~~UNIVEST FINANCIAL CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

Six Months Ended June 30,
(Dollars in thousands) 2019 2018
Cash flows from operating activities:
Net income $ 32,547
$ 17,207
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses 4,761
17,462
Depreciation of premises and equipment 2,651
2,795
Net amortization of investment securities premiums and discounts 834
779
Net gain on sales of investment securities (8 ) (10 )
Net gain on mortgage banking activities (1,279 ) (1,658 )
Bank owned life insurance income (1,695 ) (1,879 )
Net accretion of acquisition accounting fair value adjustments (247 ) (495 )
Stock-based compensation 1,256
1,719
Intangible expenses 843
1,206
Other adjustments to reconcile net income to cash (used in) provided by operating activities (461 ) 190
Originations of loans held for sale (69,323 ) (74,695 )
Proceeds from the sale of loans held for sale 70,603
76,263
Contributions to pension and other postretirement benefit plans (132 ) (133 )
Increase in accrued interest receivable and other assets (3,921 ) (3,089 )
(Decrease) increase in accrued interest payable and other liabilities (4,872 ) 814
Net cash provided by operating activities 31,557
36,476
Cash flows from investing activities:
Net capital expenditures (1,432 ) (1,347 )
Proceeds from maturities, calls and principal repayments of securities held-to-maturity 11,054
4,253
Proceeds from maturities, calls and principal repayments of securities available-for-sale 27,784
34,824
Proceeds from sales of securities available-for-sale 15,494
1,010
Purchases of investment securities held-to-maturity (41,808 ) (45,349 )
Purchases of investment securities available-for-sale (498 ) (1,485 )
Proceeds from sales of money market mutual funds 523
10,706
Purchases of money market mutual funds (1,203 ) (6,284 )
Net increase in other investments (4,418 ) (5,564 )
Net increase in loans and leases (162,169 ) (211,534 )
Proceeds from sales of other real estate owned 599
21
Purchases of bank owned life insurance —
(776 )
Proceeds from bank owned life insurance —
1,374
Net cash used in investing activities (156,074 ) (220,151 )
Cash flows from financing activities:
Net increase in deposits 236,213
65,963
Net (decrease) increase in short-term borrowings (150,418 ) 126,422
Proceeds from issuance of long-term debt 25,000
—
Payment of contingent consideration on acquisitions (65 ) (67 )
Purchases of treasury stock (1,175 ) (1,259 )
Stock issued under dividend reinvestment and employee stock purchase plans 1,135
1,173
Proceeds from exercise of stock options 691
711
Cash dividends paid (11,717 ) (11,734 )
Net cash provided by financing activities 99,664
181,209
Net decrease in cash and cash equivalents (24,853 ) (2,466 )
Cash and cash equivalents at beginning of year 109,420
75,409
Cash and cash equivalents at end of period $ 84,567
$ 72,943
Supplemental disclosures of cash flow information:
Cash paid for interest $ 22,002
$ 13,190
Cash paid for income taxes, net of refunds 9,883
1,060
Non cash transactions:
Transfer of loans to other real estate owned $ —
$ 402

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

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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 ~~or six-month~~ period ended ~~June 30, 2019~~March 31, 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. 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” 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 ~~CECL~~$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 ~~increased reserve level will decrease shareholders' equity and impact regulatory capital and ratios.~~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).

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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 ~~is effective for~~and incorporated the ~~Corporation for reporting periods beginning January 1, 2020. The Corporation does not expect~~applicable items described as follows into the ~~adoption of~~CECL model. Management addressed the ~~amendments~~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 825 ~~will~~and determined these amendments did not have a material impact on the Corporation's financial statements. ~~For~~

The Corporation expanded the pooling utilized under the legacy incurred loss method to include additional ~~detail related~~segmentation based on risk. The impact of the change from the incurred loss model to ~~amendments to Topic 326, see previous discussion of ASU No. 2016-13.~~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.

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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

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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.

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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.

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

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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 ~~June 30, 2019 and~~ December 31, ~~2018,~~2019, by contractual maturity within each type:


	At June 30, 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	$	55	$	—		$	7,052	$	6,996	$	—	$	(104	)	$	6,892	After 1 year to 5 years	$	6,998	$	229	$	—	$	—	$	7,227	$	6,997	$	66	$	—	$	7,063
	6,997		55		—			7,052		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	10,379		102		—			10,481		11,573		—		(135		)	11,438		After 5 years to 10 years	8,449		310		—		—		8,759		9,083		129		—		9,212
Over 10 years	155,570		2,253		(60		)	157,763		124,065		287		(1,107		)	123,245		Over 10 years	206,942		6,624		—		—		213,566		175,972		2,749		(110)		178,611
	165,949		2,355		(60		)	168,244		135,638		287		(1,242		)	134,683			215,391		6,934		—		—		222,325		185,055		2,878		(110)		187,823

Total	$	172,946	$	2,410	$	(60	)	$	175,296	$	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	$	10,332	$	—	$	(16	)	$	10,316	$	15,108	$	—	$	(90	)	$	15,018	Within 1 year	$	300	$	—	$	—	—		$	300	$	301	$	—	$	(1)	$	300
After 1 year to 5 years	—		—		—			—		303		—		(6		)	297

	10,332		—		(16		)	10,316		15,411		—		(96		)	15,315			300		—		—		—		300		301		—		(1)		300
State and political subdivisions:																			State and political subdivisions:
Within 1 year	1,395		3		—			1,398		5,900		4		(6		)	5,898

After 1 year to 5 years	5,732		63		—			5,795		15,459		36		(56		)	15,439		After 1 year to 5 years	5,062		35		—		—		5,097		4,717		23		—		4,740
After 5 years to 10 years	36,550		429		—			36,979		43,923		318		(163		)	44,078		After 5 years to 10 years	25,305		198		—		—		25,503		29,563		292		—		29,855
	43,677		495		—			44,172		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	5,420		20		(5		)	5,435		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	43,799		52		(237		)	43,614		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	93,324		172		(730		)	92,766		100,873		26		(3,398		)	97,501		Over 10 years	80,291		2,192		(1)		—		82,482		80,630		378		(453)		80,555
	142,543		244		(972		)	141,815		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	1,497		—		(31		)	1,466		1,677		—		(78		)	1,599		After 5 years to 10 years	974		4		—		—		978		2,377		6		(22)		2,361
Over 10 years	1,200		11		—			1,211		1,305		—		(16		)	1,289

	2,697		11		(31		)	2,677		2,982		—		(94		)	2,888			974		4		—		—		978		2,377		6		(22)		2,361
Corporate bonds:																			Corporate bonds:
Within 1 year	10,817		—		(33		)	10,784		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	29,115		320		(27		)	29,408		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	—		—					—		16,146		—		(392		)	15,754		After 5 years to 10 years	499		22		—		—		521		—		—		—		—
Over 10 years	60,000		—		(6,150		)	53,850		60,000		—		(8,542		)	51,458		Over 10 years	60,000		—		(11,487)		(847)		47,666		60,000		—		(4,942)		55,058
	99,932		320		(6,210		)	94,042		102,460		1		(9,334		)	93,127			93,849		511		(11,877)		(897)		81,586		95,618		597		(5,007)		91,208
Total	$	299,181	$	1,070	$	(7,229	)	$	293,022	$	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 ~~$379.0~~$335.5 million and ~~$344.5~~$340.8 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, were pledged to secure public funds deposits and other contractual obligations. In addition, securities of ~~$9.9~~ $30.2

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million and ~~$296 thousand~~$12.5 million were pledged to secure credit derivatives and interest rate swaps at ~~June 30, 2019~~March 31, 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 ~~six~~three months ended ~~June 30, 2019~~March 31, 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		—

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

Table of $12.7 million for a commercial loan relationship related to fraudulent activities perpetrated by employees of a borrower. The Bank owned a participating interest which originally totaled $13.0 million in an approximately $80.0 million commercial lending facility. The charge-off represented the entire principal amount owed to the Bank.Contents

The following presents, by portfolio segment, the balance in the ~~reserve for loan and lease losses disaggregated~~ACL on ~~the basis of impairment method and the recorded investment in~~ loans and leases, disaggregated on the basis of ~~impairment method~~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 ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

(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 June 30, 2019
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment $ 99
$ 1,840
$ 165
$ 335
$ —
$ —
N/A
$ 2,439
Ending balance: collectively evaluated for impairment 9,030
13,630
2,313
3,183
481
1,241
275
30,153
Ending balance: acquired non-credit impaired loans evaluated for impairment —
8
—
—
—
—
—
8
Total ending balance $ 9,129
$ 15,478
$ 2,478
$ 3,518
$ 481
$ 1,241
$ 275
$ 32,600
Loans and leases held for investment:
Ending balance: individually evaluated for impairment (1) $ 2,150
$ 17,845
$ 1,596
$ 3,511
$ —
$ —
$ 25,102
Ending balance: collectively evaluated for impairment 919,032
1,873,296
313,291
542,751
32,345
142,287
3,823,002
Loans measured at fair value —
1,725
—
—
—
—
1,725
Acquired non-impaired loans 15,967
199,534
50,451
51,414
140
—
317,506
Acquired credit impaired loans —
206
302
61
—
—
569
Total ending balance $ 937,149
$ 2,092,606
$ 365,640
$ 597,737
$ 32,485
$ 142,287
$ 4,167,904
At June 30, 2018
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment $ 646
$ 866
$ 12
$ —
$ —
$ —
N/A
$ 1,524
Ending balance: collectively evaluated for impairment 6,612
11,420
1,951
2,494
447
1,071
51
24,046
Ending balance: acquired non-credit impaired loans evaluated for impairment —
41
41
—
—
—
—
82
Total ending balance $ 7,258
$ 12,327
$ 2,004
$ 2,494
$ 447
$ 1,071
$ 51
$ 25,652
Loans and leases held for investment:
Ending balance: individually evaluated for impairment (1) $ 6,238
$ 21,004
$ 2,132
$ 3,306
$ —
$ 1,250
$ 33,930
Ending balance: collectively evaluated for impairment 875,390
1,569,475
265,283
470,994
31,048
131,872
3,344,062
Loans measured at fair value —
1,847
—
—
—
—
1,847
Acquired non-impaired loans 44,265
259,998
70,837
62,318
143
—
437,561
Acquired credit impaired loans 267
206
460
65
—
—
998
Total ending balance $ 926,160
$ 1,852,530
$ 338,712
$ 536,683
$ 31,191
$ 133,122
$ 3,818,398

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


	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

~~The Corporation does not provide a reserve for loan loss for acquired loans unless additional deterioration~~

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

At June 30, 2019 At December 31, 2018
(Dollars in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Reserve Recorded
Investment Unpaid
Principal
Balance Related
Reserve
Impaired loans with no related reserve recorded:
Commercial, financial and agricultural $ 1,980
$ 2,590
$ 2,776
$ 3,361

Real estate—commercial real estate 5,158
6,163
6,578
7,516

Real estate—construction 106
111
106
111

Real estate—residential secured for business purpose 829
1,006
1,478
1,660

Real estate—residential secured for personal purpose 1,443
1,516
863
911

Real estate—home equity secured for personal purpose 1,269
1,329
1,373
1,404

Total impaired loans with no related reserve recorded $ 10,785
$ 12,715
$ 13,174
$ 14,963

Impaired loans with a reserve recorded:
Commercial, financial and agricultural $ 170
$ 170
$ 99
$ 971
$ 1,024
$ 413
Real estate—commercial real estate 12,581
13,336
1,840
11,637
12,162
675
Real estate—residential secured for business purpose 767
769
165
—
—
—
Real estate—residential secured for personal purpose 724
724
260
724
724
252
Real estate—home equity secured for personal purpose 75
75
75
75
75
75
Total impaired loans with a reserve recorded $ 14,317
$ 15,074
$ 2,439
$ 13,407
$ 13,985
$ 1,415

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

Contents

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 June 30, 2019 Three Months Ended June 30, 2018
(Dollars in thousands) Average
Recorded
Investment Interest
Income
Recognized* Additional
Interest Income
That Would
Have Been
Recognized
Under Original
Terms Average
Recorded
Investment Interest
Income
Recognized* Additional
Interest Income
That Would
Have Been
Recognized
Under Original
Terms
Commercial, financial and agricultural $ 2,509
$ 12
$ 49
$ 6,394
$ 32
$ 134
Real estate—commercial real estate 18,058
—
242
22,914
18
265
Real estate—construction 106
—
2
56
—
3
Real estate—residential secured for business purpose 1,557
—
36
1,966
5
23
Real estate—residential secured for personal purpose 1,937
—
29
889
2
33
Real estate—home equity secured for personal purpose 1,358
1
20
1,033
—
31
Total $ 25,525
$ 13
$ 378
$ 33,252
$ 57
$ 489


*	~~Includes interest income recognized on a cash basis for nonaccrual loans of $12 thousandand~~$2 thousand for the three months ended June 30, 2019 and 2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of $1 thousand and $55 thousand for the three months ended June 30, 2019 and 2018, respectively.

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


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

~~Impaired Leases~~

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

Troubled Debt Restructured Loans

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

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

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


	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 ~~during the six months ended June 30, 2019~~ in the above table totaling $2.3 million were modified via the execution of a forbearance ~~agreement.~~agreement during the three months ended March 31, 2019. These loans relate to one borrower and were on nonaccrual status at the time of modification.

~~The~~As of March 31, 2020, the Corporation ~~grants concessions to existing borrowers primarily related to extensions of interest-only payment periods and an occasional payment modification.~~modified 46 loans with principal balances totaling $10.7 million via principal and/or interest deferrals. These modifications ~~typically are~~were done in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting 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~~Financial Institutions Working with Customer Affected by the Coronavirus. Accordingly, these loans were not categorized as troubled debt ~~restructured loans are primarily comprised of loans on which interest is being accrued under the restructured terms, and the loans are current or less than ninety days past due.~~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 ~~and six~~ months ended ~~June 30, 2019~~March 31, 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
(Dollars in thousands) No. of
Loans Amount
Three Months Ended June 30, 2019
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose 1
$ 55
Total 1
$ 55
Nonaccrual Troubled Debt Restructured Loans:
Total —
$ —
Three Months Ended June 30, 2018
Accruing Troubled Debt Restructured Loans:
Total —
$ —
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose 1
$ 66
Total 1
$ 66
Six Months Ended June 30, 2019
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose 1
$ 55
Total 1
$ 55
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural 2
$ 956
Real estate—commercial real estate 1
1,313
Total 3
$ 2,269
Six Months Ended June 30, 2018
Accruing Troubled Debt Restructured Loans:
Total —
$ —
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose 1
$ 66
Total 1
$ 66

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

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 ~~June 30, 2019~~March 31, 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

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

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:~~

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

Contents

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.

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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”; 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;

•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 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 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, other financial service providers and lending teams in strategic markets, through marketing, public relations and advertising, by establishing standards of service excellence for customers, and by using technology to ensure that the needs of customers are understood and satisfied.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
June 30, Change Six Months Ended
June 30, Change
(Dollars in thousands, except per share data) 2019 2018 Amount Percent 2019 2018 Amount Percent
Net income $ 16,468
$ 4,357
$ 12,111
N/M $ 32,547
$ 17,207
$ 15,340
89.1 %
Net income per share:
Basic $ 0.56
$ 0.15
$ 0.41
N/M $ 1.11
$ 0.59
$ 0.52
88.1
Diluted 0.56
0.15
0.41
N/M 1.11
0.58
0.53
91.4
Return on average assets 1.28 % 0.37 % 91 BP
N/M 1.29 % 0.75 % 54 BP
72.0
Return on average equity 10.23
2.86
737 BP
N/M 10.28
5.70
458 BP
80.4

The Corporation reported net income of ~~$16.5 million,~~$838 thousand, or ~~$0.56~~$0.03 diluted earnings per share, for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to net income of ~~$4.4~~$16.1 million, or ~~$0.15~~$0.55 diluted earnings per share, for the three months ended ~~June 30, 2018. Net income~~March 31, 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 ~~six~~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 ~~June 30, 2019 was $32.5~~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 ~~$1.11~~$0.55 diluted earnings per share, ~~compared~~of expense related to ~~net income~~COVID-19, which was the result of ~~$17.2~~economic assumptions within the Corporation’s CECL model. This charge included a provision for credit losses on loans and leases of $19.4 million, ~~or $0.58 diluted earnings per share,~~a provision for credit losses on investment securities of $536 thousand and a reserve for unfunded commitments of $384 thousand. During the ~~six~~three months ended ~~June 30, 2018.~~

~~The financial results for~~March 31, 2019, the ~~three and six months ended June 30, 2018 included~~Corporation recorded a ~~pre-tax charge to the~~ provision for loan and lease losses of ~~$12.7~~$2.7 million. The provision for 2019 included the impact of downgrading one $14.6 million ~~(after-tax charge of $10.1 million), which represented $0.34 diluted earnings per share in each period, related~~shared national credit loan from pass to ~~fraudulent activities by employees of a borrower. In addition,~~substandard.

The results for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2020, included a ~~tax-free bank owned life insurance (BOLI) death benefit of $446~~$652 thousand ~~which represented~~($515 thousand after-tax), or $0.02 diluted earnings per share, ~~for each period. The six months ended June 30, 2018 included restructuring costs related to financial center closures~~gain on the sale of ~~$451~~investment securities and a $656 thousand ~~net of tax, recognized in the first quarter of 2018, which represented~~($518 thousand after-tax), or $0.02 diluted earnings per ~~share.~~share, charge in other expense related to the extinguishment of long-term debt.

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

Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 versus 2019 ~~versus 2018~~

Net interest income on a tax-equivalent basis for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$43.3~~$43.1 million, an increase of ~~$3.6 million,~~$945 thousand, or ~~9.2%~~2.2%, compared to the three months ended ~~June 30, 2018. Net interest income on a tax-equivalent basis for the six months ended June 30, 2019 was $85.5 million, an increase of $7.9 million, or 10.1%, compared to the same period in 2018.~~March 31, 2019. The increase in tax-equivalent net interest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 compared to the same ~~periods~~period in ~~2018~~2019 was primarily due to ~~the~~lower deposit and borrowing costs and growth in ~~average~~ loans ~~of 10.1% and 10.3%, respectively.~~partially offset by a decrease in yield on loans.

The net interest margin on a tax-equivalent basis for the ~~second quarter of 2019~~three months ended March 31, 2020 was ~~3.67%~~3.48%, compared to ~~3.73%~~3.75% for the ~~second quarter of 2018.~~three months ended March 31, 2019. During the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, excess liquidity reduced net interest margin by approximately 5six basis points and ~~3 basis points, respectively. This~~had no impact on the three months ended March 31, 2019. The excess liquidity was primarily driven by strong deposit ~~growth. The~~growth in the period. Purchase accounting accretion had no impact on the net interest margin ~~on a tax-equivalent basis~~ for the ~~six~~three months ended ~~June 30, 2019 was 3.71%,~~March 31, 2020 compared to ~~3.72% for the six months ended June 30, 2018. The~~a favorable impact of ~~purchase accounting accretion was~~approximately one basis point for the three months ended ~~June 30, 2019, compared to three~~March 31, 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 ~~June 30, 2018. The favorable impact of purchase accounting accretion was one basis point~~March 31, 2020 and 3.74% for the ~~six~~three months ended ~~June 30, 2019, compared to two basis points for the six months ended June 30, 2018.~~March 31, 2019.

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


	Three Months Ended June 30,															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	$	102,623		$	569	2.22	%	$	37,254		$	148	1.59	%	Interest-earning deposits with other banks	$	118,108		$	325	1.11	%	$	42,566		$	269	2.56	%
U.S. government obligations	17,315			73		1.69		23,183			91		1.57		U.S. government obligations	7,298			37		2.04		20,039			82		1.66
Obligations of states and political subdivisions	59,267			507		3.43		71,092			603		3.40		Obligations of states and political subdivisions	33,595			289		3.46		64,167			546		3.45
Other debt and equity securities	394,840			2,572		2.61		356,100			2,177		2.45		Other debt and equity securities	401,007			2,668		2.68		385,990			2,631		2.76
Federal Home Loan Bank, Federal Reserve Bank and other stock	31,938			535		6.72		32,788			509		6.23		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	605,983			4,256		2.82		520,417			3,528		2.72		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	820,009			10,589		5.18		810,610			9,750		4.82		Commercial, financial and agricultural loans	821,267			8,631		4.23		811,071			10,758		5.38
Real estate—commercial and construction loans	1,912,248			23,110		4.85		1,661,198			19,044		4.60		Real estate—commercial and construction loans	2,139,369			23,917		4.50		1,822,276			21,559		4.80
Real estate—residential loans	941,712			11,483		4.89		853,769			10,046		4.72		Real estate—residential loans	991,550			11,052		4.48		938,299			11,412		4.93
Loans to individuals	31,939			510		6.40		28,985			444		6.14		Loans to individuals	30,016			407		5.45		32,524			518		6.46
Municipal loans and leases	335,399			3,305		3.95		313,181			2,961		3.79		Municipal loans and leases	317,006			3,265		4.14		332,299			3,221		3.93
Lease financings	81,762			1,459		7.16		75,452			1,353		7.19		Lease financings	89,376			1,554		6.99		80,893			1,435		7.19
Gross loans and leases	4,123,069			50,456		4.91		3,743,195			43,598		4.67		Gross loans and leases	4,388,584			48,826		4.47		4,017,362			48,903		4.94
Total interest-earning assets	4,729,052			54,712		4.64		4,263,612			47,126		4.43		Total interest-earning assets	4,980,042			52,672		4.25		4,562,484			53,017		4.71
Cash and due from banks	46,868							45,158							Cash and due from banks	50,891							44,714
Reserve for loan and lease losses	(31,847		)					(23,914		)
Reserve for credit losses, loans and leases															Reserve for credit losses, loans and leases	(44,372)							(30,111)
Premises and equipment, net	58,873							61,234							Premises and equipment, net	56,399							59,179
Operating lease right-of-use assets	35,821							—							Operating lease right-of-use assets	34,545							37,129
Other assets	331,681							336,737							Other assets	332,056							330,858
Total assets	$	5,170,448						$	4,682,827						Total assets	$	5,409,561						$	5,004,253
Liabilities:															Liabilities:
Interest-bearing checking deposits	$	457,231		$	457	0.40		$	463,156		$	383	0.33		Interest-bearing checking deposits	$	584,391		$	796	0.55		$	478,927		$	714	0.60
Money market savings	982,440			4,234		1.73		694,734			1,758		1.01		Money market savings	1,057,336			2,903		1.10		918,487			3,748		1.65
Regular savings	818,523			1,013		0.50		803,586			582		0.29		Regular savings	816,760			792		0.39		789,033			814		0.42
Time deposits	688,897			3,407		1.98		553,579			1,819		1.32		Time deposits	602,903			2,915		1.94		655,303			2,927		1.81
Total time and interest-bearing deposits	2,947,091			9,111		1.24		2,515,055			4,542		0.72		Total time and interest-bearing deposits	3,061,390			7,406		0.97		2,841,750			8,203		1.17
Short-term borrowings	48,312			217		1.80		217,327			958		1.77		Short-term borrowings	40,126			106		1.06		117,664			638		2.20
Long-term debt	159,572			836		2.10		155,628			709		1.83		Long-term debt	169,205			764		1.82		145,299			739		2.06
Subordinated notes	94,663			1,261		5.34		94,420			1,261		5.36		Subordinated notes	94,847			1,275		5.41		94,603			1,261		5.41
Total borrowings	302,547			2,314		3.07		467,375			2,928		2.51		Total borrowings	304,178			2,145		2.84		357,566			2,638		2.99
Total interest-bearing liabilities	3,249,638			11,425		1.41		2,982,430			7,470		1.00		Total interest-bearing liabilities	3,365,568			9,551		1.14		3,199,316			10,841		1.37
Noninterest-bearing deposits	1,198,320							1,048,901							Noninterest-bearing deposits	1,288,594							1,089,449
Operating lease liabilities	38,873							—							Operating lease liabilities	37,766							40,090
Accrued expenses and other liabilities	38,079							39,829							Accrued expenses and other liabilities	44,173							43,824
Total liabilities	4,524,910							4,071,160							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	293,496							290,517							Additional paid-in capital	295,318							292,746
Retained earnings and other equity	194,258							163,366							Retained earnings and other equity	220,358							181,044
Total shareholders’ equity	645,538							611,667							Total shareholders’ equity	673,460							631,574
Total liabilities and shareholders’ equity	$	5,170,448						$	4,682,827						Total liabilities and shareholders’ equity	$	5,409,561						$	5,004,253
Net interest income				$	43,287						$	39,656			Net interest income				$	43,121						$	42,176
Net interest spread						3.23							3.43		Net interest spread						3.11							3.34
Effect of net interest-free funding sources						0.44							0.30		Effect of net interest-free funding sources						0.37							0.41
Net interest margin						3.67	%						3.73	%	Net interest margin						3.48	%						3.75	%
Ratio of average interest-earning assets to average interest-bearing liabilities	145.53		%					142.96		%					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 ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ have been calculated using the Corporation's federal applicable rate of 21%.

Six Months Ended June 30,
2019 2018
(Dollars in thousands) Average
Balance Income/
Expense Average
Rate Average
Balance Income/
Expense Average
Rate
Assets:
Interest-earning deposits with other banks $ 72,760
$ 838
2.32 % $ 28,269
$ 224
1.60 %
U.S. government obligations 18,669
155
1.67
23,550
185
1.58
Obligations of states and political subdivisions 61,703
1,053
3.44
72,814
1,196
3.31
Other debt and equity securities 390,440
5,203
2.69
357,766
4,272
2.41
Federal Home Loan Bank, Federal Reserve Bank and other stock 32,148
1,121
7.03
30,933
1,013
6.60
Total interest-earning deposits, investments and other interest-earning assets 575,720
8,370
2.93
513,332
6,890
2.71
Commercial, financial and agricultural loans 815,565
21,347
5.28
796,483
18,650
4.72
Real estate—commercial and construction loans 1,867,510
44,669
4.82
1,630,964
36,662
4.53
Real estate—residential loans 940,015
22,895
4.91
845,677
19,721
4.70
Loans to individuals 32,230
1,028
6.43
28,475
857
6.07
Municipal loans and leases 333,858
6,526
3.94
312,470
5,853
3.78
Lease financings 81,330
2,894
7.18
75,083
2,697
7.24
Gross loans and leases 4,070,508
99,359
4.92
3,689,152
84,440
4.62
Total interest-earning assets 4,646,228
107,729
4.68
4,202,484
91,330
4.38
Cash and due from banks 45,797
43,839

Reserve for loan and lease losses (30,984 ) (22,973 )
Premises and equipment, net 59,025
61,485

Operating lease right-of-use assets 36,472
—

Other assets 331,272
334,879

Total assets $ 5,087,810
$ 4,619,714

Liabilities:
Interest-bearing checking deposits $ 468,019
$ 1,171
0.50
$ 444,197
$ 675
0.31
Money market savings 950,641
7,982
1.69
676,651
3,101
0.92
Regular savings 803,859
1,827
0.46
818,895
1,139
0.28
Time deposits 672,193
6,334
1.90
547,562
3,318
1.22
Total time and interest-bearing deposits 2,894,712
17,314
1.21
2,487,305
8,233
0.67
Short-term borrowings 82,796
855
2.08
196,690
1,603
1.64
Long-term debt 152,475
1,575
2.08
155,697
1,374
1.78
Subordinated notes 94,633
2,522
5.37
94,390
2,522
5.39
Total borrowings 329,904
4,952
3.03
446,777
5,499
2.48
Total interest-bearing liabilities 3,224,616
22,266
1.39
2,934,082
13,732
0.94
Noninterest-bearing deposits 1,144,185
1,036,916

Operating lease liabilities 39,478
—

Accrued expenses and other liabilities 40,936
39,881

Total liabilities 4,449,215
4,010,879

Shareholders’ Equity:
Common stock 157,784
157,784

Additional paid-in capital 293,123
290,363

Retained earnings and other equity 187,688
160,688

Total shareholders’ equity 638,595
608,835

Total liabilities and shareholders’ equity $ 5,087,810
$ 4,619,714

Net interest income $ 85,463
$ 77,598

Net interest spread 3.29
3.44
Effect of net interest-free funding sources 0.42
0.28
Net interest margin 3.71 % 3.72 %
Ratio of average interest-earning assets to average interest-bearing liabilities 144.09 % 143.23 %

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

and unearned discount. Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the six months ended June 30, 2019 and 2018 have been calculated using the Corporation's federal applicable rate of 21%.

Table 2—Analysis of Changes in Net Interest Income

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


	Three Months Ended
	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 Six Months Ended
June 30, 2019 Versus 2018 June 30, 2019 Versus 2018
(Dollars in thousands) Volume
Change Rate
Change Total Volume
Change Rate
Change Total
Interest income:

Interest-earning deposits with other banks $ 343
$ 78
$ 421
$ 477
$ 137
$ 614
U.S. government obligations (25 ) 7
(18 ) (40 ) 10
(30 )
Obligations of states and political subdivisions (101 ) 5
(96 ) (188 ) 45
(143 )
Other debt and equity securities 247
148
395
409
522
931
Federal Home Loan Bank, Federal Reserve Bank and other stock (13 ) 39
26
41
67
108
Interest on deposits, investments and other earning assets 451
277
728
699
781
1,480
Commercial, financial and agricultural loans 113
726
839
453
2,244
2,697
Real estate—commercial and construction loans 2,991
1,075
4,066
5,555
2,452
8,007
Real estate—residential loans 1,065
372
1,437
2,266
908
3,174
Loans to individuals 46
20
66
118
53
171
Municipal loans and leases 216
128
344
416
257
673
Lease financings 112
(6 ) 106
219
(22 ) 197
Interest and fees on loans and leases 4,543
2,315
6,858
9,027
5,892
14,919
Total interest income 4,994
2,592
7,586
9,726
6,673
16,399
Interest expense:

Interest-bearing checking deposits (5 ) 79
74
40
456
496
Money market savings 909
1,567
2,476
1,591
3,290
4,881
Regular savings 11
420
431
(22 ) 710
688
Time deposits 521
1,067
1,588
875
2,141
3,016
Interest on time and interest-bearing deposits 1,436
3,133
4,569
2,484
6,597
9,081
Short-term borrowings (757 ) 16
(741 ) (1,098 ) 350
(748 )
Long-term debt 19
108
127
(28 ) 229
201
Interest on borrowings (738 ) 124
(614 ) (1,126 ) 579
(547 )
Total interest expense 698
3,257
3,955
1,358
7,176
8,534
Net interest income $ 4,296
$ (665 ) $ 3,631
$ 8,368
$ (503 ) $ 7,865

Table of Contents

Interest Income

Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 versus 2019 ~~versus 2018~~

Interest income on a tax-equivalent basis for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$54.7~~$52.7 million, ~~an increase~~a decrease of ~~$7.6 million,~~$345 thousand, or ~~16.1%~~0.7%, from the same period in ~~2018. Interest income on a tax-equivalent basis for the six months ended June 30, 2019 was $107.7 million, an increase of $16.4 million, or 18.0%, from the same period in 2018.~~2019. The ~~increase~~slight decrease in interest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 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 and six months ended June 30, 2019, compared to~~ one basis point for the three months ended ~~June 30, 2018 and no impact on the yield on interest-earning assets for the six months ended June 30, 2018.~~March 31, 2019.

Interest Expense

Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 versus 2019 ~~versus 2018~~

Interest expense for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$11.4~~$9.6 million, ~~an increase~~a decrease of ~~$4.0~~$1.3 million, or ~~52.9%~~11.9%, from the same period in ~~2018.~~2019. Interest expense on average interest-bearing deposits decreased $797 thousand, or 9.7%, for the ~~six~~three months ended ~~June 30,~~March 31, 2020 primarily due to the Federal Reserve interest rate decreases in 2019 ~~was $22.3~~and 2020, offset by the growth in average interest-bearing deposits of $219.6 million, ~~an increase of $8.5 million,~~ or

~~62.1%~~ 7.7%. Additionally, interest expense on borrowings decreased $492 thousand, or 18.7%, for the three months ended March 31, 2020 from the same period in ~~2018. The increase in interest expense for the three and six months ended June 30,~~ 2019, ~~was primarily~~ due to ~~higher deposit costs, which were impacted by~~a decrease of $77.5 million, or 65.9%, in the ~~Federal Reserve interest rate increases in 2018. In addition,~~ average ~~deposits grew 17.2% and 16.4%, respectively, for the three and six months ended June 30, 219 compared to the same periods in 2018. The favorable impact~~balance of purchase accounting amortization on interest-bearing liabilities was one basis point for the three and six months ended June 30, 2019, compared to a favorable impact of three basis points for the three and six months ended June 30, 2018.short-term borrowings.

Provision for ~~Loan and Lease~~Credit Losses

The provision for ~~loan and lease~~credit losses for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~$2.1~~$21.0 million ~~and $4.8 million, respectively,~~ compared to ~~$15.4~~$2.7 million ~~and $17.5 million, respectively,~~ for the same ~~periods~~period in ~~2018.~~the prior year. Net loan and lease charge-offs for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 were ~~$1.1 million and $1.5 million, respectively,~~$489 thousand compared to ~~$13.2 million and $13.4 million, respectively,~~$447 thousand for the same ~~periods~~period in the prior year. ~~Both net loan~~Refer to the Executive Overview for discussion of the drivers of provision expense for the three months ended March 31, 2020 and ~~lease charge-offs and the provision for loan and lease losses during 2018 included the previously discussed $12.7 million commercial loan charge-off.~~2019.

Noninterest Income

The following table presents noninterest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~

2019:


																						Three Months Ended
	Three Months Ended June 30,					Change					Six Months Ended June 30,					Change						March 31,						Change
(Dollars in thousands)	2019		2018			Amount			Percent		2019		2018			Amount			Percent		(Dollars in thousands)	2020		2019		Amount		Percent
Trust fee income	$	2,054	$	2,044		$	10		0.5	%	$	3,941	$	4,040		$	(99	)	(2.5	)%	Trust fee income	$	1,890	$	1,887	$	3	0.2	%
Service charges on deposit accounts	1,447		1,335			112			8.4		2,882		2,662			220			8.3		Service charges on deposit accounts	1,397		1,435		(38)		(2.6)
Investment advisory commission and fee income	4,055		3,778			277			7.3		7,844		7,461			383			5.1		Investment advisory commission and fee income	4,255		3,789		466		12.3
Insurance commission and fee income	3,941		3,712			229			6.2		9,085		8,600			485			5.6		Insurance commission and fee income	4,732		5,144		(412)		(8.0)
Other service fee income	2,590		2,431			159			6.5		4,857		4,600			257			5.6		Other service fee income	1,870		2,267		(397)		(17.5)
Bank owned life insurance income	743		1,210			(467		)	(38.6	)	1,695		1,879			(184		)	(9.8	)	Bank owned life insurance income	734		952		(218)		(22.9)
Net gain on sales of investment securities	7		—			7			N/M		8		10			(2		)	(20.0	)	Net gain on sales of investment securities	695		1		694		N/M
Net gain on mortgage banking activities	796		942			(146		)	(15.5	)	1,279		1,658			(379		)	(22.9	)	Net gain on mortgage banking activities	2,744		483		2,261		N/M
Other income (loss)	723		(138		)	861			N/M		1,062		(14		)	1,076			N/M

Other income																					Other income	67		339		(272)		(80.2)
Total noninterest income	$	16,356	$	15,314		$	1,042		6.8	%	$	32,653	$	30,896		$	1,757		5.7	%	Total noninterest income	$	18,384	$	16,297	$	2,087	12.8	%

Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 versus 2019 ~~versus 2018~~

Noninterest income for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$16.4~~$18.4 million, an increase of ~~$1.0~~$2.1 million, or ~~6.8%~~12.8%, from the three months ended ~~June 30, 2018. Noninterest income~~March 31, 2019.

The net gain on mortgage banking activities increased $2.3 million, or 468.1%, for the ~~six~~three months ended ~~June 30, 2019 was $32.7 million,~~March 31, 2020, primarily due to an increase in mortgage volume and an expansion of ~~$1.8~~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 ~~or 5.7%, from the comparable period in the prior year.~~

of agency backed mortgage backed securities. Investment advisory commission and fee income increased ~~$277~~$466 thousand, or ~~7.3%~~12.3%, for the three ~~months and $383 thousand, or 5.1%, for the six~~

Table of Contents

months ended ~~June 30, 2019,~~March 31, 2020, primarily due to new customer ~~relationships.~~ relationships and appreciation of assets under management, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management balance.

Insurance commission and fee income ~~increased $229~~decreased $412 thousand, or ~~6.2%~~8.0%, for the three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to a decrease in contingent commission income of $389 thousand, which was $1.1 million for the three months ended March 31, 2020, compared to $1.5 million for the quarter ended March 31, 2019. Other service fee income decreased $397 thousand, or 17.5%, for the three months ended March 31, 2020, primarily due to 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 decreased $218 thousand, or 22.9%, for the three months ended March 31, 2020, primarily due to an increase in ~~premiums for commercial lines and group life and health. Insurance commission and fee income increased $485~~value of our non-qualified annuity portfolio of $26 thousand ~~or 5.6%, for~~in the ~~six~~three months ended ~~June 30, 2019, primarily due~~March 31, 2020, compared to an increase of $249 thousand for the three months ended March 31, 2019. During the first quarter of 2019, in ~~premiums for commercial lines, group life and health and contingent commission income. Service charges on deposit accounts increased $112~~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 decreased $272 thousand, or ~~8.4%~~80.2%, for the three months ~~and $220 thousand, or 8.3%, for~~ended March 31, 2020, primarily driven by a loss in the six months ended June 30, 2019, primarily due to increased fee income on commercial cash management accounts. Other service fee income increased $159 thousand, or 6.5%, for the three months and $257 thousand, or 5.6%, for the six months ended June 30, 2019, primarily due to increases in debit card interchange income.

~~Other income increased $861~~value of equity securities measured at fair value of $268 thousand for the three months ~~and $1.1 million for the six months~~ ended ~~June 30, 2019. Fees on risk participation agreements increased $284~~March 31, 2020 compared to a gain of $4 thousand for the ~~three months and $543 thousand for the six months~~quarter ended June 30, 2019 driven by increased customer activity. Gain on sale of small business administration (SBA) loans increased $259 thousand for the three months and $313 thousand for the six months ended June 30, 2019 related to increased SBA loan sale activity. Net loss on valuations and sales of other real estate owned was $55 thousand for the six months ended June 30, 2019 compared to $482 thousand for the three and six months ended June 30, 2018.March 31, 2019.

These increases were partially offset by a decrease in BOLI income of $467 thousand, or 38.6%, for the three months and $184 thousand, or 9.8%, for the six months ended June 30, 2019. These decreases were primarily due to proceeds from BOLI death benefits of $446 thousand recognized in the second quarter of 2018. The net gain on mortgage banking activities decreased $146 thousand, or 15.5%, for the three months and $379 thousand, or 22.9% for the six months ended June 30, 2019, primarily due to contraction in margins to remain price competitive.

Noninterest Expense

The following table presents noninterest expense for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 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
June 30, Change Six Months Ended
June 30, Change
(Dollars in thousands) 2019 2018 Amount Percent 2019 2018 Amount Percent
Salaries, benefits and commissions $ 22,089
$ 20,065
$ 2,024
10.1 % $ 43,653
$ 40,712
$ 2,941
7.2 %
Net occupancy 2,601
2,533
68
2.7
5,212
5,290
(78 ) (1.5 )
Equipment 1,065
1,067
(2 ) (0.2 ) 2,055
2,090
(35 ) (1.7 )
Data processing 2,627
2,091
536
25.6
5,141
4,323
818
18.9
Professional fees 1,307
1,331
(24 ) (1.8 ) 2,571
2,686
(115 ) (4.3 )
Marketing and advertising 622
526
96
18.3
938
907
31
3.4
Deposit insurance premiums 430
452
(22 ) (4.9 ) 882
843
39
4.6
Intangible expenses 417
594
(177 ) (29.8 ) 843
1,206
(363 ) (30.1 )
Restructuring charges —
—
—
—
—
571
(571 ) N/M
Other expense 5,620
5,688
(68 ) (1.2 ) 11,040
10,844
196
1.8
Total noninterest expense $ 36,778
$ 34,347
$ 2,431
7.1 % $ 72,335
$ 69,472
$ 2,863
4.1 %

Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 versus 2019 ~~versus 2018~~

Noninterest expense for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$36.8~~$39.6 million, an increase of ~~$2.4~~$4.0 million, or ~~7.1%~~11.3%, from the three months ended ~~June 30, 2018. Noninterest expense for the six months ended June 30, 2019 was $72.3 million, an increase of $2.9 million, or 4.1%, from the comparable period in the prior year.~~March 31, 2019.

Salaries, benefits and commissions increased ~~$2.0~~$2.3 million, or ~~10.1%~~10.6%, for the three months ~~and $2.9 million, or 7.2%, for the six months~~ ended ~~June 30, 2019,~~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 groups ~~and annual merit increases. During~~in the first ~~quarter of 2019, Univest hired a team of eight commercial lenders~~ and ~~support staff to focus on increasing Univest’s presence in Western Lancaster and York Counties, Pennsylvania. During the~~ second quarter of 2019, ~~a team of three commercial lenders was hired~~annual merit increases and increased variable compensation due to ~~help expand Univest’s presence in the New Jersey suburbs of Philadelphia.~~strong mortgage banking activity. Data processing expense increased ~~$536~~$246 thousand, or ~~25.6%~~9.8%, for the three months ~~and $818 thousand, or 18.9%, for the six months~~ ended ~~June 30, 2019,~~March 31, 2020, primarily due to continued investments in customer relationship management software and internal infrastructure improvements ~~and~~as well as outsourced data processing solutions.

~~These increases were partially offset by a decrease in intangibles~~ Other expense ~~of $177 thousand,~~increased $1.6 million, or ~~29.8%~~31.4%, for the three months ~~and $363 thousand, or 30.1%, for the six months~~ ended ~~June 30, 2019~~March 31, 2020, primarily due to ~~run-off of the intangible assets. In addition, restructuring costs~~a one-time $656 thousand charge related to ~~financial center closures~~the extinguishment of long-term debt and ~~staffing rationalization were $571~~an increase of $794 thousand ~~during~~in the ~~first quarter~~reserve for unfunded commitments, which resulted from the adoption of ~~2018.~~CECL.

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Tax Provision

The provision for income taxes for the three months ended ~~June 30,~~March 31, 2020 and 2019 was $(606) thousand and ~~2018 was $3.7~~$3.5 million, at an effective rate of (261.2)% and ~~$191 thousand, at effective rates of 18.2% and 4.2%~~17.9%, respectively. The ~~provision~~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 ~~six~~three months ended ~~June 30, 2019~~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 ~~2018~~

~~was $7.2 million and $3.0 million, at~~its potential impact on the Corporation’s estimate of the annual effective ~~rates of 18.0% and 14.9%, respectively.~~tax rate. The Corporation's effective income tax rates ~~were~~for the three months ended March 31, 2019 was favorably impacted by discrete tax benefits. Excluding these items, the effective tax rate was ~~18.3% and~~ 18.2% for the ~~six~~three months ended ~~June 30, 2019 and 2018, respectively.~~March 31, 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 June 30,
2019 At December 31,
2018 Change
(Dollars in thousands) Amount Percent
Cash and interest-earning deposits $ 84,567
$ 109,420
$ (24,853 ) (22.7 )%
Investment securities 468,833
473,306
(4,473 ) (0.9 )
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost 32,755
28,337
4,418
15.6
Loans held for sale 1,498
1,754
(256 ) (14.6 )
Loans and leases held for investment 4,167,904
4,006,574
161,330
4.0
Reserve for loan and lease losses (32,600 ) (29,364 ) (3,236 ) (11.0 )
Premises and equipment, net 58,292
59,559
(1,267 ) (2.1 )
Operating lease right-of-use assets 35,508
—
35,508
N/M
Goodwill and other intangibles, net 183,554
184,549
(995 ) (0.5 )
Bank owned life insurance 113,294
111,599
1,695
1.5
Accrued interest receivable and other assets 40,693
38,613
2,080
5.4
Total assets $ 5,154,298
$ 4,984,347
$ 169,951
3.4 %
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 ~~June 30, 2019~~March 31, 2020 decreased ~~$4.5~~$18.1 million from December 31, ~~2018. Maturities~~2019. Sales of $67.0 million, maturities and pay-downs of ~~$36.2~~$18.4 million, calls of ~~$3.1~~$6.9 million, ~~sales~~decreases in the fair value of ~~$15.5~~available-for-sale investment securities of $4.8 million, provision for credit losses of $897 thousand and net amortization of purchased premiums and discounts of ~~$1.2 million~~$446 thousand were partially offset by purchases of ~~$43.5 million and increases in the fair value of available-for-sale investment securities of $8.0~~$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 June 30, 2019 and December 31, 2018, respectively. FHLB stock increased $4.4 million mainly due to purchase requirements related to the increase in FHLB borrowing volume during the year.

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

Loans and Leases

Gross loans and leases held for investment grew ~~$161.3~~$62.0 million, or ~~4.0%~~1.4%, from December 31, ~~2018.~~2019. The growth in loans was primarily in commercial real estate and residential real estate loans.

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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 June 30, 2019, the recorded investment in loans held for investment that were considered to be impaired was $25.1 million. The related reserve for loan losses was $2.4 million. At December 31, 2018, the recorded investment in loans that were considered to be impaired was $26.6 million. The related reserve for loan losses was $1.4 million. The impaired loan balances consisted mainly of commercial real estate, residential real estate 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 ~~June 30, 2019, compared to $1.2 million at December~~March 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 $418 thousand and $426 thousand at June 30, 20192020 and December 31, ~~2018, respectively.~~2019.

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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 June 30, 2019 At December 31, 2018
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:
Commercial, financial and agricultural $ 2,150
$ 3,365
Real estate—commercial 17,739
18,214
Real estate—construction 106
106
Real estate—residential 5,052
4,353
Lease financings 100
170
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications* 25,147
26,208
Accruing troubled debt restructured loans and lease modifications not included in the above 55
542
Accruing loans and leases 90 days or more past due:
Real estate—commercial 516
—
Real estate—construction 230
—
Real estate—residential 434
—
Loans to individuals 129
55
Lease financings 70
137
Total accruing loans and leases, 90 days or more past due 1,379
192
Total nonperforming loans and leases 26,581
26,942
Other real estate owned 540
1,187
Total nonperforming assets $ 27,121
$ 28,129
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment 0.60 % 0.65 %
Nonperforming loans and leases / loans and leases held for investment 0.64
0.67
Nonperforming assets / total assets 0.53
0.56

Allowance for loan and lease losses $ 32,600
$ 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 129.64
112.04
Allowance for loan and lease losses / nonperforming loans and leases held for investment 122.64
108.99
Acquired credit impaired loans $ 569
$ 695

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

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


(Dollars in thousands)	At June 30, 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	$	25,147	$	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	2,302		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	1,353		1,320		Life-to-date partial charge-offs on nonaccrual loans and leases	1,532		1,320
Specific reserves on impaired loans	$	2,439	$	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 ~~$835~~$982 thousand and ~~$885~~$725 thousand for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively. The amortization of intangible assets was $1.6 million and $1.8 million for the six months ended June 30, 2019 and 2018,~~ respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

The Corporation also has goodwill with a net carrying value of $172.6 million at ~~June 30, 2019~~March 31, 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 ~~six~~three months ended ~~June 30, 2019~~March 31, 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 June 30, 2019 At December 31, 2018 Change
Amount Percent
Deposits $ 4,122,110
$ 3,885,933
$ 236,177
6.1 %
Short-term borrowings 39,350
189,768
(150,418 ) (79.3 )
Long-term debt 170,195

145,330
24,865
17.1
Subordinated notes 94,696
94,574
122
0.1
Operating lease liabilities 38,608
—
38,608
N/M
Accrued interest payable and other liabilities 37,669
44,609
(6,940 ) (15.6 )
Total liabilities $ 4,502,628
$ 4,360,214
$ 142,414
3.3 %

Deposits

Total deposits increased ~~$236.2~~$47.2 million, or ~~6.1%~~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 ~~and consumer~~ deposits.

Borrowings

Total borrowings ~~decreased $125.4~~increased $59.8 million, or ~~29.2%~~22.7%, from December 31, ~~2018,~~2019, primarily due to ~~a decrease~~an increase in ~~short-term~~long-term borrowings of ~~$150.4 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.

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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 June 30, 2019 At December 31, 2018 Change
Amount Percent
Common stock $ 157,784
$ 157,784
$ —
— %
Additional paid-in capital 293,947
292,401
1,546
0.5
Retained earnings 267,357
248,167
19,190
7.7
Accumulated other comprehensive loss (21,949 ) (28,416 ) 6,467
22.8
Treasury stock (45,469 ) (45,803 ) 334
0.7
Total shareholders’ equity $ 651,670
$ 624,133
$ 27,537
4.4 %

The ~~increase~~decrease in ~~shareholder's~~shareholders' equity at ~~June 30, 2019~~March 31, 2020 of ~~$27.5~~$23.6 million, or ~~4.4%~~3.5%, from December 31, ~~2018~~2019 was primarily related to ~~an increase~~a decrease in retained earnings of ~~$19.2~~$16.3 million. Retained earnings at ~~June 30, 2019~~March 31, 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 ~~six~~three months of net income of ~~$32.5 million partially offset by the related adjustments to the January 1, 2019 adoption of ASU No. 2016-02 of $1.5 million and cash dividends declared of $11.7 million.~~$838 thousand. Accumulated other comprehensive loss ~~decreased~~increased by ~~$6.5~~$3.9 million mainly attributable to ~~increases~~decreases in the fair value of available-for-sale investment securities of ~~$6.4~~$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,~~ reported pre-tax loss of $1.5 million and a pre-tax income of ~~$19.8 million and $3.5~~$17.3 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $37.1 million and $16.5 million for the six months ended June 30, 2019 and 2018,~~ respectively. See the section of this MD&A under the heading “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for ~~Loan and Lease~~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,~~ reported pre-tax income of ~~$2.1~~$1.9 million and ~~$1.9~~$1.7 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $3.8 million and $3.7 million for the six months ended June 30, 2019 and 2018,~~ respectively. Noninterest income was $6.2 million and ~~$5.9~~$5.7 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $11.9 million and $11.6 million for the six months ended June 30, 2019 and 2018,~~ respectively. The increase in pre-tax income and noninterest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 compared to the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 was primarily due to ~~an increase in~~new client relationships and appreciation of assets under ~~management.~~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 ~~$3.7~~$3.3 billion as of ~~June 30, 2019 and $3.5~~March 31, 2020, $3.8 billion as of ~~June 30, 2018.~~December 31, 2019 and $3.6 billion as of March 31, 2019. The ~~increase~~decrease in assets under management and supervision as of ~~June 30,~~$511 million for the period from December 31, 2019 ~~as compared~~ to ~~June 30, 2018,~~March 31, 2020 was primarily due to the general downturn in the equity markets in March 2020 driven by ~~new customer relationships.~~the impact of COVID-19.

The Insurance segment ~~as presented in Note 13 in the Notes to the Consolidated Financial Statements,~~ reported pre-tax income of ~~$860 thousand and $544 thousand for the three months ended June 30, 2019 and 2018, respectively, and $2.9~~$1.6 million and ~~$2.1 million for the six months ended June 30, 2019 and 2018, respectively. Noninterest income was $4.1 million and $3.9~~$2.0 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $9.5~~respectively. Noninterest income was $4.9 million and ~~$9.0~~$5.4 million for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, respectively. The decrease in pre-tax income and ~~2018, respectively. Noninterest~~noninterest income ~~increased~~for the three months ended March 31, 2020 was primarily due to ~~increases~~a decrease in ~~commercial lines and 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.

Under 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 Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, which require Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50% ~~beginning in the first quarter of 2019.~~. The Corporation and the Bank were in compliance with these requirements at March 31, ~~2019 and June 30, 2019.~~2020.

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Table 4—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of ~~June 30, 2019~~March 31, 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 June 30, 2019
At March 31, 2020													At March 31, 2020
Total Capital (to Risk-Weighted Assets):													Total Capital (to Risk-Weighted Assets):
Corporation	$	629,324	13.79	%	$	364,990	8.00	%	$	456,238	10.00	%	Corporation	$	657,856	13.65	%	$	385,467	8.00	%	$	481,834	10.00	%
Bank	529,106		11.65		363,289		8.00		454,112		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	501,310		10.99		273,743		6.00		364,990		8.00		Corporation	520,010		10.79		289,101		6.00		385,467		8.00
Bank	495,788		10.92		272,467		6.00		363,289		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	501,310		10.99		205,307		4.50		296,554		6.50		Corporation	520,010		10.79		216,825		4.50		313,192		6.50
Bank	495,788		10.92		204,350		4.50		295,173		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	501,310		10.01		200,268		4.00		250,336		5.00		Corporation	520,010		9.90		210,016		4.00		262,521		5.00
Bank	495,788		9.95		199,407		4.00		249,258		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 ~~June 30, 2019~~March 31, 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. 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

~~June 30, 2019,~~ March 31, 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

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December 31, 2021 for regulatory capital purposes. Additionally, the 2020 CECL IFR allows electing firms to defer through December 31, 2021 the approximate portion of the post day-one allowance attributable to CECL relative to the incurred loss methodology. This is calculated by applying a 25% scaling factor to the CECL provision.

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, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets that banks hold tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold tend to increase in value.

Liquidity

The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks. Liquidity refers to the Corporation’s ability to ensure that sufficient cash ~~flow~~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.

Sources of Funds

Core deposits continue to be the largest significant funding source for the Corporation. These deposits are primarily generated from 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 June 30, 2019 and December 31, 2018, the carrying amount of overnight borrowings with the FHLB was $0 and $108.3 million, respectively. At June 30, 2019 and December 31, 2018, the carrying amount of long-term borrowings with the FHLB was $150.0 million and $125.0 million, respectively. At June 30, 2019 and December 31, 2018, the Bank had outstanding short-term letters of credit with the FHLB totaling $408.3 million and $347.5 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.

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

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

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 $104.6 million and $69.5 million at June 30, 2019 and December 31, 2018, respectively. At June 30, 2019 and December 31, 2018, the Corporation had no outstanding borrowings under this program.

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

Cash Requirements

The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The most significant contractual obligation, in both the under and over one-year 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 time periods. These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.

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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

~~SEC FAST~~

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

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 Coronavirus Aid, Relief and Economic Security Act ~~Modernization~~(the “CARES Act”)

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:

•Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring and also allowing them to suspend the corresponding impairment determination for accounting purposes.

•Temporarily reducing the Community Bank Leverage Ratio (the “CBLR”) to 8%. This law also states that if a qualifying community bank falls below the CBLR, it “shall have a reasonable grace period to satisfy” the CBLR. This provision terminates on the earlier of ~~Regulation S-K~~December 31, 2020 or the date the President declares that the coronavirus emergency is terminated.

•A delay in the implementation of the accounting standard for current expected credit losses (CECL) until the earlier of December 31, 2020 or when the President declares that the coronavirus emergency is terminated.

•The ability of a borrower of a federally backed mortgage loan (VA, FHA, USDA, Freddie and Fannie) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance will be granted for up to 180 days, which can be extended for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract will

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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 ability of a borrower of a multi-family federally backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance to the borrower’s servicer affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. A forbearance will be granted for up to 30 days, which can be extended for up to two additional 30-day periods upon the request of the borrower. During the time of the forbearance, the multi-family borrower cannot evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent. Additionally, a multi-family borrower that receives a forbearance may not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on which the borrower provides the tenant notice to vacate and may not issue a notice to vacate until after the expiration of the forbearance.

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 9, 2020, the 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 the eligible borrower sells the PPP Loan to the SBA to realize on the 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 ~~2, 2019,~~23, 2020, the ~~SEC issued Release No. 33-10618; 34-85381, "FAST~~Paycheck Protection Program and Health Care Enhancement Act ~~Modernization~~(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 ~~Simplification~~state credit unions and “community financial institutions,” which includes community development and minority-owned financial institutions. Specifically: (1) $30 billion of ~~Regulation S-K."~~ 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 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 ~~amendments under this rule modernize~~foregoing allocations do not prohibit smaller institutions and ~~simplify certain disclosure requirements~~community financial institutions from making PPP loans above their respective allocation amounts. Rather, institutions with $50 billion or more in ~~a manner that reduces~~consolidated assets and non-bank lenders would not have access to $60 billion of the costs and burdens on registrants while continuing to provide material information to investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. The amendments were effective on May 2, 2019, except for specific amendments that are effective after May 2, 2019 as cited in the rule. The Corporation provided the additional disclosures on the Form 10-Q cover page for the quarter ended March 31, 2019. The Corporation continues to analyze the amended disclosure requirements under this rule, but does not believe that such changes will materially impact the Corporation’s disclosures.New PPP Funds.

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

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~~

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 ~~June 30, 2019.~~March 31, 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 ~~June 30, 2019~~March 31, 2020 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION


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

Item 1.Legal Proceedings


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

~~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

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~~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, 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

~~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

~~April 1 – 30, 2019~~

—

~~864,246~~

~~May 1 – 31, 2019~~

—

~~864,246~~

~~June 1 – 30, 2019~~

—

~~864,246~~

~~Total~~

—

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

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 upon the vesting of restricted stock awards and may use a stock swap to exercise non-qualified stock options. Shares withheld to pay income taxes upon the vesting of restricted stock awards and stock swaps to exercise stock options are repurchased pursuant to the terms of the applicable plan and not under the Corporation's share repurchase program. ~~There were no shares~~Share repurchased pursuant to these plans during the three months ended ~~June 30, 2019.~~March 31, 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



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



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



Common Stock, $5 par value						~~29,305,447~~29,187,293
(Title of Class)						(Number of shares outstanding at ~~July 31, 2019)~~April 30, 2020)


	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 June 30,
(Dollars in thousands)	2019									2018
(Dollars in thousands)	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Income	$	20,137		$	3,669		$	16,468		$	4,548		$	191		$	4,357
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period	2,933			616			2,317			(1,911		)	(401		)	(1,510		)
Less: reclassification adjustment for net gains on sales realized in net income (1)	(7		)	(2		)	(5		)	—			—			—
Total net unrealized gains (losses) on available-for-sale investment securities	2,926			614			2,312			(1,911		)	(401		)	(1,510		)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
Net unrealized holding (losses) gains arising during the period	(263		)	(55		)	(208		)	154			32			122
Less: reclassification adjustment for net (gains) losses realized in net income (2)	(14		)	(3		)	(11		)	6			1			5
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges	(277		)	(58		)	(219		)	160			33			127
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)	294			62			232			282			58			224
Accretion of prior service cost included in net periodic pension costs (3)	(46		)	(10		)	(36		)	(71		)	(14		)	(57		)
Total defined benefit pension plans	248			52			196			211			44			167
Other comprehensive income (loss)	2,897			608			2,289			(1,540		)	(324		)	(1,216		)
Total comprehensive income (loss)	$	23,034		$	4,277		$	18,757		$	3,008		$	(133	)	$	3,141



☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Item 1.Financial Statements ~~Item 1.~~	~~Financial Statements~~


	(UNAUDITED)							(UNAUDITED)
(Dollars in thousands, except share data)	At June 30, 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	$	55,223		$	61,573		Cash and due from banks	$	49,008	$	50,571
Interest-earning deposits with other banks	29,344			47,847			Interest-earning deposits with other banks	133,894		74,557
Cash and cash equivalents	84,567			109,420			Cash and cash equivalents	182,902		125,128
Investment securities held-to-maturity (fair value $175,296 and $141,575 at June 30, 2019 and December 31, 2018, respectively)	172,946			142,634
Investment securities available-for-sale	293,022			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	2,865			2,165			Investments in equity securities	2,246		2,623
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	32,755			28,337			Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	28,465		28,254
Loans held for sale	1,498			1,754			Loans held for sale	11,417		5,504
Loans and leases held for investment	4,167,904			4,006,574			Loans and leases held for investment	4,448,825		4,386,836
Less: Reserve for loan and lease losses	(32,600		)	(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	4,135,304			3,977,210			Net loans and leases held for investment	4,380,609		4,351,505
Premises and equipment, net	58,292			59,559			Premises and equipment, net	55,789		56,676
Operating lease right-of-use assets	35,508			—			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	10,995			11,990			Other intangibles, net of accumulated amortization	9,773		10,284
Bank owned life insurance	113,294			111,599			Bank owned life insurance	115,512		114,778

Accrued interest receivable and other assets	40,693			38,613			Accrued interest receivable and other assets	49,542		40,219
Total assets	$	5,154,298		$	4,984,347		Total assets	$	5,464,768	$	5,380,924
LIABILITIES							LIABILITIES
Noninterest-bearing deposits	$	1,166,301		$	1,055,919		Noninterest-bearing deposits	$	1,318,270	$	1,279,681
Interest-bearing deposits:							Interest-bearing deposits:
Demand deposits	1,424,288			1,377,171			Demand deposits	1,615,979		1,677,682
Savings deposits	822,084			782,766			Savings deposits	836,042		796,702
Time deposits	709,437			670,077			Time deposits	637,012		606,010
Total deposits	4,122,110			3,885,933			Total deposits	4,407,303		4,360,075
Short-term borrowings	39,350			189,768			Short-term borrowings	18,415		18,680
Long-term debt	170,195			145,330			Long-term debt	210,069		150,098
Subordinated notes	94,696			94,574			Subordinated notes	94,879		94,818
Operating lease liabilities	38,608			—			Operating lease liabilities	37,919		37,617
Accrued interest payable and other liabilities	37,669			44,609			Accrued interest payable and other liabilities	44,632		44,514
Total liabilities	4,502,628			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 June 30, 2019 and December 31, 2018; 31,556,799 shares issued at June 30, 2019 and December 31, 2018; 29,294,942 and 29,270,852 shares outstanding at June 30, 2019 and December 31, 2018, respectively	157,784			157,784
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	293,947			292,401			Additional paid-in capital	295,439		294,999
Retained earnings	267,357			248,167			Retained earnings	272,478		288,803
Accumulated other comprehensive loss, net of tax benefit	(21,949		)	(28,416		)	Accumulated other comprehensive loss, net of tax benefit	(25,628)		(21,730)
Treasury stock, at cost; 2,261,857 and 2,285,947 shares at June 30, 2019 and December 31, 2018, respectively	(45,469		)	(45,803		)
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	651,670			624,133			Total shareholders’ equity	651,551		675,122
Total liabilities and shareholders’ equity	$	5,154,298		$	4,984,347		Total liabilities and shareholders’ equity	$	5,464,768	$	5,380,924



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


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total
Three Months Ended March 31, 2020
Balance at December 31, 2019	29,334,629	$	157,784	$	294,999	$	288,803	$	(21,730)	$	(44,734)	$	675,122
Adjustment to initially apply ASU No. 2016-13 for CECL (1)	—	—		—		(11,284)		237		—		(11,047)
Net income	—	—		—		838		—		—		838
Other comprehensive loss, net of income tax benefit	—	—		—		—		(4,135)		—		(4,135)
Cash dividends declared ($0.20 per share)	—	—		—		(5,866)		—		—		(5,866)
Stock-based compensation	—	—		424		(13)		—		—		411
Stock issued under dividend reinvestment and employee stock purchase plans	26,045	—		(49)		—		—		621		572
Vesting of restricted stock unit awards	17,035	—		(346)		—		—		346		—

Exercise of stock options	5,000	—		(7)		—		—		101		94
Cancellation of performance-based restricted stock awards	(14,777)	—		418		—		—		(418)		—
Purchases of treasury stock	(203,150)	—		—		—		—		(4,438)		(4,438)
Balance at March 31, 2020	29,164,782	$	157,784	$	295,439	$	272,478	$	(25,628)	$	(48,522)	$	651,551



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


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


	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


(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


(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.	~~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~~


												Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At June 30, 2019
Grade:
												2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
At March 31, 2020											At March 31, 2020
Commercial, Financial and Agricultural											Commercial, Financial and Agricultural
Risk Rating											Risk Rating
1. Pass	$	874,098	$	1,622,980	$	228,421	$	309,658	$	3,035,157	1. Pass	$	52,864	$	146,722	$	99,263	$	65,395	$	34,880	$	89,984	$	420,193	$	909,301
2. Special Mention	27,036		17,773		1,932		1,705		48,446		2. Special Mention	3		970		1,979		2,841		1,621		1,685		9,678		18,777
3. Substandard	20,048		9,299		106		3,266		32,719		3. Substandard	—		1,144		1,356		61		—		628		12,922		16,111
4. Doubtful	—		—		—		—		—

Total	$	921,182	$	1,650,052	$	230,459	$	314,629	$	3,116,322	Total	$	52,867	$	148,836	$	102,598	$	68,297	$	36,501	$	92,297	$	442,793	$	944,189
At December 31, 2018
Grade:

Real Estate-Commercial											Real Estate-Commercial
Risk Rating											Risk Rating
1. Pass	$	882,736	$	1,455,234	$	215,407	$	298,356	$	2,851,733	1. Pass	$	161,322	$	613,240	$	358,038	$	357,068	$	194,772	$	305,101	$	44,969	$	2,034,510
2. Special Mention	23,287		31,791		—		721		55,799		2. Special Mention	1,754		12,432		—		1,134		5,092		2,918		582		23,912
3. Substandard	7,143		20,554		106		3,316		31,119		3. Substandard	—		944		941		11,219		—		26,424		2,749		42,277
4. Doubtful	—		—		—		—		—

Total	$	913,166	$	1,507,579	$	215,513	$	302,393	$	2,938,651	Total	$	163,076	$	626,616	$	358,979	$	369,421	$	199,864	$	334,443	$	48,300	$	2,100,699

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

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

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

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


(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)	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 June 30, 2019
Reserve for loan and lease losses:
Beginning balance	$	8,950		$	14,981		$	2,302	$	3,379		$	469		$	1,275		$	246		$	31,602
Charge-offs	(1,018		)	(33		)	—		(4		)	(51		)	(110		)	N/A			(1,216		)
Recoveries	19			—			6		7			16			90			N/A			138
Provision (recovery of provision)	1,178			530			170		136			47			(14		)	29			2,076
Ending balance	$	9,129		$	15,478		$	2,478	$	3,518		$	481		$	1,241		$	275		$	32,600
Three Months Ended June 30, 2018
Reserve for loan and lease losses:
Beginning balance	$	6,942		$	11,178		$	1,871	$	1,908		$	372		$	1,079		$	60		$	23,410
Charge-offs	(13,048		)	—			—		—			(79		)	(169		)	N/A			(13,296		)
Recoveries	23			—			7		8			16			75			N/A			129
Provision (recovery of provision)	13,341			1,149			126		578			138			86			(9		)	15,409
Ending balance	$	7,258		$	12,327		$	2,004	$	2,494		$	447		$	1,071		$	51		$	25,652
Six Months Ended June 30, 2019
Reserve for loan and lease losses:
Beginning balance	$	7,983		$	13,903		$	2,236	$	3,199		$	484		$	1,288		$	271		$	29,364
Charge-offs	(1,486		)	(74		)	—		(15		)	(136		)	(214		)	N/A			(1,925		)
Recoveries	101			91			10		12			38			148			N/A			400
Provision	2,531			1,558			232		321			95			19			4			4,760
Provision for acquired credit impaired loans	—			—			—		1			—			—			—			1
Ending balance	$	9,129		$	15,478		$	2,478	$	3,518		$	481		$	1,241		$	275		$	32,600
Six Months Ended June 30, 2018
Reserve for loan and lease losses:
Beginning balance	$	6,742		$	9,839		$	1,661	$	1,754		$	373		$	1,132		$	54		$	21,555
Charge-offs	(13,649		)	(40		)	—		—			(171		)	(305		)	N/A			(14,165		)
Recoveries	249			73			258		65			46			109			N/A			800
Provision (recovery of provision)	13,916			2,455			85		674			199			135			(3		)	17,461
Provision for acquired credit impaired loans	—			—			—		1			—			—			—			1
Ending balance	$	7,258		$	12,327		$	2,004	$	2,494		$	447		$	1,071		$	51		$	25,652


(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



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


(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



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



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


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



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



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



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


(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