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UNIVEST FINANCIAL Corp - Quarter Report: 2023 March (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 March 31, 2023
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 value29,429,373
(Title of Class)(Number of shares outstanding at May 1, 2023)



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 March 31, 2023At December 31, 2022
ASSETS
Cash and due from banks$71,215 $84,176 
Interest-earning deposits with other banks67,109 68,623 
Cash and cash equivalents138,324 152,799 
Investment securities held-to-maturity (fair value $133,147 and $134,068 at March 31, 2023 and December 31, 2022, respectively)
151,347 154,727 
Investment securities available-for-sale (amortized cost $414,118 and $402,111, net of allowance for credit losses of $1,432 and $1,140 at March 31, 2023 and December 31, 2022, respectively)
367,656 350,256 
Investments in equity securities 3,105 2,579 
       Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost43,792 33,841 
Loans held for sale5,425 5,037 
Loans and leases held for investment6,239,804 6,123,230 
Less: Allowance for credit losses, loans and leases(80,034)(79,004)
Net loans and leases held for investment6,159,770 6,044,226 
Premises and equipment, net52,334 50,939 
Operating lease right-of-use assets31,663 30,059 
Goodwill175,510 175,510 
Other intangibles, net of accumulated amortization11,044 11,384 
Bank owned life insurance128,926 120,297 
Accrued interest receivable and other assets90,095 90,362 
Total assets$7,358,991 $7,222,016 
LIABILITIES
Noninterest-bearing deposits$1,799,225 $2,047,263 
Interest-bearing deposits4,035,432 3,866,263 
Total deposits5,834,657 5,913,526 
Short-term borrowings271,881 197,141 
Long-term debt220,000 95,000 
Subordinated notes148,385 148,260 
Operating lease liabilities34,846 33,153 
Accrued interest payable and other liabilities50,726 58,436 
Total liabilities6,560,495 6,445,516 
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at March 31, 2023 and December 31, 2022; 31,556,799 shares issued at March 31, 2023 and December 31, 2022; 29,427,696 and 29,271,915 shares outstanding at March 31, 2023 and December 31, 2022, respectively
157,784 157,784 
Additional paid-in capital298,167 300,808 
Retained earnings443,493 428,637 
Accumulated other comprehensive loss, net of tax benefit(55,550)(62,104)
Treasury stock, at cost; 2,129,103 and 2,284,884 shares at March 31, 2023 and December 31, 2022, respectively
(45,398)(48,625)
Total shareholders’ equity798,496 776,500 
Total liabilities and shareholders’ equity$7,358,991 $7,222,016 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
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Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
 March 31,
(Dollars in thousands, except per share data)20232022
Interest income
Interest and fees on loans and leases$78,655 $48,106 
Interest and dividends on investment securities:
Taxable3,495 2,365 
Exempt from federal income taxes15 15 
Interest on deposits with other banks479 357 
Interest and dividends on other earning assets609 355 
Total interest income83,253 51,198 
Interest expense
Interest on deposits18,336 2,891 
Interest on short-term borrowings2,728 
Interest on long-term debt and subordinated notes2,872 1,645 
Total interest expense23,936 4,538 
Net interest income59,317 46,660 
Provision (reversal of provision) for credit losses3,387 (3,450)
Net interest income after provision for credit losses55,930 50,110 
Noninterest income
Trust fee income1,955 2,102 
Service charges on deposit accounts1,547 1,504 
Investment advisory commission and fee income4,752 5,152 
Insurance commission and fee income6,487 5,570 
Other service fee income3,076 2,756 
Bank owned life insurance income767 699 
Net gain on sales of investment securities 30 
Net gain on mortgage banking activities625 1,929 
Other income471 728 
Total noninterest income19,680 20,470 
Noninterest expense
Salaries, benefits and commissions31,014 28,245 
Net occupancy2,727 2,716 
Equipment993 982 
Data processing4,029 3,567 
Professional fees1,941 2,138 
Marketing and advertising371 425 
Deposit insurance premiums1,101 893 
Intangible expenses253 341 
Other expense7,100 6,105 
Total noninterest expense49,529 45,412 
Income before income taxes26,081 25,168 
Income tax expense5,047 4,851 
Net income$21,034 $20,317 
Net income per share:
Basic$0.72 $0.69 
Diluted0.71 0.68 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
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Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March 31,
(Dollars in thousands)20232022
Before
Tax
Amount
Tax
Expense
(Benefit)
Net of
Tax
Amount
Before
Tax
Amount
Tax
Expense
(Benefit)
Net of
Tax
Amount
Income$26,081 $5,047 $21,034 $25,168 $4,851 $20,317 
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period5,393 1,133 4,260 (20,369)(4,278)(16,091)
Provision for credit losses292 61 231 346 73 273 
Less: reclassification adjustment for net gains on sales realized in net income (1)   (30)(6)(24)
Total net unrealized gains (losses) on available-for-sale investment securities5,685 1,194 4,491 (20,053)(4,211)(15,842)
Net unrealized gains on interest rate swaps used in cash flow hedges:
Net unrealized holding gains arising during the period1,306 274 1,032 7616 60 
Less: reclassification adjustment for net losses realized in net income (2)1,060 223 837 681454 
Total net unrealized gains on interest rate swaps used in cash flow hedges 2,366 497 1,869 144 30 114 
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)246 52 194 21846172 
Total defined benefit pension plans246 52 194 218 46 172 
Other comprehensive income (loss)8,297 1,743 6,554 (19,691)(4,135)(15,556)
Total comprehensive income$34,378 $6,790 $27,588 $5,477 $716 $4,761 
(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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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 March 31, 2023
Balance at December 31, 202229,271,915 $157,784 $300,808 $428,637 $(62,104)$(48,625)$776,500 
Net income    21,034   21,034 
Other comprehensive income, net of income tax    6,554  6,554 
Cash dividends declared ($0.21 per share)
   (6,151)  (6,151)
Stock-based compensation  1,057 (27)  1,030 
Stock issued under dividend reinvestment and employee stock purchase plans25,344  29   633 662 
Vesting of restricted stock units, net of shares withheld to cover taxes126,270  (3,713)  2,506 (1,207)
Exercise of stock options4,167  (14)  88 74 
Balance at March 31, 202329,427,696 $157,784 $298,167 $443,493 $(55,550)$(45,398)$798,496 
(Dollars in thousands, except per share data)Common
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Three Months Ended March 31, 2022
Balance, December 31, 202129,500,542 $157,784 $299,181 $375,124 $(16,353)$(41,942)$773,794 
Net income — — — 20,317 — — 20,317 
Other comprehensive loss, net of income tax benefit— — — — (15,556)— (15,556)
Cash dividends declared ($0.20 per share)
— — — (5,905)— — (5,905)
Stock-based compensation— — 1,073 (204)— — 869 
Stock issued under dividend reinvestment and employee stock purchase plans21,843 — 59 — — 564 623 
Vesting of restricted stock units, net of shares withheld to cover taxes88,259 — (2,418)— — 1,555 (863)
Exercise of stock options25,781 — 50 — — 526 576 
Balance at March 31, 202229,636,425 $157,784 $297,945 $389,332 $(31,909)$(39,297)$773,855 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.


5


UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended March 31,
(Dollars in thousands)20232022
Cash flows from operating activities:
Net income$21,034 $20,317 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (reversal of provision) for credit losses3,387 (3,450)
Depreciation of premises and equipment1,181 1,101 
Net amortization of investment securities premiums and discounts264 472 
Net gain on sales of investment securities (30)
Net gain on mortgage banking activities(625)(1,929)
Bank owned life insurance income(767)(699)
Stock-based compensation1,110 934 
Intangible expenses253 341 
Other adjustments to reconcile net income to cash used in operating activities(32)(910)
Originations of loans held for sale(28,043)(73,541)
Proceeds from the sale of loans held for sale28,430 82,616 
Contributions to pension and other postretirement benefit plans(62)(63)
(Increase) decrease in accrued interest receivable and other assets(1,878)4,316 
Decrease in accrued interest payable and other liabilities(3,512)(5,535)
Net cash provided by operating activities20,740 23,940 
Cash flows from investing activities:
Proceeds from sale of premises and equipment5 6,170 
Purchases of premises and equipment(2,590)(676)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity3,284 14,335 
Proceeds from maturities, calls and principal repayments of securities available-for-sale6,940 8,501 
Proceeds from sales of securities available-for-sale 1,530 
Purchases of investment securities held-to-maturity (3,936)
Purchases of investment securities available-for-sale(19,129)(63,634)
Proceeds from sales of money market mutual funds10 2,508 
Purchases of money market mutual funds(605)(2,077)
Net (increase) decrease in other investments(9,951)1,856 
Proceeds from sale of loans originally held-for-investment175 — 
Net increase in loans and leases(119,332)(90,783)
Proceeds from sales of other real estate owned260 — 
Purchases of bank owned life insurance(7,862)— 
Net cash used in investing activities(148,795)(126,206)
Cash flows from financing activities:
Net decrease in deposits(78,876)(7,200)
Net increase (decrease) in short-term borrowings74,740 (1,130)
Proceeds from issuance of long-term debt150,000 — 
Repayment of long-term debt(25,000)— 
Payment of contingent consideration on acquisitions(635)— 
Payment for shares withheld to cover taxes on vesting of restricted stock units(1,207)(863)
Stock issued under dividend reinvestment and employee stock purchase plans662 623 
Proceeds from exercise of stock options74 576 
Cash dividends paid(6,178)(6,109)
Net cash provided by (used in) financing activities113,580 (14,103)
Net decrease in cash and cash equivalents(14,475)(116,369)
Cash and cash equivalents at beginning of year152,799 890,150 
Cash and cash equivalents at end of period$138,324 $773,781 
Supplemental disclosures of cash flow information:
Cash paid for interest$21,927 $5,559 
Cash paid for income taxes, net of refunds65 28 
Non cash transactions:
Transfer of loans to loans held for sale$175 $— 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
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UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Univest Financial Corporation (the Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to the 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 period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, 2023 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, 2022, which was filed with the SEC on February 24, 2023.

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 determination of the allowance for credit losses.

Loans

A loan is classified as a modified loan to a borrower experiencing financial difficulty when a contractual loan modification in the form of principal forgiveness, an interest rate reduction, an other-than-significant payment delay or a term extension (or a combination thereof) has been granted to an existing borrower experiencing financial difficulties. The goal when modifying a credit is to establish a reasonable period of time to provide cash flow relief to customers experiencing cash flow difficulties. Accruing modified loans to borrowers experiencing financial difficulty are primarily comprised of loans on which interest is being accrued under the modified terms, and the loans are current or less than 90 days past due.

Loans and Leases - Prior to ASU No. 2022-02 Adoption

The Corporation adopted ASU No. 2022-02 effective January 1, 2023. The following section was carried forward from the Annual Report of Form 10-K for the year ended December 31, 2022.

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

Accounting Pronouncements Adopted in 2023

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 became
7


effective on January 1, 2023 for the Corporation. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Corporation's financial statements.

Recent Accounting Pronouncements Yet to Be Adopted

In March 2023, the FASB issued ASU No. 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)". The ASU allows entities to elect the proportional amortization method, on a tax-credit-program-by-tax-credit-program basis, for all equity investments in tax credit programs meeting the eligibility criteria in Accounting Standards Codification (ASC) 323-740-25-1. While the ASU does not significantly alter the existing eligibility criteria, it does provide clarifications to address existing interpretive issues. It also prescribes specific information reporting entities must disclose about tax credit investments each period. This ASU is effective for reporting periods beginning after December 15, 2023, for public business entities, or January 1, 2024 for the Corporation. The Corporation does not expect the adoption of this ASU to 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, 2022.
Three Months Ended
 March 31,
(Dollars and shares in thousands, except per share data)20232022
Numerator for basic and diluted earnings per share—net income available to common shareholders
$21,034 $20,317 
Denominator for basic earnings per share—weighted-average shares outstanding
29,312 29,542 
Effect of dilutive securities—employee stock options and restricted stock units194 196 
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,506 29,738 
Basic earnings per share$0.72 $0.69 
Diluted earnings per share$0.71 $0.68 
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share229 249 

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Note 3. Investment Securities

The following table shows the amortized cost, the estimated fair value and the allowance for credit losses of the held-to-maturity securities and available-for-sale securities at March 31, 2023 and December 31, 2022, by contractual maturity within each type:
 At March 31, 2023
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair Value
Securities Held-to-Maturity
Residential mortgage-backed securities:
After 1 year to 5 years$2,554 $ $(87)$2,467 
After 5 years to 10 years7,531  (398) 7,133 
Over 10 years141,262  (17,715) 123,547 
151,347  (18,200) 133,147 
Total$151,347 $ $(18,200)$ $133,147 
Securities Available-for-Sale
State and political subdivisions:
Within 1 year$1,030 $1 $ $ $1,031 
After 1 year to 5 years1,297  (31) 1,266 
2,327 1 (31) 2,297 
Residential mortgage-backed securities:
After 1 year to 5 years784  (29) 755 
After 5 years to 10 years15,617  (1,194) 14,423 
Over 10 years301,712 32 (36,128) 265,616 
318,113 32 (37,351) 280,794 
Collateralized mortgage obligations:
After 5 years to 10 years305  (18) 287 
Over 10 years2,199  (215) 1,984 
2,504  (233) 2,271 
Corporate bonds:
Within 1 year1,500  (1)(1)1,498 
After 1 year to 5 years29,674 4 (1,163)(200)28,315 
After 5 years to 10 years60,000  (6,288)(1,231)52,481 
91,174 4 (7,452)(1,432)82,294 
Total$414,118 $37 $(45,067)$(1,432)$367,656 

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 At December 31, 2022
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair Value
Securities Held-to-Maturity
Residential mortgage-backed securities:
After 1 year to 5 years$1,654 $— $(70)$— $1,584 
After 5 years to 10 years6,076 — (342)— 5,734 
Over 10 years146,997 — (20,247)— 126,750 
154,727 — (20,659)— 134,068 
Total$154,727 $— $(20,659)$— $134,068 
Securities Available-for-Sale
State and political subdivisions:
After 1 year to 5 years$2,327 $— $(42)$— $2,285 
2,327 — (42)— 2,285 
Residential mortgage-backed securities:
After 1 year to 5 years864 — (37)— 827 
After 5 years to 10 years10,399 — (815)— 9,584 
Over 10 years294,261 (41,291)— 252,977 
305,524 (42,143)— 263,388 
Collateralized mortgage obligations:
After 5 years to 10 years324 — (22)— 302 
Over 10 years2,257 — (237)— 2,020 
2,581 — (259)— 2,322 
Corporate bonds:
Within 1 year1,000 — — — 1,000 
After 1 year to 5 years30,679 (1,516)(152)29,014 
After 5 years to 10 years60,000 — (6,765)(988)52,247 
91,679 (8,281)(1,140)82,261 
Total$402,111 $10 $(50,725)$(1,140)$350,256 

Gross unrealized gains and losses on available-for-sale securities are recognized in accumulated other comprehensive income (loss) and changes in the allowance for credit loss are recorded in provision for credit loss expense. Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties and mortgage-backed securities typically prepay at a rate faster than contractually due.

Securities with a carrying value of $327.8 million and $429.4 million at March 31, 2023 and December 31, 2022, 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 March 31, 2023 or December 31, 2022. See Note 11, "Derivative Instruments and Hedging Activities" for additional information.

The following table presents information related to sales of securities available-for-sale during the three months ended March 31, 2023 and 2022:

 Three Months Ended March 31,
(Dollars in thousands)20232022
Securities available-for-sale:
Proceeds from sales$ $1,530 
Gross realized gains on sales 30 
Tax expense related to net realized gains on sales 

At March 31, 2023 and December 31, 2022, there were no reportable investments in any single issuer representing more than 10% of shareholders’ equity.
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The following table shows the fair value of securities that were in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2023 and December 31, 2022, 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 March 31, 2023
Securities Held-to-Maturity
Residential mortgage-backed securities$22,966 $(862)$110,181 $(17,338)$133,147 $(18,200)
Total$22,966 $(862)$110,181 $(17,338)$133,147 $(18,200)
Securities Available-for-Sale
State and political subdivisions$ $ $1,267 $(31)$1,267 $(31)
Residential mortgage-backed securities84,540 (4,885)190,747 (32,466)275,287 (37,351)
Collateralized mortgage obligations  2,271 (233)2,271 (233)
Total$84,540 $(4,885)$194,285 $(32,730)$278,825 $(37,615)
At December 31, 2022
Securities Held-to-Maturity
Residential mortgage-backed securities$65,044 $(5,894)$69,024 $(14,765)$134,068 $(20,659)
Total$65,044 $(5,894)$69,024 $(14,765)$134,068 $(20,659)
Securities Available-for-Sale
State and political subdivisions$1,255 $(42)$— $— $1,255 $(42)
Residential mortgage-backed securities128,831 (13,843)133,902 (28,300)262,733 (42,143)
Collateralized mortgage obligations302 (22)2,020 (237)2,322 (259)
Corporate bonds500 (1)— — 500 (1)
Total$130,888 $(13,908)$135,922 $(28,537)$266,810 $(42,445)

At March 31, 2023, 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 $133.1 million, including unrealized losses of $18.2 million. These holdings were comprised of 84 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 three months ended March 31, 2023.

At March 31, 2023, 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 $278.8 million, including unrealized losses of $37.6 million. These holdings were comprised of (1) 109 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, (3) one state and political subdivisions bond and (4) one investment grade corporate 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 $1.2 million at March 31, 2023 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.

11


The table below presents a rollforward by major security type for the three months ended March 31, 2023 and March 31, 2022 of the allowance for credit losses on securities available-for-sale.

(Dollars in thousands)Corporate Bonds
Three months ended March 31, 2023
Securities Available-for-Sale
Beginning balance$(1,140)
Change in securities for which a previous expected credit loss was recognized(292)
Ending balance$(1,432)
Three months ended March 31, 2022
Securities Available-for-Sale
Beginning balance$(929)
Additions for securities for which no previous expected credit losses were recognized(45)
Change in securities for which a previous expected credit loss was recognized(301)
Ending balance$(1,275)

At March 31, 2023, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has been recorded was $81.3 million, including unrealized losses of $8.9 million, and allowance for credit losses of $1.4 million. These holdings were comprised of 39 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 $69 thousand net loss and a $1 thousand net gain on equity securities during the three months ended March 31, 2023 and 2022, respectively, in other noninterest income. There were no sales of equity securities during the three months ended March 31, 2023 or 2022.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories

(Dollars in thousands)At March 31, 2023At December 31, 2022
Commercial, financial and agricultural$1,032,753 $1,088,928 
Real estate-commercial3,128,210 3,027,955 
Real estate-construction376,569 381,811 
Real estate-residential secured for business purpose498,505 478,254 
Real estate-residential secured for personal purpose779,557 730,395 
Real estate-home equity secured for personal purpose172,073 176,699 
Loans to individuals28,656 27,873 
Lease financings223,481 211,315 
Total loans and leases held for investment, net of deferred income$6,239,804 $6,123,230 
Less: Allowance for credit losses, loans and leases(80,034)(79,004)
Net loans and leases held for investment$6,159,770 $6,044,226 
Imputed interest on lease financings, included in the above table$(24,386)$(21,932)
Net deferred costs, included in the above table6,633 6,053 
Overdraft deposits included in the above table154 93 
12


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 March 31, 2023 and December 31, 2022:
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 March 31, 2023
Commercial, financial and agricultural$1,348 $ $ $1,348 $1,027,982 $1,029,330 $3,423 $1,032,753 
Real estate—commercial real estate and construction:
Commercial real estate328  1,195 1,523 3,122,399 3,123,922 4,288 3,128,210 
Construction    376,186 376,186 383 376,569 
Real estate—residential and home equity:
Residential secured for business purpose308 768  1,076 496,670 497,746 759 498,505 
Residential secured for personal purpose1,506   1,506 776,551 778,057 1,500 779,557 
Home equity secured for personal purpose835 74  909 170,216 171,125 948 172,073 
Loans to individuals20 4 47 71 28,585 28,656  28,656 
Lease financings1,207 371 754 2,332 221,088 223,420 61 223,481 
Total$5,552 $1,217 $1,996 $8,765 $6,219,677 $6,228,442 $11,362 $6,239,804 
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, 2022
Commercial, financial and agricultural$1,616 $343 $— $1,959 $1,081,897 $1,083,856 $5,072 $1,088,928 
Real estate—commercial real estate and construction:
Commercial real estate3,281 290 20 3,591 3,019,827 3,023,418 4,537 3,027,955 
Construction315 — — 315 381,496 381,811 — 381,811 
Real estate—residential and home equity:
Residential secured for business purpose375 203 263 841 476,400 477,241 1,013 478,254 
Residential secured for personal purpose4,127 162 319 4,608 723,798 728,406 1,989 730,395 
Home equity secured for personal purpose953 225 — 1,178 174,781 175,959 740 176,699 
Loans to individuals32 153 39 224 27,649 27,873 — 27,873 
Lease financings3,555 341 234 4,130 207,183 211,313 211,315 
Total$14,254 $1,717 $875 $16,846 $6,093,031 $6,109,877 $13,353 $6,123,230 

13


Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at March 31, 2023 and December 31, 2022.
 At March 31, 2023At December 31, 2022
(Dollars in thousands)Nonaccrual
Loans and
Leases
Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest
Total Nonperforming
Loans and
Leases
Nonaccrual
Loans and
Leases
Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest
Total Nonperforming
Loans and
Leases
Commercial, financial and agricultural$3,423 $ $3,423 $5,072 $— $5,072 
Real estate—commercial real estate and construction:
Commercial real estate4,288 1,195 5,483 4,537 20 4,557 
Construction383  383 — — — 
Real estate—residential and home equity:
Residential secured for business purpose759  759 1,013 263 1,276 
Residential secured for personal purpose1,500  1,500 1,989 319 2,308 
Home equity secured for personal purpose948  948 740 — 740 
Loans to individuals 47 47 — 39 39 
Lease financings61 754 815 234 236 
Total$11,362 $1,996 $13,358 $13,353 $875 $14,228 

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 March 31, 2023 and December 31, 2022.
(Dollars in thousands)Nonaccrual With No ACLNonaccrual With ACLTotal NonaccrualLoans and Leases 90 Days or more Past Due and Accruing Interest
At March 31, 2023
Commercial, financial and agricultural$159 $3,264 $3,423 $ 
Real estate-commercial4,288  4,288 1,195 
Real estate-construction383  383  
Real estate-residential secured for business purpose759  759  
Real estate-residential secured for personal purpose1,500  1,500  
Real estate-home equity secured for personal purpose948  948  
Loans to individuals   47 
Lease financings 61 61 754 
Total$8,037 $3,325 $11,362 $1,996 
At December 31, 2022
Commercial, financial and agricultural$225 $4,847 $5,072 $— 
Real estate-commercial4,537 — 4,537 20 
Real estate-residential secured for business purpose1,013 — 1,013 263 
Real estate-residential secured for personal purpose1,989 — 1,989 319 
Real estate-home equity secured for personal purpose740 — 740 — 
Loans to individuals— — — 39 
Lease financings— 234 
Total$8,504 $4,849 $13,353 $875 

For the three months ended March 31, 2023, $6 thousand of interest income was recognized on nonaccrual loans and leases.
14


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 March 31, 2023 and December 31, 2022.

(Dollars in thousands)Real Estate
Other (1)
None (2)
Total
At March 31, 2023
Commercial, financial and agricultural$3,423 $ $ $3,423 
Real estate-commercial4,288   4,288 
Real estate-construction383   383 
Real estate-residential secured for business purpose759   759 
Real estate-residential secured for personal purpose1,500   1,500 
Real estate-home equity secured for personal purpose948   948 
Lease financings 61  61 
Total$11,301 $61 $ $11,362 
(Dollars in thousands)Real Estate
Other (1)
None (2)
Total
At December 31, 2022
Commercial, financial and agricultural$2,743 $— $2,329 $5,072 
Real estate-commercial4,537 — — 4,537 
Real estate-residential secured for business purpose1,013 — — 1,013 
Real estate-residential secured for personal purpose1,989 — — 1,989 
Real estate-home equity secured for personal purpose740 — — 740 
Lease financings— — 
Total$11,022 $$2,329 $13,353 
(1) Collateral consists of business assets, including accounts receivable, personal property and equipment.
(2) Loans fully guaranteed by the SBA or fully reserved given lack of collateral.

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, 2022. 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, 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

15


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, real estate-commercial loans, real estate-construction loans and real estate-residential secured for a business purpose loans by credit quality indicator at March 31, 2023 and December 31, 2022.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
At March 31, 2023
Commercial, Financial and Agricultural
Risk Rating
1. Pass$27,521 $194,140 $145,736 $36,286 $25,788 $67,231 $469,953 $729 $967,384 
2. Special Mention 3,926 21,196 2,362 7,098  27,337  61,919 
3. Substandard  108  589  2,753  3,450 
Total$27,521 $198,066 $167,040 $38,648 $33,475 $67,231 $500,043 $729 $1,032,753 
Current period gross charge-offs$ $ $247 $23 $ $ $2,578 $ $2,848 
Real Estate-Commercial
Risk Rating
1. Pass$117,401 $880,556 $682,078 $703,079 $360,218 $304,672 $52,553 $ $3,100,557 
2. Special Mention 854 10,250 5,725  2,816 1,771  21,416 
3. Substandard  1,949 1,701  2,587   6,237 
Total$117,401 $881,410 $694,277 $710,505 $360,218 $310,075 $54,324 $ $3,128,210 
Current period gross charge-offs$ $ $ $ $ $50 $ $ $50 
Real Estate-Construction
Risk Rating
1. Pass$36,683 $261,911 $27,799 $3,949 $255 $2,761 $26,178 $ $359,536 
2. Special Mention 5,352     5,472  10,824 
3. Substandard 380   5,829    6,209 
Total$36,683 $267,643 $27,799 $3,949 $6,084 $2,761 $31,650 $ $376,569 
Current period gross charge-offs$ $ $ $207 $ $ $ $ $207 
Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass$30,786 $162,069 $131,702 $65,443 $40,142 $38,726 $27,696 $ $496,564 
2. Special Mention   245  934   1,179 
3. Substandard  211 26  488 37  762 
Total$30,786 $162,069 $131,913 $65,714 $40,142 $40,148 $27,733 $ $498,505 
Totals By Risk Rating
1. Pass$212,391 $1,498,676 $987,315 $808,757 $426,403 $413,390 $576,380 $729 $4,924,041 
2. Special Mention 10,132 31,446 8,332 7,098 3,750 34,580  95,338 
3. Substandard 380 2,268 1,727 6,418 3,075 2,790  16,658 
Total$212,391 $1,509,188 $1,021,029 $818,816 $439,919 $420,215 $613,750 $729 $5,036,037 
Total current period gross charge-offs$ $ $247 $230 $ $50 $2,578 $ $3,105 

16


Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
At December 31, 2022
Commercial, Financial and Agricultural
Risk Rating
1. Pass$233,064 $148,033 $41,091 $28,269 $28,209 $48,631 $487,818 $125 $1,015,240 
2. Special Mention2,732 28,220 9,623 8,104 26 — 19,829 — 68,534 
3. Substandard— 13 — — — — 5,141 — 5,154 
Total$235,796 $176,266 $50,714 $36,373 $28,235 $48,631 $512,788 $125 $1,088,928 
Real Estate-Commercial
Risk Rating
1. Pass$877,703 $680,432 $724,941 $332,702 $118,034 $208,974 $54,139 $— $2,996,925 
2. Special Mention869 8,173 11,582 944 85 3,002 1,838 — 26,493 
3. Substandard— — 1,770 — 2,222 495 50 — 4,537 
Total$878,572 $688,605 $738,293 $333,646 $120,341 $212,471 $56,027 $— $3,027,955 
Real Estate-Construction
Risk Rating
1. Pass$243,983 $52,485 $8,341 $34,670 $191 $442 $30,223 $— $370,335 
2. Special Mention— 5,781 — 5,695 — — — — 11,476 
3. Substandard— — — — — — — — — 
Total$243,983 $58,266 $8,341 $40,365 $191 $442 $30,223 $— $381,811 
Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass$165,844 $128,669 $67,955 $39,794 $21,226 $23,324 $29,239 $— $476,051 
2. Special Mention— — 247 — — 941 — — 1,188 
3. Substandard— 211 27 — 38 594 145 — 1,015 
Total$165,844 $128,880 $68,229 $39,794 $21,264 $24,859 $29,384 $— $478,254 
Totals By Risk Rating
1. Pass$1,520,594 $1,009,619 $842,328 $435,435 $167,660 $281,371 $601,419 $125 $4,858,551 
2. Special Mention3,601 42,174 21,452 14,743 111 3,943 21,667 — 107,691 
3. Substandard— 224 1,797 — 2,260 1,089 5,336 — 10,706 
Total$1,524,195 $1,052,017 $865,577 $450,178 $170,031 $286,403 $628,422 $125 $4,976,948 

The Corporation had no loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at March 31, 2023 or December 31, 2022.

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, 2022. Loans and leases past due 90 days or more and loans and leases on nonaccrual status 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.



17


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 March 31, 2023 and December 31, 2022.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
At March 31, 2023
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$45,329 $265,019 $213,723 $138,347 $23,519 $92,037 $83 $778,057 
2. Nonperforming 158 47  309 986  1,500 
Total$45,329 $265,177 $213,770 $138,347 $23,828 $93,023 $83 $779,557 
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$219 $2,761 $614 $467 $186 $1,743 $165,135 $171,125 
2. Nonperforming     45 903 948 
Total$219 $2,761 $614 $467 $186 $1,788 $166,038 $172,073 
Loans to Individuals
Payment Performance
1. Performing$502 $1,317 $763 $494 $197 $1,359 $23,977 $28,609 
2. Nonperforming     47  47 
Total$502 $1,317 $763 $494 $197 $1,406 $23,977 $28,656 
Current period gross charge-offs$38 $19 $ $5 $ $ $43 $105 
Lease Financings
Payment Performance
1. Performing$31,451 $88,155 $56,656 $29,682 $12,776 $3,946 $ $222,666 
2. Nonperforming 654 111 18 4 28  815 
Total$31,451 $88,809 $56,767 $29,700 $12,780 $3,974 $ $223,481 
Current period gross charge-offs$ $ $ $20 $ $ $ $20 
Totals by Payment Performance
1. Performing$77,501 $357,252 $271,756 $168,990 $36,678 $99,085 $189,195 $1,200,457 
2. Nonperforming 812 158 18 313 1,106 903 3,310 
Total$77,501 $358,064 $271,914 $169,008 $36,991 $100,191 $190,098 $1,203,767 
Total current period gross charge-offs$38 $19 $ $25 $ $ $43 $125 
18


Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
At December 31, 2022
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$258,293 $211,638 $140,822 $23,827 $18,273 $75,126 $108 $728,087 
2. Nonperforming— 48 466 319 306 1,169 — 2,308 
Total$258,293 $211,686 $141,288 $24,146 $18,579 $76,295 $108 $730,395 
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$2,945 $642 $491 $192 $205 $1,565 $169,870 $175,910 
2. Nonperforming— — — — 157 629 789 
Total$2,945 $642 $491 $192 $362 $1,568 $170,499 $176,699 
Loans to Individuals
Payment Performance
1. Performing$1,581 $857 $554 $247 $138 $1,340 $23,117 $27,834 
2. Nonperforming— — — — — 39 — 39 
Total$1,581 $857 $554 $247 $138 $1,379 $23,117 $27,873 
Lease Financings
Payment Performance
1. Performing$94,430 $61,680 $33,468 $15,164 $5,569 $768 $— $211,079 
2. Nonperforming41 56 17 21 90 11 — 236 
Total$94,471 $61,736 $33,485 $15,185 $5,659 $779 $— $211,315 
Totals by Payment Performance
1. Performing$357,249 $274,817 $175,335 $39,430 $24,185 $78,799 $193,095 $1,142,910 
2. Nonperforming41 104 483 340 553 1,222 629 3,372 
Total$357,290 $274,921 $175,818 $39,770 $24,738 $80,021 $193,724 $1,146,282 

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at March 31, 2023 or December 31, 2022.

19


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 months ended March 31, 2023 and 2022. There were no changes to the reasonable and supportable forecast period, the reversion period, or any significant methodology changes during the three months ended March 31, 2023.
(Dollars in thousands)Beginning balanceProvision (reversal of provision) for credit lossesCharge-offsRecoveriesEnding balance
Three Months Ended March 31, 2023
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural$16,920 $547 $(2,848)$106 $14,725 
Real estate-commercial41,673 1,524 (50)3 43,150 
Real estate-construction4,952 (64)(207) 4,681 
Real estate-residential secured for business purpose7,054 1,125  181 8,360 
Real estate-residential secured for personal purpose3,685 1,327   5,012 
Real estate-home equity secured for personal purpose1,287 (66) 50 1,271 
Loans to individuals351 113 (105)16 375 
Lease financings3,082 (634)(20)32 2,460 
Unallocated  N/AN/A 
Total$79,004 $3,872 $(3,230)$388 $80,034 
Three Months Ended March 31, 2022
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural$13,538 $(1,672)$(214)$189 $11,841 
Real estate-commercial41,095 (669)— — 40,426 
Real estate-construction4,575 (941)— — 3,634 
Real estate-residential secured for business purpose6,482 (328)— 48 6,202 
Real estate-residential secured for personal purpose2,403 189 — — 2,592 
Real estate-home equity secured for personal purpose1,028 (53)— 976 
Loans to individuals363 57 (75)24 369 
Lease financings2,290 (59)10 2,246 
Unallocated150 (150)N/AN/A— 
Total$71,924 $(3,562)$(348)$272 $68,286 
N/A – Not applicable

20


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 March 31, 2023 and 2022:
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 March 31, 2023
Commercial, financial and agricultural$912 $13,813 $14,725 $3,423 $1,029,330 $ $1,032,753 
Real estate-commercial 43,150 43,150 4,288 3,123,922  3,128,210 
Real estate-construction 4,681 4,681 383 376,186  376,569 
Real estate-residential secured for business purpose 8,360 8,360 759 497,746  498,505 
Real estate-residential secured for personal purpose 5,012 5,012 1,500 778,057  779,557 
Real estate-home equity secured for personal purpose 1,271 1,271 948 171,125  172,073 
Loans to individuals 375 375  28,656  28,656 
Lease financings 2,460 2,460  223,481  223,481 
Total$912 $79,122 $80,034 $11,301 $6,228,503 $ $6,239,804 
At March 31, 2022
Commercial, financial and agricultural$— $11,841 $11,841 $448 $942,335 $— $942,783 
Real estate-commercial954 39,472 40,426 26,411 2,790,313 13 2,816,737 
Real estate-construction— 3,634 3,634 — 285,083 — 285,083 
Real estate-residential secured for business purpose— 6,202 6,202 1,120 411,366 — 412,486 
Real estate-residential secured for personal purpose— 2,592 2,592 2,259 566,476 — 568,735 
Real estate-home equity secured for personal purpose— 976 976 489 159,645 — 160,134 
Loans to individuals— 369 369 — 26,249 — 26,249 
Lease financings— 2,246 2,246 — 188,579 — 188,579 
Total$954 $67,332 $68,286 $30,727 $5,370,046 $13 $5,400,786 
N/A – Not applicable

Modified Loans to Borrowers Experiencing Financial Difficulty

The following presents, by class of loans, information regarding accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during the three months ended March 31, 2023.

 Three Months Ended March 31, 2023
(Dollars in thousands)Number
of
Loans
Amortized Cost Basis*% of Total Class of Financing ReceivableRelated
Reserve
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—construction1 $5,829 1.2 %$16 
Total1 $5,829 $16 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial, financial and agricultural1 $2,620 0.3 %$538 
Total1 $2,620 $538 
*Amortized cost excludes $26 thousand of accrued interest receivable on modified loans.
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The following presents, by class of loans, information regarding the financial effect on accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during the three months ended March 31, 2023.
 Term Extension
(Dollars in thousands)No. of
Loans
Financial Effect
Three Months Ended March 31, 2023
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—construction1 Extended the loan maturity by 8 months to allow time for the construction to be completed. 3 months of interest payments were capitalized to the loan balance.
Total1 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial, financial and agricultural1 Extended the loan maturity by 10 months in order to provide time to borrower to liquidate collateral for loan payoff.
Total1 

There were no accruing or nonaccrual modified loans to borrowers experiencing financial difficulty for which there were payment defaults after the modification date for the three months ended March 31, 2023.
The following presents, by class of loans, the amortized cost and payment status of accruing and nonaccrual modified loans to borrowers experiencing financial difficulty at March 31, 2023.
At March 31, 2023
(Dollars in thousands)Current30-89 Days Past Due90 Days or More Past DueTotal
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—construction$5,829 $ $ $5,829 
Total$5,829 $ $ $5,829 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Commercial, financial and agricultural$2,620 $ $ $2,620 
Total$2,620 $ $ $2,620 

The following presents the amount of consumer mortgages collateralized by residential real estate property that were in the process of foreclosure at March 31, 2023 or December 31, 2022.
(Dollars in thousands)At March 31, 2023At December 31, 2022
Real estate-residential secured for personal purpose$2,812 $822 
Real estate-home equity secured for personal purpose71 72 
Total$2,883 $894 
There was no foreclosed residential real estate property included in other real estate owned at March 31, 2023 or December 31, 2022.
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Lease Financings

The following presents the schedule of minimum lease payments receivable:
(Dollars in thousands)At March 31, 2023At December 31, 2022
2023 (excluding the three months ended March 31, 2023)$74,280 $75,900 
202466,701 61,793 
202549,414 45,738 
202633,086 29,902 
202714,603 13,091 
Thereafter5,421 2,552 
Total future minimum lease payments receivable243,505 228,976 
Plus: Unguaranteed residual1,212 1,387 
Plus: Initial direct costs3,150 2,884 
Less: Imputed interest(24,386)(21,932)
Lease financings$223,481 $211,315 

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 three months ended March 31, 2023 were as follows:
(Dollars in thousands)BankingWealth ManagementInsuranceConsolidated
Balance at December 31, 2022$138,476 $15,434 $21,600 $175,510 
Addition to goodwill from acquisitions— — — — 
Balance at March 31, 2023$138,476 $15,434 $21,600 $175,510 

The Corporation also has core deposit and customer-related intangibles, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The following table reflects the components of intangible assets at the dates indicated:
At March 31, 2023At December 31, 2022
(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 $6,048 $740 $6,788 $5,939 $849 
Customer related intangibles4,162 2,318 1,844 8,493 6,530 1,963 
Servicing rights29,181 20,721 8,460 28,904 20,332 8,572 
Total amortized intangible assets$40,131 $29,087 $11,044 $44,185 $32,801 $11,384 
(1) Included within accumulated amortization is a valuation allowance of $40 thousand and $5 thousand on servicing rights at March 31, 2023 and December 31, 2022, respectively.

23


The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of 2023 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2023$616 
2024648 
2025469 
2026319 
2027216 
Thereafter316 
Total$2,584 
The aggregate fair value of servicing rights was $16.8 million at March 31, 2023 and December 31, 2022. The fair value of these rights was determined using a discount rate ranging from 10.4% to 12.4% at March 31, 2023 and 10.1% to 12.0% at December 31, 2022.
Changes in the servicing rights balance are summarized as follows:
 Three Months Ended March 31,
(Dollars in thousands)20232022
Beginning of period$8,572 $7,878 
Servicing rights capitalized277 714 
Amortization of servicing rights(354)(476)
Changes in valuation allowance(35)
End of period$8,460 $8,122 
Loans serviced for others$1,496,319 $1,440,562 

Activity in the valuation allowance for servicing rights was as follows:
 Three Months Ended March 31,
(Dollars in thousands)20232022
Valuation allowance, beginning of period$(5)$(13)
Additions(35)— 
Reductions 
Valuation allowance, end of period$(40)$(7)

The estimated amortization expense of servicing rights for the remainder of 2023 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2023$1,072 
2024958 
2025855 
2026761 
2027641 
Thereafter4,173 
Total$8,460 

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Note 6. Deposits

Deposits and their respective weighted average interest rate at March 31, 2023 and December 31, 2022 consisted of the following:
At March 31, 2023At December 31, 2022
Weighted Average Interest RateAmountWeighted Average Interest RateAmount
(Dollars in thousands)
Noninterest-bearing deposits %$1,799,225 — %$2,047,263 
Demand deposits2.56 2,433,575 2.02 2,321,748 
Savings deposits0.39 955,530 0.25 1,025,431 
Time deposits2.91 646,327 2.07 519,084 
Total1.45 %$5,834,657 1.02 %$5,913,526 

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 $121.7 million at March 31, 2023 and $95.0 million at December 31, 2022.

At March 31, 2023, the scheduled maturities of time deposits were as follows:
Year(Dollars in thousands)Amount
Remainder of 2023$259,767 
2024196,555 
2025158,162 
202614,600 
20278,246 
Thereafter8,997 
Total$646,327 

Note 7. Borrowings

The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less.
At March 31, 2023At December 31, 2022
(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$163,700 5.15 %$125,000 4.45 %
Federal funds purchased90,000 5.26 60,000 4.63 
Customer repurchase agreements18,181 0.05 12,141 0.05 
Long-term debt:
FHLB advances$220,000 3.52 %$95,000 1.34 %
Subordinated notes148,385 6.08 148,260 6.09 

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (the FHLB) with a maximum borrowing capacity of approximately $3.0 billion. All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At March 31, 2023 and December 31, 2022, the Bank had outstanding short-term letters of credit with the FHLB totaling $830.4 million and $690.5 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 $1.7 billion at March 31, 2023.    

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 $119.6 million and $98.1
25


million at March 31, 2023 and December 31, 2022, respectively. At March 31, 2023 and December 31, 2022, 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 March 31, 2023 and December 31, 2022, the Corporation had no outstanding borrowings under this line.

The Corporation and the Bank had $3.1 billion and $3.0 billion of committed borrowing capacity at March 31, 2023 and December 31, 2022, respectively, of which $1.9 billion and $2.1 billion was available as of March 31, 2023 and December 31, 2022, respectively. The Corporation, through the Bank, also maintained uncommitted funding sources from correspondent banks of $410.0 million at March 31, 2023 and December 31, 2022, of which $320.0 million and $350.0 million were unused as of March 31, 2023 and December 31, 2022, respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
Long-term advances with the FHLB of Pittsburgh mature as follows:
(Dollars in thousands)As of March 31, 2023Weighted Average Rate
Remainder of 2023$10,000 3.02 %
202485,000 2.10 
202550,000 4.59 
202650,000 4.42 
2027— — 
Thereafter25,000 4.61 
Total$220,000 3.52 %

Note 8. Retirement Plans and Other Postretirement Benefits

Information with respect to the Retirement Plans and Other Postretirement Benefits follows: 
 Three Months Ended March 31,
 2023202220232022
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$130 $137 $19 $30 
Interest cost597 390 32 24 
Expected loss on plan assets(770)(933) — 
Amortization of net actuarial loss (gain)250 204 (4)14 
Net periodic benefit cost (income)$207 $(202)$47 $68 
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 $130 thousand to Other Postretirement Benefit Plans in 2023. During the three months ended March 31, 2023, the Corporation contributed $39 thousand to its Non-Qualified Retirement Benefit Plans and $23 thousand to its Other Postretirement Benefit Plans. During the three months ended March 31, 2023, $713 thousand was paid to participants from the Retirement Plans and $23 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. On April 26, 2023, the 2023 Equity Incentive Plan was approved by shareholders at the Corporation's annual meeting.

26


The following is a summary of the Corporation's stock option activity and related information for the three months ended March 31, 2023:
(Dollars in thousands, except per share data)Shares Under OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value at March 31, 2023
Outstanding at December 31, 2022294,111 $26.11 
Exercised(4,167)17.89 
Outstanding at March 31, 2023289,944 26.23 3.9$302 
Exercisable at March 31, 2023289,944 26.23 3.9302 
The Corporation did not issue stock options during the three months ended March 31, 2023 or March 31, 2022.
The following is a summary of nonvested restricted stock units at March 31, 2023 including changes during the three 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, 2022408,264 $25.57 
Granted213,429 25.04 
Added by performance factor814 19.20 
Vested(174,798)21.95 
Forfeited(6,114)27.62 
Nonvested stock units at March 31, 2023441,595 $26.71 

Certain information regarding restricted stock units is summarized below for the periods indicated:
Three Months Ended March 31,
(Dollars in thousands, except per share data)20232022
Restricted stock units granted213,429 164,319 
Weighted average grant date fair value$25.04 $28.36 
Intrinsic value of units granted$5,345 $4,660 
Restricted stock units vested174,798 118,834 
Weighted average grant date fair value$21.95 $23.29 
Intrinsic value of units vested$4,385 $3,377 

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 March 31, 2023 is presented below:
(Dollars in thousands)Unrecognized Compensation CostWeighted-Average Period Remaining (Years)
Restricted stock units$9,603 2.3

The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:
Three Months Ended March 31,
(Dollars in thousands)20232022
Stock-based compensation expense:
Restricted stock units$1,110 $934 
Employee stock purchase plan29 25 
Total$1,139 $959 
Tax benefit on nonqualified stock option expense and disqualifying dispositions of incentive stock options$35 $

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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, 2022$(40,066)$(6,831)$(15,207)$(62,104)
Other comprehensive income4,491 1,869 194 6,554 
Balance, March 31, 2023$(35,575)$(4,962)$(15,013)$(55,550)
Balance, December 31, 2021$(1,216)$(159)$(14,978)$(16,353)
Other comprehensive (loss) income(15,842)114 172 (15,556)
Balance, March 31, 2022$(17,058)$(45)$(14,806)$(31,909)

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 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 currently is and is expected to be highly effective in offsetting changes in cash flows of the hedged item. At March 31, 2023, approximately $3.6 million, 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 March 31, 2023. At March 31, 2023, the notional amount of the interest rate swap was $250.0 million and the fair value was a liability of $6.3 million.

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 March 31, 2023, the Corporation had exposure to 124 variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $792.8 million and remaining maturities ranging from 13 months to 11 years. At March 31, 2023, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $330 thousand. At March 31, 2023, the fair value of the swaps to the customers was a net gain of $58.1 million. At March 31, 2023, the Corporation's credit exposure related to the customer totaled $1.7 million.

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
28


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 March 31, 2023 and December 31, 2022. 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 March 31, 2023
Interest rate swap - cash flow hedge $250,000  $ Other liabilities$6,282 
Total$250,000 $ $6,282 
At December 31, 2022
Interest rate swap - cash flow hedge $250,000  $— Other liabilities$8,647 
Total$250,000 $— $8,647 
The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the condensed consolidated balance sheets at March 31, 2023 and December 31, 2022:
  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount
Balance Sheet
Classification
Fair
Value
Balance Sheet
Classification
Fair
Value
At March 31, 2023
Credit derivatives$792,838  $ Other liabilities$330 
Interest rate locks with customers21,208 Other assets265   
Forward loan sale commitments26,633   Other liabilities6 
Total$840,679 $265 $336 
At December 31, 2022
Credit derivatives$815,469 $— Other liabilities$360 
Interest rate locks with customers10,269 Other assets119  — 
Forward loan sale commitments15,306 Other assets29  — 
Total$841,044 $148 $360 

The following table presents amounts included in the condensed consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:
Statement of Income
Classification
Three Months Ended
March 31,
(Dollars in thousands)20232022
Interest rate swap—cash flow hedge—net interest paymentsInterest expense$1,060 $68 
Total net loss$(1,060)$(68)

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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 Ended
March 31,
(Dollars in thousands)20232022
Credit derivativesOther noninterest income$86 $450 
Interest rate locks with customersNet gain (loss) on mortgage banking activities146 (1,010)
Forward loan sale commitmentsNet (loss) gain on mortgage banking activities(34)719 
Total net gain$198 $159 

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at March 31, 2023 and December 31, 2022:
(Dollars in thousands)Accumulated Other
Comprehensive (Loss) Income
At March 31, 2023At December 31, 2022
Interest rate swap—cash flow hedgeFair value, net of taxes$(4,962)$(6,831)
Total$(4,962)$(6,831)

Note 12. Fair Value Disclosures

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Corporation determines the fair value of financial instruments based on the fair value hierarchy. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Corporation. Unobservable inputs are inputs that reflect the Corporation’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement. Transfers between levels are recognized at the end of the reporting periods.
Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2: Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include U.S. Treasury securities, most equity securities and money market mutual funds. Mutual funds are registered investment companies which are valued at net asset value of shares on a market exchange at the end of each trading day. Level 2 of the valuation hierarchy includes securities issued by U.S. Government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds and certain equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy.

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

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at March 31, 2023.

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.
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The following table presents the assets and liabilities measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022, classified using the fair value hierarchy:
 At March 31, 2023
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$ $2,297 $ $2,297 
Residential mortgage-backed securities 280,794  280,794 
Collateralized mortgage obligations 2,271  2,271 
Corporate bonds 82,294  82,294 
Total available-for-sale securities 367,656  367,656 
Equity securities:
Equity securities - financial services industry711   711 
Money market mutual funds2,394   2,394 
Total equity securities3,105   3,105 
Loans held for sale 5,425  5,425 
Interest rate locks with customers* 265  265 
Total assets$3,105 $373,346 $ $376,451 
Liabilities:
Contingent consideration liability$ $ $1,154 $1,154 
Interest rate swaps* 6,282  6,282 
Credit derivatives*  330 330 
Forward loan sale commitments* 6  6 
Total liabilities$ $6,288 $1,484 $7,772 
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."

The $330 thousand of credit derivatives liability represented the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of 124 interest rate swaps with a notional amount of $792.8 million. The March 31, 2023 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 Sheaffer acquisition range from $0 to a maximum of $1.9 million over the three-year period ending November 30, 2024.

32


 At December 31, 2022
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$— $2,285 $— $2,285 
Residential mortgage-backed securities— 263,388 — 263,388 
Collateralized mortgage obligations— 2,322 — 2,322 
Corporate bonds— 82,261 — 82,261 
Total available-for-sale securities— 350,256 — 350,256 
Equity securities:
Equity securities - financial services industry780 — — 780 
Money market mutual funds1,799 — — 1,799 
Total equity securities2,579 — — 2,579 
Loans held for sale— 5,037 — 5,037 
Interest rate locks with customers*— 119 — 119 
Forward loan sale commitments*— 29 — 29 
Total assets$2,579 $355,441 $— $358,020 
Liabilities:
Contingent consideration liability$— $— $1,765 $1,765 
Interest rate swaps*— 8,647 — 8,647 
Credit derivatives*— — 360 360 
Total liabilities$— $8,647 $2,125 $10,772 
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."
The $360 thousand of credit derivatives liability represented the CVA, which is obtained from real-time financial market data, of 127 interest rate swaps with a notional amount of $815.5 million. The December 31, 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 Sheaffer acquisition range from $0 to a maximum of $1.9 million over the three-year period ending November 30, 2024.
The following table includes a roll forward of loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three months ended March 31, 2023 and 2022:
 Three Months Ended March 31, 2023
(Dollars in thousands)Balance at
December 31,
2022
AdditionsPayments receivedIncrease in valueBalance at March 31, 2023
Credit derivatives(360)(57) 87 (330)
Net total $(360)$(57)$ $87 $(330)
 Three Months Ended March 31, 2022
(Dollars in thousands)Balance at
December 31,
2021
AdditionsPayments receivedIncrease (decrease) in valueBalance at March 31, 2022
Loans48 — (35)— 13 
Credit derivatives(381)(526)— 450 (457)
Net total$(333)$(526)$(35)$450 $(444)
33


The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three months ended March 31, 2023 and 2022:
 Three Months Ended March 31, 2023
(Dollars in thousands)Balance at
December 31,
2022
Payment of
Contingent
Consideration
Adjustment
of Contingent
Consideration
Balance at March 31, 2023
Paul I. Sheaffer Insurance Agency$1,765 $635 $24 $1,154 
Total contingent consideration liability$1,765 $635 $24 $1,154 
 Three Months Ended March 31, 2022
(Dollars in thousands)Balance at
December 31,
2021
Payment of
Contingent
Consideration
Adjustment
of Contingent
Consideration
Balance at March 31, 2022
Paul I. Sheaffer Insurance Agency$1,629 $— $34 $1,663 
Total contingent consideration liability$1,629 $— $34 $1,663 

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or changes in the value of loans held for investment analyzed on an individual basis. The following table represents assets measured at fair value on a non-recurring basis at March 31, 2023 and December 31, 2022:
 At March 31, 2023
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$ $ $10,389 $10,389 
Other real estate owned  19,000 19,000 
Total$ $ $29,389 $29,389 
 At December 31, 2022
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$— $— $10,586 $10,586 
Other real estate owned— — 19,258 19,258 
Total$— $— $29,844 $29,844 

34


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 March 31, 2023 and December 31, 2022. The disclosed fair values are classified using the fair value hierarchy.
 At March 31, 2023
(Dollars in thousands)Level 1Level 2Level 3Fair
Value
Carrying
Amount
Assets:
Cash and short-term interest-earning assets$138,324 $ $ $138,324 $138,324 
Held-to-maturity securities 133,147  133,147 151,347 
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA43,792 
Net loans and leases held for investment  6,097,345 6,097,345 6,149,381 
Servicing rights  16,827 16,827 8,460 
Total assets$138,324 $133,147 $6,114,172 $6,385,643 $6,491,304 
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$5,188,330 $ $ $5,188,330 $5,188,330 
Time deposits 637,072  637,072 646,327 
Total deposits5,188,330 637,072  5,825,402 5,834,657 
Short-term borrowings 271,881  271,881 271,881 
Long-term debt 220,903  220,903 220,000 
Subordinated notes 141,250  141,250 148,385 
Total liabilities$5,188,330 $1,271,106 $ $6,459,436 $6,474,923 

 At December 31, 2022
(Dollars in thousands)Level 1Level 2Level 3Fair
Value
Carrying
Amount
Assets:
Cash and short-term interest-earning assets$152,799 $— $— $152,799 $152,799 
Held-to-maturity securities— 134,068 — 134,068 154,727 
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA33,841 
Net loans and leases held for investment— — 5,912,050 5,912,050 6,033,640 
Servicing rights— — 16,826 16,826 8,572 
Total assets$152,799 $134,068 $5,928,876 $6,215,743 $6,383,579 
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$5,394,442 $— $— $5,394,442 $5,394,442 
Time deposits— 503,576 — 503,576 519,084 
Total deposits5,394,442 503,576 — 5,898,018 5,913,526 
Short-term borrowings— 197,141 — 197,141 197,141 
Long-term debt— 91,926 — 91,926 95,000 
Subordinated notes— 147,250 — 147,250 148,260 
Total liabilities$5,394,442 $939,893 $— $6,334,335 $6,353,927 

35


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 March 31, 2023, individually analyzed loans held for investment had a carrying amount of $11.3 million with a valuation allowance of $912 thousand. At December 31, 2022, individually analyzed loans held for investment had a carrying amount of $13.4 million with a valuation allowance of $2.8 million. The Corporation had no individually analyzed leases at March 31, 2023 or December 31, 2022.

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 March 31, 2023, servicing rights had a net carrying amount of $8.5 million, which included a valuation allowance of $40 thousand. At December 31, 2022, servicing rights had a net carrying amount of $8.6 million, which included a valuation allowance of $5 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 three months ended March 31, 2023, 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 March 31, 2023 and December 31, 2022, OREO had a carrying amount of $19.0 million and $19.3 million, respectively. During the three months ended March 31, 2023, one commercial real estate property with a carrying value of $257 thousand was sold. Other real estate owned is classified within Level 3 in the fair value hierarchy based on appraisals, letters of intent or agreement of sale received from third parties.

36


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 March 31, 2023, 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 March 31, 2023At December 31, 2022At March 31, 2022
Banking$7,238,593 $7,104,727 $6,997,081 
Wealth Management59,127 58,239 53,174 
Insurance46,059 44,728 42,240 
Other15,212 14,322 15,245 
Consolidated assets$7,358,991 $7,222,016 $7,107,740 
37


The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three months ended March 31, 2023 and 2022.
Three Months Ended
March 31, 2023
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$83,224 $20 $ $9 $83,253 
Interest expense20,676 979  2,281 23,936 
Net interest income (expense)62,548 (959) (2,272)59,317 
Provision for credit losses3,387    3,387 
Noninterest income6,237 6,759 6,720 (36)19,680 
Noninterest expense39,932 4,860 3,935 802 49,529 
Intersegment (revenue) expense*(237)115 122   
Income (loss) before income taxes25,703 825 2,663 (3,110)26,081 
Income tax expense (benefit)5,185 164 583 (885)5,047 
Net income (loss)$20,518 $661 $2,080 $(2,225)$21,034 
Net capital expenditures$2,201 $3 $56 $325 $2,585 

Three Months Ended
March 31, 2022
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$51,189 $$— $$51,198 
Interest expense3,180 30 — 1,328 4,538 
Net interest income (expense)48,009 (29)— (1,320)46,660 
Reversal of provision for credit losses(3,450)— — — (3,450)
Noninterest income7,370 7,305 5,764 31 20,470 
Noninterest expense36,488 4,709 3,865 350 45,412 
Intersegment (revenue) expense*(433)211 222 — — 
Income (loss) before income taxes22,774 2,356 1,677 (1,639)25,168 
Income tax expense (benefit)4,543 492 358 (542)4,851 
Net income (loss)$18,231 $1,864 $1,319 $(1,097)$20,317 
Net capital expenditures$(5,592)$63 $15 $20 $(5,494)
*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.

38


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;
General economic conditions, either nationally or in our market areas, that are worse than expected included as a result of employment levels and labor shortages, and the effect of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise;
Legislative, regulatory and accounting changes, including increased assessments by the Federal Deposit Insurance Corporation;
Monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;
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 that reduce our margins and yields, the fair value of financial instruments or our level of loan originations or prepayments on loans we have made and make;
Fluctuations in real estate values in our market area;
A failure to maintain adequate levels of capital and liquidity to support our operations;
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;
Changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;
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 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.
39


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, 2022 under the section entitled "Item 1A - Risk Factors," and from time to time in other filings made by the Corporation with the SEC.

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

Critical Accounting Policies

Management, in order to prepare the Corporation’s financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation’s financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses on loans and leases as critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation’s 2022 Annual Report on Form 10-K.

General

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

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

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

Executive Overview

The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:
Three Months Ended
 March 31,Change
(Dollars in thousands, except per share data)20232022AmountPercent
Net income$21,034 $20,317 $717 3.5 %
Net income per share:
Basic$0.72 $0.69 $0.03 4.3 
Diluted0.71 0.68 0.03 4.4 
Return on average assets1.18 %1.17 %1 BP0.9 
Return on average equity10.81 %10.64 %17 BP1.6 

40


Results of Operations

Net Interest Income

Net interest income is the difference between interest earned primarily on loans and leases and investment securities and interest paid on deposits, borrowings, long-term debt and subordinated notes. 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 months ended March 31, 2023 and 2022. 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 months ended March 31, 2023 versus 2022

Net interest income on a tax-equivalent basis for the three months ended March 31, 2023 was $59.7 million, an increase of $12.5 million, or 26.5%, compared to $47.2 million for the three months ended March 31, 2022. The increase in tax-equivalent net interest income for the three months ended March 31, 2023 compared to the comparable period in the prior year was largely due to significant loan balance growth and an increase in asset yields, offset by increases in the average balance of borrowings and the cost of funds.

The net interest margin, on a tax-equivalent basis, was 3.58% for the three months ended March 31, 2023 compared to 2.89% for the three months ended March 31, 2022. Excess liquidity had no impact on net interest margin for the three months ended March 31, 2023. Excess liquidity reduced net interest margin by approximately 33 basis points for the three months ended March 31, 2022. Excluding the impact of excess liquidity, the net interest margin, on a tax-equivalent basis, was 3.22% for the three months ended March 31, 2022.
41


Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
 Three Months Ended March 31,
 20232022
(Dollars in thousands)Average
Balance
Income/
Expense
Average
Rate
Average
Balance
Income/
Expense
Average
Rate
Assets:
Interest-earning deposits with other banks$47,835 $479 4.06 %$733,173 $357 0.20 %
U.S. government obligations   5,222 26 2.02 
Obligations of states and political subdivisions*2,286 17 3.02 2,332 19 3.30 
Other debt and equity securities513,594 3,495 2.76 514,574 2,339 1.84 
Federal Home Loan Bank, Federal Reserve Bank and other stock34,742 609 7.11 27,115 355 5.31 
Total interest-earning deposits, investments and other interest-earning assets598,457 4,600 3.12 1,282,416 3,096 0.98 
Commercial, financial and agricultural loans991,876 15,538 6.35 919,957 8,162 3.60 
Real estate—commercial and construction loans3,342,199 42,421 5.15 2,904,602 25,820 3.61 
Real estate—residential loans1,408,292 15,730 4.53 1,116,356 9,882 3.59 
Loans to individuals27,254 449 6.68 25,799 238 3.74 
Municipal loans and leases*229,955 2,341 4.13 242,508 2,434 4.07 
Lease financings165,314 2,541 6.23 135,476 2,075 6.21 
Gross loans and leases6,164,890 79,020 5.20 5,344,698 48,611 3.69 
Total interest-earning assets6,763,347 83,620 5.01 6,627,114 51,707 3.16 
Cash and due from banks58,035 53,698 
Allowance for credit losses, loans and leases(79,977)(72,067)
Premises and equipment, net51,583 53,948 
Operating lease right-of-use assets31,303 30,394 
Other assets394,920 354,893 
Total assets$7,219,211 $7,047,980 
Liabilities:
Interest-bearing checking deposits$857,891 $3,164 1.50 %$881,462 $443 0.20 %
Money market savings1,489,129 11,081 3.02 1,542,581 904 0.24 
Regular savings985,716 669 0.28 1,021,550 238 0.09 
Time deposits566,308 3,422 2.45 473,589 1,306 1.12 
     Total time and interest-bearing deposits3,899,044 18,336 1.91 3,919,182 2,891 0.30 
Short-term borrowings240,318 2,728 4.60 17,636 0.05 
Long-term debt112,222 591 2.14 95,000 317 1.35 
Subordinated notes148,319 2,281 6.24 98,911 1,328 5.45 
Total borrowings500,859 5,600 4.53 211,547 1,647 3.16 
Total interest-bearing liabilities4,399,903 23,936 2.21 4,130,729 4,538 0.45 
Noninterest-bearing deposits1,935,371 2,065,633 
Operating lease liabilities34,438 33,452 
Accrued expenses and other liabilities60,346 43,808 
Total liabilities6,430,058 6,273,622 
Total interest-bearing liabilities and noninterest-bearing deposits ("Cost of Funds")6,335,274 1.53 6,196,362 0.30 
Shareholders’ Equity:
Common stock157,784 157,784 
Additional paid-in capital300,293 298,975 
Retained earnings and other equity331,076 317,599 
Total shareholders’ equity789,153 774,358 
Total liabilities and shareholders’ equity$7,219,211 $7,047,980 
Net interest income$59,684 $47,169 
Net interest spread2.80 2.71 
Effect of net interest-free funding sources0.78 0.18 
Net interest margin3.58 %2.89 %
Ratio of average interest-earning assets to average interest-bearing liabilities153.72 %160.43 %
*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 amortization of $465 thousand and $136 thousand for the three months ended March 31, 2023 and 2022, 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 March 31, 2023 and 2022 have been calculated using the Corporation's federal applicable rate of 21%.
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Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.
Three Months Ended
 March 31, 2023 Versus 2022
(Dollars in thousands)Volume
Change
Rate
Change
Total
Interest income:
Interest-earning deposits with other banks$(639)$761 $122 
U.S. government obligations(26)— (26)
Obligations of states and political subdivisions— (2)(2)
Other debt and equity securities(4)1,160 1,156 
Federal Home Loan Bank, Federal Reserve Bank and other stock115 139 254 
Interest on deposits, investments and other earning assets(554)2,058 1,504 
Commercial, financial and agricultural loans684 6,692 7,376 
Real estate—commercial and construction loans4,332 12,269 16,601 
Real estate—residential loans2,922 2,926 5,848 
Loans to individuals14 197 211 
Municipal loans and leases(128)35 (93)
Lease financings459 466 
Interest and fees on loans and leases8,283 22,126 30,409 
Total interest income7,729 24,184 31,913 
Interest expense:
Interest-bearing checking deposits(12)2,733 2,721 
Money market savings(33)10,210 10,177 
Regular savings(9)440 431 
Time deposits299 1,817 2,116 
     Total time and interest-bearing deposits245 15,200 15,445 
Short-term borrowings327 2,399 2,726 
Long-term debt65 209 274 
Subordinated notes 738 215 953 
Interest on borrowings1,130 2,823 3,953 
Total interest expense1,375 18,023 19,398 
Net interest income$6,354 $6,161 $12,515 

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Provision for Credit Losses

The provision for credit losses for the three months ended March 31, 2023 was $3.4 million compared to a reversal of provision for credit losses of $3.5 million for the three months ended March 31, 2022. The following table details information pertaining to the Corporation’s allowance for credit losses on loans and leases as a percentage of loans and leases held for investment at the dates indicated.

(Dollars in thousands)March 31, 2023December 31, 2022September 30, 2022June 30, 2022March 31, 2022December 31, 2021
Allowance for credit losses, loans and leases$80,034 $79,004 $74,929 $72,011 $68,286 $71,924 
Loans and leases held for investment6,239,804 6,123,230 5,849,259 5,661,777 5,400,786 5,310,017 
Allowance for credit losses, loans and leases / loans and leases held for investment1.28 %1.29 %1.28 %1.27 %1.26 %1.35 %

Noninterest Income

The following table presents noninterest income for the three months ended March 31, 2023 and 2022:
Three Months Ended
 March 31,Change
(Dollars in thousands)20232022AmountPercent
Trust fee income$1,955 $2,102 $(147)(7.0 %)
Service charges on deposit accounts1,547 1,504 43 2.9 
Investment advisory commission and fee income4,752 5,152 (400)(7.8)
Insurance commission and fee income6,487 5,570 917 16.5 
Other service fee income3,076 2,756 320 11.6 
Bank owned life insurance income767 699 68 9.7 
Net gain on sales of investment securities 30 (30)N/M
Net gain on mortgage banking activities625 1,929 (1,304)(67.6)
Other income471 728 (257)(35.3)
Total noninterest income$19,680 $20,470 $(790)(3.9 %)

Three months ended March 31, 2023 versus 2022

Noninterest income for the three months ended March 31, 2023 was $19.7 million, a decrease of $790 thousand, or 3.9%, from the three months ended March 31, 2022.

The net gain on mortgage banking activities decreased $1.3 million, or 67.6%, for the three months ended March 31, 2023 from the comparable period in the prior year. The decrease for the three months ended March 31, 2023 was primarily due to a decrease in loan sales and a contraction of gain on sale margins due to the higher interest rate environment in 2023. Investment advisory commission and fee income decreased $400 thousand, or 7.8%, for the three months ended March 31, 2023 from the comparable period in the prior year, primarily driven by reduced assets under management and supervision due to market volatility.

Insurance commission and fee income increased $917 thousand, or 16.5%, for the three months ended March 31, 2023 from the comparable period in the prior year, primarily due to increases in premiums for group life and health and commercial lines and an increase in contingent commission income of $651 thousand, which was $1.8 million and $1.2 million for the quarters ended March 31, 2023 and 2022, respectively. Contingent income is largely recognized in the first quarter of the year.
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Noninterest Expense

The following table presents noninterest expense for the three months ended March 31, 2023 and 2022:
Three Months Ended
 March 31,Change
(Dollars in thousands)20232022AmountPercent
Salaries, benefits and commissions$31,014 $28,245 $2,769 9.8 %
Net occupancy2,727 2,716 11 0.4 
Equipment993 982 11 1.1 
Data processing4,029 3,567 462 13.0 
Professional fees1,941 2,138 (197)(9.2)
Marketing and advertising371 425 (54)(12.7)
Deposit insurance premiums1,101 893 208 23.3 
Intangible expenses253 341 (88)(25.8)
Other expense7,100 6,105 995 16.3 
Total noninterest expense$49,529 $45,412 $4,117 9.1 %
Three months ended March 31, 2023 versus 2022

Noninterest expense for the three months ended March 31, 2023 was $49.5 million, an increase of $4.1 million, or 9.1%, from the three months ended March 31, 2022.

Salaries, benefits and commissions increased $2.8 million, or 9.8%, for the three months ended March 31, 2023 from the comparable period in the prior year. This increase reflects our expansion into Maryland and Western Pennsylvania and annual merit increases. Additionally, capitalized compensation decreased by $429 thousand due to reduced loan production during the three months ended March 31, 2023.

Data processing expenses increased $462 thousand, or 13.0%, for the three months ended March 31, 2023 from the comparable period in the prior year, primarily due to our investments in technology in recent years and general price increases incurred in the second half of 2022. Other expense increased $995 thousand, or 16.3%, for the three months ended March 31, 2023 from the comparable period in the prior year, primarily due to increases in retirement plan costs of $407 thousand, which was primarily driven by the current interest rate environment, and Bank Shares tax expense of $110 thousand driven by year over year growth of the Bank's Shareholders' Equity.

Tax Provision

The Corporation recognized a tax expense of $5.0 million and $4.9 million for the three months ended March 31, 2023 and 2022, respectively, resulting in an effective rate of 19.4% and 19.3%, respectively. The effective tax rates for the three months ended March 31, 2023 and 2022 were favorably impacted by seven and eight basis points, respectively, of discrete tax benefits resulting from equity compensation awards vesting in the respective quarters. Additionally, the effective tax rates for the three months ended March 31, 2023 and 2022 reflected the benefits of tax-exempt income from investments in municipal securities and loans and leases.

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Financial Condition

Assets

The following table presents assets at the dates indicated:
 At March 31, 2023At December 31, 2022Change
(Dollars in thousands)AmountPercent
Cash, interest-earning deposits and federal funds sold$138,324 $152,799 $(14,475)(9.5)%
Investment securities522,108 507,562 14,546 2.9 
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost43,792 33,841 9,951 29.4 
Loans held for sale5,425 5,037 388 7.7 
Loans and leases held for investment6,239,804 6,123,230 116,574 1.9 
Allowance for credit losses, loans and leases(80,034)(79,004)(1,030)1.3 
Premises and equipment, net52,334 50,939 1,395 2.7 
Operating lease right-of-use assets31,663 30,059 1,604 5.3 
Goodwill and other intangibles, net186,554 186,894 (340)(0.2)
Bank owned life insurance128,926 120,297 8,629 7.2 
Accrued interest receivable and other assets90,095 90,362 (267)(0.3)
        Total assets$7,358,991 $7,222,016 $136,975 1.9 %
Cash and Interest-Earning Deposits

Cash and interest-earning deposits decreased $14.5 million, or 9.5%, from December 31, 2022, due to a decrease in cash letters and in clearing activity.

Investment Securities

Total investment securities at March 31, 2023 increased $14.5 million, or 2.9%, from December 31, 2022. Purchases of $19.7 million, primarily residential mortgage-backed securities, and increases in the fair value of available-for-sale investment securities of $5.7 million, were partially offset by maturities and pay-downs of $9.7 million, calls of $500 thousand, a provision for credit losses of $292 thousand, net amortization of purchased premiums and discounts of $276 thousand and sales of $10 thousand.

Loans and Leases

Gross loans and leases held for investment increased $116.6 million, or 1.9%, from December 31, 2022. The growth in gross loans and leases held for investment was primarily due to increases in commercial real estate, residential mortgage loans, and lease financings.

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

At March 31, 2023, nonaccrual loans and leases were $11.4 million and had a related allowance for credit losses on loans and leases of $912 thousand. At December 31, 2022, nonaccrual loans and leases were $13.4 million and had a related allowance for credit losses on loans and leases of $2.8 million. During the first quarter of 2023, $2.4 million of charge-offs were recorded against two existing nonaccrual commercial loans to one borrower. As of December 31, 2022, the allowance for
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credit losses included a $2.1 million specific reserve for this relationship. 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 March 31, 2023 were $2.8 million compared to $76 thousand for the same period in the prior year. The increase in charge-offs is primarily due to the previously discussed charged-off relationship.

Other real estate owned was $19.0 million at March 31, 2023 and $19.3 million at December 31, 2022, respectively. The decrease of $258 thousand was related to the sale of a commercial real estate property, which was transferred to other real estate owned in the third quarter of 2020.

Table 3—Nonaccrual and Past Due Loans and Leases; 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 March 31, 2023At December 31, 2022
Nonaccrual loans and leases$11,362 $13,353 
Accruing loans and leases, 90 days or more past due1,996 875 
Total nonperforming loans and leases$13,358 $14,228 
Other real estate owned19,000 19,258 
Total nonperforming assets$32,358 $33,486 
Loans and leases held for investment$6,239,804 $6,123,230 
Allowance for credit losses, loans and leases80,034 79,004 
Allowance for credit losses, loans and leases / loans and leases held for investment1.28 %1.29 %
Nonaccrual loans and leases / loans and leases held for investment0.18 %0.22 %
Allowance for credit losses, loans and leases / nonaccrual loans and leases704.40 %591.66 %

The following table provides additional information on the Corporation’s nonaccrual loans held for investment:
(Dollars in thousands)At March 31, 2023At December 31, 2022
Nonaccrual loans and leases$11,362 $13,353 
Nonaccrual loans and leases with partial charge-offs1,085 928 
Life-to-date partial charge-offs on nonaccrual loans and leases727 448 
Specific reserves on individually analyzed loans912 2,765 

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Table 4—Loan Portfolio Overview

The following table provides summarized detail related to outstanding commercial loan balances, excluding PPP loans, segmented by industry description as of March 31, 2023:
(Dollars in thousands)March 31, 2023
Industry DescriptionTotal Outstanding Balance % of Commercial Loan Portfolio
CRE - Retail$443,932 8.8 %
Animal Production341,832 6.8 
CRE - Office308,583 6.1 
CRE - Multi-family294,816 5.8 
CRE - 1-4 Family Residential Investment269,295 5.3 
Hotels & Motels (Accommodation)207,019 4.1 
CRE - Industrial / Warehouse199,372 4.0 
Nursing and Residential Care Facilities165,160 3.3 
Homebuilding (tract developers, remodelers)156,753 3.1 
Education155,441 3.1 
Specialty Trade Contractors149,939 3.0 
Merchant Wholesalers, Durable Goods128,837 2.6 
Motor Vehicle and Parts Dealers123,448 2.5 
CRE - Mixed-Use - Residential111,124 2.2 
Crop Production93,487 1.9 
Administrative and Support Services85,589 1.7 
Rental and Leasing Services79,800 1.6 
Wood Product Manufacturing78,939 1.6 
CRE - Mixed-Use - Commercial78,628 1.6 
Real Estate Lenders, Secondary Market Financing76,798 1.5 
Religious Organizations, Advocacy Groups74,590 1.5 
Fabricated Metal Product Manufacturing70,896 1.4 
Merchant Wholesalers, Nondurable Goods68,129 1.3 
Food Services and Drinking Places66,605 1.3 
Food Manufacturing66,425 1.3 
Personal and Laundry Services64,434 1.3 
Amusement, Gambling, and Recreation Industries61,295 1.2 
Repair and Maintenance56,749 1.1 
Miniwarehouse / Self-Storage56,336 1.1 
Private Equity & Special Purpose Entities (excluding Trusts, Estates and Agency Accounts)54,918 1.1 
Truck Transportation52,263 1.0 
Industries with >$50 million in outstandings$4,241,432 84.2 %
Industries with <$50 million in outstandings$794,605 15.8 %
Total Commercial Loans$5,036,037 100.0 %
Consumer Loans and Lease FinancingsTotal Outstanding Balance
Real Estate-Residential Secured for Personal Purpose$779,557 
Real Estate-Home Equity Secured for Personal Purpose172,073 
Loans to Individuals28,656 
Lease Financings223,481 
Total Consumer Loans and Lease Financings$1,203,767 
Total$6,239,804 

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, 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 core deposit and customer-related intangibles was $229 thousand and $307 thousand for the three months ended March 31, 2023 and 2022, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at March 31, 2023 and December 31, 2022.

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The Corporation also has goodwill with a net carrying value of $175.5 million at March 31, 2023 and December 31, 2022, 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 three months ended March 31, 2023 or 2022. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Bank Owned Life Insurance

The Bank purchases bank owned life insurance to protect itself against the loss of key employees due to death and to offset or finance the Corporation's future costs and obligations to employees under its benefits plans. Bank owned life insurance increased $8.6 million, or 7.2%, from December 31, 2022, primarily due to $7.9 million of policies purchased during the first quarter of 2023.

Liabilities
The following table presents liabilities at the dates indicated:
(Dollars in thousands)At March 31, 2023At December 31, 2022Change
AmountPercent
Deposits$5,834,657 $5,913,526 $(78,869)(1.3 %)
Short-term borrowings271,881 197,141 74,740 37.9 
Long-term debt220,000 95,000 125,000 131.6 
Subordinated notes148,385 148,260 125 0.1 
Operating lease liabilities34,846 33,153 1,693 5.1 
Accrued interest payable and other liabilities50,726 58,436 (7,710)(13.2)
Total liabilities$6,560,495 $6,445,516 $114,979 1.8 %

Deposits

Total deposits decreased $78.9 million, or 1.3%, from December 31, 2022, primarily due to decreases in commercial and consumer deposits partially offset by increases in public funds and brokered deposits.

Borrowings

Total borrowings increased $199.9 million, or 45.4%, from December 31, 2022, due to increases of $38.7 million in short-term FHLB overnight borrowings, $30.0 million in federal funds purchased and $6.0 million in short-term customer repurchase agreements. The funds were used to fund loan growth, purchase investment securities and to maintain liquidity.

Other Liabilities

Other liabilities decreased $7.7 million, or 13.2%, from December 31, 2022, due to the payment in the first quarter of $7.7 million in annual incentive payments that were previously accrued.

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Shareholders’ Equity

The following table presents total shareholders’ equity at the dates indicated:
(Dollars in thousands)At March 31, 2023At December 31, 2022Change
AmountPercent
Common stock$157,784 $157,784 $— — %
Additional paid-in capital298,167 300,808 (2,641)(0.9)
Retained earnings443,493 428,637 14,856 3.5 
Accumulated other comprehensive loss(55,550)(62,104)6,554 (10.6)
Treasury stock(45,398)(48,625)3,227 (6.6)
Total shareholders’ equity$798,496 $776,500 $21,996 2.8 %

Total shareholders' equity increased $22.0 million, or 2.8%, from December 31, 2022. Retained earnings at March 31, 2023 increased by $14.9 million primarily due to net income of $21.0 million offset by $6.2 million in cash dividends paid for the three months ended March 31, 2023. Accumulated other comprehensive loss decreased by $6.6 million, primarily attributable to increases in the fair value of available-for-sale investment securities of $4.5 million, net of tax and an increase in the fair value of derivatives of $1.9 million, net of tax. Treasury stock decreased $3.2 million from December 31, 2022 primarily due to stock issued under the dividend reinvestment and employee stock purchase plans and stock-based incentive plan activity.

Discussion of Segments

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

The Banking segment reported pre-tax income of $25.7 million and $22.8 million for the three months ended March 31, 2023 and 2022, 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 $825 thousand and $2.4 million for the three months ended March 31, 2023 and 2022, respectively. Noninterest income was $6.8 million and $7.3 million for the three months ended March 31, 2023 and 2022, respectively. The decrease in pre-tax income and noninterest income for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was due to reduced assets under management and supervision due to market volatility as a majority of investment advisory fees are billed based on the prior quarter-end assets under management and supervision balance. Additionally, pre-tax income decreased for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to increased interest expense as a result of the rising interest rate environment. Assets under management and supervision were $4.3 billion as of March 31, 2023, $4.2 billion as of December 31, 2022, $4.6 billion as of March 31, 2022 and $4.9 billion as of December 31, 2021.

The Insurance segment reported pre-tax income of $2.7 million and $1.7 million for the three months ended March 31, 2023 and 2022, respectively. Noninterest income was $6.7 million and $5.8 million for the three months ended March 31, 2023 and 2022, respectively. The increase in pre-tax income and noninterest income for the three months ended March 31, 2023 was primarily due to increases in premiums for group life and health and commercial lines and an increase in contingent income.

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 March 31, 2023.
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Table 5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of March 31, 2023 and December 31, 2022 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 March 31, 2023
Total Capital (to Risk-Weighted Assets):
Corporation$911,112 13.78 %$529,004 8.00 %$661,255 10.00 %
Bank765,396 11.60 527,806 8.00 659,757 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation689,617 10.43 396,753 6.00 529,004 8.00 
Bank692,286 10.49 395,854 6.00 527,806 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation689,617 10.43 297,565 4.50 429,816 6.50 
Bank692,286 10.49 296,891 4.50 428,842 6.50 
Tier 1 Capital (to Average Assets):
Corporation689,617 9.71 284,151 4.00 355,188 5.00 
Bank692,286 9.77 283,551 4.00 354,439 5.00 
At December 31, 2022
Total Capital (to Risk-Weighted Assets):
Corporation$894,343 13.67 %$523,498 8.00 %$654,372 10.00 %
Bank740,936 11.35 522,370 8.00 652,962 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation678,403 10.37 392,623 6.00 523,498 8.00 
Bank673,256 10.31 391,777 6.00 522,370 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation678,403 10.37 294,467 4.50 425,342 6.50 
Bank673,256 10.31 293,833 4.50 424,426 6.50 
Tier 1 Capital (to Average Assets):
Corporation678,403 9.81 276,586 4.00 345,732 5.00 
Bank673,256 9.76 276,014 4.00 345,017 5.00 
At March 31, 2023 and December 31, 2022, the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. At March 31, 2023, 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
51


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.

The Corporation and its subsidiaries maintain ample ability to meet the liquidity needs of its customers. Our most liquid asset, cash and cash equivalents, was $138.3 million at March 31, 2023. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $367.7 million at March 31, 2023. Further, the Corporation and its subsidiaries had committed borrowing capacity from the Federal Home Loan Bank and Federal Reserve Bank of $3.1 billion at March 31, 2023, of which $1.9 billion was available. The Corporation and its subsidiaries also maintained uncommitted funding sources from correspondent banks of $410.0 million at March 31, 2023, of which $320.0 million was unused as of March 31, 2023. Future availability under these uncommitted funding sources is subject to the prerogatives of the granting banks and may be withdrawn at will.

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

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

Recent Accounting Pronouncements

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

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

No material changes in the Corporation’s market risk occurred during the period ended March 31, 2023. A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2023.

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 March 31, 2023 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 that 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

Other than as noted below, 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, 2022.

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Further, if we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.
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On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation and on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services. In each case, the FDIC was named receiver. Additionally, on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the FDIC and sold to JPMorgan Chase & Co. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

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
January 1 – 31, 2023— $— — 1,229,174 
February 1 – 28, 2023— — — 1,229,174 
March 1 – 31, 2023— — — 1,229,174 
Total— $— — 

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. On October 26, 2022, the Corporation's Board of Directors approved the repurchase of 1,000,000 additional shares, or approximately 3.4% of the Corporation's common stock outstanding as of September 30, 2022. The stock repurchase plans do not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The plans have no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the plans 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 March 31, 2023 were as follows:

PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
January 1 – 31, 2023— $— 
February 1 – 28, 2023— — 
March 1 – 31, 2023— — 
Total— $— 

Item 3.    Defaults Upon Senior Securities
None.

Item 4.    Mine Safety Disclosures
Not Applicable.
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 Item 5.    Other Information
None.
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Item 6.    Exhibits
 
a.Exhibits
Exhibit 3.1
Exhibit 3.2
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 March 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
Exhibit 104
The cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Univest Financial Corporation
(Registrant)
Date: May 2, 2023/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 2, 2023/s/ Brian J. Richardson
Brian J. Richardson
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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