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 September 30, ~~2019~~2020


☐			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)


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

14 North Main Street, Souderton, Pennsylvania 18964

(Address of principal executive offices)~~(Zip~~ (Zip Code)

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

Not applicable

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

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 value	~~29,326,748~~	29,267,112
(Title of Class)	(Number of shares outstanding at October ~~31, 2019)~~30, 2020)

Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

Page Number

Part I.

Financial Information:

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at September 30, ~~2019~~2020 and December 31, ~~2018~~2019

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30 ~~2019~~, 20 20 and ~~2018~~2019

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September ~~30, 2019~~3 0 , 20 20 and ~~2018~~2019

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September ~~30, 2019~~3 0 , 20 20 and ~~2018~~2019

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30 ~~30, 2019~~, 20 20 and ~~2018~~2019

Notes to Condensed Consolidated Financial Statements

Item 2.

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

5152

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

6871

Item 4.

Controls and Procedures

Part II.

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

6972

Item 3.

Defaults Upon Senior Securities

6972

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


		(UNAUDITED)					(UNAUDITED)
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)	At September 30, 2019		At December 31, 2018		(Dollars in thousands, except share data)	At September 30, 2020			At December 31, 2019
ASSETS	ASSETS								ASSETS
Cash and due from banks	Cash and due from banks	$	68,072	$	61,573	Cash and due from banks	$	64,537		$	50,571
Interest-earning deposits with other banks	Interest-earning deposits with other banks	157,262		47,847		Interest-earning deposits with other banks	323,139			74,557
Cash and cash equivalents	Cash and cash equivalents	225,334		109,420		Cash and cash equivalents	387,676			125,128

Investment securities held-to-maturity (fair value $186,644 and $141,575 at September 30, 2019 and December 31, 2018, respectively)		183,845		142,634
Investment securities available-for-sale		262,143		328,507
Investment securities held-to-maturity (fair value $182,376 and $194,886 at September 30, 2020 and December 31, 2019, respectively)						Investment securities held-to-maturity (fair value $182,376 and $194,886 at September 30, 2020 and December 31, 2019, respectively)	176,817			192,052
Investment securities available-for-sale (amortized cost $191,202 and $251,014, net of allowance for credit losses of $692 and $— at September 30, 2020 and December 31, 2019, respectively)						Investment securities available-for-sale (amortized cost $191,202 and $251,014, net of allowance for credit losses of $692 and $— at September 30, 2020 and December 31, 2019, respectively)	189,227			246,924
Investments in equity securities	Investments in equity securities	2,459		2,165		Investments in equity securities	2,786			2,623
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	29,254		28,337		Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	29,723			28,254
Loans held for sale	Loans held for sale	2,893		1,754		Loans held for sale	14,465			5,504
Loans and leases held for investment	Loans and leases held for investment	4,251,933		4,006,574		Loans and leases held for investment	5,211,856			4,386,836
Less: Reserve for loan and lease losses		(33,662)		(29,364)
Less: Allowance for credit losses, loans and leases						Less: Allowance for credit losses, loans and leases	(91,870)			(35,331)
Net loans and leases held for investment	Net loans and leases held for investment	4,218,271		3,977,210		Net loans and leases held for investment	5,119,986			4,351,505
Premises and equipment, net	Premises and equipment, net	57,171		59,559		Premises and equipment, net	55,410			56,676
Operating lease right-of-use assets	Operating lease right-of-use assets	34,965		—		Operating lease right-of-use assets	34,573			34,418
Goodwill	Goodwill	172,559		172,559		Goodwill	172,559			172,559
Other intangibles, net of accumulated amortization	Other intangibles, net of accumulated amortization	10,522		11,990		Other intangibles, net of accumulated amortization	9,015			10,284
Bank owned life insurance	Bank owned life insurance	114,037		111,599		Bank owned life insurance	116,985			114,778

Accrued interest receivable and other assets	Accrued interest receivable and other assets	40,158		38,613		Accrued interest receivable and other assets	73,609			40,219
Total assets	Total assets	$	5,353,611	$	4,984,347	Total assets	$	6,382,831		$	5,380,924
LIABILITIES	LIABILITIES					LIABILITIES
Noninterest-bearing deposits	Noninterest-bearing deposits	$	1,198,425	$	1,055,919	Noninterest-bearing deposits	$	1,714,505		$	1,279,681
Interest-bearing deposits:	Interest-bearing deposits:					Interest-bearing deposits:
Demand deposits	Demand deposits	1,644,546		1,377,171		Demand deposits	2,055,164			1,677,682
Savings deposits	Savings deposits	776,920		782,766		Savings deposits	885,715			796,702
Time deposits	Time deposits	718,100		670,077		Time deposits	556,219			606,010
Total deposits	Total deposits	4,337,991		3,885,933		Total deposits	5,211,603			4,360,075
Short-term borrowings	Short-term borrowings	18,970		189,768		Short-term borrowings	17,681			18,680
Long-term debt	Long-term debt	160,128		145,330		Long-term debt	205,010			150,098
Subordinated notes	Subordinated notes	94,757		94,574		Subordinated notes	193,413			94,818
Operating lease liabilities	Operating lease liabilities	38,116		—		Operating lease liabilities	37,891			37,617
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	39,350		44,609		Accrued interest payable and other liabilities	48,126			44,514
Total liabilities	Total liabilities	4,689,312		4,360,214		Total liabilities	5,713,724			4,705,802
SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY					SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at September 30, 2019 and December 31, 2018; 31,556,799 shares issued at September 30, 2019 and December 31, 2018; 29,312,534 and 29,270,852 shares outstanding at September 30, 2019 and December 31, 2018, respectively		157,784		157,784
Common stock, $5 par value: 48,000,000 shares authorized at September 30, 2020 and December 31, 2019; 31,556,799 shares issued at September 30, 2020 and December 31, 2019; 29,241,302 and 29,334,629 shares outstanding at September 30, 2020 and December 31, 2019, respectively						Common stock, $5 par value: 48,000,000 shares authorized at September 30, 2020 and December 31, 2019; 31,556,799 shares issued at September 30, 2020 and December 31, 2019; 29,241,302 and 29,334,629 shares outstanding at September 30, 2020 and December 31, 2019, respectively	157,784			157,784
Additional paid-in capital	Additional paid-in capital	294,556		292,401		Additional paid-in capital	296,599			294,999
Retained earnings	Retained earnings	279,158		248,167		Retained earnings	281,026			288,803
Accumulated other comprehensive loss, net of tax benefit	Accumulated other comprehensive loss, net of tax benefit	(22,008)		(28,416)		Accumulated other comprehensive loss, net of tax benefit	(19,100)			(21,730)
Treasury stock, at cost; 2,244,265 and 2,285,947 shares at September 30, 2019 and December 31, 2018, respectively		(45,191)		(45,803)
Treasury stock, at cost; 2,315,497 and 2,222,170 shares at September 30, 2020 and December 31, 2019, respectively						Treasury stock, at cost; 2,315,497 and 2,222,170 shares at September 30, 2020 and December 31, 2019, respectively	(47,202)			(44,734)
Total shareholders’ equity	Total shareholders’ equity	664,299		624,133		Total shareholders’ equity	669,107			675,122
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,353,611	$	4,984,347	Total liabilities and shareholders’ equity	$	6,382,831		$	5,380,924

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

Table of Contents

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended						Nine Months Ended							Three Months Ended					Nine Months Ended
		September 30,						September 30,							September 30,					September 30,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2019		2018		2019		2018		(Dollars in thousands, except per share data)	2020		2019		2020			2019
Interest income	Interest income																Interest income
Interest and fees on loans and leases:	Interest and fees on loans and leases:									Interest and fees on loans and leases:
Taxable	Taxable	$	46,933	$	43,066	$	139,766	$	121,653	Taxable	$	46,039	$	46,933	$	136,357		$	139,766
Exempt from federal income taxes	Exempt from federal income taxes	2,774		2,501		8,216		7,269		Exempt from federal income taxes	2,271		2,774		7,312			8,216
Total interest and fees on loans and leases	Total interest and fees on loans and leases	49,707		45,567		147,982		128,922		Total interest and fees on loans and leases	48,310		49,707		143,669			147,982
Interest and dividends on investment securities:	Interest and dividends on investment securities:									Interest and dividends on investment securities:
Taxable	Taxable	2,581		2,348		7,939		6,805		Taxable	1,646		2,581		6,569			7,939
Exempt from federal income taxes	Exempt from federal income taxes	315		459		1,147		1,404		Exempt from federal income taxes	137		315		573			1,147
Interest on deposits with other banks	Interest on deposits with other banks	1,178		397		2,016		621		Interest on deposits with other banks	100		1,178		492			2,016
Interest and dividends on other earning assets	Interest and dividends on other earning assets	519		484		1,640		1,497		Interest and dividends on other earning assets	419		519		1,308			1,640
Total interest income	Total interest income	54,300		49,255		160,724		139,249		Total interest income	50,612		54,300		152,611			160,724
Interest expense	Interest expense									Interest expense
Interest on deposits	Interest on deposits	9,434		6,278		26,748		14,511		Interest on deposits	4,028		9,434		15,806			26,748
Interest on short-term borrowings	Interest on short-term borrowings	94		584		949		2,187		Interest on short-term borrowings	97		94		325			949
Interest on long-term debt and subordinated notes	Interest on long-term debt and subordinated notes	2,127		1,970		6,224		5,866		Interest on long-term debt and subordinated notes	2,633		2,127		6,640			6,224
Total interest expense	Total interest expense	11,655		8,832		33,921		22,564		Total interest expense	6,758		11,655		22,771			33,921
Net interest income	Net interest income	42,645		40,423		126,803		116,685		Net interest income	43,854		42,645		129,840			126,803
Provision for loan and lease losses		1,530		2,745		6,291		20,207
Net interest income after provision for loan and lease losses		41,115		37,678		120,512		96,478
Provision for credit losses										Provision for credit losses	3,935		1,533		49,515			6,286
Net interest income after provision for credit losses										Net interest income after provision for credit losses	39,919		41,112		80,325			120,517
Noninterest income	Noninterest income									Noninterest income
Trust fee income	Trust fee income	1,973		1,960		5,914		6,000		Trust fee income	1,915		1,973		5,729			5,914
Service charges on deposit accounts	Service charges on deposit accounts	1,513		1,454		4,395		4,116		Service charges on deposit accounts	1,187		1,513		3,474			4,395
Investment advisory commission and fee income	Investment advisory commission and fee income	4,032		3,785		11,876		11,246		Investment advisory commission and fee income	4,005		4,032		11,800			11,876
Insurance commission and fee income	Insurance commission and fee income	3,877		3,643		12,962		12,243		Insurance commission and fee income	3,776		3,877		12,575			12,962
Other service fee income	Other service fee income	2,255		2,284		7,112		6,884		Other service fee income	2,093		2,255		5,451			7,112
Bank owned life insurance income	Bank owned life insurance income	743		865		2,438		2,744		Bank owned life insurance income	741		743		2,207			2,438
Net gain on sales of investment securities	Net gain on sales of investment securities	33		—		41		10		Net gain on sales of investment securities	57		33		817			41
Net gain on mortgage banking activities	Net gain on mortgage banking activities	1,629		754		2,908		2,412		Net gain on mortgage banking activities	5,860		1,629		12,119			2,908

Other income	Other income	544		116		1,606		102		Other income	2,171		544		4,017			1,606
Total noninterest income	Total noninterest income	16,599		14,861		49,252		45,757		Total noninterest income	21,805		16,599		58,189			49,252
Noninterest expense	Noninterest expense									Noninterest expense
Salaries, benefits and commissions	Salaries, benefits and commissions	22,785		20,321		66,438		61,033		Salaries, benefits and commissions	24,059		22,758		69,595			66,356
Net occupancy	Net occupancy	2,475		2,515		7,687		7,805		Net occupancy	2,609		2,475		7,661			7,687
Equipment	Equipment	1,088		1,042		3,143		3,132		Equipment	972		1,088		2,890			3,143
Data processing	Data processing	2,624		2,339		7,765		6,662		Data processing	2,862		2,624		8,372			7,765
Professional fees	Professional fees	1,517		1,370		4,088		4,056		Professional fees	1,321		1,517		3,902			4,088
Marketing and advertising	Marketing and advertising	558		646		1,884		1,987		Marketing and advertising	463		558		1,400			1,884
Deposit insurance premiums	Deposit insurance premiums	(444)		544		438		1,387		Deposit insurance premiums	707		(444)		1,826			438
Intangible expenses	Intangible expenses	378		479		1,221		1,685		Intangible expenses	283		378		934			1,221

Restructuring charges		—		—		—		571

Other expense	Other expense	5,289		5,115		15,941		15,525		Other expense	5,251		5,313		16,684			16,028
Total noninterest expense	Total noninterest expense	36,270		34,371		108,605		103,843		Total noninterest expense	38,527		36,267		113,264			108,610
Income before income taxes	Income before income taxes	21,444		18,168		61,159		38,392		Income before income taxes	23,197		21,444		25,250			61,159
Income tax expense	Income tax expense	3,782		3,204		10,950		6,221		Income tax expense	5,078		3,782		4,208			10,950
Net income	Net income	$	17,662	$	14,964	$	50,209	$	32,171	Net income	$	18,119	$	17,662	$	21,042		$	50,209
Net income per share:	Net income per share:									Net income per share:
Basic	Basic	$	0.60	$	0.51	$	1.71	$	1.10	Basic	$	0.62	$	0.60	$	0.72		$	1.71
Diluted	Diluted	0.60		0.51		1.71		1.09		Diluted	0.62		0.60		0.72			1.71

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

Table of Contents

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended September 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 $ 21,444 $ 3,782 $ 17,662 $ 18,168 $ 3,204 $ 14,964
Other comprehensive loss:
Net unrealized losses on available-for-sale investment securities:
Net unrealized holding losses arising during the period (219) (46) (173) (1,122) (236) (886)
Less: reclassification adjustment for net gains on sales realized in net income (1) (33) (7) (26) — — —
Total net unrealized losses on available-for-sale investment securities (252) (53) (199) (1,122) (236) (886)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
Net unrealized holding (losses) gains arising during the period (68) (14) (54) 79 17 62
Less: reclassification adjustment for net (gains) losses realized in net income (2) (4) (1) (3) 1 — 1
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges (72) (15) (57) 80 17 63
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3) 294 62 232 281 60 221
Accretion of prior service cost included in net periodic pension costs (3) (45) (10) (35) (70) (15) (55)
Total defined benefit pension plans 249 52 197 211 45 166
Other comprehensive loss (75) (16) (59) (831) (174) (657)
Total comprehensive income $ 21,369 $ 3,766 $ 17,603 $ 17,337 $ 3,030 $ 14,307


	Three Months Ended September 30,
(Dollars in thousands)	2020						2019
	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Income	$	23,197	$	5,078	$	18,119	$	21,444	$	3,782	$	17,662
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period	726		153		573		(219)		(46)		(173)
Reversal of provision for credit losses	(163)		(35)		(128)		—		—		—
Less: reclassification adjustment for net gains on sales realized in net income (1)	(57)		(12)		(45)		(33)		(7)		(26)

Total net unrealized gains (losses) on available-for-sale investment securities	506		106		400		(252)		(53)		(199)
Net unrealized gains (losses) on interest rate swaps used in cash flow hedges:
Net unrealized holding gains (losses) arising during the period	5		2		3		(68)		(14)		(54)
Less: reclassification adjustment for net losses (gains) realized in net income (2)	78		16		62		(4)		(1)		(3)
Total net unrealized gains (losses) on interest rate swaps used in cash flow hedges	83		18		65		(72)		(15)		(57)
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)	307		65		242		294		62		232
Accretion of prior service cost included in net periodic pension costs (3)	0		0		0		(45)		(10)		(35)
Total defined benefit pension plans	307		65		242		249		52		197
Other comprehensive income (loss)	896		189		707		(75)		(16)		(59)
Total comprehensive income	$	24,093	$	5,267	$	18,826	$	21,369	$	3,766	$	17,603

(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.

Table of Contents

Nine Months Ended September 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 $ 61,159 $ 10,950 $ 50,209 $ 38,392 $ 6,221 $ 32,171
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period 7,834 1,645 6,189 (9,371) (1,968) (7,403)
Less: reclassification adjustment for net gains on sales realized in net income (1) (41) (9) (32) (10) (2) (8)
Total net unrealized gains (losses) on available-for-sale investment securities 7,793 1,636 6,157 (9,381) (1,970) (7,411)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
Net unrealized holding (losses) gains arising during the period (499) (105) (394) 445 93 352
Less: reclassification adjustment for net (gains) losses realized in net income (2) (34) (7) (27) 27 6 21
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges (533) (112) (421) 472 99 373
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3) 882 186 696 844 177 667
Accretion of prior service cost included in net periodic pension costs (3) (136) (29) (107) (212) (44) (168)
Total defined benefit pension plans 746 157 589 632 133 499
Other comprehensive income (loss) 8,006 1,681 6,325 (8,277) (1,738) (6,539)
Total comprehensive income $ 69,165 $ 12,631 $ 56,534 $ 30,115 $ 4,483 $ 25,632


	Nine Months Ended September 30,
(Dollars in thousands)	2020						2019
	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Income	$	25,250	$	4,208	$	21,042	$	61,159	$	10,950	$	50,209
Other comprehensive income:
Net unrealized gains on available-for-sale investment securities:
Net unrealized holding gains arising during the period	2,930		615		2,315		7,834		1,645		6,189
Provision for credit losses	392		82		310		—		—		—
Less: reclassification adjustment for net gains on sales realized in net income (1)	(817)		(172)		(645)		(41)		(9)		(32)

Total net unrealized gains on available-for-sale investment securities	2,505		525		1,980		7,793		1,636		6,157
Net unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period	(554)		(116)		(438)		(499)		(105)		(394)
Less: reclassification adjustment for net losses (gains) realized in net income (2)	176		37		139		(34)		(7)		(27)
Total net unrealized losses on interest rate swaps used in cash flow hedges	(378)		(79)		(299)		(533)		(112)		(421)
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)	901		189		712		882		186		696
Accretion of prior service cost included in net periodic pension costs (3)	0		0		0		(136)		(29)		(107)
Total defined benefit pension plans	901		189		712		746		157		589
Other comprehensive income	3,028		635		2,393		8,006		1,681		6,325
Total comprehensive income	$	28,278	$	4,843	$	23,435	$	69,165	$	12,631	$	56,534

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

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

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

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 September 30, 2019
Balance at June 30, 2019 29,294,942 $ 157,784 $ 293,947 $ 267,357 $ (21,949) $ (45,469) $ 651,670
Net income — — — 17,662 — — 17,662
Other comprehensive loss, net of income tax benefit — — — — (59) — (59)
Cash dividends declared ($0.20 per share) — — — (5,861) — — (5,861)
Stock issued under dividend reinvestment and employee stock purchase plans 20,943 — 37 — — 497 534
Exercise of stock options 19,045 — (68) — — 382 314
Stock-based compensation — — 640 — — — 640
Purchases of treasury stock (22,396) — — — — (601) (601)
Balance at September 30, 2019 29,312,534 $ 157,784 $ 294,556 $ 279,158 $ (22,008) $ (45,191) $ 664,299


(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 September 30, 2020
Balance at June 30, 2020	29,201,985	$	157,784	$	296,028	$	268,751	$	(19,807)	$	(47,883)	$	654,873

Net income	—	0		0		18,119		0		0		18,119
Other comprehensive income, net of income tax	—	0		0		0		707		0		707
Cash dividends declared ($0.20 per share)	—	0		0		(5,845)		0		0		(5,845)
Stock-based compensation	—	0		658		1		0		0		659
Stock issued under dividend reinvestment and employee stock purchase plans	39,317	0		(87)		0		0		681		594





Balance at September 30, 2020	29,241,302	$	157,784	$	296,599	$	281,026	$	(19,100)	$	(47,202)	$	669,107


(Dollars in thousands, except per share data)	(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		(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 September 30, 2018
Balance at June 30, 2018		29,406,450	$	157,784	$	291,238	$	226,574	$	(28,007)	$	(42,295)	$	605,294
Three Months Ended September 30, 2019															Three Months Ended September 30, 2019
Balance at June 30, 2019															Balance at June 30, 2019	29,294,942	$	157,784	$	293,947	$	267,357	$	(21,949)	$	(45,469)	$	651,670
Net income	Net income	—	—		—		14,964		—		—		14,964		Net income	—	0		0		17,662		0		0		17,662
Other comprehensive loss, net of income tax benefit	Other comprehensive loss, net of income tax benefit	—	—		—		—		(657)		—		(657)		Other comprehensive loss, net of income tax benefit	—	0		0		0		(59)		0		(59)
Cash dividends declared ($0.20 per share)	Cash dividends declared ($0.20 per share)	—	—		—		(5,880)		—		—		(5,880)		Cash dividends declared ($0.20 per share)	—	0		0		(5,861)		0		0		(5,861)
Stock-based compensation															Stock-based compensation	—	0		640		0		0		0		640
Stock issued under dividend reinvestment and employee stock purchase plans	Stock issued under dividend reinvestment and employee stock purchase plans	20,332	—		42		—		—		524		566		Stock issued under dividend reinvestment and employee stock purchase plans	20,943	0		37		0		0		497		534

Exercise of stock options	Exercise of stock options	22,760	—		(29)		—		—		449		420		Exercise of stock options	19,045	0		(68)		0		0		382		314
Stock-based compensation		—	—		660		—		—		—		660

Purchases of treasury stock	Purchases of treasury stock	(39,624)	—		—		—		—		(1,125)		(1,125)		Purchases of treasury stock	(22,396)	0		0		0		0		(601)		(601)
Cancellations of restricted stock awards		(2,842)	—		81		—		—		(81)		—
Balance at September 30, 2018		29,407,076	$	157,784	$	291,992	$	235,658	$	(28,664)	$	(42,528)	$	614,242
Balance at September 30, 2019															Balance at September 30, 2019	29,312,534	$	157,784	$	294,556	$	279,158	$	(22,008)	$	(45,191)	$	664,299

Table of Contents


(Dollars in thousands, except per share data)	(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
Nine Months Ended September 30, 2019
Balance at December 31, 2018		29,270,852	$	157,784	$	292,401	$	248,167	$	(28,416)	$	(45,803)	$	624,133
Adjustment to initially apply ASU No. 2016-02 for leases (1)		—	—		—		(1,525)		—		—		(1,525)
Adjustment to initially apply ASU No. 2017-12 for derivatives (1)		—	—		—		(83)		83		—		—
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities (1)		—	—		—		(39)		—		—		(39)
Nine Months Ended September 30, 2020															Nine Months Ended September 30, 2020
Balance at December 31, 2019															Balance at December 31, 2019	29,334,629	$	157,784	$	294,999	$	288,803	$	(21,730)	$	(44,734)	$	675,122
Adjustment to initially apply ASU No. 2016-13 for CECL (1)															Adjustment to initially apply ASU No. 2016-13 for CECL (1)	—	0		0		(11,284)		237		0		(11,047)
Net income	Net income	—	—		—		50,209		—		—		50,209		Net income	—	0		0		21,042		0		0		21,042
Other comprehensive income, net of income tax	Other comprehensive income, net of income tax	—	—		—		—		6,325		—		6,325		Other comprehensive income, net of income tax	—	0		0		0		2,393		0		2,393
Cash dividends declared ($0.60 per share)	Cash dividends declared ($0.60 per share)	—	—		—		(17,572)		—		—		(17,572)		Cash dividends declared ($0.60 per share)	—	0		0		(17,522)		0		0		(17,522)
Stock-based compensation															Stock-based compensation	—	0		1,733		(13)		0		0		1,720
Stock issued under dividend reinvestment and employee stock purchase plans	Stock issued under dividend reinvestment and employee stock purchase plans	69,126	—		114		1		—		1,554		1,669		Stock issued under dividend reinvestment and employee stock purchase plans	103,471	0		(198)		0		0		1,955		1,757
Vesting of restricted stock unit awards															Vesting of restricted stock unit awards	17,035	0		(346)		0		0		346		0

Exercise of stock options	Exercise of stock options	58,545	—		(170)		—		—		1,175		1,005		Exercise of stock options	5,000	0		(7)		0		0		101		94
Stock-based compensation		—	—		1,870		—		—		—		1,870
Cancellations of performance-based restricted stock awards															Cancellations of performance-based restricted stock awards	(14,777)	0		418		0		0		(418)		0
Purchases of treasury stock	Purchases of treasury stock	(68,640)	—		—		—		—		(1,776)		(1,776)		Purchases of treasury stock	(204,056)	0		0		0		0		(4,452)		(4,452)
Cancellations of performance-based restricted stock awards		(17,349)	—		341		—		—		(341)		—
Balance at September 30, 2019		29,312,534	$	157,784	$	294,556	$	279,158	$	(22,008)	$	(45,191)	$	664,299
Balance at September 30, 2020															Balance at September 30, 2020	29,241,302	$	157,784	$	296,599	$	281,026	$	(19,100)	$	(47,202)	$	669,107

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


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Nine Months Ended September 30, 2019
Balance at December 31, 2018	29,270,852	$	157,784	$	292,401	$	248,167	$	(28,416)	$	(45,803)	$	624,133
Adjustment to initially apply ASU No. 2016-02 for leases	—	—		—		(1,525)		—		—		(1,525)
Adjustment to initially apply ASU No. 2017-12 for derivatives	—	—		—		(83)		83		—		0
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities	—	—		—		(39)		—		—		(39)
Net income	—	0		0		50,209		0		0		50,209
Other comprehensive income, net of income tax	—	0		0		0		6,325		0		6,325
Cash dividends declared ($0.60 per share)	—	0		0		(17,572)		0		0		(17,572)
Stock-based compensation	—	0		1,870		0		0		0		1,870
Stock issued under dividend reinvestment and employee stock purchase plans	69,126	0		114		1		0		1,554		1,669

Exercise of stock options	58,545	0		(170)		0		0		1,175		1,005
Cancellations of performance-based restricted stock awards	(17,349)	0		341		0		0		(341)		0
Purchases of treasury stock	(68,640)	0		0		0		0		(1,776)		(1,776)
Balance at September 30, 2019	29,312,534	$	157,784	$	294,556	$	279,158	$	(22,008)	$	(45,191)	$	664,299

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

Table of Contents

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2019		2018		(Dollars in thousands)	2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	50,209	$	32,171	Net income	$	21,042	$	50,209
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		6,291		20,207
Provision for credit losses						Provision for credit losses	49,515		6,286
Depreciation of premises and equipment	Depreciation of premises and equipment	3,983		4,180		Depreciation of premises and equipment	3,620		3,983
Net amortization of investment securities premiums and discounts	Net amortization of investment securities premiums and discounts	1,375		1,193		Net amortization of investment securities premiums and discounts	1,755		1,375
Net gain on sales of investment securities	Net gain on sales of investment securities	(41)		(10)		Net gain on sales of investment securities	(817)		(41)
Net gain on mortgage banking activities	Net gain on mortgage banking activities	(2,908)		(2,412)		Net gain on mortgage banking activities	(12,119)		(2,908)

Bank owned life insurance income	Bank owned life insurance income	(2,438)		(2,744)		Bank owned life insurance income	(2,207)		(2,438)
Net accretion of acquisition accounting fair value adjustments		(312)		(838)
Stock-based compensation	Stock-based compensation	1,918		2,379		Stock-based compensation	1,853		1,918
Intangible expenses	Intangible expenses	1,221		1,685		Intangible expenses	934		1,221
Other adjustments to reconcile net income to cash (used in) provided by operating activities		(599)		117
Other adjustments to reconcile net income to cash used in operating activities						Other adjustments to reconcile net income to cash used in operating activities	(3,392)		(911)

Originations of loans held for sale	Originations of loans held for sale	(139,744)		(118,106)		Originations of loans held for sale	(322,135)		(139,744)
Proceeds from the sale of loans held for sale	Proceeds from the sale of loans held for sale	140,906		122,283		Proceeds from the sale of loans held for sale	321,233		140,906
Contributions to pension and other postretirement benefit plans	Contributions to pension and other postretirement benefit plans	(199)		(3,199)		Contributions to pension and other postretirement benefit plans	(203)		(199)
(Increase) decrease in accrued interest receivable and other assets		(3,259)		379
(Decrease) increase in accrued interest payable and other liabilities		(2,491)		4,021
Increase in accrued interest receivable and other assets						Increase in accrued interest receivable and other assets	(18,774)		(3,259)
Increase (decrease) in accrued interest payable and other liabilities						Increase (decrease) in accrued interest payable and other liabilities	5,786		(2,486)
Net cash provided by operating activities	Net cash provided by operating activities	53,912		61,306		Net cash provided by operating activities	46,091		53,912
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Net capital expenditures	Net capital expenditures	(1,647)		(2,596)		Net capital expenditures	(2,363)		(1,647)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	Proceeds from maturities, calls and principal repayments of securities held-to-maturity	20,903		7,846		Proceeds from maturities, calls and principal repayments of securities held-to-maturity	56,933		20,903
Proceeds from maturities, calls and principal repayments of securities available-for-sale	Proceeds from maturities, calls and principal repayments of securities available-for-sale	49,127		44,603		Proceeds from maturities, calls and principal repayments of securities available-for-sale	43,853		49,127
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	24,987		1,010		Proceeds from sales of securities available-for-sale	65,621		24,987
Purchases of investment securities held-to-maturity	Purchases of investment securities held-to-maturity	(62,919)		(60,784)		Purchases of investment securities held-to-maturity	(43,116)		(62,919)
Purchases of investment securities available-for-sale	Purchases of investment securities available-for-sale	(997)		(1,986)		Purchases of investment securities available-for-sale	(49,329)		(997)
Proceeds from sales of money market mutual funds	Proceeds from sales of money market mutual funds	1,032		11,215		Proceeds from sales of money market mutual funds	10,487		1,032
Purchases of money market mutual funds	Purchases of money market mutual funds	(1,314)		(6,392)		Purchases of money market mutual funds	(10,971)		(1,314)
Net increase in other investments		(917)		(5,867)
Net decrease in other investments						Net decrease in other investments	(1,469)		(917)

Proceeds from sale of portfolio loans						Proceeds from sale of portfolio loans	14,416		0
Net increase in loans and leases	Net increase in loans and leases	(246,453)		(260,012)		Net increase in loans and leases	(851,403)		(246,453)
Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	670		362		Proceeds from sales of other real estate owned	75		670

Purchases of bank owned life insurance		—		(776)
Proceeds from bank owned life insurance		—		1,374

Net cash used in investing activities	Net cash used in investing activities	(217,528)		(272,003)		Net cash used in investing activities	(767,266)		(217,528)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits	Net increase in deposits	452,101		265,260		Net increase in deposits	851,521		452,101
Net decrease in short-term borrowings	Net decrease in short-term borrowings	(170,798)		(18,666)		Net decrease in short-term borrowings	(999)		(170,798)
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	25,000		—		Proceeds from issuance of long-term debt	125,000		25,000
Repayment of long-term debt	Repayment of long-term debt	(10,000)		(10,000)		Repayment of long-term debt	(70,000)		(10,000)

Proceeds from issuance of subordinated notes						Proceeds from issuance of subordinated notes	98,448		0

Payment of contingent consideration on acquisitions	Payment of contingent consideration on acquisitions	(97)		(67)		Payment of contingent consideration on acquisitions	(91)		(97)

Purchases of treasury stock	Purchases of treasury stock	(1,776)		(2,384)		Purchases of treasury stock	(4,452)		(1,776)
Stock issued under dividend reinvestment and employee stock purchase plans	Stock issued under dividend reinvestment and employee stock purchase plans	1,669		1,739		Stock issued under dividend reinvestment and employee stock purchase plans	1,757		1,669
Proceeds from exercise of stock options	Proceeds from exercise of stock options	1,005		1,131		Proceeds from exercise of stock options	94		1,005
Cash dividends paid	Cash dividends paid	(17,574)		(17,615)		Cash dividends paid	(17,555)		(17,574)
Net cash provided by financing activities	Net cash provided by financing activities	279,530		219,398		Net cash provided by financing activities	983,723		279,530
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	115,914		8,701		Net increase in cash and cash equivalents	262,548		115,914
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	109,420		75,409		Cash and cash equivalents at beginning of year	125,128		109,420
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	225,334	$	84,110	Cash and cash equivalents at end of period	$	387,676	$	225,334

Table of Contents


		Nine Months Ended September 30,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2019		2018		(Dollars in thousands)	2020		2019
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest	Cash paid for interest	$	33,724	$	21,647	Cash paid for interest	$	23,089	$	33,724
Cash paid for income taxes, net of refunds	Cash paid for income taxes, net of refunds	14,148		1,315		Cash paid for income taxes, net of refunds	12,014		14,148
Non cash transactions:	Non cash transactions:					Non cash transactions:
Transfer of loans to other real estate owned	Transfer of loans to other real estate owned	$	—	$	477	Transfer of loans to other real estate owned	$	8,125	$	0
Transfer of loans to loans held for sale						Transfer of loans to loans held for sale	14,416		0

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 condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations for interim financial information. The accompanying unaudited consolidated financial statements reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods presented. Certain prior period amounts have been reclassified to conform to the ~~current-year~~current-period presentation. Operating results for the three-month or nine-month ~~period~~periods ended September 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2019~~2020 or for any other period. 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~~allowance for ~~loan and lease~~credit losses.

Accounting Pronouncements Adopted in ~~2019~~

~~In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02,~~ ~~"Leases (Topic 842)"~~ and subsequent related updates to revise the accounting for leases. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases based on the present value of future lease payments using an estimated incremental borrowing rate. Lessor accounting activities are largely unchanged from existing lease accounting. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This new guidance was effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019 for the Corporation.2020

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 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

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report hedge ineffectiveness and requires all items that affect earnings be presented in the same income statement line as the hedged items. The amendments in this guidance permit the use of the Overnight Index Swap rate based on Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes to facilitate the LIBOR to SOFR transition. This guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities, or January 1, 2019 for the Corporation. The amended presentation and disclosure guidance was required only prospectively. The Corporation adopted this guidance on a modified retrospective basis through a cumulative-effect adjustment to retained earnings effective January 1, 2019. The Corporation recorded a cumulative-effect adjustment of $83 thousand related to ineffectiveness on a cash flow hedge, which was reclassified from retained earnings to accumulated other comprehensive income, effective January 1, 2019.

~~In March 2017, the FASB issued ASU No. 2017-08,~~ ~~“Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.”~~ This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date rather than the maturity of the security. ~~Securities within the scope of this guidance are those that have explicit, non-contingent call features that are callable at fixed prices and on preset dates.~~ The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the Corporation. At December 31, 2018, the Corporation had $11.3 million of callable debt securities. The Corporation adopted this guidance on a modified retrospective basis through a cumulative-effect adjustment to retained earnings effective January 1, 2019. The Corporation recorded a cumulative-effect adjustment resulting in a reduction in the unamortized premium balance for certain callable debt securities of $49 thousand and a reduction in retained earnings of approximately $39 thousand, net of tax, for the incremental amortization.

~~Recent Accounting Pronouncements Yet to Be Adopted~~

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets ~~such as~~measured at amortized cost, including loans and held-to-maturity securities, net investments in leases ~~certain~~accounted for under ASC 842, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities ~~bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases~~to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that ~~are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until~~ it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable informationnot more likely than not they will be required to ~~inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the~~sell. This guidance isbecame 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, oron January 1, 2020 for the Corporation. The ~~Corporation is~~results reported for periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards. See Note 1, "Summary of Significant Accounting Polices - Reserve for Loan and Lease Losses" in the ~~process of evaluating~~Annual Report on Form 10-K for the ~~impact of~~year ended December 31, 2019, which was filed with the ~~adoption of this guidance~~SEC on February 28, 2020, for further information on the Corporation's ~~financial statements; however, it is anticipated that the~~ reserve for loan and lease losses ~~will increase upon adoption of CECL and that~~methodology under the ~~increased reserve level will decrease shareholders' equity and impact regulatory capital and ratios.~~ incurred loss model.

The Corporation ~~anticipates that~~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 $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 ~~Bank will continue~~provisions of ASC 326 related to ~~be well capitalized after~~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 ~~adoption~~prospective transition approach. In accordance with the standard, management did not reassess whether PCI assets met the criteria of ~~CECL.~~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 was effective on January 1, 2020 for the Corporation.

The Corporation adopted ASU No. 2019-04 ~~is effective for~~and incorporated the ~~Corporation for reporting periods beginning January 1, 2020. The Corporation does not expect~~applicable items into the ~~adoption of~~CECL model described as follows. Management addressed the ~~amendments~~provision in ASU No. 2019-04 related to how a company considers recoveries by performing an analysis to estimate recoveries that could be reasonably expected based on historical experience as described further below. Management addressed the provision in ASU No. 2019-04 related to how a company considers extension options when estimating expected credit losses as described further below. Management reviewed the provision in the ASU No. 2019-04 related to Topics 815 and 825 ~~will~~and determined these amendments did not have a material impact on the Corporation's financial statements. ~~For~~

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


	January 1, 2020
(Dollars in thousands)	Pre-adoption		Adoption Impact		As Reported
Assets:



ACL on debt securities: available-for-sale:
Corporate bonds	$	0	$	300	$	300
ACL on loans and leases:
Commercial, financial and agricultural	8,759		5,284		14,043
Real estate-commercial	15,750		6,208		21,958
Real estate-construction	2,446		29		2,475
Real estate-residential secured for business purpose	2,622		2,502		5,124
Real estate-residential secured for personal purpose	2,713		(706)		2,007
Real estate-home equity secured for personal purpose	1,076		(364)		712
Loans to individuals	470		104		574
Lease financings	1,311		(135)		1,176
Unallocated	184		0		184
Total ACL on loans and leases	35,331		12,922		48,253

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

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies certain disclosures relating to investments in certain entities

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that calculate net asset ~~value. Additional disclosures required by this ASU include: 1) change~~value, changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ~~prospective method of transition is~~Corporation adopted this guidance and the related required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years ordisclosures prospectively on January 1, ~~2020 for the Corporation. Early adoption is permitted. The Corporation does not expect the adoption~~2020.

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

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This ASU eliminates Step 2 of the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any ~~tax deductible~~tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or for the Corporation's goodwill impairment test in 2020. The Corporation ~~does~~adopted 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 ~~ending~~beginning after December 15, 2020 or ~~December 31, 2020~~January 1, 2021 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statement disclosures but will result in revised disclosures for retirement plans and other postretirement benefits.

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

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

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance allows for companies to: (1) account for certain contract modifications as a continuation of the existing contract without additional analysis; (2) continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness; and (3) make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading. This ASU is available for adoption effective immediately, or as of January 1, 2020 or any date thereafter for the Corporation, and applies prospectively to contract modifications and hedging relationships. The one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made at any time after March 12, 2020. The Corporation anticipates adopting this ASU and will continue to analyze the provisions of the ASU in connection with ongoing procedures to monitor the work of the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York in identifying an alternative U.S. dollar reference interest rate. It is too early to predict whether a new rate index replacement, 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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In August 2020, the FASB issued ASU No. 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)." This guidance simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40 by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and require entities to presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. 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.

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 $474 thousand at September 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

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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 $547 thousand at September 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.

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 year 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 Customers Affected by the Coronavirus. Accordingly, these loans and leases were not categorized as troubled debt restructurings.

Accrued interest receivable on loans and leases held for investment totaled $14.9 million at September 30, 2020 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. $12.3 million of this amount is excluded from the estimate of expected credit losses. $2.6 million of this amount represents accrued interest receivable on loans that were modified 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 includes an allowance for credit losses of $50 thousand.

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

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Loan and Lease Fees

Fees collected upon loan or lease origination and certain direct costs of originating loans and leases are deferred and recognized over the contractual lives of the related loans and leases as yield adjustments using the interest method. Upon prepayment or other disposition of the underlying loans and leases before their contractual maturities, any associated unearned fees or unamortized costs are recognized. Initial direct costs, comprised of commissions paid that would not have been incurred if the lease had not been obtained, are deferred and amortized over the life of the contract, and are classified within net interest income on leases.

Allowance for Credit Losses on Loans and Leases

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

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

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

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

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.

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Reasonable and Supportable Forecasts

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

Forecast Reversion Period

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

Expected Recoveries on Charged-off Loans

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

Discount Rate

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

Individual Evaluation

Management evaluates individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. Management individually analyzes these instruments and will establish a specific reserve for instruments as applicable. Instruments will not be included in both collective and individual analyses. 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 Allowance 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.

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:~~

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars and shares in thousands, except per share data) 2019 2018 2019 2018
Numerator:
Net income $ 17,662 $ 14,964 $ 50,209 $ 32,171
Net income allocated to unvested restricted stock awards (58) (86) (186) (225)
Net income allocated to common shares $ 17,604 $ 14,878 $ 50,023 $ 31,946
Denominator:
Weighted average shares outstanding 29,306 29,402 29,290 29,387
Average unvested restricted stock awards (95) (170) (111) (204)
Denominator for basic earnings per share—weighted-average shares outstanding
29,211 29,232 29,179 29,183
Effect of dilutive securities—employee stock options and restricted stock units 74 86 64 92
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,285 29,318 29,243 29,275
Basic earnings per share $ 0.60 $ 0.51 $ 1.71 $ 1.10
Diluted earnings per share $ 0.60 $ 0.51 $ 1.71 $ 1.09
Average anti-dilutive options and restricted stock units excluded from computation of diluted earnings per share 323 359 326 315
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				Nine Months Ended
	September 30,				September 30,
(Dollars and shares in thousands, except per share data)	2020		2019		2020		2019
Numerator:
Net income	$	18,119	$	17,662	$	21,042	$	50,209
Net income allocated to unvested restricted stock awards	(23)		(58)		(29)		(186)
Net income allocated to common shares	$	18,096	$	17,604	$	21,013	$	50,023
Denominator:
Weighted average shares outstanding	29,227		29,306		29,233		29,290
Average unvested restricted stock awards	(38)		(95)		(47)		(111)
Denominator for basic earnings per share—weighted-average shares outstanding	29,189		29,211		29,186		29,179
Effect of dilutive securities—employee stock options and restricted stock units	28		74		32		64
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding	29,217		29,285		29,218		29,243
Basic earnings per share	$	0.62	$	0.60	$	0.72	$	1.71
Diluted earnings per share	$	0.62	$	0.60	$	0.72	$	1.71
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share	526		323		509		326

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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 September 30, 2020 and the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at ~~September 30, 2019 and~~ December 31, ~~2018,~~2019, by contractual maturity within each type:


		At September 30, 2019														At December 31, 2018															At September 30, 2020						At December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Held-to-Maturity	Securities Held-to-Maturity																	Securities Held-to-Maturity
U.S. government corporations and agencies:	U.S. government corporations and agencies:																	U.S. government corporations and agencies:
After 1 year to 5 years	After 1 year to 5 years	$	6,997	$	60	$	—	$	7,057	$	6,996	$	—	$	(104)	$	6,892	After 1 year to 5 years	$	6,998	$	202	$	0	$	0	$	7,200	$	6,997	$	66	$	0	$	7,063
		6,997		60		—		7,057		6,996		—		(104)		6,892			6,998		202		0		0		7,200		6,997		66		0		7,063
Residential mortgage-backed securities:	Residential mortgage-backed securities:																	Residential mortgage-backed securities:
After 5 years to 10 years	After 5 years to 10 years	9,720		116		—		9,836		11,573		—		(135)		11,438		After 5 years to 10 years	7,065		286		0		0		7,351		9,083		129		0		9,212
Over 10 years	Over 10 years	167,128		2,770		(147)		169,751		124,065		287		(1,107)		123,245		Over 10 years	162,754		5,071		0		0		167,825		175,972		2,749		(110)		178,611
		176,848		2,886		(147)		179,587		135,638		287		(1,242)		134,683			169,819		5,357		0		0		175,176		185,055		2,878		(110)		187,823

Total	Total	$	183,845	$	2,946	$	(147)	$	186,644	$	142,634	$	287	$	(1,346)	$	141,575	Total	$	176,817	$	5,559	$	0	$	0	$	182,376	$	192,052	$	2,944	$	(110)	$	194,886
Securities Available-for-Sale	Securities Available-for-Sale																	Securities Available-for-Sale

U.S. government corporations and agencies:	U.S. government corporations and agencies:																	U.S. government corporations and agencies:
Within 1 year	Within 1 year	$	301	$	—	$	(2)	$	299	$	15,108	$	—	$	(90)	$	15,018	Within 1 year	$	0	$	0	$	0	0		$	0	$	301	$	0	$	(1)	$	300
After 1 year to 5 years		—		—		—		—		303		—		(6)		297

		301		—		(2)		299		15,411		—		(96)		15,315			0		0		0		0		0		301		0		(1)		300
State and political subdivisions:	State and political subdivisions:																	State and political subdivisions:
Within 1 year		350		1		—		351		5,900		4		(6)		5,898

After 1 year to 5 years	After 1 year to 5 years	5,809		42		—		5,851		15,459		36		(56)		15,439		After 1 year to 5 years	3,645		41		0		0		3,686		4,717		23		0		4,740
After 5 years to 10 years	After 5 years to 10 years	33,809		375		—		34,184		43,923		318		(163)		44,078		After 5 years to 10 years	11,387		114		0		0		11,501		29,563		292		0		29,855

		39,968		418		—		40,386		65,282		358		(225)		65,415			15,032		155		0		0		15,187		34,280		315		0		34,595
Residential mortgage-backed securities:	Residential mortgage-backed securities:																	Residential mortgage-backed securities:
Within 1 year	Within 1 year	48		2		—		50		—		—		—		—		Within 1 year	12		0		0		0		12		304		9		0		313
After 1 year to 5 years	After 1 year to 5 years	1,082		14		(2)		1,094		5,799		3		(70)		5,732		After 1 year to 5 years	93		2		0		0		95		611		3		(1)		613
After 5 years to 10 years	After 5 years to 10 years	36,892		78		(130)		36,840		49,904		6		(1,381)		48,529		After 5 years to 10 years	2,112		72		0		0		2,184		36,893		107		(21)		36,979
Over 10 years	Over 10 years	87,317		404		(468)		87,253		100,873		26		(3,398)		97,501		Over 10 years	77,400		2,041		(61)		0		79,380		80,630		378		(453)		80,555
		125,339		498		(600)		125,237		156,576		35		(4,849)		151,762			79,617		2,115		(61)		0		81,671		118,438		497		(475)		118,460
Collateralized mortgage obligations:	Collateralized mortgage obligations:																	Collateralized mortgage obligations:

After 5 years to 10 years	After 5 years to 10 years	1,403		—		(23)		1,380		1,677		—		(78)		1,599		After 5 years to 10 years	821		30		0		0		851		2,377		6		(22)		2,361
Over 10 years	Over 10 years	1,131		12		—		1,143		1,305		—		(16)		1,289		Over 10 years	4,982		0		(3)		0		4,979		0		0		0		0
		2,534		12		(23)		2,523		2,982		—		(94)		2,888			5,803		30		(3)		0		5,830		2,377		6		(22)		2,361
Corporate bonds:	Corporate bonds:																	Corporate bonds:
Within 1 year	Within 1 year	11,303		—		(13)		11,290		7,806		—		(68)		7,738		Within 1 year	999		4		0		0		1,003		6,012		1		(4)		6,009
After 1 year to 5 years	After 1 year to 5 years	29,109		536		(45)		29,600		18,508		1		(332)		18,177		After 1 year to 5 years	29,751		1,637		(1)		(1)		31,386		29,606		596		(61)		30,141
After 5 years to 10 years	After 5 years to 10 years	—		—		—		—		16,146		—		(392)		15,754		After 5 years to 10 years	60,000		0		(5,159)		(691)		54,150		0		0		0		0
Over 10 years	Over 10 years	60,000		—		(7,192)		52,808		60,000		—		(8,542)		51,458		Over 10 years	0		0		0		0		0		60,000		0		(4,942)		55,058
		100,412		536		(7,250)		93,698		102,460		1		(9,334)		93,127			90,750		1,641		(5,160)		(692)		86,539		95,618		597		(5,007)		91,208
Total	Total	$	268,554	$	1,464	$	(7,875)	$	262,143	$	342,711	$	394	$	(14,598)	$	328,507	Total	$	191,202	$	3,941	$	(5,224)	$	(692)	$	189,227	$	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 ~~$363.4~~$289.6 million and ~~$344.2~~$340.8 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, were pledged to secure public funds deposits and other contractual obligations. In addition, securities of ~~$14.1~~ $38.9

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million and ~~$296 thousand~~$12.5 million were pledged to secure credit derivatives and interest rate swaps at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. See Note 11, "Derivative Instruments and Hedging Activities" for additional information.

~~Table of Contents~~

The following table presents information related to sales of securities available-for-sale during the nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


		Nine Months Ended September 30,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2019		2018		(Dollars in thousands)	2020		2019
Securities available-for-sale:	Securities available-for-sale:					Securities available-for-sale:
Proceeds from sales	Proceeds from sales	$	24,987	$	1,010	Proceeds from sales	$	65,621	$	24,987
Gross realized gains on sales	Gross realized gains on sales	65		10		Gross realized gains on sales	831		65
Gross realized losses on sales	Gross realized losses on sales	24		—		Gross realized losses on sales	14		24
Tax expense related to net realized gains on sales	Tax expense related to net realized gains on sales	9		2		Tax expense related to net realized gains on sales	172		9

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were 0 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 September 30, ~~2019~~2020 and December 31, ~~2018~~2019, by the length of time those securities were in a continuous loss position. ~~For~~


	Less than Twelve Months				Twelve Months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At September 30, 2020
Securities Held-to-Maturity



Total	$	0	$	0	$	0	$	0	$	0	$	0
Securities Available-for-Sale



Residential mortgage-backed securities	$	8,747	$	(60)	$	32	$	(1)	$	8,779	$	(61)
Collateralized mortgage obligations	4,979		(3)		0		0		4,979		(3)

Total	$	13,726	$	(63)	$	32	$	(1)	$	13,758	$	(64)
At December 31, 2019
Securities Held-to-Maturity

Residential mortgage-backed securities	$	26,767	$	(110)	$	0	$	0	$	26,767	$	(110)

Total	$	26,767	$	(110)	$	0	$	0	$	26,767	$	(110)
Securities Available-for-Sale

U.S. government corporations and agencies	$	0	$	0	$	300	$	(1)	$	300	$	(1)

Residential mortgage-backed securities	21,827		(62)		48,672		(413)		70,499		(475)
Collateralized mortgage obligations	0		0		1,295		(22)		1,295		(22)
Corporate bonds	998		0		65,506		(5,007)		66,504		(5,007)
Total	$	22,825	$	(62)	$	115,773	$	(5,443)	$	138,598	$	(5,505)

At September 30, 2020, the ~~investment~~fair value of available-for-sale securities in an unrealized loss position ~~the Corporation~~for which an allowance for credit losses has ~~concluded, based on its analysis, that the~~not been recorded was $13.8 million, including unrealized losses of $64 thousand. These holdings were comprised of 4 federal agency mortgage-backed securities, which are ~~primarily caused~~U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the ~~movement~~U.S. government, are highly rated by major rating agencies and have a long history of ~~interest rates and current market conditions and there is~~ no other-than temporary impairment of the securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. It is more likely than not that the Corporation will not be required to sell the investments before a recovery of carrying value.

Less than
Twelve Months Twelve Months
or Longer Total
(Dollars in thousands) Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
At September 30, 2019
Securities Held-to-Maturity
Residential mortgage-backed securities $ 20,960 $ (147) $ — $ — $ 20,960 $ (147)
Total $ 20,960 $ (147) $ — $ — $ 20,960 $ (147)
Securities Available-for-Sale
U.S. government corporations and agencies $ — $ — $ 299 $ (2) $ 299 $ (2)
Residential mortgage-backed securities 33,830 (147) 51,166 (453) 84,996 (600)
Collateralized mortgage obligations — — 1,380 (23) 1,380 (23)
Corporate bonds 1,000 — 68,553 (7,250) 69,553 (7,250)
Total $ 34,830 $ (147) $ 121,398 $ (7,728) $ 156,228 $ (7,875)
At December 31, 2018
Securities Held-to-Maturity
U.S. government corporations and agencies $ — $ — $ 6,892 $ (104) $ 6,892 $ (104)
Residential mortgage-backed securities 48,192 (472) 34,501 (770) 82,693 (1,242)
Total $ 48,192 $ (472) $ 41,393 $ (874) $ 89,585 $ (1,346)
Securities Available-for-Sale
U.S. government corporations and agencies $ — $ — $ 15,315 $ (96) $ 15,315 $ (96)
State and political subdivisions 9,311 (61) 15,302 (164) 24,613 (225)
Residential mortgage-backed securities 7,099 (106) 141,924 (4,743) 149,023 (4,849)
Collateralized mortgage obligations 1,289 (16) 1,599 (78) 2,888 (94)
Corporate bonds 16,896 (235) 75,730 (9,099) 92,626 (9,334)
Total $ 34,595 $ (418) $ 249,870 $ (14,180) $ 284,465 $ (14,598)

At September 30, 2019, gross unrealized losses for securities available-for-sale in an unrealized loss position for twelve months or longer, totaled $7.7 million. NaN federal agency bond, 13 investment grade corporate bonds, 40 federal agency residential mortgage securities and 1 collateralized mortgage obligation bond had respective unrealized loss positions of $2 thousand, $7.3 million, $453 thousand and $23 thousand, respectively. The fair value of these NaN securities fluctuate with changes in market conditions which for these underlying securities is primarily due to changes in the interest rate environment.credit losses. The Corporation does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. ~~Upon review of the attributes of the individual securities, the~~The Corporation concluded that the decline in fair value of these securities ~~were~~was not ~~other-than-temporarily impaired.~~indicative of a credit loss. The Corporation did not recognize any other-than-temporary impairment charges for the nine months ended September 30, 2019.

At September 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 nine months ended September 30, 2020 or other-than-temporary impairment charges for the nine months ended September 30, 2019.

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~~recognize any other-than-temporary impairment charges~~The table below presents a rollforward by major security type for the three and nine months ended September 30, 2020 of the allowance for credit losses on ~~debt~~ securities available-for-sale.


(Dollars in thousands)	Corporate Bonds
Three months ended September 30, 2020
Securities Available-for-Sale
Beginning balance	$	(855)

Additions for securities for which no previous expected credit losses were recognized	(1)
Change in securities for which a previous expected credit loss was recognized	164
Ending balance	$	(692)

Nine months ended September 30, 2020
Securities Available-for-Sale
Beginning balance	$	0
Adjustment to initially apply ASU No. 2016-13 for CECL	(300)
Additions for securities for which no previous expected credit losses were recognized	(1)
Change in securities for which a previous expected credit loss was recognized	(391)
Ending balance	$	(692)

At September 30, 2020, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has been recorded was $55.1 million, including unrealized losses of $5.9 million, and allowance for credit losses of $692 thousand. These holdings were comprised of 8 investment grade corporate bonds which fluctuate in value based on changes in market conditions, which for these underlying securities was primarily due to changes in the interest rate environment. The Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery. The underlying issuers continue to make timely interest payments on the securities. The Corporation concluded that a portion of decline in the value of these securities was indicative of a credit loss and recorded a provision for credit losses of $392 thousand for the nine months ended September 30, ~~2019 or 2018.~~2020. The Corporation did not record any other-than-temporary impairment charges for the nine months ended September 30, 2019.

The Corporation recognized a ~~$12~~$321 thousand net ~~gain~~loss and ~~$26~~$12 thousand net gain on equity securities during the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, in other noninterest income. There were 0 sales of equity securities during the nine months ended September 30, ~~2019~~2020 or September 30, ~~2018.~~2019.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories

At September 30, 2019
(Dollars in thousands) Originated Acquired Total
Commercial, financial and agricultural $ 943,713 $ 15,440 $ 959,153
Real estate-commercial 1,736,904 191,946 1,928,850
Real estate-construction 221,845 — 221,845
Real estate-residential secured for business purpose 315,984 44,737 360,721
Real estate-residential secured for personal purpose 388,643 43,545 432,188
Real estate-home equity secured for personal purpose 170,486 7,168 177,654
Loans to individuals 30,575 140 30,715
Lease financings 140,807 — 140,807
Total loans and leases held for investment, net of deferred income $ 3,948,957 $ 302,976 $ 4,251,933
Imputed interest on lease financings, included in the above table $ (15,369) $ — $ (15,369)
Net deferred costs, included in the above table 6,243 — 6,243
Overdraft deposits included in the above table 149 — 149

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

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

The carrying amount of acquired loans at September 30, 2019 totaled $303.0 million, including $268.2 million of loans from the Fox Chase acquisition and $34.8 million from the Valley Green Bank acquisition. At September 30, 2019, loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled $568 thousand representing $60 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.


(Dollars in thousands)	At September 30, 2020		At December 31, 2019
Commercial, financial and agricultural	$	894,314	$	947,029
Paycheck Protection Program	501,580		0
Real estate-commercial	2,369,691		2,040,441
Real estate-construction	233,590		232,595
Real estate-residential secured for business purpose	378,239		373,973
Real estate-residential secured for personal purpose	474,688		439,059
Real estate-home equity secured for personal purpose	172,448		174,435
Loans to individuals	27,771		29,883
Lease financings	159,535		149,421
Total loans and leases held for investment, net of deferred income	$	5,211,856	$	4,386,836
Imputed interest on lease financings, included in the above table	$	(17,319)	$	(16,340)
Net deferred (fees) costs, included in the above table	(4,340)		5,999
Overdraft deposits included in the above table	182		407

~~Table of Contents~~

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

(Dollars in thousands) At September 30, 2019 At December 31, 2018
Outstanding principal balance $ 664 $ 893
Carrying amount 568 695
Reserve for loan losses — —

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

Nine Months Ended September 30,
(Dollars in thousands) 2019 2018
Beginning of period $ — $ 11
Reclassification from nonaccretable discount 317 453
Accretable yield amortized to interest income (317) (464)
End of period $ — $ —

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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 September 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		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At September 30, 2020
Commercial, financial and agricultural	$	6,886	$	244	$	27	$	7,157	$	883,348	$	890,505	$	3,809	$	894,314
Paycheck Protection Program	0		0		0		0		501,580		501,580		0		501,580
Real estate—commercial real estate and construction:
Commercial real estate	5,341		7,835		1,539		14,715		2,334,512		2,349,227		20,464		2,369,691
Construction	5,501		0		0		5,501		228,089		233,590		0		233,590
Real estate—residential and home equity:
Residential secured for business purpose	2,844		1,553		1,027		5,424		370,664		376,088		2,151		378,239
Residential secured for personal purpose	2,119		47		228		2,394		469,899		472,293		2,395		474,688
Home equity secured for personal purpose	428		96		0		524		170,976		171,500		948		172,448
Loans to individuals	104		29		23		156		27,615		27,771		0		27,771
Lease financings	761		1,807		729		3,297		155,986		159,283		252		159,535
Total	$	23,984	$	11,611	$	3,573	$	39,168	$	5,142,669	$	5,181,837	$	30,019	$	5,211,856

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 ~~September 30, 2019 and~~ December 31, ~~2018:~~2019:


		Accruing Loans and Leases																													Accruing Loans and Leases
(Dollars in thousands)	(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		(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 September 30, 2019
At December 31, 2019																				At December 31, 2019
Commercial, financial and agricultural	Commercial, financial and agricultural	$	1,591	$	751	$	—	$	2,342	$	954,578	$	956,920	$	—	$	2,233	$	959,153	Commercial, financial and agricultural	$	2,602	$	150	$	20	$	2,772	$	940,815	$	943,587	$	0	$	3,442	$	947,029
Real estate—commercial real estate and construction:	Real estate—commercial real estate and construction:																			Real estate—commercial real estate and construction:
Commercial real estate	Commercial real estate	4,556		1,102		760		6,418		1,894,202		1,900,620		206		28,024		1,928,850		Commercial real estate	3,473		266		0		3,739		2,008,568		2,012,307		206		27,928		2,040,441
Construction	Construction	185		—		—		185		221,404		221,589		—		256		221,845		Construction	0		0		0		0		232,338		232,338		0		257		232,595
Real estate—residential and home equity:	Real estate—residential and home equity:																			Real estate—residential and home equity:
Residential secured for business purpose	Residential secured for business purpose	2,293		1,441		1,109		4,843		352,689		357,532		302		2,887		360,721		Residential secured for business purpose	2,078		2,442		0		4,520		366,473		370,993		0		2,980		373,973
Residential secured for personal purpose	Residential secured for personal purpose	1,553		133		—		1,686		428,355		430,041		60		2,087		432,188		Residential secured for personal purpose	2,969		446		0		3,415		433,548		436,963		58		2,038		439,059
Home equity secured for personal purpose	Home equity secured for personal purpose	665		—		—		665		175,610		176,275		—		1,379		177,654		Home equity secured for personal purpose	605		297		0		902		172,106		173,008		0		1,427		174,435
Loans to individuals	Loans to individuals	156		48		129		333		30,380		30,713		—		2		30,715		Loans to individuals	157		73		74		304		29,579		29,883		0		0		29,883
Lease financings	Lease financings	534		1,394		490		2,418		137,889		140,307		—		500		140,807		Lease financings	1,409		296		49		1,754		147,161		148,915		0		506		149,421
Total	Total	$	11,533	$	4,869	$	2,488	$	18,890	$	4,195,107	$	4,213,997	$	568	$	37,368	$	4,251,933	Total	$	13,293	$	3,970	$	143	$	17,406	$	4,330,588	$	4,347,994	$	264	$	38,578	$	4,386,836
At December 31, 2018
Commercial, financial and agricultural		$	1,043	$	122	$	—	$	1,165	$	933,155	$	934,320	$	—	$	3,365	$	937,685
Real estate—commercial real estate and construction:
Commercial real estate		4,995		1,538		—		6,533		1,716,251		1,722,784		206		18,214		1,741,204
Construction		2,163		—		—		2,163		213,244		215,407		—		106		215,513
Real estate—residential and home equity:
Residential secured for business purpose		2,497		728		—		3,225		357,827		361,052		426		1,318		362,796
Residential secured for personal purpose		2,334		—		—		2,334		384,426		386,760		63		1,587		388,410
Home equity secured for personal purpose		305		96		—		401		184,402		184,803		—		1,448		186,251
Loans to individuals		207		29		55		291		32,468		32,759		—		—		32,759
Lease financings		2,460		411		137		3,008		138,778		141,786		—		170		141,956
Total		$	16,004	$	2,924	$	192	$	19,120	$	3,960,551	$	3,979,671	$	695	$	26,208	$	4,006,574

1821

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Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at September 30, ~~2019~~2020 and December 31, ~~2018. Nonperforming loans exclude acquired credit impaired loans from Fox Chase and Valley Green.~~2019.


		At September 30, 2019														At December 31, 2018															At September 30, 2020				At December 31, 2019
(Dollars in thousands)	(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	Commercial, financial and agricultural	$	2,233	$	—	$	—	$	2,233	$	3,365	$	382	$	—	$	3,747	Commercial, financial and agricultural	$	3,809	$	0	$	27	$	3,836	$	3,442	$	0	$	20	$	3,462
Real estate—commercial real estate and construction:	Real estate—commercial real estate and construction:																	Real estate—commercial real estate and construction:
Commercial real estate	Commercial real estate	28,024		—		760		28,784		18,214		—		—		18,214		Commercial real estate	20,464		0		1,539		22,003		27,928		0		0		27,928
Construction	Construction	256		—		—		256		106		—		—		106		Construction	0		0		0		0		257		0		0		257
Real estate—residential and home equity:	Real estate—residential and home equity:																	Real estate—residential and home equity:
Residential secured for business purpose	Residential secured for business purpose	2,887		—		1,109		3,996		1,318		160		—		1,478		Residential secured for business purpose	2,151		0		1,027		3,178		2,980		0		0		2,980
Residential secured for personal purpose	Residential secured for personal purpose	2,087		—		—		2,087		1,587		—		—		1,587		Residential secured for personal purpose	2,395		0		228		2,623		2,038		0		0		2,038
Home equity secured for personal purpose	Home equity secured for personal purpose	1,379		54		—		1,433		1,448		—		—		1,448		Home equity secured for personal purpose	948		53		0		1,001		1,427		54		0		1,481
Loans to individuals	Loans to individuals	2		—		129		131		—		—		55		55		Loans to individuals	0		0		23		23		0		0		74		74
Lease financings	Lease financings	500		—		490		990		170		—		137		307		Lease financings	252		0		729		981		506		0		49		555
Total	Total	$	37,368	$	54	$	2,488	$	39,910	$	26,208	$	542	$	192	$	26,942	Total	$	30,019	$	53	$	3,573	$	33,645	$	38,578	$	54	$	143	$	38,775

* Includes nonaccrual troubled debt restructured loans of ~~$2.3~~$14.2 million and ~~$1.3~~$13.8 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

The following table presents the amortized cost basis of loans and leases on nonaccrual status and loans and leases 90 days or more past due and still accruing as of September 30, 2020.


(Dollars in thousands)	Nonaccrual With No ACL		Nonaccrual With ACL		Total Nonaccrual		Loans 90 Days or more Past Due and Accruing Interest
At September 30, 2020
Commercial, financial and agricultural	$	2,361	$	1,448	$	3,809	$	27
Real estate-commercial	20,238		226		20,464		1,539

Real estate-residential secured for business purpose	1,987		164		2,151		1,027
Real estate-residential secured for personal purpose	1,862		533		2,395		228
Real estate-home equity secured for personal purpose	948		0		948		0
Loans to individuals	0		0		0		23
Lease financings	0		252		252		729
Total	$	27,396	$	2,623	$	30,019	$	3,573

Table of Contents

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


(Dollars in thousands)	Real Estate		Other (1)		None (2)		Total
At September 30, 2020
Commercial, financial and agricultural	$	1,459	$	1,784	$	566	$	3,809
Real estate-commercial	20,464		0		0		20,464

Real estate-residential secured for business purpose	2,151		0		0		2,151
Real estate-residential secured for personal purpose	2,395		0		0		2,395
Real estate-home equity secured for personal purpose	948		0		0		948

Total	$	27,417	$	1,784	$	566	$	29,767

(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 September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The Corporation employs a risk rating system related to the credit quality of commercial loans and ~~residential~~ real estate loans secured for a business purpose. The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with a relationship balance of less than $1 million are reviewed on a performance basis, with the primary monitored metrics being delinquency ~~(60 days or more past due).~~status. Loans with relationships greater than $1 million are reviewed at least annually. Loan relationships with a higher risk profile or classified as special mention or substandard are reviewed at least ~~quarterly, or more frequently based~~quarterly. The Corporation reviews credit quality indicators on ~~management’s discretion.~~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 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

1923

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Commercial Credit Exposure Credit Risk by Internally Assigned Grades

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

(Dollars in thousands) Commercial,
Financial and
Agricultural Real Estate—
Commercial Real Estate—
Construction Real Estate—
Residential Secured
for Business Purpose Total
At September 30, 2019
Grade:
1. Pass $ 907,186 $ 1,690,123 $ 219,656 $ 310,514 $ 3,127,479
2. Special Mention 18,924 23,667 1,932 1,541 46,064
3. Substandard 17,603 23,114 257 3,929 44,903
4. Doubtful — — — — —
Total $ 943,713 $ 1,736,904 $ 221,845 $ 315,984 $ 3,218,446
At December 31, 2018
Grade:
1. Pass $ 882,736 $ 1,455,234 $ 215,407 $ 298,356 $ 2,851,733
2. Special Mention 23,287 31,791 — 721 55,799
3. Substandard 7,143 20,554 106 3,316 31,119
4. Doubtful — — — — —
Total $ 913,166 $ 1,507,579 $ 215,513 $ 302,393 $ 2,938,651

The following table presents ~~classifications~~by class, the recorded investment in loans and leases held for ~~acquired loans:~~investment by credit quality indicator at September 30, 2020 under ASC 326.


													Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total		(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
At September 30, 2019
Grade:
At September 30, 2020												At September 30, 2020
Commercial, Financial and Agricultural												Commercial, Financial and Agricultural
Risk Rating												Risk Rating
1. Pass	1. Pass	$	15,440	$	178,997	$	—	$	44,220	$	238,657	1. Pass	$	147,403	$	102,389	$	78,294	$	44,321	$	29,672	$	60,750	$	410,169	$	872,998
2. Special Mention	2. Special Mention	—		1,316		—		—		1,316		2. Special Mention	916		804		333		529		849		1,226		7,723		12,380
3. Substandard	3. Substandard	—		11,633		—		517		12,150		3. Substandard	375		714		724		60		0		687		6,376		8,936
4. Doubtful		—		��		—		—		—

Total	Total	$	15,440	$	191,946	$	—	$	44,737	$	252,123	Total	$	148,694	$	103,907	$	79,351	$	44,910	$	30,521	$	62,663	$	424,268	$	894,314
December 31, 2018
Grade:

Paycheck Protection Program												Paycheck Protection Program
Risk Rating												Risk Rating
1. Pass	1. Pass	$	24,450	$	220,911	$	—	$	59,567	$	304,928	1. Pass	$	501,580	$	0	$	0	$	0	$	0	$	0	$	0	$	501,580
2. Special Mention	2. Special Mention	—		—		—		—		—		2. Special Mention	0		0		0		0		0		0		0		0
3. Substandard	3. Substandard	69		12,714		—		836		13,619		3. Substandard	0		0		0		0		0		0		0		0
4. Doubtful		—		—		—		—		—

Total	Total	$	24,519	$	233,625	$	—	$	60,403	$	318,547	Total	$	501,580	$	0	$	0	$	0	$	0	$	0	$	0	$	501,580

Real Estate-Commercial												Real Estate-Commercial
Risk Rating												Risk Rating
1. Pass												1. Pass	$	912,215	$	494,465	$	245,307	$	279,472	$	153,490	$	191,043	$	45,464	$	2,321,456
2. Special Mention												2. Special Mention	1,776		13,082		0		1,128		1,345		5,935		1,912		25,178
3. Substandard												3. Substandard	0		1,365		1,047		11,648		1,218		6,942		837		23,057

Total												Total	$	913,991	$	508,912	$	246,354	$	292,248	$	156,053	$	203,920	$	48,213	$	2,369,691

Real Estate-Construction												Real Estate-Construction
Risk Rating												Risk Rating
1. Pass												1. Pass	$	86,135	$	72,157	$	45,140	$	1,804	$	2,950	$	0	$	4,925	$	213,111
2. Special Mention												2. Special Mention	20,479		0		0		0		0		0		0		20,479
3. Substandard												3. Substandard	0		0		0		0		0		0		0		0

Total												Total	$	106,614	$	72,157	$	45,140	$	1,804	$	2,950	$	0	$	4,925	$	233,590

Real Estate-Residential Secured for Business Purpose												Real Estate-Residential Secured for Business Purpose
Risk Rating												Risk Rating
1. Pass												1. Pass	$	84,624	$	76,313	$	60,041	$	47,244	$	41,529	$	40,042	$	24,058	$	373,851
2. Special Mention												2. Special Mention	108		464		189		77		180		481		200		1,699
3. Substandard												3. Substandard	30		537		51		69		1,071		863		68		2,689

Total												Total	$	84,762	$	77,314	$	60,281	$	47,390	$	42,780	$	41,386	$	24,326	$	378,239

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at September 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 September 30, 2020.

Table of Contents

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


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

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

The Corporation had no loans with a risk rating of Doubtful included in loans and leases held for investment at December 31, 2019.

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

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

2025

Table of Contents

The following table presents ~~classifications~~by class, the recorded investment in loans and leases held for ~~originated loans:~~investment by performance status at September 30, 2020 under ASC 326.

(Dollars in thousands) Real Estate—
Residential
Secured for
Personal Purpose Real Estate—
Home Equity
Secured for
Personal Purpose Loans to
Individuals Lease
Financings Total
At September 30, 2019
Performing $ 387,449 $ 170,062 $ 30,444 $ 139,817 $ 727,772
Nonperforming 1,194 424 131 990 2,739
Total $ 388,643 $ 170,486 $ 30,575 $ 140,807 $ 730,511
At December 31, 2018
Performing $ 337,762 $ 177,139 $ 32,562 $ 141,649 $ 689,112
Nonperforming 689 384 55 307 1,435
Total $ 338,451 $ 177,523 $ 32,617 $ 141,956 $ 690,547


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
At September 30, 2020
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing	$	117,318	$	78,421	$	67,015	$	60,289	$	46,982	$	100,749	$	1,291	$	472,065
2. Nonperforming	0		0		56		544		0		2,023		0		2,623
Total	$	117,318	$	78,421	$	67,071	$	60,833	$	46,982	$	102,772	$	1,291	$	474,688

Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing	$	1,002	$	891	$	1,179	$	1,218	$	588	$	2,627	$	163,942	$	171,447
2. Nonperforming	0		0		103		0		0		42		856		1,001
Total	$	1,002	$	891	$	1,282	$	1,218	$	588	$	2,669	$	164,798	$	172,448

Loans to Individuals
Payment Performance
1. Performing	$	967	$	1,747	$	1,158	$	532	$	317	$	2,397	$	20,630	$	27,748
2. Nonperforming	0		0		0		0		0		23		0		23
Total	$	967	$	1,747	$	1,158	$	532	$	317	$	2,420	$	20,630	$	27,771

Lease Financings
Payment Performance
1. Performing	$	53,992	$	49,890	$	34,527	$	13,866	$	5,380	$	899	$	0	$	158,554
2. Nonperforming	0		41		545		257		124		14		0		981
Total	$	53,992	$	49,931	$	35,072	$	14,123	$	5,504	$	913	$	0	$	159,535

The following table presents ~~classifications~~by class, he recorded investment in loans and lease held for ~~acquired loans:~~investment by performance status at December 31, 2019 under ASC 310.


(Dollars in thousands)	(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total		(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At September 30, 2019
At December 31, 2019												At December 31, 2019
Performing	Performing	$	42,652	$	6,159	$	140	$	—	$	48,951	Performing	$	437,021	$	172,954	$	29,809	$	148,866	$	788,650
Nonperforming	Nonperforming	893		1,009		—		—		1,902		Nonperforming	2,038		1,481		74		555		4,148
Total	Total	$	43,545	$	7,168	$	140	$	—	$	50,853	Total	$	439,059	$	174,435	$	29,883	$	149,421	$	792,798
At December 31, 2018
Performing		$	49,061	$	7,664	$	142	$	—	$	56,867
Nonperforming		898		1,064		—		—		1,962
Total		$	49,959	$	8,728	$	142	$	—	$	58,829

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~~Reserve~~Allowance for ~~Loan~~Credit Losses on Loans and ~~Lease Losses~~Leases and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the ~~reserve~~allowance for ~~loan~~credit losses, loans and ~~lease losses~~leases, for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

(Dollars in thousands) Commercial,
Financial
and
Agricultural Real Estate—
Commercial
and
Construction Real Estate—
Residential
Secured for
Business
Purpose Real Estate—
Residential
and Home
Equity
Secured for
Personal
Purpose Loans to
Individuals Lease
Financings Unallocated Total
Three Months Ended September 30, 2019
Reserve for loan and lease losses:
Beginning balance $ 9,129 $ 15,478 $ 2,478 $ 3,518 $ 481 $ 1,241 $ 275 $ 32,600
Charge-offs (283) (251) — (183) (73) (54) N/A (844)
Recoveries 182 1 98 4 20 71 N/A 376
Provision (recovery of provision) 222 593 103 273 47 (24) 310 1,524
Provision for acquired credit impaired loans — — 6 — — — — 6
Ending balance $ 9,250 $ 15,821 $ 2,685 $ 3,612 $ 475 $ 1,234 $ 585 $ 33,662
Three Months Ended September 30, 2018
Reserve for loan and lease losses:
Beginning balance $ 7,258 $ 12,327 $ 2,004 $ 2,494 $ 447 $ 1,071 $ 51 $ 25,652
Charge-offs (904) — (30) — (82) (123) N/A (1,139)
Recoveries 22 1 8 6 25 51 N/A 113
Provision 813 906 72 527 82 138 206 2,744
Provision for acquired credit impaired loans — — — 1 — — — 1
Ending balance $ 7,189 $ 13,234 $ 2,054 $ 3,028 $ 472 $ 1,137 $ 257 $ 27,371
Nine Months Ended September 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 (1,769) (325) — (198) (209) (268) N/A (2,769)
Recoveries 283 92 108 16 58 219 N/A 776
Provision (recovery of provision) 2,753 2,151 335 594 142 (5) 314 6,284
Provision for acquired credit impaired loans — — 6 1 — — — 7
Ending balance $ 9,250 $ 15,821 $ 2,685 $ 3,612 $ 475 $ 1,234 $ 585 $ 33,662
Nine Months Ended September 30, 2018
Reserve for loan and lease losses:
Beginning balance $ 6,742 $ 9,839 $ 1,661 $ 1,754 $ 373 $ 1,132 $ 54 $ 21,555
Charge-offs (14,553) (40) (30) — (253) (428) N/A (15,304)
Recoveries 271 74 266 71 71 160 N/A 913
Provision 14,729 3,361 157 1,201 281 273 203 20,205
Provision for acquired credit impaired loans — — — 2 — — — 2
Ending balance $ 7,189 $ 13,234 $ 2,054 $ 3,028 $ 472 $ 1,137 $ 257 $ 27,371


(Dollars in thousands)	Beginning balance		(Reversal of provision) provision for credit losses		Charge-offs		Recoveries		Ending balance
Three Months Ended September 30, 2020
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural	$	16,736	$	(2,401)	$	(142)	$	354	$	14,547
Real Estate-Commercial	50,671		7,481		0		0		58,152
Real Estate-Construction	4,130		355		0		0		4,485
Real Estate-Residential Secured for Business Purpose	8,180		251		(88)		23		8,366
Real Estate-Residential Secured for Personal Purpose	2,669		47		0		0		2,716
Real Estate-Home Equity Secured for Personal Purpose	1,071		204		0		4		1,279
Loans to Individuals	771		(170)		(69)		17		549
Lease Financings	1,839		(149)		(149)		85		1,626
Unallocated	150		0		N/A		N/A		150
Total	$	86,217	$	5,618	$	(448)	$	483	$	91,870
Three Months Ended September 30, 2019
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural	$	9,129	$	222	$	(283)	$	182	$	9,250
Real Estate-Commercial and Construction	15,478		593		(251)		1		15,821
Real Estate-Residential Secured for Business Purpose	2,478		109		0		98		2,685
Real Estate-Residential and Home Equity Secured for Personal Purpose	3,518		273		(183)		4		3,612
Loans to Individuals	481		47		(73)		20		475
Lease Financings	1,241		(24)		(54)		71		1,234
Unallocated	275		310		N/A		N/A		585
Total	$	32,600	$	1,530	$	(844)	$	376	$	33,662

N/A – Not applicable

2227

Table of Contents

Charge-offs for the nine months ended September 30, 2018 included a charge-off of $12.7 million during the second quarter of 2018 for a commercial loan relationship related to fraudulent activities perpetrated by employees of a borrower. The Bank owned a participating interest which originally totaled $13.0 million in an approximately $80.0 million commercial lending facility. The charge-off represented the entire principal amount owed to the Bank.


(Dollars in thousands)	Beginning balance, prior to adoption of ASU No. 2016-13 for CECL		Adjustment to initially apply ASU No. 2016-13 for CECL		Provision (reversal of provision) for credit losses		Charge-offs		Recoveries		Ending balance
Nine Months Ended September 30, 2020
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural	$	8,759	$	5,284	$	1,195	$	(1,367)	$	676	$	14,547
Real Estate-Commercial	15,750		6,208		38,961		(2,802)		35		58,152
Real Estate-Construction	2,446		29		2,010		0		0		4,485
Real Estate-Residential Secured for Business Purpose	2,622		2,502		3,398		(187)		31		8,366
Real Estate-Residential Secured for Personal Purpose	2,713		(706)		709		0		0		2,716
Real Estate-Home Equity Secured for Personal Purpose	1,076		(364)		555		0		12		1,279
Loans to Individuals	470		104		116		(197)		56		549
Lease Financings	1,311		(135)		737		(513)		226		1,626
Unallocated	184		0		(34)		N/A		N/A		150
Total	$	35,331	$	12,922	$	47,647	$	(5,066)	$	1,036	$	91,870
Nine Months Ended September 30, 2019
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural	$	7,983	$	—	$	2,753	$	(1,769)	$	283	$	9,250
Real Estate-Commercial and Construction	13,903		—		2,151		(325)		92		15,821
Real Estate-Residential Secured for Business Purpose	2,236		—		341		0		108		2,685
Real Estate-Residential and Home Equity Secured for Personal Purpose	3,199		—		595		(198)		16		3,612
Loans to Individuals	484		—		142		(209)		58		475
Lease Financings	1,288		—		(5)		(268)		219		1,234
Unallocated	271		—		314		N/A		N/A		585
Total	$	29,364	$	—	$	6,291	$	(2,769)	$	776	$	33,662

N/A – Not applicable

2328

Table of Contents

The following presents, by portfolio segment, the balance in the ~~reserve for loan and lease losses disaggregated~~ACL on ~~the basis of impairment method and the recorded investment in~~ loans and leases, disaggregated on the basis of ~~impairment method~~whether the loan or lease was measured for credit loss as a pooled loan or lease or if it was individually analyzed for a reserve at September 30, ~~2019~~2020 and ~~2018:~~2019:

(Dollars in thousands) Commercial,
Financial
and
Agricultural Real Estate—
Commercial
and
Construction Real Estate—
Residential
Secured for
Business
Purpose Real Estate—
Residential
and Home
Equity
Secured for
Personal
Purpose Loans to
Individuals Lease
Financings Unallocated Total
At September 30, 2019
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment $ 390 $ 1,485 $ 414 $ 155 $ — $ — N/A $ 2,444
Ending balance: collectively evaluated for impairment 8,860 14,332 2,271 3,457 475 1,234 585 31,214
Ending balance: acquired non-credit impaired loans evaluated for impairment — 4 — — — — — 4
Total ending balance $ 9,250 $ 15,821 $ 2,685 $ 3,612 $ 475 $ 1,234 $ 585 $ 33,662
Loans and leases held for investment:
Ending balance: individually evaluated for impairment (1) $ 2,233 $ 28,280 $ 2,887 $ 3,520 $ 2 $ 306 $ 37,228
Ending balance: collectively evaluated for impairment 941,480 1,941,575 313,307 557,512 30,573 140,501 3,924,948
Loans measured at fair value — 349 — — — — 349
Acquired non-impaired loans 15,440 180,285 44,225 48,750 140 — 288,840
Acquired credit impaired loans — 206 302 60 — — 568
Total ending balance $ 959,153 $ 2,150,695 $ 360,721 $ 609,842 $ 30,715 $ 140,807 $ 4,251,933
At September 30, 2018
Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment $ 211 $ 645 $ — $ 192 $ — $ — N/A $ 1,048
Ending balance: collectively evaluated for impairment 6,978 12,504 2,014 2,836 472 1,137 257 26,198
Ending balance: acquired non-credit impaired loans evaluated for impairment — 85 40 — — — — 125
Total ending balance $ 7,189 $ 13,234 $ 2,054 $ 3,028 $ 472 $ 1,137 $ 257 $ 27,371
Loans and leases held for investment:
Ending balance: individually evaluated for impairment (1) $ 4,889 $ 18,970 $ 1,588 $ 3,275 $ — $ 1,250 $ 29,972
Ending balance: collectively evaluated for impairment 862,856 1,623,458 278,588 504,381 32,096 134,758 3,436,137
Loans measured at fair value — 1,801 — — — — 1,801
Acquired non-impaired loans 26,395 245,345 65,707 59,770 142 — 397,359
Acquired credit impaired loans 182 206 448 64 — — 900
Total ending balance $ 894,322 $ 1,889,780 $ 346,331 $ 567,490 $ 32,238 $ 136,008 $ 3,866,169

~~(1) Includes $13.6 million and $15.3 million of acquired loans which were individually evaluated for impairment at September 30, 2019 and 2018, respectively.~~


	Allowance for credit losses, loans and leases						Loans and leases held for investment
(Dollars in thousands)	Ending balance: individually analyzed		Ending balance: pooled		Total ending balance		Ending balance: individually analyzed		Ending balance: pooled		Loans measured at fair value		Total ending balance
At September 30, 2020
Commercial, Financial and Agricultural	$	891	$	13,656	$	14,547	$	3,809	$	890,505	$	0	$	894,314
Paycheck Protection Program	0		0		0		0		501,580		0		501,580
Real Estate-Commercial	19		58,133		58,152		20,464		2,349,006		221		2,369,691
Real Estate-Construction	0		4,485		4,485		0		233,590		0		233,590
Real Estate-Residential Secured for Business Purpose	1		8,365		8,366		2,151		376,088		0		378,239
Real Estate-Residential Secured for Personal Purpose	181		2,535		2,716		2,395		472,293		0		474,688
Real Estate-Home Equity Secured for Personal Purpose	0		1,279		1,279		948		171,500		0		172,448
Loans to Individuals	0		549		549		0		27,771		0		27,771
Lease Financings	0		1,626		1,626		0		159,535		0		159,535
Unallocated	N/A		150		150		N/A		N/A		N/A		N/A
Total	$	1,092	$	90,778	$	91,870	$	29,767	$	5,181,868	$	221	$	5,211,856
At September 30, 2019
Commercial, Financial and Agricultural	$	390	$	8,860	$	9,250	$	2,233	$	956,920	$	0	$	959,153
Real Estate-Commercial and Construction	1,485		14,336		15,821		28,280		2,122,066		349		2,150,695
Real Estate-Residential Secured for Business Purpose	414		2,271		2,685		2,887		357,834		0		360,721
Real Estate-Residential and Home Equity Secured for Personal Purpose	155		3,457		3,612		3,520		606,322		0		609,842
Loans to Individuals	0		475		475		2		30,713		0		30,715
Lease Financings	0		1,234		1,234		306		140,501		0		140,807
Unallocated	N/A		585		585		N/A		N/A		N/A		N/A
Total	$	2,444	$	31,218	$	33,662	$	37,228	$	4,214,356	$	349	$	4,251,933

N/A – Not applicable

~~Table of Contents~~

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

At September 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 $ 1,223 $ 1,835 $ 2,776 $ 3,361
Real estate—commercial real estate 16,343 17,277 6,578 7,516
Real estate—construction 256 261 106 111
Real estate—residential secured for business purpose 797 978 1,478 1,660
Real estate—residential secured for personal purpose 1,533 1,731 863 911
Real estate—home equity secured for personal purpose 1,433 1,524 1,373 1,404
Loans to individuals 2 2 — —
Total impaired loans with no related reserve recorded $ 21,587 $ 23,608 $ 13,174 $ 14,963
Impaired loans with a reserve recorded:
Commercial, financial and agricultural $ 1,010 $ 1,010 $ 390 $ 971 $ 1,024 $ 413
Real estate—commercial real estate 11,681 12,436 1,485 11,637 12,162 675
Real estate—residential secured for business purpose 2,090 2,095 414 — — —
Real estate—residential secured for personal purpose 554 554 155 724 724 252
Real estate—home equity secured for personal purpose — — — 75 75 75
Total impaired loans with a reserve recorded $ 15,335 $ 16,095 $ 2,444 $ 13,407 $ 13,985 $ 1,415

Total impaired loans:
Commercial, financial and agricultural $ 2,233 $ 2,845 $ 390 $ 3,747 $ 4,385 $ 413
Real estate—commercial real estate 28,024 29,713 1,485 18,215 19,678 675
Real estate—construction 256 261 — 106 111 —
Real estate—residential secured for business purpose 2,887 3,073 414 1,478 1,660 —
Real estate—residential secured for personal purpose 2,087 2,285 155 1,587 1,635 252
Real estate—home equity secured for personal purpose 1,433 1,524 — 1,448 1,479 75
Loans to individuals 2 2 — — — —
Total impaired loans $ 36,922 $ 39,703 $ 2,444 $ 26,581 $ 28,948 $ 1,415

Impaired loans include nonaccrual loans and accruing troubled debt restructured loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. These loans are individually measured to determine the amount of potential impairment. The loans are reviewed for impairment based on the fair value of the collateral for collateral dependent loans and for certain loans based on discounted cash flows using the loans’ initial effective interest rates.

~~Table of Contents~~

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

Three Months Ended September 30, 2019 Three Months Ended September 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 $ 2,082 $ — $ 43 $ 5,671 $ 31 $ 58
Real estate—commercial real estate 19,818 — 284 19,878 22 261
Real estate—construction 219 — 8 108 — 2
Real estate—residential secured for business purpose 2,248 — 76 1,844 4 32
Real estate—residential secured for personal purpose 2,185 — 30 1,850 — 26
Real estate—home equity secured for personal purpose 1,313 — 19 1,507 — 21
Total $ 27,865 $ — $ 460 $ 30,858 $ 57 $ 400

* ~~Includes interest income recognized on a cash basis for nonaccrual loans of $0 thousandand~~$5 thousand for the three months ended September 30, 2019 and 2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of $0 thousand and $52 thousand for the three months ended September 30, 2019 and 2018, respectively.

Nine Months Ended September 30, 2019 Nine Months Ended September 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 $ 2,764 $ 17 $ 146 $ 6,589 $ 103 $ 269
Real estate—commercial real estate 18,839 3 780 19,935 212 813
Real estate—construction 151 — 11 128 — 7
Real estate—residential secured for business purpose 1,750 — 132 2,018 14 79
Real estate—residential secured for personal purpose 1,907 — 84 1,064 3 70
Real estate—home equity secured for personal purpose 1,364 1 62 1,026 — 60
Total $ 26,775 $ 21 $ 1,215 $ 30,760 $ 332 $ 1,298

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

~~Impaired Leases~~

~~The Corporation had impaired leases of $306 thousand with 0 related reserves at September 30, 2019. The Corporation had 0 impaired leases at December 31, 2018.~~

2629

Table of Contents

Troubled Debt Restructured Loans

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


		Three Months Ended September 30, 2019												Three Months Ended September 30, 2018											Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
(Dollars in thousands)	(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		(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:	Accruing Troubled Debt Restructured Loans:															Accruing Troubled Debt Restructured Loans:

Total	Total	—	$	—	$	—	$	—	—	$	—	$	—	$	—	Total	0	$	0	$	0	0	$	0	$	0
Nonaccrual Troubled Debt Restructured Loans:	Nonaccrual Troubled Debt Restructured Loans:															Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	Commercial, financial and agricultural	1	$	19	$	19	$	—	—	$	—	$	—	$	—	Commercial, financial and agricultural	0	$	0	$	0	1	$	19	$	19

Real estate—residential secured for personal purpose																Real estate—residential secured for personal purpose	1	544		544		0	0		0
Total	Total	1	$	19	$	19	$	—	—	$	—	$	—	$	—	Total	1	$	544	$	544	1	$	19	$	19


		Nine Months Ended September 30, 2019												Nine Months Ended September 30, 2018											Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
(Dollars in thousands)	(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		(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:	Accruing Troubled Debt Restructured Loans:															Accruing Troubled Debt Restructured Loans:

Real estate—home equity secured for personal purpose	Real estate—home equity secured for personal purpose	1	$	55	$	55	$	—	—	$	—	$	—	$	—	Real estate—home equity secured for personal purpose	0	$	0	$	0	1	$	55	$	55
Total	Total	1	$	55	$	55	$	—	—	$	—	$	—	$	—	Total	0	$	0	$	0	1	$	55	$	55
Nonaccrual Troubled Debt Restructured Loans:	Nonaccrual Troubled Debt Restructured Loans:															Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural*	Commercial, financial and agricultural*	3	$	975	$	975	$	—	—	$	—	$	—	$	—	Commercial, financial and agricultural*	1	$	619	$	619	3	$	975	$	975
Real estate—commercial real estate*	Real estate—commercial real estate*	1	1,313		1,313		—		—	—		—		—		Real estate—commercial real estate*	0	0		0		1	1,313		1,313

Real estate—residential secured for personal purpose	Real estate—residential secured for personal purpose	—	—		—		—		1	66		66		—		Real estate—residential secured for personal purpose	1	544		544		0	0		0
Total	Total	4	$	2,288	$	2,288	$	—	1	$	66	$	66	$	—	Total	2	$	1,163	$	1,163	4	$	2,288	$	2,288

* Three nonaccrual troubled debt restructured loans in the above table totaling $2.3 million were modified via the execution of a forbearance agreement during the nine months ended September 30, 2019. These loans relate to one borrower and were on nonaccrual status at the time of modification.

The Corporation ~~grants concessions to existing borrowers primarily related to extensions~~modified certain loans and leases via principal and/or interest deferrals in accordance with Section 4013 of ~~interest-only payment periods~~the CARES Act and ~~an occasional payment modification. These~~the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus and have not categorized 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. Accruingas troubled debt ~~restructured loans are primarily comprised of loans on which interest is being accrued under the restructured terms, and the loans are current or less than ninety days past due.~~restructurings.

2730

Table of 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 nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.


		Maturity Date Extension					Amortization Period Extension						Total Concessions Granted				Maturity Date Extension							Amortization Period Extension			Total Concessions Granted
(Dollars in thousands)	(Dollars in thousands)	No. of Loans	Amount		No. of Loans		Amount		No. of Loans	Amount		(Dollars in thousands)					No. of Loans		Amount							No. of Loans	Amount		No. of Loans	Amount
Three Months Ended September 30, 2020						Three Months Ended September 30, 2020
Accruing Troubled Debt Restructured Loans:						Accruing Troubled Debt Restructured Loans:

Total						Total								0	$	0		0			$	0	0		$	0
Nonaccrual Troubled Debt Restructured Loans:						Nonaccrual Troubled Debt Restructured Loans:

Real estate—residential secured for personal purpose						Real estate—residential secured for personal purpose								0	$	0		1			$	544	1		$	544
Total						Total								0	$	0		1			$	544	1		$	544
Three Months Ended September 30, 2019	Three Months Ended September 30, 2019											Three Months Ended September 30, 2019
Accruing Troubled Debt Restructured Loans:						Accruing Troubled Debt Restructured Loans:

Total						Total								0	$	0		0			$	0	0		$	0
Nonaccrual Troubled Debt Restructured Loans:						Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural						Commercial, financial and agricultural								1	$	19		0			$	0	1		$	19

Total						Total								1	$	19		0			$	0	1		$	19
Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2020
Accruing Troubled Debt Restructured Loans:	Accruing Troubled Debt Restructured Loans:											Accruing Troubled Debt Restructured Loans:

Total	Total	—	$	—	—		$	—	—	$	—	Total					0		$	0						0	$	0	0	$	0
Nonaccrual Troubled Debt Restructured Loans:	Nonaccrual Troubled Debt Restructured Loans:											Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	Commercial, financial and agricultural	1	$	19	—		$	—	1	$	19	Commercial, financial and agricultural					0		$	0						1	$	619	1	$	619

Total		1	$	19	—		$	—	1	$	19
Three Months Ended September 30, 2018
Accruing Troubled Debt Restructured Loans:

Total		—	$	—	—		$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:

Real estate—residential secured for personal purpose						Real estate—residential secured for personal purpose								0	0			1			544		1		544
Total	Total	—	$	—	—		$	—	—	$	—	Total					0		$	0						2	$	1,163	2	$	1,163
Nine Months Ended September 30, 2019	Nine Months Ended September 30, 2019											Nine Months Ended September 30, 2019
Accruing Troubled Debt Restructured Loans:	Accruing Troubled Debt Restructured Loans:											Accruing Troubled Debt Restructured Loans:

Real estate—home equity secured for personal purpose	Real estate—home equity secured for personal purpose	—	—		1		$	55	1	$	55	Real estate—home equity secured for personal purpose					0		$	0						1	$	55	1	$	55
Total	Total	—	$	—	1		$	55	1	$	55	Total					0		$	0						1	$	55	1	$	55
Nonaccrual Troubled Debt Restructured Loans:	Nonaccrual Troubled Debt Restructured Loans:											Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	Commercial, financial and agricultural	1	$	19	2		$	956	3	$	975	Commercial, financial and agricultural					1		$	19						2	$	956	3	$	975
Real estate—commercial real estate	Real estate—commercial real estate	—	—		1		1,313		1	1,313		Real estate—commercial real estate					0		0							1	1,313		1	1,313

Total	Total	1	$	19	3		$	2,269	4	$	2,288	Total					1		$	19						3	$	2,269	4	$	2,288
Nine Months Ended September 30, 2018
Accruing Troubled Debt Restructured Loans:

Total		—	$	—	—		$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:

Real estate—residential secured for personal purpose		—	$	—	1		$	66	1	$	66
Total		—	$	—	1		$	66	1	$	66

~~The following presents, by class of loans, information regarding~~There were no accruing ~~and~~or nonaccrual troubled debt restructured loans for which there were payment defaults within twelve months of the restructuring ~~date:~~date for the three and nine months ended September 30, 2020 or September 30, 2019.

Three Months Ended September 30, Nine Months Ended September 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:
Total — $ — — $ — — $ — — $ —
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural — $ — — $ — — $ — 1 $ 953
Total — $ — — $ — — $ — 1 $ 953

~~Table of Contents~~

The following presents, by class of loans, information regarding consumer mortgages collateralized by residential real estate property that are in the process of foreclosure at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


(Dollars in thousands)	(Dollars in thousands)	At September 30, 2019		At December 31, 2018		(Dollars in thousands)	At September 30, 2020		At December 31, 2019
Real estate-residential secured for personal purpose	Real estate-residential secured for personal purpose	$	714	$	563	Real estate-residential secured for personal purpose	$	64	$	714
Real estate-home equity secured for personal purpose	Real estate-home equity secured for personal purpose	1,134		1,134		Real estate-home equity secured for personal purpose	226		1,058
Total	Total	$	1,848	$	1,697	Total	$	290	$	1,772

The ~~Corporation held 0~~following presents foreclosed residential real estate property included in other real estate owned at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.


(Dollars in thousands)	At September 30, 2020		At December 31, 2019
Foreclosed residential real estate	$	0	$	71

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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 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 September 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)	(Dollars in thousands)	At September 30, 2019		At December 31, 2018		(Dollars in thousands)	At September 30, 2020		At December 31, 2019
2019 (excluding the nine months ended September 30, 2019)		$	13,440	$	55,201
2020		53,183		43,355
2020 (excluding the nine months ended September 30, 2020)						2020 (excluding the nine months ended September 30, 2020)	$	14,587	$	57,515
2021	2021	40,004		29,678		2021	58,029		45,510
2022	2022	27,048		17,687		2022	44,933		32,233
2023	2023	14,254		6,674		2023	30,902		18,345
2024						2024	17,204		6,639
Thereafter	Thereafter	5,374		1,975		Thereafter	7,822		2,259
Total future minimum lease payments receivable	Total future minimum lease payments receivable	153,303		154,570		Total future minimum lease payments receivable	173,477		162,501
Plus: Unguaranteed residual	Plus: Unguaranteed residual	817		600		Plus: Unguaranteed residual	825		886
Plus: Initial direct costs	Plus: Initial direct costs	2,056		1,904		Plus: Initial direct costs	2,552		2,374
Less: Imputed interest	Less: Imputed interest	(15,369)		(15,118)		Less: Imputed interest	(17,319)		(16,340)
Lease financings	Lease financings	$	140,807	$	141,956	Lease financings	$	159,535	$	149,421

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Included within the "2019 (excluding the nine months ended September 30, 2019)" line item above as of September 30, 2019 and December 31, 2018 are $37 thousand and $0 thousand, respectively, of receivables related to operating lease contracts.

For the nine months ended September 30, 2019 and 2018, the Corporation recognized $6.0 million and $5.6 million, respectively, of interest income on lease financings within total interest and fees on loans and leases on the condensed consolidated statements of income. The Corporation did not record any profit or loss upon the commencement date of its leases or any lease income related to variable lease payments.

Note 5. Goodwill and Other Intangible Assets

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

Changes in the carrying amount of the Corporation's goodwill by business segment for the nine months ended September 30, ~~2019~~2020 were as follows:


(Dollars in thousands)	(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated		(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated
Balance at December 31, 2018		$	138,476	$	15,434	$	18,649	$	172,559
Balance at December 31, 2019										Balance at December 31, 2019	$	138,476	$	15,434	$	18,649	$	172,559
Addition to goodwill from acquisitions	Addition to goodwill from acquisitions	—		—		—		—		Addition to goodwill from acquisitions	0		0		0		0
Balance at September 30, 2019		$	138,476	$	15,434	$	18,649	$	172,559
Balance at September 30, 2020										Balance at September 30, 2020	$	138,476	$	15,434	$	18,649	$	172,559

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


		At September 30, 2019										At December 31, 2018											At September 30, 2020				At December 31, 2019
(Dollars in thousands)	(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 Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:	Amortized intangible assets:													Amortized intangible assets:
Covenants not to compete		$	—	$	—	$	—	$	710	$	710	$	—

Core deposit intangibles	Core deposit intangibles	6,788		3,818		2,970		6,788		3,143		3,645		Core deposit intangibles	$	6,788	$	4,610	$	2,178	$	6,788	$	4,026	$	2,762
Customer related intangibles	Customer related intangibles	8,819		7,763		1,056		12,381		10,804		1,577		Customer related intangibles	7,604		7,046		558		8,819		7,923		896
Servicing rights(1)	Servicing rights(1)	18,424		11,928		6,496		17,314		10,546		6,768		Servicing rights(1)	21,421		15,142		6,279		19,160		12,534		6,626
Total amortized intangible assets	Total amortized intangible assets	$	34,031	$	23,509	$	10,522	$	37,193	$	25,203	$	11,990	Total amortized intangible assets	$	35,813	$	26,798	$	9,015	$	34,767	$	24,483	$	10,284

(1) Included within accumulated amortization is a valuation allowance of $206 thousand on mortgage servicing rights at September 30, 2020. There was no valuation allowance as of December 31, 2019.

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


Year	Year	(Dollars in thousands)	Amount		Year	(Dollars in thousands)	Amount
Remainder of 2019			$	368
2020			1,200
Remainder of 2020					Remainder of 2020		$	278
2021	2021		923		2021		923
2022	2022		666		2022		666
2023	2023		409		2023		409
2024					2024		267
Thereafter	Thereafter		460		Thereafter		193
Total					Total		$	2,736

The Corporation has originated mortgage servicing rights, which are included in other intangible assets on the consolidated balance sheet. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are subject to impairment testing on a quarterly basis. The aggregate fair value of ~~these~~mortgage servicing rights was ~~$8.4~~$6.3 million and $9.2 million at September 30, ~~2019~~2020 and ~~$11.5 million at~~ December 31, ~~2018.~~2019, respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at September 30, ~~2019~~2020 and December 31, ~~2018.~~

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2019.

Changes in the servicing rights balance are summarized as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2019		2018		2019		2018		(Dollars in thousands)	2020		2019		2020		2019
Beginning of period	Beginning of period	$	6,599	$	6,650	$	6,768	$	6,573	Beginning of period	$	6,081	$	6,599	$	6,626	$	6,768
Servicing rights capitalized	Servicing rights capitalized	464		406		1,051		1,093		Servicing rights capitalized	900		464		2,261		1,051

Amortization of servicing rights	Amortization of servicing rights	(585)		(341)		(1,320)		(951)		Amortization of servicing rights	(834)		(585)		(2,402)		(1,320)
Changes in valuation allowance	Changes in valuation allowance	18		—		(3)		—		Changes in valuation allowance	132		18		(206)		(3)
End of period	End of period	$	6,496	$	6,715	$	6,496	$	6,715	End of period	$	6,279	$	6,496	$	6,279	$	6,496
Loans serviced for others	Loans serviced for others	$	1,055,823	$	1,024,229	$	1,055,823	$	1,024,229	Loans serviced for others	$	1,167,316	$	1,055,823	$	1,167,316	$	1,055,823

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2019		2018		2019		2018		(Dollars in thousands)	2020		2019		2020		2019
Valuation allowance, beginning of period	Valuation allowance, beginning of period	$	(21)	$	—	$	—	$	—	Valuation allowance, beginning of period	$	(338)	$	(21)	$	0	$	0
Additions	Additions	—		—		(3)		—		Additions	0		0		(206)		(3)
Reductions	Reductions	18		—		—		—		Reductions	132		18		0		0

Valuation allowance, end of period	Valuation allowance, end of period	$	(3)	$	—	$	(3)	$	—	Valuation allowance, end of period	$	(206)	$	(3)	$	(206)	$	(3)

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


Year	Year	(Dollars in thousands)	Amount		Year	(Dollars in thousands)	Amount
Remainder of 2019			$	1,208
2020			1,019
Remainder of 2020					Remainder of 2020		$	1,724
2021	2021		833		2021		1,276
2022	2022		678		2022		941
2023	2023		549		2023		693
2024					2024		302
Thereafter	Thereafter		2,209		Thereafter		1,343
Total					Total		$	6,279

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Note 6. Deposits

Deposits and their respective weighted average interest rate at September 30, ~~2019~~2020 and December 31, ~~2018 consist~~2019 consisted of the following:


		At September 30, 2019						At December 31, 2018							At September 30, 2020				At December 31, 2019
		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
		(Dollars in thousands)															(Dollars in thousands)
Noninterest-bearing deposits	Noninterest-bearing deposits	—	%	$	1,198,425	—	%	$	1,055,919	Noninterest-bearing deposits	0	%	$	1,714,505	0	%	$	1,279,681
Demand deposits	Demand deposits	1.17		1,644,546		1.01		1,377,171		Demand deposits	0.23		2,055,164		0.96		1,677,682
Savings deposits	Savings deposits	0.39		776,920		0.33		782,766		Savings deposits	0.15		885,715		0.37		796,702
Time deposits	Time deposits	2.02		718,100		1.76		670,077		Time deposits	1.44		556,219		1.95		606,010
Total	Total	0.85	%	$	4,337,991	0.73	%	$	3,885,933	Total	0.27	%	$	5,211,603	0.71	%	$	4,360,075

The aggregate amount of time deposits in denominations of $100 thousand or more was ~~$388.1~~$277.9 million at September 30, ~~2019~~2020 and ~~$283.4~~$293.2 million at December 31, ~~2018.~~2019. Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently ~~up to~~ $250 thousand. The aggregate amount of time deposits in denominations over $250 thousand was ~~$232.8~~$144.7 million at September 30, ~~2019~~2020 and ~~$129.5~~$143.0 million at December 31, ~~2018.~~2019.

~~Table of Contents~~

At September 30, ~~2019,~~2020, the scheduled maturities of time deposits are as follows:


Year	Year	(Dollars in thousands)	Amount		Year	(Dollars in thousands)	Amount
Remainder of 2019			$	171,421
2020			309,488
Remainder of 2020					Remainder of 2020		$	114,934
2021	2021		95,356		2021		220,305
2022	2022		45,339		2022		78,418
2023	2023		71,942		2023		110,856
2024					2024		23,634
Thereafter	Thereafter		24,554		Thereafter		8,072
Total	Total		$	718,100	Total		$	556,219

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 September 30, 2019						At December 31, 2018							At September 30, 2020				At December 31, 2019
(Dollars in thousands)	(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		(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:	Short-term borrowings:									Short-term borrowings:
FHLB borrowings		$	—	—	%	$	108,300	2.62	%
Federal funds purchased		—		—		60,000		2.60

Customer repurchase agreements	Customer repurchase agreements	18,970		0.05		21,468		0.05		Customer repurchase agreements	$	17,681	0.05	%	$	18,680	0.05	%

Long-term debt:	Long-term debt:									Long-term debt:
FHLB advances	FHLB advances	$	150,000	1.99	%	$	125,000	1.92	%	FHLB advances	$	200,000	1.44	%	$	140,000	2.04	%
Security repurchase agreements	Security repurchase agreements	10,128		2.60		20,330		2.71		Security repurchase agreements	5,010		0.57		10,098		2.07

Subordinated notes	Subordinated notes	$	94,757	5.32	%	$	94,574	5.33	%	Subordinated notes	$	193,413	4.90	%	$	94,818	5.32	%

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 ~~$1.8~~$2.1 billion. ~~Advances~~All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had outstanding short-term letters of credit with the FHLB totaling ~~$692.8~~$650.8 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 $1.2 billion at September 30, 2020.

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The Corporation, through the Bank, ~~maintains uncommitted federal fund credit lines with several correspondent banks that totaled $504.0~~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 $69.5 million and ~~$367.0~~$94.8 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. At September 30, 2020 and December 31, 2019, the Corporation had 0 outstanding borrowings under the Discount Window Lending program. As part of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated Paycheck Protection Program (PPP) loans through the Paycheck Protection Program Liquidity Facility (PPPLF) program. At September 30, 2020, the Bank had 0 outstanding borrowings under the PPPLF program.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At September 30, 2020 and December 31, 2019, the Corporation had 0 outstanding borrowings under this line.

The Corporation and the Bank have a total of $2.2 billion and $1.9 billion of committed borrowing capacity at September 30, 2020 and December 31, 2019, respectively, of which $1.3 billion and $1.2 billion was available as of September 30, 2020 and December 31, 2019, respectively. The Corporation, through the Bank, also maintains uncommitted funding sources from correspondent banks of $460.0 million and $504.0 million at September 30, 2020 and December 31, 2019, respectively, which were fully available. 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 $101.4 million and $69.5 million at September 30, 2019 and December 31, 2018, respectively. At September 30, 2019 and December 31, 2018, the Corporation had 0 outstanding borrowings under this program.

~~The Corporation has a $10.0 million committed line of credit with a correspondent bank. At September 30, 2019 and December 31, 2018, the Corporation had 0 outstanding borrowings under this line.~~

~~Table of Contents~~

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


(Dollars in thousands)	(Dollars in thousands)	As of September 30, 2019		Weighted Average Rate		(Dollars in thousands)	As of September 30, 2020		Weighted Average Rate
Remainder of 2019		$	10,000	1.35	%
2020		40,000		1.70
Remainder of 2020						Remainder of 2020	$	10,000	1.47	%
2021	2021	80,000		2.07		2021	45,000		1.93
2022	2022	10,000		2.09		2022	35,000		1.17
2023	2023	10,000		3.02		2023	50,000		1.73
2024						2024	60,000		0.98
Thereafter	Thereafter	—		—		Thereafter	0		0
Total	Total	$	150,000	1.99	%	Total	$	200,000	1.44	%

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


(Dollars in thousands)	(Dollars in thousands)	As of September 30, 2019		Weighted Average Rate		(Dollars in thousands)	As of September 30, 2020		Weighted Average Rate
Remainder of 2019		$	—	—	%
2020		10,128		2.60
Remainder of 2020						Remainder of 2020	$	5,010	0.57	%
2021	2021	—		—		2021	0		0
2022	2022	—		—		2022	0		0
2023	2023	—		—		2023	0		0
2024						2024	0		0
Thereafter	Thereafter	—		—		Thereafter	0		0
Total	Total	$	10,128	2.60	%	Total	$	5,010	0.57	%

Long-term debt under security repurchase agreements totaling ~~$10.1~~$5.0 million hold variable interest rates and are ~~variable~~ based on the one-month LIBOR rate plus a spread.

On August 5, 2020, the Corporation issued $100.0 million aggregate principal amount of 5.00% fixed-to-floating rate subordinated notes (the "2020 Notes") due 2030. The net proceeds, which approximated $98.4 million, will be used for general corporate purposes. The subordinated notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations.

The 2020 Notes bear interest at an annual rate of 5.00%, payable semi-annually in arrears commencing on February 15, 2021. The last interest payment date for the fixed rate period will be August 15, 2025. From and including August 15, 2025 to, but excluding, August 15, 2030 or the date of earlier redemption, the Notes will bear interest at an annual floating rate of interest equivalent to the expected Benchmark rate, which is expected to be the Three-Month Term SOFR, plus 495.2 basis points, payable quarterly in arrears, commencing on November 15, 2025. Notwithstanding the foregoing, if the Benchmark rate is less than zero, the Benchmark rate shall be deemed to be zero. The related issuance costs of $1.6 million are being amortized on a straight line basis into interest expense over 5 years.

The Corporation may redeem the 2020 Notes (i) in whole or in part beginning with the interest payment date of August 15, 2025, and on any interest payment date thereafter or (ii) in whole, but not in part, at any time within 90 days upon the

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occurrence of certain tax, regulatory capital and Investment Company Act of 1940 events. The redemption price for any redemption is 100% of the principal amount of the subordinated notes being redeemed, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any redemption of the subordinated notes will be subject to the receipt of the approval of the Board of Governors of the Federal Reserve System to the extent then required under applicable laws or regulations, including capital regulations.

Note 8. Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a ~~noncontributory~~non-contributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the ~~noncontributory~~non-contributory 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 are~~This non-qualified benefit ~~plans. These non-qualified benefit plans are~~plan is not offered to new participants and all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

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

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

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


		Three Months Ended September 30,																Three Months Ended September 30,
		2019		2018		2019		2018			2020		2019			2020		2019
(Dollars in thousands)	(Dollars in thousands)	Retirement Plans						Other Post Retirement Benefits							(Dollars in thousands)	Retirement Plans				Other Post Retirement Benefits
Service cost	Service cost	$	109	$	140	$	17	$	22	Service cost	$	117	$	109		$	27	$	17
Interest cost	Interest cost	476		440		23		23		Interest cost	425		476			23		23
Expected return on plan assets		(772)		(849)		—		—
Expected loss on plan assets										Expected loss on plan assets	(816)		(772)			0		0
Amortization of net actuarial loss	Amortization of net actuarial loss	294		280		—		1		Amortization of net actuarial loss	300		294			7		0
Accretion of prior service cost	Accretion of prior service cost	(45)		(70)		—		—		Accretion of prior service cost	0		(45)			0		0
Net periodic benefit cost (income)		$	62	$	(59)	$	40	$	46
Net periodic benefit cost										Net periodic benefit cost	$	26	$	62		$	57	$	40


	Nine Months Ended September 30,
	2020		2019		2020		2019
(Dollars in thousands)	Retirement Plans				Other Post Retirement Benefits
Service cost	$	350	$	328	$	82	$	50
Interest cost	1,259		1,428		72		70
Expected loss on plan assets	(2,450)		(2,313)		0		0
Amortization of net actuarial loss	882		882		19		0
Accretion of prior service cost	0		(136)		0		0
Net periodic benefit cost	$	41	$	189	$	173	$	120

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Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in thousands) Retirement Plans Other Post Retirement
Benefits
Service cost $ 328 $ 420 $ 50 $ 66
Interest cost 1,428 1,320 70 69
Expected return on plan assets (2,313) (2,440) — —
Amortization of net actuarial loss 882 841 — 3
Accretion of prior service cost (136) (212) — —
Net periodic benefit cost (income) $ 189 $ (71) $ 120 $ 138

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

The Corporation previously disclosed in its financial statements for the year ended December 31, ~~2018~~2019 that it expected to make contributions of ~~$157~~$159 thousand to its non-qualified retirement plans and $89 thousand to its other postretirement benefit plans in ~~2019.~~2020. During the nine months ended September 30, ~~2019,~~2020, the Corporation contributed $120 thousand to its non-qualified retirement plans and ~~$79~~$83 thousand to its other postretirement plans. During the nine months ended September 30, ~~2019,~~2020, $2.0 million was paid to participants from the retirement plans and ~~$79~~$83 thousand was paid to participants from the other postretirement plans.

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Note 9. Stock-Based Incentive Plan

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

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

The following is a summary of the Corporation's stock option activity and related information for the nine months ended September 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 September 30, 2019
Outstanding at December 31, 2018 597,405 $ 23.98
Expired (11,256) 24.23
Forfeited (8,000) 26.06
Exercised (58,545) 17.16
Outstanding at September 30, 2019 519,604 24.72 6.9 $ 1,323
Exercisable at September 30, 2019 355,343 23.02 6.3 1,323

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(Dollars in thousands, except per share data)	Shares Under Option	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value at September 30, 2020
Outstanding at December 31, 2019	508,111	$	24.83

Expired	(2,000)	28.33
Forfeited	(19,018)	24.70
Exercised	(5,000)	18.70
Outstanding at September 30, 2020	482,093	24.88		5.9	$	0
Exercisable at September 30, 2020	428,615	24.43		5.7	0

The following is a summary of nonvested stock options at September 30, ~~2019~~2020 including changes during the nine months then ended:


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	Nonvested Stock Options	Weighted Average Grant Date Fair Value			(Dollars in thousands, except per share data)	Nonvested Stock Options	Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2018		344,230	$	6.48
Nonvested stock options at December 31, 2019						Nonvested stock options at December 31, 2019	163,261	$	6.54

Vested	Vested	(171,969)	6.42		��	Vested	(106,131)	6.58
Forfeited	Forfeited	(8,000)	6.43			Forfeited	(3,652)	6.50
Nonvested stock options at September 30, 2019		164,261	6.54
Nonvested stock options at September 30, 2020						Nonvested stock options at September 30, 2020	53,478	6.46

~~The following aggregated assumptions were used to estimate the fair value of options granted during the nine months ended September 30, 2018.~~ The Corporation did not issue stock options during the nine months ended September 30, 2020 or September 30, 2019.


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

The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at September 30, ~~2019~~2020 including changes during the nine months then ended:


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	Nonvested Stock Awards and Units	Weighted Average Grant Date Fair Value		(Dollars in thousands, except per share data)	Nonvested Stock Awards and Units	Weighted Average Grant Date Fair Value
Nonvested stock awards at December 31, 2018		157,579	$	25.33
Nonvested stock awards and units at December 31, 2019					Nonvested stock awards and units at December 31, 2019	209,378	$	26.76
Granted	Granted	113,729	25.66		Granted	179,080	18.62
Vested	Vested	(44,807)	21.65		Vested	(59,855)	27.17
Cancelled	Cancelled	(17,736)	19.82		Cancelled	(20,993)	27.17

Nonvested stock awards and units at September 30, 2019		208,765	26.77
Nonvested stock awards and units at September 30, 2020					Nonvested stock awards and units at September 30, 2020	307,610	21.91

~~The fair value~~

Table 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.~~ Contents

Certain information regarding restricted stock awards and units is summarized below for the periods indicated:


		Nine Months Ended September 30,							Nine Months Ended September 30,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2019		2018		(Dollars in thousands, except per share data)	2020		2019
Restricted stock awards and units granted	Restricted stock awards and units granted	113,729		59,953		Restricted stock awards and units granted	179,080		113,729
Weighted average grant date fair value	Weighted average grant date fair value	$	25.66	$	28.39	Weighted average grant date fair value	$	18.62	$	25.66
Intrinsic value of awards granted						Intrinsic value of awards granted	$	3,335	$	2,901
Restricted stock awards and units vested						Restricted stock awards and units vested	59,855		44,807
Weighted average grant date fair value						Weighted average grant date fair value	$	27.17	$	21.65
Intrinsic value of awards vested	Intrinsic value of awards vested	$	1,119	$	2,648	Intrinsic value of awards vested	$	1,375	$	1,119

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested stock options and nonvested restricted stock awards and units at September 30, ~~2019~~2020 is presented below:

(Dollars in thousands) Unrecognized Compensation Cost Weighted-Average Period Remaining (Years)
Stock options $ 624 1.3
Restricted stock awards and units 3,127 2.1
$ 3,751 1.9

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(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Stock options	$	147	0.5
Restricted stock awards and units	4,058		2.0
	$	4,205	1.9

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


		Nine Months Ended September 30,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2019		2018		(Dollars in thousands)	2020		2019
Stock-based compensation expense:	Stock-based compensation expense:					Stock-based compensation expense:
Stock options	Stock options	$	546	$	797	Stock options	$	274	$	546
Restricted stock awards and units	Restricted stock awards and units	1,372		1,582		Restricted stock awards and units	1,579		1,372
Employee stock purchase plan	Employee stock purchase plan	54		51		Employee stock purchase plan	65		54
Total	Total	$	1,972	$	2,430	Total	$	1,918	$	1,972
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	$	444	$	624	Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	$	375	$	444

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) 6,157 (421) 589 6,325
Balance, September 30, 2019 $ (5,064) $ (257) $ (16,687) $ (22,008)
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 (7,411) 373 499 (6,539)
Balance, September 30, 2018 $ (12,873) $ 384 $ (16,175) $ (28,664)


(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		0		0		237
Other comprehensive income (loss)	1,980		(299)		712		2,393
Balance, September 30, 2020	$	(1,014)	$	(484)	$	(17,602)	$	(19,100)

Balance, December 31, 2018	$	(11,221)	$	81	$	(17,276)	$	(28,416)
Adjustment to initially apply ASU No. 2017-12 for derivatives	0		83		0		83
Other comprehensive income (loss)	6,157		(421)		589		6,325
Balance, September 30, 2019	$	(5,064)	$	(257)	$	(16,687)	$	(22,008)

(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 use~~periodically 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

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exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. At September 30, ~~2019,~~2020, approximately ~~$49~~$235 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 September 30, ~~2019.~~2020. At September 30, ~~2019,~~2020, the notional amount of the interest rate swap was ~~$16.5~~$15.7 million ~~with a negative~~and the fair value was a liability of ~~$326~~$614 thousand.

The Corporation had an interest rate swap classified as a fair value hedge for a 10-year fixed rate loan that was earning interest at 5.83%. The interest rate swap was terminated due to early payoff of the loan during the third quarter of 2019. The Corporation paid a fixed rate of 5.83% and received a floating rate based on the one-month LIBOR plus 350 basis points. The swap was due to mature 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 was 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 ~~$332~~$211 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 swap transactions for customers without ~~creating~~issuing the swap. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of income.

At September 30, ~~2019,~~2020, the Corporation ~~has~~reported NaN variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of ~~$221.4~~$552.2 million and remaining maturities ranging from ~~less than one year~~18 months to 10 years. At September 30, 2019, the fair value of the swaps to the customers was a net liability of $11.9 million and $187.2 million of notional amount of the swaps were in paying positions while $34.2 million were in receiving positions to the third-party financial institution. At September 30, 2019,2020, the fair value of the Corporation's interest rate swap credit derivatives was a liability of ~~$263~~$716 thousand. At September 30, 2020, the fair value of the swaps to the customers was a net liability of $36.9 million and these swaps were in paying positions to the third-party financial institution.

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

Mortgage Banking Derivatives

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

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Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the condensed consolidated balance sheets at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.


				Derivative Assets				Derivative Liabilities								Derivative Assets			Derivative Liabilities
(Dollars in thousands)	(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value		(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At September 30, 2019
At September 30, 2020										At September 30, 2020
Interest rate swap - cash flow hedge	Interest rate swap - cash flow hedge	$	16,487		$	—	Other liabilities	$	326	Interest rate swap - cash flow hedge	$	15,673		$	0	Other liabilities	$	614
Interest rate swap - fair value hedge		—			—			—

Total	Total	$	16,487		$	—		$	326	Total	$	15,673		$	0		$	614
At December 31, 2018
At December 31, 2019										At December 31, 2019
Interest rate swap - cash flow hedge	Interest rate swap - cash flow hedge	$	17,076	Other assets	$	185		$	—	Interest rate swap - cash flow hedge	$	16,286		$	0	Other liabilities	$	235
Interest rate swap - fair value hedge		1,346		Other assets	4			—

Total	Total	$	18,422		$	189		$	—	Total	$	16,286		$	0		$	235

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the condensed consolidated balance sheets at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


				Derivative Assets				Derivative Liabilities								Derivative Assets			Derivative Liabilities
(Dollars in thousands)	(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value		(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At September 30, 2019
At September 30, 2020										At September 30, 2020
Interest rate swap	Interest rate swap	$	332		$	—	Other liabilities	$	17	Interest rate swap	$	211		$	0	Other liabilities	$	10
Credit derivatives	Credit derivatives	221,384			—		Other liabilities	263		Credit derivatives	552,219			0		Other liabilities	716
Interest rate locks with customers	Interest rate locks with customers	57,727		Other assets	907			—		Interest rate locks with customers	139,309		Other assets	4,896			0
Forward loan sale commitments	Forward loan sale commitments	60,469		Other assets	169			—		Forward loan sale commitments	142,044			0		Other liabilities	474
Total	Total	$	339,912		$	1,076		$	280	Total	$	833,783		$	4,896		$	1,200
At December 31, 2018
At December 31, 2019										At December 31, 2019
Interest rate swap	Interest rate swap	$	418		$	—	Other liabilities	$	20	Interest rate swap	$	303		$	0	Other liabilities	$	14
Credit derivatives	Credit derivatives	122,410			—		Other liabilities	72		Credit derivatives	270,147			0		Other liabilities	176
Interest rate locks with customers	Interest rate locks with customers	21,494		Other assets	490			—		Interest rate locks with customers	19,966		Other assets	399			0
Forward loan sale commitments	Forward loan sale commitments	23,227			—		Other liabilities	150		Forward loan sale commitments	21,846			0		Other liabilities	19
Total	Total	$	167,549		$	490		$	242	Total	$	312,262		$	399		$	209

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


		Statement of Income Classification	Three Months Ended						Nine Months Ended								Statement of Income Classification		Three Months Ended				Nine Months Ended
					September 30,								September 30,						Statement of Income Classification		September 30,			September 30,
(Dollars in thousands)	(Dollars in thousands)				2019		2018		2019				2018	(Dollars in thousands)	Statement of Income Classification						2020		2019

Interest rate swap—cash flow hedge—net interest payments	Interest rate swap—cash flow hedge—net interest payments	Interest expense	$	(4)	$	1	$	(34)	$	27	Interest rate swap—cash flow hedge—net interest payments	Interest expense					$	(4)	$	176	$	(34)

Interest rate swap—fair value hedge—effectiveness	Interest rate swap—fair value hedge—effectiveness	Interest income	(6)		—		(5)		—		Interest rate swap—fair value hedge—effectiveness	Interest income					0		(6)		0		(5)
Interest rate swap—fair value hedge—ineffectiveness		Other noninterest income	—		1		—		3

Total net (loss) gain	Total net (loss) gain		$	(2)	$	—	$	29	$	(24)	Total net (loss) gain				$	(78)	$	(2)	$	(176)	$	29

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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 Classification	Three Months Ended						Nine Months Ended								Statement of Income Classification		Three Months Ended				Nine Months Ended
					September 30,								September 30,						Statement of Income Classification		September 30,			September 30,
(Dollars in thousands)	(Dollars in thousands)				2019		2018		2019				2018	(Dollars in thousands)	Statement of Income Classification						2020		2019

Credit derivatives	Credit derivatives	Other noninterest income	$	186	$	48	$	768	$	87	Credit derivatives	Other noninterest income					$	186	$	4,143	$	768
Interest rate locks with customers	Interest rate locks with customers	Net gain (loss) on mortgage banking activities	109		(328)		417		(223)		Interest rate locks with customers	Net gain on mortgage banking activities					1,442		109		4,496		417
Forward loan sale commitments	Forward loan sale commitments	Net gain (loss) on mortgage banking activities	366		144		319		(8)		Forward loan sale commitments	Net gain (loss) on mortgage banking activities			108		366		(455)		319
Total net gain (loss)			$	661	$	(136)	$	1,504	$	(144)
Total net gain											Total net gain				$	3,889	$	661	$	8,184	$	1,504

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


(Dollars in thousands)	(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At September 30, 2019		At December 31, 2018		(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At September 30, 2020		At December 31, 2019
Interest rate swap—cash flow hedge	Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(257)	$	80	Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(484)	$	(185)
Total	Total		$	(257)	$	80	Total		$	(484)	$	(185)

Note 12. Fair Value Disclosures

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

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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

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

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

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

One commercial loan associated with an interest rate swap is classified in Level 3 of the valuation hierarchy at September 30, ~~2019~~2020 since lending credit risk is not an observable input for this loan. The unrealized gain on the 1 loan was ~~$17~~$9 thousand at September 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.

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The following table presents the assets and liabilities measured at fair value on a recurring basis at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, classified using the fair value hierarchy:


		At September 30, 2019																At September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value		(Dollars in thousands)	Level 1		Level 2		Level 3			Assets/ Liabilities at Fair Value
Assets:	Assets:																Assets:
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:

U.S. government corporations and agencies		$	—	$	299	$	—	$	299

State and political subdivisions	State and political subdivisions	—		40,386		—		40,386		State and political subdivisions	$	0	$	15,187	$	0		$	15,187
Residential mortgage-backed securities	Residential mortgage-backed securities	—		125,237		—		125,237		Residential mortgage-backed securities	0		81,671		0			81,671
Collateralized mortgage obligations	Collateralized mortgage obligations	—		2,523		—		2,523		Collateralized mortgage obligations	0		5,830		0			5,830
Corporate bonds	Corporate bonds	—		67,294		26,404		93,698		Corporate bonds	0		86,539		0			86,539
Total available-for-sale securities	Total available-for-sale securities	—		235,739		26,404		262,143		Total available-for-sale securities	0		189,227		0			189,227
Equity securities:	Equity securities:									Equity securities:
Equity securities - financial services industry	Equity securities - financial services industry	936		—		—		936		Equity securities - financial services industry	683		0		0			683
Money market mutual funds	Money market mutual funds	1,523		—		—		1,523		Money market mutual funds	2,103		0		0			2,103
Total equity securities	Total equity securities	2,459		—		—		2,459		Total equity securities	2,786		0		0			2,786
Loans*	Loans*	—		—		349		349		Loans*	0		0		221			221

Interest rate locks with customers*	Interest rate locks with customers*	—		907		—		907		Interest rate locks with customers*	0		4,896		0			4,896
Forward loan sale commitments*		—		169		—		169

Total assets	Total assets	$	2,459	$	236,815	$	26,753	$	266,027	Total assets	$	2,786	$	194,123	$	221		$	197,130
Liabilities:	Liabilities:									Liabilities:
Contingent consideration liability	Contingent consideration liability	$	—	$	—	$	186	$	186	Contingent consideration liability	$	0	$	0	$	83		$	83
Interest rate swaps*	Interest rate swaps*	—		343		—		343		Interest rate swaps*	0		624		0			624
Credit derivatives*	Credit derivatives*	—		—		263		263		Credit derivatives*	0		0		716			716

Forward loan sale commitments*										Forward loan sale commitments*	0		474		0			474
Total liabilities	Total liabilities	$	—	$	343	$	449	$	792	Total liabilities	$	0	$	1,098	$	799		$	1,897

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

The Corporation recorded no unrealized gains and losses within other comprehensive income for recurring Level 3 fair value measurements held at September 30, 2020. The $716 thousand of credit derivatives liability represents the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of seventy-seven interest rate swaps with a current notional amount of $552.2 million. The September 30, 2020 CVA assumes a zero-deal recovery percentage based on the most recent index credit curve.

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		At December 31, 2018															At December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value		(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:	Assets:									Assets:
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:

U.S. government corporations and agencies	U.S. government corporations and agencies	$	—	$	15,315	$	—	$	15,315	U.S. government corporations and agencies	$	0	$	300	$	0	$	300
State and political subdivisions	State and political subdivisions	—		65,415		—		65,415		State and political subdivisions	0		34,595		0		34,595
Residential mortgage-backed securities	Residential mortgage-backed securities	—		151,762		—		151,762		Residential mortgage-backed securities	0		118,460		0		118,460
Collateralized mortgage obligations	Collateralized mortgage obligations	—		2,888		—		2,888		Collateralized mortgage obligations	0		2,361		0		2,361
Corporate bonds	Corporate bonds	—		67,398		25,729		93,127		Corporate bonds	0		91,208		0		91,208
Total available-for-sale securities	Total available-for-sale securities	—		302,778		25,729		328,507		Total available-for-sale securities	0		246,924		0		246,924
Equity securities:	Equity securities:									Equity securities:
Equity securities - financial services industry	Equity securities - financial services industry	924		—		—		924		Equity securities - financial services industry	1,004		0		0		1,004
Money market mutual funds	Money market mutual funds	1,241		—		—		1,241		Money market mutual funds	1,619		0		0		1,619
Total equity securities	Total equity securities	2,165		—		—		2,165		Total equity securities	2,623		0		0		2,623
Loans*	Loans*	—		—		1,779		1,779		Loans*	0		0		317		317
Interest rate swap*		—		189		—		189

Interest rate locks with customers*	Interest rate locks with customers*	—		490		—		490		Interest rate locks with customers*	0		399		0		399

Total assets	Total assets	$	2,165	$	303,457	$	27,508	$	333,130	Total assets	$	2,623	$	247,323	$	317	$	250,263
Liabilities:	Liabilities:									Liabilities:
Contingent consideration liability	Contingent consideration liability	$	—	$	—	$	259	$	259	Contingent consideration liability	$	0	$	0	$	160	$	160
Interest rate swaps*	Interest rate swaps*	—		20		—		20		Interest rate swaps*	0		249		0		249
Credit derivatives*	Credit derivatives*	—		—		72		72		Credit derivatives*	0		0		176		176
Forward loan sale commitments*	Forward loan sale commitments*	—		150		—		150		Forward loan sale commitments*	0		19		0		19
Total liabilities	Total liabilities	$	—	$	170	$	331	$	501	Total liabilities	$	0	$	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 nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


		Nine Months Ended September 30, 2019																							Nine Months Ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Balance at December 31, 2018		Purchases/additions		Sales		Payments received		Premium amortization, net		Increase (decrease) in value		Balance at September 30, 2019		(Dollars in thousands)	Balance at December 31, 2019		Additions		Payments received		Increase in value		Balance at September 30, 2020
Corporate bonds		$	25,729	$	—	$	—	$	—	$	—	$	675	$	26,404

Loans	Loans	1,779		—		—		(1,432)		—		2		349		Loans	$	317	$	0	$	(91)	$	(5)	$	221
Credit derivatives	Credit derivatives	(72)		(958)		—		—		—		767		(263)		Credit derivatives	(176)		(4,683)		0		4,143		(716)
Net total	Net total	$	27,436	$	(958)	$	—	$	(1,432)	$	—	$	1,444	$	26,490	Net total	$	141	$	(4,683)	$	(91)	$	4,138	$	(495)


		Nine Months Ended September 30, 2018																							Nine Months Ended September 30, 2019
(Dollars in thousands)	(Dollars in thousands)	Balance at December 31, 2017		Purchases/additions		Sales		Payments received		Premium amortization, net		(Decrease) increase in value		Balance at September 30, 2018		(Dollars in thousands)	Balance at December 31, 2018		Additions		Payments received		Increase in value		Balance at September 30, 2019
Corporate bonds	Corporate bonds	$	27,986	$	—	$	—	$	—	$	—	$	(1,579)	$	26,407	Corporate bonds	$	25,729	$	0	$	0	$	675	$	26,404
Loans	Loans	1,958		—		—		(110)		—		(47)		1,801		Loans	1,779		0		(1,432)		2		349
Credit derivatives	Credit derivatives	(36)		(75)		—		—		—		87		(24)		Credit derivatives	(72)		(958)		0		767		(263)
Net total	Net total	$	29,908	$	(75)	$	—	$	(110)	$	—	$	(1,539)	$	28,184	Net total	$	27,436	$	(958)	$	(1,432)	$	1,444	$	26,490

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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 nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


		Nine Months Ended September 30, 2019																			Nine Months Ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Balance at December 31, 2018		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at September 30, 2019		(Dollars in thousands)	Balance at December 31, 2019		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at September 30, 2020
Girard Partners	Girard Partners	$	259	$	—	$	97	$	24	$	186	Girard Partners	$	160	$	0	$	91	$	14	$	83
Total contingent consideration liability	Total contingent consideration liability	$	259	$	—	$	97	$	24	$	186	Total contingent consideration liability	$	160	$	0	$	91	$	14	$	83


		Nine Months Ended September 30, 2018																			Nine Months Ended September 30, 2019
(Dollars in thousands)	(Dollars in thousands)	Balance at December 31, 2017		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at September 30, 2018		(Dollars in thousands)	Balance at December 31, 2018		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at September 30, 2019
Girard Partners	Girard Partners	$	339	$	—	$	67	$	38	$	310	Girard Partners	$	259	$	0	$	97	$	24	$	186
Total contingent consideration liability	Total contingent consideration liability	$	339	$	—	$	67	$	38	$	310	Total contingent consideration liability	$	259	$	0	$	97	$	24	$	186

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or ~~impairment charges~~changes in the value of loans held for investment analyzed on an individual ~~assets.~~basis. The following table represents assets measured at fair value on a non-recurring basis at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


		At September 30, 2019															At September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value		(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment		$	—	$	—	$	34,478	$	34,478
Impaired leases held for investment		—		—		306		306
Individually analyzed loans held for investment										Individually analyzed loans held for investment	$	0	$	0	$	28,675	$	28,675

Other real estate owned	Other real estate owned	—		—		495		495		Other real estate owned	0		0		8,270		8,270
Total	Total	$	—	$	—	$	35,279	$	35,279	Total	$	0	$	0	$	36,945	$	36,945


		At December 31, 2018															At December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value		(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment	Impaired loans held for investment	$	—	$	—	$	25,166	$	25,166	Impaired loans held for investment	$	0	$	0	$	36,018	$	36,018

Impaired leases held for investment										Impaired leases held for investment	0		0		277		277
Other real estate owned	Other real estate owned	—		—		1,187		1,187		Other real estate owned	0		0		516		516
Total	Total	$	—	$	—	$	26,353	$	26,353	Total	$	0	$	0	$	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 condensed consolidated balance sheets but for which the fair value is required to be disclosed at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The disclosed fair values are classified using the fair value hierarchy.

At September 30, 2019
(Dollars in thousands) Level 1 Level 2 Level 3 Fair
Value Carrying
Amount
Assets:
Cash and short-term interest-earning assets $ 225,334 $ — $ — $ 225,334 $ 225,334
Held-to-maturity securities — 186,644 — 186,644 183,845
Federal Home Loan Bank, Federal Reserve Bank and other stock NA NA NA NA 29,254
Loans held for sale — 2,912 — 2,912 2,893
Net loans and leases held for investment — — 4,203,743 4,203,743 4,183,138
Servicing rights — — 8,522 8,522 6,496
Total assets $ 225,334 $ 189,556 $ 4,212,265 $ 4,627,155 $ 4,630,960
Liabilities:
Deposits:
Demand and savings deposits, non-maturity $ 3,619,891 $ — $ — $ 3,619,891 $ 3,619,891
Time deposits — 722,151 — 722,151 718,100
Total deposits 3,619,891 722,151 — 4,342,042 4,337,991
Short-term borrowings — 18,970 — 18,970 18,970
Long-term debt — 161,361 — 161,361 160,128
Subordinated notes — 96,500 — 96,500 94,757
Total liabilities $ 3,619,891 $ 998,982 $ — $ 4,618,873 $ 4,611,846
Off-Balance-Sheet:
Commitments to extend credit $ — $ (8,081) $ — $ (8,081) $ —


	At September 30, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	387,676	$	0	$	0	$	387,676	$	387,676

Held-to-maturity securities	0		182,376		0		182,376		176,817
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		29,723
Loans held for sale	0		14,612		0		14,612		14,465
Net loans and leases held for investment	0		0		5,253,500		5,253,500		5,091,090
Servicing rights	0		0		6,404		6,404		6,279

Total assets	$	387,676	$	196,988	$	5,259,904	$	5,844,568	$	5,706,050
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	4,655,384	$	0	$	0	$	4,655,384	$	4,655,384
Time deposits	0		567,257		0		567,257		556,219
Total deposits	4,655,384		567,257		0		5,222,641		5,211,603
Short-term borrowings	0		17,681		0		17,681		17,681
Long-term debt	0		209,494		0		209,494		205,010
Subordinated notes	0		199,473		0		199,473		193,413
Total liabilities	$	4,655,384	$	993,905	$	0	$	5,649,289	$	5,627,707

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		At December 31, 2018																			At December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount		(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:	Assets:											Assets:
Cash and short-term interest-earning assets	Cash and short-term interest-earning assets	$	109,420	$	—	$	—	$	109,420	$	109,420	Cash and short-term interest-earning assets	$	125,128	$	0	$	0	$	125,128	$	125,128
Held-to-maturity securities	Held-to-maturity securities	—		141,575		—		141,575		142,634		Held-to-maturity securities	0		194,886		0		194,886		192,052
Federal Home Loan Bank, Federal Reserve Bank and other stock	Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,337		Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,254
Loans held for sale	Loans held for sale	—		1,798		—		1,798		1,754		Loans held for sale	0		5,560		0		5,560		5,504
Net loans and leases held for investment	Net loans and leases held for investment	—		—		3,924,329		3,924,329		3,950,265		Net loans and leases held for investment	0		0		4,309,208		4,309,208		4,314,893
Servicing rights	Servicing rights	—		—		11,496		11,496		6,768		Servicing rights	0		0		9,340		9,340		6,626

Total assets	Total assets	$	109,420	$	143,373	$	3,935,825	$	4,188,618	$	4,239,178	Total assets	$	125,128	$	200,446	$	4,318,548	$	4,644,122	$	4,672,457
Liabilities:	Liabilities:											Liabilities:
Deposits:	Deposits:											Deposits:
Demand and savings deposits, non-maturity	Demand and savings deposits, non-maturity	$	3,215,856	$	—	$	—	$	3,215,856	$	3,215,856	Demand and savings deposits, non-maturity	$	3,754,065	$	0	$	0	$	3,754,065	$	3,754,065
Time deposits	Time deposits	—		664,738		—		664,738		670,077		Time deposits	0		609,387		0		609,387		606,010
Total deposits	Total deposits	3,215,856		664,738		—		3,880,594		3,885,933		Total deposits	3,754,065		609,387		0		4,363,452		4,360,075
Short-term borrowings	Short-term borrowings	—		189,768		—		189,768		189,768		Short-term borrowings	0		18,680		0		18,680		18,680
Long-term debt	Long-term debt	—		144,021		—		144,021		145,330		Long-term debt	0		151,343		0		151,343		150,098
Subordinated notes	Subordinated notes	—		95,113		—		95,113		94,574		Subordinated notes	0		96,663		0		96,663		94,818
Total liabilities	Total liabilities	$	3,215,856	$	1,093,640	$	—	$	4,309,496	$	4,315,605	Total liabilities	$	3,754,065	$	876,073	$	0	$	4,630,138	$	4,623,671
Off-Balance-Sheet:
Commitments to extend credit		$	—	$	(2,516)	$	—	$	(2,516)	$	—

The following valuation methods and assumptions were used by the Corporation in estimating the fair value for financial instruments measured at fair value on a non-recurring basis and financial instruments not measured at fair value on a recurring or non-recurring basis in the Corporation’s condensed 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 0 valuation adjustments for loans held for sale at September 30, 2019 and December 31, 2018.~~

Loans and leases held for investment: The fair values for loans and leases held for investment are estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers, adjusted as appropriate to consider credit, liquidity and marketability factors to arrive at a fair value that represents the Corporation's exit price at which these instruments would be sold or transferred. Loans and leases are classified within Level 3 in the fair value hierarchy since credit risk is not an observable input.

~~Impaired~~

Individually analyzed loans and leases held for investment: For ~~impaired~~individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual

~~Table of Contents~~

cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At September 30, ~~2019, impaired~~2020, individually analyzed loans held for investment had a carrying amount of ~~$36.9~~$29.8 million with a valuation allowance of ~~$2.4~~$1.1 million. At December 31, ~~2018,~~2019, impaired loans held for investment had a

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carrying amount of ~~$26.6~~$38.1 million with a valuation allowance of ~~$1.4~~$2.1 million. The Corporation had 0 individually analyzed leases at September 30, 2020. The Corporation had impaired leases of ~~$306~~$277 thousand with 0no reserve ~~at September 30, 2019. The Corporation had 0 impaired leases~~ at December 31, ~~2018.~~2019.

Servicing rights: The Corporation estimates the fair value of ~~mortgage~~ servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. ~~Mortgage servicing~~Servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the ~~mortgage~~ servicing rights portfolio on a quarterly basis for impairment and the ~~mortgage~~ servicing rights are carried at the lower of amortized cost or estimated fair value. At September 30, ~~2019,~~2020, servicing rights had a net carrying amount of ~~$6.5~~$6.3 million ~~with~~which included a valuation allowance of $3$206 thousand. At December 31, ~~2018,~~2019, servicing rights carrying amount of ~~$6.7~~$6.6 million with 0 valuation allowance.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the nine months ended September 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 nine months ended September 30, ~~2019, 2 properties were~~2020, one property was transferred to OREO with a carrying balance of $8.1 million, one property had a write-down totaling $300 thousand, and one property sold with total proceeds of ~~$670~~$75 thousand for a net gain of $4 thousand. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, OREO had a carrying amount of ~~$495~~$8.3 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~~

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 September 30, ~~2019,~~2020, the Corporation has 3 reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.

The Corporation's Banking segment consists of commercial, consumer and mortgage banking as well as lease financing. The Wealth Management segment consists of investment advisory services, retirement plan services, trust, municipal pension

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~~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)	(Dollars in thousands)	At September 30, 2019		At December 31, 2018		At September 30, 2018		(Dollars in thousands)	At September 30, 2020		At December 31, 2019		At September 30, 2019
Banking	Banking	$	5,256,435	$	4,895,732	$	4,711,093	Banking	$	6,277,894	$	5,282,505	$	5,256,435
Wealth Management	Wealth Management	43,305		39,090		38,042		Wealth Management	47,550		44,591		43,305
Insurance	Insurance	33,239		30,117		29,299		Insurance	35,168		34,291		33,239
Other	Other	20,632		19,408		23,564		Other	22,219		19,537		20,632
Consolidated assets	Consolidated assets	$	5,353,611	$	4,984,347	$	4,801,998	Consolidated assets	$	6,382,831	$	5,380,924	$	5,353,611

The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.


		Three Months Ended																			Three Months Ended
		September 30, 2019																			September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated		(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	Interest income	$	54,280	$	12	$	—	$	8	$	54,300	Interest income	$	50,603	$	1	$	0	$	8	$	50,612
Interest expense	Interest expense	10,394		—		—		1,261		11,655		Interest expense	4,867		0		0		1,891		6,758
Net interest income	Net interest income	43,886		12		—		(1,253)		42,645		Net interest income	45,736		1		0		(1,883)		43,854
Provision for loan and lease losses		1,530		—		—		—		1,530
Provision for credit losses												Provision for credit losses	3,935		0		0		0		3,935
Noninterest income	Noninterest income	6,491		6,049		4,039		20		16,599		Noninterest income	11,919		5,963		3,924		(1)		21,805
Intangible expenses		209		103		66		—		378

Other noninterest expense		28,999		3,757		2,990		146		35,892
Noninterest expense												Noninterest expense	31,304		3,845		2,974		404		38,527
Intersegment (revenue) expense*	Intersegment (revenue) expense*	(307)		177		130		—		—		Intersegment (revenue) expense*	(296)		168		128		0		0
Income (expense) before income taxes	Income (expense) before income taxes	19,946		2,024		853		(1,379)		21,444		Income (expense) before income taxes	22,712		1,951		822		(2,288)		23,197
Income tax expense (benefit)		3,719		391		72		(400)		3,782
Income tax expense												Income tax expense	4,367		396		171		144		5,078
Net income (loss)	Net income (loss)	$	16,227	$	1,633	$	781	$	(979)	$	17,662	Net income (loss)	$	18,345	$	1,555	$	651	$	(2,432)	$	18,119

Capital expenditures	Capital expenditures	$	52	$	5	$	24	$	134	$	215	Capital expenditures	$	646	$	15	$	14	$	8	$	683

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		Three Months Ended																			Three Months Ended
		September 30, 2018																			September 30, 2019
(Dollars in thousands)	(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated		(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	Interest income	$	49,238	$	9	$	—	$	8	$	49,255	Interest income	$	54,280	$	12	$	0	$	8	$	54,300
Interest expense	Interest expense	7,571		—		—		1,261		8,832		Interest expense	10,394		0		0		1,261		11,655
Net interest income	Net interest income	41,667		9		—		(1,253)		40,423		Net interest income	43,886		12		0		(1,253)		42,645
Provision for loan and lease losses		2,745		—		—		—		2,745
Provision for credit losses												Provision for credit losses	1,533		0		0		0		1,533
Noninterest income	Noninterest income	5,070		5,795		3,845		151		14,861		Noninterest income	6,491		6,049		4,039		20		16,599
Intangible expenses		240		136		103		—		479

Other noninterest expense		26,542		3,547		3,087		716		33,892
Noninterest expense												Noninterest expense	29,205		3,860		3,056		146		36,267
Intersegment (revenue) expense*	Intersegment (revenue) expense*	(512)		377		135		—		—		Intersegment (revenue) expense*	(307)		177		130		0		0
Income (expense) before income taxes	Income (expense) before income taxes	17,722		1,744		520		(1,818)		18,168		Income (expense) before income taxes	19,946		2,024		853		(1,379)		21,444
Income tax expense (benefit)	Income tax expense (benefit)	3,171		493		156		(616)		3,204		Income tax expense (benefit)	3,719		391		72		(400)		3,782
Net income (loss)	Net income (loss)	$	14,551	$	1,251	$	364	$	(1,202)	$	14,964	Net income (loss)	$	16,227	$	1,633	$	781	$	(979)	$	17,662

Capital expenditures	Capital expenditures	$	570	$	73	$	16	$	86	$	745	Capital expenditures	$	52	$	5	$	24	$	134	$	215


		Nine Months Ended																			Nine Months Ended
		September 30, 2019																			September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated		(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	Interest income	$	160,667	$	33	$	—	$	24	$	160,724	Interest income	$	152,578	$	8	$	0	$	25	$	152,611
Interest expense	Interest expense	30,138		—		—		3,783		33,921		Interest expense	18,399		0		0		4,372		22,771
Net interest income	Net interest income	130,529		33		—		(3,759)		126,803		Net interest income	134,179		8		0		(4,347)		129,840
Provision for loan and lease losses		6,291		—		—		—		6,291
Provision for credit losses												Provision for credit losses	49,515		0		0		0		49,515
Noninterest income	Noninterest income	17,476		17,924		13,537		315		49,252		Noninterest income	27,755		17,654		13,020		(240)		58,189
Intangible expenses		675		313		233		—		1,221

Other noninterest expense		84,876		11,339		9,188		1,981		107,384
Noninterest expense												Noninterest expense	91,097		11,752		9,095		1,320		113,264
Intersegment (revenue) expense*	Intersegment (revenue) expense*	(901)		504		397		—		—		Intersegment (revenue) expense*	(852)		466		386		0		0
Income (expense) before income taxes	Income (expense) before income taxes	57,064		5,801		3,719		(5,425)		61,159		Income (expense) before income taxes	22,174		5,444		3,539		(5,907)		25,250
Income tax expense (benefit)	Income tax expense (benefit)	10,499		1,115		334		(998)		10,950		Income tax expense (benefit)	2,944		1,109		749		(594)		4,208
Net income (loss)	Net income (loss)	$	46,565	$	4,686	$	3,385	$	(4,427)	$	50,209	Net income (loss)	$	19,230	$	4,335	$	2,790	$	(5,313)	$	21,042

Capital expenditures	Capital expenditures	$	1,187	$	80	$	88	$	292	$	1,647	Capital expenditures	$	2,291	$	21	$	23	$	28	$	2,363


		Nine Months Ended																			Nine Months Ended
		September 30, 2018																			September 30, 2019
(Dollars in thousands)	(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated		(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	Interest income	$	139,204	$	22	$	—	$	23	$	139,249	Interest income	$	160,667	$	33	$	0	$	24	$	160,724
Interest expense	Interest expense	18,781		—		—		3,783		22,564		Interest expense	30,138		0		0		3,783		33,921
Net interest income	Net interest income	120,423		22		—		(3,760)		116,685		Net interest income	130,529		33		0		(3,759)		126,803
Provision for loan and lease losses		20,207		—		—		—		20,207
Provision for credit losses												Provision for credit losses	6,286		0		0		0		6,286
Noninterest income	Noninterest income	15,320		17,397		12,835		205		45,757		Noninterest income	17,476		17,924		13,537		315		49,252
Intangible expenses		898		415		372		—		1,685
Restructuring charges		571		—		—		—		571
Other noninterest expense		80,790		10,969		9,425		403		101,587
Noninterest expense												Noninterest expense	85,556		11,652		9,421		1,981		108,610
Intersegment (revenue) expense*	Intersegment (revenue) expense*	(1,098)		686		412		—		—		Intersegment (revenue) expense*	(901)		504		397		0		0
Income (expense) before income taxes	Income (expense) before income taxes	34,375		5,349		2,626		(3,958)		38,392		Income (expense) before income taxes	57,064		5,801		3,719		(5,425)		61,159
Income tax expense (benefit)	Income tax expense (benefit)	5,006		1,636		775		(1,196)		6,221		Income tax expense (benefit)	10,499		1,115		334		(998)		10,950
Net income (loss)	Net income (loss)	$	29,369	$	3,713	$	1,851	$	(2,762)	$	32,171	Net income (loss)	$	46,565	$	4,686	$	3,385	$	(4,427)	$	50,209

Capital expenditures	Capital expenditures	$	2,360	$	162	$	25	$	151	$	2,698	Capital expenditures	$	1,187	$	80	$	88	$	292	$	1,647

*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 September 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 September 30,						Nine months ended September 30,
(Dollars in thousands)	(Dollars in thousands)	Three months ended September 30, 2019			Nine months ended September 30, 2019		(Dollars in thousands)	2020			2019			2020		2019
Operating lease cost	Operating lease cost	$	948		$	2,842	Operating lease cost	$	969		$	948		$	2,883	$	2,842

Short-term lease cost							Short-term lease cost	3			0			9		0
Variable lease cost							Variable lease cost	1			0			4		0
Total lease cost							Total lease cost	$	973		$	948		$	2,896	$	2,842
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from leases	Operating cash flows from leases				2,636		Operating cash flows from leases	$	930		$	897		2,762		2,636

		At September 30, 2019						At September 30, 2020			At December 31, 2019
Weighted-average remaining lease term in years	Weighted-average remaining lease term in years	15.0					Weighted-average remaining lease term in years	14.2			15.2
Weighted-average discount rate	Weighted-average discount rate	4.24		%			Weighted-average discount rate	4.17		%	4.24		%

At September 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 2019 $ 900
2020 3,633
2021 3,689
2022 3,662
2023 3,611
Thereafter 37,298
Total lease payments 52,793
Less: imputed interest (14,677)
Present value of lease liabilities $ 38,116

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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
Maturity of Lease Liabilities					Maturity of Lease Liabilities	(Dollars in thousands)	Amount
Remainder of 2020					Remainder of 2020		$	941
2021	2021		3,688		2021		3,838
2022	2022		3,660		2022		3,833
2023	2023		3,610		2023		3,782
2024					2024		3,653
Thereafter	Thereafter		37,389		Thereafter		35,233
Total			$	55,515
Total lease payments					Total lease payments		51,280
Less: imputed interest					Less: imputed interest		(13,389)
Present value of lease liabilities					Present value of lease liabilities		$	37,891

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.

Note 16. Subsequent Event

On October 19, 2020, the Corporation announced Univest Bank and Trust Co.’s plan to optimize its financial service center footprint with the consolidation or relocation of 8 locations. The plan is being executed in two phases with the first being completed on January 29, 2021 and the second being completed on June 30, 2021. The pre-tax expense associated with this plan are estimated to be $1.7 million, which will primarily be recognized in the fourth quarter of 2020.

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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"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, classified and criticized loans and charge-offs and changes in estimates of the adequacy of the allowance for ~~loans~~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 ~~revenues~~revenue 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 also 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 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 Annual Report on Form 10-K for the year endedDecember 31, ~~2018~~2019 under the section entitled "Item 1A - Risk Factors," and from time to time in other filings made by the Corporation with the SEC.

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

Critical Accounting Policies

Management, in order to prepare the Corporation’s financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation’s financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation ~~has~~had identified the fair value measurement of investment securities available-for-sale and the calculation of the ~~reserve~~allowance for ~~loan~~credit losses, loans and ~~lease losses~~leases, as critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation’s ~~2018~~2019 Annual Report on Form 10-K. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of ASC 326, which 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.

~~Table of Contents~~

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.

Table of Contents

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 Ended													Nine Months Ended														Three Months Ended										Nine Months Ended
		September 30,								Change								September 30,									Change						September 30,						Change				September 30,	Change
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2019			2018			Amount		Percent		2019			2018			Amount		Percent		(Dollars in thousands, except per share data)	2020			2019			Amount		Percent		2020			2019			Amount		Percent
Net income	Net income	$	17,662		$	14,964		$	2,698	18.0	%	$	50,209		$	32,171		$	18,038	56.1	%	Net income	$	18,119		$	17,662		$	457	2.6	%	$	21,042		$	50,209		$	(29,167)	(58.1	%)
Net income per share:	Net income per share:																					Net income per share:
Basic	Basic	$	0.60		$	0.51		$	0.09	17.6		$	1.71		$	1.10		$	0.61	55.5		Basic	$	0.62		$	0.60		$	0.02	3.3		$	0.72		$	1.71		$	(0.99)	(57.9)
Diluted	Diluted	0.60			0.51			0.09		17.6		1.71			1.09			0.62		56.9		Diluted	0.62			0.60			0.02		3.3		0.72			1.71			(0.99)		(57.9)
Return on average assets	Return on average assets	1.32		%	1.23		%	9 BP		7.3		1.30		%	0.92		%	38 BP		41.3		Return on average assets	1.15		%	1.32		%	(17 BP)		(12.9)		0.48		%	1.30		%	(82 BP)		(63.1)
Return on average equity	Return on average equity	10.62			9.70			92 BP		9.5		10.40			7.05			335 BP		47.5		Return on average equity	10.89		%	10.62		%	27 BP		2.5		4.22		%	10.40		%	(618 BP)		(59.4)

The Corporation reported net income of $18.1 million, or $0.62 diluted earnings per share, for the three months ended September 30, 2020, compared to net income of $17.7 million, or $0.60 diluted earnings per share, for the three months ended September 30, ~~2019, compared to net income of $15.0 million, or $0.51 diluted earnings per share, for the three months ended September 30, 2018.~~2019. Net income for the nine months ended September 30, ~~2019~~2020 was ~~$50.2~~$21.0 million, or ~~$1.71~~$0.72 diluted earnings per share, compared to net income of ~~$32.2~~$50.2 million, or ~~$1.09~~$1.71 diluted earnings per share, for the nine months ended September 30, ~~2018.~~2019.

The ~~financial results~~Corporation adopted CECL effective January 1, 2020, as discussed in Note 1. Summary of Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements. 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 September 30, 2020, the Corporation recorded a provision for credit losses of $3.9 million, of which $5.6 million provision was related to loans and leases, ($163) thousand was a reversal of provision related to investment securities and ($1.5) million was a reversal of provision related to unfunded commitments. Included within the $3.9 million in provision for credit losses was $280 thousand (after-tax charge of $221 thousand), or $0.01 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 nine months ended September 30, 2020, the Corporation recorded CECL related charges of $49.5 million, of which $40.5 million (after-tax charge of $32.0 million), or $1.10 diluted earnings per share, was attributable to changes in economic assumptions within the CECL model. The provision for loan and lease losses for the three and nine months ended September 30, 2019 ~~included~~was $1.5 million and $6.3 million, respectively.

The Corporation originated approximately 2,570 loans totaling approximately $511 million through the PPP, which was enacted as a ~~Federal Deposit Insurance~~component of the CARES Act that was signed into law on March 27, 2020. Through this program, the Corporation ~~(FDIC) small bank assessment credit~~recorded income of ~~$988 thousand (after tax benefit~~$4.7 million within interest income related to these loans, in addition to recording incremental capitalized compensation of $781 thousand), which represented a favorable impact to earnings per share in each period of $0.03. The FDIC notified the Bank during September 2019 that the required deposit insurance fund reserve ratio was met at June 30, 2019, triggering the application of small bank credits. The Bank's total FDIC small bank assessment credit was $1.1$1.3 million ~~with the remaining credit of $114 thousand expected to be applied~~related to the ~~fourth quarter~~origination of ~~2019.~~

PPP loans. As of September 30, 2020, the Corporation had $9.5 million of net deferred fees on our balance sheet related to these loans.

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~~The financial results for the nine months ended September 30, 2018 included a pre-tax charge to the provision for loan and lease losses~~Results of $12.7 million (after-tax charge of $10.1 million) in the second quarter of 2018, which represented $0.34 diluted earnings per share, related to fraudulent activities by employees of a borrower. In addition, the nine months ended September 30, 2018 included a tax-free bank owned life insurance (BOLI) death benefit of $446 thousand during the second quarter of 2018, which represented $0.02 diluted earnings per share. The nine months ended September 30, 2018 included restructuring costs related to financial center closures of $451 thousand, net of tax, recognized in the first quarter of 2018, which represented $0.02 diluted earnings per share.Operations

~~Results of Operations~~

Net Interest Income

Net interest income is the difference between interest earned on loans and leases ~~investments~~ and ~~other interest-earning assets~~investment securities and interest paid on deposits and ~~other interest-bearing liabilities.~~borrowings. Net interest income is the principal source of the Corporation’s revenue. Table 1 presents ~~a summary of~~ the Corporation’s average balances, tax-equivalent interest income, interest expense, the tax-equivalent yields earned on average assets, the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread represents the weighted average tax-equivalent yield on interest-earning assets less the weighted average cost of interest-bearing liabilities. The effect of net interest-free 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 nine months ended September 30, ~~2019~~2020 versus ~~2018~~2019

Net interest income on a tax-equivalent basis for the three months ended September 30, ~~2019~~2020 was ~~$43.3~~$44.5 million, an increase of ~~$2.2~~$1.2 million, or ~~5.4%~~2.7%, compared to the three months ended September 30, ~~2018.~~2019. Net interest income on a tax-equivalent basis for the nine months ended September 30, ~~2019~~2020 was ~~$128.7~~$131.7 million, an increase of ~~$10.1~~$3.0 million, or ~~8.5%~~2.3%, compared to the same period in ~~2018.~~2019. The increase in tax-equivalent net interest income for the three and nine months ended September 30, ~~2019~~2020 compared to same period in the ~~same periods in 2018~~prior year was primarily due to ~~the~~lower deposit and borrowing costs and growth in ~~average~~ loans ~~of 8.8% and 9.8%, respectively.~~partially offset by a decrease in yield on loans.

The net interest margin, on a tax-equivalent basis, was 3.02% and 3.21% for the ~~third quarter of 2019 was 3.52%, compared to 3.71% for the third quarter of 2018. The net interest margin on a tax-equivalent basis for the~~three and nine months ended September 30, ~~2019 was 3.64%,~~2020, respectively, compared to ~~3.72%~~3.52% and 3.64% for ~~the nine months ended September 30, 2018. During~~ the three and nine months ended September 30, 2019, ~~excess~~respectively. Excess liquidity reduced the net interest margin by approximately 1318 and 14 basis points ~~and 7 basis points, respectively, compared to 3 basis points and no impact~~ for the three and nine months ended September 30, 2018, respectively. The excess liquidity during 2019 was primarily driven by strong deposit growth. Purchase accounting accretion had no impact on the net interest margin for the three or nine months ended September 30, 20192020, respectively, compared to ~~a favorable impact of approximately three~~13 and seven basis points ~~and one basis point~~ for the three and nine months ended September 30, ~~2018,~~2019, respectively. This excess liquidity was primarily driven by strong deposit balance growth over the last year. PPP loans reduced net interest margin by ten and seven basis points for the three and nine months ended September 30, 2020, respectively. Excluding the impact of excess liquidity and the impact of PPP loans, the net interest margin, on a tax-equivalent basis, was 3.30% and 3.42% for the three and nine months ended September 30, 2020, respectively, compared to 3.65% and 3.70% for the three and nine months ended September 30, 2019, respectively.

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


		Three Months Ended September 30,																											Three Months Ended September 30,
		2019												2018													2020				2019
(Dollars in thousands)	(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:															Assets:
Interest-earning deposits with other banks	Interest-earning deposits with other banks	$	213,623		$	1,178	2.19	%	$	80,678		$	398	1.96	%	Interest-earning deposits with other banks	$	368,181		$	100	0.11	%	$	213,623		$	1,178	2.19	%
U.S. government obligations	U.S. government obligations	14,154			62		1.74		22,331			90		1.60		U.S. government obligations	6,998			36		2.05		14,154			62		1.74
Obligations of states and political subdivisions	Obligations of states and political subdivisions	42,465			316		2.95		68,703			581		3.36		Obligations of states and political subdivisions	18,004			167		3.69		42,465			316		2.95
Other debt and equity securities	Other debt and equity securities	403,480			2,519		2.48		362,388			2,258		2.47		Other debt and equity securities	360,219			1,610		1.78		403,480			2,519		2.48
Federal Home Loan Bank, Federal Reserve Bank and other stock	Federal Home Loan Bank, Federal Reserve Bank and other stock	30,857			519		6.67		31,107			484		6.17		Federal Home Loan Bank, Federal Reserve Bank and other stock	28,651			419		5.82		30,857			519		6.67
Total interest-earning deposits, investments and other interest-earning assets	Total interest-earning deposits, investments and other interest-earning assets	704,579			4,594		2.59		565,207			3,811		2.68		Total interest-earning deposits, investments and other interest-earning assets	782,053			2,332		1.19		704,579			4,594		2.59
Commercial, financial and agricultural loans	Commercial, financial and agricultural loans	800,006			9,952		4.94		796,593			10,184		5.07		Commercial, financial and agricultural loans	807,376			7,330		3.61		800,006			9,952		4.94
Paycheck Protection Program loans																Paycheck Protection Program loans	500,549			2,811		2.23		—			—		—
Real estate—commercial and construction loans	Real estate—commercial and construction loans	1,966,593			23,439		4.73		1,729,538			20,527		4.71		Real estate—commercial and construction loans	2,358,971			23,547		3.97		1,966,593			23,439		4.73
Real estate—residential loans	Real estate—residential loans	956,224			11,570		4.80		880,589			10,447		4.71		Real estate—residential loans	1,009,407			10,380		4.09		956,224			11,570		4.80
Loans to individuals	Loans to individuals	31,504			490		6.17		32,057			499		6.18		Loans to individuals	28,663			309		4.29		31,504			490		6.17
Municipal loans and leases	Municipal loans and leases	333,734			3,413		4.06		316,149			3,037		3.81		Municipal loans and leases	267,364			2,839		4.22		333,734			3,413		4.06
Lease financings	Lease financings	82,424			1,482		7.13		77,369			1,409		7.23		Lease financings	97,707			1,662		6.77		82,424			1,482		7.13
Gross loans and leases	Gross loans and leases	4,170,485			50,346		4.79		3,832,295			46,103		4.77		Gross loans and leases	5,070,037			48,878		3.84		4,170,485			50,346		4.79
Total interest-earning assets	Total interest-earning assets	4,875,064			54,940		4.47		4,397,502			49,914		4.50		Total interest-earning assets	5,852,090			51,210		3.48		4,875,064			54,940		4.47
Cash and due from banks	Cash and due from banks	53,019							48,737							Cash and due from banks	56,715							53,019
Reserve for loan and lease losses		(33,152)							(26,099)
Allowance for credit losses, loans and leases																Allowance for credit losses, loans and leases	(87,046)							(33,152)
Premises and equipment, net	Premises and equipment, net	57,881							60,622							Premises and equipment, net	55,755							57,881
Operating lease right-of-use assets	Operating lease right-of-use assets	35,238							—							Operating lease right-of-use assets	33,875							35,238
Other assets	Other assets	329,817							336,559							Other assets	354,216							329,817
Total assets	Total assets	$	5,317,867						$	4,817,321						Total assets	$	6,265,605						$	5,317,867
Liabilities:	Liabilities:															Liabilities:
Interest-bearing checking deposits	Interest-bearing checking deposits	$	497,185		$	678	0.54		$	465,992		$	541	0.46		Interest-bearing checking deposits	$	725,580		$	468	0.26		$	497,185		$	678	0.54
Money market savings	Money market savings	1,004,806			4,112		1.62		813,769			2,664		1.30		Money market savings	1,116,628			897		0.32		1,004,806			4,112		1.62
Regular savings	Regular savings	805,632			963		0.47		787,383			581		0.29		Regular savings	901,716			449		0.20		805,632			963		0.47
Time deposits	Time deposits	715,520			3,681		2.04		633,552			2,492		1.56		Time deposits	525,656			2,214		1.68		715,520			3,681		2.04
Total time and interest-bearing deposits	Total time and interest-bearing deposits	3,023,143			9,434		1.24		2,700,696			6,278		0.92		Total time and interest-bearing deposits	3,269,580			4,028		0.49		3,023,143			9,434		1.24
Short-term borrowings	Short-term borrowings	32,375			94		1.15		129,365			584		1.79		Short-term borrowings	130,359			97		0.30		32,375			94		1.15
Long-term debt	Long-term debt	167,338			866		2.05		148,323			709		1.90		Long-term debt	208,776			742		1.41		167,338			866		2.05
Subordinated notes	Subordinated notes	94,724			1,261		5.28		94,480			1,261		5.30		Subordinated notes	155,945			1,891		4.82		94,724			1,261		5.28
Total borrowings	Total borrowings	294,437			2,221		2.99		372,168			2,554		2.72		Total borrowings	495,080			2,730		2.19		294,437			2,221		2.99
Total interest-bearing liabilities	Total interest-bearing liabilities	3,317,580			11,655		1.39		3,072,864			8,832		1.14		Total interest-bearing liabilities	3,764,660			6,758		0.71		3,317,580			11,655		1.39
Noninterest-bearing deposits	Noninterest-bearing deposits	1,265,027							1,091,931							Noninterest-bearing deposits	1,760,818							1,265,027
Operating lease liabilities	Operating lease liabilities	38,364							—							Operating lease liabilities	37,170							38,364
Accrued expenses and other liabilities	Accrued expenses and other liabilities	37,373							40,723							Accrued expenses and other liabilities	41,010							37,373
Total liabilities	Total liabilities	4,658,344							4,205,518							Total liabilities	5,603,658							4,658,344
Shareholders’ Equity:	Shareholders’ Equity:															Shareholders’ Equity:
Common stock	Common stock	157,784							157,784							Common stock	157,784							157,784
Additional paid-in capital	Additional paid-in capital	294,138							291,499							Additional paid-in capital	296,272							294,138
Retained earnings and other equity	Retained earnings and other equity	207,601							162,520							Retained earnings and other equity	207,891							207,601
Total shareholders’ equity	Total shareholders’ equity	659,523							611,803							Total shareholders’ equity	661,947							659,523
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,317,867						$	4,817,321						Total liabilities and shareholders’ equity	$	6,265,605						$	5,317,867
Net interest income	Net interest income				$	43,285						$	41,082			Net interest income				$	44,452						$	43,285
Net interest spread	Net interest spread						3.08							3.36		Net interest spread						2.77							3.08
Effect of net interest-free funding sources	Effect of net interest-free funding sources						0.44							0.35		Effect of net interest-free funding sources						0.25							0.44
Net interest margin	Net interest margin						3.52	%						3.71	%	Net interest margin						3.02	%						3.52	%
Ratio of average interest-earning assets to average interest-bearing liabilities	Ratio of average interest-earning assets to average interest-bearing liabilities	146.95		%					143.11		%					Ratio of average interest-earning assets to average interest-bearing liabilities	155.45		%					146.95		%

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 September 30, ~~2019~~2020 and ~~2018~~2019 have been calculated using the Corporation's federal applicable rate of 21%.

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Nine Months Ended September 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 $ 120,231 $ 2,016 2.24 % $ 45,931 $ 622 1.81 %
U.S. government obligations 17,148 217 1.69 23,139 275 1.59
Obligations of states and political subdivisions 55,220 1,369 3.31 71,429 1,777 3.33
Other debt and equity securities 394,834 7,722 2.61 359,324 6,530 2.43
Federal Home Loan Bank, Federal Reserve Bank and other stock 31,713 1,640 6.91 30,992 1,497 6.46
Total interest-earning deposits, investments and other interest-earning assets 619,146 12,964 2.80 530,815 10,701 2.70
Commercial, financial and agricultural loans 810,321 31,299 5.16 796,520 28,834 4.84
Real estate—commercial and construction loans 1,900,901 68,108 4.79 1,664,183 57,189 4.59
Real estate—residential loans 945,477 34,465 4.87 857,442 30,168 4.70
Loans to individuals 31,985 1,518 6.35 29,683 1,356 6.11
Municipal loans and leases 333,816 9,939 3.98 313,710 8,890 3.79
Lease financings 81,698 4,376 7.16 75,853 4,106 7.24
Gross loans and leases 4,104,198 149,705 4.88 3,737,391 130,543 4.67
Total interest-earning assets 4,723,344 162,669 4.60 4,268,206 141,244 4.42
Cash and due from banks 48,231 45,490
Reserve for loan and lease losses (31,714) (24,027)
Premises and equipment, net 58,640 61,194
Operating lease right-of-use assets 36,056 —
Other assets 330,782 335,433
Total assets $ 5,165,339 $ 4,686,296
Liabilities:
Interest-bearing checking deposits $ 477,848 $ 1,849 0.52 $ 451,542 $ 1,216 0.36
Money market savings 968,894 12,094 1.67 722,859 5,765 1.07
Regular savings 804,457 2,790 0.46 808,276 1,720 0.28
Time deposits 686,794 10,015 1.95 576,540 5,810 1.35
Total time and interest-bearing deposits 2,937,993 26,748 1.22 2,559,217 14,511 0.76
Short-term borrowings 65,804 949 1.93 174,002 2,187 1.68
Long-term debt 157,484 2,441 2.07 153,211 2,083 1.82
Subordinated notes 94,664 3,783 5.34 94,420 3,783 5.36
Total borrowings 317,952 7,173 3.02 421,633 8,053 2.55
Total interest-bearing liabilities 3,255,945 33,921 1.39 2,980,850 22,564 1.01
Noninterest-bearing deposits 1,184,909 1,055,456
Operating lease liabilities 39,103 —
Accrued expenses and other liabilities 39,735 40,154
Total liabilities 4,519,692 4,076,460
Shareholders’ Equity:
Common stock 157,784 157,784
Additional paid-in capital 293,465 290,746
Retained earnings and other equity 194,398 161,306
Total shareholders’ equity 645,647 609,836
Total liabilities and shareholders’ equity $ 5,165,339 $ 4,686,296
Net interest income $ 128,748 $ 118,680
Net interest spread 3.21 3.41
Effect of net interest-free funding sources 0.43 0.31
Net interest margin 3.64 % 3.72 %
Ratio of average interest-earning assets to average interest-bearing liabilities 145.07 % 143.19 %


	Nine Months Ended September 30,
	2020							2019
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	267,023		$	492	0.25	%	$	120,231		$	2,016	2.24	%
U.S. government obligations	7,176			109		2.03		17,148			217		1.69
Obligations of states and political subdivisions	26,019			696		3.57		55,220			1,369		3.31
Other debt and equity securities	379,729			6,460		2.27		394,834			7,722		2.61
Federal Home Loan Bank, Federal Reserve Bank and other stock	29,689			1,308		5.88		31,713			1,640		6.91
Total interest-earning deposits, investments and other interest-earning assets	709,636			9,065		1.71		619,146			12,964		2.80
Commercial, financial and agricultural loans	815,178			23,291		3.82		810,321			31,299		5.16
Paycheck Protection Program loans	291,173			4,939		2.27		—			—		—
Real estate—commercial and construction loans	2,244,143			70,574		4.20		1,900,901			68,108		4.79
Real estate—residential loans	1,001,904			31,702		4.23		945,477			34,465		4.87
Loans to individuals	29,251			1,043		4.76		31,985			1,518		6.35
Municipal loans and leases	291,845			9,081		4.16		333,816			9,939		3.98
Lease financings	92,780			4,808		6.92		81,698			4,376		7.16
Gross loans and leases	4,766,274			145,438		4.08		4,104,198			149,705		4.88
Total interest-earning assets	5,475,910			154,503		3.77		4,723,344			162,669		4.60
Cash and due from banks	51,544							48,231
Allowance for credit losses, loans and leases	(66,977)							(31,714)
Premises and equipment, net	55,967							58,640
Operating lease right-of-use assets	34,278							36,056
Other assets	342,196							330,782
Total assets	$	5,892,918						$	5,165,339
Liabilities:
Interest-bearing checking deposits	$	642,935		$	1,636	0.34		$	477,848		$	1,849	0.52
Money market savings	1,079,279			4,653		0.58		968,894			12,094		1.67
Regular savings	863,772			1,716		0.27		804,457			2,790		0.46
Time deposits	568,517			7,801		1.83		686,794			10,015		1.95
Total time and interest-bearing deposits	3,154,503			15,806		0.67		2,937,993			26,748		1.22
Short-term borrowings	110,689			325		0.39		65,804			949		1.93
Long-term debt	196,053			2,268		1.55		157,484			2,441		2.07
Subordinated notes	115,376			4,372		5.06		94,664			3,783		5.34
Total borrowings	422,118			6,965		2.20		317,952			7,173		3.02
Total interest-bearing liabilities	3,576,621			22,771		0.85		3,255,945			33,921		1.39
Noninterest-bearing deposits	1,571,629							1,184,909
Operating lease liabilities	37,538							39,103
Accrued expenses and other liabilities	41,691							39,735
Total liabilities	5,227,479							4,519,692
Shareholders’ Equity:
Common stock	157,784							157,784
Additional paid-in capital	295,759							293,465
Retained earnings and other equity	211,896							194,398
Total shareholders’ equity	665,439							645,647
Total liabilities and shareholders’ equity	$	5,892,918						$	5,165,339
Net interest income				$	131,732						$	128,748
Net interest spread						2.92							3.21
Effect of net interest-free funding sources						0.29							0.43
Net interest margin						3.21	%						3.64	%
Ratio of average interest-earning assets to average interest-bearing liabilities	153.10		%					145.07		%

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 nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 have been calculated using the Corporation's federal applicable rate of 21%.

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Table 2—Analysis of Changes in Net Interest Income

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


		Three Months Ended										Nine Months Ended											Three Months Ended				Nine Months Ended
		September 30, 2019 Versus 2018										September 30, 2019 Versus 2018											September 30, 2020 Versus 2019				September 30, 2020 Versus 2019
(Dollars in thousands)	(Dollars in thousands)	Volume Change		Rate Change		Total		Volume Change		Rate Change		Total		(Dollars in thousands)	Volume Change		Rate Change		Total		Volume Change		Rate Change		Total
Interest income:	Interest income:													Interest income:
Interest-earning deposits with other banks	Interest-earning deposits with other banks	$	728	$	52	$	780	$	1,215	$	179	$	1,394	Interest-earning deposits with other banks	$	502	$	(1,580)	$	(1,078)	$	1,190	$	(2,714)	$	(1,524)
U.S. government obligations	U.S. government obligations	(35)		7		(28)		(74)		16		(58)		U.S. government obligations	(35)		9		(26)		(145)		37		(108)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	(201)		(64)		(265)		(397)		(11)		(408)		Obligations of states and political subdivisions	(214)		65		(149)		(773)		100		(673)
Other debt and equity securities	Other debt and equity securities	252		9		261		681		511		1,192		Other debt and equity securities	(250)		(659)		(909)		(287)		(975)		(1,262)
Federal Home Loan Bank, Federal Reserve Bank and other stock	Federal Home Loan Bank, Federal Reserve Bank and other stock	(4)		39		35		36		107		143		Federal Home Loan Bank, Federal Reserve Bank and other stock	(36)		(64)		(100)		(100)		(232)		(332)
Interest on deposits, investments and other earning assets	Interest on deposits, investments and other earning assets	740		43		783		1,461		802		2,263		Interest on deposits, investments and other earning assets	(33)		(2,229)		(2,262)		(115)		(3,784)		(3,899)
Commercial, financial and agricultural loans	Commercial, financial and agricultural loans	42		(274)		(232)		512		1,953		2,465		Commercial, financial and agricultural loans	91		(2,713)		(2,622)		186		(8,194)		(8,008)
Paycheck Protection Program loans														Paycheck Protection Program loans	2,811		—		2,811		4,939		—		4,939
Real estate—commercial and construction loans	Real estate—commercial and construction loans	2,825		87		2,912		8,359		2,560		10,919		Real estate—commercial and construction loans	4,228		(4,120)		108		11,444		(8,978)		2,466
Real estate—residential loans	Real estate—residential loans	918		205		1,123		3,178		1,119		4,297		Real estate—residential loans	609		(1,799)		(1,190)		1,965		(4,728)		(2,763)
Loans to individuals	Loans to individuals	(8)		(1)		(9)		108		54		162		Loans to individuals	(41)		(140)		(181)		(121)		(354)		(475)
Municipal loans and leases	Municipal loans and leases	173		203		376		589		460		1,049		Municipal loans and leases	(704)		130		(574)		(1,292)		434		(858)
Lease financings	Lease financings	93		(20)		73		315		(45)		270		Lease financings	259		(79)		180		582		(150)		432
Interest and fees on loans and leases	Interest and fees on loans and leases	4,043		200		4,243		13,061		6,101		19,162		Interest and fees on loans and leases	7,253		(8,721)		(1,468)		17,703		(21,970)		(4,267)
Total interest income	Total interest income	4,783		243		5,026		14,522		6,903		21,425		Total interest income	7,220		(10,950)		(3,730)		17,588		(25,754)		(8,166)
Interest expense:	Interest expense:													Interest expense:
Interest-bearing checking deposits	Interest-bearing checking deposits	38		99		137		74		559		633		Interest-bearing checking deposits	231		(441)		(210)		537		(750)		(213)
Money market savings	Money market savings	707		741		1,448		2,391		3,938		6,329		Money market savings	409		(3,624)		(3,215)		1,243		(8,684)		(7,441)
Regular savings	Regular savings	13		369		382		(8)		1,078		1,070		Regular savings	100		(614)		(514)		184		(1,258)		(1,074)
Time deposits	Time deposits	352		837		1,189		1,265		2,940		4,205		Time deposits	(880)		(587)		(1,467)		(1,632)		(582)		(2,214)
Interest on time and interest-bearing deposits	Interest on time and interest-bearing deposits	1,110		2,046		3,156		3,722		8,515		12,237		Interest on time and interest-bearing deposits	(140)		(5,266)		(5,406)		332		(11,274)		(10,942)
Short-term borrowings	Short-term borrowings	(332)		(158)		(490)		(1,524)		286		(1,238)		Short-term borrowings	113		(110)		3		411		(1,035)		(624)
Long-term debt	Long-term debt	97		60		157		60		298		358		Long-term debt	184		(308)		(124)		520		(693)		(173)

Subordinated notes														Subordinated notes	749		(119)		630		795		(206)		589
Interest on borrowings	Interest on borrowings	(235)		(98)		(333)		(1,464)		584		(880)		Interest on borrowings	1,046		(537)		509		1,726		(1,934)		(208)
Total interest expense	Total interest expense	875		1,948		2,823		2,258		9,099		11,357		Total interest expense	906		(5,803)		(4,897)		2,058		(13,208)		(11,150)
Net interest income	Net interest income	$	3,908	$	(1,705)	$	2,203	$	12,264	$	(2,196)	$	10,068	Net interest income	$	6,314	$	(5,147)	$	1,167	$	15,530	$	(12,546)	$	2,984

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Interest Income

Three and nine months ended September 30, ~~2019~~2020 versus ~~2018~~2019

Interest income on a tax-equivalent basis for the three months ended September 30, ~~2019~~2020 was ~~$54.9~~$51.2 million, ~~an increase~~a decrease of ~~$5.0~~$3.7 million, or ~~10.1%~~6.8%, from the same period in ~~2018.~~the prior year. Interest income on a tax-equivalent basis for the nine months ended September 30, ~~2019~~2020 was ~~$162.7~~$154.5 million, ~~an increase~~a decrease of ~~$21.4~~$8.2 million, or ~~15.2%~~5.0%, from the same period in ~~2018.~~2019. The ~~increase~~decrease in interest income for the three and nine months ended September 30, ~~2019~~2020 was primarily due to organic loan growth in commercial real estate and residential real estate loans. In addition, loan yields increased during the nine months ended September 30, 2019 primarily for commercial business and commercial real estate loans as the Federal Reserve ~~increased~~ interest ~~rates 100~~rate reductions of 75 basis points in ~~2018 partially~~the third and fourth quarters of 2019 and 150 basis points in the first quarter of 2020, offset by ~~a 50 basis point reduction~~increases in ~~interest rates in the third quarter of 2019. Purchase accounting accretion had no impact on the rate on interest-earning assets~~average gross loans and leases held for ~~the three and nine months ended September 30, 2019, compared to a favorable impact of one basis point for the three and nine months ended September 30, 2018.~~investment.

Interest Expense

Three and nine months ended September 30, ~~2019~~2020 versus ~~2018~~2019

Interest expense for the three months ended September 30, ~~2019~~2020 was ~~$11.7~~$6.8 million, ~~an increase~~a decrease of ~~$2.8~~$4.9 million, or ~~32.0%~~42.0%, from the same period in ~~2018.~~2019. Interest expense for the nine months ended September 30, ~~2019~~2020 was ~~$33.9~~$22.8 million, ~~an increase~~a decrease of ~~$11.4~~$11.2 million, or ~~50.3%~~32.9%, from the same period in ~~2018. The increase in interest~~the prior year. Interest expense decreased for the three and nine months ended September 30, ~~2019 was~~2020 primarily due to ~~higher deposit costs, which were impacted by~~ the Federal Reserve interest rate ~~increases~~decreases in ~~2018~~2019 and 2020, partially offset by ~~the reduction~~growth in ~~interest rates in the third quarter of 2019. In addition,~~ average interest-bearing ~~deposits grew 11.9%~~liabilities of $447.1 million and ~~14.8%, respectively, for~~$320.7 million, during the three and nine months ended September 30, 219 compared to the same periods in 2018. The favorable impact of purchase accounting amortization on the rate on interest-bearing liabilities was one basis point for the three and nine months ended September 30, 2019, compared to a favorable impact of two basis points and three basis points for the three and nine months ended September 30, 2018,2020, respectively.

Provision for ~~Loan and Lease~~Credit Losses

The provision for ~~loan and lease~~credit losses for the three months ended September 30, ~~2019~~2020 was ~~$1.5~~$3.9 million compared to ~~$2.7~~$1.5 million for the same period in the prior year. Net loan and lease recoveries for the three months ended September 30, 2020 were $35 thousand compared to net loan and lease charge-offs of $468 thousand for the same period in the prior year. The provision for credit losses for the nine months ended September 30, 2020 was $49.5 million compared to $6.3 million for the same period in the prior year. Net loan and lease charge-offs for the ~~three~~nine months ended September 30, ~~2019~~2020 were ~~$468 thousand~~$4.0 million compared to ~~$1.0~~$2.0 million for the same period in the prior year.

~~The~~ Refer to the Executive Overview for discussion of the drivers of provision ~~for loan and leases losses~~expense for the three and nine months ended September 30, ~~2019 was $6.3 million compared~~2020 and 2019. Refer to ~~$20.2 million~~Asset Quality for discussion of the drivers for the ~~same period~~increase in ~~2018. Net loan and lease~~ charge-offs for the three and nine months ended September 30, ~~2019 were $2.0 million compared to $14.4 million for the same period in the prior year. Both net loan~~2020 and ~~lease charge-offs and the provision for loan and lease losses during 2018 included the previously discussed $12.7 million commercial loan charge-off.~~2019.

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Noninterest Income

The following table presents noninterest income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


		Three Months Ended										Nine Months Ended											Three Months Ended								Nine Months Ended
		September 30,						Change						September 30,								Change					September 30,				Change				September 30,	Change
(Dollars in thousands)	(Dollars in thousands)	2019		2018		Amount		Percent		2019		2018		Amount		Percent		(Dollars in thousands)	2020		2019		Amount		Percent		2020		2019		Amount		Percent
Trust fee income	Trust fee income	$	1,973	$	1,960	$	13	0.7	%	$	5,914	$	6,000	$	(86)	(1.4	%)	Trust fee income	$	1,915	$	1,973	$	(58)	(2.9	%)	$	5,729	$	5,914	$	(185)	(3.1	%)
Service charges on deposit accounts	Service charges on deposit accounts	1,513		1,454		59		4.1		4,395		4,116		279		6.8		Service charges on deposit accounts	1,187		1,513		(326)		(21.5)		3,474		4,395		(921)		(21.0)
Investment advisory commission and fee income	Investment advisory commission and fee income	4,032		3,785		247		6.5		11,876		11,246		630		5.6		Investment advisory commission and fee income	4,005		4,032		(27)		(0.7)		11,800		11,876		(76)		(0.6)
Insurance commission and fee income	Insurance commission and fee income	3,877		3,643		234		6.4		12,962		12,243		719		5.9		Insurance commission and fee income	3,776		3,877		(101)		(2.6)		12,575		12,962		(387)		(3.0)
Other service fee income	Other service fee income	2,255		2,284		(29)		(1.3)		7,112		6,884		228		3.3		Other service fee income	2,093		2,255		(162)		(7.2)		5,451		7,112		(1,661)		(23.4)
Bank owned life insurance income	Bank owned life insurance income	743		865		(122)		(14.1)		2,438		2,744		(306)		(11.2)		Bank owned life insurance income	741		743		(2)		(0.3)		2,207		2,438		(231)		(9.5)
Net gain on sales of investment securities	Net gain on sales of investment securities	33		—		33		N/M		41		10		31		N/M		Net gain on sales of investment securities	57		33		24		72.7		817		41		776		NM
Net gain on mortgage banking activities	Net gain on mortgage banking activities	1,629		754		875		N/M		2,908		2,412		496		20.6		Net gain on mortgage banking activities	5,860		1,629		4,231		NM		12,119		2,908		9,211		NM

Other income	Other income	544		116		428		N/M		1,606		102		1,504		N/M		Other income	2,171		544		1,627		NM		4,017		1,606		2,411		NM
Total noninterest income	Total noninterest income	$	16,599	$	14,861	$	1,738	11.7	%	$	49,252	$	45,757	$	3,495	7.6	%	Total noninterest income	$	21,805	$	16,599	$	5,206	31.4	%	$	58,189	$	49,252	$	8,937	18.1	%

Three and nine months ended September 30, ~~2019~~2020 versus ~~2018~~2019

Noninterest income for the three months ended September 30, ~~2019~~2020 was ~~$16.6~~$21.8 million, an increase of ~~$1.7~~$5.2 million, or ~~11.7%~~31.4%, from the three months ended September 30, ~~2018.~~2019. Noninterest income for the nine months ended September 30, ~~2019~~2020 was ~~$49.3~~$58.2 million, an increase of ~~$3.5~~$8.9 million, or ~~7.6%~~18.1%, from the ~~comparable period in the prior year.~~nine months ended September 30, 2019.

The net gain on mortgage banking activities increased ~~$875 thousand~~$4.2 million, or 259.7%, for the three months ended September 30, 2020 and ~~$496~~$9.2 million, or 316.7%, for the nine months ended September 30, 2020, due to an increase in volume and an expansion of margins. Net gain on sales of investment securities increased $776 thousand for the nine months ended September 30, ~~2019,~~2020 from the comparable period in the prior year primarily due to ~~an increase~~a $652 thousand gain on the sale of $58.3 million of agency backed mortgage backed securities in ~~mortgage volume partially offset by contraction in margins to remain price competitive. Investment advisory commission and fee~~the first quarter of 2020.

Other income increased ~~$247 thousand,~~$1.6 million, or ~~6.5%~~299.1%, for the three months ended September 30, 2020 and ~~$630 thousand,~~$2.4 million, or ~~5.6%~~150.1%, for the nine months ended September 30, ~~2019, primarily due to new customer relationships. Insurance commission and fee income~~2020 from the comparable periods in the prior year. Fees on risk participation agreements for interest rate swaps increased ~~$234 thousand, or 6.4%,~~$2.2 million for the three months ended September 30, 2020 and ~~$719 thousand, or 5.9%,~~$3.4 million for the nine months ended September 30, ~~2019, primarily~~2020 from the comparable periods in the prior year, driven by increased customer activity due to ~~an increase in contingent commission income~~the current rate environment. Net gains or losses related to valuations and sales of ~~$203~~other real estate owned decreased $323 thousand for the three months ended September 30, 2020 and ~~$323~~$268 thousand for the nine months ended September 30, ~~2019 as well as an increase~~2020 from the comparable periods in ~~premiums for commercial lines and group life and health for~~ the nine months ended September 30, 2019. Service charges on deposit accounts increased $59 thousand, or 4.1%, for the three months and $279 thousand, or 6.8%, for the nine months ended September 30, 2019,prior year, primarily due to ~~increased fee income~~a $300 thousand valuation adjustment on ~~commercial cash management accounts.~~

~~Other income increased $428 thousand~~other real estate owned for a property that is under agreement of sale and is expected to be sold in the three months and $1.5 million for the nine months ended September 30, 2019. Fees on risk participation agreements increased $137 thousand for the three months and $681 thousand for the nine months ended September 30, 2019 driven by increased customer activity.fourth quarter of 2020. Gain on sale of small business administration (SBA) loans ~~increased $55~~decreased $52 thousand for the three months ended September 30, 2020 and ~~$368~~$346 thousand for the nine months ended September 30, ~~2019 related~~2020 from the comparable periods in the prior year due to ~~increased~~decreased SBA loan sale activity. ~~Net loss on valuations~~Equity securities measured at fair value decreased $21 thousand for the three months ended September 30, 2020 and ~~sales of other real estate owned was $28~~$333 thousand for the nine months ended September 30, ~~2019 compared to $507~~2020.

Service charges on deposit accounts decreased $326 thousand, or 21.5%, for the ~~nine~~three months ended September 30, ~~2018.~~

~~These increases were partially offset by a decrease in BOLI income of $306~~2020 and $921 thousand, or ~~11.2%~~21.0%, for the nine months ended September 30, ~~2019~~2020 from the comparable periods in the prior year primarily due to ~~proceeds from BOLI death benefits~~the waiving of ~~$446 thousand recognized~~certain deposit service charges for customers in response to COVID-19 during the second quarter of ~~2018~~.2020 and a decline in customer activity in the third quarter of 2020.

Other service fee income decreased $1.7 million, or 23.4%, for the nine months ended September 30, 2020 from the comparable period in the prior year. Mortgage servicing right amortization increased $1.1 million for the nine months ended September 30, 2020 from the comparable period in the prior year driven by the decline in interest rates and their impact on prepayment activity. Additionally, valuation allowance adjustments of $206 thousand during the nine months ended September 30, 2020 were recorded against mortgage servicing right assets due to declines in fair value. Interchange income decreased

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$320 thousand for the nine months ended September 30, 2020 from the comparable period in the prior year due to decreased customer transaction activity.

Noninterest Expense

The following table presents noninterest expense for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


		Three Months Ended										Nine Months Ended											Three Months Ended								Nine Months Ended
		September 30,						Change						September 30,								Change					September 30,				Change				September 30,	Change
(Dollars in thousands)	(Dollars in thousands)	2019		2018		Amount		Percent		2019		2018		Amount		Percent		(Dollars in thousands)	2020		2019		Amount		Percent		2020		2019		Amount		Percent
Salaries, benefits and commissions	Salaries, benefits and commissions	$	22,785	$	20,321	$	2,464	12.1	%	$	66,438	$	61,033	$	5,405	8.9	%	Salaries, benefits and commissions	$	24,059	$	22,758	$	1,301	5.7	%	$	69,595	$	66,356	$	3,239	4.9	%
Net occupancy	Net occupancy	2,475		2,515		(40)		(1.6)		7,687		7,805		(118)		(1.5)		Net occupancy	2,609		2,475		134		5.4		7,661		7,687		(26)		(0.3)
Equipment	Equipment	1,088		1,042		46		4.4		3,143		3,132		11		0.4		Equipment	972		1,088		(116)		(10.7)		2,890		3,143		(253)		(8.0)
Data processing	Data processing	2,624		2,339		285		12.2		7,765		6,662		1,103		16.6		Data processing	2,862		2,624		238		9.1		8,372		7,765		607		7.8
Professional fees	Professional fees	1,517		1,370		147		10.7		4,088		4,056		32		0.8		Professional fees	1,321		1,517		(196)		(12.9)		3,902		4,088		(186)		(4.5)
Marketing and advertising	Marketing and advertising	558		646		(88)		(13.6)		1,884		1,987		(103)		(5.2)		Marketing and advertising	463		558		(95)		(17.0)		1,400		1,884		(484)		(25.7)
Deposit insurance premiums	Deposit insurance premiums	(444)		544		(988)		N/M		438		1,387		(949)		(68.4)		Deposit insurance premiums	707		(444)		1,151		NM		1,826		438		1,388		NM
Intangible expenses	Intangible expenses	378		479		(101)		(21.1)		1,221		1,685		(464)		(27.5)		Intangible expenses	283		378		(95)		(25.1)		934		1,221		(287)		(23.5)

Restructuring charges		—		—		—		—		—		571		(571)		N/M

Other expense	Other expense	5,289		5,115		174		3.4		15,941		15,525		416		2.7		Other expense	5,251		5,313		(62)		(1.2)		16,684		16,028		656		4.1
Total noninterest expense	Total noninterest expense	$	36,270	$	34,371	$	1,899	5.5	%	$	108,605	$	103,843	$	4,762	4.6	%	Total noninterest expense	$	38,527	$	36,267	$	2,260	6.2	%	$	113,264	$	108,610	$	4,654	4.3	%

Three and nine months ended September 30, ~~2019~~2020 versus ~~2018~~2019

Noninterest expense for the three months ended September 30, ~~2019~~2020 was ~~$36.3~~$38.5 million, an increase of ~~$1.9~~$2.3 million, or ~~5.5%~~6.2%, from the three months ended September 30, ~~2018.~~2019. Noninterest expense for the nine months ended September 30, ~~2019~~2020 was ~~$108.6~~$113.3 million, an increase of ~~$4.8~~$4.7 million, or ~~4.6%~~4.3%, from the ~~comparable period in the prior year.~~nine months ended September 30, 2019.

Salaries, benefits and commissions increased ~~$2.5~~$1.3 million, or ~~12.1%~~5.7%, for the three months ended September 30, 2020 and ~~$5.4~~increased $3.2 million, or ~~8.9%~~4.9%, for the nine months ended September 30, ~~2019, primarily~~2020 from the comparable periods in the prior year. The increase for the three and nine months ended September 30, 2020 was attributable to additional staff hired, primarily during 2019, to support revenue generation across all business lines, expansion of our commercial lending groups in the first and second quarters of 2019, annual merit ~~increases. During the first quarter of 2019, Univest hired a team of eight commercial lenders~~increases and ~~support staff~~increased variable compensation due to focus on increasing Univest’s presence in Western Lancaster and York Counties. During the second quarter of 2019, a team of three commercial lenders was hired to help expand Univest’s presence in the New Jersey suburbs of Philadelphia. Data processing expensestrong mortgage banking activity. Deposit insurance premiums increased ~~$285 thousand,~~$1.2 million, or ~~12.2%~~259.2%, for the three months ended September 30, 2020 and ~~$1.1~~increased $1.4 million, or ~~16.6%~~316.9%, for the nine months ended September 30, ~~2019,~~2020 from the comparable periods in the prior year primarily due to continued investments in customer relationship management software and internal infrastructure improvements as well as outsourced data processing solutions for the nine months ended September 30, 2019.

These increases were partially offset by a decrease in deposit insurance premiums of $988 thousand for the three months and $949 thousand for the nine months ended September 30, 2019 due to the previously discussedan FDIC small bank assessment credit of $988 thousand, which was recognized during the third quarter of ~~2019. Intangible expense decreased by $101 thousand, or 21.1%,~~2019 and an increased assessment base for ~~the three months and $464 thousand, or 27.5%, for the nine months ended September 30, 2019~~2020 due to ~~run-off of the intangible assets. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the first quarter of 2018.~~asset growth.

Tax Provision

The provision for income taxes for the three months ended September 30, 2020 and 2019 was $5.1 million and ~~2018 was~~ $3.8 million, respectively, at effective tax rates of 21.9% and ~~$3.2 million, at an effective rate of~~ 17.6% ~~for both periods.~~, respectively. The provision for income taxes for the nine months ended September 30, 2020 and 2019 was $4.2 million and ~~2018 was~~ $11.0 million, ~~and $6.2 million,~~respectively, at effective tax rates of ~~17.9%~~16.7% and ~~16.2%~~17.9%, 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%~~of 16.7% for the nine months ended September 30, ~~2019~~2020, was calculated using the annual effective tax rate methodology and ~~2018.~~

reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. The calculation of the effective tax rate for income taxes for the six 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.

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Financial Condition

Assets

The following table presents assets at the dates indicated:


		At September 30, 2019		At December 31, 2018		Change							At September 30, 2020		At December 31, 2019		Change
(Dollars in thousands)	(Dollars in thousands)											Amount					At December 31, 2019		Amount	Percent
Cash and interest-earning deposits	Cash and interest-earning deposits	$	225,334	$	109,420	$	115,914	N/M	%	Cash and interest-earning deposits	$	387,676	$	125,128	$	262,548
Investment securities		448,447		473,306		(24,859)		(5.3)
Investment securities, net of allowance for credit losses										Investment securities, net of allowance for credit losses	368,830		441,599		(72,769)		(16.5)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	29,254		28,337		917		3.2		Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	29,723		28,254		1,469		5.2
Loans held for sale	Loans held for sale	2,893		1,754		1,139		64.9		Loans held for sale	14,465		5,504		8,961		NM
Loans and leases held for investment	Loans and leases held for investment	4,251,933		4,006,574		245,359		6.1		Loans and leases held for investment	5,211,856		4,386,836		825,020		18.8
Reserve for loan and lease losses		(33,662)		(29,364)		(4,298)		(14.6)
Allowance for credit losses, loans and leases										Allowance for credit losses, loans and leases	(91,870)		(35,331)		(56,539)		NM
Premises and equipment, net	Premises and equipment, net	57,171		59,559		(2,388)		(4.0)		Premises and equipment, net	55,410		56,676		(1,266)		(2.2)
Operating lease right-of-use assets	Operating lease right-of-use assets	34,965		—		34,965		N/M		Operating lease right-of-use assets	34,573		34,418		155		0.5
Goodwill and other intangibles, net	Goodwill and other intangibles, net	183,081		184,549		(1,468)		(0.8)		Goodwill and other intangibles, net	181,574		182,843		(1,269)		(0.7)
Bank owned life insurance	Bank owned life insurance	114,037		111,599		2,438		2.2		Bank owned life insurance	116,985		114,778		2,207		1.9

Accrued interest receivable and other assets	Accrued interest receivable and other assets	40,158		38,613		1,545		4.0		Accrued interest receivable and other assets	73,609		40,219		33,390		83.0
Total assets	Total assets	$	5,353,611	$	4,984,347	$	369,264	7.4	%	Total assets	$	6,382,831	$	5,380,924	$	1,001,907	18.6	%

Cash and Interest-Earning Deposits

Cash and interest-earning deposits increased $262.5 million, or 209.8%, from December 31, 2019, primarily due to increased interest earning deposits at the Federal Reserve Bank of $247.5 million.

Investment Securities

Total investments securities at September 30, ~~2019~~2020 decreased ~~$24.9~~$72.8 million from December 31, ~~2018. Maturities~~2019. Sales of $76.1 million, maturities and pay-downs of ~~$65.3 million, sales of $25.0~~$75.5 million, calls of ~~$5.8~~$25.3 million, a provision for credit losses of $693 thousand and net amortization of purchased premiums and discounts of ~~$1.8~~$1.9 million were partially offset by purchases of ~~$65.2~~$103.4 million and increases in the fair value of available-for-sale investment securities of ~~$7.8~~$2.8 million. ~~The increase in the fair value of available-for-sale investment securities was due to the flattening of the yield curve.~~

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

The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $14.5 million and $13.6 million at September 30, 2019 and December 31, 2018, respectively. FHLB stock increased $900 thousand mainly due to purchase requirements related to the increase in FHLB borrowing volume during the year.

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

Loans and Leases

Gross loans and leases held for investment ~~grew $245.4~~increased $825.0 million, or ~~6.1%~~18.8%, from December 31, ~~2018.~~2019. The growth in gross loans and leases held for investment was ~~primarily~~due to PPP loans outstanding of $501.6 million, and increases in commercial real estate loans partially offset by a decrease in commercial ~~business and residential real estate~~ loans.

Asset Quality

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

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

~~Table of Contents~~

When a loan or lease, including a loan or lease that is impaired, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease is typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest, even though the loan or lease is currently performing. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of net deferred fees and costs is suspended. Interest payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the ultimate collectability of principal.

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

At September 30, 2019, the recorded investment in loans and leases held for investment that were considered to be impaired was $37.2 million. The related reserve for loan and lease 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. During the third quarter of 2019, one commercial banking relationship totaling $11.6 million was placed on non-accrual status. Impaired loans include nonaccrualNonaccrual loans and leases and accruing troubled debt restructured loans ~~and lease modifications~~are loans or leases for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. Factors considered by management in determining accrual status include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due.

At September 30, 2020, nonaccrual loans and leases and accruing troubled debt restructured loans were $30.1 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 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

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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 September 30, 2020, the property was carried at $8.1 million in other real estate owned. The property is under an agreement of sale and is expected to be sold during the fourth quarter of 2020. The amount of the ~~specific~~individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits. ~~Specific reserves have been established based on current facts and management’s judgments about the ultimate outcome of these credits.~~

Other real estate owned was ~~$495~~$8.3 million and $516 thousand at September 30, ~~2019, compared to $1.2 million at~~2020 and December 31, ~~2018.~~2019, respectively. During the nine months ended September 30, ~~2019,~~2020, other real estate owned increased $8.1 million related to the commercial real estate loan discussed above. This increase was offset by a ~~commercial~~$300 thousand write-down on one property based on an agreement of sale that is expected to be sold in the fourth quarter of 2020. In addition, a residential real estate property with a carrying value of ~~$654~~$71 thousand was sold for a ~~loss of $55 thousand and two parcels of land with a carrying value of $44 thousand were sold for a~~ gain of ~~$27~~$4 thousand.

~~Reserve for Loan and Lease Losses~~

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

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

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve for these off-balance sheet credits was $421 thousand and $426 thousand at September 30, 2019 and December 31, 2018, respectively.

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

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


(Dollars in thousands)	(Dollars in thousands)	At September 30, 2019			At December 31, 2018			(Dollars in thousands)	At September 30, 2020			At December 31, 2019
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:								Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:

Loans held for investment:								Loans held for investment:
Commercial, financial and agricultural	Commercial, financial and agricultural	$	2,233		$	3,365		Commercial, financial and agricultural	$	3,809		$	3,442
Real estate—commercial	Real estate—commercial	28,024			18,214			Real estate—commercial	20,464			27,928
Real estate—construction	Real estate—construction	256			106			Real estate—construction	—			257
Real estate—residential	Real estate—residential	6,353			4,353			Real estate—residential	5,494			6,445
Loans to individuals		2			—

Lease financings	Lease financings	500			170			Lease financings	252			506
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	37,368			26,208			Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	30,019			38,578
Accruing troubled debt restructured loans and lease modifications not included in the above	Accruing troubled debt restructured loans and lease modifications not included in the above	54			542			Accruing troubled debt restructured loans and lease modifications not included in the above	53			54
Accruing loans and leases 90 days or more past due:	Accruing loans and leases 90 days or more past due:							Accruing loans and leases 90 days or more past due:

Commercial, financial and agricultural								Commercial, financial and agricultural	27			20
Real estate—commercial	Real estate—commercial	760			—			Real estate—commercial	1,539			—

Real estate—residential	Real estate—residential	1,109			—			Real estate—residential	1,255			—
Loans to individuals	Loans to individuals	129			55			Loans to individuals	23			74
Lease financings	Lease financings	490			137			Lease financings	729			49
Total accruing loans and leases, 90 days or more past due	Total accruing loans and leases, 90 days or more past due	2,488			192			Total accruing loans and leases, 90 days or more past due	3,573			143
Total nonperforming loans and leases	Total nonperforming loans and leases	39,910			26,942			Total nonperforming loans and leases	33,645			38,775
Other real estate owned	Other real estate owned	495			1,187			Other real estate owned	8,270			516
Total nonperforming assets	Total nonperforming assets	$	40,405		$	28,129		Total nonperforming assets	$	41,915		$	39,291
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.88		%	0.65		%	Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.58		%	0.88		%
Nonperforming loans and leases / loans and leases held for investment	Nonperforming loans and leases / loans and leases held for investment	0.94		%	0.67		%	Nonperforming loans and leases / loans and leases held for investment	0.65		%	0.88		%
Nonperforming assets / total assets	Nonperforming assets / total assets	0.75		%	0.56		%	Nonperforming assets / total assets	0.66		%	0.73		%

Allowance for loan and lease losses		$	33,662		$	29,364
Allowance for loan and lease losses / loans and leases held for investment		0.79		%	0.73		%
Allowance for loan and lease losses / loans and leases held for investment (excluding acquired loans at period-end)		0.85		%	0.81		%
Allowance for loan and lease losses / nonaccrual loans and leases held for investment		90.08		%	112.04		%
Allowance for loan and lease losses / nonperforming loans and leases held for investment		84.34		%	108.99		%
Acquired credit impaired loans		$	568		$	695
Allowance for credit losses, loans and leases								Allowance for credit losses, loans and leases	$	91,870		$	35,331
Allowance for credit losses, loans and leases / loans and leases held for investment								Allowance for credit losses, loans and leases / loans and leases held for investment	1.76		%	0.81		%
Allowance for credit losses, loans and leases / nonaccrual loans and leases held for investment								Allowance for credit losses, loans and leases / nonaccrual loans and leases held for investment	306.04		%	91.58		%
Allowance for credit losses, loans and leases / nonperforming loans and leases held for investment								Allowance for credit losses, loans and leases / nonperforming loans and leases held for investment	273.06		%	91.12		%

Nonperforming loans and leases and acquired credit impaired loans / loans and leases held for investment		0.95		%	0.69		%
Nonperforming assets and acquired credit impaired loans / total assets		0.77		%	0.58		%
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	2,305		$	1,284		* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	14,206		$	13,817

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


(Dollars in thousands)	(Dollars in thousands)	At September 30, 2019		At December 31, 2018		(Dollars in thousands)	At September 30, 2020		At December 31, 2019
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	37,368	$	26,208	Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	30,019	$	38,578
Nonaccrual loans and leases with partial charge-offs	Nonaccrual loans and leases with partial charge-offs	2,052		2,210		Nonaccrual loans and leases with partial charge-offs	3,435		1,966
Life-to-date partial charge-offs on nonaccrual loans and leases	Life-to-date partial charge-offs on nonaccrual loans and leases	1,428		1,320		Life-to-date partial charge-offs on nonaccrual loans and leases	1,958		1,320
Specific reserves on impaired loans		2,444		1,415
Specific reserves on individually analyzed loans						Specific reserves on individually analyzed loans	1,092		2,108

The Corporation modified certain loans and leases via principal and/or interest deferrals 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 have not categorized these modifications as troubled debt restructurings. As of October 16, 2020, there were approximately 165 loan and lease modifications outstanding with principal balances totaling $191.0 million. As of June 30, 2020, there were approximately 1,420 loan and lease modifications outstanding with principal balances totaling $720.1 million.

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 September 30, 2020:


(Dollars in thousands)	As of September 30, 2020								As of October 16, 2020
Industry Description	Total Outstanding Balance (excl PPP)		% of Commercial Loan Portfolio		PPP $ (1)		% of Portfolio with PPP Loans (2)		$ Balance of Modified Loans (3)		Modified Loans as a % of Portfolio (3) (4)
CRE - Retail	$	295,654	7.6	%	$	239	—	%	$	45,121	15.3	%
Animal Production	252,752		6.5		706		2.0		135		0.1
CRE - Office	240,521		6.2		—		—		1,702		0.7
CRE - 1-4 Family Residential Investment	237,378		6.1		1,282		0.2		212		0.1
CRE - Multi-family	204,488		5.3		—		—		1,281		0.6
Real Estate Lenders, Secondary Market Financing	189,743		4.9		4,318		27.8		—		—
Hotels & Motels (Accommodation)	175,894		4.5		2,407		49.6		56,288		32.0
Nursing and Residential Care Facilities	160,238		4.1		7,935		26.4		—		—
CRE - Industrial / Warehouse	158,356		4.1		139		3.8		—		—
CRE - Mixed-Use - Residential	111,613		2.9		—		—		15,440		13.8
Specialty Trade Contractors	111,201		2.9		67,508		14.3		—		—
Professional, Scientific, and Technical Services	93,463		2.4		70,163		29.4		63		0.1
CRE - Medical Office	88,557		2.3		—		—		9,864		11.1
Homebuilding (tract developers, remodelers)	85,177		2.2		15,049		5.2		—		—
Education	77,676		2.0		15,577		26.7		1,071		1.4
Merchant Wholesalers, Durable Goods	73,251		1.9		20,726		22.9		—		—
Fabricated Metal Product Manufacturing	65,549		1.7		12,860		3.5		—		—
Crop Production	62,689		1.6		289		0.5		—		—
Motor Vehicle and Parts Dealers	61,306		1.6		11,623		2.9		—		—
Food Services and Drinking Places	59,261		1.5		15,998		25.7		1,298		2.2
Administrative and Support Services	55,217		1.4		28,943		32.9		—		—
Industries with >$50 million in outstandings	$	2,859,984	73.7	%	$	275,762	11.1	%	$	132,475	4.6	%
Industries with <$50 million in outstandings	$	1,015,850	26.3	%	$	225,818	17.3	%	$	33,566	3.3	%
Total Commercial Loans	$	3,875,834	100.0	%	$	501,580	12.7	%	$	166,041	4.3	%

Consumer Loans and Lease Financings	Total Outstanding Balance				PPP $ (1)				$ Balance of Modified Loans (3)		Modified Loans as a % of Portfolio (3) (4)
Real Estate-Residential Secured for Personal Purpose	$	474,688			—				$	22,937	4.8	%
Real Estate-Home Equity Secured for Personal Purpose	172,448				—				1,633		0.9
Loans to Individuals	27,771				—				184		0.7
Lease Financings	159,535				—				232		0.1
Total Consumer Loans and Lease Financings	$	834,442			$	—			$	24,986	3.0	%

Total	$	4,710,276			$	501,580			$	191,027	4.1	%

(1) Includes ($9.5) million of net deferred fees.

(2) Represents weighted average percent of the portfolio which received a PPP loan.

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(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 as of October 16, 2020.

(4) Balance of modified loans as of October 16, 2020 as a percentage of portfolio loans at September 30, 2020.

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 ~~$955 thousand~~$1.1 million and ~~$812~~$955 thousand for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The amortization of intangible assets was ~~$2.5~~$3.3 million and ~~$2.6~~$2.5 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The Corporation also has goodwill with a net carrying value of $172.6 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, which is deemed to be an indefinite intangible asset and is not amortized. The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the nine months ended September 30, ~~2019~~2020 and ~~2018. Since the last annual impairment analysis during 2018, there have been no circumstances to indicate impairment.~~2019. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Liabilities

The following table presents liabilities at the dates indicated:


(Dollars in thousands)	(Dollars in thousands)	At September 30, 2019		At December 31, 2018		Change							(Dollars in thousands)	At September 30, 2020		At December 31, 2019		Change
																				At December 31, 2019	Amount	Percent
Deposits	Deposits	$	4,337,991	$	3,885,933	$	452,058	11.6	%	Deposits	$	5,211,603		$	4,360,075	$	851,528
Short-term borrowings	Short-term borrowings	18,970		189,768		(170,798)		(90.0)		Short-term borrowings	17,681			18,680		(999)		(5.3)
Long-term debt	Long-term debt	160,128		145,330		14,798		10.2		Long-term debt	205,010			150,098		54,912		36.6
Subordinated notes	Subordinated notes	94,757		94,574		183		0.2		Subordinated notes	193,413			94,818		98,595		NM
Operating lease liabilities	Operating lease liabilities	38,116		—		38,116		N/M		Operating lease liabilities	37,891			37,617		274		0.7
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	39,350		44,609		(5,259)		(11.8)		Accrued interest payable and other liabilities	48,126			44,514		3,612		8.1
Total liabilities	Total liabilities	$	4,689,312	$	4,360,214	$	329,098	7.5	%	Total liabilities	$	5,713,724		$	4,705,802	$	1,007,922	21.4	%

Deposits

Total deposits increased ~~$452.1~~$851.5 million, or ~~11.6%~~19.5%, from December 31, ~~2018,~~2019, primarily due to increases in commercial and consumer deposits.

Borrowings

Total borrowings increased $152.5 million, or 57.9%, from December 31, 2019. Long-term borrowings increased $54.9 million primarily due to an increase in ~~public funds deposits~~long-term FHLB borrowings to fund future loan growth. Subordinated notes increased from the issuance of ~~$368.1~~$100.0 million aggregate principal amount fixed-to-floating rate subordinated notes on August 5, 2020. Refer to Note 7 for further discussion on the issuance of the 2020 Notes.

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 $3.0 million and ~~increases in commercial~~$420 thousand at September 30, 2020 and ~~consumer deposits. The growth in public funds resulted from seasonal increases and new customer relationships.~~

~~Borrowings~~

~~Total borrowings decreased $155.8 million, or 36.3%, from~~ December 31, ~~2018, primarily due~~2019. Refer to ~~a decrease in short-term borrowings~~the Executive Overview for discussion of ~~$170.8~~the increase of $2.6 million. ~~The increase in deposits reduced the need to borrow short-term funds.~~

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Shareholders’ Equity

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


(Dollars in thousands)	(Dollars in thousands)	At September 30, 2019		At December 31, 2018		Change							(Dollars in thousands)	At September 30, 2020		At December 31, 2019		Change
																				At December 31, 2019	Amount	Percent
Common stock	Common stock	$	157,784	$	157,784	$	—	N/M	%	Common stock	$	157,784		$	157,784	$	—
Additional paid-in capital	Additional paid-in capital	294,556		292,401		2,155		0.7		Additional paid-in capital	296,599			294,999		1,600		0.5
Retained earnings	Retained earnings	279,158		248,167		30,991		12.5		Retained earnings	281,026			288,803		(7,777)		(2.7)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(22,008)		(28,416)		6,408		22.6		Accumulated other comprehensive loss	(19,100)			(21,730)		2,630		(12.1)
Treasury stock	Treasury stock	(45,191)		(45,803)		612		1.3		Treasury stock	(47,202)			(44,734)		(2,468)		5.5
Total shareholders’ equity	Total shareholders’ equity	$	664,299	$	624,133	$	40,166	6.4	%	Total shareholders’ equity	$	669,107		$	675,122	$	(6,015)	(0.9	%)

~~The increase in~~Total shareholders' equity ~~at September 30, 2019 of $40.2~~decreased $6.0 million, or ~~6.4%~~0.9%, from December 31, ~~2018 was primarily related to an increase in retained earnings of $31.0 million.~~2019. Retained earnings at September 30, ~~2019 was impacted~~2020 decreased by $7.8 million primarily due to a $11.3 million decrease upon adoption of CECL and a $17.5 million decrease due to cash dividends declared, partially offset by net income of $21.0 million for the nine months ~~of net income of $50.2 million partially offset by the related adjustments to the January 1, 2019 adoption of ASU No. 2016-02 of $1.5 million and cash dividends declared of $17.6 million.~~ended September 30, 2020. Accumulated other comprehensive loss decreased by ~~$6.4~~$2.6 million mainly attributable to increases in the fair value of available-for-sale investment securities of ~~$6.2~~$2.2 million, net of tax. Treasury stock increased $2.5 million from December 31, 2019 primarily related to repurchases of $4.4 million of stock offset by $2.0 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.

The Banking segment reported pre-tax income of ~~$19.9~~$22.7 million and ~~$17.7~~$19.9 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively and ~~$57.1~~pre-tax income of $22.2 million and ~~$34.4~~$57.1 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. See the section of this MD&A under the ~~heading~~headings “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for ~~Loan and Lease~~Credit Losses” for a discussion of the Banking Segment.

The Wealth Management segment reported pre-tax income of $2.0 million for the three months ended September 30, 2020 and ~~$1.7~~2019, and $5.4 million and $5.8 million for the nine months ended September 30, 2020 and 2019, respectively. Noninterest income was $6.0 million for the three months ended September 30, 2020 and 2019, and ~~2018, respectively, and $5.8~~$17.7 million and ~~$5.3~~$17.9 million for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively. ~~Noninterest~~The decrease in noninterest income ~~was $6.0 million and $5.8 million for the three months ended September 30, 2019 and 2018, respectively, and $17.9 million and $17.4 million~~ for the nine months ended September 30, ~~2019 and 2018, respectively. The increase in pre-tax income and noninterest income for~~2020 compared to the ~~three and~~ nine months ended September 30, 2019 ~~compared to the three and nine months ended September 30, 2018~~ was primarily due to a ~~shift~~decline in the ~~composition~~value of assets under management and supervision, ~~from trust portfolio assets with lower earnings yield to~~as a majority of investment advisory ~~portfolio~~fees are billed based on the prior quarter-end assets ~~with higher earnings yield.~~under management and supervision balance. Assets under management and supervision were $3.6 billion as of September 30, 2020 and 2019, ~~$3.3~~$3.6 billion and $3.7 billion as of June 30, 2020 and 2019, respectively, and $3.8 billion as of December 31, ~~2018~~2019. The decrease in assets under management and ~~$3.6 billion as~~supervision of $44.1 million for the period from December 31, 2019 to September 30, ~~2019.~~2020 was primarily due to the general downturn in the equity markets driven by the impact of COVID-19.

The Insurance segment reported pre-tax income of ~~$853~~$822 thousand and ~~$520~~$853 thousand for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$3.7~~$3.5 million and ~~$2.6~~$3.7 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Noninterest income was ~~$4.0~~$3.9 million and ~~$3.8~~$4.0 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$13.5~~$13.0 million and ~~$12.8~~$13.5 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in pre-tax income and ~~2018, respectively. Noninterest~~noninterest income increased primarily due to an increase in contingent commission income for the three and nine months ended September 30, 2019 as well as an increase in commercial lines and group life and health premiums for the nine months ended September 30, ~~2019.~~2020 was primarily due to a decrease in contingent commission income, which was $1.4 million and $1.7 million for the nine months ended September 30, 2020 and 2019, respectively.

Capital Adequacy

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

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Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios ~~(set~~as set forth in the following ~~table)~~table. To comply with the regulatory definition of ~~Total~~well capitalized, a depository institution must maintain minimum capital ~~Tier 1 capital~~amounts and ~~Tier 1 common capital (as defined~~ratios as set forth in the ~~regulations) to risk-weighted assets (as defined), and~~following table.

Table of ~~Tier 1 capital (as defined) to average assets (as defined), or leverage ratio.~~Contents

Under current rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, which ~~require~~requires 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, June 30, 2019 and~~ September 30, ~~2019.~~2020.

Table 4—5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 under regulatory capital rules were as follows.


		Actual						For Capital Adequacy Purposes								To Be Well-Capitalized Under Prompt Corrective Action Provisions					Actual				For Capital Adequacy Purposes		To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
At September 30, 2019
At September 30, 2020														At September 30, 2020
Total Capital (to Risk-Weighted Assets):	Total Capital (to Risk-Weighted Assets):													Total Capital (to Risk-Weighted Assets):
Corporation	Corporation	$	642,396	13.81	%	$	372,212	8.00	%	$	465,266	10.00	%	Corporation	$	786,638	15.35	%	$	409,867	8.00	%	$	512,334	10.00	%
Bank	Bank	541,735		11.70		370,573		8.00		463,216		10.00		Bank	608,871		11.94		408,080		8.00		510,100		10.00
Tier 1 Capital (to Risk-Weighted Assets):	Tier 1 Capital (to Risk-Weighted Assets):													Tier 1 Capital (to Risk-Weighted Assets):
Corporation	Corporation	513,253		11.03		279,159		6.00		372,212		8.00		Corporation	539,115		10.52		307,400		6.00		409,867		8.00
Bank	Bank	507,349		10.95		277,930		6.00		370,573		8.00		Bank	545,037		10.68		306,060		6.00		408,080		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):	Tier 1 Common Capital (to Risk-Weighted Assets):													Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	Corporation	513,253		11.03		209,370		4.50		302,423		6.50		Corporation	539,115		10.52		230,550		4.50		333,017		6.50
Bank	Bank	507,349		10.95		208,447		4.50		301,091		6.50		Bank	545,037		10.68		229,545		4.50		331,565		6.50
Tier 1 Capital (to Average Assets):	Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Corporation	Corporation	513,253		9.97		206,021		4.00		257,526		5.00		Corporation	539,115		8.97		240,383		4.00		300,478		5.00
Bank	Bank	507,349		9.89		205,208		4.00		256,510		5.00		Bank	545,037		9.10		239,674		4.00		299,592		5.00
At December 31, 2018
At December 31, 2019														At December 31, 2019
Total Capital (to Risk-Weighted Assets):	Total Capital (to Risk-Weighted Assets):													Total Capital (to Risk-Weighted Assets):
Corporation	Corporation	$	604,213	13.70	%	$	352,764	8.00	%	$	440,955	10.00	%	Corporation	$	655,010	13.78	%	$	380,276	8.00	%	$	475,344	10.00	%
Bank	Bank	506,728		11.54		351,220		8.00		439,026		10.00		Bank	552,142		11.66		378,724		8.00		473,405		10.00
Tier 1 Capital (to Risk-Weighted Assets):	Tier 1 Capital (to Risk-Weighted Assets):													Tier 1 Capital (to Risk-Weighted Assets):
Corporation	Corporation	479,550		10.88		264,573		6.00		352,764		8.00		Corporation	524,137		11.03		285,207		6.00		380,276		8.00
Bank	Bank	476,639		10.86		263,415		6.00		351,220		8.00		Bank	516,087		10.90		284,043		6.00		378,724		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):	Tier 1 Common Capital (to Risk-Weighted Assets):													Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	Corporation	479,550		10.88		198,430		4.50		286,621		6.50		Corporation	524,137		11.03		213,905		4.50		308,974		6.50
Bank	Bank	476,639		10.86		197,561		4.50		285,367		6.50		Bank	516,087		10.90		213,032		4.50		307,713		6.50
Tier 1 Capital (to Average Assets):	Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Corporation	Corporation	479,550		10.13		189,374		4.00		236,718		5.00		Corporation	524,137		10.02		209,330		4.00		261,663		5.00
Bank	Bank	476,639		10.12		188,487		4.00		235,609		5.00		Bank	516,087		9.90		208,589		4.00		260,737		5.00

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. The Corporation, like other bank holding companies, currently is required to maintain Tier 1 capital and Total capital equal to at least 6.0% and 8.0%, respectively, of total risk-weighted assets (including various off-balance-sheet items). The Bank, like other depository institutions, is required to maintain similar capital levels under capital adequacy guidelines. For a depository institution to be considered “well capitalized” under the regulatory

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~~framework for prompt corrective action, Tier 1 and Total capital ratios must be at least 8.0% and 10.0% on a risk-adjusted basis, respectively.~~ At September 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 of ASU No. 2016-02 had and will continue to have a negative impact on all Corporation and Bank regulatory capital ratios. The Corporation will continue to analyze the impact of new accounting rules, such as CECL (ASU No. 2016-13) on its regulatory capital ratios.

In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as of the beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts ~~would be~~are calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the

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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 in~~2020 CECL IFR allows Corporations that adopt CECL before December 31, 2020 to defer 100 percent of the ~~first reporting period that~~day 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 ~~flow~~flows and liquid assets are available to satisfy demand for loans, deposit withdrawals, repayment of borrowings and certificates of deposit at maturity, operating expense, and capital expenditures. The Corporation manages liquidity risk by measuring and monitoring liquidity sources and estimated funding needs on a daily basis. The Corporation has a contingency funding plan in place to address liquidity needs in the event of an institution-specific or a systemic financial crisis.

Sources of Funds

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

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

The Corporation, through the Bank, has a credit facility with the FHLB with a maximum borrowing capacity of approximately $1.8 billion. At September 30, 2019 and December 31, 2018, the carrying amount of overnight borrowings with the FHLB was $0 and $108.3 million, respectively. At September 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 September 30, 2019 and December 31, 2018, the Bank had outstanding short-term letters of credit with the FHLB totaling $692.8 million and $347.5

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million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.

The Corporation, through the Bank, maintains uncommitted federal fund lines with several correspondent banks that totaled $504.0 million and $367.0 million at September 30, 2019 and December 31, 2018, respectively. At September 30, 2019 and December 31, 2018, the Corporation had $0 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 has a $10.0 million committed line of credit with a correspondent bank. At September 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,

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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

~~Regulatory Capital Rule: Simplifications~~

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 ~~Capital Rule Pursuant~~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 ~~Economic Growth~~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 ~~Regulatory Paperwork Reduction Act of 1996~~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.

~~On July 9, 2019, the~~ federal banking agencies issued a final rule to simplify certain aspects of regulatory capital rules for non-advanced approaches institutions. The rule increases common equity tier 1 capital threshold deductions from 10% to 25% for mortgage servicing assets, deferred tax assets arising from temporary differences, and investments in the capital of unconsolidated financial institutions. The rule also removes the aggregate 15% common equity tier 1 capital threshold deduction for mortgage servicing assets, deferred tax assets, and significant investments in the capital of unconsolidated financial institutions. In addition, the ~~rule simplifies~~statement noted that efforts to work with borrowers of one- to-four family residential mortgages, where the ~~determination~~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 amount of minority interests includable in regulatory capital and retains the 250% risk weight for non-deducted amounts of mortgage servicing assets and temporary difference deferred tax assets. The rule takes effect April 1, 2020 for the threshold deductions and minority interests. The Corporation does not expect that the rule changes will materially impact the Bank's and Corporation’s capital calculations.deferral.

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

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

~~On April 2, 2019,~~•Allowing institutions not to characterize loan modifications relating to the ~~SEC issued Release No. 33-10618; 34-85381, "FAST Act Modernization~~COVID-19 pandemic as a troubled debt restructuring and ~~Simplification~~also allowing them to suspend the corresponding impairment determination for accounting purposes.

•An option to delay the implementation of ~~Regulation S-K." The amendments under this rule modernize and simplify certain disclosure requirements in a manner~~the accounting standard for current expected credit losses (CECL) until the earlier of December 31, 2020 or when the President declares that ~~reduces~~ the costs and burdens on registrants while continuing to provide material information to investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. The amendments were effective on May 2, 2019, except for specific amendments that are effective after May 2, 2019 as cited in the rule. The Corporation provided the additional disclosures on the Form 10-Q cover page for the quarter ended March 31, 2019. The Corporation continues to analyze the amended disclosure requirements under this rule which have not become effective, but does not believe that such changes will materially impact the Corporation’s disclosures.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

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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 9, 2020, the Federal Reserve Board created the Paycheck Protection Program Lending Facility (the “Facility”) to facilitate lending by eligible borrowers to small businesses under the Paycheck Protection Program. Under the Facility, the Federal Reserve Banks will lend to depository institutions that originated PPP loans on a non-recourse basis, taking the PPP Loans as collateral. Only PPP loans guaranteed by the SBA are eligible to serve as collateral for the Facility. The maturity date of an extension of credit under the Facility will equal the maturity date of the PPP Loan pledged to secure the extension of credit. The maturity date of the Facility’s extension of credit will be accelerated if the underlying PPP Loan goes into default and the eligible borrower sells the PPP Loan to the SBA to realize on the SBA guarantee. The maturity date of the Facility’s extension of credit also will be accelerated to the extent of any loan forgiveness reimbursement received by the eligible borrower from the SBA. Extensions of credit under the Facility will be made at a rate of 35 basis points. There are no fees associated with the Facility. The principal amount of an extension of credit under the Facility will be equal to the principal amount of the PPP Loan pledged as collateral to secure the extension of credit.

The Paycheck Protection Program and Health Care Enhancement Act

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

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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

No material changes in the Corporation’s market risk occurred during the current period. A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 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’s~~Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended September 30, ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes in risk factors applicable to the Corporation from those disclosed ~~under~~in "Risk Factors" in Item 1A ~~“Risk Factors” in~~of the ~~Corporation’s~~Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

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

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

ISSUER PURCHASES OF EQUITY SECURITIES

Period

Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs

July 1 – 31, ~~2019~~2020

—

~~864,246~~679,174

August 1 – 31, ~~2019~~2020

—

~~864,246~~679,174

September 1 – 30, ~~2019~~2020

—

~~864,246~~679,174

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~~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. Share repurchased pursuant to these plans during the three months ended September 30, ~~2019~~2020 were as follows:

Period Total Number of Shares Purchased Average Price Paid per Share
July 1 – 31, 2019 3,351 $ 26.14
August 1 – 31, 2019 — —
September 1 – 30, 2019 — —
Total 3,351 $ 26.14


Period	Total Number of Shares Purchased	Average Price Paid per Share
July 1 – 31, 2020	—	$	—
August 1 – 31, 2020	—	—
September 1 – 30, 2020	—	—
Total	—	$	—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

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 ~~31.1~~ 4.1

Indenture, dated August 5, 2020, between Univest Financial Corporation and U.S. Bank National Association, as trustee, is incorporated herein by reference to Exhibit 4.1 of Form 8-K, filed with the SEC on August 5, 2020.

Exhibit 4.2

First Supplemental Indenture, dated August 5, 2020, between Univest Financial Corporation and U.S. Bank National Association, as trustee, is incorporated herein by reference to Exhibit 4.2 of Form 8-K, filed with the SEC on August 5, 2020.

Exhibit 4.3

Form of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (included in Exhibit 4.2).

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 101

The following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 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 Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

Exhibit 104

The cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 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: November ~~1, 2019~~2, 2020			/s/ Jeffrey M. Schweitzer
			Jeffrey M. Schweitzer President and Chief Executive Officer (Principal Executive Officer)

Date: November ~~1, 2019~~2, 2020			/s/ Brian J. Richardson
			Brian J. Richardson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

7174


	At September 30, 2019
(Dollars in thousands)	Originated		Acquired		Total
Commercial, financial and agricultural	$	943,713	$	15,440	$	959,153
Real estate-commercial	1,736,904		191,946		1,928,850
Real estate-construction	221,845		—		221,845
Real estate-residential secured for business purpose	315,984		44,737		360,721
Real estate-residential secured for personal purpose	388,643		43,545		432,188
Real estate-home equity secured for personal purpose	170,486		7,168		177,654
Loans to individuals	30,575		140		30,715
Lease financings	140,807		—		140,807
Total loans and leases held for investment, net of deferred income	$	3,948,957	$	302,976	$	4,251,933
Imputed interest on lease financings, included in the above table	$	(15,369)	$	—	$	(15,369)
Net deferred costs, included in the above table	6,243		—		6,243
Overdraft deposits included in the above table	149		—		149


(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 September 30, 2019
Reserve for loan and lease losses:
Beginning balance	$	9,129	$	15,478	$	2,478	$	3,518	$	481	$	1,241	$	275	$	32,600
Charge-offs	(283)		(251)		—		(183)		(73)		(54)		N/A		(844)
Recoveries	182		1		98		4		20		71		N/A		376
Provision (recovery of provision)	222		593		103		273		47		(24)		310		1,524
Provision for acquired credit impaired loans	—		—		6		—		—		—		—		6
Ending balance	$	9,250	$	15,821	$	2,685	$	3,612	$	475	$	1,234	$	585	$	33,662
Three Months Ended September 30, 2018
Reserve for loan and lease losses:
Beginning balance	$	7,258	$	12,327	$	2,004	$	2,494	$	447	$	1,071	$	51	$	25,652
Charge-offs	(904)		—		(30)		—		(82)		(123)		N/A		(1,139)
Recoveries	22		1		8		6		25		51		N/A		113
Provision	813		906		72		527		82		138		206		2,744
Provision for acquired credit impaired loans	—		—		—		1		—		—		—		1
Ending balance	$	7,189	$	13,234	$	2,054	$	3,028	$	472	$	1,137	$	257	$	27,371
Nine Months Ended September 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	(1,769)		(325)		—		(198)		(209)		(268)		N/A		(2,769)
Recoveries	283		92		108		16		58		219		N/A		776
Provision (recovery of provision)	2,753		2,151		335		594		142		(5)		314		6,284
Provision for acquired credit impaired loans	—		—		6		1		—		—		—		7
Ending balance	$	9,250	$	15,821	$	2,685	$	3,612	$	475	$	1,234	$	585	$	33,662
Nine Months Ended September 30, 2018
Reserve for loan and lease losses:
Beginning balance	$	6,742	$	9,839	$	1,661	$	1,754	$	373	$	1,132	$	54	$	21,555
Charge-offs	(14,553)		(40)		(30)		—		(253)		(428)		N/A		(15,304)
Recoveries	271		74		266		71		71		160		N/A		913
Provision	14,729		3,361		157		1,201		281		273		203		20,205
Provision for acquired credit impaired loans	—		—		—		2		—		—		—		2
Ending balance	$	7,189	$	13,234	$	2,054	$	3,028	$	472	$	1,137	$	257	$	27,371




Total impaired loans:


Commercial, financial and agricultural	$	2,233	$	2,845	$	390	$	3,747	$	4,385	$	413
Real estate—commercial real estate	28,024		29,713		1,485		18,215		19,678		675
Real estate—construction	256		261		—		106		111		—
Real estate—residential secured for business purpose	2,887		3,073		414		1,478		1,660		—
Real estate—residential secured for personal purpose	2,087		2,285		155		1,587		1,635		252
Real estate—home equity secured for personal purpose	1,433		1,524		—		1,448		1,479		75
Loans to individuals	2		2		—		—		—		—
Total impaired loans	$	36,922	$	39,703	$	2,444	$	26,581	$	28,948	$	1,415