0000102212 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 20192020
or
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-7617

 UNIVEST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Pennsylvania23-1886144
(State or other jurisdiction of

incorporation or organization)
(IRS Employer

Identification No.)
14 North Main Street,, Souderton,, Pennsylvania18964
(Address of principal executive offices)(Zip (Zip Code)
Registrant’s telephone number, including area code: (215) (215) 721-2400
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of classTrading symbolName of exchange on which registered
Common Stock, $5 par valueUVSPThe NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $5 par value29,305,44729,226,738
(Title of Class)(Number of shares outstanding at July 31, 2019)23, 2020)



Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
 
Page Number
Part I.
Page Number
Part I.Item 1.
Item 1.
Financial Statements (Unaudited)
2
3
4
6
8
9
Item 2.
4850
Item 3.
6369
Item 4.
6469
Part II.
Item 1.
6469
Item 1A.
6470
Item 2.
6472
Item 3.
6572
Item 4.
6572
Item 5.
6572
Item 6.
6673
6774


1
Table of Contents
PART I. FINANCIAL INFORMATION
 
Item 1.Financial Statements
Item 1.
Financial Statements
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)  (UNAUDITED)
(Dollars in thousands, except share data)At June 30, 2019 At December 31, 2018(Dollars in thousands, except share data)At June 30, 2020At December 31, 2019
ASSETS ASSETS
Cash and due from banks$55,223
 $61,573
Cash and due from banks$57,234  $50,571  
Interest-earning deposits with other banks29,344
 47,847
Interest-earning deposits with other banks291,295  74,557  
Cash and cash equivalents84,567
 109,420
Cash and cash equivalents348,529  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-sale293,022
 328,507
Investment securities held-to-maturity (fair value $208,307 and $194,886 at June 30, 2020 and December 31, 2019, respectively)Investment securities held-to-maturity (fair value $208,307 and $194,886 at June 30, 2020 and December 31, 2019, respectively)201,703  192,052  
Investment securities available-for-sale (amortized cost $196,846 and $251,014, net of allowance for credit losses of $855 and $— at June 30, 2020 and December 31, 2019, respectively)Investment securities available-for-sale (amortized cost $196,846 and $251,014, net of allowance for credit losses of $855 and $— at June 30, 2020 and December 31, 2019, respectively)194,201  246,924  
Investments in equity securities2,865
 2,165
Investments in equity securities1,948  2,623  
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost32,755
 28,337
 Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost28,192  28,254  
Loans held for sale1,498
 1,754
Loans held for sale31,082  5,504  
Loans and leases held for investment4,167,904
 4,006,574
Loans and leases held for investment4,951,809  4,386,836  
Less: Reserve for loan and lease losses(32,600) (29,364)
Less: Reserve for credit losses, loans and leasesLess: Reserve for credit losses, loans and leases(86,217) (35,331) 
Net loans and leases held for investment4,135,304
 3,977,210
Net loans and leases held for investment4,865,592  4,351,505  
Premises and equipment, net58,292
 59,559
Premises and equipment, net55,900  56,676  
Operating lease right-of-use assets35,508
 —
Operating lease right-of-use assets34,148  34,418�� 
Goodwill172,559
 172,559
Goodwill172,559  172,559  
Other intangibles, net of accumulated amortization10,995
 11,990
Other intangibles, net of accumulated amortization9,098  10,284  
Bank owned life insurance113,294
 111,599
Bank owned life insurance116,244  114,778  
Accrued interest receivable and other assets40,693
 38,613
Accrued interest receivable and other assets66,116  40,219  
Total assets$5,154,298
 $4,984,347
Total assets$6,125,312  $5,380,924  
LIABILITIES   LIABILITIES
Noninterest-bearing deposits$1,166,301
 $1,055,919
Noninterest-bearing deposits$1,725,819  $1,279,681  
Interest-bearing deposits:   Interest-bearing deposits:
Demand deposits1,424,288
 1,377,171
Demand deposits1,719,052  1,677,682  
Savings deposits822,084
 782,766
Savings deposits903,973  796,702  
Time deposits709,437
 670,077
Time deposits520,485  606,010  
Total deposits4,122,110
 3,885,933
Total deposits4,869,329  4,360,075  
Short-term borrowings39,350
 189,768
Short-term borrowings210,780  18,680  
Long-term debt170,195
 145,330
Long-term debt210,039  150,098  
Subordinated notes94,696
 94,574
Subordinated notes94,903  94,818  
Operating lease liabilities38,608
 —
Operating lease liabilities37,427  37,617  
Accrued interest payable and other liabilities37,669
 44,609
Accrued interest payable and other liabilities47,961  44,514  
Total liabilities4,502,628
 4,360,214
Total liabilities5,470,439  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, respectively157,784
 157,784
Common stock, $5 par value: 48,000,000 shares authorized at June 30, 2020 and December 31, 2019; 31,556,799 shares issued at June 30, 2020 and December 31, 2019; 29,201,985 and 29,334,629 shares outstanding at June 30, 2020 and December 31, 2019, respectivelyCommon stock, $5 par value: 48,000,000 shares authorized at June 30, 2020 and December 31, 2019; 31,556,799 shares issued at June 30, 2020 and December 31, 2019; 29,201,985 and 29,334,629 shares outstanding at June 30, 2020 and December 31, 2019, respectively157,784  157,784  
Additional paid-in capital293,947
 292,401
Additional paid-in capital296,028  294,999  
Retained earnings267,357
 248,167
Retained earnings268,751  288,803  
Accumulated other comprehensive loss, net of tax benefit(21,949) (28,416)Accumulated other comprehensive loss, net of tax benefit(19,807) (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; 2,354,814 and 2,222,170 shares at June 30, 2020 and December 31, 2019, respectivelyTreasury stock, at cost; 2,354,814 and 2,222,170 shares at June 30, 2020 and December 31, 2019, respectively(47,883) (44,734) 
Total shareholders’ equity651,670
 624,133
Total shareholders’ equity654,873  675,122  
Total liabilities and shareholders’ equity$5,154,298
 $4,984,347
Total liabilities and shareholders’ equity$6,125,312  $5,380,924  
Note: See accompanying notes to the unaudited condensed consolidated financial statements.

2
Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months EndedSix Months Ended
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		 June 30,June 30,
(Dollars in thousands, except per share data)2019 2018 2019 2018(Dollars in thousands, except per share data)2020201920202019
Interest income Interest income
Interest and fees on loans and leases:       Interest and fees on loans and leases:
Taxable$47,151
 $40,637
 $92,833
 $78,587
Taxable$44,757  $47,151  $90,318  $92,833  
Exempt from federal income taxes2,759
 2,421
 5,442
 4,768
Exempt from federal income taxes2,380  2,759  5,041  5,442  
Total interest and fees on loans and leases49,910
 43,058
 98,275
 83,355
Total interest and fees on loans and leases47,137  49,910  95,359  98,275  
Interest and dividends on investment securities:       Interest and dividends on investment securities:
Taxable2,645
 2,268
 5,358
 4,457
Taxable2,218  2,645  4,923  5,358  
Exempt from federal income taxes401
 477
 832
 945
Exempt from federal income taxes196  401  436  832  
Interest on deposits with other banks569
 148
 838
 224
Interest on deposits with other banks67  569  392  838  
Interest and dividends on other earning assets535
 509
 1,121
 1,013
Interest and dividends on other earning assets362  535  889  1,121  
Total interest income54,060
 46,460
 106,424
 89,994
Total interest income49,980  54,060  101,999  106,424  
Interest expense       Interest expense
Interest on deposits9,111
 4,542
 17,314
 8,233
Interest on deposits4,372  9,111  11,778  17,314  
Interest on short-term borrowings217
 958
 855
 1,603
Interest on short-term borrowings122  217  228  855  
Interest on long-term debt and subordinated notes2,097
 1,970
 4,097
 3,896
Interest on long-term debt and subordinated notes1,968  2,097  4,007  4,097  
Total interest expense11,425
 7,470
 22,266
 13,732
Total interest expense6,462  11,425  16,013  22,266  
Net interest income42,635
 38,990
 84,158
 76,262
Net interest income43,518  42,635  85,986  84,158  
Provision for loan and lease losses2,076
 15,409
 4,761
 17,462
Net interest income after provision for loan and lease losses40,559
 23,581
 79,397
 58,800
Provision for credit lossesProvision for credit losses23,737  2,073  45,580  4,753  
Net interest income after provision for credit lossesNet interest income after provision for credit losses19,781  40,562  40,406  79,405  
Noninterest income       Noninterest income
Trust fee income2,054
 2,044
 3,941
 4,040
Trust fee income1,924  2,054  3,814  3,941  
Service charges on deposit accounts1,447
 1,335
 2,882
 2,662
Service charges on deposit accounts890  1,447  2,287  2,882  
Investment advisory commission and fee income4,055
 3,778
 7,844
 7,461
Investment advisory commission and fee income3,540  4,055  7,795  7,844  
Insurance commission and fee income3,941
 3,712
 9,085
 8,600
Insurance commission and fee income4,067  3,941  8,799  9,085  
Other service fee income2,590
 2,431
 4,857
 4,600
Other service fee income1,488  2,590  3,358  4,857  
Bank owned life insurance income743
 1,210
 1,695
 1,879
Bank owned life insurance income732  743  1,466  1,695  
Net gain on sales of investment securities7
 —
 8
 10
Net gain on sales of investment securities65  7  760  8  
Net gain on mortgage banking activities796
 942
 1,279
 1,658
Net gain on mortgage banking activities3,515  796  6,259  1,279  
Other income (loss)723
 (138) 1,062
 (14)
Other incomeOther income1,779  723  1,846  1,062  
Total noninterest income16,356
 15,314
 32,653
 30,896
Total noninterest income18,000  16,356  36,384  32,653  
Noninterest expense       Noninterest expense
Salaries, benefits and commissions22,089
 20,065
 43,653
 40,712
Salaries, benefits and commissions21,700  22,052  45,536  43,598  
Net occupancy2,601
 2,533
 5,212
 5,290
Net occupancy2,478  2,601  5,052  5,212  
Equipment1,065
 1,067
 2,055
 2,090
Equipment923  1,065  1,918  2,055  
Data processing2,627
 2,091
 5,141
 4,323
Data processing2,750  2,627  5,510  5,141  
Professional fees1,307
 1,331
 2,571
 2,686
Professional fees1,264  1,307  2,581  2,571  
Marketing and advertising622
 526
 938
 907
Marketing and advertising535  786  937  1,326  
Deposit insurance premiums430
 452
 882
 843
Deposit insurance premiums615  430  1,119  882  
Intangible expenses417
 594
 843
 1,206
Intangible expenses321  417  651  843  
Restructuring charges—
 —
 —
 571
Other expense5,620
 5,688
 11,040
 10,844
Other expense5,374  5,496  11,433  10,715  
Total noninterest expense36,778
 34,347
 72,335
 69,472
Total noninterest expense35,960  36,781  74,737  72,343  
Income before income taxes20,137
 4,548
 39,715
 20,224
Income before income taxes1,821  20,137  2,053  39,715  
Income tax expense3,669
 191
 7,168
 3,017
Income tax (benefit) expenseIncome tax (benefit) expense(264) 3,669  (870) 7,168  
Net income$16,468
 $4,357
 $32,547
 $17,207
Net income$2,085  $16,468  $2,923  $32,547  
Net income per share:       Net income per share:
Basic$0.56
 $0.15
 $1.11
 $0.59
Basic$0.07  $0.56  $0.10  $1.11  
Diluted0.56
 0.15
 1.11
 0.58
Diluted0.07  0.56  0.10  1.11  
Note: See accompanying notes to the unaudited condensed consolidated financial statements.

3
Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended June 30,
(Dollars in thousands)20202019
Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount		Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount
Income$1,821  $(264) $2,085  $20,137  $3,669  $16,468  
Other comprehensive income:
Net unrealized gains on available-for-sale investment securities:
Net unrealized holding gains arising during the period7,169  1,504  5,665  2,933  616  2,317  
Recovery of provision for credit losses(42) (8) (34) —  —  —  
Less: reclassification adjustment for net gains on sales realized in net income (1)(65) (14) (51) (7) (2) (5) 
Total net unrealized gains on available-for-sale investment securities7,062  1,482  5,580  2,926  614  2,312  
Net unrealized gains (losses) on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period(62) (13) (49) (263) (55) (208) 
Less: reclassification adjustment for net losses (gains) realized in net income (2)69  14  55  (14) (3) (11) 
Total net unrealized gains (losses) on interest rate swaps used in cash flow hedges7  1  6  (277) (58) (219) 
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)—  —  —  (46) (10) (36) 
Total defined benefit pension plans297  62  235  248  52  196  
Other comprehensive income7,366  1,545  5,821  2,897  608  2,289  
Total comprehensive income$9,187  $1,281  $7,906  $23,034  $4,277  $18,757  
 Three Months Ended June 30,
(Dollars in thousands)2019 2018
Before
Tax
Amount
 
Tax
Expense
(Benefit)
 
Net of
Tax
Amount
 
Before
Tax
Amount
 
Tax
Expense
(Benefit)
 
Net of
Tax
Amount
Income$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 period2,933
 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 securities2,926
 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 plans248
 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
(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).
(2) Included in interest expense on deposits on the consolidated statements of income (before tax amount).
(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.

 Six Months Ended June 30,
(Dollars in thousands)2019 2018
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 period8,053
 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 securities8,045
 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 plans497
 105
 392
 421
 88
 333
Other comprehensive income (loss)8,081
 1,697
 6,384
 (7,446) (1,564) (5,882)
Total comprehensive income$47,796
 $8,865
 $38,931
 $12,778
 $1,453
 $11,325

(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).
(2) Included in interest expense on deposits on the consolidated statements of income (before tax amount).
(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.

4
Table of Contents

 Six Months Ended June 30,
(Dollars in thousands)20202019
Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount		Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount
Income$2,053  $(870) $2,923  $39,715  $7,168  $32,547  
Other comprehensive income (loss):
Net unrealized gains on available-for-sale investment securities:
Net unrealized holding gains arising during the period2,204  462  1,742  8,053  1,691  6,362  
Provision for credit losses555  117  438  —  —  —  
Less: reclassification adjustment for net gains on sales realized in net income (1)(760) (160) (600) (8) (2) (6) 
Total net unrealized gains on available-for-sale investment securities1,999  419  1,580  8,045  1,689  6,356  
Net unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period(559) (118) (441) (431) (91) (340) 
Less: reclassification adjustment for net losses (gains) realized in net income (2)98  21  77  (30) (6) (24) 
Total net unrealized losses on interest rate swaps used in cash flow hedges(461) (97) (364) (461) (97) (364) 
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)594  124  470  588  124  464  
Accretion of prior service cost included in net periodic pension costs (3)—  —  —  (91) (19) (72) 
Total defined benefit pension plans594  124  470  497  105  392  
Other comprehensive income2,132  446  1,686  8,081  1,697  6,384  
Total comprehensive income (loss)$4,185  $(424) $4,609  $47,796  $8,865  $38,931  

(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).
(2) Included in interest expense on deposits on the consolidated statements of income (before tax amount).
(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
5
Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

(Dollars in thousands, except per share data)Common
Shares
Outstanding		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Treasury
Stock		Total
Three Months Ended June 30, 2020
Balance at March 31, 202029,164,782  $157,784  $295,439  $272,478  $(25,628) $(48,522) $651,551  
Net income—  —  —  2,085  —  —  2,085  
Other comprehensive income, net of income tax—  —  —  —  5,821  —  5,821  
Cash dividends declared ($0.20 per share)—  —  —  (5,811) —  —  (5,811) 
Stock-based compensation—  —  651  (1) —  —  650  
Stock issued under dividend reinvestment and employee stock purchase plans38,109  —  (62) —  —  653  591  
Purchases of treasury stock(906) —  —  —  —  (14) (14) 
Balance at June 30, 202029,201,985  $157,784  $296,028  $268,751  $(19,807) $(47,883) $654,873  

(Dollars in thousands, except per share data)Common
Shares
Outstanding		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Treasury
Stock		Total
Three Months Ended June 30, 2019
Balance at March 31, 201929,272,502  $157,784  $293,255  $256,746  $(24,238) $(45,941) $637,606  
Net income—  —  —  16,468  —  —  16,468  
Other comprehensive income, net of income tax—  —  —  —  2,289  —  2,289  
Cash dividends declared ($0.20 per share)—  —  —  (5,858) —  —  (5,858) 
Stock-based compensation—  —  656  —  —  —  656  
Stock issued under dividend reinvestment and employee stock purchase plans22,440  —  47  1  —  516  564  
Exercise of stock options9,000  —  (11) —  —  181  170  
Purchases of treasury stock(9,000) —  —  —  —  (225) (225) 
Balance at June 30, 201929,294,942  $157,784  $293,947  $267,357  $(21,949) $(45,469) $651,670  


6
Table of Contents
(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(Dollars in thousands, except per share data)Common
Shares
Outstanding		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Treasury
Stock		Total
Three Months Ended June 30, 2019             
Balance at March 31, 201929,272,502
 $157,784
 $293,255
 $256,746
 $(24,238) $(45,941) $637,606
Six Months Ended June 30, 2020Six Months Ended June 30, 2020
Balance at December 31, 2019Balance at December 31, 201929,334,629  $157,784  $294,999  $288,803  $(21,730) $(44,734) $675,122  
Adjustment to initially apply ASU No. 2016-13 for CECL (1)Adjustment to initially apply ASU No. 2016-13 for CECL (1)—  —  —  (11,284) 237  —  (11,047) 
Net income—
 —
 —
 16,468
 —
 —
 16,468
Net income—  —  —  2,923  —  —  2,923  
Other comprehensive income, net of income tax—
 —
 —
 —
 2,289
 —
 2,289
Other comprehensive income, net of income tax—  —  —  —  1,686  —  1,686  
Cash dividends declared ($0.20 per share)—
 —
 —
 (5,858) —
 —
 (5,858)
Cash dividends declared ($0.40 per share)Cash dividends declared ($0.40 per share)—  —  —  (11,677) —  —  (11,677) 
Stock-based compensationStock-based compensation—  —  1,075  (14) —  —  1,061  
Stock issued under dividend reinvestment and employee stock purchase plans22,440
 —
 47
 1
 —
 516
 564
Stock issued under dividend reinvestment and employee stock purchase plans64,154  —  (111) —  —  1,274  1,163  
Vesting of restricted stock unit awardsVesting of restricted stock unit awards17,035  —  (346) —  —  346  —  
Exercise of stock options9,000
 —
 (11) —
 —
 181
 170
Exercise of stock options5,000  —  (7) —  —  101  94  
Stock-based compensation—
 —
 656
 —
 —
 —
 656
Cancellations of performance-based restricted stock awardsCancellations of performance-based restricted stock awards(14,777) —  418  —  —  (418) —  
Purchases of treasury stock(9,000) —
 —
 —
 —
 (225) (225)Purchases of treasury stock(204,056) —  —  —  —  (4,452) (4,452) 
Balance at June 30, 201929,294,942
 $157,784
 $293,947
 $267,357
 $(21,949) $(45,469) $651,670
Balance at June 30, 2020Balance at June 30, 202029,201,985  $157,784  $296,028  $268,751  $(19,807) $(47,883) $654,873  

(Dollars in thousands, except per share data)Common
Shares
Outstanding		 Common
Stock		 Additional
Paid-in
Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
Loss		 Treasury
Stock		 Total
Three Months Ended June 30, 2018             
Balance at March 31, 201829,391,934
 $157,784
 $290,095
 $228,097
 $(26,791) $(42,466) $606,719
Net income—
 —
 —
 4,357
 —
 —
 4,357
Other comprehensive loss, net of income tax benefit—
 —
 —
 —
 (1,216) —
 (1,216)
Cash dividends declared ($0.20 per share)—
 —
 —
 (5,881) —
 —
 (5,881)
Stock issued under dividend reinvestment and employee stock purchase plans21,686
 —
 54
 1
 —
 549
 604
Exercise of stock options22,832
 —
 (5) —
 —
 448
 443
Stock-based compensation—
 —
 872
 —
 —
 —
 872
Purchases of treasury stock(20,814) —
 —
 —
 —
 (604) (604)
Cancellations of restricted stock awards(9,188) —
 222
 —
 —
 (222) —
Balance at June 30, 201829,406,450
 $157,784
 $291,238
 $226,574
 $(28,007) $(42,295) $605,294



(Dollars in thousands, except per share data)Common
Shares
Outstanding		 Common
Stock		 Additional
Paid-in
Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
(Loss) Income		 Treasury
Stock		 Total
Six Months Ended June 30, 2019            
Balance at December 31, 201829,270,852
 $157,784
 $292,401
 $248,167
 $(28,416) $(45,803) $624,133
Adjustment to initially apply ASU No. 2016-02 for leases (1)—
 —
 —
 (1,525) —
 —
 (1,525)
Adjustment to initially apply ASU No. 2017-12 for derivatives (1)—
 —
 —
 (83) 83
 —
 —
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities (1)—
 —
 —
 (39) —
 —
 (39)
Net income—
 —
 —
 32,547
 —
 —
 32,547
Other comprehensive income, net of income tax—
 —
 —
 —
 6,384
 —
 6,384
Cash dividends declared ($0.40 per share)—
 —
 —
 (11,711) —
 —
 (11,711)
Stock issued under dividend reinvestment and employee stock purchase plans48,183
 —
 77
 1
 —
 1,057
 1,135
Exercise of stock options39,500
 —
 (102) —
 —
 793
 691
Stock-based compensation—
 —
 1,230
 —
 —
 —
 1,230
Purchases of treasury stock(46,244) —
 —
 —
 —
 (1,175) (1,175)
Cancellations of performance-based restricted stock awards(17,349) —
 341
 —
 —
 (341) —
Balance at June 30, 201929,294,942
 $157,784
 $293,947
 $267,357
 $(21,949) $(45,469) $651,670
(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019"2020" for additional information.

(Dollars in thousands, except per share data)Common
Shares
Outstanding		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Treasury
Stock		Total
Six Months Ended June 30, 2019
Balance at December 31, 201829,270,852  $157,784  $292,401  $248,167  $(28,416) $(45,803) $624,133  
Adjustment to initially apply ASU No. 2016-02 for leases—  —  —  (1,525) —  —  (1,525) 
Adjustment to initially apply ASU No. 2017-12 for derivatives—  —  —  (83) 83  —  —  
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities—  —  —  (39) —  —  (39) 
Net income—  —  —  32,547  —  —  32,547  
Other comprehensive income, net of income tax—  —  —  —  6,384  —  6,384  
Cash dividends declared ($0.40 per share)—  —  —  (11,711) —  —  (11,711) 
Stock-based compensation—  —  1,230  —  —  —  1,230  
Stock issued under dividend reinvestment and employee stock purchase plans48,183  —  77  1  —  1,057  1,135  
Exercise of stock options39,500  —  (102) —  —  793  691  
Cancellations of performance-based restricted stock awards(17,349) —  341  —  —  (341) —  
Purchases of treasury stock(46,244) —  —  —  —  (1,175) (1,175) 
Balance at June 30, 201929,294,942  $157,784  $293,947  $267,357  $(21,949) $(45,469) $651,670  

Note: See accompanying note to the unaudited condensed consolidated financial statements.
7
(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, 201729,334,859
 $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 plans41,939
 —
 98
 1
 —
 1,074
 1,173
Exercise of stock options36,990
 —
 (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 cancellations37,015
 —
 (698) —
 —
 698
 —
Balance at June 30, 201829,406,450
 $157,784
 $291,238
 $226,574
 $(28,007) $(42,295) $605,294
Table of Contents

UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,
(Dollars in thousands)20202019
Cash flows from operating activities:
Net income$2,923  $32,547  
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses45,580  4,753  
Depreciation of premises and equipment2,448  2,651  
Net amortization of investment securities premiums and discounts977  834  
Net gain on sales of investment securities(760) (8) 
Net gain on mortgage banking activities(6,259) (1,279) 
Bank owned life insurance income(1,466) (1,695) 
Stock-based compensation1,139  1,256  
Intangible expenses651  843  
Other adjustments to reconcile net income to cash used in operating activities(985) (708) 
Originations of loans held for sale(186,426) (69,323) 
Proceeds from the sale of loans held for sale178,995  70,603  
Contributions to pension and other postretirement benefit plans(136) (132) 
Increase in accrued interest receivable and other assets(12,160) (3,921) 
Increase (decrease) in accrued interest payable and other liabilities1,062  (4,864) 
Net cash provided by operating activities25,583  31,557  
Cash flows from investing activities:
Net capital expenditures(1,680) (1,432) 
Proceeds from maturities, calls and principal repayments of securities held-to-maturity32,663  11,054  
Proceeds from maturities, calls and principal repayments of securities available-for-sale30,087  27,784  
Proceeds from sales of securities available-for-sale63,565  15,494  
Purchases of investment securities held-to-maturity(43,116) (41,808) 
Purchases of investment securities available-for-sale(39,003) (498) 
Proceeds from sales of money market mutual funds6,912  523  
Purchases of money market mutual funds(6,529) (1,203) 
Net increase (decrease) in other investments62  (4,418) 
Net increase in loans and leases(591,521) (162,169) 
Proceeds from sales of other real estate owned—  599  
Net cash used in investing activities(548,560) (156,074) 
Cash flows from financing activities:
Net increase in deposits509,253  236,213  
Net increase (decrease) in short-term borrowings192,100  (150,418) 
Proceeds from issuance of long-term debt125,000  25,000  
Repayment of long-term debt(65,000) —  
Payment of contingent consideration on acquisitions(61) (65) 
Purchases of treasury stock(4,452) (1,175) 
Stock issued under dividend reinvestment and employee stock purchase plans1,163  1,135  
Proceeds from exercise of stock options94  691  
Cash dividends paid(11,719) (11,717) 
Net cash provided by financing activities746,378  99,664  
Net increase (decrease) in cash and cash equivalents223,401  (24,853) 
Cash and cash equivalents at beginning of year125,128  109,420  
Cash and cash equivalents at end of period$348,529  $84,567  
Supplemental disclosures of cash flow information:
Cash paid for interest$17,535  $22,002  
Cash paid for income taxes, net of refunds7,977  9,883  
Non cash transactions:
Transfer of loans to other real estate owned$8,125  $—  
Transfer of loans to loans held for sale14,416  —  
Note: See accompanying notes to the unaudited condensed consolidated financial statements.

8
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 losses4,761
 17,462
Depreciation of premises and equipment2,651
 2,795
Net amortization of investment securities premiums and discounts834
 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 compensation1,256
 1,719
Intangible expenses843
 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 sale70,603
 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 activities31,557
 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-maturity11,054
 4,253
Proceeds from maturities, calls and principal repayments of securities available-for-sale27,784
 34,824
Proceeds from sales of securities available-for-sale15,494
 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 funds523
 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 owned599
 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 deposits236,213
 65,963
Net (decrease) increase in short-term borrowings(150,418) 126,422
Proceeds from issuance of long-term debt25,000
 —
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 plans1,135
 1,173
Proceeds from exercise of stock options691
 711
Cash dividends paid(11,717) (11,734)
Net cash provided by financing activities99,664
 181,209
Net decrease in cash and cash equivalents(24,853) (2,466)
Cash and cash equivalents at beginning of year109,420
 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
 $13,190
Cash paid for income taxes, net of refunds9,883
 1,060
Non cash transactions:   
Transfer of loans to other real estate owned$—
 $402
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Unaudited Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Univest Financial Corporation (the Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited interimcondensed 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-yearcurrent-period presentation. Operating results for the three-month or six-month periodperiods ended June 30, 20192020 are not necessarily indicative of the results that may be expected for the year ended December 31, 20192020 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 leasecredit losses.

Accounting Pronouncements Adopted in 20192020
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 asmeasured at amortized cost, including loans and held-to-maturity securities, net investments in leases certainaccounted 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 leasesto 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 thesell. 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 isresults 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 evaluatingAnnual Report on Form 10-K for the impact ofyear ended December 31, 2019, which was filed with the adoption of this guidanceSEC on February 28, 2020, for further information on the Corporation's financial statements; however, it is anticipated that the reserveallowance for loan and lease losses will increase upon adoptionmethodology under the incurred loss model.

The Corporation adopted this guidance, and subsequent related updates, using the modified retrospective approach 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. 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 the provisions of ASC 326 related to financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30 using the increased reserve level will decrease shareholders' equity and impact regulatory capital and ratios.prospective transition approach. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $84 thousand of the allowance for credit losses (ACL).

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The Corporation adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2020 using the prospective transition approach, 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 forand incorporated the Corporation for reporting periods beginning January 1, 2020. The Corporation does not expectapplicable items into the adoption ofCECL model described as follows. Management addressed the amendmentsprovision 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 willand 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 relatedsegmentation 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
(Dollars in thousands)Pre-adoptionAdoption ImpactAs Reported
Assets:
ACL on debt securities: available-for-sale:
Corporate bonds$—  $300  $300  
ACL on loans and leases:
Commercial, financial and agricultural8,759  5,284  14,043  
Real estate-commercial15,750  6,208  21,958  
Real estate-construction2,446  29  2,475  
Real estate-residential secured for business purpose2,622  2,502  5,124  
Real estate-residential secured for personal purpose2,713  (706) 2,007  
Real estate-home equity secured for personal purpose1,076  (364) 712  
Loans to individuals470  104  574  
Lease financings1,311  (135) 1,176  
Unallocated184  —  184  
Total ACL on loans and leases35,331  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) changevalue, 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 isCorporation 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 adoption2020.
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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 deductibletax-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 doesadopted this guidance as of January 1, 2020. The adoption did not expect the adoption of this ASU will 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) the 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 endingbeginning after December 15, 2020 or December 31, 2020January 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, which we anticipate will be the Secured Overnight Financing Rate (SOFR), 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 are 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 $577 thousand at June 30, 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.

The allowance for credit losses on available-for-sale debt securities is included within Investment securities available-for-sale on the condensed consolidated balance sheet. Changes in the allowance for credit losses are recorded within Provision for credit losses on the condensed consolidated statement of income. 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 $553 thousand at June 30, 2020 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. 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.

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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 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 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.

Certain loan modifications made during the first and second quarters of 2020 were done in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customer Affected by the Coronavirus. Accordingly, these loans and leases were not categorized as troubled debt restructurings.

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.
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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.
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.

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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.

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.

The allowance for credit losses on loans and leases is included within Reserve for credit losses, loans and leases on the condensed consolidated balance sheet. Changes in the allowance for credit losses on loans and leases are recorded within Provision for credit losses on the condensed consolidated statement of income.

Accrued Interest Receivable on Loans and Leases

Accrued interest receivable on loans and leases held for investment totaled $13.5 million at June 30, 2020 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

Reserve for Unfunded Commitments

The Corporation maintains a reserve 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.

The reserve for off-balance sheet credit exposures is included within Accrued expenses and other liabilities on the condensed consolidated balance sheet. Changes in the reserve for off-balance sheet credit exposures are recorded within Provision for credit losses on the condensed consolidated statement of income.

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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 
 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 outstanding29,288
 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 units62
 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 share325
 369
 327
 294


Three Months EndedSix Months Ended
 June 30,June 30,
(Dollars and shares in thousands, except per share data)2020201920202019
Numerator:
Net income$2,085  $16,468  $2,923  $32,547  
Net income allocated to unvested restricted stock awards(3) (60) —  (128) 
Net income allocated to common shares$2,082  $16,408  $2,923  $32,419  
Denominator:
Weighted average shares outstanding29,187  29,288  29,237  29,283  
Average unvested restricted stock awards(38) (107) (53) (119) 
Denominator for basic earnings per share—weighted-average shares outstanding
29,149  29,181  29,184  29,164  
Effect of dilutive securities—employee stock options and restricted stock units15  62  35  59  
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,164  29,243  29,219  29,223  
Basic earnings per share$0.07  $0.56  $0.10  $1.11  
Diluted earnings per share$0.07  $0.56  $0.10  $1.11  
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share705  325  451  327  


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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 June 30, 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 June 30, 2020At 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 LossesFair ValueAmortized
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  $226  $—  $—  $7,224  $6,997  $66  $—  $7,063  
6,997
 55
 —
 7,052
 6,996
 —
 (104) 6,892
6,998  226  —  —  7,224  6,997  66  —  7,063  
Residential mortgage-backed securities:               Residential mortgage-backed securities:
After 5 years to 10 years10,379
 102
 —
 10,481
 11,573
 —
 (135) 11,438
After 5 years to 10 years7,810  337  —  —  8,147  9,083  129  —  9,212  
Over 10 years155,570
 2,253
 (60) 157,763
 124,065
 287
 (1,107) 123,245
Over 10 years186,895  6,041  —  —  192,936  175,972  2,749  (110) 178,611  
165,949
 2,355
 (60) 168,244
 135,638
 287
 (1,242) 134,683
194,705  6,378  —  —  201,083  185,055  2,878  (110) 187,823  
Total$172,946
 $2,410
 $(60) $175,296
 $142,634
 $287
 $(1,346) $141,575
Total$201,703  $6,604  $—  $—  $208,307  $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) $15,018
Within 1 year$—  $—  $—  —  $—  $301  $—  $(1) $300  
After 1 year to 5 years—
 —
 —
 —
 303
 —
 (6) 297

10,332
 —
 (16) 10,316
 15,411
 —
 (96) 15,315
—  —  —  —  —  301  —  (1) 300  
State and political subdivisions:               State and political subdivisions:
Within 1 year1,395
 3
 —
 1,398
 5,900
 4
 (6) 5,898
After 1 year to 5 years5,732
 63
 —
 5,795
 15,459
 36
 (56) 15,439
After 1 year to 5 years3,644  45  —  —  3,689  4,717  23  —  4,740  
After 5 years to 10 years36,550
 429
 —
 36,979
 43,923
 318
 (163) 44,078
After 5 years to 10 years17,708  181  —  —  17,889  29,563  292  —  29,855  

43,677
 495
 —
 44,172
 65,282
 358
 (225) 65,415
21,352  226  —  —  21,578  34,280  315  —  34,595  
Residential mortgage-backed securities:               Residential mortgage-backed securities:
Within 1 yearWithin 1 year83  4  —  —  87  304  9  —  313  
After 1 year to 5 years5,420
 20
 (5) 5,435
 5,799
 3
 (70) 5,732
After 1 year to 5 years121  3  —  —  124  611  3  (1) 613  
After 5 years to 10 years43,799
 52
 (237) 43,614
 49,904
 6
 (1,381) 48,529
After 5 years to 10 years2,362  86  —  —  2,448  36,893  107  (21) 36,979  
Over 10 years93,324
 172
 (730) 92,766
 100,873
 26
 (3,398) 97,501
Over 10 years75,629  2,184  —  —  77,813  80,630  378  (453) 80,555  

142,543
 244
 (972) 141,815
 156,576
 35
 (4,849) 151,762
78,195  2,277  —  —  80,472  118,438  497  (475) 118,460  
Collateralized mortgage obligations:               Collateralized mortgage obligations:
After 5 years to 10 years1,497
 —
 (31) 1,466
 1,677
 —
 (78) 1,599
After 5 years to 10 years922  35  —  —  957  2,377  6  (22) 2,361  
Over 10 years1,200
 11
 —
 1,211
 1,305
 —
 (16) 1,289
Over 10 years5,123  —  —  —  5,123  —  —  —  —  

2,697
 11
 (31) 2,677
 2,982
 —
 (94) 2,888
6,045  35  —  —  6,080  2,377  6  (22) 2,361  
Corporate bonds:               Corporate bonds:
Within 1 year10,817
 —
 (33) 10,784
 7,806
 —
 (68) 7,738
Within 1 year1,000  10  —  —  1,010  6,012  1  (4) 6,009  
After 1 year to 5 years29,115
 320
 (27) 29,408
 18,508
 1
 (332) 18,177
After 1 year to 5 years29,340  1,246  (32) (6) 30,548  29,606  596  (61) 30,141  
After 5 years to 10 years—
 —
 


 —
 16,146
 —
 (392) 15,754
After 5 years to 10 years40,914  18  (4,257) (509) 36,166  —  —  —  —  
Over 10 years60,000
 —
 (6,150) 53,850
 60,000
 —
 (8,542) 51,458
Over 10 years20,000  —  (1,313) (340) 18,347  60,000  —  (4,942) 55,058  

99,932
 320
 (6,210) 94,042
 102,460
 1
 (9,334) 93,127
91,254  1,274  (5,602) (855) 86,071  95,618  597  (5,007) 91,208  
Total$299,181
 $1,070
 $(7,229) $293,022
 $342,711
 $394
 $(14,598) $328,507
Total$196,846  $3,812  $(5,602) $(855) $194,201  $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 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$322.0 million and $344.5$340.8 million at June 30, 20192020 and December 31, 2018,2019, respectively, were pledged to secure public funds deposits and other contractual obligations. In addition, securities of $9.9 $34.9
17
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million and $296 thousand$12.5 million were pledged to secure credit derivatives and interest rate swaps at June 30, 20192020 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 months ended June 30, 20192020 and 2018:2019:
 Six Months Ended June 30,
(Dollars in thousands)20202019
Securities available-for-sale:
Proceeds from sales$63,565  $15,494  
Gross realized gains on sales774  29  
Gross realized losses on sales14  21  
Tax expense related to net realized gains on sales160  2  
 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 sales29
 10
Gross realized losses on sales21
 —
Tax expense related to net realized gains on sales2
 2

At June 30, 20192020 and December 31, 2018,2019, there were no0 reportable investments in any single issuer representing more than 10% of shareholders’ equity.

The following table shows the fair value of securities that were in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 20192020 and December 31, 20182019, by the length of time those securities were in a continuous loss position. For
 Less than
Twelve Months		Twelve Months
or Longer		Total
(Dollars in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
At June 30, 2020
Securities Held-to-Maturity
Total$—  $—  $—  $—  $—  $—  
Securities Available-for-Sale
Total$—  $—  $—  $—  $—  $—  
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 securities21,827  (62) 48,672  (413) 70,499  (475) 
Collateralized mortgage obligations—  —  1,295  (22) 1,295  (22) 
Corporate bonds998  —  65,506  (5,007) 66,504  (5,007) 
Total$22,825  $(62) $115,773  $(5,443) $138,598  $(5,505) 

At June 30, 2020, no available-for-sale securities held by the investmentCorporation were in an unrealized loss position for which an allowance for credit losses has not been recorded. The Corporation did not recognize any other-than-temporary impairment charges for the six months ended June 30, 2019.

At June 30, 2020, no held-to-maturity securities held by the Corporation were in an unrealized loss position. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the six months ended June 30, 2020 or other-than-temporary impairment charges for the six months ended June 30, 2019.

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The table below presents a rollforward by major security type for the three and six months ended June 30, 2020 of the allowance for credit losses on securities available-for-sale.
(Dollars in thousands)Corporate Bonds
Three months ended June 30, 2020
Securities Available-for-Sale
Beginning balance$(897)
Change in securities for which a previous expected credit loss was recognized42 
Ending balance$(855)
Six months ended June 30, 2020
Securities Available-for-Sale
Beginning balance$— 
Adjustment to initially apply ASU No. 2016-13 for CECL(300)
Change in securities for which a previous expected credit loss was recognized(555)
Ending balance$(855)

At June 30, 2020, the fair value of available-for-sale securities in an unrealized loss position the Corporation has concluded, based on its analysis, that thewas $59.0 million, including unrealized losses are primarily caused by the movement of interest rates$5.6 million, and current market conditions and there is no other-than temporary impairmentallowance for credit losses of the securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. It is more likely than not that the Corporation will not be required to sell the investments before a recovery of carrying value.
 Less than
Twelve Months		 Twelve Months
or Longer		 Total
(Dollars in thousands)Fair Value Unrealized
Losses		 Fair Value Unrealized
Losses		 Fair Value Unrealized
Losses
At June 30, 2019           
Securities Held-to-Maturity           
Residential mortgage-backed securities$15,022
 $(39) $3,652
 $(21) $18,674
 $(60)
Total$15,022
 $(39) $3,652
 $(21) $18,674
 $(60)
Securities Available-for-Sale           
U.S. government corporations and agencies$—
 $—
 $10,316
 $(16) $10,316
 $(16)
Residential mortgage-backed securities—
 —
 99,801
 (972) 99,801
 (972)
Collateralized mortgage obligations—
 —
 1,466
 (31) 1,466
 (31)
Corporate bonds1,497
 (4) 71,109
 (6,206) 72,606
 (6,210)
Total$1,497
 $(4) $182,692
 $(7,225) $184,189
 $(7,229)
At December 31, 2018           
Securities Held-to-Maturity           
U.S. government corporations and agencies$—
 $—
 $6,892
 $(104) $6,892
 $(104)
Residential mortgage-backed securities48,192
 (472) 34,501
 (770) 82,693
 (1,242)
Total$48,192
 $(472) $41,393
 $(874) $89,585
 $(1,346)
Securities Available-for-Sale           
U.S. government corporations and agencies$—
 $—
 $15,315
 $(96) $15,315
 $(96)
State and political subdivisions9,311
 (61) 15,302
 (164) 24,613
 (225)
Residential mortgage-backed securities7,099
 (106) 141,924
 (4,743) 149,023
 (4,849)
Collateralized mortgage obligations1,289
 (16) 1,599
 (78) 2,888
 (94)
Corporate bonds16,896
 (235) 75,730
 (9,099) 92,626
 (9,334)
Total$34,595
 $(418) $249,870
 $(14,180) $284,465
 $(14,598)


At June 30, 2019, gross unrealized losses for securities available-for-sale$855 thousand. These holdings were in an unrealized loss position for a period of greater than twelve months or longer, totaled $7.2 million. Three federal agency bonds, sixteenmonths. These holdings were comprised of 8 investment grade corporate bonds ninety federal agency residential mortgage securities and one collateralized mortgage obligation bonds had respective unrealized loss positions of $16 thousand, $6.2 million, $1.0 million and $31 thousand, respectively. The fairwhich fluctuate in value of these 110 securities fluctuate withbased on changes in market conditions, which for these underlying securities iswas primarily due to changes in the interest rate environment. The Corporation does not intendhave the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery. The underlying issuers continue to make timely principal and interest payments on the securities. The Corporation concluded that a portion of decline in an unrealized loss position and is unlikely to be required to sellthe value of these securities beforewas indicative of a recovery of fair value, which may be maturity. Upon review of the attributes of the individual securities, the Corporation concluded these

securities were not other-than-temporarily impaired.credit loss. The Corporation did not recognize any other-than-temporary impairment chargesrecorded a provision for credit losses of $555 thousand on these available-for-sale debt securities for the six months ended June 30, 2019 or 2018.2020. The Corporation did not record any other-than-temporary impairment charges for the six months ended June 30, 2019.

The Corporation recognized a $20$292 thousand net gainloss and $33 thousand net gain on equity securities during the six months ended June 30, 20192020 and 2018,2019, respectively, in other noninterest income. There were no0 sales of equity securities during the six months ended June 30, 20192020 or June 30, 2018.2019.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories
 At June 30, 2019
(Dollars in thousands)Originated Acquired Total
Commercial, financial and agricultural$921,182
 $15,967
 $937,149
Real estate-commercial1,650,052
 212,095
 1,862,147
Real estate-construction230,459
 —
 230,459
Real estate-residential secured for business purpose314,629
 51,011
 365,640
Real estate-residential secured for personal purpose373,792
 46,017
 419,809
Real estate-home equity secured for personal purpose170,482
 7,446
 177,928
Loans to individuals32,345
 140
 32,485
Lease financings142,287
 —
 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 table4,701
 —
 4,701
Overdraft deposits included in the above table127
 —
 127


(Dollars in thousands)At June 30, 2020At December 31, 2019
Commercial, financial and agricultural$822,733  $947,029  
Paycheck Protection Program498,978  —  
Real estate-commercial2,222,490  2,040,441  
Real estate-construction212,534  232,595  
Real estate-residential secured for business purpose376,050  373,973  
Real estate-residential secured for personal purpose462,512  439,059  
Real estate-home equity secured for personal purpose173,041  174,435  
Loans to individuals29,222  29,883  
Lease financings154,249  149,421  
Total loans and leases held for investment, net of deferred income$4,951,809  $4,386,836  
Imputed interest on lease financings, included in the above table$(16,678) $(16,340) 
Net deferred (fees) costs, included in the above table(5,550) 5,999  
Overdraft deposits included in the above table401  407  
 At December 31, 2018
(Dollars in thousands)Originated Acquired Total
Commercial, financial and agricultural$913,166
 $24,519
 $937,685
Real estate-commercial1,507,579
 233,625
 1,741,204
Real estate-construction215,513
 —
 215,513
Real estate-residential secured for business purpose302,393
 60,403
 362,796
Real estate-residential secured for personal purpose338,451
 49,959
 388,410
Real estate-home equity secured for personal purpose177,523
 8,728
 186,251
Loans to individuals32,617
 142
 32,759
Lease financings141,956
 —
 141,956
Total loans and leases held for investment, net of deferred income$3,629,198
 $377,376
 $4,006,574
Imputed interest on lease financings, included in the above table$(15,118) $—
 $(15,118)
Net deferred costs, included in the above table3,930
 —
 3,930
Overdraft deposits included in the above table139
 —
 139
19

Table of Contents
Overdraft deposits are re-classified as loans and are included in the total loans and leases on the balance sheet.
The carrying amount of acquired loans at June 30, 2019 totaled $332.7 million, including $289.2 million of loans from the Fox Chase acquisition and $43.5 million from the Valley Green Bank acquisition. At June 30, 2019, loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled $569 thousand representing $61 thousand from the Fox Chase acquisition and $508 thousand from the Valley Green Bank acquisition. Acquired credit impaired loans are accounted for in accordance with Accounting Standards Codification (ASC) Topic 310-30.

The outstanding principal balance and carrying amount for acquired credit impaired loans at June 30, 2019 and December 31, 2018 were as follows:
(Dollars in thousands)At June 30, 2019 At December 31, 2018
Outstanding principal balance$677
 $893
Carrying amount569
 695
Reserve for loan losses—
 —
The following table presents the changes in accretable yield on acquired credit impaired loans:
 Six Months Ended June 30,
(Dollars in thousands)2019 2018
Beginning of period$—
 $11
Reclassification from nonaccretable discount215
 375
Accretable yield amortized to interest income(215) (386)
End of period$—
 $—



Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current and nonaccrual loans and leases at June 30, 2020:
Accruing Loans and Leases
(Dollars in thousands)30-59
Days
Past Due		60-89
Days
Past Due		90 Days
or more
Past Due		Total
Past Due		CurrentTotal Accruing Loans and LeasesNonaccrual Loans and LeasesTotal Loans
and Leases
Held for
Investment
At June 30, 2020
Commercial, financial and agricultural$9,995  $456  $309  $10,760  $807,765  $818,525  $4,208  $822,733  
Paycheck Protection Program—  —  —  —  498,978  498,978  —  498,978  
Real estate—commercial real estate and construction:
Commercial real estate8,006  6,532  54  14,592  2,190,330  2,204,922  17,568  2,222,490  
Construction9,272  1,203  —  10,475  202,059  212,534  —  212,534  
Real estate—residential and home equity:
Residential secured for business purpose1,633  1,291  468  3,392  370,904  374,296  1,754  376,050  
Residential secured for personal purpose3,203  174  —  3,377  457,867  461,244  1,268  462,512  
Home equity secured for personal purpose921  393  —  1,314  170,750  172,064  977  173,041  
Loans to individuals92  127  93  312  28,910  29,222  —  29,222  
Lease financings640  370  269  1,279  152,604  153,883  366  154,249  
Total$33,762  $10,546  $1,193  $45,501  $4,880,167  $4,925,668  $26,141  $4,951,809  

The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current, acquired credit impaired loans and nonaccrual loans and leases at June 30, 2019 and December 31, 2018:2019:
Accruing Loans and Leases
(Dollars in thousands)30-59
Days
Past Due		60-89
Days
Past Due		90 Days
or more
Past Due		Total
Past Due		CurrentTotal Accruing Loans and LeasesAcquired Credit ImpairedNonaccrual Loans and LeasesTotal Loans
and Leases
Held for
Investment
At December 31, 2019
Commercial, financial and agricultural$2,602  $150  $20  $2,772  $940,815  $943,587  $—  $3,442  $947,029  
Real estate—commercial real estate and construction:
Commercial real estate3,473  266  —  3,739  2,008,568  2,012,307  206  27,928  2,040,441  
Construction—  —  —  —  232,338  232,338  —  257  232,595  
Real estate—residential and home equity:
Residential secured for business purpose2,078  2,442  —  4,520  366,473  370,993  —  2,980  373,973  
Residential secured for personal purpose2,969  446  —  3,415  433,548  436,963  58  2,038  439,059  
Home equity secured for personal purpose605  297  —  902  172,106  173,008  —  1,427  174,435  
Loans to individuals157  73  74  304  29,579  29,883  —  —  29,883  
Lease financings1,409  296  49  1,754  147,161  148,915  —  506  149,421  
Total$13,293  $3,970  $143  $17,406  $4,330,588  $4,347,994  $264  $38,578  $4,386,836  
 Accruing Loans and Leases      
(Dollars in thousands)30-59
Days
Past Due		 60-89
Days
Past Due		 90 Days
or more
Past Due		 Total
Past Due		 Current Total Accruing Loans and Leases Acquired Credit Impaired Nonaccrual Loans and Leases Total Loans
and Leases
Held for
Investment
At June 30, 2019                 
Commercial, financial and agricultural$527
 $274
 $—
 $801
 $934,198
 $934,999
 $—
 $2,150
 $937,149
Real estate—commercial real estate and construction:                 
Commercial real estate2,057
 6,190
 516
 8,763
 1,835,439
 1,844,202
 206
 17,739
 1,862,147
Construction500
 1,158
 230
 1,888
 228,465
 230,353
 —
 106
 230,459
Real estate—residential and home equity:                 
Residential secured for business purpose919
 2,284
 434
 3,637
 360,105
 363,742
 302
 1,596
 365,640
Residential secured for personal purpose1,529
 258
 —
 1,787
 415,794
 417,581
 61
 2,167
 419,809
Home equity secured for personal purpose206
 —
 —
 206
 176,433
 176,639
 —
 1,289
 177,928
Loans to individuals101
 47
 129
 277
 32,208
 32,485
 —
 —
 32,485
Lease financings620
 195
 70
 885
 141,302
 142,187
 —
 100
 142,287
Total$6,459
 $10,406
 $1,379
 $18,244
 $4,123,944
 $4,142,188
 $569
 $25,147
 $4,167,904
At December 31, 2018                 
Commercial, financial and agricultural$1,043
 $122
 $—
 $1,165
 $933,155
 $934,320
 $—
 $3,365
 $937,685
Real estate—commercial real estate and construction:                 
Commercial real estate4,995
 1,538
 —
 6,533
 1,716,251
 1,722,784
 206
 18,214
 1,741,204
Construction2,163
 —
 —
 2,163
 213,244
 215,407
 —
 106
 215,513
Real estate—residential and home equity:                 
Residential secured for business purpose2,497
 728
 —
 3,225
 357,827
 361,052
 426
 1,318
 362,796
Residential secured for personal purpose2,334
 —
 —
 2,334
 384,426
 386,760
 63
 1,587
 388,410
Home equity secured for personal purpose305
 96
 —
 401
 184,402
 184,803
 —
 1,448
 186,251
Loans to individuals207
 29
 55
 291
 32,468
 32,759
 —
 —
 32,759
Lease financings2,460
 411
 137
 3,008
 138,778
 141,786
 —
 170
 141,956
Total$16,004
 $2,924
 $192
 $19,120
 $3,960,551
 $3,979,671
 $695
 $26,208
 $4,006,574


20

Table of Contents
Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at June 30, 20192020 and December 31, 2018. Nonperforming loans exclude acquired credit impaired loans from Fox Chase and Valley Green.2019.
At June 30, 2019 At December 31, 2018 At June 30, 2020At December 31, 2019
(Dollars in thousands)Nonaccrual
Loans and
Leases*		 Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications		 Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest		 Total Nonperforming
Loans and
Leases		 Nonaccrual
Loans and
Leases*		 Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications		 Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest		 Total Nonperforming
Loans and
Leases		(Dollars in thousands)Nonaccrual
Loans and
Leases*		Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications		Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest		Total Nonperforming
Loans and
Leases		Nonaccrual
Loans and
Leases*		Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications		Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest		Total Nonperforming
Loans and
Leases
Commercial, financial and agricultural$2,150
 $—
 $—
 $2,150
 $3,365
 $382
 $—
 $3,747
Commercial, financial and agricultural$4,208  $—  $309  $4,517  $3,442  $—  $20  $3,462  
Real estate—commercial real estate and construction:               Real estate—commercial real estate and construction:
Commercial real estate17,739
 —
 516
 18,255
 18,214
 —
 —
 18,214
Commercial real estate17,568  —  54  17,622  27,928  —  —  27,928  
Construction106
 —
 230
 336
 106
 —
 —
 106
Construction—  —  —  —  257  —  —  257  
Real estate—residential and home equity:               Real estate—residential and home equity:
Residential secured for business purpose1,596
 —
 434
 2,030
 1,318
 160
 —
 1,478
Residential secured for business purpose1,754  —  468  2,222  2,980  —  —  2,980  
Residential secured for personal purpose2,167
 —
 —
 2,167
 1,587
 —
 —
 1,587
Residential secured for personal purpose1,268  —  —  1,268  2,038  —  —  2,038  
Home equity secured for personal purpose1,289
 55
 —
 1,344
 1,448
 —
 —
 1,448
Home equity secured for personal purpose977  53  —  1,030  1,427  54  —  1,481  
Loans to individuals—
 —
 129
 129
 —
 —
 55
 55
Loans to individuals—  —  93  93  —  —  74  74  
Lease financings100
 —
 70
 170
 170
 —
 137
 307
Lease financings366  —  269  635  506  —  49  555  
Total$25,147
 $55
 $1,379
 $26,581
 $26,208
 $542
 $192
 $26,942
Total$26,141  $53  $1,193  $27,387  $38,578  $54  $143  $38,775  
 * Includes nonaccrual troubled debt restructured loans of $2.6$14.1 million and $1.3$13.8 million at June 30, 20192020 and December 31, 2018,2019, respectively.

The following table presents the amortized cost basis of loans and leases on nonaccrual status and loans 90 days or more past due and still accruing as of June 30, 2020.
(Dollars in thousands)Nonaccrual With No ACLNonaccrual With ACLTotal NonaccrualLoans 90 Days or more Past Due and Accruing Interest
At June 30, 2020
Commercial, financial and agricultural$2,747  $1,461  $4,208  $309  
Real estate-commercial17,342  226  17,568  54  
Real estate-residential secured for business purpose1,723  31  1,754  468  
Real estate-residential secured for personal purpose706  562  1,268  —  
Real estate-home equity secured for personal purpose977  —  977  —  
Loans to individuals—  —  —  93  
Lease financings—  366  366  269  
Total$23,495  $2,646  $26,141  $1,193  

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The following table presents the amortized cost basis of collateral-dependent nonaccrual loans by class of loans and type of collateral as of June 30, 2020.

(Dollars in thousands)Real Estate
Other (1)
None (2)
Total
At June 30, 2020
Commercial, financial and agricultural$1,802  $1,833  $573  $4,208  
Real estate-commercial17,568  —  —  17,568  
Real estate-residential secured for business purpose1,754  —  —  1,754  
Real estate-residential secured for personal purpose1,268  —  —  1,268  
Real estate-home equity secured for personal purpose977  —  —  977  
Total$23,369  $1,833  $573  $25,775  
(1) Collateral consists of business assets, including accounts receivable and personal property.
(2) Loans fully reserved given lack of collateral.

Credit Quality Indicators

The following tables present by class, the recorded investment in loans and leases held for investment by credit quality indicator at June 30, 20192020 and December 31, 2018.2019.

The Corporation employs a risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business purpose. The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with a relationship balance of less than $1 million are reviewed on a performance basis, with the primary monitored metrics being delinquency (60 days or more past due).status. Loans with relationships greater than $1 million are reviewed at least annually.  Loan relationships with a higher risk profile or classified as special mention or substandard are reviewed at least quarterly,quarterly. The Corporation reviews credit quality indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2019. 

1.Pass—Loans considered satisfactory with no indications of deterioration
2.Special Mention—Potential weakness that deserves management's close attention
3.Substandard—Well-defined weakness or more frequently basedweaknesses that jeopardize the liquidation of the debt
4.Doubtful—Collection or liquidation in-full, on management’s discretion. the basis of current existing facts, conditions and values, highly questionable and improbable

1.Pass—Loans considered satisfactory with no indications of deterioration
2.Special Mention—Potential weakness that deserves management's close attention
3.Substandard—Well-defined weakness or weaknesses that jeopardize the liquidation of the debt
4.Doubtful—Collection or liquidation in-full, on the basis of current existing facts, conditions and values, highly questionable and improbable


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Table of Contents
Commercial Credit Exposure Credit Risk by Internally Assigned Grades

The following table presents classificationstables present by class, the recorded investment in loans and leases held for originated loans:investment by credit quality indicator at June 30, 2020 under ASC 326.
Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
At June 30, 2020
Commercial, Financial and Agricultural
Risk Rating
1. Pass$99,875  $111,696  $83,979  $58,363  $31,043  $72,877  $335,029  $792,862  
2. Special Mention3,132  889  1,523  2,614  1,425  1,449  4,755  15,787  
3. Substandard175  945  904  61  —  634  11,365  14,084  
Total$103,182  $113,530  $86,406  $61,038  $32,468  $74,960  $351,149  $822,733  
Paycheck Protection Plan
Risk Rating
1. Pass$498,978  $—  $—  $—  $—  $—  $—  $498,978  
2. Special Mention—  —  —  —  —  —  —  —  
3. Substandard—  —  —  —  —  —  —  —  
Total$498,978  $—  $—  $—  $—  $—  $—  $498,978  
Real Estate-Commercial
Risk Rating
1. Pass$514,960  $545,207  $313,670  $318,237  $184,112  $254,494  $45,183  $2,175,863  
2. Special Mention1,781  12,502  —  1,127  5,177  2,143  288  23,018  
3. Substandard—  938  1,054  11,070  —  9,759  788  23,609  
Total$516,741  $558,647  $314,724  $330,434  $189,289  $266,396  $46,259  $2,222,490  
Real Estate-Construction
Risk Rating
1. Pass$44,289  $86,261  $52,692  $2,276  $2,950  $—  $3,720  $192,188  
2. Special Mention20,346  —  —  —  —  —  —  20,346  
3. Substandard—  —  —  —  —  —  —  —  
Total$64,635  $86,261  $52,692  $2,276  $2,950  $—  $3,720  $212,534  
Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass$54,425  $80,480  $63,984  $52,922  $43,840  $47,584  $27,599  $370,834  
2. Special Mention831  468  —  78  734  800  —  2,911  
3. Substandard—  463  —  76  763  935  68  2,305  
Total$55,256  $81,411  $63,984  $53,076  $45,337  $49,319  $27,667  $376,050  

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at June 30, 2020. The Corporation had 0 loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at June 30, 2020.

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Table of Contents
(Dollars in thousands)Commercial,
Financial and
Agricultural		 Real Estate—
Commercial		 Real Estate—
Construction		 Real Estate—
Residential Secured
for Business Purpose		 Total
At June 30, 2019         
Grade:         
1. Pass$874,098
 $1,622,980
 $228,421
 $309,658
 $3,035,157
2. Special Mention27,036
 17,773
 1,932
 1,705
 48,446
3. Substandard20,048
 9,299
 106
 3,266
 32,719
4. Doubtful—
 —
 —
 —
 —
Total$921,182
 $1,650,052
 $230,459
 $314,629
 $3,116,322
At December 31, 2018         
Grade:         
1. Pass$882,736
 $1,455,234
 $215,407
 $298,356
 $2,851,733
2. Special Mention23,287
 31,791
 —
 721
 55,799
3. Substandard7,143
 20,554
 106
 3,316
 31,119
4. Doubtful—
 —
 —
 —
 —
Total$913,166
 $1,507,579
 $215,513
 $302,393
 $2,938,651
The following table presents classificationstables present by class, the recorded investment in loans and leases held for acquired loans:investment by credit quality indicator at December 31, 2019 under ASC 310.
(Dollars in thousands)Commercial,
Financial and
Agricultural		 Real Estate—
Commercial		 Real Estate—
Construction		 Real Estate—
Residential Secured
for Business Purpose		 Total(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         
At December 31, 2019At December 31, 2019
Grade:         Grade:
1. Pass$15,967
 $199,560
 $—
 $50,446
 $265,973
1. Pass$911,848  $1,974,561  $201,424  $367,122  $3,454,955  
2. Special Mention—
 —
 —
 —
 —
2. Special Mention18,843  24,199  20,987  3,769  67,798  
3. Substandard—
 12,535
 —
 565
 13,100
3. Substandard16,338  41,681  10,184  3,082  71,285  
4. Doubtful—
 —
 —
 —
 —
Total$15,967
 $212,095
 $—
 $51,011
 $279,073
Total$947,029  $2,040,441  $232,595  $373,973  $3,594,038  
December 31, 2018         
Grade:         
1. Pass$24,450
 $220,911
 $—
 $59,567
 $304,928
2. Special Mention—
 —
 —
 —
 —
3. Substandard69
 12,714
 —
 836
 13,619
4. Doubtful—
 —
 —
 —
 —
Total$24,519
 $233,625
 $—
 $60,403
 $318,547

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

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans, secured for a personal purpose, home equity loans secured for a personal purpose and loans to individuals and lease financings. Nonperforming loans and leases are loansLoans and leases past due 90 days or more, loans and leases on nonaccrual of intereststatus and troubled debt restructured loans and lease modifications. Performing loans and leasesmodifications are reviewed only if the loan becomes 60 days or more past due.considered nonperforming. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due. The Corporation reviews credit quality indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2019. 


The following table presents classification of loans at June 30, 2020.
Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
At June 30, 2020
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$74,240  $82,989  $77,421  $64,408  $49,501  $111,067  $1,618  $461,244  
2. Nonperforming—  —  57  —  —  1,211  —  1,268  
Total$74,240  $82,989  $77,478  $64,408  $49,501  $112,278  $1,618  $462,512  
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$387  $994  $1,245  $1,431  $609  $2,947  $164,398  $172,011  
2. Nonperforming—  —  105  —  —  43  882  1,030  
Total$387  $994  $1,350  $1,431  $609  $2,990  $165,280  $173,041  
Loans to Individuals
Payment Performance
1. Performing$1,349  $2,022  $1,308  $658  $396  $2,560  $20,836  $29,129  
2. Nonperforming—  —  —  —  —  78  15  93  
Total$1,349  $2,022  $1,308  $658  $396  $2,638  $20,851  $29,222  
Lease Financings
Payment Performance
1. Performing$32,754  $54,928  $39,881  $16,981  $7,441  $1,629  $—  $153,614  
2. Nonperforming—  102  106  339  66  22  —  635  
Total$32,754  $55,030  $39,987  $17,320  $7,507  $1,651  $—  $154,249  
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Table of Contents
The following table presents classifications for originated loans:of loans at December 31, 2019.
(Dollars in thousands)Real Estate—
Residential
Secured for
Personal Purpose		Real Estate—
Home Equity
Secured for
Personal Purpose		Loans to
Individuals		Lease
Financings		Total
At December 31, 2019
Performing$437,021  $172,954  $29,809  $148,866  $788,650  
Nonperforming2,038  1,481  74  555  4,148  
Total$439,059  $174,435  $29,883  $149,421  $792,798  
(Dollars in thousands)Real Estate—
Residential
Secured for
Personal Purpose		 Real Estate—
Home Equity
Secured for
Personal Purpose		 Loans to
Individuals		 Lease
Financings		 Total
At June 30, 2019         
Performing$372,578
 $170,172
 $32,216
 $142,117
 $717,083
Nonperforming1,214
 310
 129
 170
 1,823
Total$373,792
 $170,482
 $32,345
 $142,287
 $718,906
At December 31, 2018         
Performing$337,762
 $177,139
 $32,562
 $141,649
 $689,112
Nonperforming689
 384
 55
 307
 1,435
Total$338,451
 $177,523
 $32,617
 $141,956
 $690,547

The following table presents classifications for acquired loans:
(Dollars in thousands)Real Estate—
Residential
Secured for
Personal Purpose		 Real Estate—
Home Equity
Secured for
Personal Purpose		 Loans to
Individuals		 Lease
Financings		 Total
At June 30, 2019         
Performing$45,064
 $6,412
 $140
 $—
 $51,616
Nonperforming953
 1,034
 —
 —
 1,987
Total$46,017
 $7,446
 $140
 $—
 $53,603
At December 31, 2018         
Performing$49,061
 $7,664
 $142
 $—
 $56,867
Nonperforming898
 1,064
 —
 —
 1,962
Total$49,959
 $8,728
 $142
 $—
 $58,829



Reserve for LoanCredit Losses on Loans and Lease LossesLeases and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the reserve for loancredit losses, loans and lease lossesleases, for the three and six months ended June 30, 20192020 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
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)
Recoveries19
 —
 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)
Recoveries23
 —
 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)
Recoveries101
 91
 10
 12
 38
 148
 N/A
 400
Provision2,531
 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)
Recoveries249
 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(Recovery of provision) provision for credit lossesCharge-offsRecoveriesEnding balance
Three Months Ended June 30, 2020
Reserve for credit losses, loans and leases:
Commercial, Financial and Agricultural$19,244  $(2,034) $(744) $270  $16,736  
Real Estate-Commercial34,810  18,663  (2,802) —  50,671  
Real Estate-Construction3,117  1,013  —  —  4,130  
Real Estate-Residential Secured for Business Purpose5,906  2,365  (96) 5  8,180  
Real Estate-Residential Secured for Personal Purpose2,121  548  —  —  2,669  
Real Estate-Home Equity Secured for Personal Purpose795  273  —  3  1,071  
Loans to Individuals600  239  (93) 25  771  
Lease Financings1,473  510  (212) 68  1,839  
Unallocated150  —  N/AN/A150  
Total$68,216  $21,577  $(3,947) $371  $86,217  
Three Months Ended June 30, 2019
Reserve for credit losses, loans and leases:
Commercial, Financial and Agricultural$8,950  $1,178  $(1,018) $19  $9,129  
Real Estate-Commercial and Construction14,981  530  (33) —  15,478  
Real Estate-Residential Secured for Business Purpose2,302  170  —  6  2,478  
Real Estate-Residential and Home Equity Secured for Personal Purpose3,379  136  (4) 7  3,518  
Loans to Individuals469  47  (51) 16  481  
Lease Financings1,275  (14) (110) 90  1,241  
Unallocated246  29  N/AN/A275  
Total$31,602  $2,076  $(1,216) $138  $32,600  

N/A – Not applicable
Charge-offs for the three and six months ended June 30, 2018 included a charge-off
25
Table of $12.7 million for a commercial loan relationship related to fraudulent activities perpetrated by employeesContents
(Dollars in thousands)Beginning balance, prior to adoption of ASU No. 2016-13 for CECLAdjustment to initially apply ASU No. 2016-13 for CECL(Recovery of provision) provision for credit lossesCharge-offsRecoveriesEnding balance
Six Months Ended June 30, 2020
Reserve for credit losses, loans and leases:
Commercial, Financial and Agricultural$8,759  $5,284  $3,596  $(1,225) $322  $16,736  
Real Estate-Commercial15,750  6,208  31,480  (2,802) 35  50,671  
Real Estate-Construction2,446  29  1,655  —  —  4,130  
Real Estate-Residential Secured for Business Purpose2,622  2,502  3,147  (99) 8  8,180  
Real Estate-Residential Secured for Personal Purpose2,713  (706) 662  —  —  2,669  
Real Estate-Home Equity Secured for Personal Purpose1,076  (364) 351  —  8  1,071  
Loans to Individuals470  104  286  (128) 39  771  
Lease Financings1,311  (135) 886  (364) 141  1,839  
Unallocated184  —  (34) N/AN/A150  
Total$35,331  $12,922  $42,029  $(4,618) $553  $86,217  
Six Months Ended June 30, 2019
Reserve for credit losses, loans and leases:
Commercial, Financial and Agricultural$7,983  $—  $2,531  $(1,486) $101  $9,129  
Real Estate-Commercial and Construction13,903  —  1,558  (74) 91  15,478  
Real Estate-Residential Secured for Business Purpose2,236  —  232  —  10  2,478  
Real Estate-Residential and Home Equity Secured for Personal Purpose3,199  —  322  (15) 12  3,518  
Loans to Individuals484  —  95  (136) 38  481  
Lease Financings1,288  —  19  (214) 148  1,241  
Unallocated271  —  4  N/AN/A275  
Total$29,364  $—  $4,761  $(1,925) $400  $32,600  

N/A – Not applicable

26
Table 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 disaggregatedACL on the basis of impairment method and the recorded investment in loans and leases, disaggregated on the basis of impairment methodwhether 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, 20192020 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 impairment9,030
 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 impairment919,032
 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 loans15,967
 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 impairment6,612
 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 impairment875,390
 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 loans44,265
 259,998
 70,837
 62,318
 143
 —
   437,561
Acquired credit impaired loans267
 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 leasesLoans and leases held for investment
(Dollars in thousands)Ending balance: individually analyzedEnding balance: pooledTotal ending balanceEnding balance: individually analyzedEnding balance: pooledLoans measured at fair valueTotal ending balance
At June 30, 2020
Commercial, Financial and Agricultural$905  $15,831  $16,736  $4,208  $818,525  $—  $822,733  
Paycheck Protection Program—  —  —  —  498,978  —  498,978  
Real Estate-Commercial19  50,652  50,671  17,568  2,204,667  255  2,222,490  
Real Estate-Construction—  4,130  4,130  —  212,534  —  212,534  
Real Estate-Residential Secured for Business Purpose1  8,179  8,180  1,754  374,296  —  376,050  
Real Estate-Residential Secured for Personal Purpose210  2,459  2,669  1,268  461,244  —  462,512  
Real Estate-Home Equity Secured for Personal Purpose—  1,071  1,071  977  172,064  —  173,041  
Loans to Individuals—  771  771  —  29,222  —  29,222  
Lease Financings—  1,839  1,839  —  154,249  —  154,249  
UnallocatedN/A150  150  N/AN/AN/AN/A
Total$1,135  $85,082  $86,217  $25,775  $4,925,779  $255  $4,951,809  
At June 30, 2019
Commercial, Financial and Agricultural$99  $9,030  $9,129  $2,150  $934,999  $—  $937,149  
Real Estate-Commercial and Construction1,840  13,638  15,478  17,845  2,073,036  1,725  2,092,606  
Real Estate-Residential Secured for Business Purpose165  2,313  2,478  1,596  364,044  —  365,640  
Real Estate-Residential and Home Equity Secured for Personal Purpose335  3,183  3,518  3,511  594,226  —  597,737  
Loans to Individuals—  481  481  —  32,485  —  32,485  
Lease Financings—  1,241  1,241  —  142,287  —  142,287  
UnallocatedN/A275  275  N/AN/AN/AN/A
Total$2,439  $30,161  $32,600  $25,102  $4,141,077  $1,725  $4,167,904  
N/A – Not applicable

The Corporation does not provide a reserve for loan loss for acquired loans unless additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan loss.
Impaired Loans (excludes Lease Financings)
The following presents, by class of loans, the recorded investment and unpaid principal balance of impaired loans, the amounts of the impaired loans for which there is not a reserve for credit losses and the amounts for which there is a reserve for credit losses at 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 estate5,158
 6,163
   6,578
 7,516
  
Real estate—construction106
 111
   106
 111
  
Real estate—residential secured for business purpose829
 1,006
   1,478
 1,660
  
Real estate—residential secured for personal purpose1,443
 1,516
   863
 911
  
Real estate—home equity secured for personal purpose1,269
 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 estate12,581
 13,336
 1,840
 11,637
 12,162
 675
Real estate—residential secured for business purpose767
 769
 165
 —
 —
 —
Real estate—residential secured for personal purpose724
 724
 260
 724
 724
 252
Real estate—home equity secured for personal purpose75
 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 estate17,739
 19,499
 1,840
 18,215
 19,678
 675
Real estate—construction106
 111
 —
 106
 111
 —
Real estate—residential secured for business purpose1,596
 1,775
 165
 1,478
 1,660
 —
Real estate—residential secured for personal purpose2,167
 2,240
 260
 1,587
 1,635
 252
Real estate—home equity secured for personal purpose1,344
 1,404
 75
 1,448
 1,479
 75
Total impaired loans$25,102
 $27,789
 $2,439
 $26,581
 $28,948
 $1,415

Impaired loans include nonaccrual loans and accruing troubled debt restructured loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. These loans are individually measured to determine the amount
27
Table 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 estate18,058
 —
 242
 22,914
 18
 265
Real estate—construction106
 —
 2
 56
 —
 3
Real estate—residential secured for business purpose1,557
 —
 36
 1,966
 5
 23
Real estate—residential secured for personal purpose1,937
 —
 29
 889
 2
 33
Real estate—home equity secured for personal purpose1,358
 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.Contents
 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 estate18,122
 3
 496
 20,105
 190
 552
Real estate—construction106
 —
 3
 137
 —
 5
Real estate—residential secured for business purpose1,443
 —
 56
 2,107
 10
 47
Real estate—residential secured for personal purpose1,792
 —
 54
 720
 3
 44
Real estate—home equity secured for personal purpose1,384
 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, 2020Three Months Ended June 30, 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:
Real estate—home equity secured for personal purpose—  $—  $—  1  $55  $55  
Total—  $—  $—  1  $55  $55  
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural1  $619  $619  —  $—  $—  
Total1  $619  $619  —  $—  $—  
 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 purpose1
 $55
 $55
 $—
 —
 $—
 $—
 $—
Total1
 $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 purpose1
 $55
 $55
 $—
 —
 $—
 $—
 $—
Total1
 $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
 —
Total3
 $2,269
 $2,269
 $—
 1
 $66
 $66
 $—

 Six Months Ended June 30, 2020Six Months Ended June 30, 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:
Real estate—home equity secured for personal purpose—  $—  $—  1  $55  $55  
Total—  $—  $—  1  $55  $55  
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural*1  $619  $619  2  $956  $956  
Real estate—commercial real estate*—  —  —  1  1,313  1,313  
Total1  $619  $619  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 six months ended June 30, 2019. These loans relate to one borrower and were on nonaccrual status at the time of modification.

TheAs of June 30, 2020, the Corporation grants concessions to existing borrowers primarily related to extensions of interest-only payment periodsmodified approximately 1,420 loans and an occasional payment modification.leases with principal balances totaling $720.1 million via principal and/or interest deferrals. These modifications typically arewere 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. AccruingFinancial Institutions Working with Customer Affected by the Coronavirus. Accordingly, these loans and leases were not categorized as troubled debt restructured loans are primarily comprisedrestructurings.

28
Table of loans on which interest is being accrued under the restructured terms, and the loans are current or less than ninety days past due.Contents


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, 20192020 and 2018.2019.
 Amortization Period Extension
(Dollars in thousands)No. of
Loans		Amount
Three Months Ended June 30, 2020
Accruing Troubled Debt Restructured Loans:
Total—  $—  
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural1  $619  
Total1  $619  
Three Months Ended June 30, 2019
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose1  $55  
Total1  $55  
Nonaccrual Troubled Debt Restructured Loans:
Total—  $—  
Six Months Ended June 30, 2020
Accruing Troubled Debt Restructured Loans:
Total—  $—  
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural1  $619  
Total1  $619  
Six Months Ended June 30, 2019
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose1  $55  
Total1  $55  
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural2  $956  
Real estate—commercial real estate1  1,313  
Total3  $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 purpose1
 $55
Total1
 $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 purpose1
 $66
Total1
 $66
Six Months Ended June 30, 2019   
Accruing Troubled Debt Restructured Loans:   
Real estate—home equity secured for personal purpose1
 $55
Total1
 $55
Nonaccrual Troubled Debt Restructured Loans:   
Commercial, financial and agricultural2
 $956
Real estate—commercial real estate1
 1,313
Total3
 $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 purpose1
 $66
Total1
 $66

The following presents, by class of loans, information regarding accruing and nonaccrual troubled debt restructured loans, for which there were payment defaults within twelve months of the restructuring date:
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(Dollars in thousands)Number
of Loans		Recorded
Investment		Number
of Loans		Recorded
Investment		Number
of Loans		Recorded
Investment		Number
of Loans		Recorded
Investment
Accruing Troubled Debt Restructured Loans:
Total—  $—  —  $—  —  $—  —  $—  
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural1  $13  —  $—  1  $13  —  $—  
Total1  $13  —  $—  1  $13  —  $—  
 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—
 $—
 —
 $—
 —
 $—
 —
 $—
29

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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, 20192020 and December 31, 2018:2019:
(Dollars in thousands)At June 30, 2020At December 31, 2019
Real estate-residential secured for personal purpose$64  $714  
Real estate-home equity secured for personal purpose228  1,058  
Total$292  $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 purpose1,134
 1,134
Total$1,848
 $1,697

The Corporation held nofollowing presents foreclosed residential real estate property included in other real estate owned at June 30, 20192020 and December 31, 2018.2019.
(Dollars in thousands)At June 30, 2020At December 31, 2019
Foreclosed residential real estate$71  $71  

Lease Financings

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", and subsequent related updates, to revise the accounting for leases. The Corporation adopted this guidance effective January 1, 2019 on a modified retrospective basis at January 1, 2019. Additionally, the Corporation early adopted (ASU) No. 2019-01, "Codification Improvements", as of January 1, 2019, which serves as an update to (ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information. Lessor accounting was largely unchanged as a result of the standard. Additional disclosures required under the standard are included in the following section.
The Corporation, through Univest Capital, Inc., an equipment financing business and a subsidiary of the Bank, provides lease financing to customers primarily in the form of sales-type leases with fixed payment terms and $1.00 dollar buyout clauses. A minor number of contracts are classified as either direct financing leases or operating leases. The fair value of the identified assets within sales-type and direct financing leases are equal to the carrying amount such that there is no profit or loss recorded or deferred upon lease commencement. All receivables related to the equipment financing business are recorded within lease financings as of June 30, 2019.
The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk by primarily using $1.00 buyout leases, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term for the majority of its lease portfolio.
Lease financings are stated at net investment amount, consisting of the present value of lease payments and unguaranteed residual value, plus initial direct costs. Initial direct costs, comprised of commissions paid that would not have been incurred if the lease had not been obtained, are deferred and amortized over the life of the contract, and are presented within net interest income on leases.financings.
The following presents the schedule of minimum lease payments receivable:
(Dollars in thousands)At June 30, 2020At December 31, 2019
2020 (excluding the six months ended June 30, 2020)$31,551  $57,515  
202153,258  45,510  
202239,827  32,233  
202325,599  18,345  
202412,590  6,639  
Thereafter4,836  2,259  
Total future minimum lease payments receivable167,661  162,501  
Plus: Unguaranteed residual927  886  
Plus: Initial direct costs2,339  2,374  
Less: Imputed interest(16,678) (16,340) 
Lease financings$154,249  $149,421  
(Dollars in thousands)At June 30, 2019 At December 31, 2018
2019 (excluding the six months ended June 30, 2019)$29,479
 $55,201
202049,897
 43,355
202136,433
 29,678
202223,877
 17,687
202311,722
 6,674
Thereafter3,478
 1,975
Total future minimum lease payments receivable154,886
 154,570
Plus: Unguaranteed residual823
 600
Plus: Initial direct costs1,993
 1,904
Less: Imputed interest(15,415) (15,118)
Lease financings$142,287
 $141,956


Included within the "2019 (excluding the six months ended June 30, 2019)" line item above as of June 30, 2019 and December 31, 2018 are $20 thousand and $0 thousand, respectively, of receivables related to an operating lease contract.
For the six months ended June 30, 2019 and 2018, the Corporation recognized $4.0 million and $3.7 million, respectively, of interest income on lease financings within total interest and fees on loans and leases on the condensed consolidated statements of income. The Corporation did not record any profit or loss upon the commencement date of its leases or any lease income related to variable lease payments.
Note 5. Goodwill and Other Intangible Assets

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

Changes in the carrying amount of the Corporation's goodwill by business segment for the six months ended June 30, 20192020 were as follows:
(Dollars in thousands)BankingWealth ManagementInsuranceConsolidated
Balance at December 31, 2019$138,476  $15,434  $18,649  $172,559  
Addition to goodwill from acquisitions—  —  —  —  
Balance at June 30, 2020$138,476  $15,434  $18,649  $172,559  
(Dollars in thousands)Banking Wealth Management Insurance Consolidated
Balance at December 31, 2018$138,476
 $15,434
 $18,649
 $172,559
Addition to goodwill from acquisitions—
 —
 —
 —
Balance at June 30, 2019$138,476
 $15,434
 $18,649
 $172,559
30

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The following table reflects the components of intangible assets at the dates indicated:
At June 30, 2019 At December 31, 2018At June 30, 2020At December 31, 2019
(Dollars in thousands)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount(Dollars in thousands)Gross Carrying Amount
Accumulated Amortization (1)
Net Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Amortized intangible assets:           Amortized intangible assets:
Covenants not to compete$—
 $—
 $—
 $710
 $710
 $—
Core deposit intangibles6,788
 3,609
 3,179
 6,788
 3,143
 3,645
Core deposit intangibles$6,788  $4,431  $2,357  $6,788  $4,026  $2,762  
Customer related intangibles8,819
 7,602
 1,217
 12,381
 10,804
 1,577
Customer related intangibles7,604  6,944  660  8,819  7,923  896  
Servicing rights17,960
 11,361
 6,599
 17,314
 10,546
 6,768
Servicing rights20,521  14,440  6,081  19,160  12,534  6,626  
Total amortized intangible assets$33,567
 $22,572
 $10,995
 $37,193
 $25,203
 $11,990
Total amortized intangible assets$34,913  $25,815  $9,098  $34,767  $24,483  $10,284  
(1) Includes a valuation allowance of $338 thousand on mortgage servicing rights at June 30, 2020 within accumulated amortization. There was no valuation allowance as of December 31, 2019.

The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of 20192020 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2019 $739
2020 1,200
2021 923
2022 666
2023 409
Thereafter 459
Year(Dollars in thousands)Amount
Remainder of 2020$559  
2021923  
2022666  
2023409  
2024267  
Thereafter193  
The Corporation has originated mortgage servicing rights, which are included in other intangible assets on the consolidated balance sheet. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are subject to impairment testing on a quarterly basis. The aggregate fair value of thesemortgage servicing rights was $8.8$6.1 million and $9.2 million at June 30, 20192020 and $11.5 million at December 31, 2018.2019, respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at June 30, 20192020 and December 31, 2018. The Corporation also records servicing rights on small business administration (SBA) loans. The value of these servicing rights was $135 thousand and $42 thousand at June 30, 2019 and December 31, 2018, respectively.

2019.
Changes in the servicing rights balance are summarized as follows:
 Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands)2019 2018 2019 2018
Beginning of period$6,725
 $6,605
 $6,768
 $6,573
Servicing rights capitalized321
 350
 587
 687
Amortization of servicing rights(426) (305) (735) (610)
Changes in valuation allowance(21) —
 (21) —
End of period$6,599
 $6,650
 $6,599
 $6,650
Residential mortgage and SBA loans serviced for others$1,042,438
 $1,019,233
 $1,042,438
 $1,019,233

 Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2020201920202019
Beginning of period$6,440  $6,725  $6,626  $6,768  
Servicing rights capitalized835  321  1,361  587  
Amortization of servicing rights(911) (426) (1,568) (735) 
Changes in valuation allowance(283) (21) (338) (21) 
End of period$6,081  $6,599  $6,081  $6,599  
Loans serviced for others$1,113,819  $1,042,438  $1,113,819  $1,042,438  
Activity in the valuation allowance for mortgage servicing rights was as follows:
 Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2020201920202019
Valuation allowance, beginning of period$(55) $—  $—  $—  
Additions(283) (21) (338) (21) 
Valuation allowance, end of period$(338) $(21) $(338) $(21) 
 Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands)2019 2018 2019 2018
Valuation allowance, beginning of period$—
 $—
 $—
 $—
Additions(21) —
 (21) —
Valuation allowance, end of period$(21) $—
 $(21) $—
31

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The estimated amortization expense of servicing rights for the remainder of 20192020 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2020$1,683  
20211,255  
2022934  
2023692  
2024171  
Thereafter1,346  
Year(Dollars in thousands)Amount
Remainder of 2019 $1,174
2020 993
2021 822
2022 678
2023 535
Thereafter 2,397

Note 6. Deposits

Deposits and their respective weighted average interest rate at June 30, 20192020 and December 31, 2018 consist2019 consisted of the following:
 At June 30, 2019 At December 31, 2018
 Weighted Average Interest Rate Amount Weighted Average Interest Rate Amount
 (Dollars in thousands)
Noninterest-bearing deposits—% $1,166,301
 —% $1,055,919
Demand deposits1.20
 1,424,288
 1.01
 1,377,171
Savings deposits0.48
 822,084
 0.33
 782,766
Time deposits2.02
 709,437
 1.76
 670,077
Total0.86% $4,122,110
 0.73% $3,885,933

At June 30, 2020At December 31, 2019
Weighted Average Interest RateAmountWeighted Average Interest RateAmount
(Dollars in thousands)
Noninterest-bearing deposits— %$1,725,819  — %$1,279,681  
Demand deposits0.21  1,719,052  0.96  1,677,682  
Savings deposits0.17  903,973  0.37  796,702  
Time deposits1.74  520,485  1.95  606,010  
Total0.29 %$4,869,329  0.71 %$4,360,075�� 
The aggregate amount of time deposits in denominations of $100 thousand or more was $339.3$223.9 million at June 30, 20192020 and $283.4$293.2 million at December 31, 2018.2019. Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently up to $250 thousand. The aggregate amount of time deposits in denominations over $250 thousand was $177.2$91.6 million at June 30, 20192020 and $129.5$143.0 million at December 31, 2018.2019.


At June 30, 2019,2020, the scheduled maturities of time deposits are as follows:
Year(Dollars in thousands)Amount
Remainder of 2020$185,189  
2021146,772  
202268,015  
202392,287  
202423,274  
Thereafter4,948  
Total$520,485  
Year(Dollars in thousands)Amount
Remainder of 2019 $280,027
2020 215,587
2021 79,504
2022 40,832
2023 72,125
Thereafter 21,362
Total $709,437

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Note 7. Borrowings

The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less. The long-term debt balances and weighted average interest rates include purchase accounting fair value adjustments, net of related amortization, from the Fox Chase acquisition.
At June 30, 2020At December 31, 2019
(Dollars in thousands)Balance at End of PeriodWeighted Average Interest Rate at End of PeriodBalance at End of PeriodWeighted Average Interest Rate at End of Period
Short-term borrowings:
Customer repurchase agreements$28,306  0.05 %$18,680  0.05 %
Other short-term borrowings182,474  0.35  —  —  
Long-term debt:
FHLB advances$200,000  1.44 %$140,000  2.04 %
Security repurchase agreements10,039  0.56  10,098  2.07  
Subordinated notes$94,903  5.05 %$94,818  5.32 %
 At June 30, 2019 At December 31, 2018
(Dollars in thousands)Balance at End of Period Weighted Average Interest Rate at End of Period Balance at End of Period Weighted Average Interest Rate at End of Period
Short-term borrowings:       
FHLB borrowings$—
 —% $108,300
 2.62%
Federal funds purchased20,000
 2.43
 60,000
 2.60
Customer repurchase agreements19,350
 0.05
 21,468
 0.05
        
Long-term debt:       
FHLB advances$150,000
 1.99% $125,000
 1.92%
Security repurchase agreements20,195
 2.82
 20,330
 2.71
        
Subordinated notes$94,696
 5.33% $94,574
 5.33%

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (FHLB)(the FHLB) with a maximum borrowing capacity of approximately $1.7$2.0 billion. AdvancesAll borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At June 30, 20192020 and December 31, 2018,2019, the Bank had outstanding short-term letters of credit with the FHLB totaling $408.3$321.9 million and $347.5$535.6 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank. The available borrowing capacity from the FHLB totaled $1.5 billion at June 30, 2020.
The Corporation, through the Bank, maintains uncommitted federal fund credit lines with several correspondent banks that totaled $504.0 million and $367.0 million at June 30, 20192020 and December 31, 2018, respectively.2019. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia (the FRB of Philadelphia) in order to access the Discount Window Lending program. The collateral, consisting of investment securities, was valued at $104.6$74.3 million and $69.5$94.8 million at June 30, 20192020 and December 31, 2018,2019, respectively. At June 30, 20192020 and December 31, 2018,2019, the Corporation had no0 outstanding borrowings under this program. As part of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program. At June 30, 2020, the Bank pledged $182.5 million of PPP loans to the FRB of Philadelphia to borrow $182.5 million of funds at a rate of 0.35%.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At June 30, 20192020 and December 31, 2018,2019, the Corporation had no0 outstanding borrowings under this line.


The Corporation and the Bank have a total of $2.1 billion and $1.9 billion of committed borrowing capacity at June 30, 2020 and December 31, 2019, respectively, of which $1.5 billion and $1.2 billion was available as of June 30, 2020 and December 31, 2019, respectively. The Corporation, through the Bank, also has access to $504.0 million of uncommitted funding sources from correspondent banks, which were fully available at June 30, 2020 and December 31, 2019.
Long-term advances with the FHLB of Pittsburgh mature as follows:
(Dollars in thousands)As of June 30, 2020Weighted Average Rate
Remainder of 2020$10,000  1.47 %
202145,000  1.93  
202235,000  1.17  
202350,000  1.73  
202460,000  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%
202040,000
 1.70
202180,000
 2.07
202210,000
 2.09
202310,000
 3.02
Thereafter—
 —
Total$150,000
 1.99%
33

Table of Contents
Long-term debt under security repurchase agreements with large commercial banks mature as follows:
(Dollars in thousands)As of June 30, 2019 Weighted Average Rate
Remainder of 2019$10,038
 2.83%
202010,157
 2.81
2021—
 —
2022—
 —
2023—
 —
Thereafter—
 —
Total$20,195
 2.82%

(Dollars in thousands)As of June 30, 2020Weighted Average Rate
Remainder of 2020$10,039  0.56 %
2021—  —  
2022—  —  
2023—  —  
2024—  —  
Thereafter—  —  
Total$10,039  0.56 %
Long-term debt under security repurchase agreements totaling $20.2$10.0 million hold variable interest rates and are variable based on the one-month LIBOR rate plus a spread.

Note 8. Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan.

The Corporation also maintains a non-qualified benefit plan that provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law. These plans areThis non-qualified benefit plans. These non-qualified benefit plans areplan is not offered to new participants and all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

The Corporation also provides certain postretirement healthcare and life insurance benefits for retired employees. Information on these benefits is reported under “Other Postretirement Benefits” within this footnote.
The Corporation sponsors a Supplemental Non-Qualified Pension Plan, which was established in 1981 prior to the existence of the 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants. All current participants are now retired.
Components of net periodic benefit cost (income) were as follows: 
 Three Months Ended June 30,
 2020201920202019
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$116  $110  $27  $16  
Interest cost417  476  25  24  
Expected return on plan assets(818) (770) —  —  
Amortization of net actuarial loss291  294  6  —  
Accretion of prior service cost—  (46) —  —  
Net periodic benefit cost$6  $64  $58  $40  
 Three Months Ended June 30,
 2019 2018 2019 2018
(Dollars in thousands)Retirement Plans Other Post Retirement
Benefits
Service cost$110
 $140
 $16
 $22
Interest cost476
 439
 24
 23
Expected return on plan assets(770) (795) —
 —
Amortization of net actuarial loss294
 281
 —
 1
Accretion of prior service cost(46) (71) —
 —
Net periodic benefit cost (income)$64
 $(6) $40
 $46


 Six Months Ended June 30,
 2020201920202019
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$233  $219  $55  $33  
Interest cost834  952  49  47  
Expected return on plan assets(1,634) (1,541) —  —  
Amortization of net actuarial loss582  588  12  —  
Accretion of prior service cost—  (91) —  —  
Net periodic benefit cost$15  $127  $116  $80  
 Six Months Ended June 30,
 2019 2018 2019 2018
(Dollars in thousands)Retirement Plans Other Post Retirement
Benefits
Service cost$219
 $280
 $33
 $44
Interest cost952
 880
 47
 46
Expected return on plan assets(1,541) (1,591) —
 —
Amortization of net actuarial loss588
 561
 —
 2
Accretion of prior service cost(91) (142) —
 —
Net periodic benefit cost (income)$127
 $(12) $80
 $92
        

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

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Table of Contents
The Corporation previously disclosed in its financial statements for the year ended December 31, 20182019 that it expected to make contributions of $157$159 thousand to its non-qualified retirement plans and $89 thousand to its other postretirement benefit plans in 2019.2020. During the six months ended June 30, 2019,2020, the Corporation contributed $80 thousand to its non-qualified retirement plans and $52$56 thousand to its other postretirement plans. During the six months ended June 30, 2019,2020, $1.3 million was paid to participants from the retirement plans and $52$56 thousand was paid to participants from the other postretirement plans.

Note 9. Stock-Based Incentive Plan

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

During the three months ended March 31,Beginning in 2019, the Corporation issued to directors and employees (“grantees”) restricted stock units rather than restricted stock awards or stock options, which were issued to grantees in prior reporting periods. Restricted stock units differ from restricted stock awards in that Corporation stock is not issued to grantees at the date of the grant and the grantee does not have voting or dividend rights during the vesting period. In the following schedules, issued restricted stock units have been combined with restricted stock awards, as the determination of the value at the grant date and methodology for recording stock-based compensation expense is the same for restricted stock units and restricted stock awards.    same. 

The following is a summary of the Corporation's stock option activity and related information for the six months ended June 30, 2019:2020:
(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, 2018597,405
 $23.98
    
Expired(9,756) 23.61
    
Forfeited(8,000) 26.06
    
Exercised(39,500) 17.48
    
Outstanding at June 30, 2019540,149
 24.44
 7.0 $1,658
Exercisable at June 30, 2019373,220
 22.72
 6.4 1,644

(Dollars in thousands, except per share data)Shares Under OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value at June 30, 2020
Outstanding at December 31, 2019508,111  $24.83  
Expired(2,000) 28.33  
Forfeited(19,018) 24.70  
Exercised(5,000) 18.70  
Outstanding at June 30, 2020482,093  24.88  6.2$4  
Exercisable at June 30, 2020428,615  24.43  6.04  
The following is a summary of nonvested stock options at June 30, 20192020 including changes during the six months then ended:
(Dollars in thousands, except per share data) Nonvested Stock Options  Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2018344,230
 $6.48
Vested(169,301) 6.44
Forfeited(8,000) 6.43
Nonvested stock options at June 30, 2019166,929
 6.52

(Dollars in thousands, except per share data) Nonvested Stock Options Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2019163,261  $6.54  
Vested(106,131) 6.58  
Forfeited(3,652) 6.50  
Nonvested stock options at June 30, 202053,478  6.46  

The following aggregated assumptions were used to estimate the fair value of options granted during the six months ended June 30, 2018. The Corporation did not issue stock options during the six months ended June 30, 2020 or June 30, 2019.
Six Months Ended June 30, 2018
Expected option life in years6.6
Risk free interest rate2.80%
Expected dividend yield2.81%
Expected volatility27.15%
Fair value of options$6.46

The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at June 30, 20192020 including changes during the six months then ended:
(Dollars in thousands, except per share data) Nonvested Stock Awards and Units Weighted Average Grant Date Fair Value
Nonvested stock awards and units at December 31, 2019209,378  $26.76  
Granted179,080  18.62  
Vested(59,855) 27.17  
Cancelled(20,993) 27.17  
Nonvested stock awards and units at June 30, 2020307,610  21.91  
(Dollars in thousands, except per share data) Nonvested Stock Awards and Units  Weighted Average Grant Date Fair Value
Nonvested stock awards at December 31, 2018157,579
 $25.33
Granted113,729
 25.66
Vested(32,965) 21.86
Cancelled(17,349) 19.68
Nonvested stock awards and units at June 30, 2019220,994
 26.46
35

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The fair value of restricted stock awards and units is equivalent to the fair value of the Corporation's stock on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock awards and units is summarized below for the periods indicated:
Six Months Ended June 30,
(Dollars in thousands, except per share data)20202019
Restricted stock awards and units granted179,080  113,729  
Weighted average grant date fair value$18.62  $25.66  
Intrinsic value of awards granted$3,335  $2,987  
Restricted stock awards and units vested59,855  32,965  
Weighted average grant date fair value$27.17  $21.86  
Intrinsic value of awards vested$1,375  $809  
 Six Months Ended June 30,
(Dollars in thousands, except per share data)2019 2018
Restricted stock awards and units granted113,729
 59,953
Weighted average grant date fair value$25.66
 $28.39
Intrinsic value of awards vested$809
 $1,193

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested stock options and nonvested restricted stock awards and units at June 30, 20192020 is presented below:
(Dollars in thousands)Unrecognized Compensation Cost Weighted-Average Period Remaining (Years)
Stock options$793
 1.4
Restricted stock awards and units3,631
 2.3
 $4,424
 2.1

(Dollars in thousands)Unrecognized Compensation CostWeighted-Average Period Remaining (Years)
Stock options$225  0.7
Restricted stock awards and units4,688  2.2
$4,913  2.1
The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:
Six Months Ended June 30,
(Dollars in thousands)20202019
Stock-based compensation expense:
Stock options$190  $378  
Restricted stock awards and units949  878  
Employee stock purchase plan44  36  
Total$1,183  $1,292  
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options$243  $284  
 Six Months Ended June 30,
(Dollars in thousands)2019 2018
Stock-based compensation expense:   
Stock options$378
 $515
Restricted stock awards and units878
 1,204
Employee stock purchase plan36
 34
Total$1,292
 $1,753
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options$284
 $413


Note 10. Accumulated Other Comprehensive (Loss) Income

The following table shows the components of accumulated other comprehensive (loss) income, net of taxes, for the periods presented:
(Dollars in thousands)Net Unrealized
(Losses) Gains on
Available-for-Sale
Investment
Securities		 Net Change
Related to
Derivatives Used for Cash Flow Hedges		 Net Change
Related to
Defined Benefit
Pension Plans		 Accumulated
Other
Comprehensive
(Loss) Income
Balance, December 31, 2018$(11,221) $81
 $(17,276) $(28,416)
Adjustment to initially apply ASU No. 2017-12 for derivatives (1)—
 83
 —
 83
Other comprehensive income (loss)6,356
 (364) 392
 6,384
Balance, June 30, 2019$(4,865) $(200) $(16,884) $(21,949)
        
Balance, December 31, 2017$(4,061) $9
 $(13,719) $(17,771)
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value(433) —
 —
 (433)
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges(968) 2
 (2,955) (3,921)
Other comprehensive (loss) income(6,525) 310
 333
 (5,882)
Balance, June 30, 2018$(11,987) $321
 $(16,341) $(28,007)

(Dollars in thousands)Net Unrealized
(Losses) Gains on
Available-for-Sale
Investment
Securities		Net Change
Related to
Derivatives Used for Cash Flow Hedges		Net Change
Related to
Defined Benefit
Pension Plans		Accumulated
Other
Comprehensive
(Loss) Income
Balance, December 31, 2019$(3,231) $(185) $(18,314) $(21,730) 
Adjustment to initially apply ASU No. 2016-13 for CECL (1)237  —  —  237  
Other comprehensive income (loss)1,580  (364) 470  1,686  
Balance, June 30, 2020$(1,414) $(549) $(17,844) $(19,807) 
Balance, December 31, 2018$(11,221) $81  $(17,276) $(28,416) 
Adjustment to initially apply ASU No. 2017-12 for derivatives—  83  —  83  
Other comprehensive income (loss)6,356  (364) 392  6,384  
Balance, June 30, 2019$(4,865) $(200) $(16,884) $(21,949) 
(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019"2020" for additional information.

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Note 11. Derivative Instruments and Hedging Activities

Interest Rate Swaps
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" and subsequent related updates. The Corporation adopted this guidance effective January 1, 2019, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at January 1, 2019. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information.
The Corporation may useperiodically uses interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk, adjusts the carrying amount of the hedge item and is recognized in earnings.

In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. At June 30, 2019,2020, approximately $21$238 thousand in net deferred losses, net of tax, recorded in accumulated other comprehensive loss are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2019.2020. At June 30, 2019,2020, the notional amount of the interest rate swap was $16.7$15.9 million with a negativeand the fair value was a liability of $254$695 thousand.
The Corporation has an interest rate swap classified as a fair value hedge with a current notional amount of $1.3 million to hedge a 10-year fixed rate loan that is earning interest at 5.83%. The Corporation pays a fixed rate of 5.83% and receives a floating rate based on the one-month LIBOR plus 350 basis points. The swap matures in October 2021. Effective January 1, 2019, the entire change in the fair values of the interest rate swap and the hedged loan included in the assessment of hedge effectiveness is

recorded in interest income in the consolidated statements of income. Prior to January 1, 2019, the difference between changes in the fair values of the interest rate swap agreement and the hedged loan represented hedge ineffectiveness and was recorded in other noninterest income in the consolidated statements of income.
The Corporation has an interest rate swap with a current notional amount of $361$242 thousand, for a 15-year fixed rate loan that is earning interest at 7.43%. The Corporation pays a fixed rate of 7.43% and receives a floating rate based on the one-month LIBOR plus 224 basis points. The swap matures in April 2022. The interest rate swap is carried at fair value in accordance with FASB ASC 815 "Derivatives and Hedging." The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 "Financial Instruments."

Credit Derivatives

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

At June 30, 2019,2020, the Corporation has twenty-eightreported NaN variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $186.7$393.4 million and remaining maturities ranging from less than one yeartwo years to 10 years. At June 30, 2019, the fair value of the swaps to the customers was a net liability of $8.2 million and $119.7 million of notional amount of the swaps were in paying positions while $67.0 million were in receiving positions to the third-party financial institution. At June 30, 2019,2020, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $160$912 thousand. At June 30, 2020, the fair value of the swaps to the customers was a net liability of $35.1 million and these swaps were in paying positions to the third-party financial institution.

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

Mortgage Banking Derivatives

Derivative loan commitments represent agreements for delayed delivery of financial instruments in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument at a specified price or yield. The Corporation’s derivative loan commitments are commitments to sell loans secured by 1-to 4-family residential properties whose predominant risk characteristic is interest rate risk. The fair values

37
Table of these derivative loan commitments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties.Contents

Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at June 30, 20192020 and December 31, 2018.2019. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.
   Derivative Assets Derivative Liabilities
(Dollars in thousands)Notional
Amount		 Balance Sheet
Classification		 Fair
Value		 Balance Sheet
Classification		 Fair
Value
At June 30, 2019         
Interest rate swap - cash flow hedge$16,685
   $—
 Other liabilities $254
Interest rate swap - fair value hedge1,324
   —
 Other liabilities 20
Total$18,009
   $—
   $274
At December 31, 2018         
Interest rate swap - cash flow hedge$17,076
 Other assets $185
   $—
Interest rate swap - fair value hedge1,346
 Other assets 4
   —
Total$18,422
   $189
   $—

  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount		Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value
At June 30, 2020
Interest rate swap - cash flow hedge$15,880   $—  Other liabilities$695  
Total$15,880  $—  $695  
At December 31, 2019
Interest rate swap - cash flow hedge$16,286   $—  Other liabilities$235  
Total$16,286  $—  $235  
The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at June 30, 20192020 and December 31, 2018:2019:
  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount		Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value
At June 30, 2020
Interest rate swap$242   $—  Other liabilities$13  
Credit derivatives393,444   —  Other liabilities912  
Interest rate locks with customers106,956  Other assets3,453   —  
Forward loan sale commitments111,649   —  Other liabilities582  
Total$612,291  $3,453  $1,507  
At December 31, 2019
Interest rate swap$303  $—  Other liabilities$14  
Credit derivatives270,147  —  Other liabilities176  
Interest rate locks with customers19,966  Other assets399   —  
Forward loan sale commitments21,846   —  Other liabilities19  
Total$312,262  $399  $209  
   Derivative Assets Derivative Liabilities
(Dollars in thousands)Notional
Amount		 Balance Sheet
Classification		 Fair
Value		 Balance Sheet
Classification		 Fair
Value
At June 30, 2019         
Interest rate swap$361
   $—
 Other liabilities $19
Credit derivatives186,688
   —
 Other liabilities 160
Interest rate locks with customers38,175
 Other assets 798
   —
Forward loan sale commitments39,657
   —
 Other liabilities 197
Total$264,881
   $798
   $376
At December 31, 2018         
Interest rate swap$418
 
 $—
 Other liabilities $20
Credit derivatives122,410
 
 —
 Other liabilities 72
Interest rate locks with customers21,494
 Other assets 490
   —
Forward loan sale commitments23,227
   —
 Other liabilities 150
Total$167,549
   $490
   $242


The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:
Statement of Income
Classification		Three Months EndedSix Months Ended
June 30,June 30,
(Dollars in thousands)2020201920202019
Interest rate swap—cash flow hedge—net interest paymentsInterest expense$69  $(14) $98  $(30) 
Interest rate swap—fair value hedge—effectivenessInterest income—  —  —  1  
Total net (loss) gain$(69) $14  $(98) $31  
 Statement of Income
Classification		 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
(Dollars in thousands)2019 2018 2019 2018
Interest rate swap—cash flow hedge—net interest paymentsInterest expense $(14) $6
 $(30) $26
Interest rate swap—fair value hedge—effectivenessInterest income —
 —
 1
 —
Interest rate swap—fair value hedge—ineffectivenessOther noninterest income —
 2
 —
 2
Total net gain (loss)  $14
 $(4) $31
 $(24)


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The following table presents amounts included in the consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:
Statement of Income ClassificationThree Months EndedSix Months Ended
June 30,June 30,
(Dollars in thousands)2020201920202019
Credit derivativesOther noninterest income$1,665  $318  $1,805  $582  
Interest rate locks with customersNet gain on mortgage banking activities542  343  3,054  308  
Forward loan sale commitmentsNet gain (loss) on mortgage banking activities304  (76) (563) (47) 
Total net gain$2,511  $585  $4,296  $843  
 Statement of Income Classification Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
(Dollars in thousands)2019 2018 2019 2018
Credit derivativesOther noninterest income $318
 $34
 $582
 $38
Interest rate locks with customersNet gain on mortgage banking activities 343
 237
 308
 105
Forward loan sale commitmentsNet loss on mortgage banking activities (76) (104) (47) (153)
Total net gain (loss)  $585
 $167
 $843
 $(10)

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at June 30, 20192020 and December 31, 2018:2019:
(Dollars in thousands)Accumulated Other
Comprehensive (Loss) Income		At June 30, 2020At December 31, 2019
Interest rate swap—cash flow hedgeFair value, net of taxes$(549) $(185) 
Total$(549) $(185) 
(Dollars in thousands)Accumulated Other
Comprehensive (Loss) Income		 At June 30, 2019 At December 31, 2018
Interest rate swap—cash flow hedgeFair value, net of taxes $(201) $80
Total  $(201) $80


Note 12. Fair Value Disclosures

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Corporation determines the fair value of financial instruments based on the fair value hierarchy. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Corporation. Unobservable inputs are inputs that reflect the Corporation’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement. Transfers between levels arewere recognized at the end of the reporting period.period for the year ended December 31, 2019.
Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2: Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

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

39
Table of Contents
Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation’s independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available

trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing service’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does not have sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third partythird-party service’s valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.
Certain corporate bonds owned by the Corporation are classified as Level 3 as they are not traded in active markets. The fair value of each bond is estimated by benchmarking similar transactions of structure, yield and credit which are owned by the Corporation and are actively traded in the market.
On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at June 30, 2019.2020.

Derivative Financial Instruments

The fair values of derivative financial instruments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate swaps and mortgage banking derivative financial instruments are classified within Level 2 of the valuation hierarchy. Credit derivatives are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore classified in Level 3 of the valuation hierarchy.
Two
One commercial loansloan associated with an interest rate swaps areswap is classified in Level 3 of the valuation hierarchy at June 30, 2020 since lending credit risk is not an observable input for these loans.this loan. The unrealized gain on the two loans1 loan was $45$12 thousand at June 30, 2019.2020.

Contingent Consideration Liability

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

40
Table of Contents
The following table presents the assets and liabilities measured at fair value on a recurring basis at June 30, 20192020 and December 31, 2018,2019, classified using the fair value hierarchy:
 At June 30, 2020
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$—  $21,578  $—  $21,578  
Residential mortgage-backed securities—  80,472  —  80,472  
Collateralized mortgage obligations—  6,080  —  6,080  
Corporate bonds—  86,071  —  86,071  
Total available-for-sale securities—  194,201  —  194,201  
Equity securities:
Equity securities - financial services industry712  —  —  712  
Money market mutual funds1,236  —  —  1,236  
Total equity securities1,948  —  —  1,948  
Loans*—  —  255  255  
Interest rate locks with customers*—  3,453  —  3,453  
Total assets$1,948  $197,654  $255  $199,857  
Liabilities:
Contingent consideration liability$—  $—  $109  $109  
Interest rate swaps*—  708  —  708  
Credit derivatives*—  —  912  912  
Forward loan sale commitments*—  582  —  582  
Total liabilities$—  $1,290  $1,021  $2,311  

The Corporation recorded no unrealized gains and losses within other comprehensive income for recurring Level 3 fair value measurements held at June 30, 2020. The $912 thousand of credit derivatives liability represents the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of fifty-eight interest rate swaps with a current notional amount of $393.4 million. The June 30, 2020 CVA assumes a zero-deal recovery percentage based on the most recent index credit curve.

41
Table of Contents
 At June 30, 2019
(Dollars in thousands)Level 1 Level 2 Level 3 Assets/
Liabilities at
Fair Value
Assets: 
Available-for-sale securities:       
U.S. government corporations and agencies$—
 $10,316
 $—
 $10,316
State and political subdivisions—
 44,172
 —
 44,172
Residential mortgage-backed securities—
 141,815
 —
 141,815
Collateralized mortgage obligations—
 2,677
 —
 2,677
Corporate bonds—
 67,117
 26,925
 94,042
Total available-for-sale securities—
 266,097
 26,925
 293,022
Equity securities:       
Equity securities - financial services industry943
 —
 —
 943
Money market mutual funds1,922
 —
 —
 1,922
Total equity securities2,865
 —
 —
 2,865
Loans*—
 —
 1,725
 1,725
Interest rate locks with customers*—
 798
 —
 798
Total assets$2,865
 $266,895
 $28,650
 $298,410
Liabilities:       
Contingent consideration liability$—
 $—
 $211
 $211
Interest rate swaps*—
 293
 —
 293
Credit derivatives*—
 —
 160
 160
Forward loan sale commitments*—
 197
 —
 197
Total liabilities$—
 $490
 $371
 $861

 At December 31, 2018
(Dollars in thousands)Level 1 Level 2 Level 3 Assets/
Liabilities at
Fair Value
Assets:       
Available-for-sale securities:       
U.S. government corporations and agencies$—
 $15,315
 $—
 $15,315
State and political subdivisions—
 65,415
 —
 65,415
Residential mortgage-backed securities—
 151,762
 —
 151,762
Collateralized mortgage obligations—
 2,888
 —
 2,888
Corporate bonds—
 67,398
 25,729
 93,127
Total available-for-sale securities—
 302,778
 25,729
 328,507
Equity securities:       
Equity securities - financial services industry924
 —
 —
 924
Money market mutual funds1,241
 —
 —
 1,241
Total equity securities2,165
 —
 —
 2,165
Loans*—
 —
 1,779
 1,779
Interest rate swap*—
 189
 —
 189
Interest rate locks with customers*—
 490
 —
 490
Total assets$2,165
 $303,457
 $27,508
 $333,130
Liabilities:       
Contingent consideration liability$—
 $—
 $259
 $259
Interest rate swaps*—
 20
 —
 20
Credit derivatives*—
 —
 72
 72
Forward loan sale commitments*—
 150
 —
 150
Total liabilities$—
 $170
 $331
 $501

 At December 31, 2019
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies$—  $300  $—  $300  
State and political subdivisions—  34,595  —  34,595  
Residential mortgage-backed securities—  118,460  —  118,460  
Collateralized mortgage obligations—  2,361  —  2,361  
Corporate bonds—  91,208  —  91,208  
Total available-for-sale securities—  246,924  —  246,924  
Equity securities:
Equity securities - financial services industry1,004  —  —  1,004  
Money market mutual funds1,619  —  —  1,619  
Total equity securities2,623  —  —  2,623  
Loans*—  —  317  317  
Interest rate locks with customers*—  399  —  399  
Total assets$2,623  $247,323  $317  $250,263  
Liabilities:
Contingent consideration liability$—  $—  $160  $160  
Interest rate swaps*—  249  —  249  
Credit derivatives*—  —  176  176  
Forward loan sale commitments*—  19  —  19  
Total liabilities$—  $268  $336  $604  
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."
The following table includes a rollforward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the six months ended June 30, 20192020 and 2018:2019:
 Six Months Ended June 30, 2020
(Dollars in thousands)Balance at
December 31,
2019		AdditionsPayments receivedIncrease in valueBalance at June 30, 2020
Loans$317  $—  $(60) $(2) $255  
Credit derivatives(176) (2,541) —  1,805  (912) 
Net total$141  $(2,541) $(60) $1,803  $(657) 
 Six Months Ended June 30, 2019
(Dollars in thousands)Balance at
December 31,
2018		 Purchases/additions Sales Payments received Premium amortization, net Increase (decrease) in value Balance at June 30, 2019
Corporate bonds$25,729
 $—
 $—
 $—
 $—
 $1,196
 $26,925
Loans1,779
 —
 —
 (78) —
 24
 1,725
Credit derivatives(72) (670) —
 —
 —
 582
 (160)
Net total$27,436
 $(670) $—
 $(78) $—
 $1,802
 $28,490

 Six Months Ended June 30, 2019
(Dollars in thousands)Balance at
December 31,
2018		AdditionsPayments receivedIncrease in valueBalance at June 30, 2019
Corporate bonds$25,729  $—  $—  $1,196  $26,925  
Loans1,779  —  (78) 24  1,725  
Credit derivatives(72) (670) —  582  (160) 
Net total$27,436  $(670) $(78) $1,802  $28,490  
 Six Months Ended June 30, 2018
(Dollars in thousands)Balance at
December 31,
2017		 Purchases/additions Sales Payments received Premium amortization, net (Decrease) increase in value Balance at June 30, 2018
Corporate bonds$27,986
 $—
 $—
 $—
 $—
 $(1,600) $26,386
Loans1,958
 —
 —
 (73) —
 (38) 1,847
Credit derivatives(36) (40) —
 —
 —
 39
 (37)
Net total$29,908
 $(40) $—
 $(73) $—
 $(1,599) $28,196
42

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The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the six months ended June 30, 20192020 and 2018:2019:
 Six Months Ended June 30, 2020
(Dollars in thousands)Balance at
December 31,
2019		Contingent
Consideration
from New
Acquisition		Payment of
Contingent
Consideration		Adjustment
of Contingent
Consideration		Balance at June 30, 2020
Girard Partners$160  $—  $61  $10  $109  
Total contingent consideration liability$160  $—  $61  $10  $109  

 Six Months Ended June 30, 2019
(Dollars in thousands)Balance at
December 31,
2018		Contingent
Consideration
from New
Acquisition		Payment of
Contingent
Consideration		Adjustment
of Contingent
Consideration		Balance at June 30, 2019
Girard Partners$259  $—  $65  $17  $211  
Total contingent consideration liability$259  $—  $65  $17  $211  
 Six Months Ended June 30, 2018
(Dollars in thousands)Balance at
December 31,
2017		 Contingent
Consideration
from New
Acquisition		 Payment of
Contingent
Consideration		 Adjustment
of Contingent
Consideration		 Balance at June 30, 2018
Girard Partners$339
 $—
 $67
 $28
 $300
Total contingent consideration liability$339
 $—
 $67
 $28
 $300

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or impairment chargeschanges in the value of loans held for investment analyzed on an individual assets.basis. The following table represents assets measured at fair value on a non-recurring basis at June 30, 20192020 and December 31, 2018:2019:
 At June 30, 2020
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$—  $—  $24,640  $24,640  
Other real estate owned—  —  8,642  8,642  
Total$—  $—  $33,282  $33,282  
 At June 30, 2019
(Dollars in thousands)Level 1 Level 2 Level 3 Assets at
Fair Value
Impaired loans held for investment$—
 $—
 $22,663
 $22,663
Other real estate owned—
 —
 540
 540
Total$—
 $—
 $23,203
 $23,203
 At December 31, 2018
(Dollars in thousands)Level 1 Level 2 Level 3 Assets at
Fair Value
Impaired loans held for investment$—
 $—
 $25,166
 $25,166
Other real estate owned—
 —
 1,187
 1,187
Total$—
 $—
 $26,353
 $26,353


 At December 31, 2019
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Impaired loans held for investment$—  $—  $36,018  $36,018  
Impaired leases held for investment—  —  277  277  
Other real estate owned—  —  516  516  
Total$—  $—  $36,811  $36,811  
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The following table presents assets and liabilities and off-balance sheet items not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required to be disclosed at June 30, 20192020 and December 31, 2018.2019. The disclosed fair values are classified using the fair value hierarchy.
At June 30, 2019 At June 30, 2020
(Dollars in thousands)Level 1 Level 2 Level 3 Fair
Value		 Carrying
Amount		(Dollars in thousands)Level 1Level 2Level 3Fair
Value		Carrying
Amount
Assets:         Assets:
Cash and short-term interest-earning assets$84,567
 $—
 $—
 $84,567
 $84,567
Cash and short-term interest-earning assets$348,529  $—  $—  $348,529  $348,529  
Held-to-maturity securities—
 175,296
 —
 175,296
 172,946
Held-to-maturity securities—  208,307  —  208,307  201,703  
Federal Home Loan Bank, Federal Reserve Bank and other stockNA
 NA
 NA
 NA
 32,755
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA28,192  
Loans held for sale—
 1,531
 —
 1,531
 1,498
Loans held for sale14,416  16,863  —  31,279  31,082  
Net loans and leases held for investment—
 —
 4,121,087
 4,121,087
 4,110,916
Net loans and leases held for investment—  —  4,977,902  4,977,902  4,840,697  
Servicing rights—
 —
 8,911
 8,911
 6,599
Servicing rights—  —  6,191  6,191  6,081  
Total assets$84,567
 $176,827
 $4,129,998
 $4,391,392
 $4,409,281
Total assets$362,945  $225,170  $4,984,093  $5,572,208  $5,456,284  
Liabilities:         Liabilities:
Deposits:         Deposits:
Demand and savings deposits, non-maturity$3,412,673
 $—
 $—
 $3,412,673
 $3,412,673
Demand and savings deposits, non-maturity$4,348,844  $—  $—  $4,348,844  $4,348,844  
Time deposits—
 712,030
 —
 712,030
 709,437
Time deposits—  532,459  —  532,459  520,485  
Total deposits3,412,673
 712,030
 —
 4,124,703
 4,122,110
Total deposits4,348,844  532,459  —  4,881,303  4,869,329  
Short-term borrowings—
 39,350
 —
 39,350
 39,350
Short-term borrowings—  210,780  —  210,780  210,780  
Long-term debt—
 171,177
 —
 171,177
 170,195
Long-term debt—  215,137  —  215,137  210,039  
Subordinated notes—
 96,572
 —
 96,572
 94,696
Subordinated notes—  93,430  —  93,430  94,903  
Total liabilities$3,412,673
 $1,019,129
 $—
 $4,431,802
 $4,426,351
Total liabilities$4,348,844  $1,051,806  $—  $5,400,650  $5,385,051  
Off-Balance-Sheet:         
Commitments to extend credit$—
 $(8,066) $—
 $(8,066) $—
 At December 31, 2018
(Dollars in thousands)Level 1 Level 2 Level 3 Fair
Value		 Carrying
Amount
Assets:         
Cash and short-term interest-earning assets$109,420
 $—
 $—
 $109,420
 $109,420
Held-to-maturity securities—
 141,575
 —
 141,575
 142,634
Federal Home Loan Bank, Federal Reserve Bank and other stockNA
 NA
 NA
 NA
 28,337
Loans held for sale—
 1,798
 —
 1,798
 1,754
Net loans and leases held for investment—
 —
 3,924,329
 3,924,329
 3,950,265
Servicing rights—
 —
 11,496
 11,496
 6,768
Total assets$109,420
 $143,373
 $3,935,825
 $4,188,618
 $4,239,178
Liabilities:         
Deposits:         
Demand and savings deposits, non-maturity$3,215,856
 $—
 $—
 $3,215,856
 $3,215,856
Time deposits—
 664,738
 —
 664,738
 670,077
Total deposits3,215,856
 664,738
 —
 3,880,594
 3,885,933
Short-term borrowings—
 189,768
 —
 189,768
 189,768
Long-term debt—
 144,021
 —
 144,021
 145,330
Subordinated notes—
 95,113
 —
 95,113
 94,574
Total liabilities$3,215,856
 $1,093,640
 $—
 $4,309,496
 $4,315,605
Off-Balance-Sheet:         
Commitments to extend credit$—
 $(2,516) $—
 $(2,516) $—





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 At December 31, 2019
(Dollars in thousands)Level 1Level 2Level 3Fair
Value		Carrying
Amount
Assets:
Cash and short-term interest-earning assets$125,128  $—  $—  $125,128  $125,128  
Held-to-maturity securities—  194,886  —  194,886  192,052  
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA28,254  
Loans held for sale—  5,560  —  5,560  5,504  
Net loans and leases held for investment—  —  4,309,208  4,309,208  4,314,893  
Servicing rights—  —  9,340  9,340  6,626  
Total assets$125,128  $200,446  $4,318,548  $4,644,122  $4,672,457  
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$3,754,065  $—  $—  $3,754,065  $3,754,065  
Time deposits—  609,387  —  609,387  606,010  
Total deposits3,754,065  609,387  —  4,363,452  4,360,075  
Short-term borrowings—  18,680  —  18,680  18,680  
Long-term debt—  151,343  —  151,343  150,098  
Subordinated notes—  96,663  —  96,663  94,818  
Total liabilities$3,754,065  $876,073  $—  $4,630,138  $4,623,671  

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

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

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

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

Loans held for sale: Loans held for sale are carried at the lower of cost or estimated fair value. The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. Loans held for sale are carried at the lower of cost or estimated fair value. There were no valuation adjustments forAt June 30, 2020, loans held for sale at June 30, 2019included four accruing commercial real estate loans for one borrower for $14.4 million. The fair value of these loans was measured based on the estimated sale price of the loans and December 31, 2018.is classified within Level 1 in the fair value hierarchy.

Loans and leases held for investment: The fair values for loans and leases held for investment are estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers, adjusted as appropriate to consider credit, liquidity and marketability factors to arrive at a fair value that represents the Corporation's exit price at which these instruments would be sold or transferred. Loans and leases are classified within Level 3 in the fair value hierarchy since credit risk is not an observable input.
Impaired
Individually analyzed loans and leases held for investment: For impairedindividually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At June 30, 2020, individually analyzed loans held for investment had a carrying amount of $25.8
45
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million with a valuation allowance of $1.1 million. At December 31, 2019, impaired loans held for investment had a carrying amount of $25.1$38.1 million with a valuation allowance of $2.4 million. At December 31, 2018, impaired loans held for investment had a carrying amount of $26.6 million with a valuation allowance of $1.4$2.1 million. The Corporation had no impaired0 individually analyzed leases at June 30, 2019 and2020. The Corporation had impaired leases of $277 thousand with no reserve at December 31, 2018.2019.

Servicing rights: The Corporation estimates the fair value of mortgage servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Mortgage servicingServicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the mortgage servicing rights portfolio on a quarterly basis for impairment and the mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. The Corporation also records servicing rights on SBA loans. At June 30, 2019,2020, servicing rights had a net carrying amount of $6.1 million which included a valuation allowance of $338 thousand. At December 31, 2019, servicing rights carrying amount of $6.6 million with a0 valuation allowance of $21 thousand. At December 31, 2018, servicing rights carrying amount of $6.7 million with no valuation allowance.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the six months ended June 30, 2019,2020, there were no triggering events that required valuation adjustments of goodwill and other identifiable intangible assets.

Other real estate owned: The fair value of other real estate owned (OREO) is originally estimated based upon the appraised value less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. Subsequently, OREO is reported at the lower of the original cost or the current fair value less cost to sell. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the capitalized expenses may not increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost to sell. New appraisals are generally obtained on an annual basis if an agreement of sale does not exist. During the six months ended June 30, 2019,2020, one property was soldtransferred to OREO with total proceedsa carrying balance of $599 thousand.$8.1 million. At June 30, 20192020 and December 31, 2018,2019, OREO had a carrying amount of $8.6 million and $540 thousand, and $1.2 million, respectively. Other real estate owned is classified within Level 3 of the valuation hierarchy due to the unique characteristics of the collateral for each loan.

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

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

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

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

Subordinated notes: The fair value of the subordinated notes are estimated by discounting the principal balance using the treasury yield curve for the term to the call date as the Corporation has the option to call the subordinated notes. The subordinated notes are classified within Level 2 in the fair value hierarchy.
Off-balance-sheet instruments:
Fair values for the Corporation’s off-balance-sheet instruments are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms
46
Table of the agreements and the counterparties’ credit standing and are classified within Level 2 in the fair value hierarchy.Contents
Note 13. Segment Reporting

At June 30, 2019,2020, the Corporation has three3 reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.
The Corporation's Banking segment consists of commercial, consumer and mortgage banking as well as lease financing. The Wealth Management segment consists of investment advisory services, retirement plan services, trust, municipal pension services and broker/dealer services. The Insurance segment consists of commercial lines, personal lines, benefits and human resources consulting.
Each segment generates revenue from a variety of products and services it provides. Examples of products and services provided for each reportable segment are indicated below.
●The Banking segment provides financial services to individuals, businesses, municipalities and nonprofit organizations. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing.
●The Wealth Management segment offers trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions.
●The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions, personal insurance lines and human resources consulting.
The following table provides total assets by reportable business segment as of the dates indicated.
(Dollars in thousands)At June 30, 2019 At December 31, 2018 At June 30, 2018(Dollars in thousands)At June 30, 2020At December 31, 2019At June 30, 2019
Banking$5,059,733
 $4,895,732
 $4,656,201
Banking$6,024,054  $5,282,505  $5,059,733  
Wealth Management42,024
 39,090
 37,227
Wealth Management46,141  44,591  42,024  
Insurance32,256
 30,117
 29,295
Insurance34,574  34,291  32,256  
Other20,285
 19,408
 26,458
Other20,543  19,537  20,285  
Consolidated assets$5,154,298
 $4,984,347
 $4,749,181
Consolidated assets$6,125,312  $5,380,924  $5,154,298  
The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and six months ended June 30, 20192020 and 2018.2019.
Three Months Ended
June 30, 2020
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$49,971  $—  $—  $9  $49,980  
Interest expense5,256  —  —  1,206  6,462  
Net interest income44,715  —  —  (1,197) 43,518  
Provision for credit losses23,737  —  —  —  23,737  
Noninterest income8,284  5,504  4,209  3  18,000  
Noninterest expense28,546  3,729  2,925  760  35,960  
Intersegment (revenue) expense*(274) 146  128  —  —  
Income (loss) before income taxes990  1,629  1,156  (1,954) 1,821  
Income tax (benefit) expense(578) 331  242  (259) (264) 
Net income (loss)$1,568  $1,298  $914  $(1,695) $2,085  
Capital expenditures$1,274  $1  $6  $20  $1,301  

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Table of Contents
Three Months EndedThree Months Ended
June 30, 2019June 30, 2019
(Dollars in thousands)Banking Wealth Management Insurance Other Consolidated(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$54,041
 $11
 $—
 $8
 $54,060
Interest income$54,041  $11  $—  $8  $54,060  
Interest expense10,164
 —
 —
 1,261
 11,425
Interest expense10,164  —  —  1,261  11,425  
Net interest income43,877
 11
 —
 (1,253) 42,635
Net interest income43,877  11  —  (1,253) 42,635  
Provision for loan and lease losses2,076
 —
 —
 —
 2,076
Provision for credit lossesProvision for credit losses2,073  —  —  —  2,073  
Noninterest income6,014
 6,155
 4,145
 42
 16,356
Noninterest income6,014  6,155  4,145  42  16,356  
Intangible expenses233
 105
 79
 —
 417
Other noninterest expense28,098
 3,788
 3,072
 1,403
 36,361
Noninterest expenseNoninterest expense28,334  3,893  3,151  1,403  36,781  
Intersegment (revenue) expense*(295) 161
 134
 —
 —
Intersegment (revenue) expense*(295) 161  134  —  —  
Income (expense) before income taxes19,779
 2,112
 860
 (2,614) 20,137
Income (expense) before income taxes19,779  2,112  860  (2,614) 20,137  
Income tax expense (benefit)3,660
 409
 70
 (470) 3,669
Income tax expense (benefit)3,660  409  70  (470) 3,669  
Net income (loss)$16,119
 $1,703
 $790
 $(2,144) $16,468
Net income (loss)$16,119  $1,703  $790  $(2,144) $16,468  
Capital expenditures$371
 $35
 $39
 $137
 $582
Capital expenditures$371  $35  $39  $137  $582  

Three Months EndedSix Months Ended
June 30, 2018June 30, 2020
(Dollars in thousands)Banking Wealth Management Insurance Other Consolidated(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$46,444
 $8
 $—
 $8
 $46,460
Interest income$101,975  $7  $—  $17  $101,999  
Interest expense6,209
 —
 —
 1,261
 7,470
Interest expense13,532  —  —  2,481  16,013  
Net interest income40,235
 8
 —
 (1,253) 38,990
Net interest income88,443  7  —  (2,464) 85,986  
Provision for loan and lease losses15,409
 —
 —
 —
 15,409
Provision for credit lossesProvision for credit losses45,580  —  —  —  45,580  
Noninterest income5,461
 5,862
 3,904
 87
 15,314
Noninterest income15,836  11,691  9,096  (239) 36,384  
Intangible expenses329
 137
 128
 —
 594
Other noninterest expense26,723
 3,628
 3,093
 309
 33,753
Noninterest expenseNoninterest expense59,793  7,907  6,121  916  74,737  
Intersegment (revenue) expense*(295) 156
 139
 —
 —
Intersegment (revenue) expense*(556) 298  258  —  —  
Income (expense) before income taxes3,530
 1,949
 544
 (1,475) 4,548
(Loss) income before income taxes(Loss) income before income taxes(538) 3,493  2,717  (3,619) 2,053  
Income tax (benefit) expense(162) 597
 163
 (407) 191
Income tax (benefit) expense(1,422) 713  577  (738) (870) 
Net income (loss)$3,692
 $1,352
 $381
 $(1,068) $4,357
Net income (loss)$884  $2,780  $2,140  $(2,881) $2,923  
Capital expenditures$820
 $40
 $2
 $10
 $872
Capital expenditures$1,645  $6  $9  $20  $1,680  

Six Months Ended
June 30, 2019
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$106,387  $21  $—  $16  $106,424  
Interest expense19,744  —  —  2,522  22,266  
Net interest income86,643  21  —  (2,506) 84,158  
Provision for credit losses4,753  —  —  —  4,753  
Noninterest income10,985  11,875  9,498  295  32,653  
Noninterest expense56,351  7,792  6,365  1,835  72,343  
Intersegment (revenue) expense*(594) 327  267  —  —  
Income (expense) before income taxes37,118  3,777  2,866  (4,046) 39,715  
Income tax expense (benefit)6,780  723  263  (598) 7,168  
Net income (loss)$30,338  $3,054  $2,603  $(3,448) $32,547  
Capital expenditures$1,136  $74  $64  $158  $1,432  
 Six Months Ended
 June 30, 2019
(Dollars in thousands)Banking Wealth Management Insurance Other Consolidated
Interest income$106,387
 $21
 $—
 $16
 $106,424
Interest expense19,744
 —
 —
 2,522
 22,266
Net interest income86,643
 21
 —
 (2,506) 84,158
Provision for loan and lease losses4,761
 —
 —
 —
 4,761
Noninterest income10,985
 11,875
 9,498
 295
 32,653
Intangible expenses466
 210
 167
 —
 843
Other noninterest expense55,877
 7,582
 6,198
 1,835
 71,492
Intersegment (revenue) expense*(594) 327
 267
 —
 —
Income (expense) before income taxes37,118
 3,777
 2,866
 (4,046) 39,715
Income tax expense (benefit)6,780
 723
 263
 (598) 7,168
Net income (loss)$30,338
 $3,054
 $2,603
 $(3,448) $32,547
Capital expenditures$1,136
 $74
 $64
 $158
 $1,432

 Six Months Ended
 June 30, 2018
(Dollars in thousands)Banking Wealth Management Insurance Other Consolidated
Interest income$89,966
 $13
 $—
 $15
 $89,994
Interest expense11,210
 —
 —
 2,522
 13,732
Net interest income78,756
 13
 —
 (2,507) 76,262
Provision for loan and lease losses17,462
 —
 —
 —
 17,462
Noninterest income10,250
 11,602
 8,990
 54
 30,896
Intangible expenses658
 279
 269
 —
 1,206
Restructuring charges571
 —
 —
 —
 571
Other noninterest expense54,384
 7,286
 6,338
 (313) 67,695
Intersegment (revenue) expense*(586) 309
 277
 —
 —
Income (expense) before income taxes16,517
 3,741
 2,106
 (2,140) 20,224
Income tax expense (benefit)1,836
 1,142
 619
 (580) 3,017
Net income (loss)$14,681
 $2,599
 $1,487
 $(1,560) $17,207
Capital expenditures$1,790
 $89
 $9
 $65
 $1,953

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

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Note 14. Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", and subsequent related updates, to revise the accounting for leases. The Corporation adopted this guidance effective January 1, 2019, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at January 1, 2019. Additionally, the Corporation early adopted (ASU) No. 2019-01, "Codification Improvements", as of January 1, 2019, which serves as an update to (ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information.

The Corporation and its subsidiaries are obligated under non-cancelable operating leases for premises for certain financial centers and other office locations The Corporation determines if an arrangement is a lease at inception by assessing whether a contract contains a right to control an identified asset for a period of time in exchange for consideration. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheet commencing at January 1, 2019. For purposes of calculating operating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that the Corporation will exercise that option and begins when the Corporation has control and possession of the leased property, which may be before rental payments are due under the lease. Right-of use assets and operating lease liabilities are recognized based on the present value of lease payments, discounted using the Corporation’s incremental borrowing rate, over the lease term at the commencement date. The Corporation determines its incremental borrowing rate using publicly availablefollowing table provides information available for debt issuers with similar credit ratings as the Bank, as the majority of the Corporation’s leases are related to properties of the Bank. The Corporation continues to separately account for lease and non-lease components (such as property taxes, insurance, and maintenance costs) as historically reported. Rent expense for the Corporation's leases, which generally have escalating rental payments over the term of the lease, is recognized on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms generally containing one or more five-year renewal options. At June 30, 2019, the Corporation's leases have remaining terms of 1 to 24 years. The Corporation does not currently have any leases with an initial term of 12 months or less, including reasonably certain renewal terms; any such future leases will be recorded on the balance sheet.


Information with respect to the Corporation's operating leases for the under FASB ASC 842 "Leases" follows:leases:
Three months ended June 30,Six months ended June 30,
(Dollars in thousands)2020201920202019
Operating lease cost$961  $947  $1,914  $1,894  
Short-term lease cost3  —  6  —  
Variable lease cost2  —  3  —  
Total lease cost$966  $947  $1,923  $1,894  
Cash paid for amounts included in the measurement of lease liabilities:
    Operating cash flows from leases$922  $866  1,832  1,739  
At June 30, 2020At December 31, 2019
Weighted-average remaining lease term in years14.615.2
Weighted-average discount rate4.22 %4.24 %
(Dollars in thousands)Three months ended June 30, 2019 Six months ended June 30, 2019
Lease cost$947
 $1,894
Cash paid for amounts included in the measurement of lease liabilities:   
    Operating cash flows from leases  1,739
    
    
 At June 30, 2019  
Weighted-average remaining lease term in years15.2
  
Weighted-average discount rate4.24%  


At June 30, 2019,2020, maturities of lease liabilities under FASB ASC 842 "Leases" are as follows:
Maturity of Lease Liabilities(Dollars in thousands)Amount
Remainder of 2020$1,866  
20213,742  
20223,727  
20233,677  
20243,547  
Thereafter34,555  
Total lease payments51,114  
Less: imputed interest(13,687) 
Present value of lease liabilities$37,427  
Maturity of Lease Liabilities(Dollars in thousands)Amount
Remainder of 2019 $1,797
2020 3,633
2021 3,689
2022 3,662
2023 3,611
Thereafter 37,298
Total lease payments 53,690
Less: imputed interest (15,082)
Present value of lease liabilities $38,608


At December 31, 2018, a summary of the future minimum rental commitments under non-cancelable operating leases with original or remaining terms greater than one year under FASB ASC 840 "Leases" was as follows:
   
Year(Dollars in thousands)Amount
2019 $3,536
2020 3,632
2021 3,688
2022 3,660
2023 3,610
Thereafter 37,389
Total $55,515


Note 15. 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;
•Major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, including the current coronavirus (COVID-19) pandemic, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;
•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 credit 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 revenuesrevenue and expenditures;
•Adverse changes 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.

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home. While jurisdictions in which we operate have gradually allowed the reopening of businesses and other organizations and removed the sheltering restrictions, it is premature to assess whether doing so will result in a meaningful increase in economic activity and the impact of such actions on further COVID-19 cases. 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. As a result of the COVID-19 pandemic and the related
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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;
•If the economy is unable to substantially and successfully 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 increase if borrowers experience financial difficulties;
•The net worth and liquidity of loan guarantors may decline;
•A further and sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on its goodwill or core deposit and customer relationships intangibles that could result in an impairment charge being recorded for that period, that would adversely impact our results of operations and the ability of the Bank to pay dividends to us;
•As a result of the decline in the Federal Reserve’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 the elimination of or 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;
•FDIC premiums may increase if the agency experience additional resolution costs; and
•We face litigation, regulatory enforcement and reputation risk as a result of our participation in the Paycheck Protection Program (PPP) and the risk that the Small Business Administration may not fund some or all PPP loan guaranties.

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 endedDecember 31, 20182019 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 hashad 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 20182019 Annual Report on Form 10-K. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of ASC 326, which changed 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, in accordance with ASC 326, 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.

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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 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.
Executive Overview

The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:
Three Months EndedSix Months Ended
 June 30,ChangeJune 30,Change
(Dollars in thousands, except per share data)20202019AmountPercent20202019AmountPercent
Net income$2,085  $16,468  $(14,383) (87.3 %)$2,923  $32,547  $(29,624) (91.0 %)
Net income per share:
Basic$0.07  $0.56  $(0.49) (87.5) $0.10  $1.11  $(1.01) (91.0) 
Diluted0.07  0.56  (0.49) (87.5) 0.10  1.11  (1.01) (91.0) 
Return on average assets0.14 %1.28 %(114 BP)(89.1) 0.10 %1.29 %(119 BP)(92.2) 
Return on average equity1.27 %10.23 %(896 BP)(87.6) 0.88 %10.28 %(940 BP)(91.4) 
 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
Diluted0.56
 0.15
 0.41
 N/M 1.11
 0.58
 0.53
 91.4
Return on average assets1.28% 0.37%  91 BP
 N/M 1.29% 0.75% 54 BP
 72.0
Return on average equity10.23
 2.86
 737 BP
 N/M 10.28
 5.70
 458 BP
 80.4

The Corporation reported net income of $2.1 million, or $0.07 diluted earnings per share, for the three months ended June 30, 2020, compared to net income of $16.5 million, or $0.56 diluted earnings per share, for the three months ended June 30, 2019, compared to net income of $4.4 million, or $0.15 diluted earnings per share, for the three months ended June 30, 2018.2019. Net income for the six months ended June 30, 20192020 was $32.5$2.9 million, or $1.11$0.10 diluted earnings per share, compared to net income of $17.2$32.5 million, or $0.58$1.11 diluted earnings per share, for the six months ended June 30, 2018.2019.

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

During the three months ended June 30, 2020, the Corporation recorded a provision for credit losses of $23.7 million, of which $21.5 million related to loans and leases and $2.2 million related to unfunded commitments. Included within the $21.5 million in provision for credit losses was $19.9 million (after-tax charge of $15.7 million), or $0.54 diluted earnings per share, which was attributable to changes in economic assumptions within the Corporation’s CECL model, which were predominately driven by COVID-19. During the six months ended June 30, 2020, the Corporation recorded CECL related charges of $45.6 million, of which $40.2 million (after-tax charge of $31.8 million), or $1.09 diluted earnings per share, was attributable to economic assumptions within the CECL model. The provision for loan and lease losses for the three and six months ended June 30, 2018 included a pre-tax charge to2019 was $2.1 million and $4.8 million, respectively.

During the provision for loan and lease losses of $12.7 million (after-tax charge of $10.1 million), which represented $0.34 diluted earnings per share in each period, related to fraudulent activities by employees of a borrower. In addition, the three and six months ended June 30, 2018 included2020, the Corporation originated approximately 2,550 loans totaling approximately $510 million through the PPP, which was enacted as a tax-free bank owned life insurance (BOLI) death benefitcomponent of $446 thousand, which represented $0.02 diluted earnings per share for each period. The sixthe CARES Act that was signed into law on March 27, 2020. During the three months ended June 30, 2018 included restructuring costs2020, we recorded income of $2.0 million within interest income related to financial center closuresthese loans. Additionally, during the three months ended June 30, 2020, we recorded incremental capitalized compensation of $451 thousand,$1.3 million related to the origination of PPP loans. As of June 30, 2020, we had $11.0 million of net deferred fees on our balance sheet related to these loans.
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Table of tax, recognized in the first quarter of 2018, which represented $0.02 diluted earnings per share.Contents

Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on loans and leases investments and other interest-earning assetsinvestment 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, 20192020 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- freeinterest-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, 20192020 versus 20182019

Net interest income on a tax-equivalent basis for the three months ended June 30, 20192020 was $43.3$44.2 million, an increase of $3.6 million,$872 thousand, or 9.2%2.0%, compared to the three months ended June 30, 2018.2019. Net interest income on a tax-equivalent basis for the six months ended June 30, 20192020 was $85.5$87.3 million, an increase of $7.9$1.8 million, or 10.1%2.1%, compared to the same period in 2018.2019. The increase in tax-equivalent net interest income for the three and six months ended June 30, 20192020 compared to the samecomparable periods in 2018the prior year was primarily due to thelower 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, was 3.18% and 3.32% for the second quarter of 2019 was 3.67%,three and six months ended June 30, 2020, respectively, compared to 3.73%3.67% and 3.71% for the second quarter of 2018. During the three and six months ended June 30, 2019, excessrespectively. Purchase accounting accretion had no impact on the net interest margin for the three or six months ended June 30, 2020 compared to a favorable impact of one basis point on the net interest margin for the three and six months ended June 30, 2019. Excess liquidity reduced the net interest margin by approximately 5sixteen and twelve basis points for the three and 3six months ended June 30, 2020, respectively, compared to five and two basis points for the three and six months ended June 30, 2019, respectively. This excess liquidity was primarily driven by strong deposit growth. Thebalance growth over the last year. PPP loans reduced net interest margin by nine and four basis points for the three and six months ended June 30, 2020, respectively. Excluding purchase accounting accretion, the impact of excess liquidity, and the impact of PPP loans, the net interest margin, on a tax-equivalent basis, was 3.43% and 3.48% for the three and six months ended June 30, 2020, respectively, compared to 3.71% and 3.72% for the three and six months ended June 30, 2019, was 3.71%, compared to 3.72% for the six months ended June 30, 2018. The favorable impactrespectively.


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Table of purchase accounting accretion was one basis point for the three months ended June 30, 2019, compared to three basis points for the three months ended June 30, 2018. The favorable impact of purchase accounting accretion was one basis point for the six months ended June 30, 2019, compared to two basis points for the six months ended June 30, 2018.Contents

Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
Three Months Ended June 30, Three Months Ended June 30,
2019 2018 20202019
(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$313,668  $67  0.90 %$102,623  $569  2.22 %
U.S. government obligations17,315
 73
 1.69
 23,183
 91
 1.57
U.S. government obligations7,236  36  2.00  17,315  73  1.69  
Obligations of states and political subdivisions59,267
 507
 3.43
 71,092
 603
 3.40
Obligations of states and political subdivisions26,546  240  3.64  59,267  507  3.43  
Other debt and equity securities394,840
 2,572
 2.61
 356,100
 2,177
 2.45
Other debt and equity securities378,175  2,182  2.32  394,840  2,572  2.61  
Federal Home Loan Bank, Federal Reserve Bank and other stock31,938
 535
 6.72
 32,788
 509
 6.23
Federal Home Loan Bank, Federal Reserve Bank and other stock28,977  362  5.02  31,938  535  6.72  
Total interest-earning deposits, investments and other interest-earning assets605,983
 4,256
 2.82
 520,417
 3,528
 2.72
Total interest-earning deposits, investments and other interest-earning assets754,602  2,887  1.54  605,983  4,256  2.82  
Commercial, financial and agricultural loans820,009
 10,589
 5.18
 810,610
 9,750
 4.82
Commercial, financial and agricultural loans816,976  7,330  3.61  820,009  10,589  5.18  
Paycheck Protection Program loansPaycheck Protection Program loans370,669  2,128  2.31  —  —  —  
Real estate—commercial and construction loans1,912,248
 23,110
 4.85
 1,661,198
 19,044
 4.60
Real estate—commercial and construction loans2,232,827  23,110  4.16  1,912,248  23,110  4.85  
Real estate—residential loans941,712
 11,483
 4.89
 853,769
 10,046
 4.72
Real estate—residential loans1,004,671  10,270  4.11  941,712  11,483  4.89  
Loans to individuals31,939
 510
 6.40
 28,985
 444
 6.14
Loans to individuals29,079  327  4.52  31,939  510  6.40  
Municipal loans and leases335,399
 3,305
 3.95
 313,181
 2,961
 3.79
Municipal loans and leases291,433  2,977  4.11  335,399  3,305  3.95  
Lease financings81,762
 1,459
 7.16
 75,452
 1,353
 7.19
Lease financings91,203  1,592  7.02  81,762  1,459  7.16  
Gross loans and leases4,123,069
 50,456
 4.91
 3,743,195
 43,598
 4.67
Gross loans and leases4,836,858  47,734  3.97  4,123,069  50,456  4.91  
Total interest-earning assets4,729,052
 54,712
 4.64
 4,263,612
 47,126
 4.43
Total interest-earning assets5,591,460  50,621  3.64  4,729,052  54,712  4.64  
Cash and due from banks46,868
     45,158
    Cash and due from banks46,970  46,868  
Reserve for loan and lease losses(31,847)     (23,914)    
Reserve for credit losses, loans and leasesReserve for credit losses, loans and leases(69,292) (31,847) 
Premises and equipment, net58,873
     61,234
    Premises and equipment, net55,750  58,873  
Operating lease right-of-use assets35,821
     —
    Operating lease right-of-use assets34,419  35,821  
Other assets331,681
     336,737
    Other assets341,483  331,681  
Total assets$5,170,448
     $4,682,827
    Total assets$6,000,790  $5,170,448  
Liabilities:           Liabilities:
Interest-bearing checking deposits$457,231
 $457
 0.40
 $463,156
 $383
 0.33
Interest-bearing checking deposits$617,927  $372  0.24  $457,231  $457  0.40  
Money market savings982,440
 4,234
 1.73
 694,734
 1,758
 1.01
Money market savings1,063,463  853  0.32  982,440  4,234  1.73  
Regular savings818,523
 1,013
 0.50
 803,586
 582
 0.29
Regular savings872,422  475  0.22  818,523  1,013  0.50  
Time deposits688,897
 3,407
 1.98
 553,579
 1,819
 1.32
Time deposits577,462  2,672  1.86  688,897  3,407  1.98  
Total time and interest-bearing deposits2,947,091
 9,111
 1.24
 2,515,055
 4,542
 0.72
Total time and interest-bearing deposits3,131,274  4,372  0.56  2,947,091  9,111  1.24  
Short-term borrowings48,312
 217
 1.80
 217,327
 958
 1.77
Short-term borrowings161,365  122  0.30  48,312  217  1.80  
Long-term debt159,572
 836
 2.10
 155,628
 709
 1.83
Long-term debt210,040  762  1.46  159,572  836  2.10  
Subordinated notes94,663
 1,261
 5.34
 94,420
 1,261
 5.36
Subordinated notes94,890  1,206  5.11  94,663  1,261  5.34  
Total borrowings302,547
 2,314
 3.07
 467,375
 2,928
 2.51
Total borrowings466,295  2,090  1.80  302,547  2,314  3.07  
Total interest-bearing liabilities3,249,638
 11,425
 1.41
 2,982,430
 7,470
 1.00
Total interest-bearing liabilities3,597,569  6,462  0.72  3,249,638  11,425  1.41  
Noninterest-bearing deposits1,198,320
     1,048,901
    Noninterest-bearing deposits1,663,395  1,198,320  
Operating lease liabilities38,873
     —
    Operating lease liabilities37,680  38,873  
Accrued expenses and other liabilities38,079
     39,829
    Accrued expenses and other liabilities41,196  38,079  
Total liabilities4,524,910
     4,071,160
    Total liabilities5,339,840  4,524,910  
Shareholders’ Equity:           Shareholders’ Equity:
Common stock157,784
     157,784
    Common stock157,784  157,784  
Additional paid-in capital293,496
     290,517
    Additional paid-in capital295,681  293,496  
Retained earnings and other equity194,258
     163,366
    Retained earnings and other equity207,485  194,258  
Total shareholders’ equity645,538
     611,667
    Total shareholders’ equity660,950  645,538  
Total liabilities and shareholders’ equity$5,170,448
     $4,682,827
    Total liabilities and shareholders’ equity$6,000,790  $5,170,448  
Net interest income  $43,287
     $39,656
  Net interest income$44,159  $43,287  
Net interest spread    3.23
     3.43
Net interest spread2.92  3.23  
Effect of net interest-free funding sources    0.44
     0.30
Effect of net interest-free funding sources0.26  0.44  
Net interest margin    3.67%     3.73%Net interest margin3.18 %3.67 %
Ratio of average interest-earning assets to average interest-bearing liabilities145.53%     142.96%    Ratio of average interest-earning assets to average interest-bearing liabilities155.42 %145.53 %
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, 20192020 and 20182019 have been calculated using the Corporation's federal applicable rate of 21%.

54
 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 obligations18,669
 155
 1.67
 23,550
 185
 1.58
Obligations of states and political subdivisions61,703
 1,053
 3.44
 72,814
 1,196
 3.31
Other debt and equity securities390,440
 5,203
 2.69
 357,766
 4,272
 2.41
Federal Home Loan Bank, Federal Reserve Bank and other stock32,148
 1,121
 7.03
 30,933
 1,013
 6.60
Total interest-earning deposits, investments and other interest-earning assets575,720
 8,370
 2.93
 513,332
 6,890
 2.71
Commercial, financial and agricultural loans815,565
 21,347
 5.28
 796,483
 18,650
 4.72
Real estate—commercial and construction loans1,867,510
 44,669
 4.82
 1,630,964
 36,662
 4.53
Real estate—residential loans940,015
 22,895
 4.91
 845,677
 19,721
 4.70
Loans to individuals32,230
 1,028
 6.43
 28,475
 857
 6.07
Municipal loans and leases333,858
 6,526
 3.94
 312,470
 5,853
 3.78
Lease financings81,330
 2,894
 7.18
 75,083
 2,697
 7.24
Gross loans and leases4,070,508
 99,359
 4.92
 3,689,152
 84,440
 4.62
Total interest-earning assets4,646,228
 107,729
 4.68
 4,202,484
 91,330
 4.38
Cash and due from banks45,797
     43,839
    
Reserve for loan and lease losses(30,984)     (22,973)    
Premises and equipment, net59,025
     61,485
    
Operating lease right-of-use assets36,472
     —
    
Other assets331,272
     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 savings950,641
 7,982
 1.69
 676,651
 3,101
 0.92
Regular savings803,859
 1,827
 0.46
 818,895
 1,139
 0.28
Time deposits672,193
 6,334
 1.90
 547,562
 3,318
 1.22
Total time and interest-bearing deposits2,894,712
 17,314
 1.21
 2,487,305
 8,233
 0.67
Short-term borrowings82,796
 855
 2.08
 196,690
 1,603
 1.64
Long-term debt152,475
 1,575
 2.08
 155,697
 1,374
 1.78
Subordinated notes94,633
 2,522
 5.37
 94,390
 2,522
 5.39
Total borrowings329,904
 4,952
 3.03
 446,777
 5,499
 2.48
Total interest-bearing liabilities3,224,616
 22,266
 1.39
 2,934,082
 13,732
 0.94
Noninterest-bearing deposits1,144,185
     1,036,916
    
Operating lease liabilities39,478
     —
    
Accrued expenses and other liabilities40,936
     39,881
    
Total liabilities4,449,215
     4,010,879
    
Shareholders’ Equity:           
Common stock157,784
     157,784
    
Additional paid-in capital293,123
     290,363
    
Retained earnings and other equity187,688
     160,688
    
Total shareholders’ equity638,595
     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 liabilities144.09%     143.23%    
            
Table of Contents

 Six Months Ended June 30,
 20202019
(Dollars in thousands)Average
Balance		Income/
Expense		Average
Rate		Average
Balance		Income/
Expense		Average
Rate
Assets:
Interest-earning deposits with other banks$215,888  $392  0.37 %$72,760  $838  2.32 %
U.S. government obligations7,267  73  2.02  18,669  155  1.67  
Obligations of states and political subdivisions30,070  529  3.54  61,703  1,053  3.44  
Other debt and equity securities389,591  4,850  2.50  390,440  5,203  2.69  
Federal Home Loan Bank, Federal Reserve Bank and other stock30,214  889  5.92  32,148  1,121  7.03  
Total interest-earning deposits, investments and other interest-earning assets673,030  6,733  2.01  575,720  8,370  2.93  
Commercial, financial and agricultural loans819,121  15,961  3.92  815,565  21,347  5.28  
Paycheck Protection Program loans185,334  2,128  2.31  —  —  —  
Real estate—commercial and construction loans2,186,098  47,027  4.33  1,867,510  44,669  4.82  
Real estate—residential loans998,111  21,322  4.30  940,015  22,895  4.91  
Loans to individuals29,548  734  5.00  32,230  1,028  6.43  
Municipal loans and leases304,219  6,242  4.13  333,858  6,526  3.94  
Lease financings90,289  3,146  7.01  81,330  2,894  7.18  
Gross loans and leases4,612,720  96,560  4.21  4,070,508  99,359  4.92  
Total interest-earning assets5,285,750  103,293  3.93  4,646,228  107,729  4.68  
Cash and due from banks48,931  45,797  
Reserve for credit losses, loans and leases(56,832) (30,984) 
Premises and equipment, net56,074  59,025  
Operating lease right-of-use assets34,482  36,472  
Other assets336,122  331,272  
Total assets$5,704,527  $5,087,810  
Liabilities:
Interest-bearing checking deposits$601,159  $1,168  0.39  $468,019  $1,171  0.50  
Money market savings1,060,399  3,756  0.71  950,641  7,982  1.69  
Regular savings844,591  1,267  0.30  803,859  1,827  0.46  
Time deposits590,183  5,587  1.90  672,193  6,334  1.90  
Total time and interest-bearing deposits3,096,332  11,778  0.76  2,894,712  17,314  1.21  
Short-term borrowings100,745  228  0.46  82,796  855  2.08  
Long-term debt189,623  1,526  1.62  152,475  1,575  2.08  
Subordinated notes94,868  2,481  5.26  94,633  2,522  5.37  
Total borrowings385,236  4,235  2.21  329,904  4,952  3.03  
Total interest-bearing liabilities3,481,568  16,013  0.92  3,224,616  22,266  1.39  
Noninterest-bearing deposits1,475,994  1,144,185  
Operating lease liabilities37,724  39,478  
Accrued expenses and other liabilities42,036  40,936  
Total liabilities5,037,322  4,449,215  
Shareholders’ Equity:
Common stock157,784  157,784  
Additional paid-in capital295,500  293,123  
Retained earnings and other equity213,921  187,688  
Total shareholders’ equity667,205  638,595  
Total liabilities and shareholders’ equity$5,704,527  $5,087,810  
Net interest income$87,280  $85,463  
Net interest spread3.01  3.29  
Effect of net interest-free funding sources0.31  0.42  
Net interest margin3.32 %3.71 %
Ratio of average interest-earning assets to average interest-bearing liabilities151.82 %144.09 %
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 six months ended June 30, 20192020 and 20182019 have been calculated using the Corporation's federal applicable rate of 21%.

55
Table of Contents
Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.
Three Months EndedSix Months Ended
 June 30, 2020 Versus 2019June 30, 2020 Versus 2019
(Dollars in thousands)Volume
Change		Rate
Change		TotalVolume
Change		Rate
Change		Total
Interest income:
Interest-earning deposits with other banks$401  $(903) $(502) $674  $(1,120) $(446) 
U.S. government obligations(48) 11  (37) (109) 27  (82) 
Obligations of states and political subdivisions(296) 29  (267) (554) 30  (524) 
Other debt and equity securities(107) (283) (390) (10) (343) (353) 
Federal Home Loan Bank, Federal Reserve Bank and other stock(46) (127) (173) (64) (168) (232) 
Interest on deposits, investments and other earning assets(96) (1,273) (1,369) (63) (1,574) (1,637) 
Commercial, financial and agricultural loans(39) (3,220) (3,259) 93  (5,479) (5,386) 
Paycheck Protection Program loans2,128  —  2,128  2,128  —  2,128  
Real estate—commercial and construction loans—  —  —  7,172  (4,814) 2,358  
Real estate—residential loans722  (1,935) (1,213) 1,369  (2,942) (1,573) 
Loans to individuals(43) (140) (183) (80) (214) (294) 
Municipal loans and leases(455) 127  (328) (593) 309  (284) 
Lease financings163  (30) 133  321  (69) 252  
Interest and fees on loans and leases2,476  (5,198) (2,722) 10,410  (13,209) (2,799) 
Total interest income2,380  (6,471) (4,091) 10,347  (14,783) (4,436) 
Interest expense:
Interest-bearing checking deposits131  (216) (85) 286  (289) (3) 
Money market savings324  (3,705) (3,381) 834  (5,060) (4,226) 
Regular savings63  (601) (538) 91  (651) (560) 
Time deposits(534) (201) (735) (747) —  (747) 
Interest on time and interest-bearing deposits(16) (4,723) (4,739) 464  (6,000) (5,536) 
Short-term borrowings197  (292) (95) 154  (781) (627) 
Long-term debt222  (296) (74) 339  (388) (49) 
Subordinated notes3  (58) (55) 7  (48) (41) 
Interest on borrowings422  (646) (224) 500  (1,217) (717) 
Total interest expense406  (5,369) (4,963) 964  (7,217) (6,253) 
Net interest income$1,974  $(1,102) $872  $9,383  $(7,566) $1,817  

56
 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 securities247
 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 assets451
 277
 728
 699
 781
 1,480
Commercial, financial and agricultural loans113
 726
 839
 453
 2,244
 2,697
Real estate—commercial and construction loans2,991
 1,075
 4,066
 5,555
 2,452
 8,007
Real estate—residential loans1,065
 372
 1,437
 2,266
 908
 3,174
Loans to individuals46
 20
 66
 118
 53
 171
Municipal loans and leases216
 128
 344
 416
 257
 673
Lease financings112
 (6) 106
 219
 (22) 197
Interest and fees on loans and leases4,543
 2,315
 6,858
 9,027
 5,892
 14,919
Total interest income4,994
 2,592
 7,586
 9,726
 6,673
 16,399
Interest expense:      
 
 
Interest-bearing checking deposits(5) 79
 74
 40
 456
 496
Money market savings909
 1,567
 2,476
 1,591
 3,290
 4,881
Regular savings11
 420
 431
 (22) 710
 688
Time deposits521
 1,067
 1,588
 875
 2,141
 3,016
Interest on time and interest-bearing deposits1,436
 3,133
 4,569
 2,484
 6,597
 9,081
Short-term borrowings(757) 16
 (741) (1,098) 350
 (748)
Long-term debt19
 108
 127
 (28) 229
 201
Interest on borrowings(738) 124
 (614) (1,126) 579
 (547)
Total interest expense698
 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, 20192020 versus 20182019

Interest income on a tax-equivalent basis for the three months ended June 30, 20192020 was $54.7$50.6 million, an increasea decrease of $7.6$4.1 million, or 16.1%7.5%, from the same period in 2018.the prior year. Interest income on a tax-equivalent basis for the six months ended June 30, 20192020 was $107.7$103.3 million, an increasea decrease of $16.4$4.4 million, or 18.0%4.1%, from the same period in 2018.2019. The increasedecrease in interest income for the three and six months ended June 30, 20192020 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 100rate reductions of 75 basis points in 2018. Thethe third and fourth quarters of 2019 and 150 basis points in the first quarter of 2020, offset by increases 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 and six months ended June 30, 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, 2018.2019.

Interest Expense

Three and six months ended June 30, 20192020 versus 20182019

Interest expense for the three months ended June 30, 20192020 was $11.4$6.5 million, an increasea decrease of $4.0$5.0 million, or 52.9%43.4%, from the same period in 2018.2019. Interest expense for the six months ended June 30, 20192020 was $22.3$16.0 million, an increasea decrease of $8.5$6.3 million, or
62.1% 28.1%, from the same period in 2018. the prior year. Interest expense decreased for the three and six months ended June 30, 2020 primarily due to the Federal Reserve interest rate decreases in 2019 and 2020, offset slightly by growth in average interest-bearing liabilities of $347.9 million and $257.0 million, during the three and six months ended June 30, 2020, respectively.

Provision for Credit Losses

The increaseprovision for credit losses for the three months ended June 30, 2020 was $23.7 million compared to $2.1 million for the same period in interestthe prior year. Net loan and lease charge-offs for the three months ended June 30, 2020 were $3.6 million compared to $1.1 million for the same period in the prior year. The provision for credit losses for the six months ended June 30, 2020 was $45.6 million compared to $4.8 million for the same period in the prior year. Net loan and lease charge-offs for the six months ended June 30, 2020 were $4.1 million compared to $1.5 million for the same period in the prior year. Refer to the Executive Overview for discussion of the drivers of provision expense for the three and six months ended June 30, 2019 was primarily due2020 and 2019. Refer to higher deposit costs, which were impacted byAsset Quality for discussion of the Federal Reserve interest rate increases in 2018. In addition, average deposits grew 17.2% and 16.4%, respectively,drivers for the three and six months ended June 30, 219 compared to the same periodsincrease in 2018. The favorable impact 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.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the three and six months ended June 30, 2019 was $2.1 million and $4.8 million, respectively, compared to $15.4 million and $17.5 million, respectively, for the same periods in 2018. Net loan and lease charge-offs for the three and six months ended June 30, 2019 were $1.1 million2020 and $1.5 million, respectively, compared to $13.2 million and $13.4 million, respectively, for the same periods in the prior year. Both net loan and lease charge-offs and the provision for loan and lease losses during 2018 included the previously discussed $12.7 million commercial loan charge-off.2019.

57
Table of Contents
Noninterest Income

The following table presents noninterest income for the three and six months ended June 30, 20192020 and 2018:
2019:
Three Months EndedSix Months Ended
Three Months Ended 
 June 30,		 Change Six Months Ended 
 June 30,		 Change June 30,ChangeJune 30,Change
(Dollars in thousands)2019 2018 Amount Percent 2019 2018 Amount Percent(Dollars in thousands)20202019AmountPercent20202019AmountPercent
Trust fee income$2,054
 $2,044
 $10
 0.5 % $3,941
 $4,040
 $(99) (2.5)%Trust fee income$1,924  $2,054  $(130) (6.3 %)$3,814  $3,941  $(127) (3.2 %)
Service charges on deposit accounts1,447
 1,335
 112
 8.4
 2,882
 2,662
 220
 8.3
Service charges on deposit accounts890  1,447  (557) (38.5) 2,287  2,882  (595) (20.6) 
Investment advisory commission and fee income4,055
 3,778
 277
 7.3
 7,844
 7,461
 383
 5.1
Investment advisory commission and fee income3,540  4,055  (515) (12.7) 7,795  7,844  (49) (0.6) 
Insurance commission and fee income3,941
 3,712
 229
 6.2
 9,085
 8,600
 485
 5.6
Insurance commission and fee income4,067  3,941  126  3.2  8,799  9,085  (286) (3.1) 
Other service fee income2,590
 2,431
 159
 6.5
 4,857
 4,600
 257
 5.6
Other service fee income1,488  2,590  (1,102) (42.5) 3,358  4,857  (1,499) (30.9) 
Bank owned life insurance income743
 1,210
 (467) (38.6) 1,695
 1,879
 (184) (9.8)Bank owned life insurance income732  743  (11) (1.5) 1,466  1,695  (229) (13.5) 
Net gain on sales of investment securities7
 —
 7
 N/M
 8
 10
 (2) (20.0)Net gain on sales of investment securities65  7  58  N/A760  8  752  N/A
Net gain on mortgage banking activities796
 942
 (146) (15.5) 1,279
 1,658
 (379) (22.9)Net gain on mortgage banking activities3,515  796  2,719  N/A6,259  1,279  4,980  N/A
Other income (loss)723
 (138) 861
 N/M
 1,062
 (14) 1,076
 N/M
Other incomeOther income1,779  723  1,056  N/A1,846  1,062  784  73.8  
Total noninterest income$16,356
 $15,314
 $1,042
 6.8 % $32,653
 $30,896
 $1,757
 5.7 %Total noninterest income$18,000  $16,356  $1,644  10.1 %$36,384  $32,653  $3,731  11.4 %

Three and six months ended June 30, 20192020 versus 20182019

Noninterest income for the three months ended June 30, 20192020 was $16.4$18.0 million, an increase of $1.0$1.6 million, or 6.8%10.1%, from the three months ended June 30, 2018.2019. Noninterest income for the six months ended June 30, 20192020 was $32.7$36.4 million, an increase of $1.8$3.7 million, or 5.7%11.4%, from the comparable period in the prior year.six months ended June 30, 2019.

Investment advisory commission and fee incomeThe net gain on mortgage banking activities increased $277 thousand,$2.7 million, or 7.3%341.6%, for the three months ended June 30, 2020 and $383 thousand,$5.0 million, or 5.1%389.4%, for the six months ended June 30, 2019, primarily due to new customer relationships. Insurance commission and fee income increased $229 thousand, or 6.2%, for the three months ended June 30, 2019,2020, primarily due to an increase in premiums for commercial linesmortgage volume and group life and health. Insurance commission and fee income increased $485 thousand, or 5.6%, for the six months ended June 30, 2019, primarily due to an increase in premiums for commercial lines, group life and health and contingent commission income. Service chargesexpansion of margins. Net gain on deposit accounts increased $112 thousand, or 8.4%, for the three months and $220 thousand, or 8.3%, for 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 thousand for the three months and $1.1 million for the six months ended June 30, 2019. Fees on risk participation agreements increased $284 thousand for the three months and $543 thousand for the six months 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 $55investment securities increased $752 thousand for the six months ended June 30, 2019 compared to $482 thousandthe comparable period for the three and six months ended June 30, 2018.previous year primarily due to a $652 thousand gain on the sale of $58.3 million of agency backed mortgage backed securities in the first quarter of 2020.

These increases were partially offset by a decrease in BOLIOther income of $467 thousand,increased $1.1 million, or 38.6%146.1%, for the three months ended June 30, 2020 and $184$784 thousand, or 9.8%73.8%, for the six months ended June 30, 2019. These decreases were primarily due2020 compared to proceeds from BOLI death benefits of $446 thousand recognized in the second quarter of 2018. The net gaincomparable periods for the previous year. Fees on mortgage banking activities decreased $146 thousand, or 15.5%,risk participation agreements for interest rate swaps increased $1.3 million for the three months ended June 30, 2020 and $379 thousand, or 22.9%$1.2 million for the six months ended June 30, 2019,2020 compared to the comparable periods in the prior year, driven by increased customer activity based on the current rate environment. Gain on sale of small business administration (SBA) loans decreased $239 thousand for the three months ended June 30, 2020 and $294 thousand for the six months ended June 30, 2020 compared to the comparable periods in the prior year due to decreased SBA loan sale activity. Equity securities measured at fair value decreased $40 thousand for the three months ended June 30, 2020 and $312 thousand for the six months ended June 30, 2020.

Other service fee income decreased $1.1 million, or 42.5%, for the three months ended June 30, 2020 and $1.5 million, or 30.9%, for the six months ended June 30, 2020 compared to the comparable periods in the prior year. Mortgage servicing rights amortization increased $484 thousand for the three months ended June 30, 2020 and $814 thousand for the six months ended June 30, 2020 compared to the comparable periods in the prior year driven by the decline in interest rates and their impact on prepayment activity. Additionally, valuation allowance adjustments of $283 thousand for the three months ended June 30, 2020 and $338 thousand for the six months ended June 30, 2020 were recorded against mortgage servicing right assets due to a decline in fair value. Interchange income decreased $226 thousand for the three months ended June 30, 2020 and $256 thousand for the six months ended June 30, 2020 compared to the comparable periods in the prior year due to decreased customer activity.

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Service charges on deposit accounts decreased $557 thousand, or 38.5%, for the three months ended June 30, 2020 and $595 thousand, or 20.6%, for the six months ended June 30, 2020 compared to the comparable periods in the prior year primarily due to contractionthe waiving of certain deposit service charges for customers in marginsresponse to remain price competitive.COVID-19.Investment advisory commission and fee income decreased $515 thousand, or 12.7%, for the three months ended June 30, 2020, primarily due to a decline in the value of assets under management due to overall declines in the market, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management balance.

Noninterest Expense

The following table presents noninterest expense for the three and six months ended June 30, 20192020 and 2018:2019:
Three Months EndedSix Months Ended
 June 30,ChangeJune 30,Change
(Dollars in thousands)20202019AmountPercent20202019AmountPercent
Salaries, benefits and commissions$21,700  $22,052  $(352) (1.6 %)$45,536  $43,598  $1,938  4.4 %
Net occupancy2,478  2,601  (123) (4.7) 5,052  5,212  (160) (3.1) 
Equipment923  1,065  (142) (13.3) 1,918  2,055  (137) (6.7) 
Data processing2,750  2,627  123  4.7  5,510  5,141  369  7.2  
Professional fees1,264  1,307  (43) (3.3) 2,581  2,571  10  0.4  
Marketing and advertising535  786  (251) (31.9) 937  1,326  (389) (29.3) 
Deposit insurance premiums615  430  185  43.0  1,119  882  237  26.9  
Intangible expenses321  417  (96) (23.0) 651  843  (192) (22.8) 
Other expense5,374  5,496  (122) (2.2) 11,433  10,715  718  6.7  
Total noninterest expense$35,960  $36,781  $(821) (2.2 %)$74,737  $72,343  $2,394  3.3 %
 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 occupancy2,601
 2,533
 68
 2.7
 5,212
 5,290
 (78) (1.5)
Equipment1,065
 1,067
 (2) (0.2) 2,055
 2,090
 (35) (1.7)
Data processing2,627
 2,091
 536
 25.6
 5,141
 4,323
 818
 18.9
Professional fees1,307
 1,331
 (24) (1.8) 2,571
 2,686
 (115) (4.3)
Marketing and advertising622
 526
 96
 18.3
 938
 907
 31
 3.4
Deposit insurance premiums430
 452
 (22) (4.9) 882
 843
 39
 4.6
Intangible expenses417
 594
 (177) (29.8) 843
 1,206
 (363) (30.1)
Restructuring charges—
 —
 —
 —
 —
 571
 (571) N/M
Other expense5,620
 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, 20192020 versus 20182019

Noninterest expense for the three months ended June 30, 20192020 was $36.8$36.0 million, an increasea decrease of $2.4 million,$821 thousand, or 7.1%2.2%, from the three months ended June 30, 2018.2019. Noninterest expense for the six months ended June 30, 20192020 was $72.3$74.7 million, an increase of $2.9$2.4 million, or 4.1%3.3%, from the comparable period in the prior year.six months ended June 30, 2019.

Salaries, benefits and commissions increased $2.0 million,decreased $352 thousand, or 10.1%1.6%, for the three months ended June 30, 2020 and $2.9increased $1.9 million, or 7.2%4.4%, for the six months ended June 30, 2019,2020 compared to the comparable periods in the prior year. The increase for the six months ended June 30, 2020 was 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. Duringin 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 hiredannual merit increases and increased variable compensation due to help expand Univest’s presence in the New Jersey suburbs of Philadelphia. Data processing expense increased $536 thousand, or 25.6%,strong mortgage banking activity. The decrease for the three months and $818ended June 30, 2020 was the result of $1.3 million in compensation capitalized due to PPP loan originations which offset the previously discussed increases. Other expense increased $718 thousand, or 18.9%6.7%, for the six months ended June 30, 2019, primarily2020 due to continued investmentsa one-time $656 thousand charge related to the extinguishment of long-term debt in customer relationship management software, internal infrastructure improvementsthe first quarter of 2020. Marketing and outsourced data processing solutions.

These increases were partially offset by a decrease in intangiblesadvertising expense of $177decreased $251 thousand, or 29.8%31.9%, for the three monthsquarter and $363decreased $389 thousand, or 30.1%29.3%, for the six months ended June 30, 20192020 compared to the comparable period for the previous year, due to run-off of the intangible assets. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousanda decrease in advertising activities during the first quarter of 2018.COVID-19 related stay at home orders.

Tax Provision

The provisionCorporation recognized a tax benefit of $264 thousand for income taxesthe three months ended June 30, 2020 compared to a tax expense of $3.7 million for the three months ended June 30, 2019, at an effective rate of (14.5)% and 2018 was $3.7 million and $191 thousand, at effective rates of 18.2% and 4.2%, respectively. The provisionCorporation recognized a tax benefit of $870 thousand for income taxesthe six months ended June 30, 2020 compared to a tax expense of $7.2 million for the six months ended June 30, 2019, at an effective rate of (42.4)% and 2018
was $7.2 million and $3.0 million, at effective rates of 18.0% and 14.9%, respectively. The Corporation's effective income tax rates were favorably impacted by discrete tax benefits. Excluding these items, the effective tax rate was 18.3% and 18.2%respectively, for the six months ended June 30, 2020 and 2019, respectively. The negative effective tax rate for the three and 2018, respectively.six months ended June 30, 2020 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. The calculation of the effective tax rate for income taxes for the three and six months ended June 30, 2020 was based on the actual effective tax rate for the year-to-date period, given the uncertainty of the impact of COVID-19 and its potential impact on the Corporation’s estimate of the annual effective tax rate. The Corporation's effective income tax rates for the three and six months ended June 30, 2019 was 18.2% and 18.0%, respectively, and reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases and discrete tax benefits.

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Financial Condition

Assets

The following table presents assets at the dates indicated:
 At June 30, 2020At December 31, 2019Change
(Dollars in thousands)AmountPercent
Cash and interest-earning deposits$348,529  $125,128  $223,401  N/A
Investment securities, net of allowance for credit losses397,852  441,599  (43,747) (9.9) 
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost28,192  28,254  (62) (0.2) 
Loans held for sale31,082  5,504  25,578  N/A
Loans and leases held for investment4,951,809  4,386,836  564,973  12.9  
Reserve for credit losses, loans and leases(86,217) (35,331) (50,886) N/A
Premises and equipment, net55,900  56,676  (776) (1.4) 
Operating lease right-of-use assets34,148  34,418  (270) (0.8) 
Goodwill and other intangibles, net181,657  182,843  (1,186) (0.6) 
Bank owned life insurance116,244  114,778  1,466  1.3  
Accrued interest receivable and other assets66,116  40,219  25,897  64.4  
Total assets$6,125,312  $5,380,924  $744,388  13.8 %
 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 securities468,833
 473,306
 (4,473) (0.9)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost32,755
 28,337
 4,418
 15.6
Loans held for sale1,498
 1,754
 (256) (14.6)
Loans and leases held for investment4,167,904
 4,006,574
 161,330
 4.0
Reserve for loan and lease losses(32,600) (29,364) (3,236) (11.0)
Premises and equipment, net58,292
 59,559
 (1,267) (2.1)
Operating lease right-of-use assets35,508
 —
 35,508
 N/M
Goodwill and other intangibles, net183,554
 184,549
 (995) (0.5)
Bank owned life insurance113,294
 111,599
 1,695
 1.5
Accrued interest receivable and other assets40,693
 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 $223.4 million, or 178.5%, from December 31, 2019, primarily due to increased interest earning deposits at the Federal Reserve Bank of $217.1 million.

Investment Securities

Total investments securities at June 30, 20192020 decreased $4.5$43.7 million from December 31, 2018. Maturities2019. Sales of $70.5 million, maturities and pay-downs of $36.2$43.8 million, calls of $3.1$18.9 million, salesa provision for credit losses of $15.5 million$855 thousand and net amortization of purchased premiums and discounts of $1.2$1.1 million were partially offset by purchases of $43.5$88.6 million and increases in the fair value of available-for-sale investment securities of $8.0$2.3 million. The increase in the fair value of available-for-sale investment securities was due to the decrease in interest rates and the flattening of the yield curve.
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost
The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $18.0 million and $13.6 million at 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 $161.3increased $565.0 million, or 4.0%12.9%, from December 31, 2018.2019. The growth in loans was primarily related to PPP loan originations of $499.0 million. The remaining growth in gross loans and leases held for investment of $66.0 million was primarily related to increases in commercial real estate and residential real estate loans.loans offset by a decrease in commercial line utilization of $89.5 million.

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 modificationsare 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 June 30, 2020, nonaccrual loans and leases and accruing troubled debt restructured loans were $26.2 million and had a related allowance for credit losses on loans and leases of $1.1 million. At December 31, 2019, loans and leases that were considered to be impaired was $38.4 million. The related reserve for loan losses was $2.1 million. Individual reserves have
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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 second quarter of 2020 included a charge-off of $2.7 million and provision for credit losses of $1.3 million related to one commercial real estate loan, which was transferred from nonaccrual loans to other real estate owned. As of June 30, 2020, the property was carried at $8.1 million, in other real estate owned, based on a letter of intent to sell the property. The amount of the specificindividual 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$8.6 million and $516 thousand at June 30, 2019, compared to $1.2 million at2020 and December 31, 2018. During the first quarter2019, respectively. The increase of 2019, a$8.1 million is related to commercial real estate property with a carrying value of $654 thousand was sold for a loss of $55 thousand.loan discussed above.
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, 2019 and December 31, 2018, respectively.

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

The following table details information pertaining to the Corporation’s nonperforming assets at the dates indicated. Nonperforming loans and assets exclude acquired credit impaired loans from Fox Chase and Valley Green.
(Dollars in thousands)At June 30, 2020At December 31, 2019
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:
Commercial, financial and agricultural$4,208  $3,442  
Real estate—commercial17,568  27,928  
Real estate—construction—  257  
Real estate—residential3,999  6,445  
Lease financings366  506  
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*26,141  38,578  
Accruing troubled debt restructured loans and lease modifications not included in the above53  54  
Accruing loans and leases 90 days or more past due:
Commercial, financial and agricultural309  20  
Real estate—commercial54  —  
Real estate—residential468  —  
Loans to individuals93  74  
Lease financings269  49  
Total accruing loans and leases, 90 days or more past due1,193  143  
Total nonperforming loans and leases27,387  38,775  
Other real estate owned8,642  516  
Total nonperforming assets$36,029  $39,291  
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment0.53 %0.88 %
Nonperforming loans and leases / loans and leases held for investment0.55 %0.88 %
Nonperforming assets / total assets0.59 %0.73 %
Allowance for credit losses, loans and leases$86,217  $35,331  
Allowance for credit losses, loans and leases / loans and leases held for investment1.74 %0.81 %
Allowance for credit losses, loans and leases / nonaccrual loans and leases held for investment329.82 %91.58 %
Allowance for credit losses, loans and leases / nonperforming loans and leases held for investment314.81 %91.12 %
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table$14,103  $13,817  


61
(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—commercial17,739
 18,214
Real estate—construction106
 106
Real estate—residential5,052
 4,353
Lease financings100
 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 above55
 542
Accruing loans and leases 90 days or more past due:   
Real estate—commercial516
 —
Real estate—construction230
 —
Real estate—residential434
 —
Loans to individuals129
 55
Lease financings70
 137
Total accruing loans and leases, 90 days or more past due1,379
 192
Total nonperforming loans and leases26,581
 26,942
Other real estate owned540
 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 investment0.60% 0.65%
Nonperforming loans and leases / loans and leases held for investment0.64
 0.67
Nonperforming assets / total assets0.53
 0.56
    
Allowance for loan and lease losses$32,600
 $29,364
Allowance for loan and lease losses / loans and leases held for investment0.78% 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 investment129.64
 112.04
Allowance for loan and lease losses / nonperforming loans and leases held for investment122.64
 108.99
Acquired credit impaired loans$569
 $695
    
Nonperforming loans and leases and acquired credit impaired loans / loans and leases held for investment0.65% 0.69%
Nonperforming assets and acquired credit impaired loans / total assets0.54
 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, 2020At December 31, 2019
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications$26,141  $38,578  
Nonaccrual loans and leases with partial charge-offs3,496  1,966  
Life-to-date partial charge-offs on nonaccrual loans and leases2,022  1,320  
Specific reserves on individually analyzed loans1,135  2,108  
As of June 30, 2020, the Corporation modified approximately 1,420 loans and leases with principal balances totaling $720.1 million via principal and/or interest deferrals. These modifications were done in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customer Affected by the Coronavirus. Accordingly, these loans and leases were not categorized as troubled debt restructurings.
Table 4—Loan Concentration

The following table provides summarized detail related to outstanding commercial loan balances, excluding PPP loans, segmented by industry description, PPP loans segmented by industry description, and certain loan modifications segmented by industry description for commercial loans and segmented by loan category for other loan types as of June 30, 2020:
(Dollars in thousands)
Industry DescriptionTotal Outstanding Balance (excl PPP)% of Commercial Loan PortfolioPPP $ (1)% of Portfolio with PPP Loans (2)$ Balance of Modified Loans (3)Modified Loans as a % of Portfolio (3)
CRE - Retail$260,744  7.1 %$239  — %$124,614  47.8 %
Animal Production240,335  6.6  706  2.1  20,738  8.6  
CRE - 1-4 Family Residential Investment238,667  6.5  1,282  0.2  26,902  11.3  
CRE - Office208,000  5.7  —  —  16,394  7.9  
CRE - Multi-family182,347  5.0  —  —  11,774  6.5  
Hotels & Motels (Accommodation)171,688  4.7  2,407  50.4  146,547  85.4  
Nursing and Residential Care Facilities155,355  4.3  7,935  27.4  —  —  
CRE - Industrial / Warehouse125,439  3.5  139  4.8  26,316  21.0  
Real Estate Lenders, Secondary Market Financing116,928  3.2  4,258  18.6  49  —  
Specialty Trade Contractors114,662  3.2  66,880  15.3  6,043  5.3  
CRE - Mixed-Use - Residential107,243  3.0  —  —  34,476  32.1  
Professional, Scientific, and Technical Services100,365  2.8  70,035  30.4  11,600  11.6  
Homebuilding (tract developers, remodelers)91,095  2.5  15,034  6.7  3,330  3.7  
Education89,894  2.5  15,577  39.8  6,651  7.4  
Merchant Wholesalers, Durable Goods71,690  2.0  20,726  21.0  9,690  13.5  
Fabricated Metal Product Manufacturing68,364  1.9  12,895  3.7  6,084  8.9  
Crop Production61,866  1.7  284  0.6  3,199  5.2  
Food Services and Drinking Places61,118  1.7  15,933  25.5  33,939  55.5  
CRE - Medical Office59,751  1.6  —  —  14,732  24.7  
Administrative and Support Services54,447  1.5  28,777  33.0  1,557  2.9  
Motor Vehicle and Parts Dealers51,774  1.4  11,623  5.5  18,026  34.8  
Food Manufacturing51,016  1.4  2,985  1.4  17,535  34.4  
Total Commercial Loans >$50M$2,682,788  73.8 %$277,715  11.6 %$540,196  20.1 %
Industries with <$50 million in outstandings$951,019  26.2 %$221,263  19.2 %$126,200  13.3 %
Total Commercial Loans$3,633,807  100.0 %$498,978  13.6 %$666,396  18.3 %
Consumer Loans and Lease FinancingsTotal Outstanding BalancePPP $ (1)$ Balance of Modified Loans (3)Modified Loans as a % of Portfolio (3)
Real Estate-Residential Secured for Personal Purpose$462,512  —  $35,525  7.7 %
Real Estate-Home Equity Secured for Personal Purpose173,041  —  4,077  2.4  
Loans to Individuals29,222  —  486  1.7  
Lease Financings154,249  —  13,633  8.8  
Total Consumer Loans and Lease Financings$819,024  $—  $53,721  6.6 %
Total$4,452,831  $498,978  $720,117  16.2 %
(1) Includes ($11.0) million of net deferred fees.
(2) Represents weighted average percent of the portfolio which received a PPP loan.
(3) Loan modifications referenced above were made in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus and therefore were not classified as TDRs..
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(Dollars in thousands)At June 30, 2019 At December 31, 2018
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications$25,147
 $26,208
Nonaccrual loans and leases with partial charge-offs2,302
 2,210
Life-to-date partial charge-offs on nonaccrual loans and leases1,353
 1,320
Specific reserves on impaired loans$2,439
 $1,415
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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 thousand$1.2 million and $885$835 thousand for the three months ended June 30, 20192020 and 2018,2019, respectively. The amortization of intangible assets was $1.6$2.2 million and $1.8$1.6 million for the six months ended June 30, 20192020 and 2018,2019, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at June 30, 20192020 and December 31, 2018.2019.

The Corporation also has goodwill with a net carrying value of $172.6 million at June 30, 20192020 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 months ended June 30, 20192020 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 June 30, 2020At December 31, 2019Change
AmountPercent
Deposits$4,869,329  $4,360,075  $509,254  11.7 %
Short-term borrowings210,780  18,680  192,100  N/A
Long-term debt210,039  150,098  59,941  39.9  
Subordinated notes94,903  94,818  85  0.1  
Operating lease liabilities37,427  37,617  (190) (0.5) 
Accrued interest payable and other liabilities47,961  44,514  3,447  7.7  
Total liabilities$5,470,439  $4,705,802  $764,637  16.2 %
(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 borrowings39,350
 189,768
 (150,418) (79.3)
Long-term debt170,195

145,330
 24,865
 17.1
Subordinated notes94,696
 94,574
 122
 0.1
Operating lease liabilities38,608
 —
 38,608
 N/M
Accrued interest payable and other liabilities37,669
 44,609
 (6,940) (15.6)
Total liabilities$4,502,628
 $4,360,214
 $142,414
 3.3 %


Deposits

Total deposits increased $236.2$509.3 million, or 6.1%11.7%, 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 $125.4increased $252.1 million, or 29.2%95.6%, from December 31, 2018,2019, primarily due to a decreasean increase in short-term borrowings of $150.4 million. The$192.1 million, of which $182.5 million which represents borrowings from the Federal Reserve Bank under the PPPLF, and an increase of $59.9 million in long-term borrowings, primarily due to an increase in deposits reducedlong-term FHLB borrowings to fund future loan growth. A portion of the needborrowings under the PPPLF were used to borrow short-term funds.fund PPP loans originated during the year.


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 $4.6 million and $420 thousand at June 30, 2020 and December 31, 2019, respectively, of which $4.1 million was related to CECL. Refer to the Executive Overview for discussion of the increase of $4.1 million.
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Shareholders’ Equity

The following table presents total shareholders’ equity at the dates indicated:
(Dollars in thousands)At June 30, 2020At December 31, 2019Change
AmountPercent
Common stock$157,784  $157,784  $—  — %
Additional paid-in capital296,028  294,999  1,029  0.3  
Retained earnings268,751  288,803  (20,052) (6.9) 
Accumulated other comprehensive loss(19,807) (21,730) 1,923  (8.8) 
Treasury stock(47,883) (44,734) (3,149) 7.0  
Total shareholders’ equity$654,873  $675,122  $(20,249) (3.0 %)
(Dollars in thousands)At June 30, 2019 At December 31, 2018 Change
Amount Percent
Common stock$157,784
 $157,784
 $—
 —%
Additional paid-in capital293,947
 292,401
 1,546
 0.5
Retained earnings267,357
 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 in shareholder'sTotal shareholders' equity at June 30, 2019 of $27.5decreased $20.2 million, or 4.4%3.0%, from December 31, 2018 was primarily related to an increase in retained earnings of $19.2 million.2019. Retained earnings at June 30, 2019 was impacted2020 decreased by the six months$11.3 million upon adoption of net income of $32.5CECL and by $11.7 million due to cash dividends declared, which were partially offset by the related adjustments tonet income of $2.9 million for the January 1, 2019 adoption of ASU No. 2016-02 of $1.5 million and cash dividends declared of $11.7 million.six months ended June 30, 2020. Accumulated other comprehensive loss decreased by $6.5$1.9 million mainly attributable to increases in the fair value of available-for-sale investment securities of $6.4$1.8 million, net of tax. Treasury stock increased $3.1 million from December 31, 2019 primarily related to purchases of $4.0 million under the Corporation's share repurchase program offset by $1.3 million of stock issued under dividend reinvestment and employee stock purchase plans.

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 income of $19.8 million$990 thousand and $3.5$19.8 million for the three months ended June 30, 20192020 and 2018,2019, respectively and $37.1 millionpre-tax loss of $538 thousand and $16.5pre-tax income $37.1 million for the six months ended June 30, 20192020 and 2018,2019, respectively. See the section of this MD&A under the heading “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for Loan and LeaseCredit 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$1.6 million and $1.9$2.1 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $3.8$3.5 million and $3.7$3.8 million for the six months ended June 30, 20192020 and 2018,2019, respectively. Noninterest income was $6.2$5.5 million and $5.9$6.2 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $11.9$11.7 million and $11.6$11.9 million for the six months ended June 30, 20192020 and 2018,2019, respectively. The increasedecrease in pre-tax income and noninterest income for the three and six months ended June 30, 20192020 compared to the three and six months ended June 30, 20182019 was primarily due to an increasea decline in the value 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 $3.6 billion as of June 30, 2020, $3.2 billion as of March 31, 2020, $3.8 billion as of December 31, 2019, $3.7 billion as of June 30, 2019 and $3.5$3.6 billion as of June 30, 2018.March 31, 2019. The increasedecrease in assets under management and supervision as of June 30,$193.3 million for the period from December 31, 2019 as compared to June 30, 2018,2020 was primarily due to the general downturn in the equity markets 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$1.2 million and $544$860 thousand for the three months ended June 30, 20192020 and 2018,2019, respectively, and $2.9$2.7 million and $2.1$2.9 million for the six months ended June 30, 20192020 and 2018,2019, respectively. Noninterest income was $4.1$4.2 million and $3.9$4.1 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $9.5$9.1 million and $9.0$9.5 million for the six months ended June 30, 2020 and 2019, respectively. The increase in pre-tax income and 2018, respectively. Noninterestnoninterest income increasedfor the three months ended June 30, 2020 was primarily due to increasesan increase in commercial lines and group life and health premiums and contingent commission income.income, which was $175 thousand and $43 thousand for the three months ended June 30, 2020 and 2019, respectively. The decrease in pre-tax income and noninterest income for the six months ended June 30, 2020 was primarily due to a decrease in contingent commission income, which was $1.3 million and $1.5 million for the six months ended June 30, 2020 and 2019, respectively.

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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 (setas set forth in the following table)table. To comply with the regulatory definition of Totalwell capitalized, a depository institution must maintain minimum capital Tier 1 capitalamounts 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 requirerequires 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.

Table 4—5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of June 30, 20192020 and December 31, 20182019 under regulatory capital rules were as follows.
Actual For Capital Adequacy
Purposes		 To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions		 ActualFor Capital Adequacy
Purposes		To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions
(Dollars in thousands)Amount Ratio Amount Ratio Amount   Ratio  (Dollars in thousands)AmountRatioAmountRatioAmount  Ratio  
At June 30, 2019       
At June 30, 2020At June 30, 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$670,377  13.72 %$390,988  8.00 %$488,736  10.00 %
Bank529,106
 11.65
 363,289
 8.00
 454,112
 10.00
Bank585,816  12.04  389,338  8.00  486,672  10.00  
Tier 1 Capital (to Risk-Weighted Assets):           Tier 1 Capital (to Risk-Weighted Assets):
Corporation501,310
 10.99
 273,743
 6.00
 364,990
 8.00
Corporation524,316  10.73  293,241  6.00  390,988  8.00  
Bank495,788
 10.92
 272,467
 6.00
 363,289
 8.00
Bank524,913  10.79  292,003  6.00  389,338  8.00  
Tier 1 Common Capital (to Risk-Weighted Assets):           Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation501,310
 10.99
 205,307
 4.50
 296,554
 6.50
Corporation524,316  10.73  219,931  4.50  317,678  6.50  
Bank495,788
 10.92
 204,350
 4.50
 295,173
 6.50
Bank524,913  10.79  219,002  4.50  316,337  6.50  
Tier 1 Capital (to Average Assets):           Tier 1 Capital (to Average Assets):
Corporation501,310
 10.01
 200,268
 4.00
 250,336
 5.00
Corporation524,316  9.15  229,093  4.00  286,367  5.00  
Bank495,788
 9.95
 199,407
 4.00
 249,258
 5.00
Bank524,913  9.20  228,256  4.00  285,321  5.00  
At December 31, 2018           
At December 31, 2019At 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 %
Bank506,728
 11.54
 351,220
 8.00
 439,026
 10.00
Bank552,142  11.66  378,724  8.00  473,405  10.00  
Tier 1 Capital (to Risk-Weighted Assets):           Tier 1 Capital (to Risk-Weighted Assets):
Corporation479,550
 10.88
 264,573
 6.00
 352,764
 8.00
Corporation524,137  11.03  285,207  6.00  380,276  8.00  
Bank476,639
 10.86
 263,415
 6.00
 351,220
 8.00
Bank516,087  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):
Corporation479,550
 10.88
 198,430
 4.50
 286,621
 6.50
Corporation524,137  11.03  213,905  4.50  308,974  6.50  
Bank476,639
 10.86
 197,561
 4.50
 285,367
 6.50
Bank516,087  10.90  213,032  4.50  307,713  6.50  
Tier 1 Capital (to Average Assets):           Tier 1 Capital (to Average Assets):
Corporation479,550
 10.13
 189,374
 4.00
 236,718
 5.00
Corporation524,137  10.02  209,330  4.00  261,663  5.00  
Bank476,639
 10.12
 188,487
 4.00
 235,609
 5.00
Bank516,087  9.90  208,589  4.00  260,737  5.00  
At June 30, 20192020 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, 2019,2020, 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

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Table 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.Contents
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 beare 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 in2020 CECL IFR allows Corporations that adopt CECL before December 31, 2020 to defer 100 percent of the first reporting period thatday one transitional amounts described above through 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 adopted.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. 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 flowflows 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
66
Table 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.Contents
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.

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 Simplificationstimulate 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.

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Table of Regulation S-KContents

•An option to delay 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 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 2, 2019,9, 2020, the SEC issued Release No. 33-10618; 34-85381, "FAST Act ModernizationFederal Reserve Board created the Paycheck Protection Program Lending Facility (the “Facility”) to facilitate lending by eligible borrowers to small businesses under the Paycheck Protection Program. Under the Facility, the Federal Reserve Banks will lend to depository institutions that originated PPP loans on a non-recourse basis, taking the PPP Loans as collateral. Only PPP loans guaranteed by the SBA are eligible to serve as collateral for the Facility. The maturity date of an extension of credit under the Facility will equal the maturity date of the PPP Loan pledged to secure the extension of credit. The maturity date of the Facility’s extension of credit will be accelerated if the underlying PPP Loan goes into default and Simplification of Regulation S-K." The amendments under this rule modernize and simplify certain disclosure requirements in a manner that reduces the costs and burdens on registrants while continuingeligible borrower sells the PPP Loan to provide material informationthe SBA to investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. The amendments 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 disclosuresrealize on the Form 10-Q cover pageSBA guarantee. The maturity date of the Facility’s extension of credit also will be accelerated to the extent of any loan forgiveness reimbursement received by the eligible borrower from the SBA. Extensions of credit under the Facility will be made at a rate of 35 basis points. There are no fees associated with the Facility. The principal amount of an extension of credit under the Facility will be equal to the principal amount of the PPP Loan pledged as collateral to secure the extension of credit.

The Paycheck Protection Program and Health Care Enhancement Act

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

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 was signed into law that amends the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and eases rules on how and when small businesses can use loans and still be eligible for forgiveness. The PPP Flexibility Act changed many aspects of the Paycheck Protection Program (“PPP”), including: (1) extending the covered period for loan forgiveness purposes to the earlier of 24 weeks or December 31, 2020; (2) lowering the amount required to be spent on payroll costs from 75% to 60% of the PPP loan funds; (3) extending the loan maturity period from two to five years; and (4) revising the loan deferral period.

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, 2019.2020.

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 changes in the Corporation’sCorporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended June 30, 20192020 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

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 1A.Risk Factors
There have been no material changesItem 1A.Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors from thoserepresent material updates and additions to the risk factors previously disclosed under Item 1A, “Risk Factors” in the Corporation’sour Annual Report on Form 10-K for the year ended December 31, 2018.2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, each 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 factors set forth below also are cautionary statements 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.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home. This resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. During the COVID-19 outbreak, stock markets have experienced declines in value and in particular bank stocks have significantly declined. In response to the COVID-19 outbreak, the Federal Reserve 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 declined to historic lows. Various state governments and 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. Further, while jurisdictions in which we operate have gradually allowed the reopening of businesses and other organizations and removed the sheltering restrictions, it is premature to assess whether doing so will result in a meaningful increase in economic activity and the impact of such actions on further COVID-19 cases. 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 and successfully 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 increase 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 further and sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on its goodwill or core deposit and customer relationships intangibles that could result in an impairment charge being recorded for that period, that would adversely impact our results of operations and the ability of the Bank to pay dividends to us;
•As a result of the decline in the Federal Reserve’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, reducing our net interest margin and spread and reducing net income;
•A material decrease in net income or a net loss over several quarters could result in the elimination of or 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;
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•Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs; and
•We face litigation, regulatory enforcement and reputation risk as a result of our participation in the PPP and the risk that the Small Business Administration may not fund some or all PPP loan guaranties.

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.

Any one or a combination of the factors identified above, or other factors, could materially and adversely affect our business, financial condition, results of operations and prospects.

We may be adversely affected by the emergency actions taken by the U.S. government to mitigate the impact of the COVID-19 pandemic on the U.S. economy.

The United States government has taken a number of actions to mitigate the impact of the COVID-19 pandemic on the U.S. economy. Among other steps taken, the Federal Reserve cut the federal funds rate in March 2020, and also lowered the interest rate on emergency lending at the discount window and lengthened the term of loans to 90 days. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, or CARES Act was signed into law. Key provisions of the CARES Act include one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, loans and grants to certain businesses, and temporary amendments to the Internal Revenue Code. The SBA was tapped to lead the effort to loan funds to small businesses, in conjunction with banks. The Federal Reserve and the U.S. Treasury have also responded with lending programs under the CARES Act. Further, the Federal Reserve has intervened with a number of credit facilities intended to keep the capital markets liquid.

There can be no assurance that these interventions by the U.S. government will be successful in mitigating the impact of the COVID-19 pandemic and it is unclear what the cumulative effect of these extraordinary actions by the U.S. government will be on the economy as a whole and upon the financial condition and results of operations of the Corporation and its customers, both in the short-term and the long-term.

We are subject to litigation, regulatory enforcement risk and reputation risk regarding the Bank’s participation in the Paycheck Protection Program and the risk that the Small Business Administration ("SBA")may not fund some or all PPP loan guaranties.

The CARES Act included a $349 billion loan program administered through the SBA referred to as the PPP. The $349 billion in funds for the PPP were exhausted on April 16, 2020. On April 27, 2020, the program was reopened with an additional $310 billion approved by Congress. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to detailed qualifications and eligibility criteria. The Bank, as participating lender, has originated approximately 2,550 loans under the PPP aggregating approximately $510 million through June 30, 2020.

Because of the short timeframe between the passing of the CARES Act and implementation of the PPP, some of the rules and guidance relating to PPP were issued after lenders began processing PPP applications. Also, there was and continues to be uncertainty in the laws, rules and guidance relating to the PPP. Since the opening of the PPP, several banks have been subject to litigation regarding the procedures used in processing PPP applications. In addition, some banks and borrowers have received negative media attention associated with PPP loans. Although we believe that we have administered the PPP in accordance with all applicable laws, regulations and guidance, we may be exposed to litigation risk and negative media attention our participation in the PPP. If any such litigation is filed and is not resolved in in our favor, it may result in significant financial liability to us or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation or media attention could have a material adverse impact on our business, financial condition, and results of operations.

The PPP has also attracted interest from federal and state enforcement authorities, oversight agencies, regulators, and Congressional committees. State Attorneys General and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling the Bank to rely on borrower certifications, and take more aggressive action against the Bank for alleged violations of the provisions governing the Bank’s participation in the PPP. Federal and state regulators can impose or request that we consent to substantial sanctions, restrictions and requirements if they
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determine there are violations of laws, rules or regulations or weaknesses or failures with respect to general standards of safety and soundness, which could adversely affect our business, reputation, results of operation and financial condition.

The Bank also has credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which any loans were originated, funded or serviced by the Bank, including any issue with the eligibility of a borrower to receive a PPP loan. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Bank.

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
PeriodTotal 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, 20192020—
$—
—
864,246679,174 
May 1 – 31, 20192020—
—
—
864,246679,174 
June 1 – 30, 20192020—
—
—
864,246679,174 
Total—
$—
—

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.



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 stock repurchase 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 sharesShare repurchased pursuant to these plans during the three months ended June 30, 2019.2020 were as follows:

PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
April 1 – 30, 2020906  $15.26  
May 1 – 31, 2020—  —  
June 1 – 30, 2020—  —  
Total906  $15.26  

Item 3.Defaults Upon Senior Securities
Item 3.Defaults Upon Senior Securities
None.

Item 4.Mine Safety Disclosures
Item 4.Mine Safety Disclosures
Not Applicable.

Item 5.Other Information
Item 5.Other Information
None.

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Item 6.Exhibits
Item 6.a.Exhibits
a.Exhibits
Exhibit 3.1
Amended and Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of Form 10-K, filed with the SEC on February 28, 2019.
Exhibit 3.2
Amended By-Laws are incorporated by reference to Exhibit 3.2 of Form 10-K, filed with the SEC on February 28, 2019.
Exhibit 10.131.1
Form of Restricted Stock Unit Agreement for Directors (Service Based) under the Amended and Restated Univest 2013 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.1 of Form 10-Q, filed with the SEC on May 3, 2019.
Exhibit 10.2
Form of Performance Based Restricted Stock Unit Agreement for Employees under the Amended and Restated Univest 2013 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.2 of Form 10-Q, filed with the SEC on May 3, 2019.
Exhibit 10.3
Form of Restricted Stock Unit Agreement for Employees (Service Based) under the Amended and Restated Univest 2013 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.3 of Form 10-Q, filed with the SEC on May 3, 2019.
Exhibit 10.4
Form of Change in Control Agreement, dated December 3, 2018, entered into between Univest Corporation of Pennsylvania and Brian J. Richardson.
Exhibit 31.1
Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2
Certification of Brian J. Richardson, Executive Vice President and Chief Financial Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1
Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2
Certification of Brian J. Richardson, Executive Vice President and Chief Financial Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101The following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019,2020, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholder'sShareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
Exhibit 104The cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019,2020, formatted in Inline XBRL.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Univest Financial Corporation
(Registrant)
Date: July 24, 2020Univest Financial Corporation
(Registrant)
Date: August 2, 2019/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer

President and Chief Executive Officer
(Principal Executive Officer)
Date: August 2, 2019July 24, 2020/s/ Brian J. Richardson
Brian J. Richardson

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)


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