UNIVEST FINANCIAL Corp - Annual Report: 2017 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

Commission File number 0-7617

UNIVEST CORPORATION OF PENNSYLVANIA

(Exact name of registrant as specified in its charter)



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

14 North Main Street, Souderton, Pennsylvania		18964
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code
(215) 721-2400
Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 twelve 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 ninety days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x	Accelerated filer	¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	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 new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The approximate aggregate market value of voting stock held by non-affiliates of the registrant is $772,823,181 as of June 30, 2017 based on the June 30, 2017 closing price of the Registrant's Common Stock of $29.95 per share.

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		29,362,569
(Title of Class)		(Number of shares outstanding at January 31, 2018)

DOCUMENTS INCORPORATED BY REFERENCE

Part I and Part III incorporate information by reference from the proxy statement for the annual meeting of shareholders on April 17, 2018.

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

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PART I
Item 1.	Business	2
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15
PART II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	19
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	110
Item 9A.	Controls and Procedures	110
Item 9B.	Other Information	112
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	112
Item 11.	Executive Compensation	112
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	112
Item 13.	Certain Relationships and Related Transactions, and Director Independence	113
Item 14.	Principal Accounting Fees and Services	113
PART IV
Item 15.	Exhibits and Financial Statement Schedules	113
Signatures		116

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PART I

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. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including but not limited to those set forth below as well as the risk factors described in Item 1A. “Risk Factors”:


•	Operating, legal and regulatory risks;


•	Economic, political and competitive forces impacting various lines of business;


•	Legislative, regulatory and accounting changes;


•	Demand for our financial products and services in our market area;


•	Volatility in interest rates;


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


•	Timing of revenue and expenditures;


•	Returns on investment decisions;


•	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.

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 forward-looking statements speak only as of 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.


Item 1.	Business

General

Univest Corporation of Pennsylvania (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 Bank). The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiary, the Bank. The Corporation’s and the Bank’s legal headquarters are located at 14 North Main Street, Souderton, PA 18964.

The Bank is a Pennsylvania state-chartered bank and trust company. As a state-chartered member bank of the Federal Reserve System, the Bank is regulated primarily by the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia.

The Bank is engaged in the commercial and consumer banking business and provides a full range of banking and trust services to its customers. The Bank is the parent company of Delview, Inc., which is the parent company of Univest Insurance, Inc., an independent insurance agency, Univest Investments, Inc., a full-service broker-dealer and investment advisory firm, and Girard Partners Ltd. (Girard Partners), a registered investment advisory firm acquired in January 2014. Univest Insurance has three offices in Pennsylvania and one in Maryland. Univest Investments has two offices in Pennsylvania. Girard Partners is headquartered in King of Prussia, Pennsylvania with a satellite office in Florida. The Bank is also the parent company of Univest Capital, Inc., an equipment financing business, and TCG Investment Advisory, a registered investment advisor, which provides discretionary investment consulting and management services. Through its wholly-owned subsidiaries, the Bank provides a variety of financial services to individuals, municipalities and businesses throughout its markets of operation. Univest Investments, Inc., Univest Insurance, Inc. and Univest Capital, Inc. were formed to enhance the traditional banking and trust services provided by the Bank, as was the acquisition of Girard Partners.

At December 31, 2017, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines its 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. For more detailed discussion and financial information on the business segments, see Note 23 “Segment Reporting” included in the Notes to the Consolidated Financial Statements included herein under Item 8.

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At December 31, 2017, the Corporation had total assets of $4.6 billion, net loans and leases of $3.6 billion, total deposits of $3.6 billion and total shareholders’ equity of $603.4 million.

Employees

At December 31, 2017, the Corporation and its subsidiaries employed eight hundred and fifty-five (855) persons. None of these employees are covered by collective bargaining agreements, and the Corporation believes it enjoys good relations with its personnel.

Market Area

The Corporation is headquartered in Souderton, Pennsylvania, which is located in Southeastern Pennsylvania, approximately thirty-five miles north of Philadelphia. The highest concentration of our deposits and loans are in Montgomery and Bucks counties where twenty-seven out of our forty-one financial centers are located. The acquisition of Fox Chase Bancorp (Fox Chase) on July 1, 2016 expanded the Corporation's presence in Montgomery, Bucks, Philadelphia, and Chester counties in Pennsylvania and into Cape May County in New Jersey. During 2017, the Corporation opened a financial center in Northampton County and three financial centers in Lancaster County Pennsylvania.

Montgomery and Bucks counties are two of the wealthiest counties in Pennsylvania. Significant types of employment industries include pharmaceuticals, health care, electronics, computer services, insurance, industrial machinery, retailing, schools and meat processing. Major companies throughout the two counties include Merck and Company, Abington Hospital-Jefferson Health, GlaxoSmithKline, Hatfield Quality Meats, Aetna/U.S. Healthcare, St. Mary Medical Center, Giant Food Stores LLC, Doylestown Hospital, Grand View Hospital, Central Bucks School District, Pennsbury School District and Northtec LLC. Unemployment rates at December 2017 were 3.4% in Montgomery County and 3.7% in Bucks County, lower than Pennsylvania’s state unemployment rate of 4.4% and the federal unemployment rate of 4.1%, according to the Bureau of Labor Statistics.

The Corporation ranks fifth in market share in Montgomery County with fifteen financial centers and eighth in Bucks County with twelve financial centers, with 5.9% of total combined market share in the two counties according to data provided by SNL Financial. Montgomery County’s population has grown 3% to 826,000 from the year 2010 to 2017, and is expected to grow another 1.7% through 2023, while Bucks County’s population has increased .2% to 626,000 during the same period, and is expected to grow .3% through 2023, according to SNL Financial. The median age is 41 years and 44 years in Montgomery and Bucks counties, respectively, consistent with the median age of 41 years in Pennsylvania and slightly higher than the median age in the United States of 38 years. County estimates project the median age to increase over the next two decades. The median yearly household income was $89,000 for Montgomery County and $88,000 for Bucks County during 2017 and is expected to increase 8% for Montgomery County and 10% for Bucks County through 2023, according to SNL Financial. The yearly median income for both counties is well above that of the Commonwealth of Pennsylvania of $61,000 and the United States at $61,000 during 2017.

Competition

The Corporation’s service areas are characterized by intense competition for banking business among commercial banks, savings institutions and other financial institutions. The Corporation’s subsidiary bank actively competes with such banks and financial institutions for local retail, commercial, municipality and non-profit accounts in Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia counties of Pennsylvania and Atlantic and Cape May counties in New Jersey, as well as other financial institutions outside its primary service area.

In competing with other banks, savings institutions and other financial institutions, the Bank seeks to provide personalized services and local decision making through management’s knowledge and awareness of its service area, customers and borrowers.

Other competitors, including credit unions, consumer finance companies, insurance companies, wealth management providers, leasing companies and mutual funds, compete with certain lending and deposit gathering services and insurance and wealth management services offered by the Bank and its operating segments.

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Supervision and Regulation

The financial services industry in the United States, particularly entities that are chartered as banks, is highly regulated by federal and state laws that limit the types of businesses in which banks and their holding companies may engage, and which impose significant operating requirements and limitations on banking entities. The discussion below is only a brief summary of some of the significant laws and regulations that affect the Bank and the Corporation, and is not intended to be a complete description of all such laws.

The Bank is subject to supervision and is regularly examined by the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia. The Bank is also subject to examination by the Federal Deposit Insurance Corporation (FDIC).

The Corporation is subject to the provisions of the Bank Holding Company Act of 1956, as amended, and is registered pursuant to its provisions. The Corporation is subject to the reporting requirements of the Board of Governors of the Federal Reserve System (the Board); and the Corporation, together with its subsidiaries, is subject to examination by the Board. The Federal Reserve Act limits the amount of credit that a member bank may extend to its affiliates, and the amount of its funds that it may invest in or lend on the collateral of the securities of its affiliates. Under the Federal Deposit Insurance Act, insured banks are subject to the same limitations.

The Corporation is subject to the Sarbanes-Oxley Act of 2002 (SOX). SOX adopted new standards of corporate governance and imposed additional requirements on the board of directors and management of public companies. SOX also requires that the chief executive officer and chief financial officer certify the accuracy of periodic reports filed with the Securities and Exchange Commission (SEC). Pursuant to Section 404 of SOX (SOX 404), the Corporation is required to furnish a report by its management on internal control over financial reporting, identify any material weaknesses in its internal control over financial reporting and assert that such internal controls are effective. The Corporation has continued to be in compliance with SOX 404 during 2017. The Corporation must maintain effective internal controls, which requires an on-going commitment by management and the Corporation’s Audit Committee. The process has and will continue to require substantial resources in both financial costs and human capital.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

The Dodd-Frank Act was signed into law on July 21, 2010. The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies such as:


•	Centralized responsibility for consumer financial protection by the creation of a new agency, the Consumer Financial Protection Bureau, that has rulemaking authority for a wide range of consumer protection laws that apply to all banks and has broad powers to supervise and enforce consumer protection laws;


•	Increased the FDIC assessment for depository institutions with assets of $10 billion or more, changed the basis for determining FDIC premiums from insured deposits to consolidated assets less tangible capital; and increased the minimum reserve ratio for the deposit insurance fund to 1.35% by September 30, 2020;


•	Permanently increased the federal deposit insurance coverage to $250 thousand and increased the Securities Investor Protection Corporation protection from $100 thousand to $250 thousand;


•	Provided for new disclosures and other requirements relating to executive compensation, proxy access by shareholders and corporate governance;

•

Provided for mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions; and


•	Created a financial stability oversight council responsible for recommending to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

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Basel III

In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. Basel III generally implements higher minimum capital requirements, adds a common equity Tier 1 capital requirement, and establishes criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. The minimum capital to risk-adjusted assets requirements include a common equity Tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and a Tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total capital ratio remains at 8.0% under the rules (10.0% to be considered “well capitalized”). Under BASEL III, 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. BASEL III permits institutions, other than certain large institutions, to elect to continue to treat most components of accumulated other comprehensive income as permitted under the current general risk-based capital rules, and not reflect these items in common equity Tier 1 calculations (such as unrealized gains and losses on available-for-sale securities, amounts recorded in accumulated other comprehensive income attributed to defined benefit retirement plans resulting from the initial and subsequent application of the relevant U.S. generally accepted accounting principles and accumulated net gains and losses on cash flow hedges related to items that are reported on the balance sheet at fair value). The minimum capital requirements were effective on January 1, 2015. The capital conservation buffer requirements phase in over a four-year period beginning January 1, 2016. See Note 21, "Regulatory Matters" included in the Notes to the Consolidated Financial Statements included herein under Item 8 for further discussion.

Tax Cuts and Jobs Act

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA includes many provisions that will affect the Corporation's income tax expense, including reducing the Corporation's federal tax rate from 35% to 21% effective January 1, 2018. As a result of the rate reduction, the Corporation is required to re-measure, through income tax expense in the period of enactment, the deferred tax assets and liabilities using the enacted rate at which they are expected to be recovered or settled. The re-measurement of the Corporation's net deferred tax asset resulted in additional 2017 income tax expense of $1.1 million.

Wealth Management and Insurance Businesses

The Corporation's wealth management and insurance businesses are subject to additional regulatory requirements. The securities brokerage activities of Univest Investments, Inc. are subject to regulation by the SEC, the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation. Girard Partners and TCG Investment Advisory are registered investment advisory firms which are subject to regulation by the SEC. Univest Insurance, Inc. is subject to Pennsylvania insurance laws and the regulations of the Pennsylvania Department of Insurance.

Credit and Monetary Policies

The Bank is affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve Board of Governors. An important function of these policies is to curb inflation and control recessions through control of the supply of money and credit. The Board uses its powers to regulate reserve requirements of member banks, the discount rate on member-bank borrowings, interest rates on time and savings deposits of member banks, and to conduct open-market operations in United States Government securities to exercise control over the supply of money and credit. The policies have a direct effect on the amount of bank loans and deposits and on the interest rates charged on loans and paid on deposits, with the result that the policies have a material effect on bank earnings. Future policies of the Board and other authorities cannot be predicted, nor can their effect on future bank earnings.

The Bank is a member of the Federal Home Loan Bank System (FHLBanks), which consists of 11 regional Federal Home Loan Banks, and is subject to supervision and regulation by the Federal Housing Finance Agency. The FHLBanks provide a central credit facility primarily for member institutions. The Bank, as a member of the Federal Home Loan Bank of Pittsburgh (FHLB), is required to acquire and hold shares of capital stock in the FHLB. At December 31, 2017, the Bank owned $12.5 million in FHLB capital stock.

The deposits of the Bank are insured by the FDIC up to applicable limits. Effective April 1, 2011, in accordance with the provisions of the Dodd-Frank Act, the FDIC implemented a final rule regarding deposit insurance assessments. The rule revised the assessment base to average consolidated total assets minus average tangible equity and set a target size for the Deposit Insurance

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Fund (DIF) at 2% of insured deposits. The rule adopted a new assessment rate schedule and, in lieu of dividends, other rate schedules when the reserve ratio reaches certain levels. Effective June 30, 2016, based on DIF ratios, the FDIC made changes to regulations to provide for three major changes to deposit insurance assessments including a reduction to the range of initial assessment rates for all institutions, surcharges on large banks and a revised method to calculate risk-based assessment rates for established small banks.

Acquisitions

The Corporation and its business segments provide financial solutions to individuals, businesses, municipalities and nonprofit organizations. The Corporation prides itself on being a financial organization that continues to increase its scope of services while maintaining traditional beliefs and a determined commitment to the communities it serves. Over the past five years, the Corporation and its subsidiaries have experienced stable growth, both organically and through various acquisitions to be the best integrated financial solutions provider in the market.

The acquisitions included:


•	Fox Chase Bancorp on July 1, 2016;


•	Valley Green Bank on January 1, 2015;


•	Sterner Insurance Associates on July 1, 2014;


•	Girard Partners on January 1, 2014;


•	John T. Fretz Insurance Agency, Inc. on May 1, 2013.

Securities and Exchange Commission Reports

The Corporation makes available free-of-charge its reports that are electronically filed with the SEC including its Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports on its website as a hyperlink to EDGAR. These reports are available as soon as reasonably practicable after the material is electronically filed. The Corporation’s website address is www.univest.net. Information included on the Corporation’s website is not part of this Annual Report on Form 10-K. The Corporation will provide at no charge a copy of the SEC Form 10-K annual report for the year 2017 to each shareholder who requests one in writing after March 31, 2018. Requests should be directed to: Megan Duryea Santana, Corporate Secretary, Univest Corporation of Pennsylvania, P.O. Box 197, Souderton, PA 18964.

The SEC maintains an internet site that contains the Corporation’s SEC filings electronically at www.sec.gov.

Item 1A. Risk Factors

An investment in the Corporation’s common stock is subject to risks inherent to the Corporation’s business. Before making an investment, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this report. This report is qualified in its entirety by these risk factors.

Risks Relating to Recent Economic Conditions and Governmental Response Efforts

The Corporation’s earnings are impacted by general business and economic conditions.

The Corporation’s operations and profitability are impacted by general business and economic conditions; these conditions include long-term and short-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, values of real estate and other collateral and the strength of the U.S. economy and the local economies in which we operate, all of which are beyond our control. Negative changes in these general business and economic conditions could have a material adverse effect on the Corporation's business, financial condition and results of operations.

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We cannot predict the effect of recent legislative and regulatory initiatives, and they could increase our costs of doing business and adversely affect our results of operations and financial condition.

The Dodd-Frank Act may have a material impact on our operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations. Other changes to statutes, regulations or regulatory policies, could affect the Corporation in substantial and unpredictable ways. Such changes could subject the Corporation to additional costs, limit the types of financial services and products the Corporation may offer, limit the fees we may charge, increase the ability of non-banks to offer competing financial services and products, change regulatory capital requirements (such as BASEL III), change deposit insurance assessments, and limit our ability to attract and maintain our executive officers, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Corporation's business, financial condition and results of operations.

We borrow from the Federal Home Loan Bank and the Federal Reserve, and these lenders could modify or terminate their current programs which could have an adverse effect on our liquidity and profitability.

We utilize the FHLB for overnight borrowings and term advances; we also borrow from the Federal Reserve and from correspondent banks under our federal funds lines of credit. The amount loaned to us is generally dependent on the value of the collateral pledged as well as the FHLB’s internal credit rating of the Bank. These lenders could reduce the percentages loaned against various collateral categories, could eliminate certain types of collateral and could otherwise modify or even terminate their loan programs, particularly to the extent they are required to do so, because of capital adequacy or other balance sheet concerns. Any change or termination of our borrowings from the FHLB, the Federal Reserve or correspondent banks would have an adverse effect on our liquidity and profitability.

Our results of operations may be adversely affected by other-than-temporary impairment charges relating to our investment portfolio.

We may be required to record future impairment charges on our investment securities, including our investment in the FHLB, if they suffer declines in value that we consider other-than-temporary. Numerous factors, including the lack of liquidity for re-sales of certain investment securities, the absence of reliable pricing information for investment securities, adverse changes in the business climate, adverse regulatory actions or unanticipated changes in the competitive environment, could have a negative effect on our investment portfolio in future periods. If an impairment charge is significant enough, it could affect the ability of the Bank to pay dividends to us, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders. Significant impairment charges could also negatively impact our regulatory capital ratios and result in the Bank not being classified as “well-capitalized” for regulatory purposes.

We may need to raise additional capital in the future and such capital may not be available when needed or at all.

Federal regulatory agencies have the authority to change the Corporation's and Bank's capital requirements. In addition, BASEL III and new accounting rules, such as Lease Accounting (ASU No. 2016-02) and CECL (ASU No. 2016-13) will have a negative impact of reducing regulatory capital ratios. Accordingly, we may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.

Our customary sources of liquidity include, but are not limited to, inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve. Such sources of liquidity may not be available to us on acceptable terms or not available at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of our bank or counterparties participating in the capital markets may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Market and Business

The Corporation’s profitability is affected by economic conditions in Southeastern Pennsylvania and Southern New Jersey.

Unlike larger regional banks that operate in large geographies, the Corporation provides banking and financial services to customers primarily in Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia counties in Pennsylvania and Atlantic and Cape May counties in New Jersey. Because of our geographic concentration, a downturn in the

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local economy could make it more difficult to attract deposits and could cause higher rates of loss and delinquency on our loans than if the loans were more geographically diversified. Adverse economic conditions in the region, including, without limitation, declining real estate values, could cause our levels of nonperforming assets and loan losses to increase. Regional economic conditions have a significant impact on the ability of borrowers to repay their loans as scheduled. A sluggish economy could, therefore, result in losses that materially and adversely affect our financial condition and results of operations.

The Corporation operates in a highly competitive industry and market area which could adversely impact its business and results of operations.

We face substantial competition in all phases of our businesses from a variety of different competitors. Our competitors, including commercial banks, community banks, savings institutions, credit unions, consumer finance companies, insurance companies, securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and other financial institutions, compete with lending and deposit-gathering services and insurance and wealth management services offered by us. Increased competition in our markets may result in reduced loans and deposits.

Many of these competing institutions have much greater financial and marketing resources than we have. Due to their size, many competitors can achieve larger economies of scale and may offer a broader range of products and services than we can. If we are unable to offer competitive products and services, our business may be negatively affected.

Some of the financial services organizations with which we compete are not subject to the same degree of regulation or tax structure as is imposed on bank holding companies and federally insured financial institutions. As a result, these non-bank competitors have certain advantages over us in accessing funding and in providing various services. The banking business in our primary market areas is very competitive, and the level of competition facing us may increase further, which may limit our asset growth and financial results.

The Corporation’s controls and procedures may fail or be circumvented.

Our management diligently reviews and updates the Corporation’s internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any failure or undetected circumvention of these controls could have a material adverse impact on our financial condition and results of operations.

Potential acquisitions may disrupt the Corporation’s business and dilute shareholder value.

We regularly evaluate opportunities to acquire and invest in banks and in other complementary businesses. As a result, we may engage in negotiations or discussions that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short and long-term liquidity and capital structure. Our acquisition activities could be material to us. For example, we could issue additional shares of common stock in a purchase transaction, which could dilute current shareholders’ ownership interest. These activities could require us to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our prior or potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill would not impact cash flow, tangible capital or liquidity but would decrease shareholders' equity.

Our acquisition activities could involve a number of additional risks, including the risks of:


•	incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions;


•	using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or its assets;


•	the time and expense required to integrate the operations and personnel of the combined businesses;


•	creating an adverse short-term effect on our results of operations; and


•	losing key employees and customers as a result of an acquisition that is poorly received.

We may not be successful in overcoming these risks or any other problems encountered in connection with potential acquisitions. Our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and could have an adverse effect on our financial condition and results of operations.

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The Corporation may not be able to attract and retain skilled people.

We are dependent on the ability and experience of a number of key management personnel who have substantial experience with our operations, the financial services industry, and the markets in which we offer products and services. The loss of one or more senior executives or key managers may have an adverse effect on our businesses. In 2016, the Corporation entered into change in control agreements with certain executive officers. As we continue to grow businesses, our success depends on our ability to continue to attract, manage, and retain other qualified management personnel.

If we lost a significant portion of our low-cost deposits, it would negatively impact our liquidity and profitability.

Our profitability depends in part on our success in attracting and retaining a stable base of low-cost deposits. At December 31, 2017, 29% of our deposit base was comprised of noninterest-bearing deposits, of which 20% consisted of business deposits, which are primarily operating accounts for businesses, and 9% consisted of consumer deposits. The competition for these deposits in our markets is strong and customers are increasingly seeking investments with higher interest rates that are safe, including the purchase of U.S. Treasury securities and other government-guaranteed obligations, as well as the establishment of accounts at the largest, most-well capitalized banks. If we were to lose a significant portion of our low-cost deposits, it would negatively impact our liquidity and profitability.

The Corporation’s information systems may experience an interruption or breach in security.

The Corporation relies heavily on information systems to conduct its business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in the Corporation’s customer relationship management and general ledger, deposit, loan, and other systems. The Corporation has policies and procedures designed with the intention to prevent or limit the effect of any failure, interruption, or breach in our security systems. The occurrence of any such failures, interruptions, or breaches in security could expose the Corporation to reputation risk, civil litigation, regulatory scrutiny and possible financial liability that could have a material adverse effect on our financial condition and results of operations.

The Corporation continually encounters technological change.

Our future success depends, in part, on our ability to effectively embrace technology efficiencies to better serve customers and reduce costs. Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations.

The Corporation is subject to claims and litigation.

Customer claims and other legal actions, whether founded or unfounded, could result in financial or reputation damage and have a material adverse effect on our financial condition and results of operations if such claims are not resolved in a manner favorable to the Corporation.

Natural disasters, acts of war or terrorism and other external events could negatively impact the Corporation.

Natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on the Corporation’s ability to conduct business. In addition, such events could affect the stability of the Corporation’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Corporation to incur additional expenses. Our management has established disaster recovery policies and procedures that are expected to mitigate events related to natural or man-made disasters; however, the occurrence of any such event and the impact of an overall economic decline resulting from such a disaster could have a material adverse effect on the Corporation’s financial condition and results of operations.

The Corporation depends on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a customer’s audited financial statements conform to U.S. generally accepted accounting principles (U.S. GAAP) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. Our financial

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condition, results of operations and capital could be negatively impacted to the extent we incorrectly assess the creditworthiness of our borrowers, fail to detect or respond to deterioration in asset quality in a timely manner, or rely on financial statements that do not comply with U.S. GAAP or are materially misleading.

Risks Related to the Banking Industry

The Corporation is subject to interest rate risk.

Our profitability is dependent to a large extent on our net interest income. Like most financial institutions, we are affected by changes in general interest rate levels and by other economic factors beyond our control. Although we believe we have implemented strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial and prolonged change in market interest rates could adversely affect our operating results.

Net interest income may decline in a particular period if:


•	In a declining interest rate environment, more interest-earning assets than interest-bearing liabilities re-price or mature, or


•	In a rising interest rate environment, more interest-bearing liabilities than interest-earning assets re-price or mature.

Our net interest income may decline based on our exposure to a difference in short-term and long-term interest rates. If the difference between the short-term and long-term interest rates shrinks or disappears, the difference between rates paid on deposits and received on loans could narrow significantly resulting in a decrease in net interest income. In addition to these factors, if market interest rates rise rapidly, interest rate adjustment caps may limit increases in the interest rates on adjustable rate loans, thus reducing our net interest income. Also, certain adjustable rate loans re-price based on lagging interest rate indices. This lagging effect may also negatively impact our net interest income when general interest rates continue to rise periodically. Increasing interest rates may also reduce the fair value of our fixed rate investment securities negatively impacting shareholders' equity.

The Corporation is subject to lending risk.

Risks associated with lending activities include, among other things, the impact of changes in interest rates and economic conditions, which may adversely impact the ability of borrowers to repay outstanding loans and the value of the associated collateral. Various laws and regulations also affect our lending activities, and failure to comply with such applicable laws and regulations could subject the Corporation to enforcement actions and civil monetary penalties.

At December 31, 2017, approximately 85.2% of our loan and lease portfolio consisted of commercial, financial and agricultural, commercial real estate and construction loans and leases which are generally perceived as having more risk of default than residential real estate and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers. An increase in nonperforming loans and leases could result in a net loss of earnings from these loans and leases, an increase in the provision for possible loan and lease losses, and an increase in loan and lease charge-offs. The risk of loan and lease losses increases if the economy worsens.

Commercial business loans and leases are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. The collateral securing the loans and leases often depreciates over time, is difficult to appraise and liquidate and fluctuates in value based on the success of the business. In addition, many commercial business loans have a variable rate which is indexed off of a floating rate such as Prime or LIBOR. If interest rates rise, the borrower's debt service requirement may increase, negatively impacting the borrower's ability to service their debt.

Risk of loss on a construction loan depends largely upon whether our initial estimate of the property’s value at completion of construction equals or exceeds the cost of the property construction (including interest). During the construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, borrower liquidation of collateral or by seizure of collateral. Included in real estate-construction is track development financing. Risk factors related to track development financing include the demand for residential housing and the real estate valuation market. When projects move slower than anticipated, the properties may have significantly lower values than when the original underwriting was completed, resulting in lower collateral values to support the loan. Extended time frames also cause the interest carrying cost

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for projects to be higher than the builder projected, negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.

Commercial real estate loans secured by owner-occupied properties are dependent upon the successful operation of the borrower’s business. If the operating company suffers difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and at a profit.

Commercial business, commercial real estate, and construction loans are more susceptible to a risk of loss during a downturn in the business cycle. Our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans.

The Corporation’s allowance for possible loan and lease losses may be insufficient, and an increase in the allowance would reduce earnings.

We maintain an allowance for loan and lease losses. The allowance is established through a provision for loan and lease losses based on management’s evaluation of the risks inherent in our loan portfolio and the general economy. The allowance is based upon a number of factors, including the size of the loan and lease portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherent in the portfolio, historical loan and lease loss experience and loan underwriting policies. In addition, we evaluate all loans and leases identified as problem loans and augment the allowance based upon our estimation of the potential loss associated with those problem loans and leases. Additions to our allowance for loan and lease losses decrease our net income.

If the evaluation we perform in connection with establishing loan and lease loss reserves is wrong, our allowance for loan and lease losses may not be sufficient to cover our losses, which would have an adverse effect on our operating results.

The regulators, in reviewing our loan and lease portfolio as part of a regulatory examination, may from time to time require us to increase our allowance for loan and lease losses, thereby negatively affecting our earnings, financial condition and capital ratios at that time. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of additional problem loans and leases and other factors, both within and outside of our control. Additions to the allowance could have a negative impact on our results of operations.

The Corporation is required to adopt the FASB's accounting standard which requires measurement of certain financial assets (including loans) using the current expected credit losses (CECL) beginning in calendar year 2020.

Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The FASB's amendment replaces the current incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the allowance will increase upon the adoption of CECL and that the increased allowance level will have the effect of decreasing shareholders' equity and the Corporation's and Bank's regulatory capital ratios.

Changes in economic conditions and the composition of our loan portfolio could lead to higher loan charge-offs or an increase in our provision for loan losses and may reduce our net income.

Changes in national and regional economic conditions could impact our loan portfolios. For example, an increase in unemployment, a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the communities we serve. Weakness in the market areas we serve could depress our earnings and consequently our financial condition because customers may not demand our products or services, borrowers may not be able to repay their loans, the value of the collateral securing our loans to borrowers may decline and the quality of our loan portfolio may decline. Any of the latter three scenarios could require us to charge off a higher percentage of our loans and/or increase our provision for loan and lease losses, which would reduce our net income and could require us to raise capital.

The Corporation is subject to environmental liability risk associated with lending activities.

In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. The Corporation may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may

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be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. Our policies and procedures require environmental factors to be considered during the loan application process. An environmental review is performed before initiating any commercial foreclosure action; however, these reviews may not be sufficient to detect all potential environmental hazards. Possible remediation costs and liabilities could have a material adverse effect on our financial condition.

The Corporation is subject to extensive government regulation and supervision.

We are subject to Federal Reserve Board regulation. The Bank is subject to extensive regulation, supervision, and examination by our primary federal regulators, the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia, and by the FDIC, the regulating authority that insures customer deposits. Also, as a member of the FHLB, the Bank must comply with applicable regulations of the Federal Housing Finance Agency and the FHLB. Regulation by these agencies is intended primarily for the protection of our depositors and the deposit insurance fund and not for the benefit of our shareholders. The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit, and other activities. A large claim against the Bank under these laws could have a material adverse effect on our financial condition and results of operations.

In prior years, financial reform legislation has been enacted by Congress changing the bank regulatory framework, creating an independent consumer protection bureau and establishing more stringent capital standards for financial institutions and their holding companies. The legislation has, and may continue to result, in new regulations including those that affect lending, funding, trading and investment activities of financial institutions and their holding companies. Such additional regulation and oversight could have a material and adverse impact on us.

Consumers may decide not to use banks to complete their financial transactions.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams could have an adverse effect on our financial condition and results of operations.

Risks Related to the Wealth Management and Insurance Industries

Revenues and profitability from our wealth management business may be adversely affected by any reduction in assets under management and supervision as a result of either a decline in market value of such assets or net outflows, which could reduce trust, investment advisory and brokerage and other servicing fees earned.

The wealth management business derives the majority of its revenue from noninterest income which consists of trust, investment advisory and brokerage and other servicing fees. Substantial revenues are generated from investment management contracts with clients. Under these contracts, the investment advisory fees paid to us are typically based on the market value of assets under management. Assets under management and supervision may decline for various reasons including declines in the market value of the assets in the funds and accounts managed or supervised, which could be caused by price declines in the securities markets generally or by price declines in specific market segments. Assets under management may also decrease due to redemptions and other withdrawals by clients or termination of contracts. This could be in response to adverse market conditions or in pursuit of other investment opportunities.

The wealth management industry is subject to extensive regulation, supervision and examination by regulators, and any enforcement action or adverse changes in the laws or regulations governing our business could decrease our revenues and profitability.

The wealth management business is subject to regulation by a number of regulatory agencies that are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets. In the event of non-compliance with an applicable regulation, governmental regulators, including the SEC, and FINRA, may institute administrative or judicial proceedings that may result in censure, fines, civil penalties, the issuance of cease-and-desist orders or the deregistration or suspension of the non-compliant broker-dealer or investment adviser or other adverse consequences. The imposition of any such penalties or orders could have a material adverse effect on the wealth management segment's operating results and financial condition. We may be adversely affected as a result of new or revised legislation or regulations. Regulatory changes have imposed and may continue to impose additional costs, which could adversely impact our profitability.

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Revenues and profitability from our insurance business may be adversely affected by market conditions, which could reduce insurance commissions and fees earned.

The revenues of our fee based insurance business are derived primarily from commissions from the sale of insurance policies, which commissions are generally calculated as a percentage of the policy premium. These insurance policy commissions can fluctuate as insurance carriers from time to time increase or decrease the premiums on the insurance products we sell. Due to the cyclical nature of the insurance market and the impact of other market and macro economic conditions on insurance premiums, commission levels may vary. The reduction of these commission rates, along with general volatility and/or declines in premiums, may adversely impact our profitability.

Risks Related to Our Common Stock

An investment in the Corporation’s common stock is not an insured deposit.

The Corporation’s common stock is not a bank deposit, is not insured by the FDIC or any other deposit insurance fund, and is subject to investment risk, including the loss of some or all of your investment. Our common stock is subject to the same market forces that affect the price of common stock in any public company.

The Corporation’s stock price can be volatile.

The Corporation’s stock price can fluctuate in response to a variety of factors, some of which are not under our control. These factors could cause the Corporation’s stock price to decrease regardless of our operating results. These factors include, but are not limited to:


•	our past and future dividend practice;


•	our financial condition, performance, creditworthiness and prospects;


•	quarterly variations in our operating results or the quality of our assets;


•	operating results that vary from the expectations of management, securities analysts and investors;


•	changes in expectations as to our future financial performance;


•	the operating and securities price performance of other companies that investors believe are comparable to us;


•	future sales of our equity or equity-related securities;


•	the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; and


•	changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events.

The Corporation’s common stock is listed for trading on the NASDAQ Global Select Market under the symbol “UVSP” the trading volume has historically been less than that of larger financial services companies. Stock price volatility may make it more difficult for investors to sell their common stock when they want and at prices they find attractive.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the relatively low trading volume of our common stock, significant sales of our common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.

Anti-takeover provisions could negatively impact our shareholders.

Certain provisions in the Corporation’s Articles of Incorporation and Bylaws, as well as federal banking laws, regulatory approval requirements, and Pennsylvania law could make it more difficult for a third party to acquire the Corporation, even if doing so would be perceived to be beneficial to the Corporation’s shareholders.

There may be future sales or other dilution of the Corporation’s equity, which may adversely affect the market price of our common stock.

The Corporation is generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of any additional shares of common

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stock or preferred stock or securities convertible into, exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to shareholders of our common stock. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series. The market price of our common stock could decline as a result of offerings or because of sales of shares of our common stock made after offerings or the perception that such sales could occur. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

The Corporation relies on dividends from our subsidiaries for most of our revenue.

The Corporation is a bank holding company and our operations are conducted by our subsidiaries from which we receive dividends. The ability of our subsidiaries to pay dividends is subject to legal and regulatory limitations, profitability, financial condition, capital expenditures and other cash flow requirements. The ability of the Bank to pay cash dividends to the Corporation is limited by its obligation to maintain sufficient capital and by other restrictions on its cash dividends that are applicable to state member banks in the Federal Reserve System. If the Bank is not permitted to pay cash dividends to the Corporation, it is unlikely that we would be able to pay cash dividends on our common stock.

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Item 1B.	Unresolved Staff Comments

None.


Item 2.	Properties

The Corporation and its subsidiaries occupy fifty-five properties in Montgomery, Bucks, Philadelphia, Chester, Lehigh, Northampton, and Lancaster Counties in Pennsylvania, Cape May County in New Jersey, Calvert County in Maryland and Lee County in Florida, most of which are used principally as banking offices. Business locations and hours are available on the Corporation’s website at www.univest.net.

The Corporation owns its corporate headquarters buildings, which are shared with the Bank and Univest Investments, Inc., in Souderton, Montgomery County. The Bank has a leased office used by Univest Investments, Inc., Univest Capital Inc. and for loan production located in Allentown, Lehigh County. The Bank owns an office used by Univest Capital, Inc. and Univest Insurance, Inc. located in West Chester, Chester County. Univest Insurance, Inc. occupies three additional locations, of which one is owned by Univest Insurance, Inc. in Coopersburg, Lehigh County, and one is owned by the Bank, in Lansdale, Montgomery County and one is leased in North Beach, Calvert County in Maryland. Univest Capital, Inc. occupies one additional leased location in Bensalem, Bucks County. Girard Partners occupies two leased offices, one located in King of Prussia, Montgomery County, and one located in Fort Meyers, Lee County in Florida. The Bank serves the area through forty traditional offices and one supermarket branch that offer traditional community banking and trust services. In Pennsylvania, fifteen banking offices are located in Montgomery County, of which nine are owned, four are leased and two are buildings owned on leased land; twelve banking offices are located in Bucks County, of which six are owned, two are leased and four are buildings owned on leased land; six banking offices are located in Philadelphia County, of which one is owned and five are leased; one leased banking office is located in Chester County; one leased banking office is located in Lehigh County; one leased banking office is located in Northampton County; and four leased banking offices are located in Lancaster County. In New Jersey, one owned banking office is located in Cape May County. The Bank has three additional regional leased offices, one primarily used for corporate banking and mortgage banking located in Doylestown, Bucks County, one used for administrative offices for loan production located in Philadelphia, Philadelphia County, and one used for corporate lending in Lancaster, Lancaster County. The traditional office located in West Chester, Chester County, is also used for commercial banking and wealth management. The traditional office located in Hatboro, Montgomery County, is also used for corporate lending.

Additionally, the Bank provides banking and trust services for the residents and employees of fourteen retirement home communities. The Bank has eight off-premise automated teller machines, four of which are located in Montgomery County, three in Bucks County and one in Lehigh County. The Bank provides banking services nationwide through the internet via its website www.univest.net.


Item 3.	Legal Proceedings

The Corporation is periodically subject to various pending and threatened legal actions, which involve claims for monetary relief. Based upon information presently available to the Corporation, it is the Corporation's opinion that any legal and financial responsibility arising from such claims will not have a material adverse effect on the Corporation's results of operations, financial position or cash flows.

As discussed in Note 6, "Loans and Leases" and Note 16, "Commitments and Contingencies" to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, on September 25, 2017, Univest Capital, Inc. entered into a Release and Settlement Agreement whereby Univest Capital, Inc. received $1.0 million based upon court approval of the Agreement and is eligible to receive up to an additional $1.3 million. Payment of the $1.3 million is subject to the individual guarantor's election of whether or not they will be subject to the Release and Settlement Agreement.


Item 4.	Mine Safety Disclosures

Not Applicable.

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PART II


Item 5.	Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity

Securities

The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol “UVSP.” At December 31, 2017, the Corporation had 2,673 stockholders of record.

Broadridge Corporate Issuer Solutions, Inc. (Broadridge), serves as the Corporation’s transfer agent. Broadridge is located at 1155 Long Island Avenue, Edgewood, NY 11717. Shareholders can contact a representative by calling 866-321-8021.

Range of Market Prices of Common Stock and Cash Dividends

The following table shows the high and low sale prices of the Corporation’s common stock during the periods indicated. The table also presents the cash dividends declared per share for each quarter.



	Market Price				Cash Dividends Declared per Share
2017	High		Low		Cash Dividends Declared per Share
January–March	$	31.15	$	25.75	$	0.20
April–June	30.75		25.65		0.20
July–September	32.35		27.60		0.20
October–December	32.25		27.60		0.20

2016
January–March	$	20.98	$	18.43	$	0.20
April–June	21.28		18.81		0.20
July–September	23.79		19.97		0.20
October–December	31.50		22.76		0.20

For a description of regulatory restrictions on the ability of the Corporation and the Bank to pay dividends, see Note 21 “Regulatory Matters” included in the Notes to the Consolidated Financial Statements included herein under Item 8.

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Stock Performance Graph

The following chart compares the yearly percentage change in the cumulative shareholder return on the Corporation’s common stock during the five years ended December 31, 2017, with (1) the Total Return Index for the NASDAQ Stock Market (U.S. Companies) and (2) the Total Return Index for NASDAQ Bank Stocks. This comparison assumes $100.00 was invested on December 31, 2012, in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends.

Five Year Cumulative Total Return Summary



	2012	2013	2014	2015	2016	2017
Univest Corporation of Pennsylvania	100.00	126.13	128.45	137.75	211.24	197.14
NASDAQ Stock Market (US)	100.00	140.12	160.86	172.32	187.70	243.44
NASDAQ Banks	100.00	141.64	148.54	161.65	222.83	234.90

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ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information on repurchases by the Corporation of its common stock during the fourth quarter of 2017, under the Corporation's Board approved program:



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
October 1 - 31, 2017	—	$	—	—	1,014,246
November 1 - 30, 2017	—	—		—	1,014,246
December 1 – 31, 2017	—	—		—	1,014,246
Total	—	$	—	—


1.	Transactions are reported as of trade dates.

On October 23, 2013, the Corporation’s Board of Directors approved a new 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 limit 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.

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Item 6.	Selected Financial Data



	For the Years Ended December 31,
(Dollars in thousands, except per share data)	2017			2016			2015			2014			2013
Earnings
Interest income	$	163,015		$	126,607		$	101,983		$	76,192		$	77,804
Interest expense	19,839			12,382			8,065			3,996			5,117
Net interest income	143,176			114,225			93,918			72,196			72,687
Provision for loan and lease losses	9,892			4,821			3,802			3,607			11,228
Net interest income after provision for loan and lease losses	133,284			109,404			90,116			68,589			61,459
Noninterest income	59,240			55,963			52,425			48,344			46,559
Noninterest expense	130,713			141,981			105,515			87,254			81,133
Net income before income taxes	61,811			23,386			37,026			29,679			26,885
Income taxes	17,717			3,881			9,758			7,448			5,696
Net income	$	44,094		$	19,505		$	27,268		$	22,231		$	21,189
Financial Condition at Year End
Cash and interest-earning deposits	$	75,409		$	57,825		$	60,799		$	38,565		$	69,169
Investment securities	454,082			468,518			370,760			368,630			402,284
Net loans and leases held for investment	3,598,512			3,268,387			2,161,385			1,605,963			1,516,990
Assets	4,554,862			4,230,528			2,879,451			2,235,321			2,191,559
Deposits	3,554,919			3,257,567			2,394,360			1,861,341			1,844,498
Borrowings	355,590			417,780			73,588			41,974			37,256
Shareholders' equity	603,374			505,209			361,574			284,554			280,506
Per Common Share Data
Average shares outstanding (in thousands)	26,862			23,098			19,663			16,235			16,605
Earnings per share – basic	$	1.64		$	0.85		$	1.39		$	1.37		$	1.28
Earnings per share – diluted	1.64			0.84			1.39			1.37			1.28
Dividends declared per share	0.80			0.80			0.80			0.80			0.80
Book value (at year-end)	20.57			19.00			18.51			17.54			17.22
Dividends declared to net income	49.6		%	94.5		%	57.4		%	58.4		%	62.7		%
Profitability Ratios
Return on average assets	1.01		%	0.56		%	0.98		%	1.01		%	0.95		%
Return on average equity	8.37			4.46			7.58			7.74			7.53
Average equity to average assets	12.10			12.50			12.96			13.03			12.62
Asset Quality Ratios
Nonaccrual loans and leases (including nonaccrual, troubled debt restructured loans and lease modifications) to loans and leases held for investment	0.40		%	0.55		%	0.65		%	1.07		%	1.51		%
Nonperforming loans and leases to loans and leases held for investment	0.74			0.67			0.91			1.43			2.05
Net charge-offs to average loans and leases outstanding	0.17			0.18			0.33			0.47			0.77
Allowance for loan and lease losses to total loans and leases held for investment	0.60			0.53			0.81			1.27			1.59
Allowance for loan and lease losses to total loans and leases held for investment (excluding acquired loans at period-end)	0.70			0.73			0.94			1.27			1.59
Allowance for loan and lease losses to nonaccrual loans and leases	148.48			97.67			124.29			119.18			105.42
Allowance for loan and leases losses to nonperforming loans and leases	80.69			78.98			89.00			88.84			77.53

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(All dollar amounts presented in tables are in thousands, except per share data. “BP” equates to “basis points” “N/ M” equates to “not meaningful” “—” equates to “zero” or “doesn’t round to a reportable number” and “N/A” equates to “not applicable.” Certain amounts have been reclassified to conform to the current-year presentation.)

The information contained in this report may contain forward-looking statements, including statements relating to Univest Corporation of Pennsylvania (the Corporation) and its financial condition and results of operations that involve certain risks, uncertainties and assumptions. The Corporation’s actual results may differ materially from those anticipated, expected or projected as discussed in forward-looking statements. A discussion of forward-looking statements and factors that might cause such a difference includes those discussed in Item 1. “Business,” Item 1A. “Risk Factors,” as well as those within this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report.

Critical Accounting Policies

The discussion below outlines the Corporation’s critical accounting policies. For further information regarding accounting policies, refer to Note 1, “Summary of Significant Accounting Policies” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K.

Management, in order to prepare the Corporation’s financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation’s financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies, discussed below, could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale, reserve for loan and lease losses and purchase accounting as areas with critical accounting policies.

Fair Value Measurement of Investment Securities Available-for-Sale: The Corporation designates its investment securities as held-to-maturity, available-for-sale or trading. Each of these designations affords different treatment in the balance sheet and statement of income for market value changes affecting securities that are otherwise identical. Should evidence emerge that indicates that management’s intent or ability to manage the securities as originally asserted is not supportable, securities in the held-to-maturity or available-for-sale designations may be re-categorized so that adjustments to either the balance sheet or statement of condition may be required.

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 have not sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.

Reserve for Loan and Lease Losses: Reserves for loan and lease losses are provided using techniques that specifically identify losses on impaired loans and leases, estimate losses on pools of homogeneous loans and leases, and estimate the amount of unallocated reserve necessary to account for losses that are present in the loan and lease portfolio but not yet currently identifiable. The adequacies of these reserves are sensitive to changes in current economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral committed to secure such payments. Rapid or sustained downturns in the economy may require increases in the allowance that may negatively impact the Corporation’s results of operations and statements of financial condition in the periods requiring additional reserves.

Purchase Accounting: The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. The Corporation completed the acquisitions of Fox Chase in July 2016 and Valley Green in January 2015, which generated significant amounts of fair value adjustments to assets and liabilities. The fair value adjustments assigned to assets and liabilities, as well as their related useful lives, are subject to judgment and estimation by

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management. In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Corporation to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest, which requires the utilization of significant estimates and judgment in accounting for the acquisition.

The most significant fair value determination relates to the valuation of acquired loan portfolios. Level 3 inputs are utilized to value the portfolio and include the use of present value techniques employing cash flow estimates and incorporate assumptions that marketplace participants would use in estimating fair values. Specifically, management utilizes three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment, which are: 1) interest rate loan fair value analysis; 2) general credit fair value analysis; and 3) specific credit fair value analysis. For loans acquired with evidence of credit quality deterioration, the Corporation prepares a specific credit fair value adjustment. Actual performance of loans could differ from management’s initial estimates. If a loan outperforms the original fair value estimate, the difference between the original estimate and the actual performance of the loan is accreted into net interest income. Therefore, the net interest margin may initially increase due to the discount accretion. The yields on acquired loans are expected to decline as the acquired loan portfolio pays down or matures and the discount decreases. This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods. For more information, see Note 1 “Summary of Significant Accounting Policies" included in the Notes to the Consolidated Financial Statements included herein under Item 8.

Valuation of intangible assets is generally based on the estimated cash flows related to those assets, while the initial value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable assets acquired and liabilities assumed. The most significant other intangible asset is the core deposit intangible (CDI). In order to initially record the fair value of the CDI, the income approach is used. Estimates are based upon financial, economic, market and other conditions that exist at the time of the acquisition to develop the projected market interest rate, future interest and maintenance costs, and attrition rates. Useful lives are determined based on the expected future period of the benefit of the asset or liability, the assessment of which considers various characteristics of the asset or liability, including the historical cash flows.

Readers of the Corporation’s financial statements should be aware that the estimates and assumptions used in the Corporation’s current financial statements may need to be updated in future financial presentations for changes in circumstances, business or economic conditions in order to fairly represent the condition of the Corporation at that time.

General

The Corporation earns revenues primarily from the margins and fees generated from the lending and depository services to customers as well as fee-based income from trust, insurance, mortgage banking and investment services to customers. The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting its exposure to credit and interest rate risk to Board of Directors approved levels. Growth is pursued through expansion of current customer relationships and development of additional relationships with new offices and strategic acquisitions. The Corporation has also taken steps in recent years to reduce its dependence on net interest income by intensifying its focus on fee-based income from trust, insurance, mortgage banking and investment services to customers.

The principal component of earnings for the Corporation is net interest income, the income earned on loans and investments less the cost of interest-bearing liabilities. The net interest margin, the ratio of net interest income to average earning assets, is impacted by several factors including market interest rates, economic conditions, loan and lease demand, and deposit activity. As interest rates increase, fixed-rate assets that banks hold will tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold will tend to increase in value. The Corporation is in a slightly asset sensitive position and net interest income is projected to increase in a rising rate environment, however, actual results could be materially different than model, due to numerous factors influencing interest rates earned on new loans and investments as well as rates paid on new and existing deposits and new borrowings.

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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:



	For the Years Ended December 31,									Amount of Change					Percent Change
(Dollars in thousands, except per share data)	2017			2016			2015			2017 to 2016		2016 to 2015			2017 to 2016		2016 to 2015
Net income	$	44,094		$	19,505		$	27,268		$	24,589	$	(7,763	)	126.1	%	(28.5	)%
Net income per share:
Basic	$	1.64		$	0.85		$	1.39		$	0.79	$	(0.54	)	92.9		(38.8	)
Diluted	1.64			0.84			1.39			0.80		(0.55		)	95.2		(39.6	)
Return on average assets	1.01		%	0.56		%	0.98		%	45 BP		(42) BP			80.4		(42.9	)
Return on average equity	8.37			4.46			7.58			391 BP		(312) BP			87.7		(41.2	)

2017 versus 2016

The Corporation reported net income of $44.1 million or $1.64 diluted earnings per share for 2017 compared to net income of $19.5 million or $0.84 diluted earnings per share for 2016. The financial results for the year ended December 31, 2017 included a re-measurement of the Corporation’s net deferred tax asset associated with the passage of the Tax Cuts and Jobs Act of 2017. The re-measurement, which was recorded as additional income tax expense during the fourth quarter of 2017, was $1.1 million, or $0.04 of diluted earnings per share. The financial results for the year ended December 31, 2017 also included a tax-free bank owned life insurance death benefit of $889 thousand recognized in the second quarter of 2017, which represented $0.03 diluted earnings per share for the year ended December 31, 2017.

The financial results for the year ended December 31, 2016 included acquisition and integration costs related to the acquisition of Fox Chase plus restructuring costs related to facility closures and staffing rationalization of $11.8 million, net of tax, or $0.51 of diluted earnings per share. There were no acquisition, integration costs or restructuring costs during the year ended December 31, 2017. The results for the year ended December 31, 2016 also included $1.2 million, net of tax, or $0.05 of diluted earnings per share related to the Corporation’s agreement to settle its future obligations related to the acquisition of Girard Partners.

Additionally, in December 2017, the Corporation completed its public offering of 2,645,000 shares of common stock at a price of $28.25 per share which resulted in an increase in shareholders' equity of $70.5 million.

2016 versus 2015

The Corporation reported net income of $19.5 million or $0.84 diluted earnings per share for 2016 compared to net income of $27.3 million or $1.39 diluted earnings per share for 2015. The financial results for 2016 include the Fox Chase acquisition, which the Corporation completed on July 1, 2016. The financial results for the year ended December 31, 2016 included acquisition and integration costs related to the Fox Chase acquisition plus restructuring costs related to facility closures and staffing rationalization of $11.8 million, net of tax, or $0.51 of diluted earnings per share. The results for the year ended December 31, 2016 also included $1.2 million, net of tax, or $0.05 of diluted earnings per share, related to the Corporation’s agreement to settle its future obligations related to the acquisition of Girard Partners during the fourth quarter of 2016. The financial results for the year ended December 31, 2015 included acquisition, integration and restructuring costs related to the Fox Chase acquisition, the Valley Green acquisition and its new financial center model of $2.9 million, net of tax, or $0.15 of diluted earnings per share. The fair value of assets acquired as a result of the Fox Chase acquisition totaled $1.1 billion, loans totaled $776.2 million and deposits totaled $738.3 million.

Results of Operations

On July 1, 2016, the Corporation acquired Fox Chase. The comparative results of operations include a full year of operations for the combined entities for the year ended December 31, 2017 and for the six months ended December 31, 2016.

Net Interest Income

Table 1 presents a summary of the Corporation’s average balances, tax-equivalent interest income and interest expense and the tax-equivalent yields earned on average assets, and the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the year ended December 31, 2017 compared to 2016 and for the year ended December 31, 2016 compared to 2015. 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

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margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.

Table 1, Table 2, and the interest income and net interest income analysis contains tax-equivalent financial information and measures determined by methods other than in accordance with U.S. GAAP. The management of the Corporation uses this non-GAAP financial information and measures in its analysis of the Corporation's performance. This financial information and measures should not be considered a substitute for GAAP basis financial information or measures nor should they be viewed as a substitute for operating results determined in accordance with GAAP. Management believes the presentation of the non-GAAP financial information and measures provide useful information that is essential to a proper understanding of the financial results of the Corporation.

2017 versus 2016

Net interest income on a tax-equivalent basis for the year ended December 31, 2017 was $148.8 million, an increase of $29.1 million, or 24.3%, compared to the same period in 2016. The tax-equivalent net interest margin for the year ended December 31, 2017 was 3.78% compared to 3.82% for 2016. The increase in net interest income was mainly due to the impact of the Fox Chase acquisition, which occurred on July 1, 2016, organic loan growth and increases in loan yields partially offset by deposit growth and higher deposit costs. The favorable impact of acquisition accounting fair value adjustments was eight basis points ($3.0 million) for the year ended December 31, 2017 as compared to nine basis points ($2.8 million) for 2016.

2016 versus 2015

Net interest income on a tax-equivalent basis for the year ended December 31, 2016 was $119.7 million, an increase of $20.5 million, or 20.6%, compared to the same period in 2015. The tax-equivalent net interest margin for the year ended December 31, 2016 was 3.82% compared to 3.96% for 2015. The increase in net interest income and decrease in net interest margin was mainly due to the impact of the Fox Chase acquisition, which occurred on July 1, 2016. The favorable impact of acquisition accounting fair value adjustments was nine basis points for both years ended December 31, 2016 and 2015. The incremental subordinated debt issuance in July 2016 increased funding costs by four basis points for the year ended December 31, 2016 compared to 2015.

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



	For the Years Ended December 31,
	2017							2016							2015
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	26,128		$	280	1.07	%	$	13,438		$	61	0.45	%	$	38,515		$	95	0.25	%
U.S. government obligations	30,638			423		1.38		54,220			649		1.20		123,593			1,375		1.11
Obligations of states and political subdivisions	82,487			3,498		4.24		97,325			4,172		4.29		107,204			5,303		4.95
Other debt and equity securities	350,527			6,920		1.97		254,508			4,731		1.86		143,133			3,296		2.30
Federal funds sold and other earning assets	27,893			1,500		5.38		16,370			790		4.83		9,936			525		5.28
Total interest-earning deposits, investments, federal funds sold and other earning assets	517,673			12,621		2.44		435,861			10,403		2.39		422,381			10,594		2.51
Commercial, financial and agricultural loans	749,563			33,278		4.44		552,322			21,964		3.98		422,507			16,901		4.00
Real estate—commercial and construction loans	1,519,883			68,166		4.48		1,146,293			52,232		4.56		849,161			39,275		4.63
Real estate—residential loans	765,493			34,563		4.52		633,886			28,101		4.43		499,208			22,789		4.57
Loans to individuals	28,050			1,636		5.83		30,501			1,654		5.42		29,653			1,587		5.35
Municipal loans and leases	282,475			12,856		4.55		261,057			11,556		4.43		208,236			9,890		4.75
Lease financings	75,383			5,533		7.34		75,914			6,168		8.12		72,052			6,240		8.66
Gross loans and leases	3,420,847			156,032		4.56		2,699,973			121,675		4.51		2,080,817			96,682		4.65
Total interest-earning assets	3,938,520			168,653		4.28		3,135,834			132,078		4.21		2,503,198			107,276		4.29
Cash and due from banks	44,424							37,050							33,025
Reserve for loan and lease losses	(20,219		)					(17,147		)					(20,447		)
Premises and equipment, net	64,583							53,036							40,891
Other assets	329,232							287,239							219,616
Total assets	$	4,356,540						$	3,496,012						$	2,776,283
Liabilities:
Interest-bearing checking deposits	$	437,678		527		0.12		$	386,176		362		0.09		$	369,611		269		0.07
Money market savings	582,703			3,390		0.58		414,121			1,540		0.37		368,392			1,205		0.33
Regular savings	847,510			2,089		0.25		714,809			1,052		0.15		582,647			533		0.09
Time deposits	566,079			5,271		0.93		512,557			4,261		0.83		461,968			4,000		0.87
Total time and interest-bearing deposits	2,433,970			11,277		0.46		2,027,663			7,215		0.36		1,782,618			6,007		0.34
Short-term borrowings	105,552			904		0.86		103,238			748		0.72		35,932			35		0.10
Long-term debt	186,109			2,621		1.41		60,965			549		0.90		—			—		—
Subordinated notes	94,208			5,037		5.35		71,851			3,870		5.39		37,431			2,023		5.40
Total borrowings	385,869			8,562		2.22		236,054			5,167		2.19		73,363			2,058		2.81
Total interest-bearing liabilities	2,819,839			19,839		0.70		2,263,717			12,382		0.55		1,855,981			8,065		0.43
Noninterest-bearing deposits	973,253							751,592							517,566
Accrued expenses and other liabilities	36,361							43,605							43,011
Total liabilities	3,829,453							3,058,914							2,416,558
Shareholders’ Equity:
Common stock	145,564							127,509							110,271
Additional paid-in capital	235,578							175,609							120,565
Retained earnings and other equity	145,945							133,980							128,889
Total shareholders’ equity	527,087							437,098							359,725
Total liabilities and shareholders’ equity	$	4,356,540						$	3,496,012						$	2,776,283
Net interest income				$	148,814						$	119,696						$	99,211
Net interest spread						3.58							3.66							3.86
Effect of net interest-free funding sources						0.20							0.16							0.10
Net interest margin						3.78	%						3.82	%						3.96	%
Ratio of average interest-earning assets to average interest-bearing liabilities	139.67		%					138.53		%					134.87		%

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

Nonaccrual loans and leases have been included in the average loan and lease balances.

Loans held for sale have been included in the average loan balances.

Tax-equivalent amounts for the years ended December 31, 2017, 2016 and 2015 have been calculated using the Corporation’s federal applicable rate of 35%.

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Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the year ended December 31, 2017 compared to 2016 and for the year ended December 31, 2016 compared to 2015, indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.



	For the Years Ended December 31, 2017 Versus 2016									For the Years Ended December 31, 2016 Versus 2015
(Dollars in thousands)	Volume Change			Rate Change			Total			Volume Change			Rate Change			Total
Interest income:
Interest-earning deposits with other banks	$	89		$	130		$	219		$	(85	)	$	51		$	(34	)
U.S. government obligations	(313		)	87			(226		)	(829		)	103			(726		)
Obligations of states and political subdivisions	(626		)	(48		)	(674		)	(462		)	(669		)	(1,131		)
Other debt and equity securities	1,892			297			2,189			2,163			(728		)	1,435
Federal funds sold and other earning assets	611			99			710			314			(49		)	265
Interest on deposits, investments, federal funds sold and other earning assets	1,653			565			2,218			1,101			(1,292		)	(191		)
Commercial, financial and agricultural loans	8,547			2,767			11,314			5,149			(86		)	5,063
Real estate—commercial and construction loans	16,860			(926		)	15,934			13,560			(603		)	12,957
Real estate—residential loans	5,886			576			6,462			6,026			(714		)	5,312
Loans to individuals	(138		)	120			(18		)	46			21			67
Municipal loans and leases	978			322			1,300			2,369			(703		)	1,666
Lease financings	(43		)	(592		)	(635		)	326			(398		)	(72		)
Interest and fees on loans and leases	32,090			2,267			34,357			27,476			(2,483		)	24,993
Total interest income	33,743			2,832			36,575			28,577			(3,775		)	24,802
Interest expense:
Interest-bearing checking deposits	47			118			165			13			80			93
Money market savings	773			1,077			1,850			170			165			335
Regular savings	226			811			1,037			132			387			519
Time deposits	469			541			1,010			444			(183		)	261
Interest on time and interest-bearing deposits	1,515			2,547			4,062			759			449			1,208
Short-term borrowings	16			140			156			165			548			713
Long-term debt	1,624			448			2,072			549			—			549
Subordinated notes	1,196			(29		)	1,167			1,851			(4		)	1,847
Interest on borrowings	2,836			559			3,395			2,565			544			3,109
Total interest expense	4,351			3,106			7,457			3,324			993			4,317
Net interest income	$	29,392		$	(274	)	$	29,118		$	25,253		$	(4,768	)	$	20,485

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Interest Income

2017 versus 2016

Interest income on a tax-equivalent basis for the year ended December 31, 2017 was $168.7 million, an increase of $36.6 million or 27.7% from 2016. The increase was mainly due to the impact of the Fox Chase acquisition and organic loan growth in commercial real estate, commercial business and residential real estate loans. In addition, loan yields increased slightly as the Federal Reserve increased interest rates a total of 100 basis points in the fourth quarter of 2016 and 2017. The favorable impact of acquisition accounting fair value adjustments on interest-earning assets was two basis points ($888 thousand) for 2017 compared to a favorable impact of five basis points ($1.4 million) for 2016.

2016 versus 2015

Interest income on a tax-equivalent basis for the year ended December 31, 2016 was $132.1 million, an increase of $24.8 million from 2015. The increase was mainly due to the impact of the Fox Chase acquisition. The favorable impact of acquisition accounting fair value adjustments on interest-earning assets was five basis points for 2016. In addition, the positive benefit of interest income due to loan growth in commercial business, commercial real estate and residential real estate loans was partially offset by decreases in loan interest rates due to re-pricing and the competitive environment.

Interest Expense

2017 versus 2016

Interest expense for the year ended December 31, 2017 was $19.8 million, an increase of $7.5 million, or 60.2%, from 2016 compared to $12.4 million for 2016. The increase was primarily due to the impact of the Fox Chase acquisition, organic deposit growth and higher deposit costs. Deposits costs were impacted by the Federal Reserve interest rate increases in the fourth quarter of 2016 and 2017. The favorable impact of acquisition accounting fair value adjustments on interest-bearing liabilities was eight basis points for 2017 ($2.1 million) compared to a favorable impact of six basis points ($1.4 million) for 2016.

2016 versus 2015

Interest expense for the year ended December 31, 2016 was $12.4 million, an increase of $4.3 million, compared to $8.1 million for 2015. The increase was primarily due to the impact of the Fox Chase acquisition and increased borrowings during the year. The favorable impact of acquisition accounting fair value adjustments on interest-bearing liabilities was six basis points for 2016. The increase in interest expense was also due to the subordinated debt issuance in July 2016 which increased funding costs by four basis points for 2016 compared to 2015.

Provision for Loan and Lease Losses

The provision for loan and leases losses for the years ended December 31, 2017, 2016, and 2015 was $9.9 million, $4.8 million, and $3.8 million, respectively. Net loan and lease charge-offs for the years ended December 31, 2017, 2016, and 2015 were $5.8 million, $5.0 million and $6.8 million, respectively. The provision for loan and lease losses increased in 2017 due to the increased charge-offs and an increase in originated loans in the amount of $690.5 million at December 31, 2017 from December 31, 2016. During 2017, the Corporation charged-off $2.8 million and recognized $2.8 million in provision for loan and lease losses related to $5.0 million of software leases under a vendor referral program.

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Noninterest Income

The following table presents noninterest income for the years ended December 31, 2017, 2016 and 2015:



	For the Years Ended December 31,						$ Change						% Change
(Dollars in thousands)	2017		2016		2015		2017 to 2016			2016 to 2015			2017 to 2016		2016 to 2015
Trust fee income	$	8,055	$	7,741	$	7,908	$	314		$	(167	)	4.1	%	(2.1	)%
Service charges on deposit accounts	5,482		4,691		4,230		791			461			16.9		10.9
Investment advisory commission and fee income	13,454		11,424		10,817		2,030			607			17.8		5.6
Insurance commission and fee income	14,788		14,603		13,885		185			718			1.3		5.2
Other service fee income	8,656		7,836		7,335		820			501			10.5		6.8
Bank owned life insurance income	3,988		2,931		1,295		1,057			1,636			36.1		N/M
Net gain on sales of investment securities	48		518		1,265		(470		)	(747		)	(90.7	)	(59.1	)
Net gain on mortgage banking activities	4,023		6,027		4,838		(2,004		)	1,189			(33.3	)	24.6
Other income	746		192		852		554			(660		)	N/M		(77.5	)
Total noninterest income	$	59,240	$	55,963	$	52,425	$	3,277		$	3,538		5.9	%	6.7	%

2017 versus 2016

Noninterest income for the year ended December 31, 2017 was $59.2 million, an increase of $3.3 million, or 5.9%, compared to 2016. Trust fee income increased $314 thousand, or 4.1%, for the year ended December 31, 2017 primarily due to an increase in trust assets under management during 2017. Service charges on deposits increased $791 thousand, or 16.9%, for the year ended December 31, 2017 primarily due to fees on deposit accounts acquired from Fox Chase. Investment advisory commission and fee income increased $2.0 million, or 17.8%, for the year ended December 31, 2017 primarily due to new customer relationships and favorable market performance during 2017. Insurance commission and fee income increased $185 thousand, or 1.3%, for the year ended December 31, 2017. Insurance contingent commission income was $1.1 million for the year ended December 31, 2017, a decrease of $363 thousand from the year ended December 31, 2016. Excluding the decrease in contingent commission income, insurance commission and fee income increased $548 thousand or 4.2%. Other service fee income increased $820 thousand, or 10.5%, primarily due to interchange fee income, partially related to Fox Chase customers and an increase in mortgage servicing fee income mainly due to higher volume and lower amortization expense as a result of reduced loan prepayments. BOLI income increased $1.1 million for the year ended December 31, 2017, primarily due to proceeds from BOLI death benefits of $889 thousand recognized in the second quarter of 2017 and policies acquired from Fox Chase. BOLI death benefits of $450 thousand were recognized in 2016. Other income increased $554 thousand for the year ended December 31, 2017, mainly due to an increase in swap fee income of $308 thousand and an increase in net gains on sales of other real estate owned of $524 thousand partially offset by the loss on the sale of a closed Fox Chase branch of $309 thousand.

These increases in noninterest income were partially offset by a decrease in the net gain on sale of securities of $470 thousand for the year ended December 31, 2017. In addition, the net gain on mortgage banking decreased $2.0 million, or 33.3%, for the year ended December 31, 2017 primarily due to a decrease in mortgage refinance volume and a shortage of housing supply.

2016 versus 2015

Noninterest income for the year ended December 31, 2016 was $56.0 million, an increase of $3.5 million, or 6.7%, compared to 2015. Service charges on deposits increased $461 thousand, or 10.9%, for the year ended December 31, 2016 mostly due to fees on deposit accounts acquired from Fox Chase. Investment advisory commission and fee income increased $607 thousand, or 5.6%, for the year ended December 31, 2016 due to an increase in assets under management during 2016. This increase was primarily due to a combination of both increased new customer relationships and improvement in market performance during the second half of 2016. Insurance commission and fee income increased $718 thousand, or 5.2%, for the year ended December 31, 2016, primarily due to an increase in contingent commission income and growth in the group life and health and commercial product lines premiums. BOLI income increased $1.6 million for the year ended December 31, 2016 primarily due to proceeds from bank owned life insurance death benefits of $450 thousand recognized in the fourth quarter of 2016, acquired policies from Fox Chase of $26.1 million, and the 2015 purchase of $8.0 million and transfer of $9.8 million of policies to a higher yielding account structure. The net gain on mortgage banking increased $1.2 million, or 24.6%, for the year ended December 31, 2016, mainly due to an increase in mortgage origination volume during 2016. Mortgage loan closings increased $48.7 million, or 23.3%, for the year ended December 31, 2016 compared to the same period in 2015. These favorable increases were partially offset by a decline in the net gain on sales of investment securities for the year ended December 31, 2016 of $747 thousand compared to 2015.

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Noninterest Expense

The following table presents noninterest expense for the years ended December 31, 2017, 2016 and 2015:



	For the Years Ended December 31,						$ Change						% Change
(Dollars in thousands)	2017		2016		2015		2017 to 2016			2016 to 2015			2017 to 2016		2016 to 2015
Salaries, benefits and commissions	$	75,908	$	70,879	$	58,106	$	5,029		$	12,773		7.1	%	22.0	%
Net occupancy	10,433		9,638		8,430		795			1,208			8.2		14.3
Equipment	4,118		3,489		3,159		629			330			18.0		10.4
Data processing	8,500		6,981		4,660		1,519			2,321			21.8		49.8
Professional fees	5,325		4,547		3,839		778			708			17.1		18.4
Marketing and advertising	1,485		2,015		2,253		(530		)	(238		)	(26.3	)	(10.6	)
Deposit insurance premiums	1,636		1,713		1,730		(77		)	(17		)	(4.5	)	(1.0	)
Intangible expenses	2,582		5,528		2,567		(2,946		)	2,961			(53.3	)	N/M
Acquisition-related costs	—		10,257		1,047		(10,257		)	9,210			N/M		N/M
Integration costs	—		5,667		1,490		(5,667		)	4,177			N/M		N/M
Restructuring charges	—		1,731		1,642		(1,731		)	89			N/M		5.4
Other expense	20,726		19,536		16,592		1,190			2,944			6.1		17.7
Total noninterest expense	$	130,713	$	141,981	$	105,515	$	(11,268	)	$	36,466		(7.9	)%	34.6	%

2017 versus 2016

Noninterest expense for the year ended December 31, 2017 was $130.7 million, a decrease of $11.3 million, or 7.9%, compared to 2016. Acquisition and integration costs related to the Fox Chase acquisition and restructuring costs were $17.7 million for the year ended December 31, 2016. There were no acquisition, integration costs or restructuring costs during the year ended December 31, 2017. In addition, intangible expense decreased $2.9 million for the year ended December 31, 2017 primarily as a result of the settlement of the Girard Partners acquisition earn-out in the fourth quarter of 2016 and the conclusion of the earn-out period for the Sterner Insurance Associates acquisition, which resulted in a reversal of a prior accrual of $303 thousand during the second quarter of 2017.

These decreases were partially offset by the following increases in non-interest expense for the year ended December 31, 2017. Salaries, benefits and commissions increased $5.0 million for the year ended December 31, 2017, primarily attributable to higher staffing levels resulting from the Fox Chase acquisition, additional staff hired to support revenue generation across all business lines and the expansion into Lancaster County. Premises and equipment expenses increased $1.4 million for the year ended December 31, 2017, primarily due to higher premises expense related to Fox Chase locations and continued expansion into Philadelphia, Lancaster County and the Lehigh Valley. Data processing expense increased $1.5 million for the year ended December 31, 2017 due to increased investments in customer relationship management software and outsourced data processing solutions as well as the addition of Fox Chase processing expense. Other expense increased $1.2 million for the year ended December 31, 2017 primarily due to an increase of $1.1 million related to Bank shares tax as a result of a statutory rate increase in 2017 and the Bank’s growth following the Fox Chase acquisition.

2016 versus 2015

Noninterest expense for the year ended December 31, 2016 was $142.0 million, an increase of $36.5 million, or 34.6%, compared to 2015. Acquisition and integration costs related to the Fox Chase acquisition and restructuring costs related to facility closures and staffing rationalization totaled $17.7 million for the year ended December 31, 2016. Acquisition, integration and restructuring costs related to the Fox Chase acquisition, the Valley Green acquisition and new financial center model were $4.2 million for the year ended December 31, 2015.

Salaries, benefits and commissions expense increased $12.8 million for the year ended December 31, 2016, primarily attributable to higher staffing levels resulting from the Fox Chase acquisition, additional staff hired to support revenue generation across all business lines and the expansion into Lancaster County. Included in salaries and benefits expense for the fourth quarter of 2016 is the cost of a pension settlement of $1.4 million as the Corporation offered lump sum payouts to former employees in its noncontributory retirement plan. This amount was recorded as a reclassification with the accumulated other comprehensive income component of equity and had no impact on the Corporation’s reported equity. This pension distribution was partially offset by the Corporation’s modification of its paid time off policy which resulted in a non-cash reduction in expense of $1.3 million during the fourth quarter of 2016. Commission expense increased $1.3 million primarily due to commissions paid on increased mortgage banking activities, investment advisory fees and insurance revenues. Premises and equipment expenses increased $1.5 million for

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the year ended December 31, 2016, primarily due to higher premises expense related to Fox Chase locations and expansion into Philadelphia, Lancaster County and the Lehigh Valley. Data processing expense increased $2.3 million for the year ended December 31, 2016 due to increased investments in computer software as well as six months of Fox Chase processing expense. Intangible expenses increased $3.0 million for the year ended December 31, 2016 as the Corporation reached an agreement to settle its future obligation related to its acquisition of Girard Partners during the fourth quarter of 2016.

Tax Provision

The provision for income taxes was $17.7 million, $3.9 million and $9.8 million for the years ended December 31, 2017, 2016, and 2015, respectively, at effective rates of 28.7%, 16.6%, and 26.4%, respectively. The effective tax rates reflect the excess tax benefits from equity compensation activity and the benefits of tax-exempt income from investments in municipal securities, loans and leases and bank-owned life insurance partially offset by non-deductible merger expenses.

The effective tax rate for 2017 was impacted by the Tax Cuts and Jobs Act due to the re-measurement of the Corporation's net deferred tax asset. The re-measurement adjustment of the net deferred tax asset was recorded as additional income tax expense of $1.1 million in the fourth quarter of 2017. In addition, the Corporation recognized a BOLI death benefit of $889 thousand in the second quarter of 2017 and a discrete tax benefit related to the vesting of restricted stock and exercise of stock options of $684 thousand for 2017 which provided a tax deduction greater than previously recorded. This change was in accordance with ASU No. 2016-09, which was implemented by the Corporation in the fourth quarter of 2016 and requires the impact of such equity-based compensation activities to be recorded as an adjustment to the income tax provision in the period incurred, rather than an adjustment to equity. Excluding these items, the effective tax rate was 28.5% for the year ended December 31, 2017.

The decrease in the effective tax rate in 2016 from the prior year is mainly due to reduction in taxable income (primarily due to taxable acquisition-related, integration and restructuring expenses of $16.9 million).

Financial Condition

ASSETS

The following table presents assets at the dates indicated:



	At December 31,
(Dollars in thousands)	2017			2016			$ Change			% Change
Cash and interest-earning deposits	$	75,409		$	57,825		$	17,584		30.4	%
Investment securities	454,082			468,518			(14,436		)	(3.1	)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	27,204			24,869			2,335			9.4
Loans held for sale	1,642			5,890			(4,248		)	(72.1	)
Loans and leases held for investment	3,620,067			3,285,886			334,181			10.2
Reserve for loan and lease losses	(21,555		)	(17,499		)	(4,056		)	23.2
Premises and equipment, net	61,797			63,638			(1,841		)	(2.9	)
Goodwill and other intangibles, net	186,468			189,210			(2,742		)	(1.4	)
Bank owned life insurance	108,246			99,948			8,298			8.3
Accrued interest receivable and other assets	41,502			52,243			(10,741		)	(20.6	)
Total assets	$	4,554,862		$	4,230,528		$	324,334		7.7	%

Investment Securities

Total investment securities at December 31, 2017 decreased $14.4 million from December 31, 2016. Maturities and pay-downs of $103.4 million, calls of $14.8 million and sales of $7.1 million were partially offset by purchases of $112.6 million, and increases in the fair value of available-for-sale investment securities of $1.4 million.

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Table 3—Investment Securities

The following table shows the carrying amount of investment securities at the dates indicated. Held-to-maturity and available-for-sale portfolios are combined.



	At December 31,
(Dollars in thousands)	2017		2016		2015
U.S. treasuries	$	—	$	—	$	4,887
U.S. government corporations and agencies	23,956		32,266		102,156
State and political subdivisions	78,297		88,350		102,032
Residential mortgage-backed securities	233,990		203,641		13,354
Collateralized mortgage obligations	3,602		4,554		3,133
Corporate bonds	107,176		128,008		127,665
Money market mutual funds	5,985		10,784		16,726
Equity securities	1,076		915		807
Total investment securities	$	454,082	$	468,518	$	370,760

The increase in residential mortgage-backed securities in 2016 is primarily due to the Fox Chase acquisition.

Table 4—Investment Securities (Yields)

The following table shows the maturity distribution and weighted average yields of the investment securities at the dates indicated. Expected maturities will differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties; therefore, the stated yield may not be recognized in future periods. Additionally, residential mortgage-backed securities, which are collateralized by residential mortgage loans, typically prepay at a rate faster than stated maturity. Equity securities and money market mutual funds have no stated maturity and the current dividend yields may not be recognized in future periods. The weighted average yield is calculated by dividing income, which has not been tax equated on tax-exempt obligations, within each contractual maturity range by the outstanding amount of the related investment. Held-to-maturity and available-for-sale portfolios are combined.



	At December 31,
(Dollars in thousands)	2017 Amount		2017 Yield		2016 Amount		2016 Yield		2015 Amount		2015 Yield
1 Year or less	$	14,213	1.44	%	$	36,044	1.08	%	$	31,657	1.65	%
After 1 Year to 5 Years	67,893		1.80		77,649		1.54		163,064		1.39
After 5 Years to 10 Years	133,660		2.50		93,477		2.66		59,067		3.14
After 10 Years	231,255		2.37		249,649		2.33		99,439		3.69
No stated maturity	7,061		1.37		11,699		0.23		17,533		0.16
Total	$	454,082	2.28	%	$	468,518	2.12	%	$	370,760	2.25	%

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

The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $12.5 million and $10.1 million at December 31, 2017 and 2016, respectively. FHLB stock increased $2.4 million mainly due to purchase requirements related to the increase in FHLB borrowings during the year.

At December 31, 2017 and 2016, the Bank held $14.6 million in Federal Reserve Bank stock as required by the Federal Reserve Bank.

Loans and Leases

Gross loans and leases held for investment at December 31, 2017 increased $334.2 million, or 10.2%, from December 31, 2016. The growth in loans was primarily commercial business, commercial real estate and residential real estate loans. The loan growth in 2017 resulted from both new and existing customer relationships and $187 million in growth in the Corporation’s Lancaster portfolio to $261 million at December 31, 2017 as the Corporation continued to take advantage of opportunities as a result of market disruption caused by other bank acquisitions.

At December 31, 2017, there were no concentrations of loans or leases exceeding 10% of total loans and leases other than as disclosed in Table 5.

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Table 5—Loan and Lease Portfolio

The following table presents the composition of the loan and lease portfolio at the dates indicated:



	At December 31,
(Dollars in thousands)	2017		2016		2015		2014		2013
Commercial, financial and agricultural	$	896,211	$	823,266	$	504,515	$	457,827	$	422,816
Real estate-commercial	1,542,141		1,374,949		885,892		628,478		600,353
Real estate-construction	175,836		174,844		96,541		79,887		90,493
Real estate-residential	847,811		747,715		536,893		312,032		281,828
Loans to individuals	28,300		30,373		29,732		29,941		40,000
Lease financings	129,768		134,739		125,440		118,460		105,994
Total loans and leases held for investment, net of deferred income	$	3,620,067	$	3,285,886	$	2,179,013	$	1,626,625	$	1,541,484

Table 6—Loan and Lease Maturities and Sensitivity to Changes in Interest Rates

The following table presents the maturity and interest rate sensitivity of the loan and lease portfolio at December 31, 2017:



(Dollars in thousands)	Total		Due in One Year or Less		Due after One Year to Five Years		Due After Five Years
Commercial, financial and agricultural	$	896,211	$	599,159	$	167,273	$	129,779
Real estate-commercial	1,542,141		386,978		879,441		275,722
Real estate-construction	175,836		127,710		20,827		27,299
Real estate-residential	847,811		292,432		282,833		272,546
Loans to individuals	28,300		17,180		7,595		3,525
Lease financings	129,768		46,461		82,650		657
Total gross loans and leases held for investment	$	3,620,067	$	1,469,920	$	1,440,619	$	709,528
Loans and leases with fixed predetermined interest rates	$	1,784,735	$	198,947	$	1,122,745	$	463,043
Loans and leases with variable or floating interest rates	1,835,332		1,270,973		317,874		246,485
Total gross loans and leases held for investment	$	3,620,067	$	1,469,920	$	1,440,619	$	709,528

The commercial mortgages and tax-exempt loans that are presently being written at both fixed and floating rates of interest primarily include loans typically written for five-year terms with a monthly payment based on up to a maximum twenty-five year amortization schedule. At each five-year anniversary date of the mortgage, the Bank usually has the right to require payment in full. If the loan is extended, the interest rate is renegotiated and the term of the loan is extended for an additional five years. These mortgages are included in the “Due in One to Five Years” category in the table above.

Asset Quality

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

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

When a loan or lease, including a loan or lease that is impaired, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease is typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest, even though the loan or lease is currently performing. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of net deferred 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.

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

At December 31, 2017, the recorded investment in loans and leases held for investment that were considered to be impaired was $29.7 million. The related reserve for loan and lease losses was $131 thousand. At December 31, 2016, the recorded investment in loans and leases that were considered to be impaired was $43.9 million. The related reserve for loan and lease losses was $235 thousand. During the second quarter of 2017, an accruing impaired commercial real estate loan for $10.4 million was removed from impaired status. The impaired loan and lease balances consisted mainly of commercial real estate loans and business loans. Impaired loans and leases include nonaccrual loans and leases, accruing troubled debt restructured loans and lease modifications and other accruing impaired loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the contractual terms. The amount of the specific reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits. Specific reserves have been established based on current facts and management’s judgments about the ultimate outcome of these credits. For the years ended December 31, 2017, 2016, and 2015, additional interest income that would have been recognized under the original terms for impaired loans was $889 thousand, $909 thousand and $1.3 million, respectively. Interest income recognized on impaired loans for the years ended December 31, 2017, 2016 and 2015 was $1.1 million, $1.4 million and $1.6 million, respectively.

Other real estate owned was $1.8 million at December 31, 2017, compared to $5.0 million at December 31, 2016. During the year, five commercial real estate properties with a total carrying value of $1.9 million were sold for a net gain of $204 thousand, of which one property with a carrying value of $653 thousand was transferred to other real estate owned during the first quarter. Six units of a condominium complex with a carrying value of $1.5 million were sold for a gain of $231 thousand and a vacant parcel of land with a carrying value of $225 thousand was sold at a loss of $52 thousand.

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Table 7—Nonaccrual and Past Due Loans and Leases; Troubled Debt Restructured Loans and Lease Modifications; Other Real Estate Owned; and Related Ratios

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



	At December 31,
(Dollars in thousands)	2017			2016			2015			2014			2013
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:
Loans held for investment:
Commercial, financial and agricultural	$	4,448		$	5,746		$	6,915		$	5,002		$	4,253
Real estate—commercial	4,285			5,651			4,314			4,413			8,091
Real estate—construction	365			—			—			5,931			9,159
Real estate—residential	3,820			5,983			2,514			1,611			1,402
Lease financings	1,599			536			440			380			330
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	14,517			17,916			14,183			17,337			23,235
Accruing troubled debt restructured loans and lease modifications not included in the above	11,435			3,252			5,245			5,469			7,943
Accruing loans and leases 90 days or more past due:
Commercial, financial and agricultural	—			—			—			—			12
Real estate—residential	310			652			—			31			23
Loans to individuals	195			142			173			365			319
Lease financings	256			193			206			55			59
Total accruing loans and leases, 90 days or more past due	761			987			379			451			413
Total nonperforming loans and leases	26,713			22,155			19,807			23,257			31,591
Other real estate owned	1,843			4,969			1,276			955			1,650
Total nonperforming assets	$	28,556		$	27,124		$	21,083		$	24,212		$	33,241
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.40		%	0.55		%	0.65		%	1.07		%	1.51		%
Nonperforming loans and leases / loans and leases held for investment	0.74			0.67			0.91			1.43			2.05
Nonperforming assets / total assets	0.63			0.64			0.73			1.09			1.52

Allowance for loan and lease losses	$	21,555		$	17,499		$	17,628		$	20,662		$	24,494
Allowance for loan and lease losses / loans and leases held for investment	0.60		%	0.53		%	0.81		%	1.27		%	1.59		%
Allowance for loan and lease losses / loans and leases held for investment (excluding acquired loans at period-end)	0.70			0.73			0.94			1.27			1.59
Allowance for loan and lease losses / nonaccrual loans and leases	148.48			97.67			124.29			119.18			105.42
Allowance for loan and lease losses / nonperforming loans and leases	80.69			78.98			89.00			88.84			77.53
Acquired credit impaired loans	$	1,583		$	7,352		$	1,253		$	—		$	—
Nonperforming loans and leases and acquired credit impaired loans / loans and leases held for investment	0.78		%	0.90		%	0.97		%	1.43		%	2.05		%
Nonperforming assets and acquired credit impaired loans / total assets	0.66			0.81			0.78			1.09			1.52
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	2,513		$	1,753		$	93		$	3,104		$	1,583

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



	At December 31,
(Dollars in thousands)	2017			2016			2015			2014
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	14,517		$	17,916		$	14,183		$	17,337
Nonaccrual loans and leases with partial charge-offs	5,397			5,000			6,451			6,465
Life-to-date partial charge-offs on nonaccrual loans and leases	4,107			2,857			3,853			1,831
Charge-off rate of nonaccrual loans and leases with partial charge-offs	43.2		%	36.4		%	37.4		%	22.1		%
Specific reserves on impaired loans	$	131		$	235		$	322		$	998

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Reserve for Loan and Lease Losses

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

The reserve for loan and lease losses consists of a reserve for impaired loans and leases and a general valuation allowance on the remainder of the originated portfolio. Although management determines the amount of each element of the reserve separately, the entire reserve for loan and lease losses is available for losses on the portfolio. The Corporation records a provision for loan loss for the acquired non-impaired loans only when additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan loss, resulting in an increase to the allowance.

Reserve Required for Impaired Loans and Leases

A loan or lease is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect future payments of principal or interest as contractually due. The Bank applies its normal loan review procedures in determining if a loan is impaired, which includes reviewing the collectability of delinquent and internally classified loans on a regular basis and at least quarterly. In determining the likelihood of collecting principal and interest, the Bank considers all available and relevant information, including the borrower's actual and projected cash flows, balance sheet strength, liquidity and overall financial position. Additionally, all loans classified as troubled debt restructurings are considered impaired. When a loan is classified as impaired, an impairment analysis is performed within the quarter in which a loan is identified as impaired to determine if a specific reserve is needed. The Bank re-examines each impaired loan on a quarterly basis to determine if any adjustment to the net carrying amount of a loan is required. The Bank recognizes charge-offs associated with impaired loans when all or a portion of a loan is considered to be uncollectible. In measuring impairment, the Bank determines whether or not the loan is collateral dependent. A loan is collateral dependent if repayment is expected to be provided solely by the underlying collateral, which includes repayment from the proceeds from the sale of the collateral, cash flows from the continued operation of the collateral, or both, and there are no other available and reliable repayment sources. To determine the initial amount of impairment for a collateral dependent loan, the Bank utilizes a recent appraisal, an agreement of sale or a letter of intent. If the fair value of the underlying collateral, less costs to sell, is less than the loan's carrying amount, the Bank establishes a provision to the reserve for loan and lease losses in the amount of the difference between fair value, less costs to sell, and the loan or lease's carrying amount. In subsequent periods, the Bank takes into consideration current facts and circumstances in analyzing whether the fair value of the collateral has increased or decreased significantly such that a change to the corresponding valuation allowance is required. If current facts and circumstances are insufficient to determine fair value, the Bank obtains a new appraisal.

For loans that are not collateral dependent, the Bank establishes a specific reserve on impaired loans based on management's estimate of the discounted cash flows the Bank expects to receive from the borrower. Factors considered in evaluating such cash flows include: (1) the strength of the customer's personal or business cash flows and personal guarantees; (2) the borrower's effort to cure the delinquency; (3) the availability of other sources of repayment; (4) the type and value of collateral, if applicable; and (5) the strength of our collateral position, if applicable.

General Reserve on the Remainder of the Loan Portfolio

The Bank establishes a general reserve for loans and leases that are not considered impaired to recognize the inherent losses associated with lending activities. This general reserve is determined by segmenting the loan portfolio and assigning reserve factors to each category. The reserve factors are calculated using the Bank's historical losses and loss emergence periods, and are adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors include:


•	Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not considered elsewhere in estimating credit losses;


•	Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;


•	Changes in the nature and volume of the portfolio and in the terms of loans;


•	Changes in the experience, ability, and depth of lending management and other relevant staff;

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•	Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;


•	Changes in the quality of the institution’s loan review system;


•	Changes in the value of underlying collateral for collateral-dependent loans;


•	The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and


•	The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

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 $390 thousand and $385 thousand at December 31, 2017 and 2016, respectively.

Table 8—Summary of Loan and Lease Loss Experience

The following table presents average loans and leases and summarizes loan and lease loss experience for the periods indicated.



	For the Years Ended December 31,
(Dollars in thousands)	2017			2016			2015			2014			2013
Average amount of loans and leases outstanding	$	3,420,847		$	2,699,973		$	2,080,817		$	1,580,835		$	1,499,351
Loan and lease loss reserve at beginning of period	$	17,499		$	17,628		$	20,662		$	24,494		$	24,746
Charge-offs:
Commercial, financial and agricultural loans	1,030			4,827			4,793			2,834			3,213
Real estate loans	1,798			1,007			2,353			4,644			8,974
Loans to individuals	317			395			549			796			641
Lease financings	3,992			759			801			576			791
Total charge-offs	7,137			6,988			8,496			8,850			13,619
Recoveries:
Commercial, financial and agricultural loans	801			1,454			1,032			247			320
Real estate loans	158			260			238			618			1,130
Loans to individuals	136			133			176			265			174
Lease financings	206			191			214			281			515
Total recoveries	1,301			2,038			1,660			1,411			2,139
Net charge-offs	5,836			4,950			6,836			7,439			11,480
Provision to loan and lease loss reserve	9,892			4,646			3,623			3,607			11,228
Provision for acquired credit impaired loans	—			175			179			—			—
Loan and lease loss reserve at end of period	$	21,555		$	17,499		$	17,628		$	20,662		$	24,494
Ratio of net charge-offs to average loans and leases	0.17		%	0.18		%	0.33		%	0.47		%	0.77		%

During 2017, the Corporation charged-off $2.8 million related to $5.0 million of software leases under a vendor referral program. See Note 6, "Loans and Leases" of the consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information. The decrease in charge-off activity in commercial, financial and agricultural loans during 2017 compared to 2016 was primarily due to improvements in asset quality. The decrease in charge-offs during 2016 compared to 2015 was mainly due to improvements in asset quality. The primary decrease in charge-off activity was in commercial real estate loans.

Table 9—Loan and Lease Loss Reserves

The following table summarizes the allocation of the allowance for loan and lease losses and the percentage of loans and leases in each major loan category to total loans and leases held for investment at the dates indicated.



	At December 31,
(Dollars in thousands)	2017				2016				2015				2014				2013
Commercial, financial and agricultural loans	$	6,742	24.8	%	$	7,037	25.1	%	$	6,418	23.2	%	$	6,920	28.1	%	$	9,789	27.4	%
Real estate loans	13,254		70.8		9,272		69.9		8,910		69.6		10,830		62.8		11,126		63.1
Loans to individuals	373		0.8		364		0.9		346		1.4		360		1.8		694		2.6
Lease financings	1,132		3.6		788		4.1		1,042		5.8		985		7.3		1,285		6.9
Unallocated	54		N/A		38		N/A		912		N/A		1,567		N/A		1,600		N/A
Total	$	21,555	100.0	%	$	17,499	100.0	%	$	17,628	100.0	%	$	20,662	100.0	%	$	24,494	100.0	%

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The allowance for loan and lease losses to nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications, was 148.48% at December 31, 2017, 97.67% at December 31, 2016 and 124.29% at December 31, 2015. At December 31, 2017, the specific allowance on impaired loans was $131 thousand, or 0.5% of the balance of impaired loans of $28.5 million. At December 31, 2016, the specific allowance on impaired loans was $235 thousand, or 0.5% of the balance of impaired loans of $43.9 million. At December 31, 2015, the specific allowance on impaired loans was $322 thousand, or 0.7% of the balance of impaired loans of $48.9 million.

The ratio of the reserve for loan and lease losses to total loans and leases was 0.60% at December 31, 2017 compared to 0.53% at December 31, 2016 and 0.81% at December 31, 2015. Excluding the loans acquired in the Fox Chase Bank and Valley Green Bank acquisitions which were recorded at fair value, the ratio of the reserve for loan and lease losses to total loans and leases was 0.70% at December 31, 2017, 0.73% at December 31, 2016 and 0.94% at December 31, 2015.

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 covenants not to compete, 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 these intangible assets for the years ended December 31, 2017, 2016 and 2015 was $4.2 million, $4.1 million and $3.6 million, respectively. The Corporation also has goodwill with a net carrying value of $172.6 million at December 31, 2017 and 2016, 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 recorded during 2015 through 2017. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Bank Owned Life Insurance

The Bank purchases bank owned life insurance to protect itself against the loss of key employees due to death and to offset or finance the Corporation’s future costs and obligations to employees under its benefit plans. Bank owned life insurance increased $8.3 million from December 31, 2016 primarily due to $7.3 million of policies purchased during the fourth quarter of 2017.

LIABILITIES

The following table presents liabilities at the dates indicated:



	At December 31,
(Dollars in thousands)	2017		2016		$ Change			% Change
Deposits	$	3,554,919	$	3,257,567	$	297,352		9.1	%
Short-term borrowings	105,431		196,171		(90,740		)	(46.3	)
Long-term debt	155,828		127,522		28,306			22.2
Subordinated notes	94,331		94,087		244			0.3
Accrued interest payable and other liabilities	40,979		49,972		(8,993		)	(18.0	)
Total liabilities	$	3,951,488	$	3,725,319	$	226,169		6.1	%

Deposits

Total deposits increased $297.4 million, or 9.1%, from December 31, 2016 primarily due to increases in commercial and public funds deposits partially offset by a decrease in consumer deposits.

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Table 10—Deposits

The following table summarizes the average amount of deposits for the periods indicated:



(Dollars in thousands)	For the Years Ended December 31,
	2017		2016		2015
Noninteresting-bearing deposits	$	973,253	$	751,592	$	517,566
Interest-bearing checking deposits	437,678		386,176		369,611
Money market savings	582,703		414,121		368,392
Regular savings	847,510		714,809		582,647
Time deposits	566,079		512,557		461,968
Total average deposits	$	3,407,223	$	2,779,255	$	2,300,184

The following table summarizes the maturities of time deposits with balances of $100 thousand or more. Brokered deposits in the amount of $72.0 million at December 31, 2017 are not included in total certificates of deposit of $100 thousand or more.



(Dollars in thousands)	At December 31, 2017
Due Three Months or Less	$	103,368
Due Over Three Months to Six Months	34,414
Due Over Six Months to Twelve Months	45,038
Due Over Twelve Months	67,163
Total	$	249,983

Borrowings

Total borrowings decreased $62.2 million from December 31, 2016 mainly due to a decrease in short-term borrowings of $90.7 million partially offset by an increase in long-term FHLB advances of $30.0 million. The Corporation increased its long-term advances as part of a balance sheet management strategy to take advantage of the flattening yield curve and obtain relatively low cost longer term fixed rate borrowings.

Short-term borrowings at December 31, 2017 consisted of FHLB borrowings, federal funds purchased and customer repurchase agreements on an overnight basis totaling $105.4 million. Long-term debt at December 31, 2017 consisted of Federal Home Loan bank advances and commercial bank borrowings totaling $155.8 million and subordinated notes of $94.3 million. At December 31, 2017 and 2016, the Bank had outstanding short-term letters of credit with the FHLB totaling $234.2 million and $148.5 million, respectively, which were utilized to collateralize public funds deposits.

The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less. The long-term debt balances and weighted average interest rates include purchase accounting fair value adjustments, net of related amortization from the Fox Chase acquisition.

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Table 11—Borrowings

The following table summarizes the Corporation's borrowing activity at the dates indicated:



(Dollars in thousands)	Balance at End of Year		Weighted Average Interest Rate		Maximum Amount Outstanding at Month End During the Year		Average Amount Outstanding During the Year		Weighted Average Interest Rate During the Year
2017
Short-term borrowings	$	105,431	1.26	%	$	231,726	$	105,552	0.86	%
Long-term debt	155,828		1.69		221,762		186,109		1.41
Subordinated notes	94,331		5.35		94,331		94,208		5.35

2016
Short-term borrowings	$	196,171	0.68	%	$	282,333	$	103,238	0.72	%
Long-term debt	127,522		0.93		127,826		60,965		0.90
Subordinated notes	94,087		5.27		94,087		71,851		5.39

2015
Short-term borrowings	$	24,211	0.05	%	$	61,176	$	35,932	0.10	%
Long-term debt	—		—		—		—		—
Subordinated notes	49,377		5.36		49,377		37,431		5.40

SHAREHOLDERS' EQUITY

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



(Dollars in thousands)	At December 31,
	2017			2016			$ Change		% Change
Common stock	$	157,784		$	144,559		$	13,225	9.1	%
Additional paid-in capital	290,133			230,494			59,639		25.9
Retained earnings	216,761			194,516			22,245		11.4
Accumulated other comprehensive loss	(17,771		)	(19,454		)	1,683		8.7
Treasury stock	(43,533		)	(44,906		)	1,373		3.1
Total shareholders’ equity	$	603,374		$	505,209		$	98,165	19.4	%

Shareholders' equity at December 31, 2017 increased $98.2 million from December 31, 2016. On December 6, 2017, the Corporation completed its public offering of 2,645,000 shares of common stock at a price of $28.25 per share which resulted in an increase in shareholders' equity of $70.5 million (common stock increased $13.2 million and additional paid-in capital increased $57.3 million).

Retained earnings at December 31, 2017 were impacted by net income of $44.1 million, partially offset by cash dividends declared of $21.8 million. Accumulated other comprehensive loss, net of tax, related to available-for-sale investment securities was $4.1 million and $5.0 million at December 31, 2017 and 2016, respectively. The decrease of $927 thousand was primarily due to increases in the fair value of available-for-sale investment securities. Accumulated other comprehensive loss, net of tax benefits, related to pension and other post-retirement benefits was $13.7 million and $14.3 million at December 31, 2017 and 2016, respectively. Treasury stock decreased primarily due to the issuance of restricted stock.

Capital Adequacy

Capital guidelines which banking regulators have adopted assign minimum capital requirements for categories of assets depending on their assigned risks. The components of risk-based capital for the Corporation are Tier 1 and Tier 2. Minimum required total risk-based capital is 8.00%. In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The rules are discussed in Note 21 “Regulatory Matters,” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K.

The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules, primarily relating to regulatory deductions and adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a four-year period beginning January 1, 2015. Additionally under Basel III rules, the decision was made to opt-out of

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including accumulated other comprehensive income in regulatory capital. During 2017, the Corporation and the Bank were required to hold a capital conservation buffer greater than 1.250% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. During 2018, the Corporation and the Bank must hold a capital conservation buffer greater than 1.875% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions.

At December 31, 2017, the Corporation had a Tier 1 capital ratio of 11.11% and total risked-based capital ratio of 14.00%. At December 31, 2016, the Corporation had a Tier 1 capital ratio of 9.42% and total risked-based capital ratio of 12.44%. The Corporation continues to be in the “well-capitalized” category under regulatory standards. Details on the capital ratios can be found in Note 21 “Regulatory Matters,” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K along with a discussion on dividend and other restrictions.

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. Liquidity management involves the ability to meet cash flow requirements of customers and corporate needs. Management's objective to address 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 both interest-sensitivity gap analysis and simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a simulation model to measure the short-term rate exposures. 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 will tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold will tend to increase in value.

Credit Risk

Extending credit exposes the Corporation to credit risk, which is the risk that the principal balance of a loan and any related interest will not be collected due to the inability of the borrower to repay the loan. The Corporation manages credit risk in the loan portfolio through adherence to consistent standards, guidelines and limitations established by the Board of Directors. Written loan policies establish underwriting standards, lending limits and other standards or limits as deemed necessary and prudent. While the Corporation has strict underwriting, review, and monitoring procedures in place, these procedures cannot eliminate all of the risks related to these lending activities.

The loan review department conducts ongoing, independent reviews of the lending process to ensure adherence to established policies and procedures, monitors compliance with applicable laws and regulations, provides objective measurement of the risk inherent in the loan portfolio, and ensures that proper documentation exists.

The Corporation focuses on both assessing the borrower’s capacity and willingness to repay and on obtaining sufficient collateral. Commercial, financial and agricultural loans are generally secured by the borrower’s assets and by personal guarantees. Commercial real estate loans are originated primarily within the Southeastern Pennsylvania and New Jersey market areas at prudent loan-to-value ratios and are often supported by a guarantee of the borrowers. Management closely monitors the composition and quality of the total commercial loan portfolio to ensure that any credit concentrations by borrower or industry are closely monitored.

The Corporation originates fixed-rate and adjustable-rate real estate-residential mortgage loans that are secured by the underlying 1- to 4-family residential properties for personal purposes. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-equity ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans granted in excess of the 80% loan-to-value ratio criterion are generally insured by private mortgage insurance.

Credit risk in the consumer loan portfolio is controlled by strict adherence to underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values. In the home equity loan portfolio, combined loan-to-value ratios are generally limited to 80%, but increased to 85% for the Corporation’s strongest profile borrower. Other credit considerations and compensating factors may warrant higher combined loan-to-value ratios.

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lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term.

The Corporation closely monitors delinquencies as another means of maintaining asset quality. Collection efforts begin after a loan payment is missed, by attempting to contact all borrowers. If collection attempts fail, the Corporation will proceed to gain control of any and all collateral in a timely manner in order to minimize losses. While liquidation and recovery efforts continue, officers continue to work with the borrowers, if appropriate, to recover all monies owed to the Corporation. The Corporation monitors delinquency trends and past due reports which are submitted to the Board of Directors.

Liquidity

The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks. Liquidity refers to the Corporation’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy demand for loans, deposit withdrawals, repayment of borrowings and certificates of deposit at maturity, operating expenditures, and capital expansion. 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 a base of consumer, business, 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.

The Corporation also utilizes a mix of short-term and long-term wholesale funding providers. Wholesale funding includes correspondent bank borrowings, secured borrowing lines from the Federal Home Loan Bank, the Federal Reserve Bank of Philadelphia and, at times, brokered deposits and other similar sources.

The Corporation, through the Bank, has a credit facility with the FHLB with a maximum borrowing capacity of approximately $1.4 billion. At December 31, 2017 and 2016, the carrying amount of overnight borrowings with the FHLB was $30.2 million and $91.3 million, respectively. At December 31, 2017 and 2016, the carrying amount of long-term borrowings with the FHLB was $125.0 million and $96.2 million, respectively. At December 31, 2017 and 2016, the Bank had outstanding short-term letters of credit with the FHLB totaling $234.2 million and $148.5 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.

The Corporation, through the Bank, maintains uncommitted federal fund lines with several correspondent banks totaling $367.0 million and $302.0 million at December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, the Corporation had outstanding federal funds purchased with these correspondent banks of $55.0 million and $80.0 million, respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia in order to access their Discount Window Lending program. The collateral consisting of investment securities was valued at $52.0 million and $55.7 million at December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, the Corporation had no outstanding borrowings under this program.

The Corporation has a $10.0 million line of credit with a correspondent bank. At December 31, 2017, the Corporation had no outstanding borrowings under this line.

Cash Requirements

The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The following contractual obligations and commitments table presents, at December 31, 2017, significant fixed and determinable contractual obligations and commitments to third parties. The most significant contractual obligation, in both the under and over one year time period, is for the Bank to repay its certificates of deposit and short-term and long-term

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borrowings. The Bank anticipates meeting these obligations by continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.

The table also shows the amounts and expected maturities of significant commitments at December 31, 2017. These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon. Commitments to extend credit are the Bank’s most significant commitment in both the under and over one year time periods.

Contractual Obligations and Commitments

The Corporation enters into contractual obligations in the normal course of business as a source of funds for its asset growth and its asset/liability management, to fund acquisitions and to meet required capital needs. These obligations require the Corporation to make cash payments over time as detailed in the table that follows.

The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to manage the Corporation’s exposure to fluctuation in interest rates. These financial instruments include commitments to extend credit, standby and commercial letters of credit and forward loan sale contracts. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these financial instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Corporation does not require and is not required to pledge collateral or other security to support financial instruments with credit risk. These commitments expire over time as detailed in Table 12.

Table 12—Contractual Obligations and Commitments

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows, including interest payable, at December 31, 2017. The contractual amounts to be paid on variable rate obligations are affected by changes in the market interest rates. Future changes in the market interest rates could materially affect the contractual amounts to be paid.



	Payments Due by Period
(Dollars in thousands)	Total		Due in One Year or Less		Due after One Year to Three Years		Due after Three Years to Five Years		Due in Over Five Years
Short-term borrowings	$	105,431	$	105,431	$	—	$	—	$	—
Long-term debt and interest	161,961		22,607		73,771		65,583		—
Subordinated notes (a)	133,188		4,800		9,669		9,644		109,075
Time deposits (b)	586,480		322,318		213,320		43,615		7,227
Operating leases	61,675		3,535		6,875		6,945		44,320
Standby and commercial letters of credit	52,960		43,874		8,067		715		304
Commitments to extend credit (c)	1,127,545		316,647		160,971		79,699		570,228
Net asset/liability derivative loan commitments (d)	514		514		—		—		—
Other long-term obligations (e)	20,955		5,497		9,215		5,837		406
Total contractual obligations	$	2,250,709	$	825,223	$	481,888	$	212,038	$	731,560

Notes: (a) Includes interest for fixed and variable rate components. As specified in the note agreements, the Corporation has the option to redeem the Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed Notes, plus accrued and unpaid interest to the date of the redemption.


(b)	Includes interest on both fixed and variable rate obligations. The interest expense is based upon the fourth quarter average interest rate.


(c)	Includes both revolving and straight lines of credit. Revolving lines are reported in the “Due in One Year or Less” category.


(d)	Includes the fair value of these contractual arrangements at December 31, 2017.

(e) Represents obligations to the Corporation's third-party data processing provider and other vendors.

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Interest Rate Sensitivity

Interest rate sensitivity is a function of the repricing characteristics of the Corporation's assets and liabilities. Minimizing the balance sheet's maturity and repricing risk is a continual focus in a changing interest rate environment. The Corporation uses a variety of techniques to assist in identifying the potential range of risk. A simulation model is utilized to prepare a maturity/repricing Gap analysis as well as an Earnings at Risk analysis under various interest rate scenarios.

The gap analysis identifies interest rate risk by identifying re-pricing gaps in the Corporation’s balance sheet. The model is based on expected cash flows and re-pricing characteristics for all financial instruments at a point in time and incorporates Corporation developed, market influenced assumptions regarding the impact of changing interest rates on these financial instruments. All assets and liabilities are modeled to reflect some level of behavioral optionality, such as prepayments on loans, early call features on investments or a decline in deposit balance. These assumptions are based upon historic behavior however are inherently uncertain and thus cannot precisely predict the impact of changes in interest rates. While actual results will differ from simulated results due to customer behavioral change and/or market and regulatory influences, the following models are important tools to guide management.

Table 13—Interest Rate Sensitivity Gap Analysis

The following table presents the Corporation’s gap analysis at December 31, 2017:



(Dollars in thousands)	Within Three Months			After Three Months to Twelve Months			After One Year to Five Years			Over Five Years			Non-Rate Sensitive			Total
Assets:
Cash and due from banks	$	—		$	—		$	—		$	—		$	46,721		$	46,721
Interest-earning deposits with other banks	28,688			—			—			—			—			28,688
Investment securities	122,414			44,388			188,427			98,853			—			454,082
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	—			—			—			—			27,204			27,204
Loans held for sale	1,642			—			—			—			—			1,642
Loans and leases, net of reserve for loan and lease losses	1,406,737			469,993			1,486,959			256,378			(21,555		)	3,598,512
Other assets	—			—			—			—			398,013			398,013
Total assets	$	1,559,481		$	514,381		$1,675,386			$355,231			$	450,383		$	4,554,862
Liabilities and shareholders' equity:
Noninterest-bearing deposits	$	—		$	—		$	—		$	—		$	1,040,026		$	1,040,026
Interest-bearing demand deposits	1,013,607			5,185			21,597			69,049			—			1,109,438
Savings deposits	794,876			4,726			17,811			13,293			—			830,706
Time deposits	136,461			178,262			249,092			10,934			—			574,749
Borrowings	105,431			20,000			230,000			159			—			355,590
Other liabilities	—			—			—			—			40,979			40,979
Shareholders' equity	—			—			—			—			603,374			603,374
Total liabilities and shareholders' equity	$	2,050,375		$	208,173		$	518,500		$	93,435		$	1,684,379		$	4,554,862
Interest rate swaps	$	19,211		$	—		$	—		$	—		$	—
Incremental gap	$	(471,683	)	$	306,208		$	1,156,886		$	261,796		$	(1,233,996	)
Cumulative gap	$	(471,683	)	$	(165,475	)	$	991,411		$	1,253,207
Cumulative gap as a percentage of interest-earning assets	(11.49		)%	(4.03		)%	24.15		%	30.53		%

The table above indicates that the Corporation should anticipate a greater amount of liabilities repricing over assets in the near term. However, this table does not take into account the magnitude of repricing due to rate changes.

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Table 14—Net Interest Income - Summary of Interest Rate Simulation

Management also performs a simulation of net interest income to measure interest rate exposures. The following table demonstrates the anticipated impact of an instantaneous and parallel interest rate shift, or "shock," to the yield curve on the Corporation’s net interest income over the next twelve months. This simulation incorporates the same assumptions noted above and assumes a static balance sheet with no incremental growth in interest-earning assets or interest-bearing liabilities over the next twelve months.

The changes to net interest income are shown in the below table at December 31, 2017. The results suggest the Corporation's year-end balance sheet is slightly asset sensitive as net interest income is projected to increase in a rising rate environment. The level of asset sensitivity increased slightly from prior year-end results as a smaller percentage of variable rate loans are priced below their contractual rate floor. The changes to net interest income shown below are in compliance with the Corporation's policy guidelines.



	Estimated Change in Net Interest Income Over Next 12 Months
(Dollars in thousands)	Amount			Percent
Rate shock - Change in interest rates
+300 basis points	$	17,935		11.82	%
+200 basis points	12,371			8.15
+100 basis points	6,372			4.20
-100 basis points*	(8,256		)	(5.44	)

*Certain short-term interest rates are at or below 1.00%. Therefore, in a scenario where rates decline by 100bps, short-term interest rates will decline to zero, resulting in a non-parallel downward shift.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 1, “Summary of Significant Accounting Policies” of this Form 10-K.


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. In the normal course of its business activities including lending, investing, receiving deposits and borrowing funds, the Corporation is subject to changes in the economic value and/or earnings potential of the assets and liabilities due to changes in interest rates. The Corporation’s Investment Asset/Liability Management Committee, is responsible for managing interest rate risk in a manner so as to provide adequate and reliable earnings. This is accomplished through the establishment of policy limits on maximum risk exposures, as well as the regular and timely monitoring of reports designed to quantify risk and return levels. The Corporation’s Board of Directors establishes policies that govern interest rate risk management.

Information with respect to quantitative and qualitative disclosures about market risk can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including Liquidity and Interest Rate Sensitivity.

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Item 8.	Financial Statements and Supplementary Data

The following audited consolidated financial statements and related documents are set forth in this Annual Report on Form 10-K on the following pages:



	Page
Report of Independent Registered Public Accounting Firm	45
Consolidated Balance Sheets	46
Consolidated Statements of Income	47
Consolidated Statements of Comprehensive Income	48
Consolidated Statements of Changes in Shareholders’ Equity	49
Consolidated Statements of Cash Flows	50
Notes to Consolidated Financial Statements	52

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Univest Corporation of Pennsylvania:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Univest Corporation of Pennsylvania and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2004.

Philadelphia, Pennsylvania

March 1, 2018

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UNIVEST CORPORATION OF PENNSYLVANIA

CONSOLIDATED BALANCE SHEETS



	At December 31,
(Dollars in thousands, except share data)	2017			2016

ASSETS
Cash and due from banks	$	46,721		$	48,757
Interest-earning deposits with other banks	28,688			9,068
Investment securities held-to-maturity (fair value $55,320 and $24,871 at December 31, 2017 and 2016, respectively)	55,564			24,881
Investment securities available-for-sale	398,518			443,637
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	27,204			24,869
Loans held for sale	1,642			5,890
Loans and leases held for investment	3,620,067			3,285,886
Less: Reserve for loan and lease losses	(21,555		)	(17,499		)
Net loans and leases held for investment	3,598,512			3,268,387
Premises and equipment, net	61,797			63,638
Goodwill	172,559			172,559
Other intangibles, net of accumulated amortization and fair value adjustments of $21,825 and $17,597 at December 31, 2017 and 2016, respectively	13,909			16,651
Bank owned life insurance	108,246			99,948
Accrued interest receivable and other assets	41,502			52,243
Total assets	$	4,554,862		$	4,230,528
LIABILITIES
Noninterest-bearing deposits	$	1,040,026		$	918,337
Interest-bearing deposits:
Demand deposits	1,109,438			909,963
Savings deposits	830,706			803,078
Time deposits	574,749			626,189
Total deposits	3,554,919			3,257,567
Short-term borrowings	105,431			196,171
Long-term debt	155,828			127,522
Subordinated notes	94,331			94,087
Accrued interest payable and other liabilities	40,979			49,972
Total liabilities	3,951,488			3,725,319
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at December 31, 2017 and 2016; 31,556,799 and 28,911,799 shares issued at December 31, 2017 and 2016, respectively; 29,334,859 and 26,589,353 shares outstanding at December 31, 2017 and 2016, respectively	157,784			144,559
Additional paid-in capital	290,133			230,494
Retained earnings	216,761			194,516
Accumulated other comprehensive loss, net of tax benefit	(17,771		)	(19,454		)
Treasury stock, at cost; 2,221,940 and 2,322,446 shares at December 31, 2017 and 2016, respectively	(43,533		)	(44,906		)
Total shareholders’ equity	603,374			505,209
Total liabilities and shareholders’ equity	$	4,554,862		$	4,230,528

See accompanying notes to consolidated financial statements.

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UNIVEST CORPORATION OF PENNSYLVANIA

CONSOLIDATED STATEMENTS OF INCOME



	For the Years Ended December 31,
(Dollars in thousands, except per share data)	2017		2016		2015

Interest income
Interest and fees on loans and leases:
Taxable	$	143,176	$	110,119	$	86,792
Exempt from federal income taxes	8,442		7,545		6,452
Total interest and fees on loans and leases	151,618		117,664		93,244
Interest and dividends on investment securities:
Taxable	7,343		5,380		4,671
Exempt from federal income taxes	2,274		2,712		3,447
Interest on deposits with other banks	280		61		95
Interest and dividends on other earning assets	1,500		790		526
Total interest income	163,015		126,607		101,983
Interest expense
Interest on demand deposits	3,917		1,902		1,474
Interest on savings deposits	2,089		1,052		533
Interest on time deposits	5,271		4,261		4,000
Interest on short-term borrowings	904		748		35
Interest on long-term debt and subordinated notes	7,658		4,419		2,023
Total interest expense	19,839		12,382		8,065
Net interest income	143,176		114,225		93,918
Provision for loan and lease losses	9,892		4,821		3,802
Net interest income after provision for loan and lease losses	133,284		109,404		90,116
Noninterest income
Trust fee income	8,055		7,741		7,908
Service charges on deposit accounts	5,482		4,691		4,230
Investment advisory commission and fee income	13,454		11,424		10,817
Insurance commission and fee income	14,788		14,603		13,885
Other service fee income	8,656		7,836		7,335
Bank owned life insurance income	3,988		2,931		1,295
Net gain on sales of investment securities	48		518		1,265
Net gain on mortgage banking activities	4,023		6,027		4,838
Other income	746		192		852
Total noninterest income	59,240		55,963		52,425
Noninterest expense
Salaries, benefits and commissions	75,908		70,879		58,106
Net occupancy	10,433		9,638		8,430
Equipment	4,118		3,489		3,159
Data processing	8,500		6,981		4,660
Professional fees	5,325		4,547		3,839
Marketing and advertising	1,485		2,015		2,253
Deposit insurance premiums	1,636		1,713		1,730
Intangible expenses	2,582		5,528		2,567
Acquisition-related costs	—		10,257		1,047
Integration costs	—		5,667		1,490
Restructuring charges	—		1,731		1,642
Other expense	20,726		19,536		16,592
Total noninterest expense	130,713		141,981		105,515
Income before income taxes	61,811		23,386		37,026
Income taxes	17,717		3,881		9,758
Net income	$	44,094	$	19,505	$	27,268
Net income per share:
Basic	$	1.64	$	0.85	$	1.39
Diluted	1.64		0.84		1.39
Dividends declared	0.80		0.80		0.80

See accompanying notes to consolidated financial statements.

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UNIVEST CORPORATION OF PENNSYLVANIA

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the Years Ended December 31,
(Dollars in thousands)	2017									2016									2015
	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount

Income	$	61,811		$	17,717		$	44,094		$	23,386		$	3,881		$	19,505		$	37,026		$	9,758		$	27,268
Other comprehensive income:
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period	1,474			516			958			(6,245		)	(2,186		)	(4,059		)	(2,283		)	(799		)	(1,484		)
Less: reclassification adjustment for net gains on sales realized in net income (1)	(48		)	(17		)	(31		)	(518		)	(181		)	(337		)	(1,265		)	(443		)	(822		)
Less: reclassification adjustment for other-than-temporary impairment on equity securities realized in net income (2)	—			—			—			—			—			—			5			2			3
Total net unrealized gains (losses) on available-for-sale investment securities	1,426			499			927			(6,763		)	(2,367		)	(4,396		)	(3,543		)	(1,240		)	(2,303		)
Net unrealized gains (losses) on interest rate swaps used in cash flow hedges:
Net unrealized holding gains (losses) arising during the period	49			17			32			(86		)	(30		)	(56		)	(574		)	(201		)	(373		)
Less: reclassification adjustment for net losses realized in net income (3)	182			64			118			308			108			200			377			132			245
Total net unrealized gains (losses) on interest rate swaps used in cash flow hedges	231			81			150			222			78			144			(197		)	(69		)	(128		)
Defined benefit pension plans:
Net unrealized losses arising during the period	(14		)	(5		)	(9		)	(155		)	(54		)	(101		)	(797		)	(279		)	(518		)
Less: amortization of net actuarial loss included in net periodic pension costs (4)	1,227			429			798			1,321			462			859			1,362			477			885
Less: accretion of prior service cost included in net periodic pension costs (4)	(282		)	(99		)	(183		)	(283		)	(99		)	(184		)	(280		)	(98		)	(182		)
Less: reclassification adjustment for net losses realized in net income (5)	—			—			—			1,434			502			932			—			—			—
Total defined benefit pension plans	931			325			606			2,317			811			1,506			285			100			185
Other comprehensive income (loss)	2,588			905			1,683			(4,224		)	(1,478		)	(2,746		)	(3,455		)	(1,209		)	(2,246		)
Total comprehensive income	$	64,399		$	18,622		$	45,777		$	19,162		$	2,403		$	16,759		$	33,571		$	8,549		$	25,022

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

(2) Included in other noninterest income on the consolidated statement of income (before tax amount).

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

(4) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 13 - Retirement Plans and Other Postretirement Benefits for additional details.

(5) Included in pension cost (before tax amount). See Note 13 - Retirement Plans and Other Postretirement Benefits for additional details.

See accompanying notes to consolidated financial statements.

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UNIVEST CORPORATION OF PENNSYLVANIA

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY



(Dollars in thousands, except share and per share data)	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total

Balance at December 31, 2014	16,221,607		$	91,332	$	62,980		$	181,851		$	(14,462	)	$	(37,147	)	$	284,554

Net income	—		—		—			27,268			—			—			27,268
Other comprehensive loss, net of income tax benefit	—		—		—			—			(2,246		)	—			(2,246		)
Cash dividends declared ($0.80 per share)	—		—		—			(15,673		)	—			—			(15,673		)
Stock issued under dividend reinvestment and employee stock purchase plans	123,391		—		52			—			—			2,382			2,434
Issuance of common stock, acquisition	3,787,866		18,939		57,727			—			—			—			76,666
Exercise of stock options	27,999		—		(54		)	—			—			515			461
Stock-based compensation	—		—		1,421			—			—			—			1,421
Net tax benefit on stock-based compensation	—		—		31			—			—			—			31
Purchases of treasury stock	(675,754	)	—		—			—			—			(13,342		)	(13,342		)
Restricted stock awards granted, net of cancellations	45,821		—		(877		)	—			—			877			—
Balance at December 31, 2015	19,530,930		$	110,271	$	121,280		$	193,446		$	(16,708	)	$	(46,715	)	$	361,574

Net income	—		—		—			19,505			—			—			19,505
Other comprehensive loss, net of income tax benefit	—		—		—			—			(2,746		)	—			(2,746		)
Cash dividends declared ($0.80 per share)	—		—		—			(18,435		)	—			—			(18,435		)
Stock issued under dividend reinvestment and employee stock purchase plans	115,269		—		59			—			—			2,413			2,472
Issuance of common stock, acquisition	6,857,529		34,288		109,858			—			—			—			144,146
Exercise of stock options	261,050		—		59			—			—			4,909			4,968
Stock-based compensation	—		—		2,084			—			—			—			2,084
Purchases of treasury stock	(328,271	)	—		—			—			—			(8,359		)	(8,359		)
Restricted stock awards granted, net of cancellations	152,846		—		(2,846		)	—			—			2,846			—
Balance at December 31, 2016	26,589,353		$	144,559	$	230,494		$	194,516		$	(19,454	)	$	(44,906	)	$	505,209

Net income	—		—		—			44,094			—			—			44,094
Other comprehensive income, net of income tax	—		—		—			—			1,683			—			1,683
Cash dividends declared ($0.80 per share)	—		—		—			(21,849		)	—			—			(21,849		)
Stock issued under dividend reinvestment and employee stock purchase plans	82,694		—		181			—			—			2,232			2,413
Issuance of common stock, public offering	2,645,000		13,225		57,276			—			—			—			70,501
Exercise of stock options	92,370		—		(119		)	—			—			1,795			1,676
Stock-based compensation	—		—		3,166			—			—			—			3,166
Purchases of treasury stock	(119,798	)	—		—			—			—			(3,519		)	(3,519		)
Restricted stock awards granted, net of cancellations	45,240		—		(865		)	—			—			865			—
Balance at December 31, 2017	29,334,859		$	157,784	$	290,133		$	216,761		$	(17,771	)	$	(43,533	)	$	603,374

See accompanying notes to consolidated financial statements.

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UNIVEST CORPORATION OF PENNSYLVANIA

CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the Years Ended December 31,
(Dollars in thousands)	2017			2016			2015
Cash flows from operating activities:
Net income	$	44,094		$	19,505		$	27,268
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	9,892			4,821			3,802
Depreciation of premises and equipment	5,561			4,089			3,757
Net gain on sales of investment securities	(48		)	(518		)	(1,265		)
Net gain on mortgage banking activities	(4,023		)	(6,027		)	(4,838		)
Bank owned life insurance income	(3,988		)	(2,931		)	(1,295		)
Net amortization on investment securities	1,838			1,853			1,284
Amortization, fair market value adjustments and capitalization of mortgage servicing rights	(87		)	(521		)	(368		)
Net accretion of acquisition accounting fair value adjustments	(3,022		)	(2,779		)	(2,048		)
Stock-based compensation	3,166			2,084			1,421
Intangible expenses	2,582			5,528			2,567
Other adjustments to reconcile net income to cash provided by operating activities	(80		)	659			(133		)
Deferred tax expense	7,483			942			3,816
Originations of loans held for sale	(143,993		)	(258,202		)	(209,464		)
Proceeds from the sale of loans held for sale	152,734			262,948			212,613
Contributions to pension and other postretirement benefit plans	(2,295		)	(2,261		)	(2,271		)
(Increase) decrease in accrued interest receivable and other assets	(1,369		)	1,956			3,055
Increase in accrued interest payable and other liabilities	215			2,160			1,442
Net cash provided by operating activities	68,660			33,306			39,343
Cash flows from investing activities:
Net cash paid due to acquisitions	—			(94,835		)	(2,967		)
Net capital expenditures	(3,961		)	(12,644		)	(5,890		)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	23,265			21,000			13,000
Proceeds from maturities, calls and principal repayments of securities available-for-sale	94,903			110,927			79,482
Proceeds from sales of securities available-for-sale	7,069			77,290			77,308
Purchases of investment securities held-to-maturity	(54,149		)	(5,071		)	—
Purchases of investment securities available-for-sale	(58,484		)	(80,476		)	(162,722		)
Net increase in other investments	(2,335		)	(11,773		)	(3,718		)
Proceeds from sale of loans transferred to held for sale	—			—			4,000
Proceeds from sale of portfolio loans	—			2,435			—
Net increase in loans and leases	(338,481		)	(337,961		)	(181,037		)
Net (increase) decrease in interest-earning deposits	(19,620		)	35,004			(16,954		)
Proceeds from sales of other real estate owned	3,996			885			14
Net decrease in federal funds sold	—			—			17,442
Purchases of bank owned life insurance	(7,271		)	—			(8,000		)
Proceeds from bank owned life insurance	2,961			662			—
Net cash used in investing activities	(352,107		)	(294,557		)	(190,042		)
Cash flows from financing activities:
Net increase in deposits	297,792			125,425			147,572
Net (decrease) increase in short-term borrowings	(90,740		)	123,207			(17,763		)
Proceeds from issuance of long-term debt	95,000			20,000			—
Repayment of long-term debt	(65,000		)	(15,000		)	—
Proceeds from issuance of subordinated notes	—			44,515			49,267
Payment of contingent consideration on acquisitions	(5,413		)	(2,552		)	(2,631		)
Proceeds from public offering of common stock	70,501			—			—
Purchases of treasury stock	(3,519		)	(8,359		)	(13,342		)
Stock issued under dividend reinvestment and employee stock purchase plans	2,413			2,472			2,434
Proceeds from exercise of stock options, including excess tax benefits	1,676			4,968			534
Cash dividends paid	(21,299		)	(17,024		)	(15,011		)
Net cash provided by financing activities	281,411			277,652			151,060
Net decrease (increase) in cash and due from banks	(2,036		)	16,401			361
Cash and due from banks at beginning of year	48,757			32,356			31,995
Cash and due from banks at end of period	$	46,721		$	48,757		$	32,356

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	For the Years Ended December 31,
	2017		2016		2015
Supplemental disclosures of cash flow information:
Cash paid for interest	$	21,493	$	13,982	$	8,099
Cash paid for income taxes, net of refunds	12,599		8,053		2,142
Non cash transactions:
Transfer of loans to other real estate owned	$	729	$	2,347	$	320
Transfer of loans to loans held for sale	—		—		4,000
Assets acquired through acquisitions	—		1,090,395		425,185
Liabilities assumed through acquisitions	—		911,316		389,795
Contingent consideration recorded as goodwill	—		—		1,525

See accompanying notes to consolidated financial statements.

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(All dollar amounts presented in tables are in thousands, except per share data. “N/M” equates to “not meaningful” “-” equates to “zero” or “doesn’t round to a reportable number” and “N/A” equates to “not applicable”.)

Note 1. Summary of Significant Accounting Policies

Organization

Univest Corporation of Pennsylvania (the Corporation) through its wholly owned subsidiary, Univest Bank and Trust Co. (the Bank), is engaged in domestic commercial and consumer banking services and provides a full range of banking and trust services to its customers. The Bank wholly owns Univest Capital, Inc., which provides lease financing, and Delview, Inc., who through its subsidiaries, Univest Investments, Inc., Univest Insurance, Inc. and Girard Partners provides financial planning, investment management, investment advisory, insurance products and brokerage services. Univest Investments, Inc., Univest Insurance, Inc. and Univest Capital, Inc. were formed to enhance the traditional banking and trust services provided by the Bank, along with the acquisition of Girard Partners.

At December 31, 2017, the Corporation has three 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. For more detailed discussion and financial information on the business segments, see Note 23 “Segment Reporting.”

The Bank serves Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia Counties in Pennsylvania and Atlantic and Cape May Counties in New Jersey through forty-one banking offices and provides banking and trust services to the residents and employees of fourteen retirement communities.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries; the Corporation’s primary subsidiary is the Bank. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current-year presentation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (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, reserve for loan and lease losses and purchase accounting.

Interest-earning Deposits with Other Banks

Interest-earning deposits with other banks consist of deposit accounts with other financial institutions generally having maturities of three months or less. At times, such balances exceed the FDIC limits for insurance coverage.

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. The Corporation did not have any trading account securities at December 31, 2017 or 2016. Securities not classified as held-to-maturity or trading are designated securities available-for-sale and 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. 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. 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.

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Purchase premiums and discounts are recognized in interest income using the interest method over the expected life of the securities. 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.

Management evaluates debt securities, which are comprised of U.S. government, government sponsored agencies, municipalities, corporate bonds and other issuers, for other-than-temporary impairment by considering the current economic conditions, the length of time and the extent to which the fair value has been less than cost, market interest rates and the credit rating of each security. Unrealized losses on the Corporation’s investments in debt securities that are deemed temporary in nature are recognized in other comprehensive income, net of tax. Should it be determined that a security is impacted by deteriorating credit or if it is expected the value will not recover during the expected holding period, the credit portion of the loss is recognized in earnings. The Corporation does not have the intent to sell the debt securities and believes it is more likely than not, that it will not have to sell the securities before recovery of their cost basis.

The Corporation evaluates its equity securities for other-than-temporary impairment. In addition, effective January 1, 2018, in accordance with ASU No. 2016-01, equity securities are measured at fair value with changes in fair value recognized in net income. See "Recent Accounting Pronouncements" for additional information.

Federal Home Loan Bank Stock, Federal Reserve Bank Stock and Certain Other Investments without Readily Determinable Fair Values

At December 31, 2017 and 2016, the Bank held $14.6 million, respectively, in Federal Reserve Bank stock as required by the Federal Reserve Bank. The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $12.5 million and $10.1 million at December 31, 2017 and 2016, respectively. Because ownership is restricted, the fair values of these investments are not readily determinable. As such, these investments are recorded at cost and evaluated for other-than-temporary impairment. The Corporation determined there was no other-than-temporary impairment of its investments in these stocks at December 31, 2017 or 2016.

Loans Held for Sale

The Corporation originates mortgage loans for investment and for sale. At origination, a mortgage loan is identified as either for sale or for investment. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Net unrealized losses are recognized by charges to non-interest income. Cash payments and cash receipts resulting from acquisitions and sales of loans are classified as operating cash flows if those loans are acquired specifically for resale. Cash receipts resulting from sales of loans that were not specifically acquired for resale are classified as investing cash inflows regardless of a change in the purpose for holding those loans.

Loans and Leases

Loans and leases are stated at the principal amount less net deferred fees and unearned discount. Interest income on commercial loans, real estate loans excluding residential real estate loans, and consumer loans is recorded on the outstanding balance method, using actual interest rates applied to daily principal balances. Interest on residential real estate loans is recorded based on the outstanding balance using the actual interest rate based upon a monthly interest calculation. 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 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, including a loan or lease that is impaired, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease 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 net deferred fees 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

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and interest is no longer in doubt. A loan or lease is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement or when a loan or lease is classified as a troubled debt restructuring. Interest on impaired loans and leases, which are not classified as nonaccrual, is recognized on the accrual basis.

Acquired Loans

Acquired loan portfolios are initially recorded at the acquisition date fair value. The fair value is based on guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Level 3 inputs are utilized to value the portfolio and include the use of present value techniques employing cash flow estimates and incorporate assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information is not available, the Corporation uses assumptions in an effort to determine reasonable fair value. Specifically, management utilizes three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used are: 1) interest rate loan fair value analysis; 2) general credit fair value analysis; and 3) specific credit fair value analysis. There is no carryover related allowance for loan losses.

For loans acquired without evidence of credit quality deterioration, the fair value adjustments to reflect the fair value of the loans and the fair value adjustments to reflect the general credit risk of the loan portfolio are substantially recognized as interest income on a level yield amortization method based upon the expected life of the loan. Subsequent to the acquisition, the Corporation records a provision for loan loss for the acquired non-impaired loans only when additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis.

For loans acquired with evidence of credit quality deterioration, the Corporation prepares a specific credit fair value adjustment. Management reviews the acquired loan portfolio for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this definition are reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value results in an accretable yield amount. The accretable discount amount is recognized over the life of the loans on a level yield basis as an adjustment to yield. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the derecognition of the loan at its carrying value with differences in actual results reflected in interest income. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan loss, resulting in an increase to the allowance.

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.

Reserve for Loan and Lease Losses

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

The reserve for loan and lease losses is adjusted through provisions for loan and lease losses charged against or credited to income. Loans deemed to be uncollectible are charged against the reserve for loan and lease losses, and any subsequent recoveries are credited to the reserve.

Reserve Required for Impaired Loans and Leases

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net carrying amount of a loan is required. The Bank recognizes charge-offs associated with impaired loans when all or a portion of a loan is considered to be uncollectible. In measuring impairment, the Bank determines whether or not the loan is collateral dependent. A loan is collateral dependent if repayment is expected to be provided solely by the underlying collateral, which includes repayment from the proceeds from the sale of the collateral, cash flows from the continued operation of the collateral, or both, and there are no other available and reliable repayment sources. To determine the initial amount of impairment for a collateral dependent loan, the Bank utilizes a recent appraisal, an agreement of sale or a letter of intent. If the fair value of the underlying collateral, less costs to sell, is less than the loan's carrying amount, the Bank establishes a provision to the reserve for loan and lease losses in the amount of the difference between fair value, less costs to sell, and the loan or lease's carrying amount. In subsequent periods, the Bank takes into consideration current facts and circumstances in analyzing whether the fair value of the collateral has increased or decreased significantly such that a change to the corresponding valuation allowance is required. If current facts and circumstances are insufficient to determine fair value, the Bank obtains a new appraisal.

General Reserve on the Remainder of the Portfolio


•	Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not considered elsewhere in estimating credit losses;


•	Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;


•	Changes in the nature and volume of the portfolio and in the terms of loans;


•	Changes in the experience, ability, and depth of lending management and other relevant staff;


•	Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;


•	Changes in the quality of the institution’s loan review system;


•	Changes in the value of underlying collateral for collateral-dependent loans;


•	The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and


•	The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. In addition, the Bank's primary examiner, as a regular part of their examination process, may require the Bank to increase the level of reserves.

Premises and Equipment

Land is stated at cost, and premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method and charged to operating expenses over the estimated useful lives of the assets or, for leasehold improvements, over the life of the related lease if less than the estimated useful life of the asset. The estimated useful life for new buildings constructed on land owned is forty years. For new buildings constructed on leased land, the estimated useful life is the lesser of twenty-five years (fifteen years if the cost is less than $750 thousand) or the initial term including anticipated renewable terms. The useful life of purchased existing buildings is the estimated remaining useful life at the time of the purchase. Land improvements are considered to have estimated useful lives of the lesser of fifteen years or the lease term including anticipated renewable terms. Furniture, fixtures and equipment have estimated useful lives ranging from three to ten years. When assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts.

Goodwill and Other Intangible Assets

The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired,

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which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the purchase method. Core deposit intangibles are amortized using the sum of the year’s digits over their estimated useful lives of up to fifteen years. Customer related intangibles are amortized over their estimated useful lives of five to twelve years. Covenants not to compete are amortized over their three to five-year contractual lives on a straight-line basis. The Corporation completes a goodwill 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 intangible assets on an annual basis or more often if events and circumstances indicate a possible impairment. There can be no assurance that future impairment analyses will not result in a charge to earnings.

Mortgage servicing rights are recognized as separate assets when loans are sold and the servicing rights are retained. Capitalized mortgage servicing rights are reported in other intangible assets on the consolidated balance sheets and are amortized into noninterest income in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are evaluated for impairment, on a quarterly basis, based upon the fair value of the servicing rights as compared to amortized cost. 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 current interest rates of the portfolios serviced. Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the unamortized capitalized amount. The Corporation also records servicing rights on Small Business Administration (SBA) loans.

Bank Owned Life Insurance

The Corporation has invested in bank-owned life insurance (BOLI). BOLI involves the purchasing of life insurance by the Corporation for certain employees. The Corporation is the owner and beneficiary of the policies, however certain policies include split-dollar endorsements. Under these endorsements, beneficiaries of the insured individuals are entitled to a portion of the proceeds from the policy upon death of the insured. The life insurance investment is carried at the net cash surrender value of the underlying policies. Changes in the net cash surrender value of these policies are reflected in noninterest income. Proceeds from and purchases of bank owned life insurance are reflected in the consolidated statements of cash flows under investing activities. The Corporation recognizes a liability for the future death benefit for certain endorsement split-dollar life insurance arrangements that provide an employee with a death benefit in a postretirement/termination period.

Other Real Estate Owned

Other real estate owned (OREO) represents properties acquired through customers’ loan defaults and is included in other assets. The real estate is originally stated at an amount equal to the fair value of the property, less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. The amount, if any, by which the carrying amount of the loan plus recorded accrued interest (the recorded loan amount) exceeds the fair value less cost to sell of the OREO, the loss is charged against the reserve for loan and lease losses at the time of foreclosure or repossession. If the fair value less cost to sell of the OREO asset when taken into possession is greater than the recorded loan amount, the excess is first applied as a recovery against any prior charge-offs of the loan and any remaining gain is recorded as other noninterest income. Subsequently, OREO will be reported at the lower of the original cost and the current the fair value less cost to sell. Subsequent write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. 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. Overages and subsequent carrying costs are expensed as incurred.

Derivative Financial Instruments

The Corporation recognizes all derivative financial instruments on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the underlying forecasted transaction is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized in earnings immediately. To determine fair value, the Corporation uses third party pricing models that incorporate assumptions about market conditions and risks that are current at the reporting date.

The Corporation may use interest-rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. The Corporation accounts for its interest-rate swap contracts in cash flow hedging relationships by establishing and documenting the effectiveness of the instrument

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in offsetting the change in cash flows of assets or liabilities that are being hedged. To determine effectiveness, the Corporation performs an analysis to identify if changes in fair value of the derivative correlate to the equivalent changes in the forecasted interest receipts related to a specified hedged item. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. The change in fair value of the ineffective part of the instrument would be charged to earnings, potentially causing material fluctuations in reported earnings in the period of the change relative to comparable periods. In a fair value hedge, the fair values of the interest rate swap agreements and changes in the fair values of the hedged items are recorded in the Corporation’s consolidated balance sheet with the corresponding gain or loss being recognized in the consolidated statement of income. The difference between changes in the fair values of interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded in net interest income in the consolidated statement of income. The Corporation performs an assessment, both at the inception of the hedge and quarterly thereafter, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged items.

The Corporation has agreements with third-party financial institutions whereby the third-party financial institution enters into interest rate derivative contracts and foreign currency swap 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. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of income.

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sale of mortgage loans to third-party investors to hedge the effect of changes in interest rates on the value of the interest rate locks. Forward loan sale commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. Both the interest rate locks and the forward loan sale commitments are accounted for as derivatives and carried at fair value, determined as the amount that would be necessary to settle each derivative financial instrument at the balance sheet date. Gross derivative assets and liabilities are recorded within other assets and other liabilities on the consolidated balance sheets, with changes in fair value during the period recorded within the net gain on mortgage banking activities on the consolidated statements of income.

Income Taxes

There are two components of income tax expense: current and deferred. Current income tax expense approximates cash to be paid or refunded for taxes for the applicable period. Deferred income taxes are provided for temporary differences between amounts reported for financial statement and tax purposes. Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect for the periods in which the differences are expected to reverse. Deferred tax assets are subject to management’s judgment based upon available evidence that future realizations are “more likely than not.” If management determines that the Corporation is not more likely than not, to realize some or all of the net deferred tax asset in the future, a charge to income tax expense may be required to reduce the value of the net deferred tax asset to the expected realizable value. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Penalties are recorded in noninterest expense in the year they are assessed and paid and are treated as a non-deductible expense for tax purposes. Interest is recorded in noninterest expense in the year it is assessed and paid and is treated as a deductible expense for tax purposes. On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act reduces the Corporation's federal tax rate from 35% to 21% effective January 1, 2018. See Note 12, "Income Taxes" for additional information.

Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Effective December 31, 2009, the benefits previously accrued under the noncontributory retirement plan were frozen and the plan was amended and converted to a cash balance plan, with participants not losing any pension benefits already earned in the plan. Prior to the cash balance plan conversion effective December 31, 2009, the plan provided benefits based on a formula of each participant’s final average pay. Future benefits under the cash balance plan accrue by crediting participants annually with an amount equal to a percentage of earnings in that year based on years of credited service as defined in the plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax

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law; these plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants; all current participants are now retired. The Corporation provides certain postretirement healthcare and life insurance benefits for retired employees. The Corporation’s measurement date for plan assets and obligation is fiscal year-end. The Corporation recognizes on its consolidated balance sheet the funded status of its defined pension plans and changes in the funded status of the plan in the year in which the changes occur. An under-funded position would create a liability and an over-funded position would create an asset, with a correlating deferred tax asset or liability. The net impact would be an adjustment to equity as accumulated other comprehensive income (loss). The Corporation recognizes as a component of other comprehensive income (loss), net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period.

The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP) which was established in 1981 prior to the existence of a 401(k) deferred salary savings, employee stock purchase and long-term incentive plans and therefore is not offered to new participants; all current participants are now retired. These non-qualified plans are accounted for under guidance for deferred compensation arrangements.

Stock-Based Compensation

The fair value of share based awards is recognized as compensation expense over the vesting period based on the grant-date fair value of the awards. The Corporation uses the Black-Scholes Model to estimate the fair value of each option on the date of grant. The Black-Scholes Model estimates the fair value of employee stock options using a pricing model which takes into consideration the exercise price of the option, the expected life of the option, the current market price and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Corporation grants stock options to employees with an exercise price equal to the fair value of the shares at the date of grant.

The Corporation grants both fixed and variable (performance-based) restricted stock. The performance-based restricted stock awards vest based upon the Corporation’s performance with respect to certain financial measures over a three-year period. The fair value of fixed restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. The fair value of the performance-based restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period adjusted for a probability factor of achieving the performance goals.

Dividend Reinvestment and Employee Stock Purchase Plans

The Univest Dividend Reinvestment Plan allows for the issuance of 1,968,750 shares of common stock. During 2017 and 2016, 60,602 and 86,350 shares, respectively, were issued under the dividend reinvestment plan, with 317,283 shares available for future purchase at December 31, 2017.

The 1996 Employee Stock Purchase Plan allows for the issuance of 984,375 shares of common stock. Employees may elect to make contributions to the plan in an aggregate amount not less than 2% or more than 10% of such employee’s total compensation. These contributions are then used to purchase stock during an offering period determined by the Corporation’s Employee Stock Purchase Plan Committee. The purchase price of the stock is 90% of the closing sale price on the last trading day of each quarter. Compensation expense is recognized as the discount is greater than 5% of the fair value. During 2017 and 2016, 22,092 and 28,919 shares, respectively, were issued under the employee stock purchase plan, with 655,173 shares available for future purchase at December 31, 2017.

Marketing and Advertising Costs

The Corporation’s accounting policy is to expense marketing and advertising costs as incurred, when the advertisement first takes place, or over the expected useful life of the related asset.

Statement of Cash Flows

The Corporation has defined those items included in the caption “Cash and due from banks” as cash and cash equivalents.

Assets under Management

Assets held by the Corporation in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such items are not assets of the Corporation.

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Earnings per Share

The Corporation uses the two-class method to calculate earnings per share as the unvested restricted stock issued under the Corporation's equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if options on common shares had been exercised, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Corporation relate solely to outstanding stock options, and are determined using the treasury stock method. The effects of options to issue common stock are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

Recent Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU clarifies the accounting treatment of the reclassification of certain income tax effects within accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act. Among other changes, upon adoption of the ASU, an entity will be required to disclose a description of the accounting policy for releasing stranded income tax effects from accumulated other comprehensive income. The standard is required to be adopted for periods beginning after December 15, 2018 with early adoption available for any set of financial statements that have yet to be issued or made available for issuance. The Corporation expects to adopt ASU 2018-02 in its 2018 financial statements and upon adoption will reclassify stranded tax charges, totaling $3.9 million, from accumulated other comprehensive income to retained earnings. Additionally, in accordance with ASU 2016-01, stranded tax benefits related to unrealized net gains on equity securities, totaling $93 thousand, will be reclassified to retained earnings upon adoption on January 1, 2018.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in this update expand and refine hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additional hedging strategies permitted for hedge accounting include: hedges of contractually-specified price components of commodity purchases or sales, hedges of the benchmark rate component of the contractual coupon cash flows of fixed-rate assets or liabilities, hedges of the portion of a closed portfolio of prepayable assets not expected to prepay, and partial-term hedges of fixed-rate assets or liabilities. The ASU amends the presentation and disclosure requirements and changes how entities assess effectiveness. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires all items that affect earnings be presented in the same income statement line as the hedged items. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the entity can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. The amended presentation and disclosure guidance is required only prospectively. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting." This ASU provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. The ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, or January 1, 2018 for the Corporation. Early adoption is permitted, including an interim period. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. This ASU is to be applied on a

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modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this ASU require that an employer that sponsors defined benefit pension plans and other postretirement plans present the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments also allow only the service cost component to be eligible for capitalization, when applicable. This ASU is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods, or January 1, 2018 for the Corporation. This ASU should be applied retrospectively for the presentation requirements and prospectively for the capitalization of the service cost component requirements. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. Disclosure that the practical expedient was used is required. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements. Effective January 1, 2018, components of net benefit cost other than the service cost component will be presented in the Corporation's income statement in other noninterest expense rather than in salaries, benefits and commission expense.

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. Early adoption is permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business – inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, or January 1, 2018 for the Corporation. The amendments in this ASU should be applied prospectively on or after the effective date. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to

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retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or January 1, 2020 for the Corporation. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the allowance will increase upon adoption of CECL and that the increased allowance level will decrease shareholders' equity and regulatory capital and ratios.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" to revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. Disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The ASU is effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019, with early adoption permitted. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, the adoption of this ASU will impact the balance sheet for the recording of assets and liabilities for operating leases; any initial or continued impact of the recording of assets will have a negative impact on all Corporation and Bank capital ratios under current regulatory guidance and possibly equity ratios.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable, an entity may elect to measure the equity investment at cost, minus impairment, plus or minus any change in the investment’s observable price. The ASU simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. For financial liabilities that are measured at fair value, the ASU requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument-specific credit risk. An entity is required to apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) is required to be applied prospectively to equity investments that exist as of the date of adoption. The amendments in this ASU are effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017 or January 1, 2018 for the Corporation. At, December 31, 2017, the Corporation's equity portfolio had a carrying value of $1.1 million which included an unrealized net gain of $666 thousand. At December 31, 2017, $433 thousand was recorded in accumulated other comprehensive income which represented the unrealized net gain, net of income taxes, based on the Corporation’s statutory tax rate as of December 31, 2017. Upon implementation using the prospective approach, the balance in accumulated other comprehensive income of $433 thousand will be reclassed to retained earnings. The carrying value of the equity securities will not change; however, any future increases or decreases in fair value will be recorded as an increase or decrease to the carrying value and recognized in non-interest income.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)” and subsequent related updates. This ASU clarifies the principles for recognizing revenue and develops a common standard for U.S. GAAP and International Financial Reporting Standards. The ASU establishes a core principle that requires an entity to identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. The ASU provides for improved disclosure requirements that require entities to disclose sufficient information that enables users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2017. This guidance allows for adoption using the full retrospective method, with adjustment to each prior reporting period presented in

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accordance with the guidance on accounting changes, or the modified retrospective method, with a cumulative-effect adjustment to opening retained earnings.

The Corporation plans to adopt the guidance effective January 1, 2018 and will use the modified retrospective method with a cumulative-effect adjustment to opening retained earnings, though no significant adjustments are expected at this time. The Corporation’s revenue is the sum of net interest income and noninterest income. The scope of the guidance excludes nearly all net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. The Corporation determined that approximately 84% of non-interest income revenue in the year ended December 31, 2017, is within the scope of the new standard. Non-interest income streams that are out of scope of the new standard include BOLI, sales of investment securities, mortgage banking activities, certain items within other service fee income such as mortgage servicing income, and certain items within other income. Management has reviewed contracts related to trust fee income, service charges on deposits, investment advisory commissions and fee income, insurance commission and fee income and certain items within other service fee income and other income and has not identified material changes to the timing or amount of revenue recognition. The Corporation will continue to evaluate changes that may be necessary to applicable disclosures of disaggregation of total revenue, information about performance obligations, information about key judgments and estimates and policy decisions regarding revenue recognition.

Note 2. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:



	For the Years Ended December 31,
(Dollars and shares in thousands)	2017			2016			2015
Numerator:
Net income	$	44,094		$	19,505		$	27,268
Net income allocated to unvested restricted stock	(409		)	(167		)	(204		)
Net income allocated to common shares	$	43,685		$	19,338		$	27,064
Denominator:
Denominator for basic earnings per share—weighted-average shares outstanding	26,606			22,871			19,491
Effect of dilutive securities—employee stock options	102			60			31
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding	26,708			22,931			19,522
Basic earnings per share	$	1.64		$	0.85		$	1.39
Diluted earnings per share	$	1.64		$	0.84		$	1.39
Average anti-dilutive options excluded from computation of diluted earnings per share	169			280			496

Note 3. Common Stock Issuance

On December 6, 2017, the Corporation completed its public offering of 2,645,000 shares of common stock at a price of $28.25 per share, including 345,000 shares of common stock purchased by the underwriters pursuant to their over-allotment option, which was exercised in full. The net proceeds of the offering after deducting underwriting discounts and commissions and offering expenses were $70.5 million. As a result of the stock issuance, common stock increased by $13.2 million and additional paid-in capital increased by $57.3 million.

Note 4. Restrictions on Cash and Due from Banks and Interest-earning Deposit Accounts

The Bank maintains reserve balances under Federal Reserve Bank requirements. The reserve requirement at December 31, 2017 and 2016 was $6.7 million and $6.6 million, respectively, and was satisfied by vault cash held at the Bank’s branches. The average balances at the Federal Reserve Bank of Philadelphia were $24.5 million and $10.2 million for the years ended December 31, 2017 and 2016, respectively.

The Corporation maintains interest-earning deposit accounts at other financial institutions and pledges certain deposits as collateral for credit derivatives and interest rate swap agreements. Deposits pledged at December 31, 2017 and 2016 were $400 thousand and $50 thousand, respectively. See Note 17, "Derivative Instruments and Hedging Activities" for additional information.

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Note 5. Investment Securities

The following table shows the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at December 31, 2017 and 2016, by contractual maturity within each type:



	At December 31, 2017									At December 31, 2016
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
After 1 year to 5 years	$	6,995	$	—	$	(77	)	$	6,918	$	—	$	—	$	—		$	—
	6,995		—		(77		)	6,918		—		—		—			—
Residential mortgage-backed securities:
After 5 years to 10 years	8,944		—		(51		)	8,893		—		—		—			—
Over 10 years	39,625		44		(160		)	39,509		5,071		—		(3		)	5,068
	48,569		44		(211		)	48,402		5,071		—		(3		)	5,068
Corporate bonds:
Within 1 year	—		—		—			—		19,810		2		(9		)	19,803
	—		—		—			—		19,810		2		(9		)	19,803
Total	$	55,564	$	44	$	(288	)	$	55,320	$	24,881	$	2	$	(12	)	$	24,871
Securities Available-for-Sale
U.S. government corporations and agencies:
Within 1 year	$	1,499	$	—	$	(3	)	$	1,496	$	15,000	$	20	$	—		$	15,020
After 1 year to 5 years	15,590		—		(125		)	15,465		17,265		—		(19		)	17,246
	17,089		—		(128		)	16,961		32,265		20		(19		)	32,266
State and political subdivisions:
Within 1 year	2,721		1		(6		)	2,716		964		—		(1		)	963
After 1 year to 5 years	16,787		33		(44		)	16,776		18,705		38		(75		)	18,668
After 5 years to 10 years	54,846		897		(73		)	55,670		55,541		829		(426		)	55,944
Over 10 years	3,120		15		—			3,135		12,663		226		(114		)	12,775
	77,474		946		(123		)	78,297		87,873		1,093		(616		)	88,350
Residential mortgage-backed securities:
After 1 year to 5 years	3,913		12		(26		)	3,899		6,086		—		(66		)	6,020
After 5 years to 10 years	51,428		5		(852		)	50,581		23,479		—		(622		)	22,857
Over 10 years	133,237		87		(2,383		)	130,941		174,388		99		(4,794		)	169,693
	188,578		104		(3,261		)	185,421		203,953		99		(5,482		)	198,570
Collateralized mortgage obligations:
After 5 years to 10 years	2,103		—		(82		)	2,021		—		—		—			—
Over 10 years	1,567		14		—			1,581		4,659		—		(105		)	4,554
	3,670		14		(82		)	3,602		4,659		—		(105		)	4,554
Corporate bonds:
Within 1 year	10,006		—		(5		)	10,001		250		—		—			250
After 1 year to 5 years	24,885		20		(147		)	24,758		35,923		34		(241		)	35,716
After 5 years to 10 years	16,669		71		(296		)	16,444		15,193		—		(516		)	14,677
Over 10 years	60,000		—		(4,027		)	55,973		60,000		27		(2,472		)	57,555
	111,560		91		(4,475		)	107,176		111,366		61		(3,229		)	108,198
Money market mutual funds:
No stated maturity	5,985		—		—			5,985		10,784		—		—			10,784
	5,985		—		—			5,985		10,784		—		—			10,784
Equity securities:
No stated maturity	410		667		(1		)	1,076		411		504		—			915
	410		667		(1		)	1,076		411		504		—			915
Total	$	404,766	$	1,822	$	(8,070	)	$	398,518	$	451,311	$	1,777	$	(9,451	)	$	443,637

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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. Unrealized losses in investment securities at December 31, 2017 and 2016 do not represent other-than-temporary impairments in management's judgment.

Securities with a carrying value of $345.1 million and $356.7 million at December 31, 2017 and 2016, respectively, were pledged to secure public deposits and other contractual obligations. In addition, securities of $1.8 million and $1.4 million were pledged to secure credit derivatives and interest rate swaps at December 31, 2017 and 2016, respectively. See Note 17, "Derivative Instruments and Hedging Activities" for additional information.

The following table presents information related to sales of securities available-for-sale during the years ended December 31, 2017, 2016 and 2015:



	For the Years Ended December 31,
(Dollars in thousands)	2017		2016		2015
Securities available-for-sale:
Proceeds from sales	$	7,069	$	77,290	$	77,308
Gross realized gains on sales	74		600		1,295
Gross realized losses on sales	26		82		30
Tax expense related to net realized gains on sales	17		181		443

The Corporation did not recognize any other-than-temporary impairment charges on debt securities for the years ended December 31, 2017, 2016 and 2015. The Corporation realized other-than-temporary impairment charges to noninterest income of $0 thousand, $0 thousand, and $5 thousand on its equity portfolio during the years ended December 31, 2017, 2016 and 2015, respectively.

At December 31, 2017 and 2016, there were no investments in any single non-federal issuer representing more than 10% of shareholders’ equity.

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The following table shows the fair value of securities that were in an unrealized loss position at December 31, 2017 and 2016 by the length of time those securities were in a continuous loss position. For the investment securities in an unrealized loss position, the Corporation has concluded, based on its analysis, that the unrealized losses are primarily caused by the movement of interest rates and current market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. It is more likely than not that the Corporation will not be required to sell the investments before a recovery of carrying value.



	Less than Twelve Months					Twelve Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
At December 31, 2017
Securities Held-to-Maturity
U.S. government corporations and agencies	$	6,919	$	(77	)	$	—	$	—		$	6,919	$	(77	)
Residential mortgage-backed securities	40,881		(211		)	—		—			40,881		(211		)
Total	$	47,800	$	(288	)	$	—	$	—		$	47,800	$	(288	)
Securities Available-for-Sale
U.S. government corporations and agencies	$	5,213	$	(38	)	$	11,749	$	(90	)	$	16,962	$	(128	)
State and political subdivisions	18,457		(91		)	6,332		(32		)	24,789		(123		)
Residential mortgage-backed securities	32,217		(210		)	141,371		(3,051		)	173,588		(3,261		)
Collateralized mortgage obligations	—		—			2,021		(82		)	2,021		(82		)
Corporate bonds	18,464		(1,016		)	71,957		(3,459		)	90,421		(4,475		)
Equity securities	—		(1		)	4		—			4		(1		)
Total	$	74,351	$	(1,356	)	$	233,434	$	(6,714	)	$	307,785	$	(8,070	)

At December 31, 2016
Securities Held-to-Maturity
Residential mortgage-backed securities	$	5,068	$	(3	)	$	—	$	—		$	5,068	$	(3	)
Corporate bonds	9,779		(9		)	—		—			9,779		(9		)
Total	$	14,847	$	(12	)	$	—	$	—		$	14,847	$	(12	)
Securities Available-for-Sale
U.S. government corporations and agencies	$	11,850	$	(19	)	$	—	$	—		$	11,850	$	(19	)
State and political subdivisions	40,771		(610		)	423		(6		)	41,194		(616		)
Residential mortgage-backed securities	192,782		(5,482		)	—		—			192,782		(5,482		)
Collateralized mortgage obligations	2,012		(26		)	2,542		(79		)	4,554		(105		)
Corporate bonds	58,535		(1,333		)	33,104		(1,896		)	91,639		(3,229		)
Total	$	305,950	$	(7,470	)	$	36,069	$	(1,981	)	$	342,019	$	(9,451	)

At December 31, 2017, gross unrealized losses for securities in an unrealized loss position for twelve months or longer, totaled $6.7 million. Four federal agency bonds, fourteen investment grade corporate bonds, 104 federal agency residential mortgage securities, and seven investment grade municipal bonds had respective unrealized loss positions of $90 thousand, $3.5 million, $3.1 million and $32 thousand, respectively. The fair value of these 129 securities fluctuate with changes in market conditions which for these underlying securities is primarily due to changes in the interest rate environment. The Corporation does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. Upon review of the attributes of the individual securities, the Corporation concluded these securities were not other-than-temporarily impaired.

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Note 6. Loans and Leases

Summary of Major Loan and Lease Categories



	At December 31, 2017
(Dollars in thousands)	Originated			Acquired		Total
Commercial, financial and agricultural	$	833,100		$	63,111	$	896,211
Real estate-commercial	1,235,681			306,460		1,542,141
Real estate-construction	171,244			4,592		175,836
Real estate-residential secured for business purpose	250,800			91,167		341,967
Real estate-residential secured for personal purpose	260,654			60,920		321,574
Real estate-home equity secured for personal purpose	171,884			12,386		184,270
Loans to individuals	28,156			144		28,300
Lease financings	129,768			—		129,768
Total loans and leases held for investment, net of deferred income	$	3,081,287		$	538,780	$	3,620,067

Unearned lease income, included in the above table	$	(14,243	)	$	—	$	(14,243	)
Net deferred costs, included in the above table	4,669			—		4,669
Overdraft deposits included in the above table	222			—		222



	At December 31, 2016
(Dollars in thousands)	Originated			Acquired		Total
Commercial, financial and agricultural	$	663,221		$	160,045	$	823,266
Real estate-commercial	909,581			465,368		1,374,949
Real estate-construction	142,891			31,953		174,844
Real estate-residential secured for business purpose	151,931			142,137		294,068
Real estate-residential secured for personal purpose	210,377			80,431		290,808
Real estate-home equity secured for personal purpose	147,982			14,857		162,839
Loans to individuals	30,110			263		30,373
Lease financings	134,739			—		134,739
Total loans and leases held for investment, net of deferred income	$	2,390,832		$	895,054	$	3,285,886

Unearned lease income, included in the above table	$	(15,970	)	$	—	$	(15,970	)
Net deferred costs, included in the above table	4,503			—		4,503
Overdraft deposits included in the above table	84			—		84

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

The carrying amount of acquired loans at December 31, 2017 totaled $538.8 million, including $424.1 million of loans from the Fox Chase acquisition and $114.7 million from the Valley Green Bank acquisition. At December 31, 2017, loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled $1.6 million representing $792 thousand from the Fox Chase acquisition and $791 thousand from the Valley Green Bank acquisition. Acquired credit impaired loans are accounted for in accordance with Accounting Standards Codification (ASC) Topic 310-30.

The outstanding principal balance and carrying amount for acquired credit impaired loans at December 31, 2017 and 2016 were as follows:



(Dollars in thousands)	At December 31, 2017		At December 31, 2016
Outstanding principal balance	$	2,325	$	8,993
Carrying amount	1,583		7,352
Allowance for loan losses	—		—

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



	For the Years Ended December 31,
(Dollars in thousands)	2017			2016
Beginning of period	$	50		$	144
Acquisition of credit impaired loans	—			283
Reclassification from nonaccretable discount	891			1,329
Accretable yield amortized to interest income	(926		)	(1,672		)
Disposals	(4		)	(34		)
End of period	$	11		$	50

The Corporation is a lessor of equipment under agreements expiring at various dates through the year 2029. At December 31, 2017 and 2016, the schedule of minimum lease payments receivable is as follows:



	At December 31,
(Dollars in thousands)	2017			2016
Within 1 year	$	53,625		$	56,872
After 1 year through 2 years	41,351			41,931
After 2 years through 3 years	27,411			28,340
After 3 years through 4 years	15,557			16,369
After 4 years through 5 years	5,375			6,753
Thereafter	692			444
Total future minimum lease payments receivable	144,011			150,709
Less: Unearned income	(14,243		)	(15,970		)
Total lease financing receivables, net of unearned income	$	129,768		$	134,739

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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 the recorded investment in loans and leases 90 days or more past due which are accruing interest at December 31, 2017 and 2016:



(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current		Acquired Credit Impaired		Total Loans and Leases Held for Investment		Recorded Investment 90 Days or more Past Due and Accruing Interest
At December 31, 2017
Commercial, financial and agricultural	$	2,182	$	1,440	$	1,509	$	5,131	$	890,658	$	422	$	896,211	$	—
Real estate—commercial real estate and construction:
Commercial real estate	733		548		1,410		2,691		1,539,094		356		1,542,141		—
Construction	1,970		—		365		2,335		173,501		—		175,836		—
Real estate—residential and home equity:
Residential secured for business purpose	1,651		315		1,355		3,321		338,061		585		341,967		162
Residential secured for personal purpose	4,368		1,118		23		5,509		315,845		220		321,574		—
Home equity secured for personal purpose	1,414		333		464		2,211		182,059		—		184,270		148
Loans to individuals	221		139		195		555		27,745		—		28,300		195
Lease financings	1,143		392		1,855		3,390		126,378		—		129,768		256
Total	$	13,682	$	4,285	$	7,176	$	25,143	$	3,593,341	$	1,583	$	3,620,067	$	761

At December 31, 2016
Commercial, financial and agricultural	$	1,536	$	256	$	1,335	$	3,127	$	819,550	$	589	$	823,266	$	—
Real estate—commercial real estate and construction:
Commercial real estate	1,482		1,560		2,591		5,633		1,363,606		5,710		1,374,949		—
Construction	202		—		—		202		174,642		—		174,844		—
Real estate—residential and home equity:
Residential secured for business purpose	1,390		428		1,539		3,357		289,927		784		294,068		—
Residential secured for personal purpose	3,243		905		879		5,027		285,512		269		290,808		481
Home equity secured for personal purpose	717		142		521		1,380		161,459		—		162,839		171
Loans to individuals	324		95		142		561		29,812		—		30,373		142
Lease financings	1,731		1,418		729		3,878		130,861		—		134,739		193
Total	$	10,625	$	4,804	$	7,736	$	23,165	$	3,255,369	$	7,352	$	3,285,886	$	987

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Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at December 31, 2017 and 2016. Nonperforming loans exclude acquired credit impaired loans from Fox Chase and Valley Green.



	At December 31,
	2017								2016
(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	$	4,448	$	921	$	—	$	5,369	$	5,746	$	967	$	—	$	6,713
Real estate—commercial real estate and construction:
Commercial real estate	4,285		10,266		—		14,551		5,651		1,519		—		7,170
Construction	365		—		—		365		—		—		—		—
Real estate—residential and home equity:
Residential secured for business purpose	2,843		206		162		3,211		4,898		766		—		5,664
Residential secured for personal purpose	466		42		—		508		560		—		481		1,041
Home equity secured for personal purpose	511		—		148		659		525		—		171		696
Loans to individuals	—		—		195		195		—		—		142		142
Lease financings	1,599		—		256		1,855		536		—		193		729
Total	$	14,517	$	11,435	$	761	$	26,713	$	17,916	$	3,252	$	987	$	22,155

* Includes nonaccrual troubled debt restructured loans and lease modifications of $2.5 million and $1.8 million at December 31, 2017 and December 31, 2016, respectively.

Accruing troubled debt restructuring loans of $11.4 million includes incremental balances $9.2 million related to one borrower which was classified as troubled debt restructurings as the related loans were granted amortization period extensions during the second quarter of 2017.

Credit Quality Indicators

The following tables present by class, the recorded investment in loans and leases held for investment by credit quality indicator at December 31, 2017 and 2016.

The Corporation employs a ten (10) grade risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business purpose of which the first six categories are pass categories (credits not adversely rated). The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with a relationship balance of less than $1 million are reviewed on a performance basis, with the primary monitored metrics being delinquency (60 days or more past due) and revolving stagnancy. Loans with relationships greater than $1 million are reviewed at least annually. Loan relationships exceeding $15 million or classified as special mention or substandard are reviewed at least quarterly, or more frequently based on management’s discretion.


1.	Cash Secured—No credit risk


2.	Fully Secured—Negligible credit risk


3.	Strong—Minimal credit risk


4.	Satisfactory—Nominal credit risk


5.	Acceptable—Moderate credit risk


6.	Pre-Watch—Marginal, but stable credit risk


7.	Special Mention—Potential weakness


8.	Substandard—Well-defined weakness


9.	Doubtful—Collection in-full improbable


10.	Loss—Considered uncollectible

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Commercial Credit Exposure Credit Risk by Internally Assigned Grades

The following table presents classifications for originated loans:



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At December 31, 2017
Grade:
1. Cash secured/ 2. Fully secured	$	2,521	$	—	$	20,420	$	—	$	22,941
3. Strong	9,206		1,821		—		—		11,027
4. Satisfactory	30,283		26,950		—		274		57,507
5. Acceptable	593,205		960,258		76,899		215,750		1,846,112
6. Pre-watch	179,990		209,844		72,168		29,738		491,740
7. Special Mention	4,027		12,974		1,392		296		18,689
8. Substandard	13,868		23,834		365		4,742		42,809
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	833,100	$	1,235,681	$	171,244	$	250,800	$	2,490,825

At December 31, 2016
Grade:
1. Cash secured/ 2. Fully secured	$	272	$	—	$	13,714	$	162	$	14,148
3. Strong	14,980		2,045		—		—		17,025
4. Satisfactory	35,529		38,861		—		367		74,757
5. Acceptable	465,675		676,212		110,650		133,716		1,386,253
6. Pre-watch	113,499		128,646		18,213		12,025		272,383
7. Special Mention	8,820		22,439		314		1,199		32,772
8. Substandard	24,446		41,378		—		4,462		70,286
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	663,221	$	909,581	$	142,891	$	151,931	$	1,867,624

The following table presents classifications for acquired loans:



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At December 31, 2017
Grade:
1. Cash secured/ 2. Fully secured	$	1,120	$	—	$	—	$	—	$	1,120
3. Strong	—		—		—		—		—
4. Satisfactory	125		482		—		—		607
5. Acceptable	49,949		183,490		—		73,402		306,841
6. Pre-watch	6,183		98,977		4,592		15,861		125,613
7. Special Mention	1,007		17,028		—		—		18,035
8. Substandard	4,727		6,483		—		1,904		13,114
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	63,111	$	306,460	$	4,592	$	91,167	$	465,330
At December 31, 2016
Grade:
1. Cash secured/ 2. Fully secured	$	583	$	—	$	—	$	—	$	583
3. Strong	—		—		—		—		—
4. Satisfactory	4,399		1,018		—		—		5,417
5. Acceptable	113,512		282,199		20,565		117,322		533,598
6. Pre-watch	31,697		163,623		11,388		14,405		221,113
7. Special Mention	73		7,705		—		6,245		14,023
8. Substandard	9,781		10,823		—		4,165		24,769
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	160,045	$	465,368	$	31,953	$	142,137	$	799,503

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

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans secured for a personal purpose, home equity loans secured for a personal purpose, loans to individuals and lease financings. Nonperforming loans and leases are loans past due 90 days or more, loans and leases on nonaccrual of interest and troubled debt restructured loans and lease modifications. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss.

The following table presents classifications for originated loans:



(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At December 31, 2017
Performing	$	260,589	$	171,527	$	27,961	$	127,913	$	587,990
Nonperforming	65		357		195		1,855		2,472
Total	$	260,654	$	171,884	$	28,156	$	129,768	$	590,462

At December 31, 2016
Performing	$	210,208	$	147,286	$	29,968	$	134,010	$	521,472
Nonperforming	169		696		142		729		1,736
Total	$	210,377	$	147,982	$	30,110	$	134,739	$	523,208

The following table presents classifications for acquired loans:



(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At December 31, 2017
Performing	$	60,477	$	12,084	$	144	$	—	$	72,705
Nonperforming	443		302		—		—		745
Total	$	60,920	$	12,386	$	144	$	—	$	73,450

At December 31, 2016
Performing	$	79,559	$	14,857	$	263	$	—	$	94,679
Nonperforming	872		—		—		—		872
Total	$	80,431	$	14,857	$	263	$	—	$	95,551

Commercial, financial and agricultural loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as having more risk of default than residential real estate loans with a personal purpose and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties and factors affecting residential real estate borrowers.

Commercial, financial and agricultural business loans are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. In addition, the collateral securing the loans often depreciates over time, is difficult to appraise and liquidate and fluctuates in value based on the success of the business.

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the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral. Included in real estate-construction is track development financing. Risk factors related to track development financing include the demand for residential housing and the real estate valuation market. When projects move slower than anticipated, the properties may have significantly lower values than when the original underwriting was completed, resulting in lower collateral values to support the loan. Extended time frames also cause the interest carrying cost for a project to be higher than the builder projected, negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.

Commercial real estate loans and residential real estate loans with a business purpose secured by owner-occupied properties are dependent upon the successful operation of the borrower’s business. If the operating company suffers difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and at a profit.

The Corporation originates fixed-rate and adjustable-rate real estate-residential mortgage loans and home equity loans that are secured by the underlying 1-to-4 family residential properties for personal purposes. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-equity ratios, credit scores and adherence to underwriting policies.

Credit risk for direct consumer loans is controlled by strict adherence to underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values. These loans are included within the portfolio of loans to individuals.

The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review, and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term.

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Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the reserve for loan and lease losses for the years ended December 31, 2017, 2016 and 2015:



(Dollars in thousands)	Commercial, Financial and Agricultural			Real Estate— Commercial and Construction			Real Estate— Residential Secured for Business Purpose			Real Estate— Residential and Home Equity Secured for Personal Purpose			Loans to Individuals			Lease Financings			Unallocated			Total
For the Year Ended December 31, 2017
Reserve for loan and lease losses:
Beginning balance	$	7,037		$	7,505		$	774		$	993		$	364		$	788		$	38		$	17,499
Charge-offs	(1,030		)	(232		)	(1,370		)	(196		)	(317		)	(3,992		)	N/A			(7,137		)
Recoveries	801			5			54			99			136			206			N/A			1,301
(Recovery of provision) provision	(66		)	2,561			2,204			857			190			4,130			16			9,892
(Recovery of provision) provision for acquired credit impaired loans	—			—			(1		)	1			—			—			—			—
Ending balance	$	6,742		$	9,839		$	1,661		$	1,754		$	373		$	1,132		$	54		$	21,555

For the Year Ended December 31, 2016
Reserve for loan and lease losses:
Beginning balance	$	6,418		$	6,572		$	763		$	1,575		$	346		$	1,042		$	912		$	17,628
Charge-offs	(4,827		)	(307		)	(522		)	(178		)	(395		)	(759		)	N/A			(6,988		)
Recoveries	1,454			101			71			88			133			191			N/A			2,038
Provision (recovery of provision)	3,992			961			462			(489		)	280			314			(874		)	4,646
Provision (recovery of provision) for acquired credit impaired loans	—			178			—			(3		)	—			—			—			175
Ending balance	$	7,037		$	7,505		$	774		$	993		$	364		$	788		$	38		$	17,499


For the Year Ended December 31, 2015
Reserve for loan and lease losses:
Beginning balance	$	6,920		$	8,943		$	763		$	1,124		$	360		$	985		$	1,567		$	20,662
Charge-offs	(4,793		)	(1,895		)	(179		)	(279		)	(549		)	(801		)	N/A			(8,496		)
Recoveries	1,032			200			28			10			176			214			N/A			1,660
Provision (recovery of provision)	3,259			(684		)	43			657			359			644			(655		)	3,623
Provision for acquired credit impaired loans	—			8			108			63			—			—			—			179
Ending balance	$	6,418		$	6,572		$	763		$	1,575		$	346		$	1,042		$	912		$	17,628

N/A – Not applicable

During 2017, the Corporation recorded charge-offs of $2.8 million related to $5.0 million of software leases under a vendor referral program. These leases are personally guaranteed by 29 high net worth individuals. During 2017, the lessees stopped making payments due to disputes with the vendor, and Univest Capital, Inc., a subsidiary of the Corporation, filed legal complaints to pursue collection of all amounts owed. A complaint was subsequently filed against Univest Capital Inc. and certain other defendants by one of the lessees in federal court in Texas seeking, among other things, class action certification and a declaration that the contracts and related guarantees are null and void. On September 25, 2017, Univest Capital, Inc. entered into a Release and Settlement Agreement whereby Univest Capital, Inc. received $1.0 million based upon court approval of the Agreement and is eligible to receive up to an additional $1.3 million. Payment of the $1.3 million is subject to the individual guarantor's election of whether or not they will be subject to the Release and Settlement Agreement. It is expected this election process will be completed by March 31, 2018 and related funds are expected to be received by June 30, 2018. If a guarantor elects to be subject to the Release and Settlement Agreement, Univest Capital, Inc. shall receive a payment of $43 thousand per guarantor. If a guarantor elects not to be subject to the Release and Settlement Agreement, Univest Capital, Inc. has the right to pursue collection of the full amount owed, which ranges from $108 thousand to $228 thousand per guarantor, via the normal collection process. As of December 31, 2017, Univest Capital, Inc. has a receivable totaling $1.3 million related to this matter, which is recorded as a non-accruing lease receivable.

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The following presents, by portfolio segment, the balance in the reserve for loan and lease losses disaggregated on the basis of impairment method and the recorded investment in loans and leases disaggregated on the basis of impairment method at December 31, 2017 and 2016:



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial and Construction		Real Estate— Residential Secured for Business Purpose		Real Estate— Residential and Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Unallocated		Total
At December 31, 2017

Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	31	$	99	$	1	$	—	$	—	$	—	N/A		$	131
Ending balance: collectively evaluated for impairment	6,711		9,740		1,660		1,754		373		1,132		54		21,424
Total ending balance	$	6,742	$	9,839	$	1,661	$	1,754	$	373	$	1,132	$	54	$	21,555

Loans and leases held for investment:
Ending balance: individually evaluated for impairment	$	7,079	$	16,919	$	3,465	$	1,019	$	—	$	1,250			$	29,732
Ending balance: collectively evaluated for impairment	826,021		1,388,048		247,335		431,519		28,156		128,518				3,049,597
Loans measured at fair value	—		1,958		—		—		—		—				1,958
Acquired non-credit impaired loans	62,689		310,696		90,582		73,086		144		—				537,197
Acquired credit impaired loans	422		356		585		220		—		—				1,583
Total ending balance	$	896,211	$	1,717,977	$	341,967	$	505,844	$	28,300	$	129,768			$	3,620,067

At December 31, 2016


Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	19	$	25	$	191	$	—	$	—	$	—	N/A		$	235
Ending balance: collectively evaluated for impairment	7,018		7,480		583		993		364		788		38		17,264
Total ending balance	$	7,037	$	7,505	$	774	$	993	$	364	$	788	$	38	$	17,499


Loans and leases held for investment:
Ending balance: individually evaluated for impairment	$	11,077	$	25,066	$	6,687	$	1,085	$	—	$	—			$	43,915
Ending balance: collectively evaluated for impairment	652,144		1,027,406		145,244		357,274		30,110		134,739				2,346,917
Loans measured at fair value	—		2,138		—		—		—		—				2,138
Acquired non-credit impaired loans	159,456		489,473		141,353		95,019		263		—				885,564
Acquired credit impaired loans	589		5,710		784		269		—		—				7,352
Total ending balance	$	823,266	$	1,549,793	$	294,068	$	453,647	$	30,373	$	134,739			$	3,285,886

N/A – Not applicable

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The Corporation records a provision for loan loss for the acquired non-impaired loans only when additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan loss, resulting in an increase to the allowance.

Impaired Loans (excludes Lease Financings)

The following presents, by class of loans, the recorded investment and unpaid principal balance of impaired loans, the amounts of the impaired loans for which there is not a reserve for credit losses and the amounts for which there is a reserve for credit losses at December 31, 2017 and 2016. The impaired loans exclude acquired credit impaired loans.



	At December 31,
	2017						2016
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Reserve		Recorded Investment		Unpaid Principal Balance		Related Reserve
Impaired loans with no related reserve recorded:
Commercial, financial and agricultural	$	7,019	$	8,301			$	10,911	$	12,561
Real estate—commercial real estate	15,621		16,507				24,469		25,342
Real estate—construction	365		365				—		—
Real estate—residential secured for business purpose	3,430		4,620				5,704		6,253
Real estate—residential secured for personal purpose	508		566				560		594
Real estate—home equity secured for personal purpose	511		523				525		528
Total impaired loans with no related reserve recorded	$	27,454	$	30,882			$	42,169	$	45,278

Impaired loans with a reserve recorded:
Commercial, financial and agricultural	$	60	$	60	$	31	$	166	$	166	$	19
Real estate—commercial real estate	933		933		99		597		597		25
Real estate—residential secured for business purpose	35		37		1		983		1,105		191
Total impaired loans with a reserve recorded	$	1,028	$	1,030	$	131	$	1,746	$	1,868	$	235

Total impaired loans:
Commercial, financial and agricultural	$	7,079	$	8,361	$	31	$	11,077	$	12,727	$	19
Real estate—commercial real estate	16,554		17,440		99		25,066		25,939		25
Real estate—construction	365		365		—		—		—		—
Real estate—residential secured for business purpose	3,465		4,657		1		6,687		7,358		191
Real estate—residential secured for personal purpose	508		566		—		560		594		—
Real estate—home equity secured for personal purpose	511		523		—		525		528		—
Total impaired loans	$	28,482	$	31,912	$	131	$	43,915	$	47,146	$	235

Impaired loans includes nonaccrual loans, accruing troubled debt restructured loans and other accruing impaired loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the contractual terms. These loans are individually measured to determine the amount of potential impairment. The loans are reviewed for impairment based on the fair value of the collateral for collateral dependent loans and for certain loans based on discounted cash flows using the loans’ initial effective interest rates. Impaired loans included other accruing impaired loans of $4.1 million and $23.3 million at December 31, 2017 and 2016, respectively. Specific reserves on other accruing impaired loans were $99 thousand and $84 thousand at December 31, 2017 and 2016, respectively.

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



	For the Years Ended December 31,
	2017						2016						2015
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms
Loans held for sale	$	—	$	—	$	—	$	—	$	—	$	—	$	1,832	$	—	$	110
Loans held for investment:
Commercial, financial and agricultural	10,456		200		347		13,126		258		381		15,383		423		481
Real estate—commercial real estate	20,054		792		289		26,698		1,106		272		23,692		996		330
Real estate—construction	253		—		19		—		—		—		3,164		—		162
Real estate—residential secured for business purpose	3,801		65		169		4,084		67		207		3,805		144		161
Real estate—residential secured for personal purpose	614		3		39		498		2		24		729		2		43
Real estate—home equity secured for personal purpose	406		—		26		440		—		25		184		—		11
Total	$	35,584	$	1,060	$	889	$	44,846	$	1,433	$	909	$	48,789	$	1,565	$	1,298


*	Includes interest income recognized on a cash basis for nonaccrual loans of $4 thousand, $8 thousand and $37 thousand for the years ended December 31, 2017, 2016 and 2015, respectively and interest income recognized on the accrual method for accruing impaired loans of $1.1 million, $1.4 million and $1.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Any income accrued on 1-to-4 family residential properties after the loan becomes 90 days past due, which is not placed on non-accrual, is held in a reserve for uncollected interest. The reserve for uncollected interest was $3 thousand and $10 thousand at December 31, 2017 and 2016, respectively.

The Bank maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded. The reserve for these off-balance sheet credits was $390 thousand and $385 thousand at December 31, 2017 and 2016, respectively.

Impaired Leases

The Corporation had impaired leases of $1.3 million with $0 thousand related reserve at December 31, 2017. The Corporation had no impaired leases at December 31, 2016. See discussion in Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases.

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Troubled Debt Restructured Loans

The following presents, by class of loans, information regarding accruing and nonaccrual loans that were restructured during the years ended December 31, 2017 and 2016:



	For the Years Ended December 31,
	2017							2016
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Reserve		Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Reserve
Accruing Troubled Debt Restructured Loans:
Commercial, financial and agricultural	—	$	—	$	—	$	—	1	$	1,545	$	1,545	$	—
Real estate—commercial real estate	3	9,206		9,206		—		—	—		—		—
Real estate—residential secured for business purpose	—	—		—		—		1	415		415		—
Total	3	$	9,206	$	9,206	$	—	2	$	1,960	$	1,960	$	—

Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	2	$	1,127	$	1,127	$	—	—	$	—	$	—	$	—
Real estate—commercial real estate	1	328		328		—		—	—		—		—
Real estate—residential secured for business purpose	—	—		—		—		1	313		312		—
Real estate—residential secured for personal purpose	—	—		—		—		1	34		34		—
Real estate—home equity secured for personal purpose	—	—		—		—		1	152		152		—
Total	3	$	1,455	$	1,455	$	—	3	$	499	$	498	$	—

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 ninety days past due.

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The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the years ended December 31, 2017 and 2016:



	Interest Only Term Extension			Maturity Date Extension			Amortization Period Extension			Total Concessions Granted
(Dollars in thousands)	No. of Loans	Amount		No. of Loans	Amount		No. of Loans	Amount		No. of Loans	Amount
For the Year Ended December 31, 2017
Accruing Troubled Debt Restructured Loans:
Real estate—commercial real estate	—	$	—	—	$	—	3	$	9,206	3	$	9,206
Total	—	$	—	—	$	—	3	$	9,206	3	$	9,206

Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	—	$	—	—	$	—	2	$	1,127	2	$	1,127
Real estate—commercial real estate	—	—		1	328		—	—		1	328
Total	—	$	—	1	$	328	2	$	1,127	3	$	1,455


For the Year Ended December 31, 2016
Accruing Troubled Debt Restructured Loans:
Commercial, financial and agricultural	—	$	—	—	$	—	1	$	1,545	1	$	1,545
Real estate—residential secured for business purpose	1	415		—	—		—	—		1	415
Total	1	$	415	—	$	—	1	$	1,545	2	$	1,960


Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for business purpose	—	$	—	1	$	312	—	$	—	1	$	312
Real estate—residential secured for personal purpose	—	—		1	34		—	—		1	34
Real estate—home equity secured for personal purpose	—	—		1	152		—	—		1	152
Total	—	$	—	3	$	498	—	$	—	3	$	498

The following presents, by class of loans, information regarding accruing and nonaccrual troubled debt restructured loans, for which there were payment defaults within twelve months of the restructuring date:



	For the Years Ended December 31,
	2017			2016
(Dollars in thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Accruing Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose	—	$	—	1	$	34
Total	—	$	—	1	$	34

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 December 31, 2017 and 2016:



(Dollars in thousands)	At December 31, 2017		At December 31, 2016
Real estate-residential secured for personal purpose	$	31	$	—
Real estate-home equity secured for personal purpose	—		180
Total	$	31	$	180

The following presents foreclosed residential real estate property included in other real estate owned at December 31, 2017 and 2016.



(Dollars in thousands)	At December 31, 2017		At December 31, 2016
Foreclosed residential real estate	$	80	$	—

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Note 7. Premises and Equipment

The following table reflects the components of premises and equipment:



	At December 31,
(Dollars in thousands)	2017			2016
Land and land improvements	$	15,402		$	15,656
Premises and improvements	54,643			54,239
Furniture and equipment	33,675			32,948
Total cost	103,720			102,843
Less: accumulated depreciation	(41,923		)	(39,205		)
Net book value	$	61,797		$	63,638

The following table summarizes rental expense charged to operations for the periods indicated:



	For the Years Ended December 31,
(Dollars in thousands)	2017			2016			2015
Rental expense	$	3,938		$	3,791		$	3,167
Sublease rental income	(227		)	(138		)	(195		)
Net rental expense	$	3,711		$	3,653		$	2,972

Note 8. Goodwill and Other Intangible Assets

The Corporation has covenants not to compete agreements with certain individuals, 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 for the years ended December 31, 2017, 2016 and 2015 was $4.2 million, $4.1 million and $3.6 million, respectively. The Corporation also has goodwill which is deemed to be an indefinite intangible asset and is not amortized.

In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill during the fourth quarter of 2017 and determined it was more likely than not that the fair value of the Corporation, including each of the identified reporting units, was more than its carrying amount; therefore, the Corporation did not need to perform the two-step impairment test for the Corporation or the reporting units.

The Corporation also completed an impairment test for other intangible assets during the fourth quarter of 2017. There was no impairment of goodwill or other identifiable intangibles recorded during 2015 through 2017.

Changes in the carrying amount of the Corporation's goodwill by business segment for the years ended December 31, 2017 and 2016 were as follows:



(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated
Balance at December 31, 2015	$	78,574	$	15,434	$	18,649	$	112,657
Addition to goodwill from acquisitions	59,902		—		—		59,902
Balance at December 31, 2016	138,476		15,434		18,649		172,559
Addition to goodwill from acquisitions	—		—		—		—
Balance at December 31, 2017	$	138,476	$	15,434	$	18,649	$	172,559

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



	At December 31, 2017						At December 31, 2016
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization and Fair Value Adjustments		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization and Fair Value Adjustments		Net Carrying Amount
Amortized intangible assets:
Covenants not to compete	$	710	$	580	$	130	$	710	$	205	$	505
Core deposit intangibles	6,788		2,135		4,653		6,788		1,004		5,784
Customer related intangibles	12,381		9,828		2,553		12,381		8,504		3,877
Servicing rights	15,855		9,282		6,573		14,369		7,884		6,485
Total amortized intangible assets	$	35,734	$	21,825	$	13,909	$	34,248	$	17,597	$	16,651

The estimated aggregate amortization expense for covenants not to compete and core deposit and customer related intangibles for each of the five succeeding fiscal years and thereafter follows:



Year	(Dollars in thousands)	Amount
2018		$	2,114
2019		1,565
2020		1,200
2021		923
2022		666
Thereafter		868

The Corporation has originated mortgage servicing rights, which are included in other intangible assets on the consolidated balance sheet. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are subject to impairment testing on a quarterly basis. The aggregate fair value of these rights was $10.0 million and $9.5 million at December 31, 2017 and 2016, respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at December 31, 2017 and 2016. The Corporation also records servicing rights on SBA loans. The value of these servicing rights was $21 thousand and $0 thousand at December 31, 2017 and 2016, respectively.

Changes in the servicing rights balance are summarized as follows:



	For the Years Ended December 31,
(Dollars in thousands)	2017			2016			2015
Beginning of period	$	6,485		$	5,877		$	5,509
Servicing rights capitalized	1,487			2,049			1,674
Acquired servicing rights	—			87			—
Amortization of servicing rights	(1,399		)	(1,528		)	(1,306		)
Changes in valuation allowance	—			—			—
End of period	$	6,573		$	6,485		$	5,877
Residential mortgage and SBA loans serviced for others	$	1,008,123		$	965,729		$	863,947

There was no activity in the valuation allowance for the years ended December 31, 2017, 2016 and 2015.

The estimated amortization expense of servicing rights for each of the five succeeding fiscal years and thereafter is as follows:



Year	(Dollars in thousands)	Amount
2018		$	970
2019		841
2020		729
2021		628
2022		541
Thereafter		2,864

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Note 9. Accrued Interest Receivable and Other Assets

The following table provides the details of accrued interest receivable and other assets:



	At December 31,
(Dollars in thousands)	2017		2016
Other real estate owned	$	1,843	$	4,969
Accrued interest receivable	12,362		10,794
Accrued income and other receivables	3,872		7,751
Fair market value of derivative financial instruments	601		1,058
Other prepaid expenses	21,496		17,686
Net federal deferred tax assets	1,174		9,965
Other	154		20
Total accrued interest and other assets	$	41,502	$	52,243

Note 10. Deposits

Deposits and their respective weighted average interest rate at December 31, 2017 and 2016 consist of the following:



	December 31,
	2017				2016
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Dollars in thousands)
Noninterest-bearing deposits	—	%	$	1,040,026	—	%	$	918,337
Demand deposits	0.43		1,109,438		0.17		909,963
Savings deposits	0.26		830,706		0.10		803,078
Time deposits	1.12		574,749		0.87		626,189
Total	0.38	%	$	3,554,919	0.24	%	$	3,257,567

The aggregate amount of time deposits in denominations of $100 thousand or more was $250.0 million at December 31, 2017 and $291.0 million at December 31, 2016. 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 $118.4 million at December 31, 2017 and $151.7 million at December 31, 2016.

At December 31, 2017, the scheduled maturities of time deposits are as follows:



Year	(Dollars in thousands)	Amount
Due in 2018		$	318,938
Due in 2019		141,545
Due in 2020		65,200
Due in 2021		11,232
Due in 2022		31,039
Thereafter		6,795
Total		$	574,749

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Note 11. Borrowings



	Balance at End of Year		Weighted Average Interest Rate		Maximum Amount Outstanding at Month End During the Year		Average Amount Outstanding During the Year		Weighted Average Interest Rate During the Year
(Dollars in thousands)
2017
Short-term borrowings:
FHLB borrowings	$	30,225	1.54	%	$	124,500	$	50,063	1.10	%
Federal funds purchased	55,000		1.56		95,000		32,282		1.05
Customer repurchase agreements	20,206		0.05		26,376		23,207		0.05

Long-term debt:
FHLB advances	$	125,036	1.73	%	$	190,689	$	155,073	1.43	%
Security repurchase agreements	30,792		1.52		31,234		31,036		1.30

Subordinated notes	$	94,331	5.35	%	$	94,331	$	94,208	5.35	%

2016
Short-term borrowings:
FHLB borrowings	$	91,300	0.74	%	$	206,000	$	50,757	0.58	%
Federal funds purchased	80,000		0.81		125,000		24,783		0.61
Customer repurchase agreements	24,871		0.05		30,011		26,173		0.05
Other short-term borrowings*	—		—		79,960		1,525		18.83

Long-term debt:
FHLB advances	$	96,248	0.94	%	$	96,471	$	45,179	0.89	%
Security repurchase agreements	31,274		0.91		31,475		15,786		0.93

Subordinated notes	$	94,087	5.36	%	$	94,087	$	71,851	5.39	%

*Other short-term borrowings during 2016 consisted of a short-term bridge loan with a correspondent bank and associated fees.

The Corporation, through the Bank, has a credit facility with the FHLB with a maximum borrowing capacity of approximately $1.4 billion. Advances from the FHLB are collateralized by a blanket floating lien on all first mortgage loans of the Bank, FHLB capital stock owned by the Bank and any funds on deposit with the FHLB. At December 31, 2017 and 2016, the Bank had outstanding short-term letters of credit with the FHLB totaling $234.2 million and $148.5 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 Corporation, through the Bank, maintains uncommitted federal fund credit lines with several correspondent banks totaling $367.0 million and $302.0 million at December 31, 2017 and 2016, respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

The Corporation has a $10.0 million line of credit with a correspondent bank. At December 31, 2017, the Corporation had no outstanding borrowings under this line.

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



(Dollars in thousands)	As of December 31, 2017		Weighted Average Rate
2018	$	10,036	0.69	%
2019	10,000		1.35
2020	40,000		1.70
2021	55,000		1.94
2022	10,000		2.09
Thereafter	—		—
Total	$	125,036	1.73	%

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



(Dollars in thousands)	As of December 31, 2017		Weighted Average Rate
2018	$	10,192	1.13	%
2019	10,266		1.70
2020	10,334		1.71
2021	—		—
2022	—		—
Thereafter	—		—
Total	$	30,792	1.52	%

Long-term debt under security repurchase agreements totaling $25.7 million are variable based on the one-month LIBOR rate plus a spread. One borrowing for $5.1 million has a fixed interest rate and may be called by the lender based on the underlying agreement.

Subordinated Debt

On July 1, 2016, the Corporation completed the issuance of $45.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2016 Notes") due 2026 in a private placement transaction to institutional accredited investors. The net proceeds of the offering approximated $44.5 million. The 2016 Notes bear interest at an annual fixed rate of 5.00% from the date of issuance until June 30, 2021, or any early redemption date. From June 30, 2021 to the maturity date of June 30, 2026 (or any early redemption date), the 2016 Notes will bear interest at an annual rate equal to three-month LIBOR rate plus 3.90%. Beginning with the interest payment date of June 30, 2021, the Corporation has the option on each interest payment date, subject to approval of the Federal Reserve Board, to redeem the 2016 Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed 2016 Notes, plus accrued and unpaid interest to the date of the redemption. The Corporation may also redeem the 2016 Notes, in whole but not in part, at any time upon the occurrence of certain tax, regulatory capital and Investment Company Act of 1940 Act events, subject in each case to the approval of the Federal Reserve.

On March 30, 2015, the Corporation completed the issuance of $50.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2015 Notes") due 2025 in a private placement transaction to institutional accredited investors. The net proceeds of the offering $49.3 million, The 2015 Notes bear interest at an annual fixed rate of 5.10% from the date of issuance until March 30, 2020, or any early redemption date. From March 30, 2020 to the maturity date of March 30, 2025 (or any early redemption date), the 2015 Notes will bear interest at an annual rate equal to the three-month LIBOR rate plus 3.544%. Beginning with the interest payment date of March 30, 2020, the Corporation has the option on each interest payment date, subject to approval of the Federal Reserve Board, to redeem the 2015 Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed 2015 Notes, plus accrued and unpaid interest to the date of the redemption. The Corporation may also redeem the 2015 Notes, in whole, at any time, or in part from time to time upon the occurrence of certain tax, regulatory capital and Investment Company Act of 1940 Act events, subject in each case to the approval of the Federal Reserve.

The subordinated notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations. The debt issuance costs are included as a direct deduction from the debt liability and the costs are amortized to interest expense using the effective interest method.

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Note 12. Income Taxes

The provision for federal and state income taxes included in the accompanying consolidated statements of income consists of the following:



	For the Years Ended December 31,
(Dollars in thousands)	2017		2016		2015
Current:
Federal	$	9,273	$	2,400	$	5,113
State	961		539		829
Deferred:
Federal	7,350		909		3,877
State	133		33		(61		)
	$	17,717	$	3,881	$	9,758

The provision for income taxes differs from the expected statutory provision as follows:



	For the Years Ended December 31,
(Dollars in thousands)	2017		2016		2015
Expected provision at statutory rate	35.0	%	35.0	%	35.0	%
Difference resulting from:
Tax exempt interest income, net of disallowance	(6.1	)	(15.6	)	(9.5	)
Increase in value of bank owned life insurance assets	(2.2	)	(4.2	)	(1.2	)
Stock-based compensation	(1.0	)	(1.7	)	0.5
Non-deductible merger-related expenses	—		1.2		0.4
State income taxes, net of federal benefits	1.2		(1.5	)	0.9
Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates	1.7		—		—
Changes in valuation allowance	0.5		3.1		0.4
Other	(0.4	)	0.3		(0.1	)
Effective tax rate	28.7	%	16.6	%	26.4	%

Also, on December 22, 2017, the U.S. Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 118 (SAB 118) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the TCJA in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB 118 allows for a measurement period not to extend beyond one year from the TCJA's enactment date to complete the necessary accounting.

The Corporation recorded provisional amounts of deferred income taxes using reasonable estimates in four areas where information necessary to complete the accounting was not available, prepared, or analyzed: 1) The Corporation's deferred tax liability for temporary differences between the tax and financial reporting basis of fixed assets is principally due to the accelerated depreciation under the TCJA which allows for full expensing of qualified property purchased and placed in service after September 27, 2017. 2) The Corporation's deferred tax asset for temporary differences associated with accrued compensation is awaiting final determinations of amounts that will be paid and deducted on the 2017 income tax returns. 3) The Corporation's deferred tax liability for temporary differences associated with equity investments in partnerships is awaiting receipt of Schedules K-1 from outside preparers, which is necessary to determine the 2017 tax impact from these investments. 4) The Corporation's deferred tax liability for temporary differences related to its qualified pension plan is based upon actuarial reports from the Corporation's third party provider. However, the Corporation is still in the process of determining if a contribution related to the 2017 plan year will be made.

The Corporation did not make any adjustments to deferred tax assets, representing future deductions for accrued compensation that may be subject to new limitations under Internal Revenue Code Section 162(m) which, generally, limits the annual deduction for certain compensation paid to certain employees to $1.0 million. There is uncertainty in applying the newly-enacted rules to existing contracts, and the Corporation is seeking further clarifications before completing its analysis.

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The Corporation will complete and record the income tax effects of these provisional items during the period the necessary information becomes available. This measurement period will not extend beyond December 22, 2018.

Retained earnings include $6.0 million at December 31, 2017, 2016 and 2015, which was originally generated by Fox Chase Bank (acquired in 2016), for which no provision for federal income tax has been made. This amount represents deductions for bad debt reserves for tax purposes, which were only allowed to savings institutions that met certain criteria prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Small Business Job Protection Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Corporation pays a cash dividend in excess of cumulative retained earnings or liquidates.

During the year ended December 31, 2015, the Corporation recorded excess tax benefits resulting from the exercise or vesting of stock-based compensation to additional paid-in capital. The Corporation adopted ASU 2016-9, "Improvements to Employee Share-Based Payment Accounting", which was issued in March 2016. After adoption, all excess tax benefits and tax deficiencies are recorded as a component of income tax expense.

At December 31, 2017 and 2016, the Corporation had no unrecognized tax benefits or accrued interest and penalties recorded. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. Interest and penalties are recorded in noninterest expense in the year they are assessed. For tax purposes, interest is treated as a deductible expense and penalties are treated as a non-deductible expense.

The Corporation and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of Pennsylvania and various other state and local jurisdictions. The Corporation and its subsidiaries are generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2014.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred state taxes are combined with federal deferred taxes (net of the impact of deferred state tax on the deferred federal tax) and are shown in the table below by major category.

The Corporation has a state net operating loss carry-forward of $52.6 million which will begin to expire after December 31, 2018 if not utilized. A valuation allowance at December 31, 2017 and 2016 was attributable to deferred tax assets generated in certain state jurisdictions for which management believes it is more likely than not that such deferred tax assets will not be realized. Other than the valuation allowance on certain state deferred assets, management has determined that no additional valuation allowance is necessary for deferred tax assets because it is more likely than not that these assets will be realized through carryback to taxable income in prior years, future reversals of existing temporary differences, and through future taxable income. The Corporation will continue to review the criteria related to the recognition of deferred tax assets on a regular basis.

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The assets and liabilities giving rise to the Corporation’s deferred tax assets and liabilities are as follows:



	At December 31,
(Dollars in thousands)	2017			2016
Deferred tax assets:
Allowance for loan and lease losses	$	4,643		$	5,984
Deferred compensation	2,110			2,541
Actuarial adjustments on retirement benefits*	4,432			7,714
State net operating losses	4,166			2,725
Other-than-temporary impairments on equity securities	148			331
Net unrealized holding losses on securities available-for-sale and swaps*	1,316			2,762
Other deferred tax assets	1,243			5,712
Gross deferred tax assets	18,058			27,769
Valuation allowance	(3,523		)	(2,341		)
Total deferred tax assets, net of valuation allowance	14,535			25,428
Deferred tax liabilities:
Mortgage servicing rights	1,415			2,302
Retirement plans	4,304			6,265
Deferred loan fees and costs	2,614			615
Acquisition-related fair value adjustments	1,621			2,097
Intangible assets	1,513			1,491
Depreciation	1,102			1,401
Other deferred tax liabilities	792			1,692
Total deferred tax liabilities	13,361			15,863
Net deferred tax assets	$	1,174		$	9,565

*Represents the amount of deferred taxes recorded in accumulated other comprehensive income.

Note 13. Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law; these plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants; all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

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

The Corporation sponsors a 401(k) deferred salary savings plan, which is a qualified defined contribution plan, and which covers all employees of the Corporation and its subsidiaries, and provides that the Corporation makes matching contributions as defined by the plan. Expense recorded by the Corporation for the 401(k) deferred salary savings plan for the years ended December 31, 2017, 2016 and 2015 was $1.4 million, $1.2 million, and $1.0 million, respectively.

The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP), which was established in 1981 prior to the existence of a 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants; all current participants are now retired. Expense recorded by the Corporation for the SNQPP for the years ended December 31, 2017, 2016 and 2015 was $222 thousand, $52 thousand and $285 thousand, respectively.

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Information with respect to the Retirement Plans and Other Postretirement Benefits follows:



	Retirement Plans						Other Postretirement Benefits
(Dollars in thousands)	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	47,389		$	49,810		$	2,968		$	2,834
Service cost	524			661			48			46
Interest cost	1,927			2,071			118			133
Actuarial loss (gain)	3,169			413			(409		)	36
Benefits paid	(2,645		)	(2,400		)	(114		)	(81		)
Settlements	—			(3,166		)	—			—
Benefit obligation at end of year	$	50,364		$	47,389		$	2,611		$	2,968

Change in plan assets:
Fair value of plan assets at beginning of year	$	41,418		$	41,490		$	—		$	—
Actual return on plan assets	5,799			3,314			—			—
Benefits paid	(2,645		)	(2,400		)	(114		)	(81		)
Settlements	—			(3,166		)	—			—
Employer contribution and non-qualified benefit payments	2,181			2,180			114			81
Fair value of plan assets at end of year	$	46,753		$	41,418		$	—		$	—
Funded status	(3,611		)	(5,971		)	(2,611		)	(2,968		)
Unrecognized net actuarial loss	21,256			22,018			316			767
Unrecognized prior service costs	(464		)	(746		)	—			—
Net amount recognized	$	17,181		$	15,301		$	(2,295	)	$	(2,201	)

In the fourth quarter of 2016, the Corporation offered to vested participants in the pension plan, who were no longer employees, the option of a one-time lump-sum payment in lieu of any future benefits that would have been payable from the plan. As a result, lump-sum payments from the plan were $3.2 million and exceeded the service cost and interest cost for the year triggering a settlement. The settlement was measured as of December 31, 2016 because the majority of lump sum payments occurred during December 2016. The settlement cost was $1.4 million. The amount represents a reclassification of accumulated other comprehensive income to pension expense (included in salaries and benefit expense in the statement of income) and had no impact on shareholders' equity.

Information for the pension plan with an accumulated benefit obligation in excess of the fair value of plan assets is shown below. The accumulated benefit obligation did not exceed the fair value of plan assets at December 31, 2017 but is shown for comparative purposes.



	At December 31,
(Dollars in thousands)	2017		2016
Projected benefit obligation	$	48,104	$	45,129
Accumulated benefit obligation	44,976		42,178
Fair value of plan assets	46,753		41,418

Components of net periodic benefit cost were as follows:



	Retirement Plans									Other Post Retirement Benefits
(Dollars in thousands)	2017			2016			2015			2017		2016		2015
Service cost	$	524		$	661		$	756		$	48	$	46	$	59
Interest cost	1,927			2,071			1,953			118		133		110
Expected return on plan assets	(3,074		)	(3,041		)	(3,100		)	—		—		—
Amortization of net actuarial loss	1,185			1,296			1,308			42		25		54
Accretion of prior service cost	(282		)	(283		)	(280		)	—		—		—
Settlement cost	—			1,434			—			—		—		—
Net periodic benefit cost	$	280		$	2,138		$	637		$	208	$	204	$	223

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(Dollars in thousands)	Retirement Plans			Other Postretirement Benefits
Expected amortization expense for 2018:
Amortization of net actuarial loss	$	1,173		$	225
Accretion of prior service cost	(283		)	—

During 2018, the Corporation expects to contribute approximately $158 thousand to the Retirement Plans and approximately $80 thousand to Other Postretirement Benefits.

The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid:



(Dollars in thousands)	Retirement Plans		Other Postretirement Benefits
For the fiscal year ending:
2018	$	2,745	$	80
2019	2,786		85
2020	2,829		88
2021	2,899		91
2022	2,901		97
Years 2023-2027	14,987		608

Weighted-average assumptions used to determine benefit obligations at December 31, 2017 and 2016 were as follows:



	Retirement Plans				Other Postretirement Benefits
	2017		2016		2017		2016
Assumed discount rate	3.6	%	4.0	%	3.6	%	4.0	%
Assumed salary increase rate	3.0		3.0		—		—

The benefit obligation for all plans at December 31, 2017 was based on the RP-2014 mortality table using the projection scale MP-2017 published by the Society of Actuaries.

Weighted-average assumptions used to determine net periodic costs for the years ended December 31, 2017 and 2016 were as follows. The discount rate was determined utilizing the Citigroup Pension Discount Curve. Historical investment returns is the basis used to determine the overall expected long-term rate of return on assets.



	Retirement Plans				Other Postretirement Benefits
	2017		2016		2017		2016
Assumed discount rate	4.0	%	4.3	%	4.0	%	4.3	%
Assumed long-term rate of investment return	7.5		7.5		—		—
Assumed salary increase rate	3.0		3.0		—		—

The Corporation's pension plan asset allocation at December 31, 2017 and 2016, by asset category was as follows:



	Percentage of Plan Assets at December 31,
	2017		2016
Asset Category:
Equity securities	64	%	61	%
Debt securities	35		38
Other	1		1
Total	100	%	100	%

Plan assets include marketable equity securities, corporate and government debt securities, and certificates of deposit. The investment strategy is to keep a 60% equity to 40% fixed income mix to achieve the overall expected long-term rate of return of 7.5%. Equity securities do not include any common stock of the Corporation.

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The major categories of assets in the Corporation’s pension plan at year-end are presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy described in Note 18, “Fair Value Disclosures.”



	Fair Value Measurements at December 31,
(Dollars in thousands)	2017		2016
Level 1:
Mutual funds	$	31,144	$	26,292
Short-term investments	515		549
Level 2:
U.S. government obligations	4,910		3,544
Corporate bonds	5,974		6,468
Level 3:
Certificates of deposit	4,210		4,565
Total fair value of plan assets	$	46,753	$	41,418

The following table provides a reconciliation of the beginning and ending balances for measurements in hierarchy Level 3 at December 31, 2017 and 2016:



(Dollars in thousands)	Balance at December 31, 2016		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2017
Certificates of deposit	$	4,565	$	—	$	—	$	535	$	(890	)	$	4,210
Total Level 3 assets	$	4,565	$	—	$	—	$	535	$	(890	)	$	4,210

(Dollars in thousands)	Balance at December 31, 2015		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2016
Certificates of deposit	$	4,755	$	—	$	—	$	675	$	(865	)	$	4,565
Total Level 3 assets	$	4,755	$	—	$	—	$	675	$	(865	)	$	4,565

Note 14. Stock-Based Incentive Plan

The Corporation has a shareholder approved 2013 Long-Term Incentive Plan, which replaced the expired 2003 Long-Term Incentive Plan. Under the 2013 Long-Term Incentive Plan, the Corporation may grant up to 3,355,786 options and restricted stock to employees and non-employee directors, which includes 857,191 shares as a result of the completion of the acquisition of Fox Chase on July 1, 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank on January 1, 2015. The number of shares of common stock available for issuance under the plan is subject to adjustment, as described in the plan. This includes, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the stock, substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the plan, in the number and option price of shares subject to outstanding options granted under the plan and in the number and price of shares subject to other awards, as described in the plan. The plan provides for the issuance of options to purchase common shares at prices not less than 100 percent of the fair market value on the date of option grant and have a contractual term of ten years; and for restricted stock awards valued at not less than 100 percent of the fair market value at the date of award grant. The options issued in 2017 become exercisable and vest at 33.3 percent per year for each of the following three years and remain exercisable for a period not exceeding ten years from the date of grant. For the majority of the restricted stock awards, the shares vest based upon the Corporation’s performance with respect to certain financial measures over a three-year period. There were 2,484,320 share awards available for future grants at December 31, 2017 under the plan. At December 31, 2017, there were 512,735 options to purchase common stock and 229,026 unvested restricted stock awards outstanding under the plan.

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The following is a summary of the Corporation’s stock option activity and related information for the year ended December 31, 2017:



(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 December 31, 2017
Outstanding at December 31, 2016	504,908		$	19.06
Granted	189,797		28.15
Expired	(73,600	)	22.69
Forfeited	(16,000	)	23.35
Exercised	(92,370	)	18.14
Outstanding at December 31, 2017	512,735		21.90		7.4	$	3,170
Exercisable at December 31, 2017	160,593		17.80		5.6	1,646

The following is a summary of nonvested stock options at December 31, 2017 including changes during the year:



(Dollars in thousands, except per share data)	Nonvested Stock Options		Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2016	308,940		$	6.15
Granted	189,797		6.72
Vested	(130,595	)	6.06
Forfeited	(16,000	)	6.47
Nonvested stock options at December 31, 2017	352,142		6.47

The Corporation's estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee turnover. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury strip rate in effect at the time of grant. Expected volatility is based on the historical volatility of the Corporation’s stock over the expected life of the grant. The Corporation uses a straight-line accrual method to recognize stock-based compensation expense over the time-period it expects the options to vest.

The Corporation recognizes compensation expense for stock options over the requisite service period based on the grant-date fair value of those awards expected to ultimately vest. The Corporation records forfeitures as they occur. The following aggregated assumptions were used to estimate the fair value of options granted for the periods indicated:



	For the Years Ended December 31,
	2017		2016					2015
	Actual		Range			Weighted Average		Actual
Expected option life in years	6.9		7.6	-	8.2	7.9		8.0
Risk free interest rate	2.30	%	1.38%	-	1.89%	1.87	%	1.64	%
Expected dividend yield	2.84	%	3.80%	-	4.19%	4.06	%	4.32	%
Expected volatility	29.75	%	37.71%	-	46.22%	45.82	%	49.38	%
Fair value of options	$6.72		$5.40	-	$6.27	$6.23		$6.07

The following is a summary of nonvested restricted stock awards at December 31, 2017 including changes during the year:



(Dollars in thousands, except per share data)	Nonvested Share Awards		Weighted Average Grant Date Fair Value
Nonvested share awards at December 31, 2016	285,158		$	19.74
Granted	61,823		28.08
Vested	(101,372	)	19.80
Forfeited	(16,583	)	20.22
Nonvested share awards at December 31, 2017	229,026		21.93

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The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock is summarized below for the periods indicated:



(Dollars in thousands, except per share data)	For the Years Ended December 31,
	2017		2016		2015
Shares granted	61,823		176,255		65,755
Weighted average grant date fair value	$	28.08	$	20.60	$	18.62
Intrinsic value of awards vested	$	2,954	$	1,000	$	749

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 at December 31, 2017 is presented below:



(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Stock options	$	1,280	1.7
Restricted stock awards	2,291		1.4
	$	3,571	1.5

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



	For the Years Ended December 31,
(Dollars in thousands)	2017		2016		2015
Stock-based compensation expense:
Stock options	$	910	$	577	$	528
Restricted stock awards	2,256		1,507		893
Employee stock purchase plan	64		67		53
Total	$	3,230	$	2,151	$	1,474
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	$	1,432	$	1,135	$	339

There were no significant modifications or accelerations to options or restricted stock awards during the period 2015 through 2017.

The Corporation typically issues shares for stock option exercises and grants of restricted stock awards from its treasury stock.

Note 15. Accumulated Other Comprehensive Loss

The following table shows the components of accumulated other comprehensive loss, net of tax benefit, for the periods presented:



(Dollars in thousands)	Net Unrealized Gains (Losses) 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, 2014	$	1,711		$	(157	)	$	(16,016	)	$	(14,462	)
Net Change	(2,303		)	(128		)	185			(2,246		)
Balance, December 31, 2015	(592		)	(285		)	(15,831		)	(16,708		)
Net Change	(4,396		)	144			1,506			(2,746		)
Balance, December 31, 2016	(4,988		)	(141		)	(14,325		)	(19,454		)
Net Change	927			150			606			1,683
Balance, December 31, 2017	$	(4,061	)	$	9		$	(13,719	)	$	(17,771	)

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Note 16. Commitments and Contingencies

Lending Operations

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. The Bank offers commercial, mortgage, and consumer credit products to customers in the normal course of business, which are detailed in Note 6. These products represent a diversified credit portfolio and are generally issued to borrowers within the Bank’s market area. Financial instruments with off-balance sheet risk include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated balance sheets.

The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Collateral is obtained based on management’s credit assessment of the customer.

Standby letters of credit commit the Bank to make payments on behalf of customers when certain specified future events occur. They are primarily issued to support commercial paper, medium and long-term notes and debentures, including industrial revenue obligations. The approximate term is usually one year but some can be up to five years. Historically, substantially all standby letters of credit expire unfunded. If funded, the majority of the letters of credit carry current market interest rates if converted to loans. Because letters of credit are generally un-assignable by either the Bank or the borrower, they only have value to the Bank and the borrower. The carrying amount is recorded as unamortized deferred fees and the exposure is considered in the reserve for credit risk. At December 31, 2017, the maximum potential amount of future payments under letters of credit is $53.0 million. The current carrying amount of the contingent obligation is $278 thousand. This arrangement has credit risk essentially the same as that involved in extending loans to customers and is subject to the Bank’s normal credit policies. Collateral is obtained based on management’s credit assessment of the customer.

The following schedule summarizes the Corporation’s off-balance sheet financial instruments at December 31, 2017:



(Dollars in thousands)	Contract/Notional Amount
Financial instruments representing credit risk:
Commitments to extend credit	$	1,127,545
Performance letters of credit	27,634
Financial standby letters of credit	24,477
Other letters of credit	849

The Bank maintains a reserve in other liabilities for estimated losses associated with sold mortgages that may be repurchased. At December 31, 2017, the reserve for sold mortgages was $293 thousand.

Legal Proceedings

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not they will be subject to the Release and Settlement Agreement. It is expected this election process will be completed by March 31, 2018 and related funds are expected to be received by June 30, 2018. If a guarantor elects to be subject to the Release and Settlement Agreement, Univest Capital, Inc. will receive a payment of $43 thousand per guarantor. If a guarantor elects not to be subject to the Release and Settlement Agreement, Univest Capital, Inc. has the right to pursue collection of the full amount owed, which ranges from $108 thousand to $228 thousand per guarantor, via the normal collection process. As of December 31, 2017, Univest Capital, Inc. has a receivable totaling $1.3 million related to this matter, which is recorded as a non-accruing lease receivable.

Operating Leases

At December 31, 2017, the Corporation and its subsidiaries were obligated under non-cancelable leases for various premises. Portions of certain properties are subleased. A summary of the future minimum rental commitments under non-cancelable operating leases with original or remaining terms greater than one year is as follows:



(Dollars in thousands)
Year	Amount
2018	$	3,535
2019	3,407
2020	3,468
2021	3,514
2022	3,431
Thereafter	44,320
Total	$	61,675

Service Contracts

At December 31, 2017, the Corporation had contracts with third-party providers to manage the Corporation's network operations, data processing and other related services. The projected amount of the Corporation's future minimum payments due for contracts with original or remaining terms greater than one year is as follows:



(Dollars in thousands)
Year	Amount
2018	$	5,497
2019	4,867
2020	4,348
2021	3,790
2022	2,047
Thereafter	406
Total	$	20,955

Note 17. Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Corporation may use interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk, adjusts the carrying amount of the hedge item and is recognized in earnings.

In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year maturity 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

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Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. The Corporation expects that there will be no ineffectiveness over the life of the interest rate swap. At December 31, 2017, approximately $62 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 December 31, 2017. At December 31, 2017, the notional amount of the interest rate swap was $17.8 million, with a positive fair value of $13 thousand.

The Corporation has an interest rate swap classified as a fair value hedge with a current notional amount of $1.4 million to hedge a 10-year fixed rate loan that is earning interest at 5.83%. The Corporation pays a fixed rate of 5.83% and receives a floating rate based on the one-month LIBOR plus 350 basis points. The swap matures in October 2021. The difference between changes in the fair values of the interest rate swap agreement and the hedged loan represents hedge ineffectiveness and is recorded in other noninterest income in the consolidated statements of operations.

The Corporation has an interest rate swap with a current notional amount of $523 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 and foreign currency swap 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 and foreign currency swap transactions for customers without creating the swap. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of income.

At December 31, 2017, the Corporation has fifteen variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $75.6 million, and remaining maturities ranging from one to 10 years. At December 31, 2017, the fair value of the swaps to the customers was a liability of $36 thousand and all swaps were in paying positions to the third-party financial institution.

At December 31, 2017, there were no material foreign currency swap transactions between the third-party institution and loan customers.

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 exchange rates, and the agreement does not provide for a limitation of the maximum potential payment amount.

Mortgage Banking Derivatives

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

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Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at December 31, 2017 and 2016. 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 December 31, 2017
Interest rate swap - cash flow hedge	$	17,836		$	13		$	—
Interest rate swap - fair value hedge	1,388			—		Other liabilities	12
Total	$	19,224		$	13		$	12
At December 31, 2016
Interest rate swap - cash flow hedge	$	18,566		$	—	Other liabilities	$	217
Interest rate swap - fair value hedge	1,427			—		Other liabilities	37
Total	$	19,993		$	—		$	254

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at December 31, 2017 and 2016:



			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At December 31, 2017
Interest rate swap	$	523		$	—	Other liabilities	$	38
Credit derivatives	75,622			—		Other liabilities	36
Interest rate locks with customers	27,411		Other assets	527			—
Forward loan sale commitments	29,037		Other assets	61			—
Total	$	132,593		$	588		$	74
At December 31, 2016
Interest rate swap	$	622		$	—	Other liabilities	$	65
Credit derivatives	27,919			—		Other liabilities	9
Interest rate locks with customers	36,541		Other assets	801			—
Forward loan sale commitments	42,366		Other assets	257			—
Total	$	107,448		$	1,058		$	74

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	For the Years Ended December 31,
(Dollars in thousands)	Statement of Income Classification	2017			2016			2015
Interest rate swap—cash flow hedge—net interest payments	Interest expense	$	182		$	308		$	377
Interest rate swap—fair value hedge—ineffectiveness	Other noninterest income	7			9			—
Net loss		$	(175	)	$	(299	)	$	(377	)

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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	For the Years Ended December 31,
(Dollars in thousands)	Statement of Income Classification	2017			2016			2015
Credit derivatives	Other noninterest income	$	403		$	93		$	—
Interest rate locks with customers	Net gain (loss) on mortgage banking activities	(274		)	(288		)	301
Forward loan sale commitments	Net gain (loss) on mortgage banking activities	(196		)	359			10
Total		$	(67	)	$	164		$	311

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at December 31, 2017 and 2016:



	Accumulated Other Comprehensive (Loss) Income	At December 31,
(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	2017		2016
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	9	$	(141	)
Total		$	9	$	(141	)

Note 18. Fair Value Disclosures

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

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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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 have not sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.

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

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at December 31, 2017.

Derivative Financial Instruments

The fair values of derivative financial instruments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate swaps and mortgage banking derivative financial instruments are classified within Level 2 of the valuation hierarchy. Credit derivatives are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore classified in Level 3 of the valuation hierarchy.

Two commercial loans, associated with interest rate swaps are classified in Level 3 of the valuation hierarchy since lending credit risk is not an observable input for these loans. The unrealized gain on the two loans was $51 thousand at December 31, 2017.

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. Changes in the original assumptions utilized at the time the acquisition closes and identified during the measurement period are recorded in accordance with ASC Topic 805 as an adjustment to goodwill. 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.

For the Sterner Insurance Associates acquisition, the conclusion for the earn-out period ending June 30, 2017 resulted in a reversal of a prior noninterest expense accrual of $301 thousand primarily during the second quarter of 2017.

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The following table presents the assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and 2016, classified using the fair value hierarchy:



	At December 31, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies	$	—	$	16,961	$	—	$	16,961
State and political subdivisions	—		78,297		—		78,297
Residential mortgage-backed securities	—		185,421		—		185,421
Collateralized mortgage obligations	—		3,602		—		3,602
Corporate bonds	—		79,190		27,986		107,176
Money market mutual funds	5,985		—		—		5,985
Equity securities	1,076		—		—		1,076
Total available-for-sale securities	7,061		363,471		27,986		398,518
Loans*	—		—		1,958		1,958
Interest rate swap*	—		13		—		13
Interest rate locks with customers*	—		527		—		527
Forward loan sale commitments*	—		61		—		61
Total assets	$	7,061	$	364,059	$	29,944	$	401,064
Liabilities:
Contingent consideration liability	$	—	$	—	$	339	$	339
Interest rate swaps*	—		50		—		50
Credit derivatives*	—		—		36		36
Total liabilities	$	—	$	50	$	375	$	425



	At December 31, 2016
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies	$	—	$	32,266	$	—	$	32,266
State and political subdivisions	—		88,350		—		88,350
Residential mortgage-backed securities	—		198,570		—		198,570
Collateralized mortgage obligations	—		4,554		—		4,554
Corporate bonds	—		79,420		28,778		108,198
Money market mutual funds	10,784		—		—		10,784
Equity securities	915		—		—		915
Total available-for-sale securities	11,699		403,160		28,778		443,637
Loans*	—		—		2,138		2,138
Interest rate locks with customers*	—		801		—		801
Forward loan sale commitments*	—		257		—		257
Total assets	$	11,699	$	404,218	$	30,916	$	446,833
Liabilities:
Contingent consideration liability	$	—	$	—	$	5,999	$	5,999
Interest rate swaps*	—		319		—		319
Credit derivatives*	—		—		9		9
Total liabilities	$	—	$	319	$	6,008	$	6,327

*Such financial instruments are recorded at fair value as further described in Note 17, "Derivative Instruments."

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The following table includes a rollfoward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for year ended December 31, 2017 and 2016.



	For the Year Ended December 31, 2017
(Dollars in thousands)	Balance at December 31, 2016			Purchases/additions			Sales		Payments received			Premium amortization, net		(Decrease) increase in value			Balance at December 31, 2017
Corporate bonds	$	28,778		$	—		$	—	$	—		$	—	$	(792	)	$	27,986
Loans	2,138			—			—		(137		)	—		(43		)	1,958
Credit derivatives	(9		)	(430		)	—		—			—		403			(36		)
Net total	$	30,907		$	(430	)	$	—	$	(137	)	$	—	$	(432	)	$	29,908



	For the Year Ended December 31, 2016
(Dollars in thousands)	Balance at December 31, 2015		Purchases/additions			Sales		Payments received			Premium amortization, net		(Decrease) increase in value			Balance at December 31, 2016
Corporate bonds	—		—			—		—			—		—			28,778
Loans	—		2,313			—		(65		)	—		(110		)	2,138
Credit derivatives	—		(102		)	—		—			—		93			(9		)
Net total	$	—	$	2,211		$	—	$	(65	)	$	—	$	(17	)	$	30,907

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 years ended December 31, 2017 and 2016:



	For the Year Ended December 31, 2017
(Dollars in thousands)	Balance at December 31, 2016		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration			Balance at December 31, 2017
Sterner Insurance Associates	$	331	$	—	$	30	$	(301	)	$	—
Girard Partners	5,668		—		5,383		54			339
Total contingent consideration liability	$	5,999	$	—	$	5,413	$	(247	)	$	339



	For the Year Ended December 31, 2016
(Dollars in thousands)	Balance at December 31, 2015		Contingent Consideration from New Acquisition*		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at December 31, 2016
Sterner Insurance Associates	$	1,144	$	—	$	1,325	$	512	$	331
Girard Partners	4,241		—		967		2,394		5,668
John T. Fretz Insurance Agency	192		—		260		68		—
Total contingent consideration liability	$	5,577	$	—	$	2,552	$	2,974	$	5,999

*Includes adjustments during the measurement period in accordance with ASC Topic 805.

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The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or impairment charges of individual assets. The following table represents assets measured at fair value on a non-recurring basis at December 31, 2017 and 2016:



	At December 31, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment	$	—	$	—	$	28,351	$	28,351
Impaired leases held for investment	—		—		1,250		1,250
Other real estate owned	—		—		1,843		1,843
Total	$	—	$	—	$	30,194	$	30,194



	At December 31, 2016
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment	$	—	$	—	$	43,680	$	43,680
Other real estate owned	—		—		4,969		4,969
Total	$	—	$	—	$	48,649	$	48,649

The following table presents assets and liabilities and off-balance sheet items not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required to be disclosed at December 31, 2017 and 2016. The disclosed fair values are classified using the fair value hierarchy.



	At December 31, 2017
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	75,409	$	—		$	—	$	75,409		$	75,409
Held-to-maturity securities	—		55,320			—		55,320			55,564
Federal Home Loan Bank, Federal Reserve Bank and other stock	N/A		N/A			N/A		N/A			27,204
Loans held for sale	—		1,676			—		1,676			1,642
Net loans and leases held for investment	—		—			3,547,451		3,547,451			3,566,953
Servicing rights	—		—			10,046		10,046			6,573
Total assets	$	75,409	$	56,996		$	3,557,497	$	3,689,902		$	3,733,345
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	2,980,170	$	—		$	—	$	2,980,170		$	2,980,170
Time deposits	—		574,737			—		574,737			574,749
Total deposits	2,980,170		574,737			—		3,554,907			3,554,919
Short-term borrowings	—		105,431			—		105,431			105,431
Long-term debt	—		156,834			—		156,834			155,828
Subordinated notes	—		98,075			—		98,075			94,331
Total liabilities	$	2,980,170	$	935,077		$	—	$	3,915,247		$	3,910,509
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(2,414	)	$	—	$	(2,414	)	$	—

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	At December 31, 2016
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	57,825	$	—		$	—	$	57,825		$	57,825
Held-to-maturity securities	—		24,871			—		24,871			24,881
Federal Home Loan Bank, Federal Reserve Bank and other stock	N/A		N/A			N/A		N/A			24,869
Loans held for sale	—		5,943			—		5,943			5,890
Net loans and leases held for investment	—		—			3,193,886		3,193,886			3,222,569
Servicing rights	—		—			9,548		9,548			6,485
Total assets	$	57,825	$	30,814		$	3,203,434	$	3,292,073		$	3,342,519
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	2,631,378	$	—		$	—	$	2,631,378		$	2,631,378
Time deposits	—		628,096			—		628,096			626,189
Total deposits	2,631,378		628,096			—		3,259,474			3,257,567
Short-term borrowings	—		195,572			—		195,572			196,171
Long-term debt	—		130,157			—		130,157			127,522
Subordinated notes	—		95,188			—		95,188			94,087
Total liabilities	$	2,631,378	$	1,049,013		$	—	$	3,680,391		$	3,675,347
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(2,218	)	$	—	$	(2,218	)	$	—

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

Cash and short-term interest-earning assets: The carrying amounts reported in the balance sheet for cash and due from banks, interest-earning deposits with other banks, federal funds sold and other short-term investments approximates those assets’ fair values. Cash and short-term interest-earning assets are classified within Level 1 in the fair value hierarchy.

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

Federal Home Loan Bank, Federal Reserve Bank and other stock: It is not practical to determine the fair values of Federal

Home Loan Bank, Federal Reserve Bank and other stock, due to restrictions placed on their transferability.

Loans held for sale: The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. Loans held for sale are carried at the lower of cost or estimated fair value. There were no valuation adjustments for loans held for sale at December 31, 2017 and 2016.

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 and include components for credit risk, operating expense and embedded prepayment options. An overall valuation adjustment is made for specific credit risks in addition to general portfolio risk and is significant to the valuation. As permitted, the fair value of the loans and leases are not based on the exit price concept as discussed in the first paragraph of this note. Loans and leases are classified within Level 3 in the fair value hierarchy since credit risk is not an observable input.

Impaired loans and leases held for investment: For impaired 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 December 31, 2017, impaired loans held for investment had a carrying amount of $28.5 million with a valuation allowance of $131 thousand. At December 31, 2016, impaired loans held for investment had a carrying amount of $43.9 million with a valuation allowance of $235 thousand. The Corporation had impaired leases of $1.3 million with no reserve at December 31, 2017. The Corporation had no impaired leases at December 31, 2016.

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Servicing rights: The Corporation estimates the fair value of mortgage servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Mortgage servicing rights are classified within Level 3 in the fair value hierarchy based upon management’s assessment of the inputs. The Corporation reviews the mortgage servicing rights portfolio on a quarterly basis for impairment and the mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. The Corporation also records servicing rights on small business administration (SBA) loans. At December 31, 2017 and December 31, 2016, servicing rights had a carrying amount of $6.6 million and $6.5 million, respectively, with no valuation allowance.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill during the fourth quarter of 2017 and determined it was more likely than not that the fair value of the Corporation, including each of the identified reporting units, was more than its carrying amount; therefore, the Corporation did not need to perform the two-step impairment test for the Corporation or the reporting units. The Corporation also completed an impairment test for other intangible assets during the fourth quarter of 2017. There was no impairment of goodwill or identifiable intangibles recorded.

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 as the lower of the original cost and the current the 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. During 2017, two properties had write-downs totaling $199 thousand and seven properties were sold at a net gain of $383 thousand which were both included in other noninterest income in the statement of income. 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 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 19. Restructuring Charges

During 2015 and 2016, the Corporation exited five financial centers, a lease for a new financial center and two administrative offices, and reduced staff due to rationalization; resulting in accrued expenses totaling $3.4 million, primarily related to the Banking business segment.

A roll-forward of the remaining accrued restructuring expense is as follows:



(Dollars in thousands)	Severance expenses			Write-downs and retirements of fixed assets			Lease cancellations			Total
Accrued at January 1, 2017	$	901		$	228		$	81		$	1,210
Payments	(901		)	—			(58		)	(959		)
Non-cash settlement	—			(228		)	—			(228		)
Accrued at December 31, 2017	$	—		$	—		$	23		$	23

Note 20. Share Repurchase Plan

On October 23, 2013, the Corporation’s Board of Directors approved a stock repurchase plan for the repurchase of up to 800,000 shares of common stock, 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 in the common 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. During the years ended December 31, 2017, 2016 and 2015, the Corporation repurchased 0, 66,000 and 608,757 shares of common stock at a cost of $0.0 million, $1.4 million and $12.0 million, respectively, under the share repurchase program. Shares available for future repurchases under the plan totaled 1,014,246 at December 31, 2017. Total shares outstanding at December 31, 2017 were 29,334,859. At December 31, 2017, the aggregate purchases recorded as treasury stock, at cost, on the Corporation's consolidated balance sheet was $43.5 million. The Corporation will repurchase shares of its common stock from time to time through open market purchases, tender offers, privately negotiated purchases or other means. The share repurchase program does not obligate the Corporation to acquire any particular amount of common stock. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

Note 21. Regulatory Matters

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

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total capital, Tier 1 capital and Tier 1 common capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), or leverage ratio.

The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules, primarily relating to regulatory deductions and adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a four-year period beginning January 1, 2015. Under Basel III rules, the decision was made to opt-out of including accumulated

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other comprehensive income in regulatory capital. During 2018, the Corporation and the Bank must hold a capital conservation buffer greater than 1.875% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer which would require Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50% beginning in the first quarter of 2019.

The below table presents the Corporation's and Bank's actual and required capital ratios as of December 31, 2017 and December 31, 2016 under regulatory capital rules.

On December 6, 2017, the Corporation completed its public offering of common stock which increased shareholders' equity by $70.5 million. As of December 31, 2017, the capital raised remained at the Corporation and was not contributed to the Bank. See Note 3, "Common Stock Issuance" for additional information.



(Dollars in thousands)	Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At December 31, 2017
Total Capital (to Risk-Weighted Assets):
Corporation	$	563,797	14.00	%	$	322,148	8.00	%	$	402,685	10.00	%
Bank	464,851		11.62		320,003		8.00		400,004		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	447,228		11.11		241,611		6.00		322,148		8.00
Bank	442,613		11.07		240,002		6.00		320,003		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	447,228		11.11		181,208		4.50		261,745		6.50
Bank	442,613		11.07		180,002		4.50		260,002		6.50
Tier 1 Capital (to Average Assets):
Corporation	447,228		10.48		170,753		4.00		213,441		5.00
Bank	442,613		10.45		169,453		4.00		211,816		5.00
At December 31, 2016
Total Capital (to Risk-Weighted Assets):
Corporation	$	462,198	12.44	%	$	297,284	8.00	%	$	371,604	10.00	%
Bank	436,435		11.85		294,679		8.00		368,349		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	349,942		9.42		222,963		6.00		297,284		8.00
Bank	418,266		11.36		221,010		6.00		294,679		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	349,942		9.42		167,222		4.50		241,543		6.50
Bank	418,266		11.36		165,757		4.50		239,427		6.50
Tier 1 Capital (to Average Assets):
Corporation	349,942		8.84		158,410		4.00		198,013		5.00
Bank	418,266		10.64		157,254		4.00		196,567		5.00

At December 31, 2017 and December 31, 2016, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. The Corporation, like other bank holding companies, currently is required to maintain Tier 1 Capital and Total Capital equal to at least 6.0% and 8.0%, respectively, of its total risk-weighted assets (including various off-balance-sheet items). The Bank, like other depository institutions, is required to maintain similar capital levels under capital adequacy guidelines. During 2017, the Corporation and the Bank was required to hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 1.250% of total risk-weighted assets in order to avoid limitations on capital distributions. For a depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective action, Tier 1 and Total Capital ratios must be at least 8.0% and 10.0% on a risk-adjusted basis, respectively. At December 31, 2017, the Bank is categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the Bank’s category. The Corporation will continue to analyze the impact of the phase in of the capital conservation buffer as well as the impact on new accounting rules, such as Lease Accounting (ASU No. 2016-02) and CECL (ASU No. 2016-13) on its regulatory capital ratios. See Note 1 to the financial statements included in Part II, Item 8 of this Form 10-K for additional information.

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Dividends and Other Restrictions

The primary source of the Corporation’s dividends paid to its shareholders is from the earnings of the Bank paid to the Corporation in the form of dividends.

The approval of the Federal Reserve Board of Governors is required for a state bank member in the Federal Reserve system to pay dividends if the total of all dividends declared in any calendar year exceeds the Bank’s net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the Bank can declare dividends in 2018 without approval of the Federal Reserve Board of Governors of approximately $36.5 million plus an additional amount equal to the Bank’s net profits for 2018 up to the date of any such dividend declaration.

Federal Reserve Board policy applicable to the holding company also provides that, as a general matter, a bank holding company should inform the Federal Reserve and should eliminate, defer or significantly reduce the holding company’s dividends if the holding company’s net income for the preceding four quarters, net of dividends paid during the period, is not sufficient to fully fund the dividends, the holding company’s prospective rate of earnings retention is inconsistent with capital needs and overall current and prospective financial condition, or the holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Federal Reserve Board policy also provides that a bank holding company should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period or that could result in a material adverse change to the organization’s capital structure.

The Federal Reserve Act requires that the extension of credit by the Bank to certain affiliates, including the Corporation (parent), be secured by readily marketable securities, that the extension of credit to any one affiliate be limited to 10% of the Bank’s capital and surplus (as defined), and that extensions of credit to all such affiliates be limited to 20% of the Bank’s capital and surplus.

Note 22. Related Party Transactions

In the ordinary course of business, the Corporation has made loans and commitments to extend credit to certain directors and executive officers of the Corporation and companies in which directors have an interest (Related Parties). These loans and commitments have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with customers not related to the lender and did not involve more than the normal risk of collectability or present other unfavorable terms.

The following table provides a summary of activity for loans to Related Parties during the year ended December 31, 2017:



(Dollars in thousands)
Balance at January 1, 2017	$	57,386
Additions	13,840
Amounts collected and other reductions	(53,381		)
Balance at December 31, 2017	$	17,845

The following table provides additional information regarding transactions with Related Parties:



(Dollars in thousands)	At December 31, 2017
Commitments to extend credit	$	16,039
Deposits received	14,257

Note 23. Segment Reporting

At December 31, 2017, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.

The Corporation's Banking segment consists of commercial, consumer and mortgage banking, as well as lease financing. The Wealth Management segment consists of investment advisory services, retirement plan services, trust, municipal pension services and broker/dealer services. The Insurance segment consists of commercial lines, personal lines, benefits and human resources consulting.

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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.



Ÿ	The Banking segment provides financial services to consumers, businesses and governmental units. 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.
Ÿ	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.
Ÿ	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 tables provide reportable segment-specific information and reconciliations to consolidated financial information for the years ended December 31, 2017, 2016 and 2015.



(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated
For the Year Ended December 31, 2017
Interest income	$	162,982		$	8	$	—	$	25		$	163,015
Interest expense	14,802			—		—		5,037			19,839
Net interest income (expense)	148,180			8		—		(5,012		)	143,176
Provision for loan and lease losses	9,892			—		—		—			9,892
Noninterest income	21,838			21,707		15,320		375			59,240
Intangible expenses	1,507			674		401		—			2,582
Other noninterest expense	100,670			13,732		11,667		2,062			128,131
Intersegment (revenue) expense*	(1,059		)	585		474		—			—
Income (expense) before income taxes	59,008			6,724		2,778		(6,699		)	61,811
Income tax expense (benefit)	15,735			2,597		374		(989		)	17,717
Net income (loss)	$	43,273		$	4,127	$	2,404	$	(5,710	)	$	44,094
Total assets	$	4,466,301		$	34,600	$	27,846	$	26,115		$	4,554,862
Capital expenditures	$	7,731		$	38	$	222	$	612		$	8,603

For the Year Ended December 31, 2016
Interest income	$	126,571		$	5	$	—	$	31		$	126,607
Interest expense	8,224			—		—		4,158			12,382
Net interest income (expense)	118,347			5		—		(4,127		)	114,225
Provision for loan and lease losses	4,821			—		—		—			4,821
Noninterest income	21,296			19,318		15,150		199			55,963
Intangible expenses	932			3,132		1,464		—			5,528
Acquisition-related and integration costs and restructuring charges	16,096			—		—		1,559			17,655
Other noninterest expense	88,065			12,980		11,924		5,829			118,798
Intersegment (revenue) expense*	(1,766		)	788		978		—			—
Income (expense) before income taxes	31,495			2,423		784		(11,316		)	23,386
Income tax expense (benefit)	6,510			857		348		(3,834		)	3,881
Net income (loss)	$	24,985		$	1,566	$	436	$	(7,482	)	$	19,505
Total assets	$	4,137,873		$	35,061	$	24,472	$	33,122		$	4,230,528
Capital expenditures	$	9,944		$	29	$	30	$	1,660		$	11,663

For the Year Ended December 31, 2015
Interest income	$	101,950		$	1	$	—	$	32		$	101,983
Interest expense	6,042			—		—		2,023			8,065
Net interest income (expense)	95,908			1		—		(1,991		)	93,918
Provision for loan and lease losses	3,802			—		—		—			3,802
Noninterest income	18,934			18,874		14,396		221			52,425
Intangible expenses	293			410		1,864		—			2,567
Acquisition-related and integration costs and restructuring charges	1,992			—		—		2,187			4,179
Other noninterest expense	78,122			12,276		10,849		(2,478		)	98,769
Intersegment (revenue) expense*	(2,115		)	867		1,248		—			—
Income (expense) before income taxes	32,748			5,322		435		(1,479		)	37,026
Income tax expense (benefit)	7,693			2,054		164		(153		)	9,758
Net income (loss)	$	25,055		$	3,268	$	271	$	(1,326	)	$	27,268
Capital expenditures	$	5,003		$	19	$	58	$	1,650		$	6,730

*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 24. Condensed Financial Information - Parent Company Only

Condensed financial statements of the Corporation, parent company only, follow:



(Dollars in thousands)	At December 31,
Balance Sheets	2017		2016
Assets:
Cash and due from banks	$	73,756	$	1,980
Investments in securities	1,077		914
Investments in subsidiaries, at equity in net assets:
Bank	612,045		587,532
Non-banks	—		—
Other assets	32,399		32,124
Total assets	$	719,277	$	622,550
Liabilities:
Dividends payable	$	5,866	$	5,316
Subordinated notes	94,331		94,087
Other liabilities	15,706		17,938
Total liabilities	115,903		117,341
Shareholders' equity:	603,374		505,209
Total liabilities and shareholders' equity	$	719,277	$	622,550

The Corporation’s condensed Balance Sheet at December 31, 2017 reflects the issuance of the Corporation's common stock related to the December 2017 public offering which increased shareholder's equity by $70.5 million.



(Dollars in thousands)	For the Years Ended December 31,
Statements of Income	2017			2016			2015
Dividends from Bank	$	26,263		$	94,042		$	26,523
Dividends from non-bank	—			—			—
Net gain on sales of securities	3			23			285
Other income	24,740			18,663			18,428
Total operating income	51,006			112,728			45,236
Interest expense	5,037			4,158			2,023
Operating expenses	26,405			25,843			19,810
Income before income tax benefit and equity in undistributed income (loss) of subsidiaries	19,564			82,727			23,403
Income tax benefit	(989		)	(3,834		)	(728		)
Income before equity in undistributed income (loss) of subsidiaries	20,553			86,561			24,131
Equity in undistributed income (loss) of subsidiaries:
Bank	23,541			(67,056		)	3,137
Non-banks	—			—			—
Net income	$	44,094		$	19,505		$	27,268

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(Dollars in thousands)	For the Years Ended December 31,
Statements of Cash Flows	2017			2016			2015
Cash flows from operating activities:
Net income	$	44,094		$	19,505		$	27,268
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net (income) loss of subsidiaries	(23,541		)	67,056			(3,137		)
Net gain on sales of securities	(3		)	(23		)	(285		)
Bank owned life insurance income	(343		)	(182		)	(5		)
Depreciation of premises and equipment	387			339			275
Stock based compensation	3,166			2,084			1,421
Contributions to pension and other postretirement benefit plans	(2,295		)	(2,261		)	(2,271		)
(Increase) decrease in other assets	(3,384		)	1,098			(4,268		)
Increase (decrease) in other liabilities	4,101			213			2,027
Net cash provided by operating activities	22,182			87,829			21,025
Cash flow from investing activities:
Investments in subsidiaries	—			(40,000		)	(30,000		)
Proceeds from sales of securities	3			38			708
Outlays for business acquisitions	—			(87,683		)	—
Proceeds from bank owned life insurance	183			—			—
Other, net	(364		)	(1,619		)	(1,640		)
Net cash used in investing activities	(178		)	(129,264		)	(30,932		)
Cash flows from financing activities:
Net decrease in short-term borrowings	—			(253		)	—
Proceeds from issuance of subordinated notes	—			44,515			49,267
Purchases of treasury stock	(3,519		)	(8,359		)	(13,342		)
Proceeds from public offering of common stock	70,501			—			—
Stock issued under dividend reinvestment and employee stock purchase plans and other employee benefit plans	2,413			2,472			2,434
Proceeds from exercise of stock options, including excess tax benefits	1,676			4,968			534
Cash dividends paid	(21,299		)	(17,024		)	(15,010		)
Net cash provided by financing activities	49,772			26,319			23,883
Net increase (decrease) in cash and due from financial institutions	71,776			(15,116		)	13,976
Cash and due from financial institutions at beginning of year	1,980			17,096			3,120
Cash and due from financial institutions at end of year	$	73,756		$	1,980		$	17,096
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	4,800		$	3,956		$	1,275
Income tax, net of refunds received	11,600			6,675			1,770

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Note 25. Quarterly Financial Data (Unaudited)

The unaudited results of operations for the quarters for the years ended December 31, 2017 and 2016 were as follows:



(Dollars and shares in thousands)
2017 Quarterly Financial Data:	Fourth		Third			Second		First
Interest income	$	42,417	$	42,172		$	40,030	$	38,396
Interest expense	5,711		5,285			4,730		4,113
Net interest income	36,706		36,887			35,300		34,283
Provision for loan and lease losses	1,992		2,689			2,766		2,445
Net interest income after provision for loan and lease losses	34,714		34,198			32,534		31,838
Noninterest income	14,152		14,109			16,009		14,970
Noninterest expense	33,440		32,695			32,548		32,030
Income before income taxes	15,426		15,612			15,995		14,778
Income taxes	5,162		4,416			4,217		3,922
Net income	$	10,264	$	11,196		$	11,778	$	10,856

Per share data:
Weighted average shares outstanding - basic earnings per share	27,254		26,437			26,380		26,345
Weighted average shares outstanding - diluted earnings per share	27,356		26,542			26,477		26,448

Basic earnings per share	$	0.37	$	0.42		$	0.44	$	0.41
Diluted earnings per share	$	0.37	$	0.42		$	0.44	$	0.41
Dividends per share	$	0.20	$	0.20		$	0.20	$	0.20

2016 Quarterly Financial Data:	Fourth		Third			Second		First
Interest income	$	38,056	$	36,705		$	26,112	$	25,734
Interest expense	3,884		3,836			2,451		2,211
Net interest income	34,172		32,869			23,661		23,523
Provision for loan and lease losses	2,250		1,415			830		326
Net interest income after provision for loan and lease losses	31,922		31,454			22,831		23,197
Noninterest income	13,994		14,137			14,001		13,831
Noninterest expense	38,430		47,066			29,546		26,939
Income before income taxes	7,486		(1,475		)	7,286		10,089
Income taxes	568		(1,533		)	2,046		2,800
Net income	$	6,918	$	58		$	5,240	$	7,289

Per share data:
Weighted average shares outstanding - basic earnings per share	26,300		26,273			19,434		19,402
Weighted average shares outstanding - diluted earnings per share	26,436		26,340			19,469		19,433

Basic earnings per share	$	0.27	$	—		$	0.27	$	0.37
Diluted earnings per share	$	0.27	$	—		$	0.27	$	0.37
Dividends per share	$	0.20	$	0.20		$	0.20	$	0.20

The quarterly results for 2017 and 2016 include the acquisition of Fox Chase Bancorp on July 1, 2016.

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Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.	Controls and Procedures

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 December 31, 2017.

Management's Report on Internal Control over Financial Reporting

The management of the Univest Corporation of Pennsylvania (the Corporation) is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2017, using the criteria set forth in Internal Control - Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this assessment, management concluded that, as of December 31, 2017, the Corporation’s internal control over financial reporting is effective based on those criteria.

KPMG LLP, an independent registered public accounting firm, has audited the Corporation’s consolidated financial statements as of and for the year ended December 31, 2017 and the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2017, as stated in their reports, which are included herein.

There were no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the year ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Univest Corporation of Pennsylvania:

Opinion on Internal Control Over Financial Reporting

We have audited Univest Corporation of Pennsylvania and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”), and our report dated March 1, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Philadelphia, Pennsylvania

March 1, 2018

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Item 9B.	Other Information

None.

PART III


Item 10.	Directors, Executive Officers and Corporate Governance

Information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5), of Regulation S-K is incorporated herein by reference from the Corporation’s definitive proxy statement on Schedule 14A for the annual meeting of shareholders on April 17, 2018 (2018 Proxy), under the headings: “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “The Board, the Board’s Committees and Their Functions,” “Audit Committee,” “Compensation Committee of the Board,” “Corporate Governance Disclosure,” "Compensation Committee Interlocks and Insider Participation," and "Nominating and Governance Committee of the Board.”

The Corporation maintains in effect a Code of Conduct for Directors and a Code of Conduct for all officers and employees, which includes the CEO and senior financial officers. The codes of conduct are available on the Corporation’s website. The Corporation’s website also includes the charters for its audit committee, compensation committee, and nominating and governance committee as well as its corporate governance principles. These documents are located on the Corporation’s website at www.univest.net under “Investors Relations” in Governance Documents and are also available to any person without charge by sending a request to the Corporate Secretary at Univest Corporation, P. O. Box 197, Souderton, PA 18964.


Item 11.	Executive Compensation

Information required by Item 402 and paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K is incorporated herein by reference from the Corporation’s 2018 Proxy under the headings: “The Board, the Board’s Committees and Their Functions,” “Executive Compensation,” “Director Compensation,” and "Compensation Committee Report."


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Item 403 of Regulation S-K is incorporated herein by reference from the Corporation’s 2018 Proxy under the heading, “Security Ownership of Certain Beneficial Owners of Management."

Equity Compensation Plan Information

The Corporation has a shareholder approved 2013 Long-Term Incentive Plan which replaced the expired 2003 Long-Term Incentive Plan. Under the 2013 Long-Term Incentive Plan, the Corporation may grant options and share awards to employees and non-employee directors up to 3,355,786 shares of common stock, which includes 857,191 shares as a result of the completion of the acquisition of Fox Chase on July 1, 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank on January 1, 2015. The number of shares of common stock available for issuance under the plan is subject to adjustment, as described in the plan. This includes, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the stock, substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the plan, in the number and option price of shares subject to outstanding options granted under the plan and in the number and price of shares subject to other awards, as described in the plan.

The following table sets forth information regarding outstanding options and shares under equity compensation plans at December 31, 2017:



	(a)	(b)		(c)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plan approved by security holders	512,735	$	21.90	2,484,320
Equity compensation plan not approved by security holders	—	—		—
Total	512,735	$	21.90	2,484,320

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Item 13.	Certain Relationships and Related Transactions, and Director Independence

Information required by Items 404 and 407(a) of Regulation S-K is incorporated herein by reference from the Corporation’s 2018 Proxy under the headings, “The Board, the Board’s Committees and Their Functions” and “Related Party Transactions.”


Item 14.	Principal Accounting Fees and Services

Information required by Item 9(e) of Schedule 14A is incorporated herein by reference from the Corporation’s 2018 Proxy under the headings: “Audit Committee” and “Independent Registered Public Accounting Firm Fees.”

PART IV


Item 15.	Exhibits and Financial Statement Schedules



(a)	1. & 2. Financial Statements and Schedules
	The financial statements listed in the accompanying index to financial statements are filed as part of this annual report.
	3. Listing of Exhibits
	The exhibits listed on the accompanying index to exhibits are filed as part of this annual report.
(b)	Exhibits - The response to this portion of Item 15 is submitted as separate section.
(c)	Financial Statements Schedules - none.

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES

[Item 15(a) 1. & 2.]

Annual Report of Shareholders



	Page
Report of Independent Registered Public Accounting Firm	45
Consolidated Balance Sheets at December 31, 2017 and 2016	46
Consolidated Statements of Income for each of the three years in the period ended December 31, 2017	47
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2017	48
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2017	49
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2017	50
Notes to Consolidated Financial Statements	52

Certain financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

INDEX OF EXHIBITS

[Item 15(a) 3. & 15(b)]

Description



(3.1)	Amended and Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of Form 8-K, filed with the SEC on April 22, 2015.
(3.2)	Amended By-Laws effective November 23, 2016 are incorporated by reference to Exhibit 3.2 of Form 8-K, filed with the SEC on November 23, 2016.
(10.1)	Form of Change in Control Agreement, dated February 22, 2017, entered into between Univest Corporation of Pennsylvania and Roger S. Deacon, is incorporated by reference to Exhibit 10.1 of Form 8-K, filed with the SEC on February 23, 2017.
(10.2)	Form of Change in Control Agreement, dated February 26, 2016, entered into between Univest Corporation of Pennsylvania and each of Jeffrey M. Schweitzer, Michael S. Keim, Duane J. Brobst, and Eric W. Conner, is incorporated by reference to Exhibit 10.1 of Form 8-K, filed with the SEC on March 2, 2016.
(21)	Subsidiaries of the Registrant.
(23.1)	Consent of independent registered public accounting firm, KPMG LLP.
(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.
(31.2)	Certification of Roger S. Deacon, Senior Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
(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.
(32.2)*	Certification of Roger S. Deacon, Senior Executive Vice President and Chief Financial Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit 101.INS	XBRL Instance Document
	Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
	Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document
	Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
	Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* A certification furnished pursuant to this item will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.



	UNIVEST CORPORATION OF PENNSYLVANIA
	Registrant

	By: /s/ Roger S. Deacon

	Roger S. Deacon Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
	March 1, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



Signature	Title	Date
/s/ WILLIAM S. AICHELE William S. Aichele	Chairman and Director	March 1, 2018

/s/ JEFFREY M. SCHWEITZER Jeffrey M. Schweitzer	President, Chief Executive Officer and Director (Principal Executive Officer)	March 1, 2018

/s/ ROGER H. BALLOU Roger H. Ballou	Director	March 1, 2018

/s/ TODD S. BENNING Todd S. Benning	Director	March 1, 2018

/s/ R. LEE DELP R. Lee Delp	Director	March 1, 2018

/s/ WILLIAM G. MORRAL William G. Morral	Director	March 1, 2018

/s/ GLENN E. MOYER Glenn E. Moyer	Director	March 1, 2018

/s/ K. LEON MOYER K. Leon Moyer	Director	March 1, 2018

/s/ NATALYE PAQUIN Natalye Paquin	Director	March 1, 2018

/s/ THOMAS M. PETRO Thomas M. Petro	Director	March 1, 2018

/s/ MARK A. SCHLOSSER Mark A. Schlosser	Director	March 1, 2018

/s/ MICHAEL L. TURNER Michael L. Turner	Director	March 1, 2018

/s/ CHARLES H. ZIMMERMAN III Charles H. Zimmerman III	Director	March 1, 2018

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