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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
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-7617

 UNIVEST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania23-1886144
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
14 North Main Street, Souderton, 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 classTrading symbolName of exchange on which registered
Common Stock, $5 par valueUVSPThe NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $5 par value29,353,021
(Title of Class)(Number of shares outstanding at August 1, 2022)



Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
 
  Page Number
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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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, 2022At December 31, 2021
ASSETS
Cash and due from banks$59,590 $49,202 
Interest-earning deposits with other banks35,187 840,948 
Cash and cash equivalents94,777 890,150 
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 cost29,116 28,186 
Loans held for sale8,352 21,600 
Loans and leases held for investment5,661,777 5,310,017 
Less: Allowance for credit losses, loans and leases(72,011)(71,924)
Net loans and leases held for investment5,589,766 5,238,093 
Premises and equipment, net50,080 56,882 
Operating lease right-of-use assets30,929 30,407 
Goodwill175,510 175,510 
Other intangibles, net of accumulated amortization11,728 11,848 
Bank owned life insurance120,103 118,699 
Accrued interest receivable and other assets76,328 54,057 
Total assets$6,700,813 $7,122,421 
LIABILITIES
Noninterest-bearing deposits$2,062,538 $2,065,423 
Interest-bearing deposits3,500,510 3,989,701 
Total deposits5,563,048 6,055,124 
Short-term borrowings97,606 20,106 
Long-term debt95,000 95,000 
Subordinated notes99,030 98,874 
Operating lease liabilities33,951 33,453 
Accrued interest payable and other liabilities48,253 46,070 
Total liabilities5,936,888 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 capital298,800 299,181 
Retained earnings396,295 375,124 
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’ equity763,925 773,794 
Total liabilities and shareholders’ equity$6,700,813 $7,122,421 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
2

Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months EndedSix Months Ended
 June 30,June 30,
(Dollars in thousands, except per share data)2022202120222021
Interest income
Interest and fees on loans and leases$52,797 $50,588 $100,903 $100,251 
Interest and dividends on investment securities:
Taxable2,738 1,399 5,103 2,702 
Exempt from federal income taxes14 48 29 135 
Interest on deposits with other banks824 46 1,181 102 
Interest and dividends on other earning assets344 360 699 708 
Total interest income56,717 52,441 107,915 103,898 
Interest expense
Interest on deposits3,586 3,159 6,477 6,559 
Interest on short-term borrowings11 13 
Interest on long-term debt and subordinated notes1,649 2,522 3,294 5,163 
Total interest expense5,246 5,684 9,784 11,727 
Net interest income51,471 46,757 98,131 92,171 
Provision (reversal of provision) for credit losses6,674 (59)3,224 (11,342)
Net interest income after provision for credit losses44,797 46,816 94,907 103,513 
Noninterest income
Trust fee income1,998 2,157 4,100 4,191 
Service charges on deposit accounts1,574 1,314 3,078 2,596 
Investment advisory commission and fee income4,812 4,558 9,964 9,255 
Insurance commission and fee income4,629 3,839 10,199 8,794 
Other service fee income3,309 2,748 6,065 4,940 
Bank owned life insurance income705 1,620 1,404 2,337 
Net gain on sales of investment securities 54 30 119 
Net gain on mortgage banking activities1,230 3,461 3,159 9,399 
Other income741 479 1,469 1,849 
Total noninterest income18,998 20,230 39,468 43,480 
Noninterest expense
Salaries, benefits and commissions29,133 25,396 57,378 50,176 
Net occupancy2,422 2,656 5,138 5,395 
Equipment977 968 1,959 1,914 
Data processing3,708 3,064 7,275 6,114 
Professional fees2,844 2,015 4,982 3,763 
Marketing and advertising693 561 1,118 841 
Deposit insurance premiums812 613 1,705 1,249 
Intangible expenses342 249 683 498 
Other expense6,440 5,764 12,545 10,876 
Total noninterest expense47,371 41,286 92,783 80,826 
Income before income taxes16,424 25,760 41,592 66,167 
Income tax expense3,258 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 
Diluted0.45 0.71 1.13 1.81 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
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UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30,
(Dollars in thousands)20222021
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 losses417 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 period1,626 342 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 plans218 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.
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Table of Contents
Six Months Ended June 30,
(Dollars in thousands)20222021
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 losses763 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 period1,702 358 1,344 — 
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 plans436 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).
(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
5


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, 202229,636,425 $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 plans25,774  45   607 652 
Vesting of restricted stock units3,576  (126)  88 (38)
Exercise of stock options     (1)(1)
Purchases of treasury stock(300,000)    (7,570)(7,570)
Balance at June 30, 202229,365,775 $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, 202129,379,575 $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 plans21,915 — 25 — — 580 605 
Exercise of stock options10,241 — 14 — — 210 224 
Cancellations of performance-based restricted stock awards— — 170 — — (170)— 
Balance at June 30, 202129,411,731 $157,784 $297,208 $348,579 $(19,545)$(44,028)$739,998 

6


(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, 202129,500,542 $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 plans47,617  104   1,171 1,275 
Vesting of restricted stock units, net of shares withheld to cover taxes91,835  (2,544)  1,643 (901)
Exercise of stock options25,781  50   525 575 
Purchases of treasury stock(300,000)    (7,570)(7,570)
Balance at June 30, 202229,365,775 $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, 202029,295,052 $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 plans45,226 — 90 (1)— 1,125 1,214 
Vesting of restricted stock units42,619 — (1,126)— — 771 (355)
Exercise of stock options46,527 — 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, 202129,411,731 $157,784 $297,208 $348,579 $(19,545)$(44,028)$739,998 

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


7


UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,
(Dollars in thousands)20222021
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 losses3,224 (11,342)
Depreciation of premises and equipment2,193 2,355 
Net amortization of investment securities premiums and discounts837 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 compensation1,949 1,763 
Intangible expenses683 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 sale154,671 306,944 
Contributions to pension and other postretirement benefit plans(126)(133)
Decrease (increase) in accrued interest receivable and other assets3,854 (1,253)
Increase (decrease) in accrued interest payable and other liabilities3,592 (7,745)
Net cash provided by operating activities59,733 48,393 
Cash flows from investing activities:
Proceeds from sale of premises and equipment6,844 — 
Purchases of premises and equipment(2,090)(2,911)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity20,705 39,166 
Proceeds from maturities, calls and principal repayments of securities available-for-sale17,417 28,817 
Proceeds from sales of securities available-for-sale1,530 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 funds3,496 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 borrowings77,500 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 plans1,275 1,214 
Proceeds from exercise of stock options575 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 year890,150 219,858 
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 refunds2,329 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.
8


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.
9


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 EndedSix Months Ended
 June 30,June 30,
(Dollars and shares in thousands, except per share data)2022202120222021
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 outstanding29,490 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 units110 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 share400 283 253 287 

10


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 LossesFair 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 years2,016  (31) 1,985 
After 5 years to 10 years4,440  (66) 4,374 
Over 10 years151,352 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 year10    10 
After 1 year to 5 years1,032  (16) 1,016 
After 5 years to 10 years2,591  (56) 2,535 
Over 10 years289,578 62 (30,258) 259,382 
293,211 62 (30,330) 262,943 
Collateralized mortgage obligations:
After 5 years to 10 years388  (15) 373 
Over 10 years2,473  (141) 2,332 
2,861  (156) 2,705 
Corporate bonds:
Within 1 year500    500 
After 1 year to 5 years30,686 9 (942)(215)29,538 
After 5 years to 10 years60,000  (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 
11


 At December 31, 2021
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair 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 years5,208 194 — — 5,402 
Over 10 years164,776 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 $$— $— $2,333 
2,326 — — 2,333 
Residential mortgage-backed securities:
Within 1 year31 — — — 31 
After 1 year to 5 years153 — — 158 
After 5 years to 10 years2,286 82 — — 2,368 
Over 10 years220,153 671 (2,276)— 218,548 
222,623 758 (2,276)— 221,105 
Collateralized mortgage obligations:
After 5 years to 10 years481 — — 488 
Over 10 years2,813 — (23)— 2,790 
3,294 (23)— 3,278 
Corporate bonds:
Within 1 year2,500 — — 2,504 
After 1 year to 5 years28,731 755 (67)(51)29,368 
After 5 years to 10 years60,000 — (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)20222021
Securities available-for-sale:
Proceeds from sales$1,530 $3,115 
Gross realized gains on sales30 119 
Tax expense related to net realized gains on sales6 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.
12



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 ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Fair ValueUnrealized
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 securities211,750 (22,634)44,733 (7,696)256,483 (30,330)
Collateralized mortgage obligations2,705 (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 obligations2,790 (23)— — 2,790 (23)
Corporate bonds779 (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.

13


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$(869)
Additions for securities for which no previous expected credit losses were recognized(19)
Change in securities for which a previous expected credit loss was recognized403 
Ending balance$(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, 2022At December 31, 2021
Commercial, financial and agricultural$1,028,354 $956,396 
Paycheck Protection Program5,358 31,748 
Real estate-commercial2,870,286 2,718,535 
Real estate-construction319,449 283,918 
Real estate-residential secured for business purpose419,652 409,900 
Real estate-residential secured for personal purpose629,144 540,566 
Real estate-home equity secured for personal purpose168,536 158,909 
Loans to individuals27,061 25,504 
Lease financings193,937 184,541 
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 table5,597 3,408 
Overdraft deposits included in the above table190 4,268 
14


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
CurrentTotal Accruing Loans and LeasesNonaccrual Loans and LeasesTotal 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 Program472   472 4,886 5,358  5,358 
Real estate—commercial real estate and construction:
Commercial real estate658 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 purpose1,096 355  1,451 417,240 418,691 961 419,652 
Residential secured for personal purpose843   843 626,099 626,942 2,202 629,144 
Home equity secured for personal purpose296  39 335 167,807 168,142 394 168,536 
Loans to individuals79 40 90 209 26,852 27,061  27,061 
Lease financings163 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
CurrentTotal Accruing Loans and LeasesNonaccrual Loans and LeasesTotal 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 Program367 — — 367 31,381 31,748 — 31,748 
Real estate—commercial real estate and construction:
Commercial real estate234 — — 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 purpose542 — 216 758 406,955 407,713 2,187 409,900 
Residential secured for personal purpose2,976 162 — 3,138 535,379 538,517 2,049 540,566 
Home equity secured for personal purpose646 129 — 775 157,589 158,364 545 158,909 
Loans to individuals90 27 180 297 25,207 25,504 — 25,504 
Lease financings774 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 

15


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, 2022At 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 estate9,137  2,561 11,698 27,900 — — 27,900 
Real estate—residential and home equity:
Residential secured for business purpose961   961 2,187 — 216 2,403 
Residential secured for personal purpose2,202   2,202 2,049 — — 2,049 
Home equity secured for personal purpose394 50 39 483 545 51 — 596 
Loans to individuals  90 90 — — 180 180 
Lease financings213  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.


16


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 ACLNonaccrual With ACLTotal NonaccrualLoans and Leases 90 Days or more Past Due and Accruing Interest
At June 30, 2022
Commercial, financial and agricultural$448 $ $448 $ 
Real estate-commercial5,638 3,499 9,137 2,561 
Real estate-residential secured for business purpose961  961  
Real estate-residential secured for personal purpose2,202  2,202  
Real estate-home equity secured for personal purpose394  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-commercial27,818 82 27,900 — 
Real estate-residential secured for business purpose2,187 — 2,187 216 
Real estate-residential secured for personal purpose2,049 — 2,049 — 
Real estate-home equity secured for personal purpose545 — 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-commercial9,137   9,137 
Real estate-residential secured for business purpose961   961 
Real estate-residential secured for personal purpose2,202   2,202 
Real estate-home equity secured for personal purpose394   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-commercial27,900 — — 27,900 
Real estate-residential secured for business purpose2,187 — — 2,187 
Real estate-residential secured for personal purpose2,049 — — 2,049 
Real estate-home equity secured for personal purpose545 — — 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.
17


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

18


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)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
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 Mention8,103 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 Mention898 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 Mention9,001 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 

19


Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
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 Mention1,001 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 Mention2,567 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 Mention4,684 500 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 Mention210 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 Mention8,462 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.

20


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)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
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. Nonperforming13 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. Nonperforming13 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 
21


Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
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. Nonperforming53 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 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. Nonperforming53 648 64 602 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.

22


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 balanceProvision (reversal of provision) for credit lossesCharge-offsRecoveriesEnding 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 Program1 (1)   
Real estate-commercial40,426 2,942 (1,690) 41,678 
Real estate-construction3,634 589   4,223 
Real estate-residential secured for business purpose6,202 215  3 6,420 
Real estate-residential secured for personal purpose2,592 345   2,937 
Real estate-home equity secured for personal purpose976 110  (12)1,074 
Loans to individuals369 14 (27)20 376 
Lease financings2,246 103 (58)8 2,299 
Unallocated  N/AN/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— — — 
Real estate-commercial45,459 (2,347)(523)605 43,194 
Real estate-construction2,799 850 — — 3,649 
Real estate-residential secured for business purpose6,692 260 (227)22 6,747 
Real estate-residential secured for personal purpose3,056 (436)— — 2,620 
Real estate-home equity secured for personal purpose1,257 (155)— 22 1,124 
Loans to individuals447 (145)(23)40 319 
Lease financings1,404 382 (18)47 1,815 
Unallocated150 — N/AN/A150 
Total$71,497 $101 $(1,141)$898 $71,355 
N/A – Not applicable
23


(Dollars in thousands)Beginning balance(Reversal of provision) provision for credit lossesCharge-offsRecoveriesEnding 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 Program2 (2)   
Real estate-commercial41,095 2,273 (1,690) 41,678 
Real estate-construction4,575 (352)  4,223 
Real estate-residential secured for business purpose6,482 (113) 51 6,420 
Real estate-residential secured for personal purpose2,403 534   2,937 
Real estate-home equity secured for personal purpose1,028 57  (11)1,074 
Loans to individuals363 71 (102)44 376 
Lease financings2,290 108 (117)18 2,299 
Unallocated150 (150)N/AN/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— — — 
Real estate-commercial52,230 (9,118)(523)605 43,194 
Real estate-construction3,298 351 — — 3,649 
Real estate-residential secured for business purpose7,317 (419)(227)76 6,747 
Real estate-residential secured for personal purpose3,055 (435)— — 2,620 
Real estate-home equity secured for personal purpose1,176 (76)— 24 1,124 
Loans to individuals533 (203)(79)68 319 
Lease financings1,701 128 (109)95 1,815 
Unallocated150 — N/AN/A150 
Total$83,044 $(11,158)$(1,626)$1,095 $71,355 
24


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 leasesLoans and leases held for investment
(Dollars in thousands)Ending balance: individually analyzedEnding balance: pooledTotal ending balanceEnding balance: individually analyzedEnding balance: pooledLoans measured at fair valueTotal ending balance
At June 30, 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-commercial1,089 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 
UnallocatedN/A  N/AN/AN/AN/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— — 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 purpose23 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 
UnallocatedN/A150 150 N/AN/AN/AN/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, 2022Three 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 $ $ — $— $— 
25


 Six Months Ended June 30, 2022Six 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 purpose1 $87 $87 — $— $— 
Total1 $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 purpose1 $87 
Total1 $87 
Six Months Ended June 30, 2021
Accruing Troubled Debt Restructured Loans:
Total— $— 
Nonaccrual Troubled Debt Restructured Loans:
Total— $— 
26


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,
 2022202120222021
(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  530   530 
Total $ $530  $ $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, 2022At December 31, 2021
2022 (excluding the six months ended June 30, 2022)$36,890 $67,458 
202364,915 54,859 
202448,891 39,019 
202533,307 24,426 
202618,964 11,039 
Thereafter6,467 2,951 
Total future minimum lease payments receivable209,434 199,752 
Plus: Unguaranteed residual1,344 1,186 
Plus: Initial direct costs2,809 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)BankingWealth ManagementInsuranceConsolidated
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:
27


At June 30, 2022At December 31, 2021
(Dollars in thousands)Gross Carrying Amount
Accumulated Amortization (1)
Net Carrying AmountGross 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 intangibles8,493 6,220 2,273 8,493 5,886 2,607 
Servicing rights27,951 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 
2023845 
2024648 
2025469 
2026319 
Thereafter532 
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)2022202120222021
Beginning of period$8,122 $7,015 $7,878 $6,408 
Servicing rights capitalized677 1,140 1,391 2,453 
Amortization of servicing rights(431)(722)(907)(1,514)
Changes in valuation allowance4 — 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)2022202120222021
Valuation allowance, beginning of period$(7)$(1)$(13)$(87)
Reductions4 — 10 86 
Valuation allowance, end of period$(3)$(1)$(3)$(1)
28


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 
2023967 
2024859 
2025761 
2026672 
Thereafter4,028 
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, 2022At December 31, 2021
Weighted Average Interest RateAmountWeighted Average Interest RateAmount
(Dollars in thousands)
Noninterest-bearing deposits %$2,062,538 — %$2,065,423 
Demand deposits0.53 1,963,987 0.17 2,493,604 
Savings deposits0.10 1,111,913 0.04 1,011,931 
Time deposits1.08 424,610 1.06 484,166 
Total0.29 %$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 
2023206,161 
202449,208 
202518,473 
20263,423 
Thereafter19,413 
Total$424,610 

29


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, 2022At December 31, 2021
(Dollars in thousands)Balance at End of PeriodWeighted Average Interest Rate at End of PeriodBalance at End of PeriodWeighted Average Interest Rate at End of Period
Short-term borrowings:
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 $400.0 million at June 30, 2022 and December 31, 2021, respectively, which were fully available. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
Long-term advances with the FHLB of Pittsburgh mature as follows:
(Dollars in thousands)As of June 30, 2022Weighted Average Rate
Remainder of 2022$— — %
202335,000 1.94 
202460,000 0.98 
2025— — 
2026— — 
Thereafter— — 
Total$95,000 1.34 %

30


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,
 2022202120222021
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$142 $131 $32 $35 
Interest cost397 353 24 22 
Expected loss on plan assets(945)(901) — 
Amortization of net actuarial loss205 317 13 12 
Net periodic benefit (income) cost$(201)$(100)$69 $69 
 Six Months Ended June 30,
 2022202120222021
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$279 $261 $62 $71 
Interest cost787 707 48 43 
Expected return on plan assets(1,878)(1,793) — 
Amortization of net actuarial loss409 634 27 24 
Net periodic benefit (income) cost$(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 OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value at June 30, 2022
Outstanding at December 31, 2021351,252 $25.74 
Expired(1,500)14.80 
Forfeited(3,000)28.33 
Exercised(25,781)22.33 
Outstanding at June 30, 2022320,971 26.05 4.6$507 
Exercisable at June 30, 2022320,971 26.05 4.6507 
The Corporation did not issue stock options during the six months ended June 30, 2022 or June 30, 2021.
31


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, 2021358,134 $23.61 
Granted178,719 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, 2022403,858 $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)20222021
Restricted stock units granted178,719 154,607 
Weighted average grant date fair value$28.18 $27.82 
Intrinsic value of units granted$5,037 $4,301 
Restricted stock units vested123,834 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 CostWeighted-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)20222021
Stock-based compensation expense:
Stock options$ $62 
Restricted stock units1,949 1,701 
Employee stock purchase plan52 48 
Total$2,001 $1,811 
Tax benefit on nonqualified stock option expense and disqualifying dispositions of incentive stock options$215 $203 

32


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 income1,957 122 520 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
33


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 AssetsDerivative 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 AssetsDerivative 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 customers30,252 Other assets438   
Forward loan sale commitments38,605 Other assets30   
Total$860,495 $468 $447 
At December 31, 2021
Interest rate swap$46 $— Other liabilities$
Credit derivatives755,576 — Other liabilities381 
Interest rate locks with customers33,876 Other assets765  — 
Forward loan sale commitments55,476 Other assets87  — 
Total$844,974 $852 $383 

34


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 EndedSix Months Ended
June 30,June 30,
(Dollars in thousands)2022202120222021
Interest rate swap—cash flow hedge—net interest paymentsInterest (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 ClassificationThree Months EndedSix Months Ended
June 30,June 30,
(Dollars in thousands)2022202120222021
Credit derivativesOther noninterest income$589 $272 $1,039 $1,379 
Interest rate locks with customersNet gain (loss) on mortgage banking activities683 499 (327)(1,231)
Forward loan sale commitmentsNet (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, 2022At December 31, 2021
Interest rate swap—cash flow hedgeFair 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.
35


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.
36


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 1Level 2Level 3Assets/
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 industry782   782 
Money market mutual funds2,152   2,152 
Total equity securities2,934   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.

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 At December 31, 2021
(Dollars in thousands)Level 1Level 2Level 3Assets/
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 industry979 — — 979 
Money market mutual funds2,020 — — 2,020 
Total equity securities2,999 — — 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 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.
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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
AdditionsPayments receivedIncrease (decrease) in valueBalance 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
AdditionsPayments receivedIncrease (decrease) in valueBalance at June 30, 2021
Corporate bonds$9,600 $— $— $100 $9,700 
Loans187 — (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 $$— 
Total contingent consideration liability$55 $58 $$— 

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 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$ $ $12,053 $12,053 
Other real estate owned  18,604 18,604 
Total$ $ $30,657 $30,657 
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 At December 31, 2021
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$— $— $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 1Level 2Level 3Fair
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 stockNANANANA29,116 
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 deposits5,138,438 415,301  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 1Level 2Level 3Fair
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 stockNANANANA28,186 
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 deposits5,570,958 487,874 — 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 
40



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.

41


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, 2022At December 31, 2021At June 30, 2021
Banking$6,588,292 $7,005,952 $6,249,195 
Wealth Management54,531 54,076 49,822 
Insurance43,138 40,649 37,929 
Other14,852 21,744 19,359 
Consolidated assets$6,700,813 $7,122,421 $6,356,305 
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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)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$56,706 $2 $ $9 $56,717 
Interest expense3,816 103  1,327 5,246 
Net interest income (expense)52,890 (101) (1,318)51,471 
Provision for credit losses6,674    6,674 
Noninterest income7,480 6,862 4,828 (172)18,998 
Noninterest expense38,179 4,391 3,882 919 47,371 
Intersegment (revenue) expense*(433)211 222   
Income (loss) before income taxes15,950 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)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$52,432 $$— $$52,441 
Interest expense3,483 — — 2,201 5,684 
Net interest income (expense)48,949 — (2,193)46,757 
Reversal of provision for credit losses(59)— — — (59)
Noninterest income9,433 6,756 3,990 51 20,230 
Noninterest expense33,103 4,386 3,150 647 41,286 
Intersegment (revenue) expense*(323)164 159 — — 
Income (loss) before income taxes25,661 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 $$$$1,599 

Six Months Ended
June 30, 2022
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$107,895 $3 $ $17 $107,915 
Interest expense6,996 133  2,655 9,784 
Net interest income (expense)100,899 (130) (2,638)98,131 
Provision for credit losses3,224    3,224 
Noninterest income14,850 14,167 10,592 (141)39,468 
Noninterest expense74,667 9,100 7,747 1,269 92,783 
Intersegment (revenue) expense*(867)422 445   
Income (loss) before income taxes38,725 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)
43


Six Months Ended
June 30, 2021
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$103,881 $$— $16 $103,898 
Interest expense7,233 — — 4,494 11,727 
Net interest income (expense)96,648 — (4,478)92,171 
Reversal of provision for credit losses(11,342)— — — (11,342)
Noninterest income20,663 13,529 9,095 193 43,480 
Noninterest expense63,599 8,577 6,454 2,196 80,826 
Intersegment (revenue) expense*(646)328 318 — — 
Income (loss) before income taxes65,700 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.

44


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.
45



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 EndedSix Months Ended
 June 30,ChangeJune 30,Change
(Dollars in thousands, except per share data)20222021AmountPercent20222021AmountPercent
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)
Diluted0.45 0.71 (0.26)(36.6)1.13 1.81 (0.68)(37.6)
Return on average assets0.76 %1.30 %(54 BP)(41.5)0.96 %1.68 %(72 BP)(42.9)
Return on average equity6.85 %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.
46



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.
47


Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
 Three Months Ended June 30,
 20222021
(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 obligations2,000 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 securities511,439 2,727 2.14 372,625 1,364 1.47 
Federal Home Loan Bank, Federal Reserve Bank and other stock26,221 344 5.26 25,872 360 5.58 
Total interest-earning deposits, investments and other interest-earning assets1,016,222 3,923 1.55 626,915 1,863 1.19 
Commercial, financial and agricultural loans937,846 9,037 3.86 826,464 6,910 3.35 
Paycheck Protection Program loans7,644 155 8.13 408,928 4,778 4.69 
Real estate—commercial and construction loans3,004,509 28,527 3.81 2,701,137 24,931 3.70 
Real estate—residential loans1,166,201 10,758 3.70 1,065,065 9,836 3.70 
Loans to individuals26,782 305 4.57 25,284 251 3.98 
Municipal loans and leases*235,922 2,404 4.09 251,311 2,598 4.15 
Lease financings141,676 2,105 5.96 110,921 1,819 6.58 
Gross loans and leases5,520,580 53,291 3.87 5,389,110 51,123 3.80 
Total interest-earning assets6,536,802 57,214 3.51 6,016,025 52,986 3.53 
Cash and due from banks55,634 52,948 
Allowance for credit losses, loans and leases(68,426)(73,052)
Premises and equipment, net50,266 55,903 
Operating lease right-of-use assets30,222 33,992 
Other assets357,903 357,813 
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 savings1,405,536 1,552 0.44 1,219,375 831 0.27 
Regular savings1,070,480 237 0.09 978,807 282 0.12 
Time deposits452,989 1,227 1.09 485,060 1,559 1.29 
     Total time and interest-bearing deposits3,780,329 3,586 0.38 3,470,173 3,159 0.37 
Short-term borrowings17,253 11 0.26 19,109 0.06 
Long-term debt95,000 321 1.36 95,000 321 1.36 
Subordinated notes98,988 1,328 5.38 172,016 2,201 5.13 
Total borrowings211,241 1,660 3.15 286,125 2,525 3.54 
Total interest-bearing liabilities3,991,570 5,246 0.53 3,756,298 5,684 0.61 
Noninterest-bearing deposits2,122,844 1,880,916 
Operating lease liabilities33,300 37,426 
Accrued expenses and other liabilities43,277 40,239 
Total liabilities6,190,991 5,714,879 
Shareholders’ Equity:
Common stock157,784 157,784 
Additional paid-in capital298,241 296,599 
Retained earnings and other equity315,385 274,367 
Total shareholders’ equity771,410 728,750 
Total liabilities and shareholders’ equity$6,962,401 $6,443,629 
Net interest income$51,968 $47,302 
Net interest spread2.98 2.92 
Effect of net interest-free funding sources0.21 0.23 
Net interest margin3.19 %3.15 %
Ratio of average interest-earning assets to average interest-bearing liabilities163.77 %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%.
48


 Six Months Ended June 30,
 20222021
(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 obligations3,602 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 securities512,998 5,066 1.99 364,272 2,631 1.46 
Federal Home Loan Bank, Federal Reserve Bank and other stock26,665 699 5.29 26,119 708 5.47 
Total interest-earning deposits, investments and other interest-earning assets1,148,584 7,019 1.23 632,569 3,675 1.17 
Commercial, financial and agricultural loans919,801 16,608 3.64 804,458 13,708 3.44 
Paycheck Protection Program loans12,994 746 11.58 457,663 9,302 4.10 
Real estate—commercial and construction loans2,954,831 54,347 3.71 2,661,778 49,389 3.74 
Real estate—residential loans1,141,416 20,640 3.65 1,051,110 19,709 3.78 
Loans to individuals26,293 543 4.16 25,862 516 4.02 
Municipal loans and leases*239,197 4,838 4.08 248,490 5,128 4.16 
Lease financings138,593 4,180 6.08 108,317 3,556 6.62 
Gross loans and leases5,433,125 101,902 3.78 5,357,678 101,308 3.81 
Total interest-earning assets6,581,709 108,921 3.34 5,990,247 104,983 3.53 
Cash and due from banks54,671 54,123 
Allowance for credit losses, loans and leases(70,237)(78,125)
Premises and equipment, net52,097 55,865 
Operating lease right-of-use assets30,308 34,013 
Other assets356,406 357,589 
Total assets$7,004,954 $6,413,712 
Liabilities:
Interest-bearing checking deposits866,310 1,013 0.24 $802,350 $977 0.25 
Money market savings1,473,680 2,456 0.34 1,231,457 1,684 0.28 
Regular savings1,046,150 475 0.09 969,073 580 0.12 
Time deposits463,232 2,533 1.10 505,318 3,318 1.32 
     Total time and interest-bearing deposits3,849,372 6,477 0.34 3,508,198 6,559 0.38 
Short-term borrowings17,443 13 0.15 18,506 0.05 
Long-term debt 95,000 638 1.35 98,149 669 1.37 
Subordinated notes98,950 2,656 5.41 177,647 4,494 5.10 
Total borrowings211,393 3,307 3.15 294,302 5,168 3.54 
Total interest-bearing liabilities4,060,765 9,784 0.49 3,802,500 11,727 0.62 
Noninterest-bearing deposits2,094,397 1,815,572 
Operating lease liabilities33,375 37,419 
Accrued expenses and other liabilities43,541 43,897 
Total liabilities6,232,078 5,699,388 
Shareholders’ Equity:
Common stock157,784 157,784 
Additional paid-in capital298,606 296,369 
Retained earnings and other equity316,486 260,171 
Total shareholders’ equity772,876 714,324 
Total liabilities and shareholders’ equity$7,004,954 $6,413,712 
Net interest income$99,137 $93,256 
Net interest spread2.85 2.91 
Effect of net interest-free funding sources0.19 0.23 
Net interest margin3.04 %3.14 %
Ratio of average interest-earning assets to average interest-bearing liabilities162.08 %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%.
49


Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.
Three Months EndedSix Months Ended
 June 30, 2022 Versus 2021June 30, 2022 Versus 2021
(Dollars in thousands)Volume
Change
Rate
Change
TotalVolume
Change
Rate
Change
Total
Interest income:
Interest-earning deposits with other banks117 661 $778 359 720 $1,079 
U.S. government obligations(27)(24)(35)(34)
Obligations of states and political subdivisions(30)(11)(41)(104)(23)(127)
Other debt and equity securities613 750 1,363 1,289 1,146 2,435 
Federal Home Loan Bank, Federal Reserve Bank and other stock(21)(16)15 (24)(9)
Interest on deposits, investments and other earning assets678 1,382 2,060 1,524 1,820 3,344 
Commercial, financial and agricultural loans999 1,128 2,127 2,063 837 2,900 
Paycheck Protection Program loans(6,659)2,036 (4,623)(14,772)6,216 (8,556)
Real estate—commercial and construction loans2,843 753 3,596 5,360 (402)4,958 
Real estate—residential loans922 — 922 1,633 (702)931 
Loans to individuals16 38 54 18 27 
Municipal loans and leases(157)(37)(194)(191)(99)(290)
Lease financings469 (183)286 932 (308)624 
Interest and fees on loans and leases(1,567)3,735 2,168 (4,966)5,560 594 
Total interest income(889)5,117 4,228 (3,442)7,380 3,938 
Interest expense:
Interest-bearing checking deposits42 41 83 77 (41)36 
Money market savings140 581 721 370 402 772 
Regular savings27 (72)(45)44 (149)(105)
Time deposits(99)(233)(332)(261)(524)(785)
     Total time and interest-bearing deposits110 317 427 230 (312)(82)
Short-term borrowings— — 
Long-term debt— — — (21)(10)(31)
Subordinated notes (975)102 (873)(2,096)258 (1,838)
Interest on borrowings(975)110 (865)(2,117)256 (1,861)
Total interest expense(865)427 (438)(1,887)(56)(1,943)
Net interest income$(24)$4,690 $4,666 $(1,555)$7,436 $5,881 

50


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 EndedSix Months Ended
 June 30,ChangeJune 30,Change
(Dollars in thousands)20222021AmountPercent20222021AmountPercent
Trust fee income$1,998 $2,157 $(159)(7.4 %)$4,100 $4,191 $(91)(2.2 %)
Service charges on deposit accounts1,574 1,314 260 19.8 3,078 2,596 482 18.6 
Investment advisory commission and fee income4,812 4,558 254 5.6 9,964 9,255 709 7.7 
Insurance commission and fee income4,629 3,839 790 20.6 10,199 8,794 1,405 16.0 
Other service fee income3,309 2,748 561 20.4 6,065 4,940 1,125 22.8 
Bank owned life insurance income705 1,620 (915)(56.5)1,404 2,337 (933)(39.9)
Net gain on sales of investment securities 54 (54)N/M30 119 (89)(74.8)
Net gain on mortgage banking activities1,230 3,461 (2,231)(64.5)3,159 9,399 (6,240)(66.4)
Other income741 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
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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 EndedSix Months Ended
 June 30,ChangeJune 30,Change
(Dollars in thousands)20222021AmountPercent20222021AmountPercent
Salaries, benefits and commissions$29,133 $25,396 $3,737 14.7 %$57,378 $50,176 $7,202 14.4 %
Net occupancy2,422 2,656 (234)(8.8)5,138 5,395 (257)(4.8)
Equipment977 968 0.9 1,959 1,914 45 2.4 
Data processing3,708 3,064 644 21.0 7,275 6,114 1,161 19.0 
Professional fees2,844 2,015 829 41.1 4,982 3,763 1,219 32.4 
Marketing and advertising693 561 132 23.5 1,118 841 277 32.9 
Deposit insurance premiums812 613 199 32.5 1,705 1,249 456 36.5
Intangible expenses342 249 93 37.3 683 498 185 37.1 
Other expense6,440 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.

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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, 2022At December 31, 2021Change
(Dollars in thousands)AmountPercent
Cash and cash equivalents$94,777 $890,150 $(795,373)(89.4 %)
Investment securities, net of allowance for credit losses514,124 496,989 17,135 3.4 
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost29,116 28,186 930 3.3 
Loans held for sale8,352 21,600 (13,248)(61.3)
Loans and leases held for investment5,661,777 5,310,017 351,760 6.6 
Allowance for credit losses, loans and leases(72,011)(71,924)(87)0.1 
Premises and equipment, net50,080 56,882 (6,802)(12.0)
Operating lease right-of-use assets30,929 30,407 522 1.7 
Goodwill and other intangibles, net187,238 187,358 (120)(0.1)
Bank owned life insurance120,103 118,699 1,404 1.2 
Accrued interest receivable and other assets76,328 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
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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.

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

The following table details information pertaining to the Corporation’s nonperforming assets at the dates indicated.
(Dollars in thousands)At June 30, 2022At 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 above50 51 
Accruing loans and leases, 90 days or more past due2,784 498 
Total nonperforming loans and leases$16,189 $33,759 
Other real estate owned18,604 279 
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 leases72,011 71,924 
Allowance for credit losses, loans and leases / loans and leases held for investment1.27 %1.35 %
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment0.24 %0.63 %
Allowance for credit losses, loans and leases / nonaccrual loans and leases539.21 %216.57 %

The following table provides additional information on the Corporation’s nonaccrual loans held for investment:
(Dollars in thousands)At June 30, 2022At 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-offs4,512 1,429 
Life-to-date partial charge-offs on nonaccrual loans and leases2,224 536 
Specific reserves on individually analyzed loans1,089 11 

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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 DescriptionTotal Outstanding Balance (excl PPP)% of Commercial Loan Portfolio
CRE - Retail$379,935 8.2 %
Animal Production315,801 6.8 
CRE - Multi-family262,182 5.7 
CRE - 1-4 Family Residential Investment240,887 5.2 
CRE - Office215,847 4.7 
Hotels & Motels (Accommodation)188,811 4.1 
CRE - Industrial / Warehouse185,241 4.0 
Education161,151 3.5 
Nursing and Residential Care Facilities154,034 3.3 
Specialty Trade Contractors143,724 3.1 
Homebuilding (tract developers, remodelers)118,877 2.6 
Motor Vehicle and Parts Dealers112,372 2.4 
CRE - Medical Office108,978 2.3 
CRE - Mixed-Use - Residential106,228 2.3 
Merchant Wholesalers, Durable Goods100,825 2.2 
Crop Production88,786 1.9 
Food Manufacturing85,953 1.9 
Administrative and Support Services75,587 1.6 
Rental and Leasing Services72,560 1.6 
Wood Product Manufacturing71,961 1.6 
Food Services and Drinking Places69,209 1.5 
Merchant Wholesalers, Nondurable Goods66,568 1.4 
Fabricated Metal Product Manufacturing63,016 1.4 
Personal and Laundry Services60,774 1.3 
Religious Organizations, Advocacy Groups58,409 1.3 
Miniwarehouse / Self-Storage54,761 1.2 
Repair and Maintenance53,472 1.2 
CRE - Mixed-Use - Commercial52,080 1.1 
Private Equity & Special Purpose Entities51,853 1.1 
Truck Transportation51,191 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 FinancingsTotal Outstanding Balance
Real Estate-Residential Secured for Personal Purpose$629,144 
Real Estate-Home Equity Secured for Personal Purpose168,536 
Loans to Individuals27,061 
Lease Financings193,937 
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.

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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, 2022At December 31, 2021Change
AmountPercent
Deposits$5,563,048 $6,055,124 $(492,076)(8.1 %)
Short-term borrowings97,606 20,106 77,500 385.5 
Long-term debt95,000 95,000 — — 
Subordinated notes99,030 98,874 156 0.2 
Operating lease liabilities33,951 33,453 498 1.5 
Accrued interest payable and other liabilities48,253 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, 2022At December 31, 2021Change
AmountPercent
Common stock$157,784 $157,784 $— — %
Additional paid-in capital298,800 299,181 (381)(0.1)
Retained earnings396,295 375,124 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.

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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.
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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.
 ActualFor Capital Adequacy
Purposes
To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions
(Dollars in thousands)AmountRatioAmountRatioAmount  Ratio  
At June 30, 2022
Total Capital (to Risk-Weighted Assets):
Corporation$805,066 13.23 %$486,641 8.00 %$608,301 10.00 %
Bank691,826 11.40 485,470 8.00 606,837 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation645,782 10.62 364,981 6.00 486,641 8.00 
Bank631,572 10.41 364,102 6.00 485,470 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation645,782 10.62 273,736 4.50 395,396 6.50 
Bank631,572 10.41 273,077 4.50 394,444 6.50 
Tier 1 Capital (to Average Assets):
Corporation645,782 9.45 273,291 4.00 341,613 5.00 
Bank631,572 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 %
Bank660,436 11.61 455,178 8.00 568,973 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation633,023 11.08 342,677 6.00 456,902 8.00 
Bank606,033 10.65 341,384 6.00 455,178 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation633,023 11.08 257,008 4.50 371,233 6.50 
Bank606,033 10.65 256,038 4.50 369,832 6.50 
Tier 1 Capital (to Average Assets):
Corporation633,023 9.13 277,297 4.00 346,622 5.00 
Bank606,033 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
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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.

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Recent Accounting Pronouncements

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

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

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 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.

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

The following table provides information on repurchases by the Corporation of its common stock under the Corporation's Board approved program.
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
April 1 – 30, 202220,282 $25.30 20,282 658,892 
May 1 – 31, 2022232,154 25.18 232,154 426,738 
June 1 – 31, 202247,564 25.48 47,564 379,174 
Total300,000 $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:

PeriodTotal Number of Shares PurchasedAverage 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.
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Item 6.    Exhibits
 
a.Exhibits
Exhibit 3.1
Exhibit 3.2
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Univest Financial Corporation
(Registrant)
Date: 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)

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