 2020 driven by the impact of ~~each respective period-end.~~COVID-19.

The Insurance segment ~~as presented in Note 13 in the Notes to the Consolidated Financial Statements, reports~~reported pre-tax income of ~~$2.0~~$1.6 million and ~~$1.6~~$2.0 million for the three months ended March 31, 2020 and 2019, ~~and 2018, respectively, and noninterest~~respectively. Noninterest income ~~of $5.4~~was $4.9 million and ~~$5.1~~$5.4 million for the three months ended March 31, 2020 and 2019, respectively. The decrease in pre-tax income and ~~2018, respectively. Noninterest~~noninterest income ~~has increased~~for the three months ended March 31, 2020 was primarily due to ~~increases~~a decrease in ~~group life and health premiums and~~ contingent commission ~~income.~~income, which was $1.1 million and $1.5 million for the three months ended March 31, 2020 and 2019, respectively.

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~~as set forth in the following ~~table)~~table. To comply with the regulatory definition of ~~Total~~well capitalized, a depository institution must maintain minimum capital ~~Tier 1 capital~~amounts and ~~Tier 1 common capital (as defined~~ratios as set forth in the ~~regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), or leverage ratio.~~following table.

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.~~2020.

Table of Contents

Table 4—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 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		(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
At March 31, 2019
At March 31, 2020													At March 31, 2020
Total Capital (to Risk-Weighted Assets):													Total Capital (to Risk-Weighted Assets):
Corporation	$	616,154	13.77	%	$	357,939	8.00	%	$	447,424	10.00	%	Corporation	$	657,856	13.65	%	$	385,467	8.00	%	$	481,834	10.00	%
Bank	517,223		11.61		356,329		8.00		445,412		10.00		Bank	568,205		11.87		382,946		8.00		478,682		10.00
Tier 1 Capital (to Risk-Weighted Assets):													Tier 1 Capital (to Risk-Weighted Assets):
Corporation	489,197		10.93		268,454		6.00		357,939		8.00		Corporation	520,010		10.79		289,101		6.00		385,467		8.00
Bank	484,901		10.89		267,247		6.00		356,329		8.00		Bank	515,238		10.76		287,209		6.00		382,946		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):													Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	489,197		10.93		201,341		4.50		290,825		6.50		Corporation	520,010		10.79		216,825		4.50		313,192		6.50
Bank	484,901		10.89		200,435		4.50		289,518		6.50		Bank	515,238		10.76		215,407		4.50		311,143		6.50
Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Corporation	489,197		10.10		193,769		4.00		242,211		5.00		Corporation	520,010		9.90		210,016		4.00		262,521		5.00
Bank	484,901		10.05		192,972		4.00		241,215		5.00		Bank	515,238		9.85		209,307		4.00		261,634		5.00
At December 31, 2018
At December 31, 2019													At December 31, 2019
Total Capital (to Risk-Weighted Assets):													Total Capital (to Risk-Weighted Assets):
Corporation	$	604,213	13.70	%	$	352,764	8.00	%	$	440,955	10.00	%	Corporation	$	655,010	13.78	%	$	380,276	8.00	%	$	475,344	10.00	%
Bank	506,728		11.54		351,220		8.00		439,026		10.00		Bank	552,142		11.66		378,724		8.00		473,405		10.00
Tier 1 Capital (to Risk-Weighted Assets):													Tier 1 Capital (to Risk-Weighted Assets):
Corporation	479,550		10.88		264,573		6.00		352,764		8.00		Corporation	524,137		11.03		285,207		6.00		380,276		8.00
Bank	476,639		10.86		263,415		6.00		351,220		8.00		Bank	516,087		10.90		284,043		6.00		378,724		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):													Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	479,550		10.88		198,430		4.50		286,621		6.50		Corporation	524,137		11.03		213,905		4.50		308,974		6.50
Bank	476,639		10.86		197,561		4.50		285,367		6.50		Bank	516,087		10.90		213,032		4.50		307,713		6.50
Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Corporation	479,550		10.13		189,374		4.00		236,718		5.00		Corporation	524,137		10.02		209,330		4.00		261,663		5.00
Bank	476,639		10.12		188,487		4.00		235,609		5.00		Bank	516,087		9.90		208,589		4.00		260,737		5.00

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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, ~~2019,~~2020, 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 of 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~~are 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.

Additionally, in March 2020, the Office of the Comptroller of the Currency, Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation announced the 2020 CECL interim final rule (IFR) designed to allow eligible firms to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the coronavirus (COVID-19). The ~~election must be made~~2020 CECL IFR allows Corporations that adopt CECL before December 31, 2020 to defer 100 percent of the day one transitional amounts described above through

The Corporation adopted the transition guidance and the 2020 CECL IFR relief and applied these effects to regulatory capital in the first ~~reporting period that CECL is adopted.~~quarter of 2020 upon adoption of CECL. See Note 1, "Summary of Significant Accounting ~~Policies - Accounting Pronouncements Yet to Be Adopted"~~Policies" for additional ~~information.~~information on the adoption of CECL.

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.~~exposure. 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.

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~~flows 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.

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, 2019 and December 31, 2018, the carrying amount of overnight borrowings with the FHLB was $0 and $108.3 million, respectively. At March 31, 2019 and December 31, 2018, the carrying amount of long-term borrowings with the FHLB was $125.0 million. At March 31, 2019 and December 31, 2018, the Bank had outstanding short-term letters of credit with the FHLB totaling $336.9 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 $367.0 million at March 31, 2019 and December 31, 2018. At March 31, 2019 and December 31, 2018, the Corporation had $55.0 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.

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 million and $69.5 million at March 31, 2019 and December 31, 2018, respectively. At March 31, 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, 2019 and December 31, 2018, the Corporation had no outstanding borrowings under this line.~~

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 Condensed Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

Recent Regulatory and Legislative Developments

On March 22, 2020, the federal banking agencies issued an interagency statement to provide additional guidance to financial institutions who are working with borrowers affected by COVID-19. The statement provided that agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”). The agencies have confirmed with staff of the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

The statement further provided that working with borrowers that are current on existing loans, either individually or as part of a program for creditworthy borrowers who are experiencing short-term financial or operational problems as a result of COVID-19, generally would not be considered TDRs. For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

The statement indicated that the agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs.

In addition, the statement noted that efforts to work with borrowers of one- to-four family residential mortgages, where the loans are prudently underwritten, and not past due or carried on non-accrual status, will not result in the loans being considered restructured or modified for the purposes of their risk-based capital rules. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.

The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) and ~~Simplification~~stimulate the economy. The law had several provisions relevant to financial institutions, including:

accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally backed mortgage is prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020.

The Paycheck Protection Program

The CARES Act provides approximately $350 billion to fund loans to eligible small businesses through the Small Business Administration’s (“SBA”) 7(a) loan guaranty program. These loans will be 100% federally guaranteed (principal and interest) through December 31, 2020. An eligible business can apply for a Paycheck Protection Program (“PPP”) loan up to 2.5 times its average monthly “payroll costs" limited to a loan amount of $10.0 million. The proceeds of the loan can be used for payroll (excluding individual employee compensation over $100,000 per year), mortgage, interest, rent, insurance, utilities and other qualifying expenses. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.

The Paycheck Protection Program Lending Facility

On April ~~2, 2019,~~9, 2020, the ~~SEC issued Release No. 33-10618; 34-85381, "FAST Act Modernization~~Federal Reserve Board created the Paycheck Protection Program Lending Facility (the “Facility”) to facilitate lending by eligible borrowers to small businesses under the Paycheck Protection Program. Under the Facility, the Federal Reserve Banks will lend to depository institutions that originated PPP loans on a non-recourse basis, taking the PPP Loans as collateral. Only PPP loans guaranteed by the SBA are eligible to serve as collateral for the Facility. The maturity date of an extension of credit under the Facility will equal the maturity date of the PPP Loan pledged to secure the extension of credit. The maturity date of the Facility’s extension of credit will be accelerated if the underlying PPP Loan goes into default 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~~eligible borrower sells the PPP Loan to ~~provide material information~~the SBA 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 effective on May 2, 2019, except for specific amendments that are effective as cited in the rule. The Corporation provided the additional disclosuresrealize on the ~~Form 10-Q cover page~~SBA guarantee. The maturity date of the Facility’s extension of credit also will be accelerated to the extent of any loan forgiveness reimbursement received by the eligible borrower from the SBA. Extensions of credit under the Facility will be made at a rate of 35 basis points. There are no fees associated with the Facility. The principal amount of an extension of credit under the Facility will be equal to the principal amount of the PPP Loan pledged as collateral to secure the extension of credit.

The Paycheck Protection Program and Health Care Enhancement Act

On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law, which provides $310 billion in additional funding (the “New PPP Funds”) to the U.S. Small Business Administration’s Paycheck Protection Program previously established by the CARES Act. This increases the PPP’s original funding limit of $349 billion to $659 billion, as the original funds were fully exhausted by PPP borrowers. To ensure businesses have access to PPP loans from smaller lenders, the PPP Enhancement Act requires that a portion of the New PPP Funds are allocated to smaller insured depository institutions, federal and state credit unions and “community financial institutions,” which includes community development and minority-owned financial institutions. Specifically: (1) $30 billion of the New PPP Funds must be used for PPP loans made by (a) community financial institutions, (b) insured depository institutions with consolidated assets of less than $10 billion and (b) credit unions with consolidated assets of less than $10 billion; and (2) an additional $30 billion of the ~~quarter ending March 31, 2019.~~ New PPP Funds must be used for PPP loans made by insured depository institutions and credit unions with consolidated assets between $10 billion and $50 billion. The ~~Corporation continues~~foregoing allocations do not prohibit smaller institutions and community financial institutions from making PPP loans above their respective allocation amounts. Rather, institutions with $50 billion or more in consolidated assets and non-bank lenders would not have access to ~~analyze~~$60 billion of the ~~amended disclosure requirements under this rule, but does not believe that such changes will materially impact the Corporation’s disclosures~~.New PPP Funds.

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.~~2019.

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, ~~2019.~~2020.

Changes in Internal Control over Financial Reporting

Effective January 1, 2020, the Corporation adopted CECL. The Corporation designed new controls and modified existing controls as part of this adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. There were no other changes in the ~~Corporation’s~~Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended March 31, ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Item 1.Legal Proceedings

~~There have been no~~Item 1A.Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material ~~changes in~~updates and additions to the risk factors ~~from those~~previously disclosed ~~under Item 1A, “Risk Factors”~~ in ~~the Corporation’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 as filed with the SEC. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.

In December 2019, coronavirus (COVID-19) was first reported in China. On March 11, 2020, the World Health Organization declared a worldwide pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows. Various state governments and

Table of Contents

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

•Demand for our products and services may decline, making it difficult to grow assets and income;

•If the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

•Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

•Our allowance for credit losses on loans and leases may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

•The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

•A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend,

•Our wealth management revenues may decline with continuing market turmoil;

•Our cyber security risks are increased as the result of an increase in the number of employees working remotely;

•We rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

•Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Table of Contents

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 1 – 31, 2019~~

—

~~864,246~~

~~February 1 – 28, 2019~~

—

~~864,246~~

~~March 1 – 31, 2019~~

—

~~864,246~~

~~Total~~

—


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 1 – 31, 2020	—	$	—	—	864,246
February 1 – 29, 2020	25,300	23.27		25,300	838,946
March 1 – 31, 2020	159,772	21.35		159,772	679,174
Total	185,072	$	21.61	185,072

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.

1.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~~Share repurchased pursuant to these plans during the three months ended March 31, ~~2019~~2020 were as follows:


Period	Total Number of Shares Purchased	Average Price Paid per Share
January 1 – 31, 2020	—	$	—
February 1 – 29, 2020	9,218	25.70
March 1 – 31, 2020	3,860	18.08
Total	13,078	$	23.45

Item 4.Mine Safety Disclosures

Item 5.Other Information

~~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~~Change in Control Agreement, ~~for Directors (Service Based) Subject~~dated January 1, 2020, entered into between Univest Financial Corporation, Univest Bank and Trust Co. and each of Brian J. Richardson and Megan D. Santana, is incorporated by reference to Exhibit 10.1 of Form 8-K, filed with the ~~Amended and Restated Univest 2013 Long-Term Incentive Plan.~~SEC on January 3, 2020.

Exhibit ~~10.2~~31.1

~~Form of Performance Based Restricted Stock Unit Agreement for Employees Subject to the Amended and Restated Univest 2013 Long-Term Incentive Plan.~~

~~Exhibit 10.3~~

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

~~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 March 31, 2020, 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 Shareholders' 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 March 31, 2020, formatted in Inline XBRL.

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)

		~~Univest Financial Corporation~~
	~~(Registrant)~~

Date: May ~~3, 2019~~4, 2020	/s/ Jeffrey M. Schweitzer
		Jeffrey M. Schweitzer President and Chief Executive Officer (Principal Executive Officer)

Date: May ~~3, 2019~~4, 2020		/s/ ~~Roger S. Deacon~~Brian J. Richardson
		~~Roger S. Deacon~~ ~~Senior~~ Brian J. Richardson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)



(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)	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
Reserve for loan and lease losses:
Beginning balance	$	7,983		$	13,903		$	2,236		$	3,199		$	484		$	1,288		$	271		$	29,364
Charge-offs	(468		)	(41		)	—			(11		)	(85		)	(104		)	N/A			(709		)
Recoveries	82			91			4			5			22			58			N/A			262
Provision (recovery of provision)	1,353			1,028			62			185			48			33			(25		)	2,684
Provision for acquired credit impaired loans	—			—			—			1			—			—			—			1
Ending balance	$	8,950		$	14,981		$	2,302		$	3,379		$	469		$	1,275		$	246		$	31,602
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



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



	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, 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		(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, 2020
Outstanding at December 31, 2018	597,405		$	23.98
Outstanding at December 31, 2019								Outstanding at December 31, 2019	508,111	$	24.83

Expired	(7,756	)	22.99					Expired	(500)	28.50
Forfeited	(6,500	)	25.53					Forfeited	(3,152)	28.44
Exercised	(30,500	)	17.06					Exercised	(5,000)	18.70
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
Outstanding at March 31, 2020								Outstanding at March 31, 2020	499,459	24.86		6.2	$	5
Exercisable at March 31, 2020								Exercisable at March 31, 2020	445,481	24.42		6.0	5



	~~Three Months Ended March 31,~~
	~~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~~


(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)	(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Stock options	$	965	1.6	Stock options	$	306	1.0
Restricted stock awards and units	4,148		2.4	Restricted stock awards and units	5,338		2.4
	$	5,113	2.3		$	5,644	2.3


(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			(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, 2019													Balance, December 31, 2019	$	(3,231)	$	(185)	$	(18,314)	$	(21,730)
Adjustment to initially apply ASU No. 2016-13 for CECL (1)													Adjustment to initially apply ASU No. 2016-13 for CECL (1)	237		—		—		237
Other comprehensive (loss) income													Other comprehensive (loss) income	(4,000)		(370)		235		(4,135)
Balance, March 31, 2020													Balance, March 31, 2020	$	(6,994)	$	(555)	$	(18,079)	$	(25,628)

Balance, December 31, 2018	$	(11,221	)	$	81		$	(17,276	)	$	(28,416	)	Balance, December 31, 2018	$	(11,221)	$	81	$	(17,276)	$	(28,416)
Adjustment to initially apply ASU No. 2017-12 for derivatives (1)	—			83			—			83
Adjustment to initially apply ASU No. 2017-12 for derivatives													Adjustment to initially apply ASU No. 2017-12 for derivatives	—		83		—		83
Other comprehensive income (loss)	4,044			(145		)	196			4,095			Other comprehensive income (loss)	4,044		(145)		196		4,095
Balance, March 31, 2019	$	(7,177	)	$	19		$	(17,080	)	$	(24,238	)	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	)


(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At March 31, 2020		At December 31, 2019
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(556)	$	(186)
Total		$	(556)	$	(186)



(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



	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



	Three Months Ended
	March 31, 2018
(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated
Interest income	$	43,522		$	5	$	—	$	7		$	43,534
Interest expense	5,001			—		—		1,261			6,262
Net interest income	38,521			5		—		(1,254		)	37,272
Provision for loan and lease losses	2,053			—		—		—			2,053
Noninterest income	4,789			5,740		5,086		(33		)	15,582
Intangible expenses	329			142		141		—			612
Restructuring charges	571			—		—		—			571
Other noninterest expense	27,661			3,658		3,245		(622		)	33,942
Intersegment (revenue) expense*	(291		)	153		138		—			—
Income (expense) before income taxes	12,987			1,792		1,562		(665		)	15,676
Income tax expense (benefit)	1,998			545		456		(173		)	2,826
Net income (loss)	$	10,989		$	1,247	$	1,106	$	(492	)	$	12,850
Capital expenditures	$	970		$	49	$	7	$	55		$	1,081



	Three Months Ended
	March 31, 2019 Versus 2018
(Dollars in thousands)	Volume Change			Rate Change			Total
Interest income:
Interest-earning deposits with other banks	$	130		$	63		$	193
U.S. government obligations	(16		)	4			(12		)
Obligations of states and political subdivisions	(86		)	39			(47		)
Other debt and equity securities	162			374			536
Federal funds sold and other earning assets	59			23			82
Interest on deposits, investments, federal funds sold and other earning assets	249			503			752
Commercial, financial and agricultural loans	336			1,522			1,858
Real estate—commercial and construction loans	2,543			1,398			3,941
Real estate—residential loans	1,219			518			1,737
Loans to individuals	71			34			105
Municipal loans and leases	195			134			329
Lease financings	111			(20		)	91
Interest and fees on loans and leases	4,475			3,586			8,061
Total interest income	4,724			4,089			8,813
Interest expense:
Interest-bearing checking deposits	42			380			422
Money market savings	687			1,718			2,405
Regular savings	(32		)	289			257
Time deposits	363			1,065			1,428
Interest on time and interest-bearing deposits	1,060			3,452			4,512
Short-term borrowings	(255		)	248			(7		)
Long-term debt	(47		)	121			74
Interest on borrowings	(302		)	369			67
Total interest expense	758			3,821			4,579
Net interest income	$	3,966		$	268		$	4,234



	At March 31, 2019			At December 31, 2018			Change
(Dollars in thousands)	At March 31, 2019			At December 31, 2018			Amount			Percent
Cash and interest-earning deposits	$	66,141		$	109,420		$	(43,279	)	(39.6	)
Investment securities	466,883			473,306			(6,423		)	(1.4	)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	32,699			28,337			4,362			15.4
Loans held for sale	921			1,754			(833		)	(47.5	)
Loans and leases held for investment	4,067,879			4,006,574			61,305			1.5
Reserve for loan and lease losses	(31,602		)	(29,364		)	(2,238		)	(7.6	)
Premises and equipment, net	59,091			59,559			(468		)	(0.8	)
Operating lease right-of-use assets	36,099			—			36,099			N/M
Goodwill and other intangibles, net	184,089			184,549			(460		)	(0.2	)
Bank owned life insurance	112,551			111,599			952			0.9
Accrued interest receivable and other assets	40,776			38,613			2,163			5.6
Total assets	$	5,035,527		$	4,984,347		$	51,180		1.0	%


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~



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