UNIVEST FINANCIAL Corp - Quarter Report: 2022 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended June 30, 2022


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

For the transition period from __________ to __________

Commission File Number: 0-7617

UNIVEST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


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

14 North Main Street, Souderton, Pennsylvania 18964

(Address of principal executive offices) (Zip Code)

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

Not applicable

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

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Common Stock, $5 par value						29,353,021
(Title of Class)						(Number of shares outstanding at August 1, 2022)

Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX


			Page Number
Part I.	Financial Information:

	Item 1.	Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets at June 30 , 2022 and December 31, 2021	2

		Condensed Consolidated Statements of Income for the Three and S ix Months Ended June 30 , 2022 and 2021	3

		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2022 and 2021	4

		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30 , 2022 and 2021	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2022 and 2021	8

		Notes to Condensed Consolidated Financial Statements	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

	Item 4.	Controls and Procedures	61

Part II.	Other Information

	Item 1.	Legal Proceedings	61

	Item 1A.	Risk Factors	61

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

	Item 3.	Defaults Upon Senior Securities	62

	Item 4.	Mine Safety Disclosures	62

	Item 5.	Other Information	62

	Item 6.	Exhibits	63

Signatures			64

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
(Dollars in thousands, except share data)	At June 30, 2022		At December 31, 2021
ASSETS
Cash and due from banks	$	59,590	$	49,202
Interest-earning deposits with other banks	35,187		840,948
Cash and cash equivalents	94,777		890,150

Investment securities held-to-maturity (fair value $145,792 and $178,402 at June 30, 2022 and December 31, 2021, respectively)	159,808		176,983
Investment securities available-for-sale (amortized cost $389,584 and $319,474, net of allowance for credit losses of $1,692 and $929 at June 30, 2022 and December 31, 2021, respectively)	351,382		317,007
Investments in equity securities	2,934		2,999
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	29,116		28,186
Loans held for sale	8,352		21,600
Loans and leases held for investment	5,661,777		5,310,017
Less: Allowance for credit losses, loans and leases	(72,011)		(71,924)
Net loans and leases held for investment	5,589,766		5,238,093
Premises and equipment, net	50,080		56,882
Operating lease right-of-use assets	30,929		30,407
Goodwill	175,510		175,510
Other intangibles, net of accumulated amortization	11,728		11,848
Bank owned life insurance	120,103		118,699
Accrued interest receivable and other assets	76,328		54,057
Total assets	$	6,700,813	$	7,122,421
LIABILITIES
Noninterest-bearing deposits	$	2,062,538	$	2,065,423
Interest-bearing deposits	3,500,510		3,989,701
Total deposits	5,563,048		6,055,124
Short-term borrowings	97,606		20,106
Long-term debt	95,000		95,000
Subordinated notes	99,030		98,874
Operating lease liabilities	33,951		33,453
Accrued interest payable and other liabilities	48,253		46,070
Total liabilities	5,936,888		6,348,627
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at June 30, 2022 and December 31, 2021; 31,556,799 shares issued at June 30, 2022 and December 31, 2021; 29,365,775 and 29,500,542 shares outstanding at June 30, 2022 and December 31, 2021, respectively	157,784		157,784
Additional paid-in capital	298,800		299,181
Retained earnings	396,295		375,124
Accumulated other comprehensive loss, net of tax benefit	(42,781)		(16,353)
Treasury stock, at cost; 2,191,024 and 2,056,257 shares at June 30, 2022 and December 31, 2021, respectively	(46,173)		(41,942)
Total shareholders’ equity	763,925		773,794
Total liabilities and shareholders’ equity	$	6,700,813	$	7,122,421

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

Table of Contents

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands, except per share data)	2022		2021		2022		2021
Interest income
Interest and fees on loans and leases	$	52,797	$	50,588	$	100,903	$	100,251
Interest and dividends on investment securities:
Taxable	2,738		1,399		5,103		2,702
Exempt from federal income taxes	14		48		29		135
Interest on deposits with other banks	824		46		1,181		102
Interest and dividends on other earning assets	344		360		699		708
Total interest income	56,717		52,441		107,915		103,898
Interest expense
Interest on deposits	3,586		3,159		6,477		6,559
Interest on short-term borrowings	11		3		13		5
Interest on long-term debt and subordinated notes	1,649		2,522		3,294		5,163
Total interest expense	5,246		5,684		9,784		11,727
Net interest income	51,471		46,757		98,131		92,171
Provision (reversal of provision) for credit losses	6,674		(59)		3,224		(11,342)
Net interest income after provision for credit losses	44,797		46,816		94,907		103,513
Noninterest income
Trust fee income	1,998		2,157		4,100		4,191
Service charges on deposit accounts	1,574		1,314		3,078		2,596
Investment advisory commission and fee income	4,812		4,558		9,964		9,255
Insurance commission and fee income	4,629		3,839		10,199		8,794
Other service fee income	3,309		2,748		6,065		4,940
Bank owned life insurance income	705		1,620		1,404		2,337
Net gain on sales of investment securities	—		54		30		119
Net gain on mortgage banking activities	1,230		3,461		3,159		9,399
Other income	741		479		1,469		1,849
Total noninterest income	18,998		20,230		39,468		43,480
Noninterest expense
Salaries, benefits and commissions	29,133		25,396		57,378		50,176
Net occupancy	2,422		2,656		5,138		5,395
Equipment	977		968		1,959		1,914
Data processing	3,708		3,064		7,275		6,114
Professional fees	2,844		2,015		4,982		3,763
Marketing and advertising	693		561		1,118		841
Deposit insurance premiums	812		613		1,705		1,249
Intangible expenses	342		249		683		498



Other expense	6,440		5,764		12,545		10,876
Total noninterest expense	47,371		41,286		92,783		80,826
Income before income taxes	16,424		25,760		41,592		66,167
Income tax expense	3,258		4,885		8,109		12,689
Net income	$	13,166	$	20,875	$	33,483	$	53,478
Net income per share:
Basic	$	0.45	$	0.71	$	1.14	$	1.82
Diluted	0.45		0.71		1.13		1.81

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

Table of Contents

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,
(Dollars in thousands)	2022						2021
	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Income	$	16,424	$	3,258	$	13,166	$	25,760	$	4,885	$	20,875
Other comprehensive income:
Net unrealized (losses) gains on available-for-sale investment securities:
Net unrealized holding (losses) gains arising during the period	(15,336)		(3,220)		(12,116)		788		167		621
Provision for credit losses	417		87		330		—		—		—
Less: reclassification adjustment for net gains on sales realized in net income (1)	—		—		—		(54)		(11)		(43)

Total net unrealized (losses) gains on available-for-sale investment securities	(14,919)		(3,133)		(11,786)		734		156		578
Net unrealized gains on interest rate swaps used in cash flow hedges:
Net unrealized holding gains (losses) arising during the period	1,626		342		1,284		(4)		(1)		(3)
Less: reclassification adjustment for net (gains) losses realized in net income (2)	(686)		(144)		(542)		76		16		60
Total net unrealized gains on interest rate swaps used in cash flow hedges	940		198		742		72		15		57
Defined benefit pension plans:

Amortization of net actuarial loss included in net periodic pension costs (3)	218		46		172		329		69		260

Total defined benefit pension plans	218		46		172		329		69		260
Other comprehensive (loss) income	(13,761)		(2,889)		(10,872)		1,135		240		895
Total comprehensive income	$	2,663	$	369	$	2,294	$	26,895	$	5,125	$	21,770

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

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

(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.

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

Table of Contents


	Six Months Ended June 30,
(Dollars in thousands)	2022						2021
	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Income	$	41,592	$	8,109	$	33,483	$	66,167	$	12,689	$	53,478
Other comprehensive income:
Net unrealized (losses) gains on available-for-sale investment securities:
Net unrealized holding (losses) gains arising during the period	(35,705)		(7,498)		(28,207)		2,982		628		2,354
Provision (reversal of provision) for credit losses	763		160		603		(384)		(81)		(303)
Less: reclassification adjustment for net gains on sales realized in net income (1)	(30)		(6)		(24)		(119)		(25)		(94)

Total net unrealized (losses) gains on available-for-sale investment securities	(34,972)		(7,344)		(27,628)		2,479		522		1,957
Net unrealized gains on interest rate swaps used in cash flow hedges:
Net unrealized holding gains arising during the period	1,702		358		1,344		2		—		2
Less: reclassification adjustment for net (gains) losses realized in net income (2)	(618)		(130)		(488)		152		32		120
Total net unrealized gains on interest rate swaps used in cash flow hedges	1,084		228		856		154		32		122
Defined benefit pension plans:

Amortization of net actuarial loss included in net periodic pension costs (3)	436		92		344		658		138		520

Total defined benefit pension plans	436		92		344		658		138		520
Other comprehensive (loss) income	(33,452)		(7,024)		(26,428)		3,291		692		2,599
Total comprehensive income	$	8,140	$	1,085	$	7,055	$	69,458	$	13,381	$	56,077

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

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

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

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Three Months Ended June 30, 2022
Balance at March 31, 2022	29,636,425	$	157,784	$	297,945	$	389,332	$	(31,909)	$	(39,297)	$	773,855
Net income	—	—		—		13,166		—		—		13,166
Other comprehensive loss, net of income tax benefit	—	—		—		—		(10,872)		—		(10,872)
Cash dividends declared ($0.21 per share)	—	—		—		(6,200)		—		—		(6,200)
Stock-based compensation	—	—		936		(3)		—		—		933
Stock issued under dividend reinvestment and employee stock purchase plans	25,774	—		45		—		—		607		652
Vesting of restricted stock units	3,576	—		(126)		—		—		88		(38)

Exercise of stock options	—	—		—		—		—		(1)		(1)

Purchases of treasury stock	(300,000)	—		—		—		—		(7,570)		(7,570)
Balance at June 30, 2022	29,365,775	$	157,784	$	298,800	$	396,295	$	(42,781)	$	(46,173)	$	763,925


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total
Three Months Ended June 30, 2021
Balance at March 31, 2021	29,379,575	$	157,784	$	296,177	$	333,581	$	(20,440)	$	(44,647)	$	722,455
Net income	—	—		—		20,875		—		—		20,875
Other comprehensive income, net of income tax	—	—		—		—		895		—		895
Cash dividends declared ($0.20 per share)	—	—		—		(5,877)		—		—		(5,877)
Stock-based compensation	—	—		822		—		—		(1)		821
Stock issued under dividend reinvestment and employee stock purchase plans	21,915	—		25		—		—		580		605


Exercise of stock options	10,241	—		14		—		—		210		224
Cancellations of performance-based restricted stock awards	—	—		170		—		—		(170)		—

Balance at June 30, 2021	29,411,731	$	157,784	$	297,208	$	348,579	$	(19,545)	$	(44,028)	$	739,998


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Six Months Ended June 30, 2022
Balance at December 31, 2021	29,500,542	$	157,784	$	299,181	$	375,124	$	(16,353)	$	(41,942)	$	773,794
Net income	—	—		—		33,483		—		—		33,483
Other comprehensive loss, net of income tax benefit	—	—		—		—		(26,428)		—		(26,428)
Cash dividends declared ($0.41 per share)	—	—		—		(12,105)		—		—		(12,105)
Stock-based compensation	—	—		2,009		(207)		—		—		1,802
Stock issued under dividend reinvestment and employee stock purchase plans	47,617	—		104		—		—		1,171		1,275
Vesting of restricted stock units, net of shares withheld to cover taxes	91,835	—		(2,544)		—		—		1,643		(901)

Exercise of stock options	25,781	—		50		—		—		525		575

Purchases of treasury stock	(300,000)	—		—		—		—		(7,570)		(7,570)
Balance at June 30, 2022	29,365,775	$	157,784	$	298,800	$	396,295	$	(42,781)	$	(46,173)	$	763,925


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total
Six Months Ended June 30, 2021
Balance at December 31, 2020	29,295,052	$	157,784	$	296,186	$	306,899	$	(22,144)	$	(46,253)	$	692,472
Net income	—	—		—		53,478		—		—		53,478
Other comprehensive income, net of income tax	—	—		—		—		2,599		—		2,599
Cash dividends declared ($0.40 per share)	—	—		—		(11,741)		—		—		(11,741)
Stock-based compensation	—	—		1,700		(56)		—		(1)		1,643
Stock issued under dividend reinvestment and employee stock purchase plans	45,226	—		90		(1)		—		1,125		1,214
Vesting of restricted stock units	42,619	—		(1,126)		—		—		771		(355)

Exercise of stock options	46,527	—		31		—		—		952		983
Cancellation of performance-based restricted stock awards	(7,199)	—		327		—		—		(327)		—
Purchases of treasury stock	(10,494)	—		—		—		—		(295)		(295)
Balance at June 30, 2021	29,411,731	$	157,784	$	297,208	$	348,579	$	(19,545)	$	(44,028)	$	739,998

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

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(Dollars in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	33,483	$	53,478
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (reversal of provision) for credit losses	3,224		(11,342)
Depreciation of premises and equipment	2,193		2,355
Net amortization of investment securities premiums and discounts	837		1,499
Net gain on sales of investment securities	(30)		(119)
Net gain on mortgage banking activities	(3,159)		(9,399)



Bank owned life insurance income	(1,404)		(2,337)
Stock-based compensation	1,949		1,763
Intangible expenses	683		498
Other adjustments to reconcile net income to cash used in operating activities	(1,922)		(2,838)

Originations of loans held for sale	(138,112)		(282,978)
Proceeds from the sale of loans held for sale	154,671		306,944
Contributions to pension and other postretirement benefit plans	(126)		(133)
Decrease (increase) in accrued interest receivable and other assets	3,854		(1,253)
Increase (decrease) in accrued interest payable and other liabilities	3,592		(7,745)
Net cash provided by operating activities	59,733		48,393
Cash flows from investing activities:

Proceeds from sale of premises and equipment	6,844		—
Purchases of premises and equipment	(2,090)		(2,911)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	20,705		39,166
Proceeds from maturities, calls and principal repayments of securities available-for-sale	17,417		28,817
Proceeds from sales of securities available-for-sale	1,530		3,115
Purchases of investment securities held-to-maturity	(3,936)		(8,626)
Purchases of investment securities available-for-sale	(89,494)		(85,719)
Proceeds from sales of money market mutual funds	3,496		4,309
Purchases of money market mutual funds	(3,628)		(3,763)
Net (increase) decrease in other investments	(930)		2,955


Net increase in loans and leases	(371,495)		(24,701)
Proceeds from sales of other real estate owned	—		7,255


Proceeds from bank owned life insurance	—		2,290
Net cash used in investing activities	(421,581)		(37,813)
Cash flows from financing activities:
Net (decrease) increase in deposits	(492,092)		75,974
Net increase in short-term borrowings	77,500		7,345

Repayment of long-term debt	—		(15,000)

Repayment of subordinated debt	—		(85,000)

Payment of contingent consideration on acquisitions	—		(58)

Payment for shares withheld to cover taxes on vesting of restricted stock units	(901)		(355)
Purchases of treasury stock	(7,570)		(295)
Stock issued under dividend reinvestment and employee stock purchase plans	1,275		1,214
Proceeds from exercise of stock options	575		983
Cash dividends paid	(12,312)		(11,797)
Net cash used in financing activities	(433,525)		(26,989)
Net decrease in cash and cash equivalents	(795,373)		(16,409)
Cash and cash equivalents at beginning of year	890,150		219,858
Cash and cash equivalents at end of period	$	94,777	$	203,449

Supplemental disclosures of cash flow information:
Cash paid for interest	$	10,088	$	12,377
Cash paid for income taxes, net of refunds	2,329		15,450
Non cash transactions:
Transfer of loans to other real estate owned	$	18,325	$	126
Transfer of loans to loans held for sale	—		3,959

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

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Univest Financial Corporation (the Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations for interim financial information. The accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature and are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three-month or six-month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022 or for any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 25, 2022.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses.

Accounting Pronouncements Adopted in 2022

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

In August 2020, the FASB issued ASU No. 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)." This guidance simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40 by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and require entities to presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. This ASU became effective on January 1, 2022 for the Corporation. The adoption of this ASU did not have a material impact on the Corporation's financial statements.

In March 2022, the FASB issued ASU No. 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." ASU 2022-01 addresses and clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. This ASU amends the guidance in ASU 2017-12 that established the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the "portfolio layer" method and addresses feedback from stakeholders regarding its application. This ASU allows entities to designate multiple hedging relationships with a single closed portfolio, including both prepayable and non-prepayable financial assets, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged.

This ASU is effective for fiscal years beginning after December 15, 2022 or January 1, 2023 for the Corporation, including interim periods within those fiscal years. Early adoption, however, is permitted if an entity has adopted the amendments in ASU 2017-12. The Corporation has elected to early adopt this ASU, and the adoption of this ASU did not have a material impact on the Corporation's financial statements.

Recent Accounting Pronouncements Yet to Be Adopted

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases in the existing vintage disclosures. This ASU is effective for fiscal years beginning after December 15, 2022 or January 1, 2023 for the Corporation, including interim periods within those fiscal years for entities that have adopted CECL. Early adoption is permitted if an entity has adopted CECL. The Corporation is in the process of evaluating the amendments but does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

Note 2. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share. For additional information on the calculation of basic and diluted earnings per share, see Note 1, "Summary of Significant Accounting Policies - Earnings per Share" of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars and shares in thousands, except per share data)	2022		2021		2022		2021
Numerator:
Net income	$	13,166	$	20,875	$	33,483	$	53,478
Net income allocated to unvested restricted stock awards	—		—		—		(30)
Net income allocated to common shares	$	13,166	$	20,875	$	33,483	$	53,448
Denominator:
Weighted average shares outstanding	29,490		29,390		29,516		29,359
Average unvested restricted stock awards	—		—		—		(16)
Denominator for basic earnings per share—weighted-average shares outstanding	29,490		29,390		29,516		29,343
Effect of dilutive securities—employee stock options and restricted stock units	110		140		153		136
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding	29,600		29,530		29,669		29,479
Basic earnings per share	$	0.45	$	0.71	$	1.14	$	1.82
Diluted earnings per share	$	0.45	$	0.71	$	1.13	$	1.81
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share	400		283		253		287

Note 3. Investment Securities

The following table shows the amortized cost, the estimated fair value and the allowance for credit losses of the held-to-maturity securities and available-for-sale securities at June 30, 2022 and December 31, 2021, by contractual maturity within each type:


	At June 30, 2022
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
Within 1 year	$	2,000	$	1	$	—	$	—	$	2,001

	2,000		1		—		—		2,001
Residential mortgage-backed securities:
After 1 year to 5 years	2,016		—		(31)		—		1,985
After 5 years to 10 years	4,440		—		(66)		—		4,374
Over 10 years	151,352		10		(13,930)		—		137,432
	157,808		10		(14,027)		—		143,791




Total	$	159,808	$	11	$	(14,027)	$	—	$	145,792
Securities Available-for-Sale









State and political subdivisions:

After 1 year to 5 years	$	2,326	$	1	$	(22)	$	—	$	2,305


	2,326		1		(22)		—		2,305
Residential mortgage-backed securities:
Within 1 year	10		—		—		—		10
After 1 year to 5 years	1,032		—		(16)		—		1,016
After 5 years to 10 years	2,591		—		(56)		—		2,535
Over 10 years	289,578		62		(30,258)		—		259,382
	293,211		62		(30,330)		—		262,943
Collateralized mortgage obligations:

After 5 years to 10 years	388		—		(15)		—		373
Over 10 years	2,473		—		(141)		—		2,332
	2,861		—		(156)		—		2,705
Corporate bonds:
Within 1 year	500		—		—		—		500
After 1 year to 5 years	30,686		9		(942)		(215)		29,538
After 5 years to 10 years	60,000		—		(5,132)		(1,477)		53,391

	91,186		9		(6,074)		(1,692)		83,429
Total	$	389,584	$	72	$	(36,582)	$	(1,692)	$	351,382


	At December 31, 2021
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
Within 1 year	$	6,999	$	34	$	—	$	—	$	7,033

	6,999		34		—		—		7,033
Residential mortgage-backed securities:
After 5 years to 10 years	5,208		194		—		—		5,402
Over 10 years	164,776		2,175		(984)		—		165,967
	169,984		2,369		(984)		—		171,369




Total	$	176,983	$	2,403	$	(984)	$	—	$	178,402
Securities Available-for-Sale









State and political subdivisions:

After 1 year to 5 years	$	2,326	$	7	$	—	$	—	$	2,333


	2,326		7		—		—		2,333
Residential mortgage-backed securities:
Within 1 year	31		—		—		—		31
After 1 year to 5 years	153		5		—		—		158
After 5 years to 10 years	2,286		82		—		—		2,368
Over 10 years	220,153		671		(2,276)		—		218,548
	222,623		758		(2,276)		—		221,105
Collateralized mortgage obligations:

After 5 years to 10 years	481		7		—		—		488
Over 10 years	2,813		—		(23)		—		2,790
	3,294		7		(23)		—		3,278
Corporate bonds:
Within 1 year	2,500		4		—		—		2,504
After 1 year to 5 years	28,731		755		(67)		(51)		29,368
After 5 years to 10 years	60,000		—		(703)		(878)		58,419

	91,231		759		(770)		(929)		90,291
Total	$	319,474	$	1,531	$	(3,069)	$	(929)	$	317,007

Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties and mortgage-backed securities typically prepay at a rate faster than contractually due.

Securities with a carrying value of $414.2 million and $281.7 million at June 30, 2022 and December 31, 2021, respectively, were pledged to secure public funds deposits and other contractual obligations. There were no pledged securities to secure credit derivatives and interest rate swaps at June 30, 2022. Securities of $23.0 million were pledged to secure credit derivatives and interest rate swaps at December 31, 2021. See Note 11, "Derivative Instruments and Hedging Activities" for additional information.

The following table presents information related to sales of securities available-for-sale during the six months ended June 30, 2022 and 2021:


	Six Months Ended June 30,
(Dollars in thousands)	2022		2021
Securities available-for-sale:
Proceeds from sales	$	1,530	$	3,115
Gross realized gains on sales	30		119

Tax expense related to net realized gains on sales	6		25

At June 30, 2022 and December 31, 2021, there were no reportable investments in any single issuer representing more than 10% of shareholders’ equity.

The following table shows the fair value of securities that were in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 2022 and December 31, 2021, by the length of time those securities were in a continuous loss position.


	Less than Twelve Months				Twelve Months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At June 30, 2022
Securities Held-to-Maturity

Residential mortgage-backed securities	$	133,647	$	(12,813)	$	6,785	$	(1,214)	$	140,432	$	(14,027)

Total	$	133,647	$	(12,813)	$	6,785	$	(1,214)	$	140,432	$	(14,027)
Securities Available-for-Sale


State and political subdivisions	$	1,275	$	(22)	$	—	$	—	$	1,275	$	(22)
Residential mortgage-backed securities	211,750		(22,634)		44,733		(7,696)		256,483		(30,330)
Collateralized mortgage obligations	2,705		(156)		—		—		2,705		(156)

Total	$	215,730	$	(22,812)	$	44,733	$	(7,696)	$	260,463	$	(30,508)
At December 31, 2021
Securities Held-to-Maturity

Residential mortgage-backed securities	$	89,837	$	(984)	$	—	$	—	$	89,837	$	(984)

Total	$	89,837	$	(984)	$	—	$	—	$	89,837	$	(984)
Securities Available-for-Sale



Residential mortgage-backed securities	$	164,326	$	(1,816)	$	12,097	$	(460)	$	176,423	$	(2,276)
Collateralized mortgage obligations	2,790		(23)		—		—		2,790		(23)
Corporate bonds	779		(1)		—		—		779		(1)
Total	$	167,895	$	(1,840)	$	12,097	$	(460)	$	179,992	$	(2,300)

At June 30, 2022, the fair value of held-to-maturity securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $140.4 million, including unrealized losses of $14.0 million. These holdings were comprised of seventy-six federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the six months ended June 30, 2022. Accrued interest receivable on held-to-maturity debt securities totaled $345 thousand at June 30, 2022 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

At June 30, 2022, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $260.5 million, including unrealized losses of $30.5 million. These holdings were comprised of (1) ninety-seven federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses, (2) two collateralized mortgage obligation bonds and (3) one state and political subdivisions bond. The Corporation does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. The Corporation concluded that the decline in fair value of these securities was not indicative of a credit loss. Accrued interest receivable on available-for-sale debt securities totaled $874 thousand at June 30, 2022 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

The table below presents a rollforward by major security type for the six months ended June 30, 2022 of the allowance for credit losses on securities available-for-sale.


(Dollars in thousands)	Corporate Bonds
Six months ended June 30, 2022
Securities Available-for-Sale
Beginning balance	$	(929)
Additions for securities for which no previous expected credit losses were recognized	(147)
Change in securities for which a previous expected credit loss was recognized	(616)
Ending balance	$	(1,692)
Six months ended June 30, 2021
Securities Available-for-Sale
Beginning balance	$	(869)
Additions for securities for which no previous expected credit losses were recognized	(19)
Change in securities for which a previous expected credit loss was recognized	403
Ending balance	$	(485)

At June 30, 2022, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has been recorded was $82.0 million, including unrealized losses of $7.8 million, and allowance for credit losses of $1.7 million. These holdings were comprised of thirty-eight investment grade corporate bonds which fluctuate in value based on changes in market conditions. For these securities, fluctuations were primarily due to changes in the interest rate environment. The Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery. The underlying issuers continue to make timely principal and interest payments on the securities.

The Corporation recognized a $197 thousand net loss and a $139 thousand net gain on equity securities during the six months ended June 30, 2022 and 2021, respectively, in other noninterest income. There were no sales of equity securities during the six months ended June 30, 2022 or 2021.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories


(Dollars in thousands)	At June 30, 2022		At December 31, 2021
Commercial, financial and agricultural	$	1,028,354	$	956,396
Paycheck Protection Program	5,358		31,748
Real estate-commercial	2,870,286		2,718,535
Real estate-construction	319,449		283,918
Real estate-residential secured for business purpose	419,652		409,900
Real estate-residential secured for personal purpose	629,144		540,566
Real estate-home equity secured for personal purpose	168,536		158,909
Loans to individuals	27,061		25,504
Lease financings	193,937		184,541
Total loans and leases held for investment, net of deferred income	$	5,661,777	$	5,310,017
Less: Allowance for credit losses, loans and leases	(72,011)		(71,924)
Net loans and leases held for investment	$	5,589,766	$	5,238,093
Imputed interest on lease financings, included in the above table	$	(19,650)	$	(19,104)
Net deferred costs, included in the above table	5,597		3,408
Overdraft deposits included in the above table	190		4,268

Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases held for investment, an aging of past due loans and leases, loans and leases which are current and nonaccrual loans and leases at June 30, 2022 and December 31, 2021:


	Accruing Loans and Leases
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At June 30, 2022
Commercial, financial and agricultural	$	1,446	$	226	$	—	$	1,672	$	1,026,234	$	1,027,906	$	448	$	1,028,354
Paycheck Protection Program	472		—		—		472		4,886		5,358		—		5,358
Real estate—commercial real estate and construction:
Commercial real estate	658		2,000		2,561		5,219		2,855,930		2,861,149		9,137		2,870,286
Construction	—		—		—		—		319,449		319,449		—		319,449
Real estate—residential and home equity:
Residential secured for business purpose	1,096		355		—		1,451		417,240		418,691		961		419,652
Residential secured for personal purpose	843		—		—		843		626,099		626,942		2,202		629,144
Home equity secured for personal purpose	296		—		39		335		167,807		168,142		394		168,536
Loans to individuals	79		40		90		209		26,852		27,061		—		27,061
Lease financings	163		40		94		297		193,427		193,724		213		193,937
Total	$	5,053	$	2,661	$	2,784	$	10,498	$	5,637,924	$	5,648,422	$	13,355	$	5,661,777


	Accruing Loans and Leases
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At December 31, 2021
Commercial, financial and agricultural	$	3,407	$	894	$	—	$	4,301	$	951,647	$	955,948	$	448	$	956,396
Paycheck Protection Program	367		—		—		367		31,381		31,748		—		31,748
Real estate—commercial real estate and construction:
Commercial real estate	234		—		—		234		2,690,401		2,690,635		27,900		2,718,535
Construction	—		—		—		—		283,918		283,918		—		283,918
Real estate—residential and home equity:
Residential secured for business purpose	542		—		216		758		406,955		407,713		2,187		409,900
Residential secured for personal purpose	2,976		162		—		3,138		535,379		538,517		2,049		540,566
Home equity secured for personal purpose	646		129		—		775		157,589		158,364		545		158,909
Loans to individuals	90		27		180		297		25,207		25,504		—		25,504
Lease financings	774		397		102		1,273		183,187		184,460		81		184,541
Total	$	9,036	$	1,609	$	498	$	11,143	$	5,265,664	$	5,276,807	$	33,210	$	5,310,017

Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at June 30, 2022 and December 31, 2021.


	At June 30, 2022								At December 31, 2021
(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	$	448	$	—	$	—	$	448	$	448	$	—	$	—	$	448
Real estate—commercial real estate and construction:
Commercial real estate	9,137		—		2,561		11,698		27,900		—		—		27,900

Real estate—residential and home equity:
Residential secured for business purpose	961		—		—		961		2,187		—		216		2,403
Residential secured for personal purpose	2,202		—		—		2,202		2,049		—		—		2,049
Home equity secured for personal purpose	394		50		39		483		545		51		—		596
Loans to individuals	—		—		90		90		—		—		180		180
Lease financings	213		—		94		307		81		—		102		183
Total	$	13,355	$	50	$	2,784	$	16,189	$	33,210	$	51	$	498	$	33,759

*Includes nonaccrual troubled debt restructured loans of $808 thousand and $758 thousand at June 30, 2022 and December 31, 2021, respectively.

The following table presents the amortized cost basis of loans and leases held for investment on nonaccrual status and loans and leases held for investment 90 days or more past due and still accruing as of June 30, 2022 and December 31, 2021.


(Dollars in thousands)	Nonaccrual With No ACL		Nonaccrual With ACL		Total Nonaccrual		Loans and Leases 90 Days or more Past Due and Accruing Interest
At June 30, 2022
Commercial, financial and agricultural	$	448	$	—	$	448	$	—
Real estate-commercial	5,638		3,499		9,137		2,561

Real estate-residential secured for business purpose	961		—		961		—
Real estate-residential secured for personal purpose	2,202		—		2,202		—
Real estate-home equity secured for personal purpose	394		—		394		39
Loans to individuals	—		—		—		90
Lease financings	—		213		213		94
Total	$	9,643	$	3,712	$	13,355	$	2,784
At December 31, 2021
Commercial, financial and agricultural	$	448	$	—	$	448	$	—
Real estate-commercial	27,818		82		27,900		—

Real estate-residential secured for business purpose	2,187		—		2,187		216
Real estate-residential secured for personal purpose	2,049		—		2,049		—
Real estate-home equity secured for personal purpose	545		—		545		—
Loans to individuals	—		—		—		180
Lease financings	—		81		81		102
Total	$	33,047	$	163	$	33,210	$	498

For the six months ended June 30, 2022, $23 thousand of interest income was recognized on nonaccrual loans and leases.

The following table presents, by class of loans and leases, the amortized cost basis of collateral-dependent nonaccrual loans and leases and type of collateral as of June 30, 2022 and December 31, 2021.


(Dollars in thousands)	Real Estate		Other (1)		None (2)		Total
At June 30, 2022
Commercial, financial and agricultural	$	273	$	—	$	175	$	448
Real estate-commercial	9,137		—		—		9,137

Real estate-residential secured for business purpose	961		—		—		961
Real estate-residential secured for personal purpose	2,202		—		—		2,202
Real estate-home equity secured for personal purpose	394		—		—		394

Lease financings	—		213		—		213
Total	$	12,967	$	213	$	175	$	13,355

(Dollars in thousands)	Real Estate		Other (1)		None (2)		Total
At December 31, 2021
Commercial, financial and agricultural	$	273	$	—	$	175	$	448
Real estate-commercial	27,900		—		—		27,900

Real estate-residential secured for business purpose	2,187		—		—		2,187
Real estate-residential secured for personal purpose	2,049		—		—		2,049
Real estate-home equity secured for personal purpose	545		—		—		545

Lease financings	—		81		—		81
Total	$	32,954	$	81	$	175	$	33,210

(1) Collateral consists of business assets, including accounts receivable, personal property and equipment.

(2) Loans fully guaranteed by the SBA.

Credit Quality Indicators

The Corporation categorizes risk based on relevant information about the ability of the borrower to service their debt. Loans with a relationship balance of less than $1 million are reviewed when necessary based on their performance, primarily when such loans are delinquent. Loans with relationships greater than $1 million are reviewed at least annually. Loan relationships with a higher risk profile or classified as special mention or substandard are reviewed at least quarterly. The Corporation reviews credit quality key risk indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2021. The following is a description of the internal risk ratings and the likelihood of loss related to the credit quality of Commercial, financial and agricultural loans, Paycheck Protection Program loans, Real estate-commercial loans, Real estate-construction loans and Real estate-residential secured for a business purpose loans.

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

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

3.Substandard—Well-defined weakness or weaknesses that jeopardize the liquidation of the debt

4.Doubtful—Collection or liquidation in-full, on the basis of current existing facts, conditions and values, highly questionable and improbable

Based on the most recent analysis performed, the following table presents the recorded investment in loans and leases held for investment for commercial, financial and agricultural loans, Paycheck Protection Program loans, real estate-commercial loans, real estate-construction loans and real estate-residential secured for a business purpose loans by credit quality indicator at June 30, 2022 and December 31, 2021.


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
At June 30, 2022
Commercial, Financial and Agricultural
Risk Rating
1. Pass	$	114,553	$	187,158	$	59,200	$	33,100	$	39,711	$	60,763	$	478,196	$	972,681
2. Special Mention	8,103		2,155		3,086		8,568		87		34		28,577		50,610
3. Substandard	—		—		—		—		—		200		4,863		5,063

Total	$	122,656	$	189,313	$	62,286	$	41,668	$	39,798	$	60,997	$	511,636	$	1,028,354

Paycheck Protection Program
Risk Rating
1. Pass	$	323	$	5,035	$	—	$	—	$	—	$	—	$	—	$	5,358
2. Special Mention	—		—		—		—		—		—		—		—
3. Substandard	—		—		—		—		—		—		—		—

Total	$	323	$	5,035	$	—	$	—	$	—	$	—	$	—	$	5,358

Real Estate-Commercial
Risk Rating
1. Pass	$	460,020	$	736,374	$	812,237	$	345,087	$	138,842	$	280,762	$	45,067	$	2,818,389
2. Special Mention	898		2,517		7,093		16,082		8,672		5,290		1,902		42,454
3. Substandard	—		—		1,785		3,499		3,331		828		—		9,443

Total	$	460,918	$	738,891	$	821,115	$	364,668	$	150,845	$	286,880	$	46,969	$	2,870,286

Real Estate-Construction
Risk Rating
1. Pass	$	79,406	$	105,607	$	31,266	$	35,893	$	—	$	273	$	14,918	$	267,363
2. Special Mention	—		26,062		500		5,524		20,000		—		—		52,086
3. Substandard	—		—		—		—		—		—		—		—

Total	$	79,406	$	131,669	$	31,766	$	41,417	$	20,000	$	273	$	14,918	$	319,449

Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass	$	69,306	$	135,554	$	75,191	$	42,810	$	28,404	$	37,346	$	28,873	$	417,484
2. Special Mention	—		—		251		—		—		954		—		1,205
3. Substandard	—		—		27		—		43		744		149		963

Total	$	69,306	$	135,554	$	75,469	$	42,810	$	28,447	$	39,044	$	29,022	$	419,652

Totals By Risk Rating
1. Pass	$	723,608	$	1,169,728	$	977,894	$	456,890	$	206,957	$	379,144	$	567,054	$	4,481,275
2. Special Mention	9,001		30,734		10,930		30,174		28,759		6,278		30,479		146,355
3. Substandard	—		—		1,812		3,499		3,374		1,772		5,012		15,469

Total	$	732,609	$	1,200,462	$	990,636	$	490,563	$	239,090	$	387,194	$	602,545	$	4,643,099


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
At December 31, 2021
Commercial, Financial and Agricultural
Risk Rating
1. Pass	$	215,197	$	79,739	$	69,618	$	52,507	$	23,253	$	49,827	$	442,288	$	932,429
2. Special Mention	1,001		3,459		2,389		394		428		1,231		10,162		19,064
3. Substandard	—		—		—		—		16		200		4,687		4,903

Total	$	216,198	$	83,198	$	72,007	$	52,901	$	23,697	$	51,258	$	457,137	$	956,396

Paycheck Protection Program
Risk Rating
1. Pass	$	31,554	$	194	$	—	$	—	$	—	$	—	$	—	$	31,748
2. Special Mention	—		—		—		—		—		—		—		—
3. Substandard	—		—		—		—		—		—		—		—

Total	$	31,554	$	194	$	—	$	—	$	—	$	—	$	—	$	31,748

Real Estate-Commercial
Risk Rating
1. Pass	$	802,878	$	858,426	$	407,944	$	155,892	$	195,756	$	172,702	$	48,354	$	2,641,952
2. Special Mention	2,567		14,338		23,134		—		916		5,630		98		46,683
3. Substandard	—		22,055		3,405		1,995		1,110		1,335		—		29,900

Total	$	805,445	$	894,819	$	434,483	$	157,887	$	197,782	$	179,667	$	48,452	$	2,718,535

Real Estate-Construction
Risk Rating
1. Pass	$	137,622	$	59,952	$	38,592	$	9,995	$	198	$	—	$	8,543	$	254,902
2. Special Mention	4,684		500		3,832		20,000		—		—		—		29,016
3. Substandard	—		—		—		—		—		—		—		—

Total	$	142,306	$	60,452	$	42,424	$	29,995	$	198	$	—	$	8,543	$	283,918

Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass	$	154,423	$	84,982	$	51,970	$	34,373	$	28,852	$	25,819	$	25,564	$	405,983
2. Special Mention	210		352		—		—		73		1,093		—		1,728
3. Substandard	—		—		—		45		24		1,549		571		2,189

Total	$	154,633	$	85,334	$	51,970	$	34,418	$	28,949	$	28,461	$	26,135	$	409,900

Totals By Risk Rating
1. Pass	$	1,341,674	$	1,083,293	$	568,124	$	252,767	$	248,059	$	248,348	$	524,749	$	4,267,014
2. Special Mention	8,462		18,649		29,355		20,394		1,417		7,954		10,260		96,491
3. Substandard	—		22,055		3,405		2,040		1,150		3,084		5,258		36,992

Total	$	1,350,136	$	1,123,997	$	600,884	$	275,201	$	250,626	$	259,386	$	540,267	$	4,400,497

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at June 30, 2022 or December 31, 2021. The Corporation had no loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at June 30, 2022 or December 31, 2021.

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: real estate-residential secured for personal purpose loans, real estate-home equity secured for personal purpose loans, loans to individuals and Lease financings. The Corporation reviews credit quality indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2021. Loans and leases past due 90 days or more, loans and leases on nonaccrual status and troubled debt restructured loans and lease modifications are considered nonperforming. Nonperforming loans and leases are reviewed monthly. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due.

Based on the most recent analysis performed, the following table presents the recorded investment in loans and leases held for investment for real estate-residential secured for personal purpose loans, real estate-home equity secured for personal purpose loans, loans to individuals and Lease financings by credit quality indicator at June 30, 2022 and December 31, 2021.


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
At June 30, 2022
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing	$	132,388	$	213,125	$	150,423	$	27,132	$	20,179	$	83,667	$	28	$	626,942
2. Nonperforming	—		51		605		—		341		1,205		—		2,202
Total	$	132,388	$	213,176	$	151,028	$	27,132	$	20,520	$	84,872	$	28	$	629,144

Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing	$	1,599	$	836	$	635	$	231	$	295	$	1,893	$	162,564	$	168,053
2. Nonperforming	—		—		—		—		169		6		308		483
Total	$	1,599	$	836	$	635	$	231	$	464	$	1,899	$	162,872	$	168,536

Loans to Individuals
Payment Performance
1. Performing	$	893	$	1,053	$	711	$	441	$	268	$	1,509	$	22,096	$	26,971
2. Nonperforming	—		—		—		—		—		66		24		90
Total	$	893	$	1,053	$	711	$	441	$	268	$	1,575	$	22,120	$	27,061

Lease Financings
Payment Performance
1. Performing	$	43,387	$	72,852	$	42,810	$	22,122	$	10,567	$	1,892	$	—	$	193,630
2. Nonperforming	13		188		38		21		26		21		—		307
Total	$	43,400	$	73,040	$	42,848	$	22,143	$	10,593	$	1,913	$	—	$	193,937

Totals by Payment Performance
1. Performing	$	178,267	$	287,866	$	194,579	$	49,926	$	31,309	$	88,961	$	184,688	$	1,015,596
2. Nonperforming	13		239		643		21		536		1,298		332		3,082
Total	$	178,280	$	288,105	$	195,222	$	49,947	$	31,845	$	90,259	$	185,020	$	1,018,678


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
At December 31, 2021
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing	$	219,680	$	162,609	$	34,102	$	23,065	$	19,912	$	78,960	$	189	$	538,517
2. Nonperforming	53		634		—		371		—		991		—		2,049
Total	$	219,733	$	163,243	$	34,102	$	23,436	$	19,912	$	79,951	$	189	$	540,566

Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing	$	961	$	876	$	370	$	415	$	704	$	1,655	$	153,332	$	158,313
2. Nonperforming	—		—		—		173		—		60		363		596
Total	$	961	$	876	$	370	$	588	$	704	$	1,715	$	153,695	$	158,909

Loans to Individuals
Payment Performance
1. Performing	$	1,376	$	893	$	722	$	466	$	100	$	1,673	$	20,094	$	25,324
2. Nonperforming	—		—		—		—		—		180		—		180
Total	$	1,376	$	893	$	722	$	466	$	100	$	1,853	$	20,094	$	25,504

Lease Financings
Payment Performance
1. Performing	$	83,161	$	51,808	$	28,405	$	16,389	$	4,204	$	391	$	—	$	184,358
2. Nonperforming	—		14		64		58		7		40		—		183
Total	$	83,161	$	51,822	$	28,469	$	16,447	$	4,211	$	431	$	—	$	184,541

Totals by Payment Performance
1. Performing	$	305,178	$	216,186	$	63,599	$	40,335	$	24,920	$	82,679	$	173,615	$	906,512
2. Nonperforming	53		648		64		602		7		1,271		363		3,008
Total	$	305,231	$	216,834	$	63,663	$	40,937	$	24,927	$	83,950	$	173,978	$	909,520

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at June 30, 2022 or December 31, 2021.

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

The following presents, by portfolio segment, a summary of the activity in the allowance for credit losses, loans and leases, for the three and six months ended June 30, 2022 and 2021. There were no changes to the reasonable and supportable forecast period, the reversion period, or any significant methodology changes during the three and six months ended June 30, 2022.


(Dollars in thousands)	Beginning balance		Provision (reversal of provision) for credit losses		Charge-offs		Recoveries		Ending balance
Three Months Ended June 30, 2022
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	11,840	$	1,123	$	—	$	41	$	13,004
Paycheck Protection Program	1		(1)		—		—		—
Real estate-commercial	40,426		2,942		(1,690)		—		41,678
Real estate-construction	3,634		589		—		—		4,223
Real estate-residential secured for business purpose	6,202		215		—		3		6,420
Real estate-residential secured for personal purpose	2,592		345		—		—		2,937
Real estate-home equity secured for personal purpose	976		110		—		(12)		1,074
Loans to individuals	369		14		(27)		20		376
Lease financings	2,246		103		(58)		8		2,299
Unallocated	—		—		N/A		N/A		—
Total	$	68,286	$	5,440	$	(1,775)	$	60	$	72,011
Three Months Ended June 30, 2021
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	10,233	$	1,689	$	(350)	$	162	$	11,734
Paycheck Protection Program	—		3		—		—		3
Real estate-commercial	45,459		(2,347)		(523)		605		43,194
Real estate-construction	2,799		850		—		—		3,649
Real estate-residential secured for business purpose	6,692		260		(227)		22		6,747
Real estate-residential secured for personal purpose	3,056		(436)		—		—		2,620
Real estate-home equity secured for personal purpose	1,257		(155)		—		22		1,124
Loans to individuals	447		(145)		(23)		40		319
Lease financings	1,404		382		(18)		47		1,815
Unallocated	150		—		N/A		N/A		150
Total	$	71,497	$	101	$	(1,141)	$	898	$	71,355

N/A – Not applicable


(Dollars in thousands)	Beginning balance		(Reversal of provision) provision for credit losses		Charge-offs		Recoveries		Ending balance
Six Months Ended June 30, 2022
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	13,536	$	(548)	$	(214)	$	230	$	13,004
Paycheck Protection Program	2		(2)		—		—		—
Real estate-commercial	41,095		2,273		(1,690)		—		41,678
Real estate-construction	4,575		(352)		—		—		4,223
Real estate-residential secured for business purpose	6,482		(113)		—		51		6,420
Real estate-residential secured for personal purpose	2,403		534		—		—		2,937
Real estate-home equity secured for personal purpose	1,028		57		—		(11)		1,074
Loans to individuals	363		71		(102)		44		376
Lease financings	2,290		108		(117)		18		2,299
Unallocated	150		(150)		N/A		N/A		—
Total	$	71,924	$	1,878	$	(2,123)	$	332	$	72,011
Six Months Ended June 30, 2021
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	13,584	$	(1,389)	$	(688)	$	227	$	11,734
Paycheck Protection Program	—		3		—		—		3
Real estate-commercial	52,230		(9,118)		(523)		605		43,194
Real estate-construction	3,298		351		—		—		3,649
Real estate-residential secured for business purpose	7,317		(419)		(227)		76		6,747
Real estate-residential secured for personal purpose	3,055		(435)		—		—		2,620
Real estate-home equity secured for personal purpose	1,176		(76)		—		24		1,124
Loans to individuals	533		(203)		(79)		68		319
Lease financings	1,701		128		(109)		95		1,815
Unallocated	150		—		N/A		N/A		150
Total	$	83,044	$	(11,158)	$	(1,626)	$	1,095	$	71,355

The following presents, by portfolio segment, the balance in the ACL on loans and leases, disaggregated on the basis of whether the loan or lease was measured for credit loss as a pooled loan or lease or if it was individually analyzed for a reserve at June 30, 2022 and 2021:


	Allowance for credit losses, loans and leases						Loans and leases held for investment
(Dollars in thousands)	Ending balance: individually analyzed		Ending balance: pooled		Total ending balance		Ending balance: individually analyzed		Ending balance: pooled		Loans measured at fair value		Total ending balance
At June 30, 2022
Commercial, financial and agricultural	$	—	$	13,004	$	13,004	$	448	$	1,027,906	$	—	$	1,028,354
Paycheck Protection Program	—		—		—		—		5,358		—		5,358
Real estate-commercial	1,089		40,589		41,678		9,137		2,861,149		—		2,870,286
Real estate-construction	—		4,223		4,223		—		319,449		—		319,449
Real estate-residential secured for business purpose	—		6,420		6,420		961		418,691		—		419,652
Real estate-residential secured for personal purpose	—		2,937		2,937		2,202		626,942		—		629,144
Real estate-home equity secured for personal purpose	—		1,074		1,074		394		168,142		—		168,536
Loans to individuals	—		376		376		—		27,061		—		27,061
Lease financings	—		2,299		2,299		—		193,937		—		193,937
Unallocated	N/A		—		—		N/A		N/A		N/A		N/A
Total	$	1,089	$	70,922	$	72,011	$	13,142	$	5,648,635	$	—	$	5,661,777
At June 30, 2021
Commercial, financial and agricultural	$	333	$	11,401	$	11,734	$	1,246	$	919,375	$	—	$	920,621
Paycheck Protection Program	—		3		3		—		252,849		—		252,849
Real estate-commercial	—		43,194		43,194		26,264		2,574,537		118		2,600,919
Real estate-construction	—		3,649		3,649		—		274,529		—		274,529
Real estate-residential secured for business purpose	—		6,747		6,747		3,045		404,619		—		407,664
Real estate-residential secured for personal purpose	23		2,597		2,620		2,160		511,170		—		513,330
Real estate-home equity secured for personal purpose	—		1,124		1,124		783		159,235		—		160,018
Loans to individuals	—		319		319		—		25,845		—		25,845
Lease financings	—		1,815		1,815		—		171,538		—		171,538
Unallocated	N/A		150		150		N/A		N/A		N/A		N/A
Total	$	356	$	70,999	$	71,355	$	33,498	$	5,293,697	$	118	$	5,327,313

N/A – Not applicable

Troubled Debt Restructured Loans

The following presents, by class of loans, information regarding troubled debt restructurings of accruing and nonaccrual loans.

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

(Dollars in thousands)

Number
of
Loans

Pre-
Restructuring
Outstanding
Recorded
Investment

Post-
Restructuring
Outstanding
Recorded
Investment

Number
of
Loans

Pre-
Restructuring
Outstanding
Recorded
Investment

Post-
Restructuring
Outstanding
Recorded
Investment

Accruing Troubled Debt Restructured Loans:

Total

—

Nonaccrual Troubled Debt Restructured Loans:

Total

—


	Six Months Ended June 30, 2022					Six Months Ended June 30, 2021
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment			Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment
Accruing Troubled Debt Restructured Loans:





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


Real estate—residential secured for business purpose	1	$	87	$	87		—	$	—	$	—

Total	1	$	87	$	87		—	$	—	$	—

The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the three and six months ended June 30, 2022 and 2021.


	Maturity Date Extension
(Dollars in thousands)		No. of Loans	Amount
Three Months Ended June 30, 2022
Accruing Troubled Debt Restructured Loans:




Total		—	$	—
Nonaccrual Troubled Debt Restructured Loans:




Total		—	$	—
Three Months Ended June 30, 2021
Accruing Troubled Debt Restructured Loans:





Total		—	$	—
Nonaccrual Troubled Debt Restructured Loans:




Total		—	$	—
Six Months Ended June 30, 2022
Accruing Troubled Debt Restructured Loans:




Total		—	$	—
Nonaccrual Troubled Debt Restructured Loans:


Real estate—residential secured for business purpose		1	$	87

Total		1	$	87
Six Months Ended June 30, 2021
Accruing Troubled Debt Restructured Loans:





Total		—	$	—
Nonaccrual Troubled Debt Restructured Loans:




Total		—	$	—

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
(Dollars in thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Accruing Troubled Debt Restructured Loans:

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

Real estate—residential secured for personal purpose	—	—		1	530		—	—		1	530
Total	—	$	—	1	$	530	—	$	—	1	$	530

There were no consumer mortgages collateralized by residential real estate property that were in the process of foreclosure at June 30, 2022 or December 31, 2021.

There was no foreclosed residential real estate property included in other real estate owned at June 30, 2022 or December 31, 2021.

Lease Financings

The following presents the schedule of minimum lease payments receivable:


(Dollars in thousands)	At June 30, 2022		At December 31, 2021
2022 (excluding the six months ended June 30, 2022)	$	36,890	$	67,458
2023	64,915		54,859
2024	48,891		39,019
2025	33,307		24,426
2026	18,964		11,039
Thereafter	6,467		2,951
Total future minimum lease payments receivable	209,434		199,752
Plus: Unguaranteed residual	1,344		1,186
Plus: Initial direct costs	2,809		2,707
Less: Imputed interest	(19,650)		(19,104)
Lease financings	$	193,937	$	184,541

Note 5. Goodwill and Other Intangible Assets

The Corporation has goodwill from acquisitions which is deemed to be an indefinite intangible asset and is not amortized. Changes in the carrying amount of the Corporation's goodwill by business segment for the six months ended June 30, 2022 were as follows:


(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated
Balance at December 31, 2021	$	138,476	$	15,434	$	21,600	$	175,510
Addition to goodwill from acquisitions	—		—		—		—
Balance at June 30, 2022	$	138,476	$	15,434	$	21,600	$	175,510

The Corporation also has core deposit and customer-related intangibles, 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 following table reflects the components of intangible assets at the dates indicated:


	At June 30, 2022						At December 31, 2021
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization (1)		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization (1)		Net Carrying Amount
Amortized intangible assets:


Core deposit intangibles	$	6,788	$	5,705	$	1,083	$	6,788	$	5,425	$	1,363
Customer related intangibles	8,493		6,220		2,273		8,493		5,886		2,607
Servicing rights	27,951		19,579		8,372		26,560		18,682		7,878
Total amortized intangible assets	$	43,232	$	31,504	$	11,728	$	41,841	$	29,993	$	11,848

(1) Included within accumulated amortization is a valuation allowance of $3 thousand and $13 thousand on servicing rights at June 30, 2022 and December 31, 2021, respectively.

The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of 2022 and the succeeding fiscal years is as follows:


Year	(Dollars in thousands)	Amount
Remainder of 2022		$	543
2023		845
2024		648
2025		469
2026		319
Thereafter		532
Total		$	3,356

The aggregate fair value of servicing rights was $16.7 million and $11.3 million at June 30, 2022 and December 31, 2021, respectively. The fair value of these rights was determined using a discount rate of 10.2% at June 30, 2022 and December 31, 2021.

Changes in the servicing rights balance are summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Beginning of period	$	8,122	$	7,015	$	7,878	$	6,408
Servicing rights capitalized	677		1,140		1,391		2,453

Amortization of servicing rights	(431)		(722)		(907)		(1,514)
Changes in valuation allowance	4		—		10		86
End of period	$	8,372	$	7,433	$	8,372	$	7,433
Loans serviced for others	$	1,475,659	$	1,303,105	$	1,475,659	$	1,303,105

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


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Valuation allowance, beginning of period	$	(7)	$	(1)	$	(13)	$	(87)

Reductions	4		—		10		86

Valuation allowance, end of period	$	(3)	$	(1)	$	(3)	$	(1)

The estimated amortization expense of servicing rights for the remainder of 2022 and the succeeding fiscal years is as follows:


Year	(Dollars in thousands)	Amount
Remainder of 2022		$	1,085
2023		967
2024		859
2025		761
2026		672
Thereafter		4,028
Total		$	8,372

Note 6. Deposits

Deposits and their respective weighted average interest rate at June 30, 2022 and December 31, 2021 consisted of the following:


	At June 30, 2022				At December 31, 2021
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Dollars in thousands)
Noninterest-bearing deposits	—	%	$	2,062,538	—	%	$	2,065,423
Demand deposits	0.53		1,963,987		0.17		2,493,604
Savings deposits	0.10		1,111,913		0.04		1,011,931
Time deposits	1.08		424,610		1.06		484,166
Total	0.29	%	$	5,563,048	0.16	%	$	6,055,124

Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC, which is currently up to $250 thousand per account owner. The aggregate amount of time deposits in denominations over $250 thousand was $79.5 million at June 30, 2022 and $119.9 million at December 31, 2021.

At June 30, 2022, the scheduled maturities of time deposits were as follows:


Year	(Dollars in thousands)	Amount
Remainder of 2022		$	127,932
2023		206,161
2024		49,208
2025		18,473
2026		3,423
Thereafter		19,413
Total		$	424,610

Note 7. Borrowings

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


	At June 30, 2022				At December 31, 2021
(Dollars in thousands)	Balance at End of Period		Weighted Average Interest Rate at End of Period		Balance at End of Period		Weighted Average Interest Rate at End of Period
Short-term borrowings:
FHLB borrowings	$	93,600	1.75	%	$	—	—	%

Customer repurchase agreements	$	4,006	0.05	%	$	20,106	0.05	%


Long-term debt:
FHLB advances	$	95,000	1.34	%	$	95,000	1.34	%


Subordinated notes	$	99,030	5.31	%	$	98,874	5.31	%

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (the FHLB) with a maximum borrowing capacity of approximately $2.6 billion. All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At June 30, 2022 and December 31, 2021, the Bank had outstanding short-term letters of credit with the FHLB totaling $417.0 million and $831.8 million, respectively, which were utilized to collateralize public funds deposits and other secured deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank. The available borrowing capacity from the FHLB totaled $2.0 billion at June 30, 2022.

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia to provide access to the Discount Window Lending program. The collateral, consisting of investment securities, was valued at $69.3 million and $28.8 million at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, the Corporation had no outstanding borrowings under the Discount Window Lending program.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At June 30, 2022 and December 31, 2021, the Corporation had no outstanding borrowings under this line.

The Corporation and the Bank had $2.7 billion and $2.5 billion of committed borrowing capacity at June 30, 2022 and December 31, 2021, respectively, of which $2.1 billion and $1.6 billion was available as of June 30, 2022 and December 31, 2021, respectively. The Corporation, through the Bank, also maintained uncommitted funding sources from correspondent banks of $410.0 million and $400.0 million at June 30, 2022 and December 31, 2021, respectively, which were fully available. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

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


(Dollars in thousands)	As of June 30, 2022		Weighted Average Rate
Remainder of 2022	$	—	—	%
2023	35,000		1.94
2024	60,000		0.98
2025	—		—
2026	—		—
Thereafter	—		—
Total	$	95,000	1.34	%

Note 8. Retirement Plans and Other Postretirement Benefits

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


	Three Months Ended June 30,
	2022		2021		2022		2021
(Dollars in thousands)	Retirement Plans				Other Post Retirement Benefits
Service cost	$	142	$	131	$	32	$	35
Interest cost	397		353		24		22
Expected loss on plan assets	(945)		(901)		—		—
Amortization of net actuarial loss	205		317		13		12

Net periodic benefit (income) cost	$	(201)	$	(100)	$	69	$	69


	Six Months Ended June 30,
	2022		2021		2022		2021
(Dollars in thousands)	Retirement Plans				Other Post Retirement Benefits
Service cost	$	279	$	261	$	62	$	71
Interest cost	787		707		48		43
Expected return on plan assets	(1,878)		(1,793)		—		—
Amortization of net actuarial loss	409		634		27		24

Net periodic benefit (income) cost	$	(403)	$	(191)	$	137	$	138

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

The Corporation expects to make contributions of $156 thousand to the retirement plans and $96 thousand to other postretirement benefit plans in 2022. During the six months ended June 30, 2022, the Corporation contributed $78 thousand to its non-qualified retirement benefit plans and $48 thousand to its other postretirement plans. During the six months ended June 30, 2022, $1.4 million was paid to participants from the retirement plans and $48 thousand was paid to participants from the other postretirement benefit plans.

Note 9. Stock-Based Incentive Plan

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

The following is a summary of the Corporation's stock option activity and related information for the six months ended June 30, 2022:


(Dollars in thousands, except per share data)	Shares Under Option	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value at June 30, 2022
Outstanding at December 31, 2021	351,252	$	25.74

Expired	(1,500)	14.80
Forfeited	(3,000)	28.33
Exercised	(25,781)	22.33
Outstanding at June 30, 2022	320,971	26.05		4.6	$	507
Exercisable at June 30, 2022	320,971	26.05		4.6	507

The Corporation did not issue stock options during the six months ended June 30, 2022 or June 30, 2021.

The following is a summary of nonvested restricted stock units at June 30, 2022 including changes during the six months then ended:


(Dollars in thousands, except per share data)	Nonvested Stock Units	Weighted Average Grant Date Fair Value
Nonvested stock units at December 31, 2021	358,134	$	23.61
Granted	178,719	28.18
Cancelled by performance factor	(555)	23.18
Vested	(123,834)	23.53
Forfeited	(8,606)	25.03
Nonvested stock units at June 30, 2022	403,858	$	25.59

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


	Six Months Ended June 30,
(Dollars in thousands, except per share data)	2022		2021
Restricted stock units granted	178,719		154,607
Weighted average grant date fair value	$	28.18	$	27.82
Intrinsic value of units granted	$	5,037	$	4,301
Restricted stock units vested	123,834		85,731
Weighted average grant date fair value	$	23.53	$	22.68
Intrinsic value of units vested	$	3,510	$	2,354

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested restricted stock units at June 30, 2022 is presented below:


(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)

Restricted stock units	$	7,444	2.2

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


	Six Months Ended June 30,
(Dollars in thousands)	2022		2021
Stock-based compensation expense:
Stock options	$	—	$	62
Restricted stock units	1,949		1,701
Employee stock purchase plan	52		48
Total	$	2,001	$	1,811
Tax benefit on nonqualified stock option expense and disqualifying dispositions of incentive stock options	$	215	$	203

Note 10. Accumulated Other Comprehensive (Loss) Income

The following table shows the components of accumulated other comprehensive (loss) income, net of taxes, for the periods presented:


(Dollars in thousands)	Net Unrealized (Losses) Gains on Available-for-Sale Investment Securities		Net Change Related to Derivatives Used for Cash Flow Hedges		Net Change Related to Defined Benefit Pension Plans		Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2021	$	(1,216)	$	(159)	$	(14,978)	$	(16,353)
Other comprehensive income	(27,628)		856		344		(26,428)
Balance, June 30, 2022	$	(28,844)	$	697	$	(14,634)	$	(42,781)

Balance, December 31, 2020	$	(1,379)	$	(421)	$	(20,344)	$	(22,144)
Other comprehensive income	1,957		122		520		2,599
Balance, June 30, 2021	$	578	$	(299)	$	(19,824)	$	(19,545)

Note 11. Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Corporation periodically uses interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. The Corporation’s credit exposure on interest rate swaps includes changes in fair value and any collateral that is held by a third party.

In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year fixed rate loans that were originated in 2013 with balances totaling $29.1 million at time of the hedge. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and performs an assessment on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. At June 30, 2022, the notional amount of the interest rate swap was $14.2 million and the fair value was an asset of $21 thousand.

In May 2022, the Corporation entered into an interest rate swap classified as a cash flow hedge with a notional amount of $250.0 million to hedge the interest payments received on a pool of variable rate loans. Under the terms of the swap agreement, the Corporation pays a variable rate equal to the Prime Rate and receives a fixed rate of 5.99%. The swap matures in May 2026. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and performs an assessment on a recurring basis and determined that the derivative is expected to be highly effective in offsetting changes in cash flows of the hedged item. At June 30, 2022, the notional amount of the interest rate swap was $250.0 million and the fair value was an asset of $861 thousand.

At June 30, 2022, approximately $410 thousand, net of tax, which is recorded in accumulated other comprehensive loss is expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2022.

Credit Derivatives

The Corporation has agreements with third-party financial institutions whereby the third-party financial institution enters into interest rate derivative contracts with loan customers referred to them by the Corporation. By the terms of the agreements, the third-party financial institution has recourse to the Corporation for any exposure created under each swap contract in the event the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. These transactions represent credit derivatives and are a customary arrangement that allows the Corporation to provide access to interest rate swap transactions for customers without issuing the swap.

At June 30, 2022, the Corporation had exposure to 128 variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $791.6 million and remaining maturities

ranging from 4 months to 12 years. At June 30, 2022, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $447 thousand. At June 30, 2022, the fair value of the swaps to the customers was a net liability of $402 thousand with 32 swaps in paying positions to the third-party financial institution.

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

Mortgage Banking Derivatives

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

Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.


			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2022
Interest rate swap - cash flow hedge	$	264,172	Other assets	$	882		$	—

Total	$	264,172		$	882		$	—
At December 31, 2021
Interest rate swap - cash flow hedge	$	14,611		$	—	Other liabilities	$	202

Total	$	14,611		$	—		$	202

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021:


			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2022

Credit derivatives	$	791,638		$	—	Other liabilities	$	447
Interest rate locks with customers	30,252		Other assets	438			—
Forward loan sale commitments	38,605		Other assets	30			—
Total	$	860,495		$	468		$	447
At December 31, 2021
Interest rate swap	$	46		$	—	Other liabilities	$	2
Credit derivatives	755,576			—		Other liabilities	381
Interest rate locks with customers	33,876		Other assets	765			—
Forward loan sale commitments	55,476		Other assets	87			—
Total	$	844,974		$	852		$	383

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


	Statement of Income Classification	Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2022		2021		2022		2021

Interest rate swap—cash flow hedge—net interest payments	Interest (income) expense	$	(686)	$	76	$	(618)	$	152



Total net gain (loss)		$	686	$	(76)	$	618	$	(152)

The following table presents amounts included in the condensed consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:


	Statement of Income Classification	Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2022		2021		2022		2021

Credit derivatives	Other noninterest income	$	589	$	272	$	1,039	$	1,379
Interest rate locks with customers	Net gain (loss) on mortgage banking activities	683		499		(327)		(1,231)
Forward loan sale commitments	Net (loss) gain on mortgage banking activities	(775)		(1,489)		(56)		485
Total net gain		$	497	$	(718)	$	656	$	633

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at June 30, 2022 and December 31, 2021:


(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At June 30, 2022		At December 31, 2021
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	697	$	(159)
Total		$	697	$	(159)

Note 12. Fair Value Disclosures

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

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.

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

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at June 30, 2022.

Loans Held for Sale

The fair value of our loans held for sale is based on estimates using Level 2 inputs. These inputs are based on pricing information obtained from wholesale mortgage banks and brokers and applied to loans with similar interest rates and maturities.

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.

Contingent Consideration Liability

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

The following table presents the assets and liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021, classified using the fair value hierarchy:


	At June 30, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:


State and political subdivisions	$	—	$	2,305	$	—	$	2,305
Residential mortgage-backed securities	—		262,943		—		262,943
Collateralized mortgage obligations	—		2,705		—		2,705
Corporate bonds	—		83,429		—		83,429
Total available-for-sale securities	—		351,382		—		351,382
Equity securities:
Equity securities - financial services industry	782		—		—		782
Money market mutual funds	2,152		—		—		2,152
Total equity securities	2,934		—		—		2,934

Loans held for sale	—		8,352		—		8,352
Interest rate swaps*	—		882		—		882
Interest rate locks with customers*	—		438		—		438
Forward loan sale commitments*	—		30		—		30
Total assets	$	2,934	$	361,084	$	—	$	364,018
Liabilities:
Contingent consideration liability	$	—	$	—	$	1,698	$	1,698

Credit derivatives*	—		—		447		447


Total liabilities	$	—	$	—	$	2,145	$	2,145

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

The $447 thousand of credit derivatives liability represented the Credit Valuation Adjustment (CVA), which was obtained from real-time financial market data, of 128 interest rate swaps with a notional amount of $791.6 million. The June 30, 2022 CVA assumed a zero-deal recovery percentage based on the most recent index credit curve.

The contingent consideration liability resulting from the Sheaffer acquisition was $1.6 million, which was calculated using a discount rate of 8.3%. The potential cash payments that could result from the contingent consideration arrangement for the acquisition ranged from $0 to a maximum of $1.9 million over the three-year period ending November 30, 2024.


	At December 31, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:


State and political subdivisions	$	—	$	2,333	$	—	$	2,333
Residential mortgage-backed securities	—		221,105		—		221,105
Collateralized mortgage obligations	—		3,278		—		3,278
Corporate bonds	—		90,291		—		90,291
Total available-for-sale securities	—		317,007		—		317,007
Equity securities:
Equity securities - financial services industry	979		—		—		979
Money market mutual funds	2,020		—		—		2,020
Total equity securities	2,999		—		—		2,999
Loans*	—		—		48		48
Loans held for sale	—		21,600		—		21,600
Interest rate locks with customers*	—		765		—		765
Forward loan sale commitments*	—		87		—		87
Total assets	$	2,999	$	339,459	$	48	$	342,506
Liabilities:
Contingent consideration liability	$	—	$	—	$	1,629	$	1,629
Interest rate swaps*	—		204		—		204
Credit derivatives*	—		—		381		381

Total liabilities	$	—	$	204	$	2,010	$	2,214

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

The $381 thousand of credit derivatives liability represented the Credit Valuation Adjustment (CVA), which was obtained from real-time financial market data, of 125 interest rate swaps with a notional amount of $755.6 million. The December 31, 2021 CVA assumed a zero-deal recovery percentage based on the most recent index credit curve.

The following table includes a roll forward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the six months ended June 30, 2022 and 2021:


	Six Months Ended June 30, 2022
(Dollars in thousands)	Balance at December 31, 2021		Additions		Payments received		Increase (decrease) in value		Balance at June 30, 2022

Loans	$	48	$	—	$	(48)	$	—	$	—
Credit derivatives	(381)		(1,106)		—		1,040		(447)
Net total	$	(333)	$	(1,106)	$	(48)	$	1,040	$	(447)


	Six Months Ended June 30, 2021
(Dollars in thousands)	Balance at December 31, 2020		Additions		Payments received		Increase (decrease) in value		Balance at June 30, 2021
Corporate bonds	$	9,600	$	—	$	—	$	100	$	9,700
Loans	187		—		(65)		(4)		118
Credit derivatives	(535)		(1,213)		—		1,379		(369)
Net total	$	9,252	$	(1,213)	$	(65)	$	1,475	$	9,449

The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the six months ended June 30, 2022 and 2021:


	Six Months Ended June 30, 2022
(Dollars in thousands)	Balance at December 31, 2021		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at June 30, 2022
Paul I. Sheaffer Insurance Agency	$	1,629	$	—	$	69	$	1,698
Total contingent consideration liability	$	1,629	$	—	$	69	$	1,698


	Six Months Ended June 30, 2021
(Dollars in thousands)	Balance at December 31, 2020		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at June 30, 2021
Girard Partners	$	55	$	58	$	3	$	—
Total contingent consideration liability	$	55	$	58	$	3	$	—

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or changes in the value of loans held for investment analyzed on an individual basis. The following table represents assets measured at fair value on a non-recurring basis at June 30, 2022 and December 31, 2021:


	At June 30, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Individually analyzed loans held for investment	$	—	$	—	$	12,053	$	12,053

Other real estate owned	—		—		18,604		18,604
Total	$	—	$	—	$	30,657	$	30,657


	At December 31, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Individually analyzed loans held for investment	$	—	$	—	$	33,118	$	33,118

Other real estate owned	—		—		279		279
Total	$	—	$	—	$	33,397	$	33,397

The following table presents assets and liabilities not measured at fair value on a recurring or non-recurring basis in the Corporation’s condensed consolidated balance sheets but for which the fair value is required to be disclosed at June 30, 2022 and December 31, 2021. The disclosed fair values are classified using the fair value hierarchy.


	At June 30, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	94,777	$	—	$	—	$	94,777	$	94,777

Held-to-maturity securities	—		145,792		—		145,792		159,808
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		29,116
Net loans and leases held for investment	—		—		5,562,620		5,562,620		5,577,713
Servicing rights	—		—		16,731		16,731		8,372
Total assets	$	94,777	$	145,792	$	5,579,351	$	5,819,920	$	5,869,786
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	5,138,438	$	—	$	—	$	5,138,438	$	5,138,438
Time deposits	—		415,301		—		415,301		424,610
Total deposits	5,138,438		415,301		—		5,553,739		5,563,048
Short-term borrowings	—		97,606		—		97,606		97,606
Long-term debt	—		92,491		—		92,491		95,000
Subordinated notes	—		98,750		—		98,750		99,030
Total liabilities	$	5,138,438	$	704,148	$	—	$	5,842,586	$	5,854,684


	At December 31, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	890,150	$	—	$	—	$	890,150	$	890,150
Held-to-maturity securities	—		178,402		—		178,402		176,983
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		28,186
Net loans and leases held for investment	—		—		5,244,504		5,244,504		5,204,927
Servicing rights	—		—		11,331		11,331		7,878
Total assets	$	890,150	$	178,402	$	5,255,835	$	6,324,387	$	6,308,124
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	5,570,958	$	—	$	—	$	5,570,958	$	5,570,958
Time deposits	—		487,874		—		487,874		484,166
Total deposits	5,570,958		487,874		—		6,058,832		6,055,124
Short-term borrowings	—		20,106		—		20,106		20,106
Long-term debt	—		95,707		—		95,707		95,000
Subordinated notes	—		107,000		—		107,000		98,874
Total liabilities	$	5,570,958	$	710,687	$	—	$	6,281,645	$	6,269,104

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

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

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

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

Loans held for sale: Loans held for sale are carried at the lower of cost or estimated fair value. The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data.

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

Individually analyzed loans and leases held for investment: For individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At June 30, 2022, individually analyzed loans held for investment had a carrying amount of $13.1 million with a valuation allowance of $1.1 million. At December 31, 2021, individually analyzed loans held for investment had a carrying amount of $33.1 million with a valuation allowance of $11 thousand. The Corporation had no individually analyzed leases at June 30, 2022 or December 31, 2021.

Servicing rights: The Corporation estimates the fair value of 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. Servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the servicing rights portfolio on a quarterly basis for impairment and the servicing rights are carried at the lower of amortized cost or estimated fair value. At June 30, 2022, servicing rights had a net carrying amount of $8.4 million, which included a valuation allowance of $3 thousand. At December 31, 2021, servicing rights had a net carrying amount of $7.9 million, which included a valuation allowance of $13 thousand.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the six months ended June 30, 2022, there were no required valuation adjustments of goodwill and other identifiable intangible assets.

Other real estate owned: Other real estate owned (OREO) represents properties that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that were used as loan collateral. The Corporation reports OREO at the lower of cost or fair value less cost to sell, adjusted periodically based on a current appraisal or an executed agreement of sale. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset. Write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. OREO is reported in other assets on the condensed consolidated balance sheet. At June 30, 2022 and December 31, 2021, OREO had a carrying amount of $18.6 million and $279 thousand, respectively. During the six months ended June 30, 2022, one property was transferred to OREO with a carrying balance of $18.3 million. Other real estate owned is classified within Level 3 in the fair value hierarchy based on appraisals received from third parties.

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

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

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

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

Note 13. Segment Reporting

At June 30, 2022, the Corporation had 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.

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 as follows:


●			The Banking segment provides financial services to individuals, businesses, municipalities and nonprofit organizations. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing.
●			The Wealth Management segment offers investment advisory, financial planning, trust and brokerage services. The Wealth Management segment serves a diverse client base of private families and individuals, municipal pension plans, retirement plans, trusts and guardianships.
●			The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, employee benefit solutions, personal insurance lines and human resources consulting.

The following table provides total assets by reportable business segment as of the dates indicated.


(Dollars in thousands)	At June 30, 2022		At December 31, 2021		At June 30, 2021
Banking	$	6,588,292	$	7,005,952	$	6,249,195
Wealth Management	54,531		54,076		49,822
Insurance	43,138		40,649		37,929
Other	14,852		21,744		19,359
Consolidated assets	$	6,700,813	$	7,122,421	$	6,356,305

The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and six months ended June 30, 2022 and 2021.


	Three Months Ended
	June 30, 2022
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	56,706	$	2	$	—	$	9	$	56,717
Interest expense	3,816		103		—		1,327		5,246
Net interest income (expense)	52,890		(101)		—		(1,318)		51,471
Provision for credit losses	6,674		—		—		—		6,674
Noninterest income	7,480		6,862		4,828		(172)		18,998
Noninterest expense	38,179		4,391		3,882		919		47,371
Intersegment (revenue) expense*	(433)		211		222		—		—
Income (loss) before income taxes	15,950		2,159		724		(2,409)		16,424
Income tax expense (benefit)	3,088		435		147		(412)		3,258
Net income (loss)	$	12,862	$	1,724	$	577	$	(1,997)	$	13,166
Net capital expenditures	$	520	$	163	$	23	$	34	$	740


	Three Months Ended
	June 30, 2021
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	52,432	$	1	$	—	$	8	$	52,441
Interest expense	3,483		—		—		2,201		5,684
Net interest income (expense)	48,949		1		—		(2,193)		46,757
Reversal of provision for credit losses	(59)		—		—		—		(59)
Noninterest income	9,433		6,756		3,990		51		20,230
Noninterest expense	33,103		4,386		3,150		647		41,286
Intersegment (revenue) expense*	(323)		164		159		—		—
Income (loss) before income taxes	25,661		2,207		681		(2,789)		25,760
Income tax expense (benefit)	4,905		459		139		(618)		4,885
Net income (loss)	$	20,756	$	1,748	$	542	$	(2,171)	$	20,875
Net capital expenditures	$	1,579	$	7	$	4	$	9	$	1,599


	Six Months Ended
	June 30, 2022
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	107,895	$	3	$	—	$	17	$	107,915
Interest expense	6,996		133		—		2,655		9,784
Net interest income (expense)	100,899		(130)		—		(2,638)		98,131
Provision for credit losses	3,224		—		—		—		3,224
Noninterest income	14,850		14,167		10,592		(141)		39,468
Noninterest expense	74,667		9,100		7,747		1,269		92,783
Intersegment (revenue) expense*	(867)		422		445		—		—
Income (loss) before income taxes	38,725		4,515		2,400		(4,048)		41,592
Income tax expense (benefit)	7,631		927		505		(954)		8,109
Net income (loss)	$	31,094	$	3,588	$	1,895	$	(3,094)	$	33,483
Net capital expenditures	$	(5,072)	$	226	$	38	$	54	$	(4,754)


	Six Months Ended
	June 30, 2021
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	103,881	$	1	$	—	$	16	$	103,898
Interest expense	7,233		—		—		4,494		11,727
Net interest income (expense)	96,648		1		—		(4,478)		92,171
Reversal of provision for credit losses	(11,342)		—		—		—		(11,342)
Noninterest income	20,663		13,529		9,095		193		43,480
Noninterest expense	63,599		8,577		6,454		2,196		80,826
Intersegment (revenue) expense*	(646)		328		318		—		—
Income (loss) before income taxes	65,700		4,625		2,323		(6,481)		66,167
Income tax expense (benefit)	13,176		957		490		(1,934)		12,689
Net income (loss)	$	52,524	$	3,668	$	1,833	$	(4,547)	$	53,478
Net capital expenditures	$	2,690	$	12	$	13	$	71	$	2,786

*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.

Note 14. Contingencies

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Forward-Looking Statements

The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words "believe" "anticipate," "estimate," "expect," "project," "target," "goal" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may include but are not limited to: statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to certain risks, uncertainties and assumptions, including but not limited to those set forth below:

•Operating, legal and regulatory risks;

•Economic, political and competitive forces;

•Legislative, regulatory and accounting changes;

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

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

•Inflation or volatility in interest rates;

•Fluctuations in real estate values in our market area;

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

•Changes in the level and direction of loan delinquencies, classified and criticized loans and charge-offs and changes in estimates of the adequacy of the allowance for credit losses;

•Changes in the economic assumptions utilized to calculate the allowance for credit losses;

•Our ability to access cost-effective funding;

•Our ability to implement our business strategies;

•Our ability to manage market risk, credit risk and operational risk;

•Timing and amount of revenue and expenditures;

•Adverse changes in the securities markets;

•The anticipated impact of any military conflict, terrorist act or other geopolitical acts;

•Our ability to enter new markets successfully and capitalize on growth opportunities;

•Competition for loans, deposits and employees;

•System failures or cyber-security breaches of our information technology infrastructure and those of our third-party service providers;

•The failure to maintain current technologies and/or to successfully implement future information technology enhancements;

•Our ability to retain key employees;

•Other risks and uncertainties, including those occurring in the U.S. and world financial systems; and

•The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These and other risk factors are more fully described in this report and in the Univest Financial Corporation Annual Report on Form 10-K for the year ended December 31, 2021 under the section entitled "Item 1A - Risk Factors," and from time to time in other filings made by the Corporation with the SEC.

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

Critical Accounting Policies

Management, in order to prepare the Corporation’s financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation’s financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses on loans and leases as critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation’s 2021 Annual Report on Form 10-K.

General

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

The Bank is engaged in domestic banking services for individuals, businesses, municipalities and non-profit organizations. Through its wholly-owned subsidiaries, the Bank provides a variety of financial services throughout its markets of operation. The Bank is the parent company of Girard Investment Services, LLC, a full-service registered introducing broker-dealer and a licensed insurance agency, Girard Advisory Services, LLC, a registered investment advisory firm, and Girard Pension Services, LLC, a registered investment advisor, which provides investment consulting and management services to municipal entities. The Bank is also the parent company of Univest Insurance, LLC, an independent insurance agency and Univest Capital, Inc., an equipment financing business.

The Corporation earns revenue primarily from the margins and fees generated from lending and depository services as well as fee-based income from trust, insurance, mortgage banking and investment services. The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting exposure to credit and interest rate risk.

Executive Overview

The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:


	Three Months Ended										Six Months Ended
	June 30,						Change				June 30,						Change
(Dollars in thousands, except per share data)	2022			2021			Amount		Percent		2022			2021			Amount		Percent
Net income	$	13,166		$	20,875		$	(7,709)	(36.9)	%	$	33,483		$	53,478		$	(19,995)	(37.4)	%
Net income per share:
Basic	$	0.45		$	0.71		$	(0.26)	(36.6)		$	1.14		$	1.82		$	(0.68)	(37.4)
Diluted	0.45			0.71			(0.26)		(36.6)		1.13			1.81			(0.68)		(37.6)
Return on average assets	0.76		%	1.30		%	(54 BP)		(41.5)		0.96		%	1.68		%	(72 BP)		(42.9)
Return on average equity	6.85		%	11.49		%	(464 BP)		(40.4)		8.74		%	15.10		%	(636 BP)		(42.1)

The Corporation reported net income of $13.2 million, or $0.45 diluted earnings per share, for the three months ended June 30, 2022, compared to net income of $20.9 million, or $0.71 diluted earnings per share, for the three months ended June 30, 2021. Net income for the six months ended June 30, 2022 was $33.5 million, or $1.13 diluted earnings per share, compared to net income of $53.5 million, or $1.81 diluted earnings per share, for the six months ended June 30, 2021.

During the three months ended June 30, 2022, the Corporation recorded a provision for credit losses of $6.7 million primarily driven by a $5.5 million increase (after-tax charge of $4.3 million), or $0.15 diluted earnings per share, in reserves due to loan growth, a specific reserve of $1.1 million related to a commercial real estate loan that was placed on nonaccrual status during the quarter and an incremental provision of $736 thousand related to an existing nonaccrual commercial real-estate loan. During the three months ended June 30, 2021, the Corporation recorded a reversal of provision for credit losses of $59 thousand driven by a $2.7 million increase (after-tax charge of $2.1 million), or $0.07 diluted earnings per share, in reserves due to loan growth outpaced by favorable changes in economic-related assumptions within the Corporation’s CECL model.

During the six months ended June 30, 2022, the Corporation recorded a provision for credit losses of $3.2 million primarily driven by a $6.8 million increase (after-tax charge of $5.4 million), or $0.18 diluted earnings per share, in reserves due to loan growth and specific reserves of $2.8 million on two nonaccrual commercial real estate properties. These increases were partially offset by $7.3 million (after-tax benefit of $5.8 million), or $0.19 diluted earnings per share, of changes in economic-related assumptions within the Corporation's CECL model. Additionally, reserves on unfunded commitments and investment securities increased $990 thousand during the six months ended June 30, 2022. During the six months ended June 30, 2021, the Corporation recorded a reversal of provision for credit losses of $11.3 million, of which $15.8 million (after-tax benefit of $12.5 million), or $0.42 diluted earnings per share, was attributable to favorable changes in economic-related assumptions within the Corporation's CECL model, partially offset by a reserve increase attributable to loan growth.

Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on loans and leases and investment securities and interest paid on deposits and borrowings. Net interest income is the principal source of the Corporation’s revenue. Table 1 presents the Corporation’s average balances, tax-equivalent interest income, interest expense, tax-equivalent yields earned on average assets, cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the three and six months ended June 30, 2022 and 2021. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread represents the weighted average tax-equivalent yield on interest-earning assets less the weighted average cost of interest-bearing liabilities. The effect of net interest-free funding sources represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.

Three and six months ended June 30, 2022 versus 2021

Net interest income on a tax-equivalent basis for the three months ended June 30, 2022 was $52.0 million, an increase of $4.7 million, or 9.9%, compared to $47.3 million for the three months ended June 30, 2021. The increase in tax-equivalent net interest income for the three months ended June 30, 2022 compared to the comparable period in the prior year was due to an increase in the average balance of loans and investments, increased asset yields and a decrease in the cost of interest-bearing liabilities, partially offset by an increase in the average balance of interest-bearing liabilities and a decrease in PPP loan income.

Net interest income on a tax-equivalent basis for the six months ended June 30, 2022 was $99.1 million, an increase of $5.9 million, or 6.3%, compared to the same period in 2021. The increase in tax-equivalent net interest income for the six months ended June 30, 2022 compared to the comparable period in the prior year was due to loan and investment average balance growth outpacing declines in asset yields and a decrease in the cost of interest-bearing liabilities, offset by an increase in the average balance of interest-bearing liabilities and a decrease in PPP loan income.

The net interest margin, on a tax-equivalent basis, was 3.19% and 3.04% for the three and six months ended June 30, 2022, respectively, compared to 3.15% and 3.14% for the three and six months ended June 30, 2021, respectively. Excess liquidity reduced the net interest margin by approximately 23 and 28 basis points for the three and six months ended June 30, 2022, respectively, compared to ten basis points for the three and six months ended June 30, 2021. During the quarter ended June 30, 2022, excess liquidity diminished and we returned to a pre-pandemic liquidity level at the end of the quarter. PPP loans had a favorable impact on net interest margin of one and two basis points for the three and six months ended June 30, 2022, respectively, compared to a favorable impact on net interest margin of eleven and seven basis points for the three and six months ended June 30, 2021, respectively.

During the second quarter, the Bank entered into a four-year $250 million interest rate swap (representing approximately 13% of the Bank's variable rate loans), whereby the Bank receives a fixed rate of 5.99% and pays a variable rate equal to the Prime Rate. During the second quarter of 2022, the swap contributed $707 thousand to net interest income and four basis points to net interest margin.

Excluding the impact of excess liquidity and PPP loans, the net interest margin, on a tax-equivalent basis, was 3.41% and 3.30% for the three and six months ended June 30, 2022, respectively, compared to 3.14% and 3.17% for the three and six months ended June 30, 2021, respectively.

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


	Three Months Ended June 30,
	2022							2021
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	474,260		$	824	0.70	%	$	215,349		$	46	0.09	%
U.S. government obligations	2,000			11		2.21		6,999			35		2.01
Obligations of states and political subdivisions*	2,302			17		2.96		6,070			58		3.83
Other debt and equity securities	511,439			2,727		2.14		372,625			1,364		1.47
Federal Home Loan Bank, Federal Reserve Bank and other stock	26,221			344		5.26		25,872			360		5.58
Total interest-earning deposits, investments and other interest-earning assets	1,016,222			3,923		1.55		626,915			1,863		1.19
Commercial, financial and agricultural loans	937,846			9,037		3.86		826,464			6,910		3.35
Paycheck Protection Program loans	7,644			155		8.13		408,928			4,778		4.69
Real estate—commercial and construction loans	3,004,509			28,527		3.81		2,701,137			24,931		3.70
Real estate—residential loans	1,166,201			10,758		3.70		1,065,065			9,836		3.70
Loans to individuals	26,782			305		4.57		25,284			251		3.98
Municipal loans and leases*	235,922			2,404		4.09		251,311			2,598		4.15
Lease financings	141,676			2,105		5.96		110,921			1,819		6.58
Gross loans and leases	5,520,580			53,291		3.87		5,389,110			51,123		3.80
Total interest-earning assets	6,536,802			57,214		3.51		6,016,025			52,986		3.53
Cash and due from banks	55,634							52,948
Allowance for credit losses, loans and leases	(68,426)							(73,052)
Premises and equipment, net	50,266							55,903
Operating lease right-of-use assets	30,222							33,992
Other assets	357,903							357,813
Total assets	$	6,962,401						$	6,443,629
Liabilities:
Interest-bearing checking deposits	$	851,324		570		0.27		$	786,931		$	487	0.25
Money market savings	1,405,536			1,552		0.44		1,219,375			831		0.27
Regular savings	1,070,480			237		0.09		978,807			282		0.12
Time deposits	452,989			1,227		1.09		485,060			1,559		1.29
Total time and interest-bearing deposits	3,780,329			3,586		0.38		3,470,173			3,159		0.37
Short-term borrowings	17,253			11		0.26		19,109			3		0.06
Long-term debt	95,000			321		1.36		95,000			321		1.36
Subordinated notes	98,988			1,328		5.38		172,016			2,201		5.13
Total borrowings	211,241			1,660		3.15		286,125			2,525		3.54
Total interest-bearing liabilities	3,991,570			5,246		0.53		3,756,298			5,684		0.61
Noninterest-bearing deposits	2,122,844							1,880,916
Operating lease liabilities	33,300							37,426
Accrued expenses and other liabilities	43,277							40,239
Total liabilities	6,190,991							5,714,879
Shareholders’ Equity:
Common stock	157,784							157,784
Additional paid-in capital	298,241							296,599
Retained earnings and other equity	315,385							274,367
Total shareholders’ equity	771,410							728,750
Total liabilities and shareholders’ equity	$	6,962,401						$	6,443,629
Net interest income				$	51,968						$	47,302
Net interest spread						2.98							2.92
Effect of net interest-free funding sources						0.21							0.23
Net interest margin						3.19	%						3.15	%
Ratio of average interest-earning assets to average interest-bearing liabilities	163.77		%					160.16		%

*Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.

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

Net interest income includes net deferred (costs) fees of $(618) thousand and $2.7 million for the three months ended June 30, 2022 and 2021, respectively.

Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the three months ended June 30, 2022 and 2021 have been calculated using the Corporation's federal applicable rate of 21%.


	Six Months Ended June 30,
	2022							2021
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	603,002		$	1,181	0.39	%	$	226,387		$	102	0.09	%
U.S. government obligations	3,602			37		2.07		6,999			71		2.05
Obligations of states and political subdivisions*	2,317			36		3.13		8,792			163		3.74
Other debt and equity securities	512,998			5,066		1.99		364,272			2,631		1.46
Federal Home Loan Bank, Federal Reserve Bank and other stock	26,665			699		5.29		26,119			708		5.47
Total interest-earning deposits, investments and other interest-earning assets	1,148,584			7,019		1.23		632,569			3,675		1.17
Commercial, financial and agricultural loans	919,801			16,608		3.64		804,458			13,708		3.44
Paycheck Protection Program loans	12,994			746		11.58		457,663			9,302		4.10
Real estate—commercial and construction loans	2,954,831			54,347		3.71		2,661,778			49,389		3.74
Real estate—residential loans	1,141,416			20,640		3.65		1,051,110			19,709		3.78
Loans to individuals	26,293			543		4.16		25,862			516		4.02
Municipal loans and leases*	239,197			4,838		4.08		248,490			5,128		4.16
Lease financings	138,593			4,180		6.08		108,317			3,556		6.62
Gross loans and leases	5,433,125			101,902		3.78		5,357,678			101,308		3.81
Total interest-earning assets	6,581,709			108,921		3.34		5,990,247			104,983		3.53
Cash and due from banks	54,671							54,123
Allowance for credit losses, loans and leases	(70,237)							(78,125)
Premises and equipment, net	52,097							55,865
Operating lease right-of-use assets	30,308							34,013
Other assets	356,406							357,589
Total assets	$	7,004,954						$	6,413,712
Liabilities:
Interest-bearing checking deposits	866,310			1,013		0.24		$	802,350		$	977	0.25
Money market savings	1,473,680			2,456		0.34		1,231,457			1,684		0.28
Regular savings	1,046,150			475		0.09		969,073			580		0.12
Time deposits	463,232			2,533		1.10		505,318			3,318		1.32
Total time and interest-bearing deposits	3,849,372			6,477		0.34		3,508,198			6,559		0.38
Short-term borrowings	17,443			13		0.15		18,506			5		0.05
Long-term debt	95,000			638		1.35		98,149			669		1.37
Subordinated notes	98,950			2,656		5.41		177,647			4,494		5.10
Total borrowings	211,393			3,307		3.15		294,302			5,168		3.54
Total interest-bearing liabilities	4,060,765			9,784		0.49		3,802,500			11,727		0.62
Noninterest-bearing deposits	2,094,397							1,815,572
Operating lease liabilities	33,375							37,419
Accrued expenses and other liabilities	43,541							43,897
Total liabilities	6,232,078							5,699,388
Shareholders’ Equity:
Common stock	157,784							157,784
Additional paid-in capital	298,606							296,369
Retained earnings and other equity	316,486							260,171
Total shareholders’ equity	772,876							714,324
Total liabilities and shareholders’ equity	$	7,004,954						$	6,413,712
Net interest income				$	99,137						$	93,256
Net interest spread						2.85							2.91
Effect of net interest-free funding sources						0.19							0.23
Net interest margin						3.04	%						3.14	%
Ratio of average interest-earning assets to average interest-bearing liabilities	162.08		%					157.53		%

*Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.

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

Net interest income includes net deferred (costs) fees of $(754) thousand and $5.0 million for the six months ended June 30, 2022 and 2021, respectively.

Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the six months ended June 30, 2022 and 2021 have been calculated using the Corporation's federal applicable rate of 21%.

Table 2—Analysis of Changes in Net Interest Income

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


	Three Months Ended						Six Months Ended
	June 30, 2022 Versus 2021						June 30, 2022 Versus 2021
(Dollars in thousands)	Volume Change		Rate Change		Total		Volume Change		Rate Change		Total
Interest income:
Interest-earning deposits with other banks	117		661		$	778	359		720		$	1,079
U.S. government obligations	(27)		3		(24)		(35)		1		(34)
Obligations of states and political subdivisions	(30)		(11)		(41)		(104)		(23)		(127)
Other debt and equity securities	613		750		1,363		1,289		1,146		2,435
Federal Home Loan Bank, Federal Reserve Bank and other stock	5		(21)		(16)		15		(24)		(9)
Interest on deposits, investments and other earning assets	678		1,382		2,060		1,524		1,820		3,344
Commercial, financial and agricultural loans	999		1,128		2,127		2,063		837		2,900
Paycheck Protection Program loans	(6,659)		2,036		(4,623)		(14,772)		6,216		(8,556)
Real estate—commercial and construction loans	2,843		753		3,596		5,360		(402)		4,958
Real estate—residential loans	922		—		922		1,633		(702)		931
Loans to individuals	16		38		54		9		18		27
Municipal loans and leases	(157)		(37)		(194)		(191)		(99)		(290)
Lease financings	469		(183)		286		932		(308)		624
Interest and fees on loans and leases	(1,567)		3,735		2,168		(4,966)		5,560		594
Total interest income	(889)		5,117		4,228		(3,442)		7,380		3,938
Interest expense:
Interest-bearing checking deposits	42		41		83		77		(41)		36
Money market savings	140		581		721		370		402		772
Regular savings	27		(72)		(45)		44		(149)		(105)
Time deposits	(99)		(233)		(332)		(261)		(524)		(785)
Total time and interest-bearing deposits	110		317		427		230		(312)		(82)
Short-term borrowings	—		8		8		—		8		8
Long-term debt	—		—		—		(21)		(10)		(31)
Subordinated notes	(975)		102		(873)		(2,096)		258		(1,838)
Interest on borrowings	(975)		110		(865)		(2,117)		256		(1,861)
Total interest expense	(865)		427		(438)		(1,887)		(56)		(1,943)
Net interest income	$	(24)	$	4,690	$	4,666	$	(1,555)	$	7,436	$	5,881

Provision for Credit Losses

The provision for credit losses for the three months ended June 30, 2022 was $6.7 million, primarily driven by a $5.5 million increase (after-tax charge of $4.3 million) in reserves due to loan growth, a specific reserve of $1.1 million related to a commercial real estate loan that was placed on nonaccrual status during the quarter and an incremental provision of $736 thousand related to an existing nonaccrual commercial real estate loan. The reversal of provision for credit losses for the three months ended June 30, 2021 was $59 thousand driven by a $2.7 million increase (after-tax charge of $2.1 million) in reserves due to loan growth outpaced by favorable changes in economic-related assumptions within the Corporation's CECL model.

The provision for credit losses for the six months ended June 30, 2022 was $3.2 million primarily driven by a $6.8 million increase (after-tax charge of $5.4 million) in reserves due to loan growth and specific reserves of $2.8 million on two nonaccrual commercial real estate properties. These increases were partially offset by $7.3 million (after-tax benefit of $5.8 million) of changes in economic-related assumptions within the Corporation's CECL model. Additionally, reserves on unfunded commitments and investment securities increased $990 thousand during the six months ended June 30, 2022. The reversal of the provision for credit losses for the six months ended June 30, 2021 was $11.3 million, of which $15.8 million (after-tax benefit of $12.5 million) was attributable to favorable changes in economic-related assumptions within the Corporation's CECL model, partially offset by a reserve increase attributable to loan growth.

Noninterest Income

The following table presents noninterest income for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
(Dollars in thousands)	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Trust fee income	$	1,998	$	2,157	$	(159)	(7.4	%)	$	4,100	$	4,191	$	(91)	(2.2	%)
Service charges on deposit accounts	1,574		1,314		260		19.8		3,078		2,596		482		18.6
Investment advisory commission and fee income	4,812		4,558		254		5.6		9,964		9,255		709		7.7
Insurance commission and fee income	4,629		3,839		790		20.6		10,199		8,794		1,405		16.0
Other service fee income	3,309		2,748		561		20.4		6,065		4,940		1,125		22.8
Bank owned life insurance income	705		1,620		(915)		(56.5)		1,404		2,337		(933)		(39.9)
Net gain on sales of investment securities	—		54		(54)		N/M		30		119		(89)		(74.8)
Net gain on mortgage banking activities	1,230		3,461		(2,231)		(64.5)		3,159		9,399		(6,240)		(66.4)


Other income	741		479		262		54.7		1,469		1,849		(380)		(20.6)
Total noninterest income	$	18,998	$	20,230	$	(1,232)	(6.1	%)	$	39,468	$	43,480	$	(4,012)	(9.2	%)

Three and six months ended June 30, 2022 versus 2021

Noninterest income for the three months ended June 30, 2022 was $19.0 million, a decrease of $1.2 million, or 6.1%, from the three months ended June 30, 2021. Noninterest income for the six months ended June 30, 2022 was $39.5 million, a decrease of $4.0 million, or 9.2%, from the six months ended June 30, 2021.

The net gain on mortgage banking activities decreased $2.2 million, or 64.5%, for the three months ended June 30, 2022 and $6.2 million, or 66.4%, for the six months ended June 30, 2022 from the comparable periods in the prior year, primarily due to a decrease in loan sales and a contraction of margins. Bank owned life insurance decreased $915 thousand, or 56.5%, for the three months ended June 30, 2022 and $933 thousand, or 39.9%, for the six months ended June 30, 2022 from the comparable periods in the prior year, primarily due to a death benefit claim of $893 thousand in the second quarter of 2021.

Insurance commission and fee income increased $790 thousand, or 20.6%, for the three months ended June 30, 2022 and $1.4 million, or 16.0%, for the six months ended June 30, 2022 from the comparable periods in the prior year, primarily due to incremental revenue attributable to the insurance agency the Corporation acquired in the fourth quarter of 2021. Investment advisory commission and fee income increased $254 thousand, or 5.6%, for the three months ended June 30, 2022 and $709 thousand, or 7.7%, from the comparable periods in the prior year, primarily due to new customer relationships and appreciation

of assets under management, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management balance.

Other service fee income increased $561 thousand, or 20.4%, for the three months ended June 30, 2022 and $1.1 million, or 22.8%, for the six months ended June 30, 2022 from the comparable periods in the prior year. Mortgage servicing fees increased $357 thousand for the three months ended June 30, 2022 and $619 thousand for the six months ended June 30, 2022 from the comparable periods in the prior year driven by reduced amortization as a result of a decrease in prepayment speeds. Interchange fee income increased $115 thousand for the three months ended June 30, 2022 and $291 thousand for the six months ended June 30, 2022 from the comparable period in the prior year due to increased customer activity.

Noninterest Expense

The following table presents noninterest expense for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
(Dollars in thousands)	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Salaries, benefits and commissions	$	29,133	$	25,396	$	3,737	14.7	%	$	57,378	$	50,176	$	7,202	14.4	%
Net occupancy	2,422		2,656		(234)		(8.8)		5,138		5,395		(257)		(4.8)
Equipment	977		968		9		0.9		1,959		1,914		45		2.4
Data processing	3,708		3,064		644		21.0		7,275		6,114		1,161		19.0
Professional fees	2,844		2,015		829		41.1		4,982		3,763		1,219		32.4
Marketing and advertising	693		561		132		23.5		1,118		841		277		32.9
Deposit insurance premiums	812		613		199		32.5		1,705		1,249		456		36.5
Intangible expenses	342		249		93		37.3		683		498		185		37.1



Other expense	6,440		5,764		676		11.7		12,545		10,876		1,669		15.3
Total noninterest expense	$	47,371	$	41,286	$	6,085	14.7	%	$	92,783	$	80,826	$	11,957	14.8	%

Three and six months ended June 30, 2022 versus 2021

Noninterest expense for the three months ended June 30, 2022 was $47.4 million, an increase of $6.1 million, or 14.7%, from the three months ended June 30, 2021. Noninterest expense for the six months ended June 30, 2022 was $92.8 million, an increase of $12.0 million, or 14.8%, from the six months ended June 30, 2021. The results for the three and six months ended June 30, 2022 include approximately $1.4 million and $2.1 million, respectively, in expenses related to our digital transformation initiative, a comprehensive digital platform which will blend our core operating systems together and allow Univest to seamlessly sell existing products and services, digitally, across an expanded footprint.

Salaries, benefits and commissions increased $3.7 million, or 14.7%, for the three months ended June 30, 2022 and $7.2 million, or 14.4%, for the six months ended June 30, 2022 from the comparable periods in the prior year. These increases reflect our continued investment in revenue producing staff across all business lines, including the acquisition of the Paul I. Sheaffer insurance agency, and annual merit increases. Additionally, during the three and six months ended June 30, 2022, we incurred $353 thousand and $740 thousand, respectively, of short-term incremental guaranties related to the hiring of new producers in our mortgage banking line of business. Finally, during the six months ended June 30, 2021, salaries, benefits and commissions expense was benefited by $616 thousand of incremental capitalized compensation related to the origination of PPP loans.

Professional fees increased $829 thousand, or 41.1%, for the three months ended June 30, 2022 and $1.2 million, or 32.4%, for the six months ended June 30, 2022 from the comparable periods in the prior year. The increase for the three months ended June 30, 2022 was primarily attributable to $1.2 million of consultant fees spent related to the previously discussed digital transformation initiative, as compared to our $230 thousand investment in our Diversity, Equity and Inclusion training initiatives for the three months ended June 30, 2021. The increase for the six months ended June 30, 2022 was primarily attributable to $1.9 million of consultant fees spent related to the digital transformation initiative, as compared to our $506 thousand investment in our Diversity, Equity and Inclusion training initiatives for the six months ended June 30, 2021. Deposit insurance premiums increased $199 thousand, or 32.5%, for the three months ended June 30, 2022 and $456 thousand, or 36.5%, for the six months ended June 30, 2022 from the comparable periods in the prior year driven by an increased assessment base.

Data processing expenses increased $644 thousand, or 21.0%, for the three months ended June 30, 2022 and $1.2 million, or 19.0%, for the six months ended June 30, 2022 from the comparable periods in the prior year, primarily due to continued investments in our end-to-end loan origination solution for loans below $1.0 million, customer relationship management software, internal infrastructure improvements, outsourced data processing solutions, and $155 thousand and $258 thousand in support of the digital transformation initiative for the respective periods.

Other expense increased $676 thousand, or 11.7%, for the three months ended June 30, 2022 and $1.7 million, or 15.3%, for the six months ended June 30, 2022 from the comparable periods in the prior year. Recruiting costs increased $138 thousand and $420 thousand for the three and six months ended June 30, 2022, respectively, due to increased hiring activity, including the entry into our two new expansion markets. Travel and entertainment expenses increased $309 thousand and $574 thousand for the three and six months ended June 30, 2022, respectively, as related activities have largely returned to pre-pandemic levels. Additionally, the six months ended June 30, 2022 included incurred costs of $330 thousand as a result of a customer who was defrauded.

Tax Provision

The Corporation recognized a tax expense of $3.3 million and $4.9 million for the three months ended June 30, 2022 and 2021, respectively, resulting in an effective rate of 19.8% and 19.0%, respectively. The Corporation recognized a tax expense of $8.1 million and $12.7 million for the six months ended June 30, 2022 and 2021, respectively, resulting in an effective rate of 19.5% and 19.2%, respectively. The effective tax rates for the three and six months ended June 30, 2022 and 2021 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases.

Financial Condition

Assets

The following table presents assets at the dates indicated:


	At June 30, 2022		At December 31, 2021		Change
(Dollars in thousands)					Amount		Percent
Cash and cash equivalents	$	94,777	$	890,150	$	(795,373)	(89.4	%)
Investment securities, net of allowance for credit losses	514,124		496,989		17,135		3.4
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	29,116		28,186		930		3.3
Loans held for sale	8,352		21,600		(13,248)		(61.3)
Loans and leases held for investment	5,661,777		5,310,017		351,760		6.6
Allowance for credit losses, loans and leases	(72,011)		(71,924)		(87)		0.1
Premises and equipment, net	50,080		56,882		(6,802)		(12.0)
Operating lease right-of-use assets	30,929		30,407		522		1.7
Goodwill and other intangibles, net	187,238		187,358		(120)		(0.1)
Bank owned life insurance	120,103		118,699		1,404		1.2
Accrued interest receivable and other assets	76,328		54,057		22,271		41.2
Total assets	$	6,700,813	$	7,122,421	$	(421,608)	(5.9	%)

Cash and Interest-Earning Deposits

Cash and interest-earning deposits decreased $795.4 million, or 89.4%, from December 31, 2021, primarily due to decreased interest earning deposits at the Federal Reserve Bank of $805.9 million as the Corporation used excess liquidity to fund loan growth and purchase investment securities. Additionally, cash decreased due to a seasonal decrease in public funds deposits as well as decreases in commercial and consumer deposits.

Investment Securities

Total investment securities at June 30, 2022 increased $17.1 million, or 3.4%, from December 31, 2021. Purchases of $97.1 million, primarily residential mortgage-backed securities, were partially offset by maturities and pay-downs of $38.1

million, decreases in the fair value of available-for-sale investment securities of $35.0 million, sales of $5.0 million, net amortization of purchased premiums and discounts of $872 thousand and a provision for credit losses of $763 thousand.

Loans and Leases

Gross loans and leases held for investment increased $351.8 million, or 6.6%, from December 31, 2021. Gross loans and leases held for investment, excluding PPP loans, at June 30, 2022 increased $378.2 million or 7.2% from December 31, 2021. The growth in gross loans and leases held for investment, excluding PPP loans, was primarily due to increases in commercial, commercial real estate, construction, residential mortgage loans, and lease financings. As of June 30, 2022, $5.4 million in PPP loan originations remained outstanding.

Asset Quality

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

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

At June 30, 2022, nonaccrual loans and leases and accruing troubled debt restructured loans were $13.4 million and had a related allowance for credit losses on loans and leases of $1.1 million. At December 31, 2021, nonaccrual loans and leases and accruing troubled debt restructured loans were $33.3 million and had a related allowance for credit losses on loans and leases of $11 thousand. During the quarter, a nonaccrual commercial real estate loan was transferred to other real estate owned with a carrying value of $18.3 million. Individual reserves have been established based on current facts and management's judgements about the ultimate outcome of these credits, including the most recent known data available on any related underlying collateral and the borrower's cash flows. The amount of individual reserve needed for these credits could change in future periods subject to changes in facts and judgements related to these credits.

Net loan and lease charge-offs for the three months ended June 30, 2022 were $1.7 million compared to $243 thousand for the same period in the prior year. Net loan and lease charge-offs for the six months ended June 30, 2022 were $1.8 million compared to $531 thousand for the same period in the prior year. During the second quarter of 2022, a $1.7 million charge-off was recorded against an existing nonaccrual commercial real estate loan.

Other real estate owned was $18.6 million at June 30, 2022 and $279 thousand at December 31, 2021 due to the transfer of a nonaccrual commercial real estate loan to other real estate owned noted above.

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

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


(Dollars in thousands)	At June 30, 2022			At December 31, 2021
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	$	13,355		$	33,210
Accruing troubled debt restructured loans and lease modifications not included in the above	50			51
Accruing loans and leases, 90 days or more past due	2,784			498
Total nonperforming loans and leases	$	16,189		$	33,759
Other real estate owned	18,604			279
Total nonperforming assets	$	34,793		$	34,038

*Nonaccrual troubled debt restructured loans and lease modifications in nonaccrual loans and leases in the above table	$	808		$	758

Loans and leases held for investment	$	5,661,777		$	5,310,017
Allowance for credit losses, loans and leases	72,011			71,924

Allowance for credit losses, loans and leases / loans and leases held for investment	1.27		%	1.35		%
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.24		%	0.63		%
Allowance for credit losses, loans and leases / nonaccrual loans and leases	539.21		%	216.57		%

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


(Dollars in thousands)	At June 30, 2022		At December 31, 2021
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	13,355	$	33,210
Nonaccrual loans and leases with partial charge-offs	4,512		1,429
Life-to-date partial charge-offs on nonaccrual loans and leases	2,224		536
Specific reserves on individually analyzed loans	1,089		11

Table 4—Loan Concentration

The following table provides summarized detail related to outstanding commercial loan balances, excluding PPP loans, segmented by industry description as of June 30, 2022:


(Dollars in thousands)	As of June 30, 2022
Industry Description	Total Outstanding Balance (excl PPP)		% of Commercial Loan Portfolio
CRE - Retail	$	379,935	8.2	%
Animal Production	315,801		6.8
CRE - Multi-family	262,182		5.7
CRE - 1-4 Family Residential Investment	240,887		5.2
CRE - Office	215,847		4.7
Hotels & Motels (Accommodation)	188,811		4.1
CRE - Industrial / Warehouse	185,241		4.0
Education	161,151		3.5
Nursing and Residential Care Facilities	154,034		3.3
Specialty Trade Contractors	143,724		3.1
Homebuilding (tract developers, remodelers)	118,877		2.6
Motor Vehicle and Parts Dealers	112,372		2.4
CRE - Medical Office	108,978		2.3
CRE - Mixed-Use - Residential	106,228		2.3
Merchant Wholesalers, Durable Goods	100,825		2.2
Crop Production	88,786		1.9
Food Manufacturing	85,953		1.9
Administrative and Support Services	75,587		1.6
Rental and Leasing Services	72,560		1.6
Wood Product Manufacturing	71,961		1.6
Food Services and Drinking Places	69,209		1.5
Merchant Wholesalers, Nondurable Goods	66,568		1.4
Fabricated Metal Product Manufacturing	63,016		1.4
Personal and Laundry Services	60,774		1.3
Religious Organizations, Advocacy Groups	58,409		1.3
Miniwarehouse / Self-Storage	54,761		1.2
Repair and Maintenance	53,472		1.2
CRE - Mixed-Use - Commercial	52,080		1.1
Private Equity & Special Purpose Entities	51,853		1.1
Truck Transportation	51,191		1.1
Industries with >$50 million in outstandings	$	3,771,073	81.3	%
Industries with <$50 million in outstandings	$	866,668	18.7	%
Total Commercial Loans	$	4,637,741	100.0	%

Consumer Loans and Lease Financings	Total Outstanding Balance
Real Estate-Residential Secured for Personal Purpose	$	629,144
Real Estate-Home Equity Secured for Personal Purpose	168,536
Loans to Individuals	27,061
Lease Financings	193,937
Total Consumer Loans and Lease Financings	$	1,018,678

Total	$	5,656,419

Goodwill and Other Intangible Assets

Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions. The Corporation has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The amortization of intangible assets was $738 thousand and $969 thousand for the three months ended June 30, 2022 and 2021, respectively. The amortization of intangible assets was $1.6 million and $2.0 million for the six months ended June 30, 2022 and 2021, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at June 30, 2022 and December 31, 2021.

The Corporation also has goodwill with a net carrying value of $175.5 million at June 30, 2022 and December 31, 2021, which is deemed to be an indefinite intangible asset and is not amortized. The Corporation completes a goodwill impairment analysis on an annual basis, or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the six months ended June 30, 2022 and 2021. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Liabilities

The following table presents liabilities at the dates indicated:


(Dollars in thousands)	At June 30, 2022		At December 31, 2021		Change
					Amount		Percent
Deposits	$	5,563,048	$	6,055,124	$	(492,076)	(8.1	%)
Short-term borrowings	97,606		20,106		77,500		385.5
Long-term debt	95,000		95,000		—		—
Subordinated notes	99,030		98,874		156		0.2
Operating lease liabilities	33,951		33,453		498		1.5
Accrued interest payable and other liabilities	48,253		46,070		2,183		4.7
Total liabilities	$	5,936,888	$	6,348,627	$	(411,739)	(6.5	%)

Deposits

Total deposits decreased $492.1 million, or 8.1%, from December 31, 2021, primarily due to a seasonal decrease in public funds deposits as well as decreases in commercial and consumer deposits.

Borrowings

Total borrowings increased $77.7 million, or 36.3%, from December 31, 2021, due to an increase of $93.6 million in short-term FHLB overnight borrowings as excess liquidity diminished and we returned to a pre-pandemic liquidity level, partially offset by a decrease of $16.1 million in short-term customer repurchase agreements.

Shareholders’ Equity

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


(Dollars in thousands)	At June 30, 2022		At December 31, 2021		Change
					Amount		Percent
Common stock	$	157,784	$	157,784	$	—	—	%
Additional paid-in capital	298,800		299,181		(381)		(0.1)
Retained earnings	396,295		375,124		21,171		5.6
Accumulated other comprehensive loss	(42,781)		(16,353)		(26,428)		161.6
Treasury stock	(46,173)		(41,942)		(4,231)		10.1
Total shareholders’ equity	$	763,925	$	773,794	$	(9,869)	(1.3	%)

Total shareholders' equity decreased $9.9 million, or 1.3%, from December 31, 2021. Retained earnings at June 30, 2022 increased by $21.2 million primarily due to net income of $33.5 million offset by $12.1 million in cash dividends paid for the six months ended June 30, 2022. Accumulated other comprehensive loss increased by $26.4 million, primarily attributable to decreases in the fair value of available-for-sale investment securities of $27.6 million, net of tax. Treasury stock increased $4.2 million from December 31, 2021 primarily related to purchases of $7.6 million under the Corporation's share repurchase program offset by $3.4 million of stock issued under the dividend reinvestment and employee stock purchase plans and stock-based incentive plan activity.

Discussion of Segments

The Corporation has three operating segments: Banking, Wealth Management and Insurance. Detailed segment information appears in Note 13, "Segment Reporting" included in the Notes to the Condensed Unaudited Consolidated Financial Statements under Item 1 of this Quarterly Report on Form 10-Q.

The Banking segment reported pre-tax income of $16.0 million and $25.7 million for the three months ended June 30, 2022 and 2021, respectively, and pre-tax income of $38.7 million and $65.7 million for the six months ended June 30, 2022 and 2021, respectively. See the section of this MD&A under the headings "Results of Operations" and "Financial Condition" for a discussion of key items impacting the Banking Segment.

The Wealth Management segment reported pre-tax income of $2.2 million for the three months ended June 30, 2022 and 2021, and $4.5 million and $4.6 million for the six months ended June 30, 2022 and 2021, respectively. Noninterest income was $6.9 million and $6.8 million for the three months ended June 30, 2022 and 2021, respectively, and $14.2 million and $13.5 million for the six months ended June 30, 2022 and 2021, respectively. The decrease in pre-tax income for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to increases in commission expense and salary expense as we continue to invest in revenue producing positions. The increase in noninterest income for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily due to appreciation of assets under management and supervision, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management and supervision balance. Assets under management and supervision were $4.1 billion as of June 30, 2022, $4.6 billion as of March 31, 2022, $4.5 billion as of June 30, 2021 and $4.2 billion as of March 31, 2021.

The Insurance segment reported pre-tax income of $724 thousand and $681 thousand for the three months ended June 30, 2022 and 2021, respectively, and $2.4 million and $2.3 million for the six months ended June 30, 2022 and 2021, respectively. Noninterest income was $4.8 million and $4.0 million for the three months ended June 30, 2022 and 2021, respectively, and $10.6 million and $9.1 million for the six months ended June 30, 2022 and 2021, respectively. The increase in pre-tax income and noninterest income for the three and six months ended June 30, 2022 was primarily due to incremental revenue attributable to the insurance agency the Corporation acquired in the fourth quarter of 2021.

Capital Adequacy

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

Under current rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.50% of total risk-weighted assets. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, which requires Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50%. The Corporation and the Bank were in compliance with these requirements at June 30, 2022.

Table 5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of June 30, 2022 and December 31, 2021 under regulatory capital rules were as follows.


	Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
At June 30, 2022
Total Capital (to Risk-Weighted Assets):
Corporation	$	805,066	13.23	%	$	486,641	8.00	%	$	608,301	10.00	%
Bank	691,826		11.40		485,470		8.00		606,837		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	645,782		10.62		364,981		6.00		486,641		8.00
Bank	631,572		10.41		364,102		6.00		485,470		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	645,782		10.62		273,736		4.50		395,396		6.50
Bank	631,572		10.41		273,077		4.50		394,444		6.50
Tier 1 Capital (to Average Assets):
Corporation	645,782		9.45		273,291		4.00		341,613		5.00
Bank	631,572		9.27		272,554		4.00		340,693		5.00
At December 31, 2021
Total Capital (to Risk-Weighted Assets):
Corporation	$	786,300	13.77	%	$	456,902	8.00	%	$	571,128	10.00	%
Bank	660,436		11.61		455,178		8.00		568,973		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	633,023		11.08		342,677		6.00		456,902		8.00
Bank	606,033		10.65		341,384		6.00		455,178		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	633,023		11.08		257,008		4.50		371,233		6.50
Bank	606,033		10.65		256,038		4.50		369,832		6.50
Tier 1 Capital (to Average Assets):
Corporation	633,023		9.13		277,297		4.00		346,622		5.00
Bank	606,033		8.77		276,471		4.00		345,588		5.00

At June 30, 2022 and December 31, 2021, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. At June 30, 2022, the Bank was categorized as "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that management believes have changed the Bank’s category.

In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as of the beginning of the fiscal year in which CECL was adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts are calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the transitional amounts are phased in over each of the next two years and at the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital.

Additionally, in March 2020, the Office of the Comptroller of the Currency, the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation announced the 2020 CECL interim final rule (IFR) designed to allow eligible firms to better focus on supporting lending to creditworthy households and businesses in light of the then-recent strains on the U.S. economy as a result of the coronavirus (COVID-19). The 2020 CECL IFR allows corporations that adopt CECL before December 31, 2020 to defer 100 percent of the day-one transitional amounts

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

The Corporation adopted the transition guidance and the 2020 CECL IFR relief and applied these effects to regulatory capital.

Asset/Liability Management

The primary functions of Asset/Liability Management are to ensure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities. Management's objective with regard to interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.

The Corporation uses gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a simulation model to measure short-term rate exposure. The Corporation runs various earnings simulation scenarios to quantify the impact of declining or rising interest rates on net interest income over a one-year and two-year horizon. The simulation uses expected cash flows and repricing characteristics for all financial instruments at a point in time and incorporates company-developed, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets tend to decrease in value; conversely, as interest rates decline, fixed-rate assets tend to increase in value.

Liquidity

The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks. Liquidity refers to the Corporation’s ability to ensure that sufficient cash flows and liquid assets are available to satisfy demand for loans, deposit withdrawals, repayment of borrowings, certificates of deposit at maturity, operating expenses and capital expenditures. The Corporation manages liquidity risk by measuring and monitoring liquidity sources and estimated funding needs on a daily basis. The Corporation has a contingency funding plan in place to address liquidity needs in the event of an institution-specific or a systemic financial crisis.

Sources of Funds

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

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

Cash Requirements

The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The most significant contractual obligations, in both the under and over one-year time period, are for the Bank to repay certificates of deposit and long-term borrowings. The Bank anticipates meeting these obligations by utilizing on-balance sheet liquidity and continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.

Commitments to extend credit are the Bank’s most significant commitment in both the under and over one-year time periods. These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

No material changes in the Corporation’s market risk occurred during the current period. A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of June 30, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended June 30, 2022 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes in risk factors applicable to the Corporation from those disclosed in "Risk Factors" in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021.

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

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


ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 – 30, 2022	20,282	$	25.30	20,282	658,892
May 1 – 31, 2022	232,154	25.18		232,154	426,738
June 1 – 31, 2022	47,564	25.48		47,564	379,174
Total	300,000	$	25.23	300,000

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

In addition to the repurchases disclosed above, participants in the Corporation's stock-based incentive plans may have shares withheld to cover income taxes upon the vesting of restricted stock awards and may use a stock swap to exercise stock options. Shares withheld to cover income taxes upon the vesting of restricted stock awards and stock swaps to exercise stock options are repurchased pursuant to the terms of the applicable plan and not under the Corporation's share repurchase program. Shares repurchased pursuant to these plans during the three months ended June 30, 2022 were as follows:


Period	Total Number of Shares Purchased	Average Price Paid per Share
April 1 – 30, 2022	—	$	—
May 1 – 31, 2022	—	—
June 1 – 31, 2022	—	—
Total	—	$	—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits


a.	Exhibits

	Exhibit 3.1	Amended and Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of Form 10-K, filed with the SEC on February 28, 2019.

	Exhibit 3.2	Amended By-Laws are incorporated by reference to Exhibit 3.2 of Form 8-K, filed with the SEC on April 27, 2022.

	Exhibit 10.1	Form of Change in Control Agreement, dated July 27, 2022, entered into between Univest Financial Corporation, Univest Bank and Trust Co. and each of Jeffrey M. Schweitzer, Michael S. Keim, Brian J. Richardson and Megan D. Santana, is incorporated by reference to Exhibit 10.1 of Form 8-K, filed with the SEC on July 28, 2022.

	Exhibit 31.1	Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 31.2	Certification of Brian J. Richardson, Senior Executive Vice President and Chief Financial Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32.1	Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32.2	Certification of Brian J. Richardson, 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	The following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

	Exhibit 104	The cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			Univest Financial Corporation
			(Registrant)

Date: August 2, 2022			/s/ Jeffrey M. Schweitzer
			Jeffrey M. Schweitzer President and Chief Executive Officer (Principal Executive Officer)

Date: August 2, 2022			/s/ Brian J. Richardson
			Brian J. Richardson Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)