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 ~~March 31,~~September 30, 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						~~29,187,293~~29,267,112
(Title of Class)						(Number of shares outstanding at ~~April~~October 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 ~~March 31,~~September 30, 2020 and December 31, 2019

Condensed Consolidated Statements of Income for the Three and Nine Months Ended ~~March~~ September 31 30 , 20 20 and 2019

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended ~~Marc~~hSeptember 3 10 , 20 20 and 2019

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

~~Condensed Consolidated Statements of Cash Flows for the~~ ~~Three~~Nine Months Ended ~~March~~September 3 10 , 20 20 and 2019

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

Notes to Condensed Consolidated Financial Statements

710

Item 2.

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

4452

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

6171

Item 4.

Controls and Procedures

Part II.

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

6372

Item 3.

Defaults Upon Senior Securities

6372

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 March 31, 2020		At December 31, 2019		(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	$	49,008	$	50,571	Cash and due from banks	$	64,537		$	50,571
Interest-earning deposits with other banks	Interest-earning deposits with other banks	133,894		74,557		Interest-earning deposits with other banks	323,139			74,557
Cash and cash equivalents	Cash and cash equivalents	182,902		125,128		Cash and cash equivalents	387,676			125,128

Investment securities held-to-maturity (fair value $229,552 and $194,886 at March 31, 2020 and December 31, 2019, respectively)		222,389		192,052
Investment securities available-for-sale (amortized cost $208,636, net of allowance for credit losses of $897 at March 31, 2020)		198,886		246,924
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	2,246		2,623		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	28,465		28,254		Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	29,723			28,254
Loans held for sale	Loans held for sale	11,417		5,504		Loans held for sale	14,465			5,504
Loans and leases held for investment	Loans and leases held for investment	4,448,825		4,386,836		Loans and leases held for investment	5,211,856			4,386,836
Less: Reserve for credit losses, loans and leases		(68,216)		(35,331)
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	4,380,609		4,351,505		Net loans and leases held for investment	5,119,986			4,351,505
Premises and equipment, net	Premises and equipment, net	55,789		56,676		Premises and equipment, net	55,410			56,676
Operating lease right-of-use assets	Operating lease right-of-use assets	34,679		34,418		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	9,773		10,284		Other intangibles, net of accumulated amortization	9,015			10,284
Bank owned life insurance	Bank owned life insurance	115,512		114,778		Bank owned life insurance	116,985			114,778

Accrued interest receivable and other assets	Accrued interest receivable and other assets	49,542		40,219		Accrued interest receivable and other assets	73,609			40,219
Total assets	Total assets	$	5,464,768	$	5,380,924	Total assets	$	6,382,831		$	5,380,924
LIABILITIES	LIABILITIES					LIABILITIES
Noninterest-bearing deposits	Noninterest-bearing deposits	$	1,318,270	$	1,279,681	Noninterest-bearing deposits	$	1,714,505		$	1,279,681
Interest-bearing deposits:	Interest-bearing deposits:					Interest-bearing deposits:
Demand deposits	Demand deposits	1,615,979		1,677,682		Demand deposits	2,055,164			1,677,682
Savings deposits	Savings deposits	836,042		796,702		Savings deposits	885,715			796,702
Time deposits	Time deposits	637,012		606,010		Time deposits	556,219			606,010
Total deposits	Total deposits	4,407,303		4,360,075		Total deposits	5,211,603			4,360,075
Short-term borrowings	Short-term borrowings	18,415		18,680		Short-term borrowings	17,681			18,680
Long-term debt	Long-term debt	210,069		150,098		Long-term debt	205,010			150,098
Subordinated notes	Subordinated notes	94,879		94,818		Subordinated notes	193,413			94,818
Operating lease liabilities	Operating lease liabilities	37,919		37,617		Operating lease liabilities	37,891			37,617
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	44,632		44,514		Accrued interest payable and other liabilities	48,126			44,514
Total liabilities	Total liabilities	4,813,217		4,705,802		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 March 31, 2020 and December 31, 2019; 31,556,799 shares issued at March 31, 2020 and December 31, 2019; 29,164,782 and 29,334,629 shares outstanding at March 31, 2020 and December 31, 2019, respectively		157,784		157,784
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	295,439		294,999		Additional paid-in capital	296,599			294,999
Retained earnings	Retained earnings	272,478		288,803		Retained earnings	281,026			288,803
Accumulated other comprehensive loss, net of tax benefit	Accumulated other comprehensive loss, net of tax benefit	(25,628)		(21,730)		Accumulated other comprehensive loss, net of tax benefit	(19,100)			(21,730)
Treasury stock, at cost; 2,392,017 and 2,222,170 shares at March 31, 2020 and December 31, 2019, respectively		(48,522)		(44,734)
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	651,551		675,122		Total shareholders’ equity	669,107			675,122
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,464,768	$	5,380,924	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								Three Months Ended				Nine Months Ended
		March 31,								September 30,				September 30,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2020		2019		(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	$	45,561	$	45,682	Taxable	$	46,039		$	46,933	$	136,357	$	139,766
Exempt from federal income taxes	Exempt from federal income taxes	2,661		2,683		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	48,222		48,365		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	2,705		2,713		Taxable	1,646			2,581		6,569		7,939
Exempt from federal income taxes	Exempt from federal income taxes	240		431		Exempt from federal income taxes	137			315		573		1,147
Interest on deposits with other banks	Interest on deposits with other banks	325		269		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	527		586		Interest and dividends on other earning assets	419			519		1,308		1,640
Total interest income	Total interest income	52,019		52,364		Total interest income	50,612			54,300		152,611		160,724
Interest expense	Interest expense					Interest expense
Interest on deposits	Interest on deposits	7,406		8,203		Interest on deposits	4,028			9,434		15,806		26,748
Interest on short-term borrowings	Interest on short-term borrowings	106		638		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	2,039		2,000		Interest on long-term debt and subordinated notes	2,633			2,127		6,640		6,224
Total interest expense	Total interest expense	9,551		10,841		Total interest expense	6,758			11,655		22,771		33,921
Net interest income	Net interest income	42,468		41,523		Net interest income	43,854			42,645		129,840		126,803
Provision for credit losses	Provision for credit losses	21,049		2,685		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	21,419		38,838		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	1,890		1,887		Trust fee income	1,915			1,973		5,729		5,914
Service charges on deposit accounts	Service charges on deposit accounts	1,397		1,435		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	4,255		3,789		Investment advisory commission and fee income	4,005			4,032		11,800		11,876
Insurance commission and fee income	Insurance commission and fee income	4,732		5,144		Insurance commission and fee income	3,776			3,877		12,575		12,962
Other service fee income	Other service fee income	1,870		2,267		Other service fee income	2,093			2,255		5,451		7,112
Bank owned life insurance income	Bank owned life insurance income	734		952		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	695		1		Net gain on sales of investment securities	57			33		817		41
Net gain on mortgage banking activities	Net gain on mortgage banking activities	2,744		483		Net gain on mortgage banking activities	5,860			1,629		12,119		2,908

Other income	Other income	67		339		Other income	2,171			544		4,017		1,606
Total noninterest income	Total noninterest income	18,384		16,297		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	23,836		21,546		Salaries, benefits and commissions	24,059			22,758		69,595		66,356
Net occupancy	Net occupancy	2,574		2,611		Net occupancy	2,609			2,475		7,661		7,687
Equipment	Equipment	995		990		Equipment	972			1,088		2,890		3,143
Data processing	Data processing	2,760		2,514		Data processing	2,862			2,624		8,372		7,765
Professional fees	Professional fees	1,317		1,264		Professional fees	1,321			1,517		3,902		4,088
Marketing and advertising	Marketing and advertising	402		540		Marketing and advertising	463			558		1,400		1,884
Deposit insurance premiums	Deposit insurance premiums	504		452		Deposit insurance premiums	707			(444)		1,826		438
Intangible expenses	Intangible expenses	330		426		Intangible expenses	283			378		934		1,221

Other expense	Other expense	6,853		5,214		Other expense	5,251			5,313		16,684		16,028
Total noninterest expense	Total noninterest expense	39,571		35,557		Total noninterest expense	38,527			36,267		113,264		108,610
Income before income taxes	Income before income taxes	232		19,578		Income before income taxes	23,197			21,444		25,250		61,159
Income tax (benefit) expense		(606)		3,499
Income tax expense						Income tax expense	5,078			3,782		4,208		10,950
Net income	Net income	$	838	$	16,079	Net income	$	18,119		$	17,662	$	21,042	$	50,209
Net income per share:	Net income per share:					Net income per share:
Basic	Basic	$	0.03	$	0.55	Basic	$	0.62		$	0.60	$	0.72	$	1.71
Diluted	Diluted	0.03		0.55		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 March 31,
(Dollars in thousands) 2020 2019
Before
Tax
Amount Tax
Expense
(Benefit) Net of
Tax
Amount Before
Tax
Amount Tax
Expense
(Benefit) Net of
Tax
Amount
Income $ 232 $ (606) $ 838 $ 19,578 $ 3,499 $ 16,079
Other comprehensive loss:
Net unrealized (losses) gains on available-for-sale investment securities:
Net unrealized holding (losses) gains arising during the period (4,965) (1,042) (3,923) 5,120 1,075 4,045
Provision for credit losses 597 125 472 — — —
Less: reclassification adjustment for net gains on sales realized in net income (1) (695) (146) (549) (1) — (1)
Total net unrealized (losses) gains on available-for-sale investment securities (5,063) (1,063) (4,000) 5,119 1,075 4,044
Net unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period (497) (104) (393) (168) (36) (132)
Less: reclassification adjustment for net losses (gains) realized in net income (2) 29 6 23 (16) (3) (13)
Total net unrealized losses on interest rate swaps used in cash flow hedges (468) (98) (370) (184) (39) (145)
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3) 297 62 235 294 62 232
Accretion of prior service cost included in net periodic pension costs (3) — — — (45) (9) (36)
Total defined benefit pension plans 297 62 235 249 53 196
Other comprehensive (loss) income (5,234) (1,099) (4,135) 5,184 1,089 4,095
Total comprehensive (loss) income $ (5,002) $ (1,705) $ (3,297) $ 24,762 $ 4,588 $ 20,174


	Three Months Ended 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)	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 March 31, 2020
Balance at December 31, 2019 29,334,629 $ 157,784 $ 294,999 $ 288,803 $ (21,730) $ (44,734) $ 675,122
Adjustment to initially apply ASU No. 2016-13 for CECL (1) — — — (11,284) 237 — (11,047)
Net income — — — 838 — — 838
Other comprehensive loss, net of income tax benefit — — — — (4,135) — (4,135)
Cash dividends declared ($0.20 per share) — — — (5,866) — — (5,866)
Stock-based compensation — — 424 (13) — — 411
Stock issued under dividend reinvestment and employee stock purchase plans 26,045 — (49) — — 621 572
Vesting of restricted stock unit awards 17,035 — (346) — — 346 —
Exercise of stock options 5,000 — (7) — — 101 94
Cancellation of performance-based restricted stock awards (14,777) — 418 — — (418) —
Purchases of treasury stock (203,150) — — — — (4,438) (4,438)
Balance at March 31, 2020 29,164,782 $ 157,784 $ 295,439 $ 272,478 $ (25,628) $ (48,522) $ 651,551


(Dollars in thousands, except 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) Common
Shares
Outstanding Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Three Months Ended March 31, 2019
Balance at December 31, 2018 29,270,852 $ 157,784 $ 292,401 $ 248,167 $ (28,416) $ (45,803) $ 624,133
Adjustment to initially apply ASU No. 2016-02 for leases — — — (1,525) — — (1,525)
Adjustment to initially apply ASU No. 2017-12 for derivatives — — — (83) 83 — —
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities — — — (39) — — (39)
Net income — — — 16,079 — — 16,079
Other comprehensive income, net of income tax — — — — 4,095 — 4,095
Cash dividends declared ($0.20 per share) — — — (5,853) — — (5,853)
Stock-based compensation — — 574 — — — 574
Stock issued under dividend reinvestment and employee stock purchase plans 25,743 — 30 — — 541 571
Exercise of stock options 30,500 — (91) — — 612 521
Cancellations of performance-based restricted stock awards (17,349) — 341 — — (341) —
Purchases of treasury stock (37,244) — — — — (950) (950)
Balance at March 31, 2019 29,272,502 $ 157,784 $ 293,255 $ 256,746 $ (24,238) $ (45,941) $ 637,606


(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, 2019
Balance at June 30, 2019	29,294,942	$	157,784	$	293,947	$	267,357	$	(21,949)	$	(45,469)	$	651,670
Net income	—	0		0		17,662		0		0		17,662
Other comprehensive loss, net of income tax benefit	—	0		0		0		(59)		0		(59)
Cash dividends declared ($0.20 per share)	—	0		0		(5,861)		0		0		(5,861)
Stock-based compensation	—	0		640		0		0		0		640
Stock issued under dividend reinvestment and employee stock purchase plans	20,943	0		37		0		0		497		534

Exercise of stock options	19,045	0		(68)		0		0		382		314

Purchases of treasury stock	(22,396)	0		0		0		0		(601)		(601)
Balance at September 30, 2019	29,312,534	$	157,784	$	294,556	$	279,158	$	(22,008)	$	(45,191)	$	664,299

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(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, 2020
Balance at December 31, 2019	29,334,629	$	157,784	$	294,999	$	288,803	$	(21,730)	$	(44,734)	$	675,122
Adjustment to initially apply ASU No. 2016-13 for CECL (1)	—	0		0		(11,284)		237		0		(11,047)
Net income	—	0		0		21,042		0		0		21,042
Other comprehensive income, net of income tax	—	0		0		0		2,393		0		2,393
Cash dividends declared ($0.60 per share)	—	0		0		(17,522)		0		0		(17,522)
Stock-based compensation	—	0		1,733		(13)		0		0		1,720
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	17,035	0		(346)		0		0		346		0

Exercise of stock options	5,000	0		(7)		0		0		101		94
Cancellations of performance-based restricted stock awards	(14,777)	0		418		0		0		(418)		0
Purchases of treasury stock	(204,056)	0		0		0		0		(4,452)		(4,452)
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 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, 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 note to the unaudited condensed consolidated financial statements.

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UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three Months Ended March 31,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	838	$	16,079	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 credit losses	Provision for credit losses	21,049		2,685		Provision for credit losses	49,515		6,286
Depreciation of premises and equipment	Depreciation of premises and equipment	1,258		1,318		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	383		379		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	(695)		(1)		Net gain on sales of investment securities	(817)		(41)
Net gain on mortgage banking activities	Net gain on mortgage banking activities	(2,744)		(483)		Net gain on mortgage banking activities	(12,119)		(2,908)

Bank owned life insurance income	Bank owned life insurance income	(734)		(952)		Bank owned life insurance income	(2,207)		(2,438)
Stock-based compensation	Stock-based compensation	435		577		Stock-based compensation	1,853		1,918
Intangible expenses	Intangible expenses	330		426		Intangible expenses	934		1,221
Other adjustments to reconcile net income to cash provided by (used in) operating activities		273		(205)
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	(63,730)		(30,422)		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	58,959		31,745		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	(68)		(66)		Contributions to pension and other postretirement benefit plans	(203)		(199)
Increase in accrued interest receivable and other assets	Increase in accrued interest receivable and other assets	(2,752)		(3,709)		Increase in accrued interest receivable and other assets	(18,774)		(3,259)
Decrease in accrued interest payable and other liabilities		(1,750)		(316)
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	11,052		17,055		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	(379)		(850)		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	12,475		4,288		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	12,896		17,085		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	62,276		491		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	(43,116)		(10,309)		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	(32,242)		—		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	4,753		10		Proceeds from sales of money market mutual funds	10,487		1,032
Purchases of money market mutual funds	Purchases of money market mutual funds	(4,644)		(606)		Purchases of money market mutual funds	(10,971)		(1,314)
Net increase in other investments		(211)		(4,362)
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	(62,368)		(61,582)		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	—		599		Proceeds from sales of other real estate owned	75		670

Net cash used in investing activities	Net cash used in investing activities	(50,560)		(55,236)		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	47,229		117,239		Net increase in deposits	851,521		452,101
Net decrease in short-term borrowings	Net decrease in short-term borrowings	(265)		(116,583)		Net decrease in short-term borrowings	(999)		(170,798)
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	125,000		—		Proceeds from issuance of long-term debt	125,000		25,000
Repayment of long-term debt	Repayment of long-term debt	(65,000)		—		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	(31)		(33)		Payment of contingent consideration on acquisitions	(91)		(97)

Purchases of treasury stock	Purchases of treasury stock	(4,438)		(950)		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	572		571		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	94		521		Proceeds from exercise of stock options	94		1,005
Cash dividends paid	Cash dividends paid	(5,879)		(5,863)		Cash dividends paid	(17,555)		(17,574)
Net cash provided by (used in) financing activities		97,282		(5,098)
Net increase (decrease) in cash and cash equivalents		57,774		(43,279)
Net cash provided by financing activities						Net cash provided by financing activities	983,723		279,530
Net increase in cash and cash equivalents						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	125,128		109,420		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	$	182,902	$	66,141	Cash and cash equivalents at end of period	$	387,676	$	225,334

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

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

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

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UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed 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 ~~period~~or nine-month periods ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 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, 2019, which was filed with the SEC on February 28, 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 credit losses.

Accounting Pronouncements Adopted in 2020

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 measured at amortized cost, including loans and held-to-maturity securities, net investments in leases 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 to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This ~~new~~ guidance isbecame effective ~~for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or~~on January 1, 2020 for the Corporation. The 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 Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 28, 2020, for further information on the Corporation's reserve for loan and lease losses methodology under the incurred loss model.

The Corporation adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, available-for-sale debt securities and unfunded ~~commitments using the modified retrospective approach.~~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 provisions of ASC 326 ~~using the prospective transition approach for~~related to financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC ~~310-30.~~310-30 using the prospective transition approach. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $84 thousand of the allowance for credit losses (ACL).

710

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The Corporation adopted the provisions of ASC 326 ~~using the prospective transition approach for~~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 iswas effective ~~for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or~~on January 1, 2020 for the Corporation.

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

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


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

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

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

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies certain disclosures relating to investments in certain entities that calculate net asset value, 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 range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Corporation adopted this guidance and the related required disclosures prospectively on January 1, 2020.

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

Recent Accounting Pronouncements Yet to Be Adopted

In August 2018, the FASB issued ASU No. 2018-14, "Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit plans or other postretirement plans. Disclosures removed by this ASU include the following: 1) amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year; 2) 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 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 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 ~~$600~~$474 thousand at ~~March 31,~~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 ~~as provision~~within Provision for ~~(or reversal of)~~

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credit ~~loss expense.~~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 ~~$875~~$547 thousand at ~~March 31,~~September 30, 2020 and is included within Accrued interest receivable and other ~~assets.~~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

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

A loan or lease is typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest, even though the loan or lease is currently performing. When a loan or lease is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of the deferred fees and costs is suspended. Interest payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the ultimate collectability of principal. Loans and leases are usually restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

A loan or lease is classified as a troubled debt restructuring when a concession has been granted to an existing borrower experiencing financial difficulties. The Corporation grants concessions to existing borrowers primarily related to extensions of interest-only payment periods and an occasional payment modification. These modifications typically are for up to one year. The goal when restructuring a credit is to establish a reasonable period of time to provide cash flow relief to customers experiencing cash flow difficulties. Accruing troubled debt restructured loans are primarily comprised of loans on which interest is being accrued under the restructured terms, and the loans are current or less than 90 days past due.

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.

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

Probability of Default (PD)

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

Loss Given Default (LGD)

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

Prepayment and Curtailment rates

Prepayment Rates: 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. ~~Individual analysis will establish a specific reserve for instruments in scope.~~ All loans on nonaccrual status are individually evaluated for a specific reserve.

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

~~Accrued Interest Receivable on Loans and Leases~~

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

Reserve for Unfunded Commitments

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

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

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


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


		At March 31, 2020																				At December 31, 2019													At September 30, 2020				At December 31, 2019
(Dollars in thousands)	(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		(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	$	6,998	$	229	$	—	$	—	$	7,227	$	6,997	$	66	$	—	$	7,063	After 1 year to 5 years	$	6,998	$	202	$	0	$	0	$	7,200	$	6,997	$	66	$	0	$	7,063
		6,998		229		—		—		7,227		6,997		66		—		7,063			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	8,449		310		—		—		8,759		9,083		129		—		9,212		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	206,942		6,624		—		—		213,566		175,972		2,749		(110)		178,611		Over 10 years	162,754		5,071		0		0		167,825		175,972		2,749		(110)		178,611
		215,391		6,934		—		—		222,325		185,055		2,878		(110)		187,823			169,819		5,357		0		0		175,176		185,055		2,878		(110)		187,823

Total	Total	$	222,389	$	7,163	$	—	$	—	$	229,552	$	192,052	$	2,944	$	(110)	$	194,886	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	$	300	$	—	$	—	—		$	300	$	301	$	—	$	(1)	$	300	Within 1 year	$	0	$	0	$	0	0		$	0	$	301	$	0	$	(1)	$	300

		300		—		—		—		300		301		—		(1)		300			0		0		0		0		0		301		0		(1)		300
State and political subdivisions:	State and political subdivisions:																			State and political subdivisions:

After 1 year to 5 years	After 1 year to 5 years	5,062		35		—		—		5,097		4,717		23		—		4,740		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	25,305		198		—		—		25,503		29,563		292		—		29,855		After 5 years to 10 years	11,387		114		0		0		11,501		29,563		292		0		29,855

		30,367		233		—		—		30,600		34,280		315		—		34,595			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	185		9		—		��		194		304		9		—		313		Within 1 year	12		0		0		0		12		304		9		0		313
After 1 year to 5 years	After 1 year to 5 years	136		4		—		—		140		611		3		(1)		613		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	2,534		72		—		—		2,606		36,893		107		(21)		36,979		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	80,291		2,192		(1)		—		82,482		80,630		378		(453)		80,555		Over 10 years	77,400		2,041		(61)		0		79,380		80,630		378		(453)		80,555
		83,146		2,277		(1)		—		85,422		118,438		497		(475)		118,460			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	974		4		—		—		978		2,377		6		(22)		2,361		After 5 years to 10 years	821		30		0		0		851		2,377		6		(22)		2,361

Over 10 years																				Over 10 years	4,982		0		(3)		0		4,979		0		0		0		0
		974		4		—		—		978		2,377		6		(22)		2,361			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	4,503		3		(5)		(4)		4,497		6,012		1		(4)		6,009		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	28,847		486		(385)		(46)		28,902		29,606		596		(61)		30,141		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	499		22		—		—		521		—		—		—		—		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		—		(11,487)		(847)		47,666		60,000		—		(4,942)		55,058		Over 10 years	0		0		0		0		0		60,000		0		(4,942)		55,058
		93,849		511		(11,877)		(897)		81,586		95,618		597		(5,007)		91,208			90,750		1,641		(5,160)		(692)		86,539		95,618		597		(5,007)		91,208
Total	Total	$	208,636	$	3,025	$	(11,878)	$	(897)	$	198,886	$	251,014	$	1,415	$	(5,505)	$	246,924	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 ~~the~~ provision for credit loss expense. Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties and mortgage-backed securities typically prepay at a rate faster than contractually due.

Securities with a carrying value of ~~$335.5~~$289.6 million and $340.8 million at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, were pledged to secure public funds deposits and other contractual obligations. In addition, securities of ~~$30.2~~$38.9

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

The following table presents information related to sales of securities available-for-sale during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019:


		Three Months Ended March 31,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019
Securities available-for-sale:	Securities available-for-sale:					Securities available-for-sale:
Proceeds from sales	Proceeds from sales	$	62,276	$	491	Proceeds from sales	$	65,621	$	24,987
Gross realized gains on sales	Gross realized gains on sales	709		1		Gross realized gains on sales	831		65
Gross realized losses on sales	Gross realized losses on sales	14		—		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	146		—		Tax expense related to net realized gains on sales	172		9

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


		Less than Twelve Months						Twelve Months or Longer								Total					Less than Twelve Months				Twelve Months or Longer		Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At March 31, 2020
At September 30, 2020														At September 30, 2020
Securities Held-to-Maturity														Securities Held-to-Maturity

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

Residential mortgage-backed securities	Residential mortgage-backed securities	$	466	$	(1)	$	35	$	—	$	501	$	(1)	Residential mortgage-backed securities	$	8,747	$	(60)	$	32	$	(1)	$	8,779	$	(61)

Collateralized mortgage obligations														Collateralized mortgage obligations	4,979		(3)		0		0		4,979		(3)

Total	Total	$	466	$	(1)	$	35	$	—	$	501	$	(1)	Total	$	13,726	$	(63)	$	32	$	(1)	$	13,758	$	(64)
At December 31, 2019	At December 31, 2019													At December 31, 2019
Securities Held-to-Maturity	Securities Held-to-Maturity													Securities Held-to-Maturity

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

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

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

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

At ~~March 31,~~September 30, 2020, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded was ~~$501 thousand,~~$13.8 million, including unrealized losses of $1$64 thousand. These holdings were comprised of 4 federal agency mortgage-backed securities, which are 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. 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. The Corporation concluded that the decline in ~~the~~fair value of these securities was not indicative of a credit loss. The Corporation did not recognize any ~~credit losses on these available-for-sale debt securities for the three months ended March 31, 2020 or~~ other-than-temporary impairment charges for the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

At ~~March 31,~~September 30, 2020, no held-to-maturity securities held by the Corporation were in aan unrealized loss position. The Corporation did not recognize any credit losses on ~~these~~ held-to-maturity debt securities for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 or other-than-temporary impairment charges for the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

1519

Table of Contents

The table below presents a rollforward by major security type for the three and nine months ended ~~March 31,~~September 30, 2020 of the allowance for credit losses on securities available-for-sale.


(Dollars in thousands)	Corporate Bonds
Three months ended ~~March 31,~~September 30, 2020
Securities Available-for-Sale
Beginning balance	$	— (855)
~~Adjustment to initially apply ASU No. 2016-13 for CECL~~	~~(300)~~
Additions for securities for which no previous expected credit losses were recognized	~~(25)~~(1)
Change in securities for which a previous expected credit loss was recognized	~~(572)~~164
Ending balance	$	~~(897)~~(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 ~~March 31,~~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 ~~$63.2~~$55.1 million, including unrealized losses of ~~$11.9~~$5.9 million, and allowance for credit losses of ~~$897~~$692 thousand. ~~These holdings include available-for-sale securities with a fair value of $47.7 million which were in an unrealized loss position of $11.5 million for a period of greater than twelve months.~~ These holdings were comprised of ~~NaN~~8 investment grade corporate bonds which fluctuate in value based on changes in market conditions, which for these underlying securities iswas 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 ~~principal and~~ 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. The Corporation~~loss and recorded a provision for credit losses of ~~$597~~$392 thousand ~~on these available-for-sale debt securities~~ for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The Corporation did not record any other-than-temporary impairment charges for the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

The Corporation recognized a ~~$268~~$321 thousand net loss and $4$12 thousand net gain on equity securities during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively, in other noninterest income. There were 0 sales of equity securities during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 or ~~March 31,~~September 30, 2019.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories

(Dollars in thousands) At March 31, 2020 At December 31, 2019
Commercial, financial and agricultural $ 944,189 $ 947,029
Real estate-commercial 2,100,699 2,040,441
Real estate-construction 215,150 232,595
Real estate-residential secured for business purpose 377,644 373,973
Real estate-residential secured for personal purpose 454,998 439,059
Real estate-home equity secured for personal purpose 177,405 174,435
Loans to individuals 29,170 29,883
Lease financings 149,570 149,421
Total loans and leases held for investment, net of deferred income $ 4,448,825 $ 4,386,836
Imputed interest on lease financings, included in the above table $ (16,106) $ (16,340)
Net deferred costs, included in the above table 5,754 5,999
Overdraft deposits included in the above table 314 407


(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

1620

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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 ~~March 31,~~September 30, 2020:


		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		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		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At March 31, 2020
At September 30, 2020																		At September 30, 2020
Commercial, financial and agricultural	Commercial, financial and agricultural	$	1,621	$	709	$	—	$	2,330	$	937,925	$	940,255	$	3,934	$	944,189	Commercial, financial and agricultural	$	6,886	$	244	$	27	$	7,157	$	883,348	$	890,505	$	3,809	$	894,314
Paycheck Protection Program																		Paycheck Protection Program	0		0		0		0		501,580		501,580		0		501,580
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	23,325		2,091		722		26,138		2,045,734		2,071,872		28,827		2,100,699		Commercial real estate	5,341		7,835		1,539		14,715		2,334,512		2,349,227		20,464		2,369,691
Construction	Construction	4,076		—		—		4,076		211,074		215,150		—		215,150		Construction	5,501		0		0		5,501		228,089		233,590		0		233,590
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	4,479		1,164		400		6,043		370,331		376,374		1,270		377,644		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	Residential secured for personal purpose	5,258		1,486		426		7,170		446,548		453,718		1,280		454,998		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	Home equity secured for personal purpose	819		107		—		926		175,659		176,585		820		177,405		Home equity secured for personal purpose	428		96		0		524		170,976		171,500		948		172,448
Loans to individuals	Loans to individuals	219		31		63		313		28,857		29,170		—		29,170		Loans to individuals	104		29		23		156		27,615		27,771		0		27,771
Lease financings	Lease financings	709		81		166		956		148,119		149,075		495		149,570		Lease financings	761		1,807		729		3,297		155,986		159,283		252		159,535
Total	Total	$	40,506	$	5,669	$	1,777	$	47,952	$	4,364,247	$	4,412,199	$	36,626	$	4,448,825	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 December 31, 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 December 31, 2019	At December 31, 2019																			At December 31, 2019
Commercial, financial and agricultural	Commercial, financial and agricultural	$	2,602	$	150	$	20	$	2,772	$	940,815	$	943,587	$	—	$	3,442	$	947,029	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	3,473		266		—		3,739		2,008,568		2,012,307		206		27,928		2,040,441		Commercial real estate	3,473		266		0		3,739		2,008,568		2,012,307		206		27,928		2,040,441
Construction	Construction	—		—		—		—		232,338		232,338		—		257		232,595		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	2,078		2,442		—		4,520		366,473		370,993		—		2,980		373,973		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	2,969		446		—		3,415		433,548		436,963		58		2,038		439,059		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	605		297		—		902		172,106		173,008		—		1,427		174,435		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	157		73		74		304		29,579		29,883		—		—		29,883		Loans to individuals	157		73		74		304		29,579		29,883		0		0		29,883
Lease financings	Lease financings	1,409		296		49		1,754		147,161		148,915		—		506		149,421		Lease financings	1,409		296		49		1,754		147,161		148,915		0		506		149,421
Total	Total	$	13,293	$	3,970	$	143	$	17,406	$	4,330,588	$	4,347,994	$	264	$	38,578	$	4,386,836	Total	$	13,293	$	3,970	$	143	$	17,406	$	4,330,588	$	4,347,994	$	264	$	38,578	$	4,386,836

1721

Table of Contents

Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at ~~March 31,~~September 30, 2020 and December 31, 2019.


		At March 31, 2020														At December 31, 2019															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	$	3,934	$	—	$	—	$	3,934	$	3,442	$	—	$	20	$	3,462	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	28,827		—		722		29,549		27,928		—		—		27,928		Commercial real estate	20,464		0		1,539		22,003		27,928		0		0		27,928
Construction	Construction	—		—		—		—		257		—		—		257		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	1,270		—		400		1,670		2,980		—		—		2,980		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	1,280		—		426		1,706		2,038		—		—		2,038		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	820		54		—		874		1,427		54		—		1,481		Home equity secured for personal purpose	948		53		0		1,001		1,427		54		0		1,481
Loans to individuals	Loans to individuals	—		—		63		63		—		—		74		74		Loans to individuals	0		0		23		23		0		0		74		74
Lease financings	Lease financings	495		—		166		661		506		—		49		555		Lease financings	252		0		729		981		506		0		49		555
Total	Total	$	36,626	$	54	$	1,777	$	38,457	$	38,578	$	54	$	143	$	38,775	Total	$	30,019	$	53	$	3,573	$	33,645	$	38,578	$	54	$	143	$	38,775

* Includes nonaccrual troubled debt restructured loans of ~~$13.7~~$14.2 million and $13.8 million at ~~March 31,~~September 30, 2020 and December 31, 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 ~~March 31,~~September 30, 2020.


(Dollars in thousands)	(Dollars in thousands)	Nonaccrual With No ACL		Nonaccrual With ACL		Total Nonaccrual		Loans 90 Days or more Past Due and Accruing Interest		(Dollars in thousands)	Nonaccrual With No ACL		Nonaccrual With ACL		Total Nonaccrual		Loans 90 Days or more Past Due and Accruing Interest
At March 31, 2020
At September 30, 2020										At September 30, 2020
Commercial, financial and agricultural	Commercial, financial and agricultural	$	2,690	$	1,244	$	3,934	$	—	Commercial, financial and agricultural	$	2,361	$	1,448	$	3,809	$	27
Real estate-commercial	Real estate-commercial	17,174		11,653		28,827		722		Real estate-commercial	20,238		226		20,464		1,539

Real estate-residential secured for business purpose	Real estate-residential secured for business purpose	1,010		260		1,270		400		Real estate-residential secured for business purpose	1,987		164		2,151		1,027
Real estate-residential secured for personal purpose	Real estate-residential secured for personal purpose	718		562		1,280		426		Real estate-residential secured for personal purpose	1,862		533		2,395		228
Real estate-home equity secured for personal purpose	Real estate-home equity secured for personal purpose	820		—		820		—		Real estate-home equity secured for personal purpose	948		0		948		0
Loans to individuals	Loans to individuals	—		—		—		63		Loans to individuals	0		0		0		23
Lease financings	Lease financings	—		495		495		166		Lease financings	0		252		252		729
Total	Total	$	22,412	$	14,214	$	36,626	$	1,777	Total	$	27,396	$	2,623	$	30,019	$	3,573

1822

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 ~~March 31,~~September 30, 2020.


(Dollars in thousands)	(Dollars in thousands)	Real Estate		Other ⁽¹⁾		None ⁽²⁾		Total		(Dollars in thousands)	Real Estate		Other (1)		None (2)		Total
At March 31, 2020
At September 30, 2020										At September 30, 2020
Commercial, financial and agricultural	Commercial, financial and agricultural	$	2,002	$	1,351	$	581	$	3,934	Commercial, financial and agricultural	$	1,459	$	1,784	$	566	$	3,809
Real estate-commercial	Real estate-commercial	28,827		—		—		28,827		Real estate-commercial	20,464		0		0		20,464

Real estate-residential secured for business purpose	Real estate-residential secured for business purpose	1,270		—		—		1,270		Real estate-residential secured for business purpose	2,151		0		0		2,151
Real estate-residential secured for personal purpose	Real estate-residential secured for personal purpose	1,280		—		—		1,280		Real estate-residential secured for personal purpose	2,395		0		0		2,395
Real estate-home equity secured for personal purpose	Real estate-home equity secured for personal purpose	820		—		—		820		Real estate-home equity secured for personal purpose	948		0		0		948

Total	Total	$	34,199	$	1,351	$	581	$	36,131	Total	$	27,417	$	1,784	$	566	$	29,767

(1) ~~Business~~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 ~~March 31,~~September 30, 2020 and December 31, 2019.

The Corporation employs a risk rating system related to the credit quality of commercial loans and 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 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. The Corporation reviews credit quality indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2019.

1.Pass—Loans considered satisfactory with no indications of deterioration

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

3.Substandard—Well-defined weakness or 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

Table of Contents

Commercial Credit Exposure Credit Risk by Internally Assigned Grades

The following ~~tables present~~table presents by class, the recorded investment in loans and leases held for investment by credit quality indicator at ~~March 31,~~September 30, 2020 under ASC 326.


		Term Loans Amortized Cost Basis by Origination Year																											Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)																		(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
At September 30, 2020																		At September 30, 2020
Commercial, Financial and Agricultural																		Commercial, Financial and Agricultural
Risk Rating																		Risk Rating
1. Pass																		1. Pass	$	147,403	$	102,389	$	78,294	$	44,321	$	29,672	$	60,750	$	410,169	$	872,998
2. Special Mention																		2. Special Mention	916		804		333		529		849		1,226		7,723		12,380
3. Substandard																		3. Substandard	375		714		724		60		0		687		6,376		8,936
		2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
At March 31, 2020
Commercial, Financial and Agricultural
Total																		Total	$	148,694	$	103,907	$	79,351	$	44,910	$	30,521	$	62,663	$	424,268	$	894,314

Paycheck Protection Program																		Paycheck Protection Program
Risk Rating	Risk Rating																	Risk Rating
1. Pass	1. Pass	$	52,864	$	146,722	$	99,263	$	65,395	$	34,880	$	89,984	$	420,193	$	909,301	1. Pass	$	501,580	$	0	$	0	$	0	$	0	$	0	$	0	$	501,580
2. Special Mention	2. Special Mention	3		970		1,979		2,841		1,621		1,685		9,678		18,777		2. Special Mention	0		0		0		0		0		0		0		0
3. Substandard	3. Substandard	—		1,144		1,356		61		—		628		12,922		16,111		3. Substandard	0		0		0		0		0		0		0		0

Total	Total	$	52,867	$	148,836	$	102,598	$	68,297	$	36,501	$	92,297	$	442,793	$	944,189	Total	$	501,580	$	0	$	0	$	0	$	0	$	0	$	0	$	501,580

Real Estate-Commercial	Real Estate-Commercial																	Real Estate-Commercial
Risk Rating	Risk Rating																	Risk Rating
1. Pass	1. Pass	$	161,322	$	613,240	$	358,038	$	357,068	$	194,772	$	305,101	$	44,969	$	2,034,510	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	1,754		12,432		—		1,134		5,092		2,918		582		23,912		2. Special Mention	1,776		13,082		0		1,128		1,345		5,935		1,912		25,178
3. Substandard	3. Substandard	—		944		941		11,219		—		26,424		2,749		42,277		3. Substandard	0		1,365		1,047		11,648		1,218		6,942		837		23,057

Total	Total	$	163,076	$	626,616	$	358,979	$	369,421	$	199,864	$	334,443	$	48,300	$	2,100,699	Total	$	913,991	$	508,912	$	246,354	$	292,248	$	156,053	$	203,920	$	48,213	$	2,369,691

Real Estate-Construction	Real Estate-Construction																	Real Estate-Construction
Risk Rating	Risk Rating																	Risk Rating
1. Pass	1. Pass	$	22,374	$	91,509	$	55,864	$	10,987	$	2,950	$	—	$	4,372	$	188,056	1. Pass	$	86,135	$	72,157	$	45,140	$	1,804	$	2,950	$	0	$	4,925	$	213,111
2. Special Mention	2. Special Mention	20,109		—		—		—		—		—		—		20,109		2. Special Mention	20,479		0		0		0		0		0		0		20,479
3. Substandard	3. Substandard	—		—		6,985		—		—		—		—		6,985		3. Substandard	0		0		0		0		0		0		0		0

Total	Total	$	42,483	$	91,509	$	62,849	$	10,987	$	2,950	$	—	$	4,372	$	215,150	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																	Real Estate-Residential Secured for Business Purpose
Risk Rating	Risk Rating																	Risk Rating
1. Pass	1. Pass	$	24,846	$	87,962	$	69,936	$	56,391	$	48,747	$	55,682	$	29,802	$	373,366	1. Pass	$	84,624	$	76,313	$	60,041	$	47,244	$	41,529	$	40,042	$	24,058	$	373,851
2. Special Mention	2. Special Mention	1,121		475		—		79		743		480		—		2,898		2. Special Mention	108		464		189		77		180		481		200		1,699
3. Substandard	3. Substandard	—		24		—		82		552		654		68		1,380		3. Substandard	30		537		51		69		1,071		863		68		2,689

Total	Total	$	25,967	$	88,461	$	69,936	$	56,552	$	50,042	$	56,816	$	29,870	$	377,644	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 ~~March 31,~~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 ~~March 31,~~September 30, 2020.

Table of Contents

The following ~~tables present~~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

20The Corporation had no loans with a risk rating of Doubtful included in loans and leases held for investment at December 31, 2019.

~~Table of Contents~~

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

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

Term Loans Amortized Cost Basis by Origination Year
2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total
At March 31, 2020
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing $ 27,745 $ 93,752 $ 87,429 $ 71,235 $ 53,602 $ 117,858 $ 1,671 $ 453,292
2. Nonperforming — 426 57 — — 1,223 — 1,706
Total $ 27,745 $ 94,178 $ 87,486 $ 71,235 $ 53,602 $ 119,081 $ 1,671 $ 454,998
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing $ 164 $ 1,104 $ 1,707 $ 1,702 $ 692 $ 3,583 $ 167,579 $ 176,531
2. Nonperforming — — 108 — — 30 736 874
Total $ 164 $ 1,104 $ 1,815 $ 1,702 $ 692 $ 3,613 $ 168,315 $ 177,405
Loans to Individuals
Payment Performance
1. Performing $ 630 $ 2,282 $ 1,464 $ 821 $ 481 $ 2,736 $ 20,693 $ 29,107
2. Nonperforming — — — — — 63 — 63
Total $ 630 $ 2,282 $ 1,464 $ 821 $ 481 $ 2,799 $ 20,693 $ 29,170
Lease Financings
Payment Performance
1. Performing $ 15,187 $ 58,670 $ 43,587 $ 19,482 $ 9,488 $ 2,495 $ — $ 148,909
2. Nonperforming — 27 129 396 43 66 — 661
Total $ 15,187 $ 58,697 $ 43,716 $ 19,878 $ 9,531 $ 2,561 $ — $ 149,570

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

(Dollars in thousands) Real Estate—
Residential
Secured for
Personal Purpose Real Estate—
Home Equity
Secured for
Personal Purpose Loans to
Individuals Lease
Financings Total
At December 31, 2019
Performing $ 437,021 $ 172,954 $ 29,809 $ 148,866 $ 788,650
Nonperforming 2,038 1,481 74 555 4,148
Total $ 439,059 $ 174,435 $ 29,883 $ 149,421 $ 792,798

2125

Table of Contents

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


	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 by class, he recorded investment in loans and lease held for investment by performance status at December 31, 2019 under ASC 310.


(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At December 31, 2019
Performing	$	437,021	$	172,954	$	29,809	$	148,866	$	788,650
Nonperforming	2,038		1,481		74		555		4,148
Total	$	439,059	$	174,435	$	29,883	$	149,421	$	792,798

Table of Contents

Allowance for Credit Losses on Loans and Leases and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the ~~reserve~~allowance for credit losses, loans and leases, for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019:


(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

Table of Contents


(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

Table of Contents

The following presents, by portfolio segment, the balance in the ACL on loans and leases, disaggregated on the basis of 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, 2020 and 2019:


	Allowance for credit losses, loans and leases						Loans and leases held for investment
(Dollars in thousands)	Ending balance: individually analyzed		Ending balance: pooled		Total ending balance		Ending balance: individually analyzed		Ending balance: pooled		Loans measured at fair value		Total ending balance
At 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

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, 2020					Three Months Ended September 30, 2019
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment			Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment
Accruing Troubled Debt Restructured Loans:





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


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


	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment			Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment
Accruing Troubled Debt Restructured Loans:




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

Real estate—residential secured for personal purpose	1	544		544			0	0		0
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.

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, 2020 and 2019.


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




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


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





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



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




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


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




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


Total		1	$	19		3	$	2,269	4	$	2,288

There were no accruing or nonaccrual troubled debt restructured loans for which there were payment defaults within twelve months of the restructuring date for the three and nine months ended September 30, 2020 or September 30, 2019.

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

~~N/A – Not applicable~~

~~Table of Contents~~

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

~~N/A – Not applicable~~

~~Table of Contents~~

~~Troubled Debt Restructured Loans~~

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

Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
(Dollars in thousands) Number
of
Loans Pre-
Restructuring
Outstanding
Recorded
Investment Post-
Restructuring
Outstanding
Recorded
Investment Number
of
Loans Pre-
Restructuring
Outstanding
Recorded
Investment Post-
Restructuring
Outstanding
Recorded
Investment
Accruing Troubled Debt Restructured Loans:
Total — $ — $ — — $ — $ —
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural* — $ — $ — 2 $ 956 $ 956
Real estate—commercial real estate* — — — 1 1,313 1,313
Total — $ — $ — 3 $ 2,269 $ 2,269

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

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

The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the three months ended March 31, 2020 and 2019.

Amortization Period Extension
(Dollars in thousands) No. of
Loans Amount
Three Months Ended March 31, 2020
Accruing Troubled Debt Restructured Loans:
Total — $ —
Nonaccrual Troubled Debt Restructured Loans:
Total — $ —
Three Months Ended March 31, 2019
Accruing Troubled Debt Restructured Loans:
Total — $ —
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural 2 $ 956
Real estate—commercial real estate 1 1,313
Total 3 $ 2,269

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

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


(Dollars in thousands)	(Dollars in thousands)	At March 31, 2020		At December 31, 2019		(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	$	714	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	247		1,058		Real estate-home equity secured for personal purpose	226		1,058
Total	Total	$	961	$	1,772	Total	$	290	$	1,772

~~Table of Contents~~

The following presents foreclosed residential real estate property included in other real estate owned at ~~March 31,~~September 30, 2020 orand December 31, 2019.


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

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Lease Financings

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.

The following presents the schedule of minimum lease payments receivable:


(Dollars in thousands)	(Dollars in thousands)	At March 31, 2020		At December 31, 2019		(Dollars in thousands)	At September 30, 2020		At December 31, 2019
2020 (excluding the three months ended March 31, 2020)		$	44,780	$	57,515
2020 (excluding the nine months ended September 30, 2020)						2020 (excluding the nine months ended September 30, 2020)	$	14,587	$	57,515
2021	2021	48,877		45,510		2021	58,029		45,510
2022	2022	35,510		32,233		2022	44,933		32,233
2023	2023	21,384		18,345		2023	30,902		18,345
2024	2024	9,172		6,639		2024	17,204		6,639
Thereafter	Thereafter	2,836		2,259		Thereafter	7,822		2,259
Total future minimum lease payments receivable	Total future minimum lease payments receivable	162,559		162,501		Total future minimum lease payments receivable	173,477		162,501
Plus: Unguaranteed residual	Plus: Unguaranteed residual	877		886		Plus: Unguaranteed residual	825		886
Plus: Initial direct costs	Plus: Initial direct costs	2,240		2,374		Plus: Initial direct costs	2,552		2,374
Less: Imputed interest	Less: Imputed interest	(16,106)		(16,340)		Less: Imputed interest	(17,319)		(16,340)
Lease financings	Lease financings	$	149,570	$	149,421	Lease financings	$	159,535	$	149,421

Note 5. Goodwill and Other Intangible Assets

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

Changes in the carrying amount of the Corporation's goodwill by business segment for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 were as follows:

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

~~Table of Contents~~


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

Core deposit intangibles	Core deposit intangibles	$	6,788	$	4,229	$	2,559	$	6,788	$	4,026	$	2,762	Core deposit intangibles	$	6,788	$	4,610	$	2,178	$	6,788	$	4,026	$	2,762
Customer related intangibles	Customer related intangibles	7,604		6,830		774		8,819		7,923		896		Customer related intangibles	7,604		7,046		558		8,819		7,923		896
Servicing rights(1)	Servicing rights(1)	19,686		13,246		6,440		19,160		12,534		6,626		Servicing rights(1)	21,421		15,142		6,279		19,160		12,534		6,626
Total amortized intangible assets	Total amortized intangible assets	$	34,078	$	24,305	$	9,773	$	34,767	$	24,483	$	10,284	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 2020 and the succeeding fiscal years is as follows:


Year	Year	(Dollars in thousands)	Amount		Year	(Dollars in thousands)	Amount
Remainder of 2020	Remainder of 2020		$	875	Remainder of 2020		$	278
2021	2021		923		2021		923
2022	2022		666		2022		666
2023	2023		409		2023		409
2024	2024		267		2024		267
Thereafter	Thereafter		193		Thereafter		193
Total					Total		$	2,736

The aggregate fair value of mortgage servicing rights was ~~$6.5~~$6.3 million and $9.2 million at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at ~~March 31,~~September 30, 2020 and December 31, 2019.

Changes in the servicing rights balance are summarized as follows:


		Three Months Ended March 31,							Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019		2020		2019
Beginning of period	Beginning of period	$	6,626	$	6,768	Beginning of period	$	6,081	$	6,599	$	6,626	$	6,768
Servicing rights capitalized	Servicing rights capitalized	526		266		Servicing rights capitalized	900		464		2,261		1,051

Amortization of servicing rights	Amortization of servicing rights	(657)		(309)		Amortization of servicing rights	(834)		(585)		(2,402)		(1,320)
Changes in valuation allowance	Changes in valuation allowance	(55)		—		Changes in valuation allowance	132		18		(206)		(3)
End of period	End of period	$	6,440	$	6,725	End of period	$	6,279	$	6,496	$	6,279	$	6,496
Loans serviced for others	Loans serviced for others	$	1,087,174	$	1,037,948	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 March 31,
(Dollars in thousands) 2020 2019
Valuation allowance, beginning of period $ — $ —
Additions (55) —
Valuation allowance, end of period $ (55) $ —

~~Table of Contents~~


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

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

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


Year	Year	(Dollars in thousands)	Amount		Year	(Dollars in thousands)	Amount
Remainder of 2020	Remainder of 2020		$	1,585	Remainder of 2020		$	1,724
2021	2021		1,190		2021		1,276
2022	2022		908		2022		941
2023	2023		690		2023		693
2024	2024		467		2024		302
Thereafter	Thereafter		1,600		Thereafter		1,343
Total					Total		$	6,279

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Note 6. Deposits

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


		At March 31, 2020						At December 31, 2019							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	—	%	$	1,318,270	—	%	$	1,279,681	Noninterest-bearing deposits	0	%	$	1,714,505	0	%	$	1,279,681
Demand deposits	Demand deposits	0.23		1,615,979		0.96		1,677,682		Demand deposits	0.23		2,055,164		0.96		1,677,682
Savings deposits	Savings deposits	0.18		836,042		0.37		796,702		Savings deposits	0.15		885,715		0.37		796,702
Time deposits	Time deposits	1.86		637,012		1.95		606,010		Time deposits	1.44		556,219		1.95		606,010
Total	Total	0.39	%	$	4,407,303	0.71	%	$	4,360,075	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 ~~$329.0~~$277.9 million at ~~March 31,~~September 30, 2020 and $293.2 million at December 31, 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 ~~$183.8~~$144.7 million at ~~March 31,~~September 30, 2020 and $143.0 million at December 31, 2019.

At ~~March 31,~~September 30, 2020, the scheduled maturities of time deposits are as follows:


Year	Year	(Dollars in thousands)	Amount		Year	(Dollars in thousands)	Amount
Remainder of 2020	Remainder of 2020		$	339,988	Remainder of 2020		$	114,934
2021	2021		129,137		2021		220,305
2022	2022		64,816		2022		78,418
2023	2023		76,407		2023		110,856
2024	2024		23,002		2024		23,634
Thereafter	Thereafter		3,662		Thereafter		8,072
Total	Total		$	637,012	Total		$	556,219

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Note 7. Borrowings

The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less.


		At March 31, 2020						At December 31, 2019							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:

Customer repurchase agreements	Customer repurchase agreements	$	18,415	0.05	%	$	18,680	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	$	200,000	1.44	%	$	140,000	2.04	%	FHLB advances	$	200,000	1.44	%	$	140,000	2.04	%
Security repurchase agreements	Security repurchase agreements	10,069		1.75		10,098		2.07		Security repurchase agreements	5,010		0.57		10,098		2.07

Subordinated notes	Subordinated notes	$	94,879	5.49	%	$	94,818	5.32	%	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 ~~$1.9~~$2.1 billion. All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At ~~March 31,~~September 30, 2020 and December 31, 2019, the Bank had outstanding short-term letters of credit with the FHLB totaling ~~$435.1~~$650.8 million and $535.6 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank. The available borrowing capacity from the FHLB totaled ~~$1.3~~$1.2 billion at ~~March 31,~~September 30, 2020.

The Corporation, through the Bank, maintains uncommitted federal fund credit lines with several correspondent banks that totaled $504.0 million at March 31, 2020 and December 31, 2019. Future availability under these lines is subject to the prerogatives

Table of ~~the granting banks and may be withdrawn at will.~~Contents

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia (the FRB of Philadelphia) in order to access the Discount Window Lending program. The collateral, consisting of investment securities, was valued at ~~$85.3~~$69.5 million and $94.8 million at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. At ~~March 31,~~September 30, 2020 and December 31, 2019, the Corporation had 0 outstanding borrowings under ~~this~~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 ~~March 31,~~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 ~~$2.0~~$2.2 billion and $1.9 billion of committed borrowing capacity at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, of which ~~$1.4~~$1.3 billion and $1.2 billion was available as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. The Corporation, through the Bank, also ~~has access to $504.0 million of~~maintains uncommitted funding sources from correspondent banks ~~which were fully available~~of $460.0 million and $504.0 million at ~~March 31,~~September 30, 2020 and December 31, ~~2019.~~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.

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

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

~~Table of Contents~~


(Dollars in thousands)	As of September 30, 2020		Weighted Average Rate
Remainder of 2020	$	10,000	1.47	%
2021	45,000		1.93
2022	35,000		1.17
2023	50,000		1.73
2024	60,000		0.98
Thereafter	0		0
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 March 31, 2020		Weighted Average Rate		(Dollars in thousands)	As of September 30, 2020		Weighted Average Rate
Remainder of 2020	Remainder of 2020	$	10,069	1.75	%	Remainder of 2020	$	5,010	0.57	%
2021	2021	—		—		2021	0		0
2022	2022	—		—		2022	0		0
2023	2023	—		—		2023	0		0
2024	2024	—		—		2024	0		0
Thereafter	Thereafter	—		—		Thereafter	0		0
Total	Total	$	10,069	1.75	%	Total	$	5,010	0.57	%

Long-term debt under security repurchase agreements totaling ~~$10.1~~$5.0 million hold variable interest rates and are 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. ~~This plan is a non-qualified benefit plan.~~ This non-qualified benefit 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.

Components of net periodic benefit cost were as follows:


		Three Months Ended March 31,																Three Months Ended September 30,
		2020		2019		2020		2019			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	$	117	$	109	$	28	$	17	Service cost	$	117	$	109		$	27	$	17
Interest cost	Interest cost	417		476		24		23		Interest cost	425		476			23		23
Expected return on plan assets		(816)		(771)		—		—
Expected loss on plan assets										Expected loss on plan assets	(816)		(772)			0		0
Amortization of net actuarial loss	Amortization of net actuarial loss	291		294		6		—		Amortization of net actuarial loss	300		294			7		0
Accretion of prior service cost	Accretion of prior service cost	—		(45)		—		—		Accretion of prior service cost	0		(45)			0		0
Net periodic benefit cost	Net periodic benefit cost	$	9	$	63	$	58	$	40	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

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, 2019 that it expected to make contributions of $159 thousand to its non-qualified retirement plans and $89 thousand to its other postretirement benefit plans in 2020. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the Corporation contributed ~~$40~~$120 thousand to its non-qualified retirement plans and ~~$28~~$83 thousand to its other postretirement plans. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, ~~$664 thousand~~$2.0 million was paid to participants from the retirement plans and ~~$28~~$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 permit the issuance of restricted stock units.

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

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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 ~~three~~nine months ended ~~March 31,~~September 30, 2020:


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

Expired	Expired	(500)	28.50					Expired	(2,000)	28.33
Forfeited	Forfeited	(3,152)	28.44					Forfeited	(19,018)	24.70
Exercised	Exercised	(5,000)	18.70					Exercised	(5,000)	18.70
Outstanding at March 31, 2020		499,459	24.86		6.2	$	5
Exercisable at March 31, 2020		445,481	24.42		6.0	5
Outstanding at September 30, 2020								Outstanding at September 30, 2020	482,093	24.88		5.9	$	0
Exercisable at September 30, 2020								Exercisable at September 30, 2020	428,615	24.43		5.7	0

The following is a summary of nonvested stock options at ~~March 31,~~September 30, 2020 including changes during the ~~three~~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, 2019	Nonvested stock options at December 31, 2019	163,261	$	6.54	Nonvested stock options at December 31, 2019	163,261	$	6.54

Vested	Vested	(106,131)	6.58		Vested	(106,131)	6.58
Forfeited	Forfeited	(3,152)	6.50		Forfeited	(3,652)	6.50
Nonvested stock options at March 31, 2020		53,978	6.46
Nonvested stock options at September 30, 2020					Nonvested stock options at September 30, 2020	53,478	6.46

The Corporation did not issue stock options during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 or ~~March 31,~~September 30, 2019.

The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at ~~March 31,~~September 30, 2020 including changes during the ~~three~~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 and units at December 31, 2019	Nonvested stock awards and units at December 31, 2019	209,378	$	26.76	Nonvested stock awards and units at December 31, 2019	209,378	$	26.76
Granted	Granted	179,080	18.62		Granted	179,080	18.62
Vested	Vested	(57,355)	27.23		Vested	(59,855)	27.17
Cancelled	Cancelled	(19,367)	27.72		Cancelled	(20,993)	27.17

Nonvested stock awards and units at March 31, 2020		311,736	21.94
Nonvested stock awards and units at September 30, 2020					Nonvested stock awards and units at September 30, 2020	307,610	21.91

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


		Three Months Ended March 31,							Nine Months Ended September 30,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2020		2019		(Dollars in thousands, except per share data)	2020		2019
Restricted stock awards and units granted	Restricted stock awards and units granted	179,080		113,729		Restricted stock awards and units granted	179,080		113,729
Weighted average grant date fair value	Weighted average grant date fair value	$	18.62	$	25.66	Weighted average grant date fair value	$	18.62	$	25.66
Intrinsic value of awards granted	Intrinsic value of awards granted	$	2,923	$	2,782	Intrinsic value of awards granted	$	3,335	$	2,901
Restricted stock awards and units vested	Restricted stock awards and units vested	57,355		32,965		Restricted stock awards and units vested	59,855		44,807
Weighted average grant date fair value	Weighted average grant date fair value	$	27.23	$	21.86	Weighted average grant date fair value	$	27.17	$	21.65
Intrinsic value of awards vested	Intrinsic value of awards vested	$	1,335	$	809	Intrinsic value of awards vested	$	1,375	$	1,119

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The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested stock options and nonvested restricted stock awards and units at ~~March 31,~~September 30, 2020 is presented below:


(Dollars in thousands)	(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)	(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Stock options	Stock options	$	306	1.0	Stock options	$	147	0.5
Restricted stock awards and units	Restricted stock awards and units	5,338		2.4	Restricted stock awards and units	4,058		2.0
		$	5,644	2.3		$	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:


		Three Months Ended March 31,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2020		2019
Stock-based compensation expense:	Stock-based compensation expense:					Stock-based compensation expense:
Stock options	Stock options	$	108	$	216	Stock options	$	274	$	546
Restricted stock awards and units	Restricted stock awards and units	327		361		Restricted stock awards and units	1,579		1,372
Employee stock purchase plan	Employee stock purchase plan	20		17		Employee stock purchase plan	65		54
Total	Total	$	455	$	594	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	$	106	$	165	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)	(Dollars in thousands)	Net Unrealized (Losses) Gains on Available-for-Sale Investment Securities		Net Change Related to Derivatives Used for Cash Flow Hedges		Net Change Related to Defined Benefit Pension Plans		Accumulated Other Comprehensive (Loss) Income		(Dollars in thousands)	Net Unrealized (Losses) Gains on Available-for-Sale Investment Securities		Net Change Related to Derivatives Used for Cash Flow Hedges		Net Change Related to Defined Benefit Pension Plans		Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2019	Balance, December 31, 2019	$	(3,231)	$	(185)	$	(18,314)	$	(21,730)	Balance, December 31, 2019	$	(3,231)	$	(185)	$	(18,314)	$	(21,730)
Adjustment to initially apply ASU No. 2016-13 for CECL (1)	Adjustment to initially apply ASU No. 2016-13 for CECL (1)	237		—		—		237		Adjustment to initially apply ASU No. 2016-13 for CECL (1)	237		0		0		237
Other comprehensive (loss) income		(4,000)		(370)		235		(4,135)
Balance, March 31, 2020		$	(6,994)	$	(555)	$	(18,079)	$	(25,628)
Other comprehensive income (loss)										Other comprehensive income (loss)	1,980		(299)		712		2,393
Balance, September 30, 2020										Balance, September 30, 2020	$	(1,014)	$	(484)	$	(17,602)	$	(19,100)

Balance, December 31, 2018	Balance, December 31, 2018	$	(11,221)	$	81	$	(17,276)	$	(28,416)	Balance, December 31, 2018	$	(11,221)	$	81	$	(17,276)	$	(28,416)
Adjustment to initially apply ASU No. 2017-12 for derivatives	Adjustment to initially apply ASU No. 2017-12 for derivatives	—		83		—		83		Adjustment to initially apply ASU No. 2017-12 for derivatives	0		83		0		83
Other comprehensive income (loss)	Other comprehensive income (loss)	4,044		(145)		196		4,095		Other comprehensive income (loss)	6,157		(421)		589		6,325
Balance, March 31, 2019		$	(7,177)	$	19	$	(17,080)	$	(24,238)
Balance, September 30, 2019										Balance, September 30, 2019	$	(5,064)	$	(257)	$	(16,687)	$	(22,008)

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

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Note 11. Derivative Instruments and Hedging Activities

Interest Rate Swaps

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. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party.

In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in

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November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. At ~~March 31,~~September 30, 2020, approximately ~~$218~~$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 ~~March 31,~~September 30, 2020. At ~~March 31,~~September 30, 2020, the notional amount of the interest rate swap was ~~$16.1~~$15.7 million and the fair value was a liability of ~~$702~~$614 thousand.

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

At ~~March 31,~~September 30, 2020, the Corporation ~~had~~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 ~~$317.7~~$552.2 million and remaining maturities ranging from ~~less than one year~~18 months to 10 years. At ~~March 31,~~September 30, 2020, the fair value of the Corporation's interest rate swap credit derivatives was a liability of ~~$1.1 million.~~$716 thousand. At ~~March 31,~~September 30, 2020, the fair value of the swaps to the customers was a net liability of ~~$29.6~~$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.

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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 ~~March 31,~~September 30, 2020 and December 31, 2019. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.

Derivative Assets Derivative Liabilities
(Dollars in thousands) Notional
Amount Balance Sheet
Classification Fair
Value Balance Sheet
Classification Fair
Value
At March 31, 2020
Interest rate swap - cash flow hedge $ 16,084 $ — Other liabilities $ 702
Total $ 16,084 $ — $ 702
At December 31, 2019
Interest rate swap - cash flow hedge $ 16,286 $ — Other liabilities $ 235
Total $ 16,286 $ — $ 235

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

Total	$	15,673		$	0		$	614
At December 31, 2019
Interest rate swap - cash flow hedge	$	16,286		$	0	Other liabilities	$	235

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 ~~March 31,~~September 30, 2020 and December 31, 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 March 31, 2020
At September 30, 2020										At September 30, 2020
Interest rate swap	Interest rate swap	$	273		$	—	Other liabilities	$	15	Interest rate swap	$	211		$	0	Other liabilities	$	10
Credit derivatives	Credit derivatives	317,741			—		Other liabilities	1,109		Credit derivatives	552,219			0		Other liabilities	716
Interest rate locks with customers	Interest rate locks with customers	100,673		Other assets	2,911			—		Interest rate locks with customers	139,309		Other assets	4,896			0
Forward loan sale commitments	Forward loan sale commitments	104,091			—		Other liabilities	886		Forward loan sale commitments	142,044			0		Other liabilities	474
Total	Total	$	522,778		$	2,911		$	2,010	Total	$	833,783		$	4,896		$	1,200
At December 31, 2019	At December 31, 2019									At December 31, 2019
Interest rate swap	Interest rate swap	$	303		$	—	Other liabilities	$	14	Interest rate swap	$	303		$	0	Other liabilities	$	14
Credit derivatives	Credit derivatives	270,147			—		Other liabilities	176		Credit derivatives	270,147			0		Other liabilities	176
Interest rate locks with customers	Interest rate locks with customers	19,966		Other assets	399			—		Interest rate locks with customers	19,966		Other assets	399			0
Forward loan sale commitments	Forward loan sale commitments	21,846			—		Other liabilities	19		Forward loan sale commitments	21,846			0		Other liabilities	19
Total	Total	$	312,262		$	399		$	209	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								Statement of Income Classification		Three Months Ended				Nine Months Ended
					March 31,								Statement of Income Classification		September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)				2020		2019			(Dollars in thousands)					2019		2020		2019

Interest rate swap—cash flow hedge—net interest payments	Interest rate swap—cash flow hedge—net interest payments	Interest expense	$	29	$	(16)		Interest rate swap—cash flow hedge—net interest payments	Interest expense		$	78			$	(4)	$	176	$	(34)

Interest rate swap—fair value hedge—effectiveness	Interest rate swap—fair value hedge—effectiveness	Interest income	—		1			Interest rate swap—fair value hedge—effectiveness	Interest income		0		(6)		0		(5)

Total net (loss) gain	Total net (loss) gain		$	(29)	$	17		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								Statement of Income Classification		Three Months Ended				Nine Months Ended
					March 31,								Statement of Income Classification		September 30,				September 30,
(Dollars in thousands)	(Dollars in thousands)				2020		2019			(Dollars in thousands)					2019		2020		2019

Credit derivatives	Credit derivatives	Other noninterest income	$	140	$	264		Credit derivatives	Other noninterest income		$	2,339			$	186	$	4,143	$	768
Interest rate locks with customers	Interest rate locks with customers	Net gain (loss) on mortgage banking activities	2,512		(35)			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 (loss) gain on mortgage banking activities	(867)		29			Forward loan sale commitments	Net gain (loss) on mortgage banking activities		108		366		(455)		319
Total net gain	Total net gain		$	1,785	$	258		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 ~~March 31,~~September 30, 2020 and December 31, 2019:


(Dollars in thousands)	(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At March 31, 2020		At December 31, 2019		(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	$	(556)	$	(186)	Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(484)	$	(185)
Total	Total		$	(556)	$	(186)	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

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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 were recognized at the end of the reporting 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 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.

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at ~~March 31,~~September 30, 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.

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One commercial loan associated with an interest rate swap is classified in Level 3 of the valuation hierarchy at ~~March 31,~~September 30, 2020 since lending credit risk is not an observable input for this loan. The unrealized gain on the 1 loan was ~~$15~~$9 thousand at ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2020 and December 31, 2019, classified using the fair value hierarchy:


		At March 31, 2020																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		$	—	$	300	$	—	$	300

State and political subdivisions	State and political subdivisions	—		30,600		—		30,600		State and political subdivisions	$	0	$	15,187	$	0		$	15,187
Residential mortgage-backed securities	Residential mortgage-backed securities	—		85,422		—		85,422		Residential mortgage-backed securities	0		81,671		0			81,671
Collateralized mortgage obligations	Collateralized mortgage obligations	—		978		—		978		Collateralized mortgage obligations	0		5,830		0			5,830
Corporate bonds	Corporate bonds	—		81,586		—		81,586		Corporate bonds	0		86,539		0			86,539
Total available-for-sale securities	Total available-for-sale securities	—		198,886		—		198,886		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	736		—		—		736		Equity securities - financial services industry	683		0		0			683
Money market mutual funds	Money market mutual funds	1,510		—		—		1,510		Money market mutual funds	2,103		0		0			2,103
Total equity securities	Total equity securities	2,246		—		—		2,246		Total equity securities	2,786		0		0			2,786
Loans*	Loans*	—		—		288		288		Loans*	0		0		221			221

Interest rate locks with customers*	Interest rate locks with customers*	—		2,911		—		2,911		Interest rate locks with customers*	0		4,896		0			4,896

Total assets	Total assets	$	2,246	$	201,797	$	288	$	204,331	Total assets	$	2,786	$	194,123	$	221		$	197,130
Liabilities:	Liabilities:									Liabilities:
Contingent consideration liability	Contingent consideration liability	$	—	$	—	$	135	$	135	Contingent consideration liability	$	0	$	0	$	83		$	83
Interest rate swaps*	Interest rate swaps*	—		717		—		717		Interest rate swaps*	0		624		0			624
Credit derivatives*	Credit derivatives*	—		—		1,109		1,109		Credit derivatives*	0		0		716			716

Forward loan sale commitments*	Forward loan sale commitments*	—		886		—		886		Forward loan sale commitments*	0		474		0			474
Total liabilities	Total liabilities	$	—	$	1,603	$	1,244	$	2,847	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 ~~March 31,~~September 30, 2020. The ~~$1.1 million~~$716 thousand of credit derivatives liability represents the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of 46seventy-seven interest rate swaps with a current notional amount of ~~$317.7~~$552.2 million. The ~~March 31,~~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, 2019															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	$	—	$	300	$	—	$	300	U.S. government corporations and agencies	$	0	$	300	$	0	$	300
State and political subdivisions	State and political subdivisions	—		34,595		—		34,595		State and political subdivisions	0		34,595		0		34,595
Residential mortgage-backed securities	Residential mortgage-backed securities	—		118,460		—		118,460		Residential mortgage-backed securities	0		118,460		0		118,460
Collateralized mortgage obligations	Collateralized mortgage obligations	—		2,361		—		2,361		Collateralized mortgage obligations	0		2,361		0		2,361
Corporate bonds	Corporate bonds	—		91,208		—		91,208		Corporate bonds	0		91,208		0		91,208
Total available-for-sale securities	Total available-for-sale securities	—		246,924		—		246,924		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	1,004		—		—		1,004		Equity securities - financial services industry	1,004		0		0		1,004
Money market mutual funds	Money market mutual funds	1,619		—		—		1,619		Money market mutual funds	1,619		0		0		1,619
Total equity securities	Total equity securities	2,623		—		—		2,623		Total equity securities	2,623		0		0		2,623
Loans*	Loans*	—		—		317		317		Loans*	0		0		317		317

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

Total assets	Total assets	$	2,623	$	247,323	$	317	$	250,263	Total assets	$	2,623	$	247,323	$	317	$	250,263
Liabilities:	Liabilities:									Liabilities:
Contingent consideration liability	Contingent consideration liability	$	—	$	—	$	160	$	160	Contingent consideration liability	$	0	$	0	$	160	$	160
Interest rate swaps*	Interest rate swaps*	—		249		—		249		Interest rate swaps*	0		249		0		249
Credit derivatives*	Credit derivatives*	—		—		176		176		Credit derivatives*	0		0		176		176
Forward loan sale commitments*	Forward loan sale commitments*	—		19		—		19		Forward loan sale commitments*	0		19		0		19
Total liabilities	Total liabilities	$	—	$	268	$	336	$	604	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 ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019:


		Three Months Ended March 31, 2020																							Nine Months Ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Balance at December 31, 2019		Purchases/additions		Sales		Payments received		Premium amortization, net		Increase in value		Balance at March 31, 2020		(Dollars in thousands)	Balance at December 31, 2019		Additions		Payments received		Increase in value		Balance at September 30, 2020

Loans	Loans	$	317	$	—	$	—	$	(30)	$	—	$	1	$	288	Loans	$	317	$	0	$	(91)	$	(5)	$	221
Credit derivatives	Credit derivatives	(176)		(1,073)		—		—		—		140		(1,109)		Credit derivatives	(176)		(4,683)		0		4,143		(716)
Net total	Net total	$	141	$	(1,073)	$	—	$	(30)	$	—	$	141	$	(821)	Net total	$	141	$	(4,683)	$	(91)	$	4,138	$	(495)


		Three Months Ended March 31, 2019																							Nine Months Ended September 30, 2019
(Dollars in thousands)	(Dollars in thousands)	Balance at December 31, 2018		Purchases/additions		Sales		Payments received		Premium amortization, net		Increase in value		Balance at March 31, 2019		(Dollars in thousands)	Balance at December 31, 2018		Additions		Payments received		Increase in value		Balance at September 30, 2019
Corporate bonds	Corporate bonds	$	25,729	$	—	$	—	$	—	$	—	$	910	$	26,639	Corporate bonds	$	25,729	$	0	$	0	$	675	$	26,404
Loans	Loans	1,779		—		—		(39)		—		8		1,748		Loans	1,779		0		(1,432)		2		349
Credit derivatives	Credit derivatives	(72)		(271)		—		—		—		264		(79)		Credit derivatives	(72)		(958)		0		767		(263)
Net total	Net total	$	27,436	$	(271)	$	—	$	(39)	$	—	$	1,182	$	28,308	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 ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019:


		Three Months Ended March 31, 2020																			Nine Months Ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Balance at December 31, 2019		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at March 31, 2020		(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	$	160	$	—	$	31	$	6	$	135	Girard Partners	$	160	$	0	$	91	$	14	$	83
Total contingent consideration liability	Total contingent consideration liability	$	160	$	—	$	31	$	6	$	135	Total contingent consideration liability	$	160	$	0	$	91	$	14	$	83


		Three Months Ended March 31, 2019																			Nine Months Ended September 30, 2019
(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 March 31, 2019		(Dollars in thousands)	Balance at December 31, 2018		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at September 30, 2019
Girard Partners	Girard Partners	$	259	$	—	$	33	$	9	$	235	Girard Partners	$	259	$	0	$	97	$	24	$	186
Total contingent consideration liability	Total contingent consideration liability	$	259	$	—	$	33	$	9	$	235	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 changes in the value of loans held for investment analyzed on an individual basis. The following table represents assets measured at fair value on a non-recurring basis at ~~March 31,~~September 30, 2020 and December 31, 2019:


		At March 31, 2020															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
Individually analyzed loans held for investment	Individually analyzed loans held for investment	$	—	$	—	$	33,596	$	33,596	Individually analyzed loans held for investment	$	0	$	0	$	28,675	$	28,675

Other real estate owned	Other real estate owned	—		—		516		516		Other real estate owned	0		0		8,270		8,270
Total	Total	$	—	$	—	$	34,112	$	34,112	Total	$	0	$	0	$	36,945	$	36,945


		At December 31, 2019															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	$	—	$	—	$	36,018	$	36,018	Impaired loans held for investment	$	0	$	0	$	36,018	$	36,018
Impaired leases held for investment	Impaired leases held for investment	—		—		277		277		Impaired leases held for investment	0		0		277		277
Other real estate owned	Other real estate owned	—		—		516		516		Other real estate owned	0		0		516		516
Total	Total	$	—	$	—	$	36,811	$	36,811	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 ~~March 31,~~September 30, 2020 and December 31, 2019. The disclosed fair values are classified using the fair value hierarchy.


		At March 31, 2020																			At September 30, 2020
(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	$	182,902	$	—	$	—	$	182,902	$	182,902	Cash and short-term interest-earning assets	$	387,676	$	0	$	0	$	387,676	$	387,676

Held-to-maturity securities	Held-to-maturity securities	—		229,552		—		229,552		222,389		Held-to-maturity securities	0		182,376		0		182,376		176,817
Federal Home Loan Bank, Federal Reserve Bank and other stock	Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,465		Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		29,723
Loans held for sale	Loans held for sale	—		11,525		—		11,525		11,417		Loans held for sale	0		14,612		0		14,612		14,465
Net loans and leases held for investment	Net loans and leases held for investment	—		—		4,454,495		4,454,495		4,346,725		Net loans and leases held for investment	0		0		5,253,500		5,253,500		5,091,090
Servicing rights	Servicing rights	—		—		6,684		6,684		6,440		Servicing rights	0		0		6,404		6,404		6,279

Total assets	Total assets	$	182,902	$	241,077	$	4,461,179	$	4,885,158	$	4,798,338	Total assets	$	387,676	$	196,988	$	5,259,904	$	5,844,568	$	5,706,050
Liabilities:	Liabilities:											Liabilities:
Deposits:	Deposits:											Deposits:
Demand and savings deposits, non-maturity	Demand and savings deposits, non-maturity	$	3,770,291	$	—	$	—	$	3,770,291	$	3,770,291	Demand and savings deposits, non-maturity	$	4,655,384	$	0	$	0	$	4,655,384	$	4,655,384
Time deposits	Time deposits	—		647,933		—		647,933		637,012		Time deposits	0		567,257		0		567,257		556,219
Total deposits	Total deposits	3,770,291		647,933		—		4,418,224		4,407,303		Total deposits	4,655,384		567,257		0		5,222,641		5,211,603
Short-term borrowings	Short-term borrowings	—		18,415		—		18,415		18,415		Short-term borrowings	0		17,681		0		17,681		17,681
Long-term debt	Long-term debt	—		214,492		—		214,492		210,069		Long-term debt	0		209,494		0		209,494		205,010
Subordinated notes	Subordinated notes	—		91,872		—		91,872		94,879		Subordinated notes	0		199,473		0		199,473		193,413
Total liabilities	Total liabilities	$	3,770,291	$	972,712	$	—	$	4,743,003	$	4,730,666	Total liabilities	$	4,655,384	$	993,905	$	0	$	5,649,289	$	5,627,707
Off-Balance-Sheet:
Commitments to extend credit		$	—	$	(8,033)	$	—	$	(8,033)	$	—

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		At December 31, 2019																			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	$	125,128	$	—	$	—	$	125,128	$	125,128	Cash and short-term interest-earning assets	$	125,128	$	0	$	0	$	125,128	$	125,128
Held-to-maturity securities	Held-to-maturity securities	—		194,886		—		194,886		192,052		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		28,254		Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,254
Loans held for sale	Loans held for sale	—		5,560		—		5,560		5,504		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	—		—		4,309,208		4,309,208		4,314,893		Net loans and leases held for investment	0		0		4,309,208		4,309,208		4,314,893
Servicing rights	Servicing rights	—		—		9,340		9,340		6,626		Servicing rights	0		0		9,340		9,340		6,626

Total assets	Total assets	$	125,128	$	200,446	$	4,318,548	$	4,644,122	$	4,672,457	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	$	3,754,065	$	—	$	—	$	3,754,065	$	3,754,065	Demand and savings deposits, non-maturity	$	3,754,065	$	0	$	0	$	3,754,065	$	3,754,065
Time deposits	Time deposits	—		609,387		—		609,387		606,010		Time deposits	0		609,387		0		609,387		606,010
Total deposits	Total deposits	3,754,065		609,387		—		4,363,452		4,360,075		Total deposits	3,754,065		609,387		0		4,363,452		4,360,075
Short-term borrowings	Short-term borrowings	—		18,680		—		18,680		18,680		Short-term borrowings	0		18,680		0		18,680		18,680
Long-term debt	Long-term debt	—		151,343		—		151,343		150,098		Long-term debt	0		151,343		0		151,343		150,098
Subordinated notes	Subordinated notes	—		96,663		—		96,663		94,818		Subordinated notes	0		96,663		0		96,663		94,818
Total liabilities	Total liabilities	$	3,754,065	$	876,073	$	—	$	4,630,138	$	4,623,671	Total liabilities	$	3,754,065	$	876,073	$	0	$	4,630,138	$	4,623,671
Off-Balance-Sheet:
Commitments to extend credit		$	—	$	(8,070)	$	—	$	(8,070)	$	—

The following valuation methods and assumptions were used by the Corporation in estimating the fair value for financial instruments measured at fair value on a non-recurring basis and financial instruments not measured at fair value on a recurring or non-recurring basis in the Corporation’s 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.~~

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.

Individually analyzed loans and leases held for investment: For individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At ~~March 31,~~September 30, 2020, individually analyzed loans held for investment had a carrying amount of

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~~$36.1~~ $29.8 million with a valuation allowance of ~~$2.5~~$1.1 million. At December 31, 2019, impaired loans held for investment had a

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carrying amount of $38.1 million with a valuation allowance of $2.1 million. The Corporation had 0 individually analyzed leases at ~~March 31,~~September 30, 2020. The Corporation had impaired leases of $277 thousand with no reserve at December 31, 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 ~~March 31,~~September 30, 2020, servicing rights had a net carrying amount of ~~$6.4~~$6.3 million ~~with~~which included a valuation allowance of ~~$55~~$206 thousand. At December 31, 2019, servicing rights carrying amount of $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 ~~three~~nine months ended ~~March 31,~~September 30, 2020, there were no 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, 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 $75 thousand for a net gain of $4 thousand. At ~~March 31,~~September 30, 2020 and December 31, 2019, OREO had a carrying amount of ~~$516 thousand.~~$8.3 million and $540 thousand, respectively. Other real estate owned is classified within Level 3 of the valuation hierarchy due to the unique characteristics of the collateral for each loan.

Deposit liabilities: The fair values for demand and savings accounts, with no stated maturities, is the amount payable on demand at the reporting date (carrying value) and are classified within Level 1 in the fair value hierarchy. The fair values for time deposits with fixed maturities are estimated by discounting the final maturity using interest rates currently offered for deposits with similar remaining maturities. Time deposits are classified within Level 2 in the fair value hierarchy.

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

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

Subordinated notes: The fair value of the subordinated notes are estimated by discounting the principal balance using the treasury yield curve for the term to the call date as the Corporation has the option to call the subordinated notes. The subordinated notes are classified within Level 2 in the fair value hierarchy.

~~Off-balance-sheet instruments:~~ Fair values for the Corporation’s off-balance-sheet instruments are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing and are classified within Level 2 in the fair value hierarchy.

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Note 13. Segment Reporting

At ~~March 31,~~September 30, 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.

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 March 31, 2020		At December 31, 2019		At March 31, 2019		(Dollars in thousands)	At September 30, 2020		At December 31, 2019		At September 30, 2019
Banking	Banking	$	5,362,279	$	5,282,505	$	4,942,539	Banking	$	6,277,894	$	5,282,505	$	5,256,435
Wealth Management	Wealth Management	45,786		44,591		40,910		Wealth Management	47,550		44,591		43,305
Insurance	Insurance	35,935		34,291		31,837		Insurance	35,168		34,291		33,239
Other	Other	20,768		19,537		20,241		Other	22,219		19,537		20,632
Consolidated assets	Consolidated assets	$	5,464,768	$	5,380,924	$	5,035,527	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 ~~March 31,~~September 30, 2020 and 2019.


		Three Months Ended																			Three Months Ended
		March 31, 2020																			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	$	52,004	$	7	$	—	$	8	$	52,019	Interest income	$	50,603	$	1	$	0	$	8	$	50,612
Interest expense	Interest expense	8,276		—		—		1,275		9,551		Interest expense	4,867		0		0		1,891		6,758
Net interest income	Net interest income	43,728		7		—		(1,267)		42,468		Net interest income	45,736		1		0		(1,883)		43,854
Provision for credit losses	Provision for credit losses	21,049		—		—		—		21,049		Provision for credit losses	3,935		0		0		0		3,935
Noninterest income	Noninterest income	7,552		6,187		4,887		(242)		18,384		Noninterest income	11,919		5,963		3,924		(1)		21,805
Intangible expenses		202		78		50		—		330

Other noninterest expense		31,839		4,100		3,146		156		39,241
Noninterest expense												Noninterest expense	31,304		3,845		2,974		404		38,527
Intersegment (revenue) expense*	Intersegment (revenue) expense*	(282)		152		130		—		—		Intersegment (revenue) expense*	(296)		168		128		0		0
(Loss) income before income taxes		(1,528)		1,864		1,561		(1,665)		232
Income tax (benefit) expense		(844)		382		336		(480)		(606)
Net (loss) income		$	(684)	$	1,482	$	1,225	$	(1,185)	$	838
Income (expense) before income taxes												Income (expense) before income taxes	22,712		1,951		822		(2,288)		23,197
Income tax expense												Income tax expense	4,367		396		171		144		5,078
Net income (loss)												Net income (loss)	$	18,345	$	1,555	$	651	$	(2,432)	$	18,119

Capital expenditures	Capital expenditures	$	371	$	5	$	3	$	—	$	379	Capital expenditures	$	646	$	15	$	14	$	8	$	683

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		Three Months Ended																			Three Months Ended
		March 31, 2019																			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	$	52,346	$	10	$	—	$	8	$	52,364	Interest income	$	54,280	$	12	$	0	$	8	$	54,300
Interest expense	Interest expense	9,580		—		—		1,261		10,841		Interest expense	10,394		0		0		1,261		11,655
Net interest income	Net interest income	42,766		10		—		(1,253)		41,523		Net interest income	43,886		12		0		(1,253)		42,645
Provision for credit losses	Provision for credit losses	2,685		—		—		—		2,685		Provision for credit losses	1,533		0		0		0		1,533
Noninterest income	Noninterest income	4,971		5,720		5,353		253		16,297		Noninterest income	6,491		6,049		4,039		20		16,599
Intangible expenses		233		105		88		—		426

Other noninterest expense		27,779		3,794		3,126		432		35,131
Noninterest expense												Noninterest expense	29,205		3,860		3,056		146		36,267
Intersegment (revenue) expense*	Intersegment (revenue) expense*	(299)		166		133		—		—		Intersegment (revenue) expense*	(307)		177		130		0		0
Income (expense) before income taxes	Income (expense) before income taxes	17,339		1,665		2,006		(1,432)		19,578		Income (expense) before income taxes	19,946		2,024		853		(1,379)		21,444
Income tax expense (benefit)	Income tax expense (benefit)	3,120		314		193		(128)		3,499		Income tax expense (benefit)	3,719		391		72		(400)		3,782
Net income (loss)	Net income (loss)	$	14,219	$	1,351	$	1,813	$	(1,304)	$	16,079	Net income (loss)	$	16,227	$	1,633	$	781	$	(979)	$	17,662

Capital expenditures	Capital expenditures	$	765	$	39	$	25	$	21	$	850	Capital expenditures	$	52	$	5	$	24	$	134	$	215


	Nine Months Ended
	September 30, 2020
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	152,578	$	8	$	0	$	25	$	152,611
Interest expense	18,399		0		0		4,372		22,771
Net interest income	134,179		8		0		(4,347)		129,840
Provision for credit losses	49,515		0		0		0		49,515
Noninterest income	27,755		17,654		13,020		(240)		58,189
Noninterest expense	91,097		11,752		9,095		1,320		113,264
Intersegment (revenue) expense*	(852)		466		386		0		0
Income (expense) before income taxes	22,174		5,444		3,539		(5,907)		25,250
Income tax expense (benefit)	2,944		1,109		749		(594)		4,208
Net income (loss)	$	19,230	$	4,335	$	2,790	$	(5,313)	$	21,042

Capital expenditures	$	2,291	$	21	$	23	$	28	$	2,363


	Nine Months Ended
	September 30, 2019
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	160,667	$	33	$	0	$	24	$	160,724
Interest expense	30,138		0		0		3,783		33,921
Net interest income	130,529		33		0		(3,759)		126,803
Provision for credit losses	6,286		0		0		0		6,286
Noninterest income	17,476		17,924		13,537		315		49,252
Noninterest expense	85,556		11,652		9,421		1,981		108,610
Intersegment (revenue) expense*	(901)		504		397		0		0
Income (expense) before income taxes	57,064		5,801		3,719		(5,425)		61,159
Income tax expense (benefit)	10,499		1,115		334		(998)		10,950
Net income (loss)	$	46,565	$	4,686	$	3,385	$	(4,427)	$	50,209

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

The following table provides information with respect to the Corporation's operating leases:


		Three months ended March 31,										Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			(Dollars in thousands)	2020			2019			2020		2019
Operating lease cost	Operating lease cost	$	953		$	947		Operating lease cost	$	969		$	948		$	2,883	$	2,842
Short-term lease cost	Short-term lease cost	3			—			Short-term lease cost	3			0			9		0
Variable lease cost	Variable lease cost	1			—			Variable lease cost	1			0			4		0
Total lease cost	Total lease cost	$	957		$	947		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	$	910		$	873		Operating cash flows from leases	$	930		$	897		2,762		2,636

		At March 31, 2020			At December 31, 2019				At September 30, 2020			At December 31, 2019
Weighted-average remaining lease term in years	Weighted-average remaining lease term in years	14.7			14.8			Weighted-average remaining lease term in years	14.2			15.2
Weighted-average discount rate	Weighted-average discount rate	4.21		%	4.24		%	Weighted-average discount rate	4.17		%	4.24		%

At ~~March 31,~~September 30, 2020, maturities of lease liabilities are as follows:


Maturity of Lease Liabilities	Maturity of Lease Liabilities	(Dollars in thousands)	Amount		Maturity of Lease Liabilities	(Dollars in thousands)	Amount
Remainder of 2020	Remainder of 2020		$	2,759	Remainder of 2020		$	941
2021	2021		3,732		2021		3,838
2022	2022		3,727		2022		3,833
2023	2023		3,677		2023		3,782
2024	2024		3,547		2024		3,653
Thereafter	Thereafter		34,555		Thereafter		35,233
Total lease payments	Total lease payments		51,997		Total lease payments		51,280
Less: imputed interest	Less: imputed interest		(14,078)		Less: imputed interest		(13,389)
Present value of lease liabilities	Present value of lease liabilities		$	37,919	Present value of lease liabilities		$	37,891

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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 ~~change~~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.

In December 2019, coronavirus (COVID-19) was first reported in China. On March 11, 2020, the World Health Organization declared a worldwide pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ~~have~~ ordered non-essential businesses to close and residents to shelter in place at home. 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 and when and how the economy may be reopened.~~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;

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•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 ~~have to be increased~~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 Board’s~~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; ~~and~~

•FDIC premiums may increase if the agency experience additional resolution ~~costs.~~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, 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 2019 Annual Report on Form 10-K. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of ASC 326, which ~~changes~~changed the methodology under which management calculates its reserve for loans and leases, now referred to as the allowance for credit losses. Management considers the measurement of the allowance for credit losses, in accordance with ASC 326, to be a critical accounting policy.

General

The Corporation is a Pennsylvania corporation organized in 1973 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956. The Corporation owns all of the capital stock of Univest Bank and Trust Co. The consolidated financial statements include the accounts of the Corporation and the Bank.

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Through its wholly-owned subsidiaries, the Bank provides a variety of financial services for individuals, businesses, municipalities and non-profit organizations. The Bank is the parent company of Girard Investment Services, LLC, a full-service registered introducing broker-dealer and a licensed insurance agency, Girard Advisory Services, LLC, a registered investment advisory firm and Girard Pension Services, LLC, 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 Corporation earns revenue primarily from the margins and fees generated from lending and depository services as well as fee-based income from trust, insurance, mortgage banking and investment 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.

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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														Three Months Ended										Nine Months Ended
		March 31,								Change									September 30,				Change						September 30,				Change
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2020			2019			Amount		Percent		(Dollars in thousands, except per share data)	2020			2019			Amount		Percent		2020			2019			Amount		Percent
Net income	Net income	$	838		$	16,079		$	(15,241)	(94.8	%)	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	$	0.03		$	0.55		$	(0.52)	(94.5)		Basic	$	0.62		$	0.60		$	0.02	3.3		$	0.72		$	1.71		$	(0.99)	(57.9)
Diluted	Diluted	0.03			0.55			(0.52)		(94.5)		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	0.06		%	1.30		%	(124 BP)		(95.4)		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	0.50		%	10.32		%	(982 BP)		(95.2)		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 ~~$838 thousand,~~$18.1 million, or ~~$0.03~~$0.62 diluted earnings per share, for the three months ended ~~March 31,~~September 30, 2020, compared to net income of ~~$16.1~~$17.7 million, or ~~$0.55~~$0.60 diluted earnings per share, for the three months ended ~~March 31,~~September 30, 2019. Net income for the nine months ended September 30, 2020 was $21.0 million, or $0.72 diluted earnings per share, compared to net income of $50.2 million, or $1.71 diluted earnings per share, for the nine months ended September 30, 2019.

The Corporation adopted CECL effective January 1, 2020, as discussed in Note 1. Summary of Significant Accounting ~~Policies.~~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 ~~March 31,~~September 30, 2020, the Corporation recorded a provision for credit losses onof $3.9 million, of which $5.6 million provision was related to loans and leases, ($163) thousand was a reversal of ~~$20.4 million, a~~ provision ~~for credit losses on~~related to investment securities and ($1.5) million was a reversal of ~~$597 thousand and a reserve for~~provision related to unfunded ~~commitments of $794 thousand.~~commitments. Included within the ~~$21.8~~$3.9 million in provision for credit losses ~~and reserve for unfunded commitments is $20.3 million~~was $280 thousand (after-tax charge of ~~$16.1 million)~~$221 thousand), or ~~$0.55~~$0.01 diluted earnings per share, ~~of expense related to COVID-19,~~ which was ~~the result of~~attributable to changes in economic assumptions within the Corporation’s CECL model. This charge included a provision for credit losses on loans and leases of $19.4 million, a provision for credit losses on investment securities of $536 thousand and a reserve for unfunded commitments of $384 thousand.model, which were predominately driven by COVID-19. During the ~~three~~nine months ended ~~March 31, 2019,~~September 30, 2020, the Corporation recorded aCECL 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 ~~of $2.7 million. The provision~~ for the three and nine months ended September 30, 2019 ~~included the impact of downgrading one $14.6~~was $1.5 million ~~shared national credit loan from pass to substandard.~~and $6.3 million, respectively.

The ~~results for~~Corporation originated approximately 2,570 loans totaling approximately $511 million through the ~~three months ended~~PPP, which was enacted as a component of the CARES Act that was signed into law on March ~~31, 2020, included a $652 thousand ($515 thousand after-tax), or $0.02 diluted earnings per share, gain on~~27, 2020. Through this program, the ~~sale~~Corporation recorded income of ~~investment securities and a $656 thousand ($518 thousand after-tax), or $0.02 diluted earnings per share, charge~~$4.7 million within interest income related to these loans, in ~~other expense~~addition to recording incremental capitalized compensation of $1.3 million related to the ~~extinguishment~~origination of ~~long-term debt.~~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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Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on loans and leases and investment securities and interest paid on deposits and 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 ~~March 31,~~September 30, 2020 and 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 ~~March 31,~~September 30, 2020 versus 2019

Net interest income on a tax-equivalent basis for the three months ended ~~March 31,~~September 30, 2020 was ~~$43.1~~$44.5 million, an increase of ~~$945 thousand,~~$1.2 million, or ~~2.2%~~2.7%, compared to the three months ended ~~March 31,~~September 30, 2019. Net interest income on a tax-equivalent basis for the nine months ended September 30, 2020 was $131.7 million, an increase of $3.0 million, or 2.3%, compared to the same period in 2019. The increase in tax-equivalent net interest income for the three and nine months ended ~~March 31,~~September 30, 2020 compared to ~~the~~ same period in ~~2019~~the prior year was primarily due to lower deposit and borrowing costs and growth in loans 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 three and nine months ended ~~March 31,~~September 30, 2020, ~~was 3.48%,~~respectively, compared to ~~3.75%~~3.52% and 3.64% for the three and nine months ended ~~March 31, 2019. During the three months ended March 31, 2020, excess~~September 30, 2019, respectively. Excess liquidity reduced the net interest margin by approximately ~~six~~18 and 14 basis points ~~and had no impact on~~for the three and nine months ended ~~March 31, 2019. The~~September 30, 2020, respectively, compared to 13 and seven basis points for the three and nine months ended September 30, 2019, respectively. This excess liquidity was primarily driven by strong deposit balance growth inover the ~~period. Purchase accounting accretion had no impact on the~~last year. PPP loans reduced net interest margin by ten and seven basis points for the three and nine months ended ~~March 31,~~September 30, 2020, ~~compared to a favorable~~respectively. Excluding the impact of ~~approximately one basis point for the three months ended March 31, 2019. Excluding purchase accounting accretion~~excess liquidity and the impact of ~~excess liquidity,~~PPP loans, the net interest margin, on a tax-equivalent basis, was ~~3.54%~~3.30% and 3.42% for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to 3.65% and ~~3.74%~~3.70% for the three and nine months ended ~~March 31, 2019.~~September 30, 2019, respectively.

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


		Three Months Ended March 31,																											Three Months Ended September 30,
		2020												2019													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	$	118,108		$	325	1.11	%	$	42,566		$	269	2.56	%	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	7,298			37		2.04		20,039			82		1.66		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	33,595			289		3.46		64,167			546		3.45		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	401,007			2,668		2.68		385,990			2,631		2.76		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	31,450			527		6.74		32,360			586		7.34		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	591,458			3,846		2.62		545,122			4,114		3.06		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	821,267			8,631		4.23		811,071			10,758		5.38		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	2,139,369			23,917		4.50		1,822,276			21,559		4.80		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	991,550			11,052		4.48		938,299			11,412		4.93		Real estate—residential loans	1,009,407			10,380		4.09		956,224			11,570		4.80
Loans to individuals	Loans to individuals	30,016			407		5.45		32,524			518		6.46		Loans to individuals	28,663			309		4.29		31,504			490		6.17
Municipal loans and leases	Municipal loans and leases	317,006			3,265		4.14		332,299			3,221		3.93		Municipal loans and leases	267,364			2,839		4.22		333,734			3,413		4.06
Lease financings	Lease financings	89,376			1,554		6.99		80,893			1,435		7.19		Lease financings	97,707			1,662		6.77		82,424			1,482		7.13
Gross loans and leases	Gross loans and leases	4,388,584			48,826		4.47		4,017,362			48,903		4.94		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	4,980,042			52,672		4.25		4,562,484			53,017		4.71		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	50,891							44,714							Cash and due from banks	56,715							53,019
Reserve for credit losses, loans and leases		(44,372)							(30,111)
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	56,399							59,179							Premises and equipment, net	55,755							57,881
Operating lease right-of-use assets	Operating lease right-of-use assets	34,545							37,129							Operating lease right-of-use assets	33,875							35,238
Other assets	Other assets	332,056							330,858							Other assets	354,216							329,817
Total assets	Total assets	$	5,409,561						$	5,004,253						Total assets	$	6,265,605						$	5,317,867
Liabilities:	Liabilities:															Liabilities:
Interest-bearing checking deposits	Interest-bearing checking deposits	$	584,391		$	796	0.55		$	478,927		$	714	0.60		Interest-bearing checking deposits	$	725,580		$	468	0.26		$	497,185		$	678	0.54
Money market savings	Money market savings	1,057,336			2,903		1.10		918,487			3,748		1.65		Money market savings	1,116,628			897		0.32		1,004,806			4,112		1.62
Regular savings	Regular savings	816,760			792		0.39		789,033			814		0.42		Regular savings	901,716			449		0.20		805,632			963		0.47
Time deposits	Time deposits	602,903			2,915		1.94		655,303			2,927		1.81		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	3,061,390			7,406		0.97		2,841,750			8,203		1.17		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	40,126			106		1.06		117,664			638		2.20		Short-term borrowings	130,359			97		0.30		32,375			94		1.15
Long-term debt	Long-term debt	169,205			764		1.82		145,299			739		2.06		Long-term debt	208,776			742		1.41		167,338			866		2.05
Subordinated notes	Subordinated notes	94,847			1,275		5.41		94,603			1,261		5.41		Subordinated notes	155,945			1,891		4.82		94,724			1,261		5.28
Total borrowings	Total borrowings	304,178			2,145		2.84		357,566			2,638		2.99		Total borrowings	495,080			2,730		2.19		294,437			2,221		2.99
Total interest-bearing liabilities	Total interest-bearing liabilities	3,365,568			9,551		1.14		3,199,316			10,841		1.37		Total interest-bearing liabilities	3,764,660			6,758		0.71		3,317,580			11,655		1.39
Noninterest-bearing deposits	Noninterest-bearing deposits	1,288,594							1,089,449							Noninterest-bearing deposits	1,760,818							1,265,027
Operating lease liabilities	Operating lease liabilities	37,766							40,090							Operating lease liabilities	37,170							38,364
Accrued expenses and other liabilities	Accrued expenses and other liabilities	44,173							43,824							Accrued expenses and other liabilities	41,010							37,373
Total liabilities	Total liabilities	4,736,101							4,372,679							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	295,318							292,746							Additional paid-in capital	296,272							294,138
Retained earnings and other equity	Retained earnings and other equity	220,358							181,044							Retained earnings and other equity	207,891							207,601
Total shareholders’ equity	Total shareholders’ equity	673,460							631,574							Total shareholders’ equity	661,947							659,523
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,409,561						$	5,004,253						Total liabilities and shareholders’ equity	$	6,265,605						$	5,317,867
Net interest income	Net interest income				$	43,121						$	42,176			Net interest income				$	44,452						$	43,285
Net interest spread	Net interest spread						3.11							3.34		Net interest spread						2.77							3.08
Effect of net interest-free funding sources	Effect of net interest-free funding sources						0.37							0.41		Effect of net interest-free funding sources						0.25							0.44
Net interest margin	Net interest margin						3.48	%						3.75	%	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	147.97		%					142.61		%					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. Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the three months ended ~~March 31,~~September 30, 2020 and 2019 have been calculated using the Corporation's federal applicable rate of 21%.

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

Table of Contents

Table 2—Analysis of Changes in Net Interest Income

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


		Three Months Ended											Three Months Ended						Nine Months Ended
		March 31, 2020 Versus 2019											September 30, 2020 Versus 2019						September 30, 2020 Versus 2019
(Dollars in thousands)	(Dollars in thousands)	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	$	274	$	(218)	$	56	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	(61)		16		(45)		U.S. government obligations	(35)		9		(26)		(145)		37		(108)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	(259)		2		(257)		Obligations of states and political subdivisions	(214)		65		(149)		(773)		100		(673)
Other debt and equity securities	Other debt and equity securities	109		(72)		37		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	(15)		(44)		(59)		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	48		(316)		(268)		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	138		(2,265)		(2,127)		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	3,726		(1,368)		2,358		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	664		(1,024)		(360)		Real estate—residential loans	609		(1,799)		(1,190)		1,965		(4,728)		(2,763)
Loans to individuals	Loans to individuals	(37)		(74)		(111)		Loans to individuals	(41)		(140)		(181)		(121)		(354)		(475)
Municipal loans and leases	Municipal loans and leases	(139)		183		44		Municipal loans and leases	(704)		130		(574)		(1,292)		434		(858)
Lease financings	Lease financings	158		(39)		119		Lease financings	259		(79)		180		582		(150)		432
Interest and fees on loans and leases	Interest and fees on loans and leases	4,510		(4,587)		(77)		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	4,558		(4,903)		(345)		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	145		(63)		82		Interest-bearing checking deposits	231		(441)		(210)		537		(750)		(213)
Money market savings	Money market savings	517		(1,362)		(845)		Money market savings	409		(3,624)		(3,215)		1,243		(8,684)		(7,441)
Regular savings	Regular savings	31		(53)		(22)		Regular savings	100		(614)		(514)		184		(1,258)		(1,074)
Time deposits	Time deposits	(229)		217		(12)		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	464		(1,261)		(797)		Interest on time and interest-bearing deposits	(140)		(5,266)		(5,406)		332		(11,274)		(10,942)
Short-term borrowings	Short-term borrowings	(299)		(233)		(532)		Short-term borrowings	113		(110)		3		411		(1,035)		(624)
Long-term debt	Long-term debt	116		(91)		25		Long-term debt	184		(308)		(124)		520		(693)		(173)
Subordinated notes	Subordinated notes	14		—		14		Subordinated notes	749		(119)		630		795		(206)		589
Interest on borrowings	Interest on borrowings	(169)		(324)		(493)		Interest on borrowings	1,046		(537)		509		1,726		(1,934)		(208)
Total interest expense	Total interest expense	295		(1,585)		(1,290)		Total interest expense	906		(5,803)		(4,897)		2,058		(13,208)		(11,150)
Net interest income	Net interest income	$	4,263	$	(3,318)	$	945	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 ~~March 31,~~September 30, 2020 versus 2019

Interest income on a tax-equivalent basis for the three months ended ~~March 31,~~September 30, 2020 was ~~$52.7~~$51.2 million, a decrease of ~~$345 thousand,~~$3.7 million, or ~~0.7%~~6.8%, from the same period in the prior year. Interest income on a tax-equivalent basis for the nine months ended September 30, 2020 was $154.5 million, a decrease of $8.2 million, or 5.0%, from the same period in 2019. The ~~slight~~ decrease in interest income for the three and nine months ended ~~March 31,~~September 30, 2020 was primarily due to the Federal Reserve interest rate reductions of 75 basis points in the third and fourth ~~quarter~~quarters of 2019 and 150 basis points in the first quarter of 2020, offset by increases ~~of $371.2 million~~ in average gross loans and leases held for investment. Purchase accounting accretion had no impact on the rate on interest-earning assets for the three months ended March 31, 2020, compared to a favorable impact of one basis point for the three months ended March 31, 2019.

Interest Expense

Three and nine months ended ~~March 31,~~September 30, 2020 versus 2019

Interest expense for the three months ended ~~March 31,~~September 30, 2020 was ~~$9.6~~$6.8 million, a decrease of ~~$1.3~~$4.9 million, or ~~11.9%~~42.0%, from the same period in 2019. Interest expense ~~on average interest-bearing deposits~~for the nine months ended September 30, 2020 was $22.8 million, a decrease of $11.2 million, or 32.9%, from the same period in the prior year. Interest expense decreased ~~$797 thousand, or 9.7%,~~ for the three and nine months ended ~~March 31,~~September 30, 2020 primarily due to the Federal Reserve interest rate decreases in 2019 and 2020, partially offset by ~~the~~ growth in average interest-bearing ~~deposits~~liabilities of ~~$219.6~~$447.1 million ~~or 7.7%. Additionally, interest expense on borrowings decreased $492 thousand, or 18.7%, for~~and $320.7 million, during the three and nine months ended ~~March 31,~~September 30, 2020, ~~from the same period in 2019, due to a decrease of $77.5 million, or 65.9%, in the average balance of short-term borrowings.~~respectively.

Provision for Credit Losses

The provision for credit losses for the three months ended ~~March 31,~~September 30, 2020 was ~~$21.0~~$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 ~~March 31,~~September 30, 2020 were ~~$489 thousand~~$4.0 million compared to ~~$447 thousand~~$2.0 million for the same period in the prior year. Refer to the Executive Overview for discussion of the drivers of provision expense for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019. Refer to Asset Quality for discussion of the drivers for the increase in charge-offs for the three and nine months ended September 30, 2020 and 2019.

Table of Contents

Noninterest Income

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


		Three Months Ended											Three Months Ended								Nine Months Ended
		March 31,						Change							September 30,				Change				September 30,				Change
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Amount		Percent		(Dollars in thousands)	2020		2019		Amount		Percent		2020		2019		Amount		Percent
Trust fee income	Trust fee income	$	1,890	$	1,887	$	3	0.2	%	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	1,397		1,435		(38)		(2.6)		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	4,255		3,789		466		12.3		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	4,732		5,144		(412)		(8.0)		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	1,870		2,267		(397)		(17.5)		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	734		952		(218)		(22.9)		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	695		1		694		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	2,744		483		2,261		N/M		Net gain on mortgage banking activities	5,860		1,629		4,231		NM		12,119		2,908		9,211		NM

Other income	Other income	67		339		(272)		(80.2)		Other income	2,171		544		1,627		NM		4,017		1,606		2,411		NM
Total noninterest income	Total noninterest income	$	18,384	$	16,297	$	2,087	12.8	%	Total noninterest income	$	21,805	$	16,599	$	5,206	31.4	%	$	58,189	$	49,252	$	8,937	18.1	%

Three and nine months ended ~~March 31,~~September 30, 2020 versus 2019

Noninterest income for the three months ended ~~March 31,~~September 30, 2020 was ~~$18.4~~$21.8 million, an increase of ~~$2.1~~$5.2 million, or ~~12.8%~~31.4%, from the three months ended ~~March 31,~~September 30, 2019. Noninterest income for the nine months ended September 30, 2020 was $58.2 million, an increase of $8.9 million, or 18.1%, from the nine months ended September 30, 2019.

The net gain on mortgage banking activities increased ~~$2.3~~$4.2 million, or ~~468.1%~~259.7%, for the three months ended ~~March 31,~~September 30, 2020 ~~primarily~~and $9.2 million, or 316.7%, for the nine months ended September 30, 2020, due to an increase in ~~mortgage~~ volume and an expansion of margins. Net gain on sales of investment securities increased ~~$694~~$776 thousand for the ~~quarter~~nine months ended September 30, 2020 from the comparable period in the prior year primarily due to a $652 thousand gain on the sale of $58.3 million of agency backed mortgage backed ~~securities. Investment advisory commission and fee income increased $466 thousand, or 12.3%, for~~securities in the ~~three~~

~~Table~~first quarter of ~~Contents~~

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

~~Insurance commission and fee~~Other income ~~decreased $412 thousand,~~increased $1.6 million, or ~~8.0%~~299.1%, for the three months ended ~~March 31,~~September 30, 2020 ~~primarily due to a decrease~~and $2.4 million, or 150.1%, for the nine months ended September 30, 2020 from the comparable periods in ~~contingent commission income of $389 thousand, which was $1.1~~the prior year. Fees on risk participation agreements for interest rate swaps increased $2.2 million for the three months ended ~~March 31,~~September 30, 2020 ~~compared to $1.5~~and $3.4 million for the nine months ended September 30, 2020 from the comparable periods in the prior year, driven by increased customer activity due to the current rate environment. Net gains or losses related to valuations and sales of other real estate owned decreased $323 thousand for the three months ended September 30, 2020 and $268 thousand for the nine months ended September 30, 2020 from the comparable periods in the prior year, primarily due to a $300 thousand valuation adjustment on other real estate owned for a property that is under agreement of sale and is expected to be sold in the fourth quarter of 2020. Gain on sale of small business administration (SBA) loans decreased $52 thousand for the three months ended ~~March 31, 2019. Other service fee income~~September 30, 2020 and $346 thousand for the nine months ended September 30, 2020 from the comparable periods in the prior year due to decreased ~~$397~~SBA loan sale activity. Equity securities measured at fair value decreased $21 thousand for the three months ended September 30, 2020 and $333 thousand for the nine months ended September 30, 2020.

Service charges on deposit accounts decreased $326 thousand, or ~~17.5%~~21.5%, for the three months ended ~~March 31,~~September 30, 2020 and $921 thousand, or 21.0%, for the nine months ended September 30, 2020 from the comparable periods in the prior year primarily due to ~~an increase~~the waiving of ~~$331 thousand~~certain deposit service charges for customers in response to COVID-19 during the second quarter of ~~mortgage servicing rights amortization. The increase~~2020 and a decline in ~~amortization~~customer activity in the third quarter of 2020.

Other service fee income decreased $1.7 million, or 23.4%, for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 ~~was primarily~~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. ~~BOLI~~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 ~~$218 thousand, or 22.9%, for the three months ended March 31, 2020, primarily due to an increase in value~~

Table of ~~our non-qualified annuity portfolio of $26 thousand in the three months ended March 31, 2020, compared to an increase of $249~~Contents

$320 thousand for the ~~three~~nine months ended ~~March 31, 2019. During~~September 30, 2020 from the first quarter of 2019, in order to reduce future volatility, the Corporation transferred the funds invested within the non-qualified annuity portfolio to a stable fund investment strategy. Other income decreased $272 thousand, or 80.2%, for the three months ended March 31, 2020, primarily driven by a losscomparable period in the ~~value of equity securities measured at fair value of $268 thousand for the three months ended March 31, 2020 compared~~prior year due to ~~a gain of $4 thousand for the quarter ended March 31, 2019.~~decreased customer transaction activity.

Noninterest Expense

The following table presents noninterest expense for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019:


		Three Months Ended											Three Months Ended								Nine Months Ended
		March 31,						Change							September 30,				Change				September 30,				Change
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Amount		Percent		(Dollars in thousands)	2020		2019		Amount		Percent		2020		2019		Amount		Percent
Salaries, benefits and commissions	Salaries, benefits and commissions	$	23,836	$	21,546	$	2,290	10.6	%	Salaries, benefits and commissions	$	24,059	$	22,758	$	1,301	5.7	%	$	69,595	$	66,356	$	3,239	4.9	%
Net occupancy	Net occupancy	2,574		2,611		(37)		(1.4)		Net occupancy	2,609		2,475		134		5.4		7,661		7,687		(26)		(0.3)
Equipment	Equipment	995		990		5		0.5		Equipment	972		1,088		(116)		(10.7)		2,890		3,143		(253)		(8.0)
Data processing	Data processing	2,760		2,514		246		9.8		Data processing	2,862		2,624		238		9.1		8,372		7,765		607		7.8
Professional fees	Professional fees	1,317		1,264		53		4.2		Professional fees	1,321		1,517		(196)		(12.9)		3,902		4,088		(186)		(4.5)
Marketing and advertising	Marketing and advertising	402		540		(138)		(25.6)		Marketing and advertising	463		558		(95)		(17.0)		1,400		1,884		(484)		(25.7)
Deposit insurance premiums	Deposit insurance premiums	504		452		52		11.5		Deposit insurance premiums	707		(444)		1,151		NM		1,826		438		1,388		NM
Intangible expenses	Intangible expenses	330		426		(96)		(22.5)		Intangible expenses	283		378		(95)		(25.1)		934		1,221		(287)		(23.5)

Other expense	Other expense	6,853		5,214		1,639		31.4		Other expense	5,251		5,313		(62)		(1.2)		16,684		16,028		656		4.1
Total noninterest expense	Total noninterest expense	$	39,571	$	35,557	$	4,014	11.3	%	Total noninterest expense	$	38,527	$	36,267	$	2,260	6.2	%	$	113,264	$	108,610	$	4,654	4.3	%

Three and nine months ended ~~March 31,~~September 30, 2020 versus 2019

Noninterest expense for the three months ended ~~March 31,~~September 30, 2020 was ~~$39.6~~$38.5 million, an increase of ~~$4.0~~$2.3 million, or ~~11.3%~~6.2%, from the three months ended ~~March 31,~~September 30, 2019. Noninterest expense for the nine months ended September 30, 2020 was $113.3 million, an increase of $4.7 million, or 4.3%, from the nine months ended September 30, 2019.

Salaries, benefits and commissions increased ~~$2.3~~$1.3 million, or ~~10.6%~~5.7%, for the three months ended ~~March 31,~~September 30, 2020 ~~primarily~~and increased $3.2 million, or 4.9%, for the nine months ended September 30, 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 ~~quarter~~quarters of 2019, annual merit increases and increased variable compensation due to strong mortgage banking activity. ~~Data processing expense~~Deposit insurance premiums increased ~~$246 thousand,~~$1.2 million, or ~~9.8%~~259.2%, for the three months ended ~~March 31,~~September 30, 2020 and increased $1.4 million, or 316.9%, for the nine months ended September 30, 2020 from the comparable periods in the prior year primarily due to ~~continued investments in customer relationship management software~~an FDIC small bank assessment credit of $988 thousand, which was recognized during the third quarter of 2019 and ~~internal infrastructure improvements as well as outsourced data processing solutions. Other expense~~an increased ~~$1.6 million, or 31.4%,~~assessment base for ~~the three months ended March 31,~~ 2020 ~~primarily~~ due to ~~a one-time $656 thousand charge related to the extinguishment of long-term debt and an increase of $794 thousand in the reserve for unfunded commitments, which resulted from the adoption of CECL.~~asset growth.

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Tax Provision

The provision for income taxes for the three months ended ~~March 31,~~September 30, 2020 and 2019 was ~~$(606) thousand~~$5.1 million and ~~$3.5~~$3.8 million, respectively, at an effective ~~rate~~tax rates of ~~(261.2)%~~21.9% and 17.6%, respectively. The provision for income taxes for the nine months ended September 30, 2020 and 2019 was $4.2 million and $11.0 million, respectively, at effective tax rates of 16.7% and 17.9%, respectively. The ~~negative~~ effective tax rate of 16.7% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, was calculated using the annual effective tax rate methodology and reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. The calculation of the effective tax rate for income taxes for the ~~three~~six months ended ~~March 31,~~June 30, 2020 iswas 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~~Corporation's estimate of the annual effective tax rate. The Corporation's effective income tax rates for the three months ended March 31, 2019 was favorably impacted by discrete tax benefits. Excluding these items, the effective tax rate was 18.2% for the three months ended March 31, 2019.

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Financial Condition

Assets

The following table presents assets at the dates indicated:


		At March 31, 2020		At December 31, 2019		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	$	182,902	$	125,128	$	57,774	46.2	%	Cash and interest-earning deposits	$	387,676	$	125,128	$	262,548
Investment securities, net of allowance for credit losses	Investment securities, net of allowance for credit losses	423,521		441,599		(18,078)		(4.1)		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	28,465		28,254		211		0.7		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	11,417		5,504		5,913		N/M		Loans held for sale	14,465		5,504		8,961		NM
Loans and leases held for investment	Loans and leases held for investment	4,448,825		4,386,836		61,989		1.4		Loans and leases held for investment	5,211,856		4,386,836		825,020		18.8
Reserve for credit losses, loans and leases		(68,216)		(35,331)		(32,885)		(93.1)
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	55,789		56,676		(887)		(1.6)		Premises and equipment, net	55,410		56,676		(1,266)		(2.2)
Operating lease right-of-use assets	Operating lease right-of-use assets	34,679		34,418		261		0.8		Operating lease right-of-use assets	34,573		34,418		155		0.5
Goodwill and other intangibles, net	Goodwill and other intangibles, net	182,332		182,843		(511)		(0.3)		Goodwill and other intangibles, net	181,574		182,843		(1,269)		(0.7)
Bank owned life insurance	Bank owned life insurance	115,512		114,778		734		0.6		Bank owned life insurance	116,985		114,778		2,207		1.9

Accrued interest receivable and other assets	Accrued interest receivable and other assets	49,542		40,219		9,323		23.2		Accrued interest receivable and other assets	73,609		40,219		33,390		83.0
Total assets	Total assets	$	5,464,768	$	5,380,924	$	83,844	1.6	%	Total assets	$	6,382,831	$	5,380,924	$	1,001,907	18.6	%

Cash and Interest-Earning Deposits

Cash and interest-earning deposits increased ~~$57.8~~$262.5 million, or ~~46.2%~~209.8%, from December 31, 2019, primarily due to increased ~~interest-earning~~interest earning deposits at the Federal Reserve Bank of ~~$56.8~~$247.5 million.

Investment Securities

Total investments securities at ~~March 31,~~September 30, 2020 decreased ~~$18.1~~$72.8 million from December 31, 2019. Sales of ~~$67.0~~$76.1 million, maturities and pay-downs of ~~$18.4~~$75.5 million, calls of ~~$6.9~~$25.3 million, ~~decreases in the fair value of available-for-sale investment securities of $4.8 million,~~a provision for credit losses of ~~$897~~$693 thousand and net amortization of purchased premiums and discounts of ~~$446 thousand~~$1.9 million were partially offset by purchases of ~~$80.0 million. The decrease~~$103.4 million and increases in the fair value of available-for-sale investment securities ~~was primarily recorded on the variable rate corporate bond portfolio which was negatively impacted by the sudden decrease in interest rates and the yield curve.~~of $2.8 million.

Loans and Leases

Gross loans and leases held for investment ~~grew $62.0~~increased $825.0 million, or ~~1.4%~~18.8%, from December 31, 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 ~~and residential real estate~~loans partially offset by a decrease in commercial loans.

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Asset Quality

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

Nonaccrual loans and leases and accruing troubled debt restructured loans are loans or leases for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. Factors considered by management in determining accrual status include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due.

At ~~March 31,~~September 30, 2020, nonaccrual loans and leases and accruing troubled debt restructured loans were ~~$36.7 million. The~~$30.1 million and had a related allowance for credit losses on loans and leases ~~was $2.5~~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 individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits.

Other real estate owned was $8.3 million and $516 thousand at ~~March 31,~~September 30, 2020 and December 31, ~~2019.~~2019, respectively. During the nine months ended September 30, 2020, other real estate owned increased $8.1 million related to the commercial real estate loan discussed above. This increase was offset by a $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 $71 thousand was sold for a gain of $4 thousand.

~~Table of Contents~~

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

The following table details information pertaining to the Corporation’s nonperforming assets at the dates indicated.


(Dollars in thousands)	(Dollars in thousands)	At March 31, 2020			At December 31, 2019			(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*:							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	$	3,934		$	3,442		Commercial, financial and agricultural	$	3,809		$	3,442
Real estate—commercial	Real estate—commercial	28,827			27,928			Real estate—commercial	20,464			27,928
Real estate—construction	Real estate—construction	—			257			Real estate—construction	—			257
Real estate—residential	Real estate—residential	3,370			6,445			Real estate—residential	5,494			6,445

Lease financings	Lease financings	495			506			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*	36,626			38,578			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			54			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	—			20			Commercial, financial and agricultural	27			20
Real estate—commercial	Real estate—commercial	722			—			Real estate—commercial	1,539			—

Real estate—residential	Real estate—residential	826			—			Real estate—residential	1,255			—
Loans to individuals	Loans to individuals	63			74			Loans to individuals	23			74
Lease financings	Lease financings	166			49			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	1,777			143			Total accruing loans and leases, 90 days or more past due	3,573			143
Total nonperforming loans and leases	Total nonperforming loans and leases	38,457			38,775			Total nonperforming loans and leases	33,645			38,775
Other real estate owned	Other real estate owned	516			516			Other real estate owned	8,270			516
Total nonperforming assets	Total nonperforming assets	$	38,973		$	39,291		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	0.82		%	0.88		%	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	0.86		%	0.88		%	Nonperforming loans and leases / loans and leases held for investment	0.65		%	0.88		%
Nonperforming assets / total assets	Nonperforming assets / total assets	0.71		%	0.73		%	Nonperforming assets / total assets	0.66		%	0.73		%

Allowance for credit losses, loans and leases	Allowance for credit losses, loans and leases	$	68,216		$	35,331		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	1.53		%	0.81		%	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	186.25		%	91.58		%	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	177.38		%	91.12		%	Allowance for credit losses, loans and leases / nonperforming loans and leases held for investment	273.06		%	91.12		%

* 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	$	13,680		$	13,817		* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	14,206		$	13,817

5463

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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 March 31, 2020		At December 31, 2019		(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	$	36,626	$	38,578	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	2,830		1,966		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	1,532		1,320		Life-to-date partial charge-offs on nonaccrual loans and leases	1,958		1,320
Specific reserves on individually analyzed loans	Specific reserves on individually analyzed loans	2,535		2,108		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 ~~$982 thousand~~$1.1 million and ~~$725~~$955 thousand for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively. The amortization of intangible assets was $3.3 million and $2.5 million for the nine months ended September 30, 2020 and 2019, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at ~~March 31,~~September 30, 2020 and December 31, 2019.

The Corporation also has goodwill with a net carrying value of $172.6 million at ~~March 31,~~September 30, 2020 and December 31, 2019, which is deemed to be an indefinite intangible asset and is not amortized. The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 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 March 31, 2020		At December 31, 2019		Change							(Dollars in thousands)	At September 30, 2020		At December 31, 2019		Change
																				At December 31, 2019	Amount	Percent
Deposits	Deposits	$	4,407,303	$	4,360,075	$	47,228	1.1	%	Deposits	$	5,211,603		$	4,360,075	$	851,528
Short-term borrowings	Short-term borrowings	18,415		18,680		(265)		(1.4)		Short-term borrowings	17,681			18,680		(999)		(5.3)
Long-term debt	Long-term debt	210,069		150,098		59,971		40.0		Long-term debt	205,010			150,098		54,912		36.6
Subordinated notes	Subordinated notes	94,879		94,818		61		0.1		Subordinated notes	193,413			94,818		98,595		NM
Operating lease liabilities	Operating lease liabilities	37,919		37,617		302		0.8		Operating lease liabilities	37,891			37,617		274		0.7
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	44,632		44,514		118		0.3		Accrued interest payable and other liabilities	48,126			44,514		3,612		8.1
Total liabilities	Total liabilities	$	4,813,217	$	4,705,802	$	107,415	2.3	%	Total liabilities	$	5,713,724		$	4,705,802	$	1,007,922	21.4	%

Deposits

Total deposits increased ~~$47.2~~$851.5 million, or ~~1.1%~~19.5%, from December 31, 2019, primarily due to increases in commercial and consumer ~~deposits partially offset by a seasonal decrease in public funds~~ deposits.

Borrowings

Total borrowings increased ~~$59.8~~$152.5 million, or ~~22.7%~~57.9%, from December 31, ~~2019,~~2019. Long-term borrowings increased $54.9 million primarily due to an increase in long-term FHLB borrowings ~~of $60.0~~ to fund future loan growth. Subordinated notes increased from the issuance of $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~~Liabilities

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve for these off-balance sheet credits was ~~$2.4~~$3.0 million and $420 thousand at ~~March 31,~~September 30, 2020 and December 31, ~~2019, respectively. The~~2019. Refer to the Executive Overview for discussion of the increase of ~~$1.9 million relates to the implementation of ASU 2016-03.~~$2.6 million.

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Shareholders’ Equity

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


(Dollars in thousands)	(Dollars in thousands)	At March 31, 2020		At December 31, 2019		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	$	—	—	%	Common stock	$	157,784		$	157,784	$	—
Additional paid-in capital	Additional paid-in capital	295,439		294,999		440		0.1		Additional paid-in capital	296,599			294,999		1,600		0.5
Retained earnings	Retained earnings	272,478		288,803		(16,325)		(5.7)		Retained earnings	281,026			288,803		(7,777)		(2.7)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(25,628)		(21,730)		(3,898)		(17.9)		Accumulated other comprehensive loss	(19,100)			(21,730)		2,630		(12.1)
Treasury stock	Treasury stock	(48,522)		(44,734)		(3,788)		(8.5)		Treasury stock	(47,202)			(44,734)		(2,468)		5.5
Total shareholders’ equity	Total shareholders’ equity	$	651,551	$	675,122	$	(23,571)	(3.5	%)	Total shareholders’ equity	$	669,107		$	675,122	$	(6,015)	(0.9	%)

~~The decrease in~~Total shareholders' equity ~~at March 31, 2020 of $23.6~~decreased $6.0 million, or ~~3.5%~~0.9%, from December 31, ~~2019 was primarily related to a decrease in retained earnings of $16.3 million.~~2019. Retained earnings at ~~March 31,~~September 30, 2020 ~~was~~ decreased by $7.8 million primarily due to a $11.3 million decrease upon adoption of CECL and ~~by $5.9~~a $17.5 million ofdecrease due to cash dividends declared, ~~which was~~ partially offset by ~~the three months of~~ net income of ~~$838 thousand.~~$21.0 million for the nine months ended September 30, 2020. Accumulated other comprehensive loss ~~increased~~decreased by ~~$3.9~~$2.6 million mainly attributable to ~~decreases~~increases in the fair value of available-for-sale investment securities of ~~$3.8~~$2.2 million, net of tax. Treasury stock increased ~~$3.8~~$2.5 million from December 31, 2019 primarily related to ~~purchases~~repurchases of ~~$4.0~~$4.4 million of stock offset by $2.0 million of stock issued under ~~the Corporation's share repurchase program.~~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 ~~loss~~income of ~~$1.5~~$22.7 million and ~~a pre-tax income of $17.3~~$19.9 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively and pre-tax income of $22.2 million and $57.1 million for the nine months ended September 30, 2020 and 2019, respectively. See the section of this MD&A under the ~~heading~~headings “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for Credit Losses” for a discussion of the Banking Segment.

The Wealth Management segment reported pre-tax income of ~~$1.9 million and $1.7~~$2.0 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, and $5.4 million and $5.8 million for the nine months ended September 30, 2020 and 2019, respectively. Noninterest income was ~~$6.2 million and $5.7~~$6.0 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, and $17.7 million and $17.9 million for the nine months ended September 30, 2020 and 2019, respectively. The ~~increase~~decrease in ~~pre-tax income and~~ noninterest income for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was primarily due to ~~new client relationships and appreciation~~a decline in the value of assets under management and supervision, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management and supervision balance. Assets under management and supervision were ~~$3.3~~$3.6 billion as of ~~March 31,~~September 30, 2020 and 2019, $3.6 billion and $3.7 billion as of June 30, 2020 and 2019, respectively, and $3.8 billion as of December ~~31, 2019 and $3.6 billion as of March~~ 31, 2019. The decrease in assets under management and supervision of ~~$511~~$44.1 million for the period from December 31, 2019 to ~~March 31,~~September 30, 2020 was primarily due to the general downturn in the equity markets ~~in March 2020~~ driven by the impact of COVID-19.

The Insurance segment reported pre-tax income of ~~$1.6 million~~$822 thousand and ~~$2.0 million~~$853 thousand for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and $3.5 million and $3.7 million for the nine months ended September 30, 2020 and 2019, respectively. Noninterest income was ~~$4.9~~$3.9 million and ~~$5.4~~$4.0 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and $13.0 million and $13.5 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in pre-tax income and noninterest income for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was primarily due to a decrease in contingent commission income, which was ~~$1.1~~$1.4 million and ~~$1.5~~$1.7 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively.

Capital Adequacy

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios as set forth in the following table. To comply with the regulatory definition of well capitalized, a depository institution must maintain minimum capital amounts and ratios as set forth in the following table.

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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%. The Corporation and the Bank were in compliance with these requirements at ~~March 31,~~September 30, 2020.

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Table 4—5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of ~~March 31,~~September 30, 2020 and December 31, 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 March 31, 2020
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	$	657,856	13.65	%	$	385,467	8.00	%	$	481,834	10.00	%	Corporation	$	786,638	15.35	%	$	409,867	8.00	%	$	512,334	10.00	%
Bank	Bank	568,205		11.87		382,946		8.00		478,682		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	520,010		10.79		289,101		6.00		385,467		8.00		Corporation	539,115		10.52		307,400		6.00		409,867		8.00
Bank	Bank	515,238		10.76		287,209		6.00		382,946		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	520,010		10.79		216,825		4.50		313,192		6.50		Corporation	539,115		10.52		230,550		4.50		333,017		6.50
Bank	Bank	515,238		10.76		215,407		4.50		311,143		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	520,010		9.90		210,016		4.00		262,521		5.00		Corporation	539,115		8.97		240,383		4.00		300,478		5.00
Bank	Bank	515,238		9.85		209,307		4.00		261,634		5.00		Bank	545,037		9.10		239,674		4.00		299,592		5.00
At December 31, 2019	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	$	655,010	13.78	%	$	380,276	8.00	%	$	475,344	10.00	%	Corporation	$	655,010	13.78	%	$	380,276	8.00	%	$	475,344	10.00	%
Bank	Bank	552,142		11.66		378,724		8.00		473,405		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	524,137		11.03		285,207		6.00		380,276		8.00		Corporation	524,137		11.03		285,207		6.00		380,276		8.00
Bank	Bank	516,087		10.90		284,043		6.00		378,724		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	524,137		11.03		213,905		4.50		308,974		6.50		Corporation	524,137		11.03		213,905		4.50		308,974		6.50
Bank	Bank	516,087		10.90		213,032		4.50		307,713		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	524,137		10.02		209,330		4.00		261,663		5.00		Corporation	524,137		10.02		209,330		4.00		261,663		5.00
Bank	Bank	516,087		9.90		208,589		4.00		260,737		5.00		Bank	516,087		9.90		208,589		4.00		260,737		5.00

At ~~March 31,~~September 30, 2020 and December 31, 2019, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. At ~~March 31,~~September 30, 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.

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 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 2020 CECL IFR allows Corporations that adopt CECL before December 31, 2020 to defer 100 percent of the day one transitional amounts described above through

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

The Corporation adopted the transition guidance and the 2020 CECL IFR relief and applied these effects to regulatory ~~capital in the first quarter of 2020 upon adoption of CECL.~~capital. See Note 1, "Summary of Significant Accounting Policies" for additional 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 short-term rate 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 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.

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 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.

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Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 1 to the Condensed Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

Recent Regulatory and Legislative Developments

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

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

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

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

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

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

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

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

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

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

•The ability of a borrower of a federally backed mortgage loan (VA, FHA, USDA, Freddie and Fannie) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance will be granted for up to 180 days, which can be extended for an additional 180-day

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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

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

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

The Paycheck Protection Program

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

The Paycheck Protection Program Lending Facility

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

The Paycheck Protection Program and Health Care Enhancement Act

On April 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, 2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2020.

Changes in Internal Control over Financial Reporting

Effective January 1, 2020, the Corporation adopted CECL. The Corporation designed new controls and modified existing controls as part of this adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. There were no ~~other~~ changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended ~~March 31,~~September 30, 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

~~In addition~~There have been no material changes in risk factors applicable to the ~~other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously~~Corporation from those disclosed in ~~our~~"Risk Factors" in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019 ~~as filed with~~and Quarterly Reports on Forms 10-Q for the SEC. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

~~The economic impact of the COVID-19 outbreak could adversely affect our financial condition~~quarters ended March 31, 2020 and ~~results of operations.~~

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.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
January 1 – 31, 2020 — $ — — 864,246
February 1 – 29, 2020 25,300 23.27 25,300 838,946
March 1 – 31, 2020 159,772 21.35 159,772 679,174
Total 185,072 $ 21.61 185,072


ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 – 31, 2020	—	$	—	—	679,174
August 1 – 31, 2020	—	—		—	679,174
September 1 – 30, 2020	—	—		—	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 ~~March 31,~~September 30, 2020 were as follows:

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


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 ~~10.1~~

4.1

~~Form of Change in Control Agreement,~~Indenture, dated ~~January 1,~~August 5, 2020, ~~entered into~~ between Univest Financial Corporation ~~Univest~~and U.S. Bank ~~and Trust Co. and each of Brian J. Richardson and Megan D. Santana,~~ National Association, as trustee, is incorporated herein by reference to Exhibit ~~10.1~~4.1 of Form 8-K, filed with the SEC on ~~January 3,~~August 5, 2020.

Exhibit ~~31.1~~ 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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 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: ~~May 4,~~November 2, 2020			/s/ Jeffrey M. Schweitzer
			Jeffrey M. Schweitzer President and Chief Executive Officer (Principal Executive Officer)

Date: ~~May 4,~~November 2, 2020			/s/ Brian J. Richardson
			Brian J. Richardson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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