UNIVEST FINANCIAL Corp - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended June 30, 2023


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

For the transition period from __________ to __________

Commission File Number: 0-7617

UNIVEST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


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

14 North Main Street, Souderton, Pennsylvania 18964

(Address of principal executive offices) (Zip Code)

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

Not applicable

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

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


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

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

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

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


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

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

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


Common Stock, $5 par value						29,471,362
(Title of Class)						(Number of shares outstanding at July 31, 2023)

Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX


			Page Number
Part I.	Financial Information:

	Item 1.	Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets at June 30 , 2023 and December 31, 2022	2

		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 202 3 and 2022	3

		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 202 3 and 2022	4

		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 202 3 and 2022	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 202 3 and 2022	8

		Notes to Condensed Consolidated Financial Statements	10

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

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60

	Item 4.	Controls and Procedures	60

Part II.	Other Information

	Item 1.	Legal Proceedings	60

	Item 1A.	Risk Factors	61

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

	Item 3.	Defaults Upon Senior Securities	61

	Item 4.	Mine Safety Disclosures	61

	Item 5.	Other Information	61

	Item 6.	Exhibits	62

Signatures			63

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
(Dollars in thousands, except share data)	At June 30, 2023		At December 31, 2022
ASSETS
Cash and due from banks	$	80,795	$	84,176
Interest-earning deposits with other banks	59,616		68,623
Cash and cash equivalents	140,411		152,799

Investment securities held-to-maturity (fair value $133,835 and $134,068 at June 30, 2023 and December 31, 2022, respectively)	153,509		154,727
Investment securities available-for-sale (amortized cost $405,808 and $402,111, net of allowance for credit losses of $1,537 and $1,140 at June 30, 2023 and December 31, 2022, respectively)	356,164		350,256
Investments in equity securities	3,443		2,579
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	42,811		33,841
Loans held for sale	29,526		5,037
Loans and leases held for investment	6,462,238		6,123,230
Less: Allowance for credit losses, loans and leases	(82,709)		(79,004)
Net loans and leases held for investment	6,379,529		6,044,226
Premises and equipment, net	52,058		50,939
Operating lease right-of-use assets	30,237		30,059
Goodwill	175,510		175,510
Other intangibles, net of accumulated amortization	10,923		11,384
Bank owned life insurance	129,715		120,297
Accrued interest receivable and other assets	96,314		90,362
Total assets	$	7,600,150	$	7,222,016
LIABILITIES
Noninterest-bearing deposits	$	1,582,767	$	2,047,263
Interest-bearing deposits	4,404,635		3,866,263
Total deposits	5,987,402		5,913,526
Short-term borrowings	244,666		197,141
Long-term debt	320,000		95,000
Subordinated notes	148,510		148,260
Operating lease liabilities	33,428		33,153
Accrued interest payable and other liabilities	60,922		58,436
Total liabilities	6,794,928		6,445,516
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at June 30, 2023 and December 31, 2022; 31,556,799 shares issued at June 30, 2023 and December 31, 2022; 29,471,124 and 29,271,915 shares outstanding at June 30, 2023 and December 31, 2022, respectively	157,784		157,784
Additional paid-in capital	299,212		300,808
Retained earnings	453,806		428,637
Accumulated other comprehensive loss, net of tax benefit	(61,034)		(62,104)
Treasury stock, at cost; 2,085,675 and 2,284,884 shares at June 30, 2023 and December 31, 2022, respectively	(44,546)		(48,625)
Total shareholders’ equity	805,222		776,500
Total liabilities and shareholders’ equity	$	7,600,150	$	7,222,016

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

Table of Contents

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands, except per share data)	2023		2022		2023		2022
Interest income
Interest and fees on loans and leases	$	85,320	$	52,797	$	163,975	$	100,903
Interest and dividends on investment securities:
Taxable	3,512		2,738		7,007		5,103
Exempt from federal income taxes	14		14		29		29
Interest on deposits with other banks	512		824		991		1,181
Interest and dividends on other earning assets	781		344		1,390		699
Total interest income	90,139		56,717		173,392		107,915
Interest expense
Interest on deposits	27,467		3,586		45,803		6,477
Interest on short-term borrowings	3,249		11		5,977		13
Interest on long-term debt and subordinated notes	5,093		1,649		7,965		3,294
Total interest expense	35,809		5,246		59,745		9,784
Net interest income	54,330		51,471		113,647		98,131
Provision for credit losses	3,428		6,674		6,815		3,224
Net interest income after provision for credit losses	50,902		44,797		106,832		94,907
Noninterest income
Trust fee income	1,924		1,998		3,879		4,100
Service charges on deposit accounts	1,725		1,574		3,272		3,078
Investment advisory commission and fee income	4,708		4,812		9,460		9,964
Insurance commission and fee income	5,108		4,629		11,595		10,199
Other service fee income	3,318		3,309		6,394		6,065
Bank owned life insurance income	789		705		1,556		1,404
Net gain on sales of investment securities	—		—		—		30
Net gain on mortgage banking activities	1,039		1,230		1,664		3,159
Other income	1,222		741		1,693		1,469
Total noninterest income	19,833		18,998		39,513		39,468
Noninterest expense
Salaries, benefits and commissions	29,875		29,133		60,889		57,378
Net occupancy	2,614		2,422		5,341		5,138
Equipment	986		977		1,979		1,959
Data processing	4,137		3,708		8,166		7,275
Professional fees	1,669		2,844		3,610		4,982
Marketing and advertising	622		693		993		1,118
Deposit insurance premiums	1,116		812		2,217		1,705
Intangible expenses	253		342		506		683


Restructuring charges	1,330		—		1,330		—
Other expense	7,197		6,440		14,297		12,545
Total noninterest expense	49,799		47,371		99,328		92,783
Income before income taxes	20,936		16,424		47,017		41,592
Income tax expense	4,136		3,258		9,183		8,109
Net income	$	16,800	$	13,166	$	37,834	$	33,483
Net income per share:
Basic	$	0.57	$	0.45	$	1.29	$	1.14
Diluted	0.57		0.45		1.28		1.13

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

Table of Contents

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,
(Dollars in thousands)	2023						2022
	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Income	$	20,936	$	4,136	$	16,800	$	16,424	$	3,258	$	13,166
Other comprehensive loss:
Net unrealized losses on available-for-sale investment securities:
Net unrealized holding losses arising during the period	(3,182)		(668)		(2,514)		(15,336)		(3,220)		(12,116)
Provision for credit losses	105		22		83		417		87		330


Total net unrealized losses on available-for-sale investment securities	(3,077)		(646)		(2,431)		(14,919)		(3,133)		(11,786)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
Net unrealized holding (losses) gains arising during the period	(5,481)		(1,151)		(4,330)		1,626		342		1,284
Less: reclassification adjustment for net losses (gains) realized in net income (1)	1,371		288		1,083		(686)		(144)		(542)
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges	(4,110)		(863)		(3,247)		940		198		742
Defined benefit pension plans:

Amortization of net actuarial gains included in net periodic pension costs (2)	246		52		194		218		46		172



Total defined benefit pension plans	246		52		194		218		46		172
Other comprehensive loss	(6,941)		(1,457)		(5,484)		(13,761)		(2,889)		(10,872)
Total comprehensive income	$	13,995	$	2,679	$	11,316	$	2,663	$	369	$	2,294

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

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

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

Table of Contents


	Six Months Ended June 30,
(Dollars in thousands)	2023						2022
	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Income	$	47,017	$	9,183	$	37,834	$	41,592	$	8,109	$	33,483
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period	2,211		465		1,746		(35,705)		(7,498)		(28,207)
Provision for credit losses	397		83		314		763		160		603
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 securities	2,608		548		2,060		(34,972)		(7,344)		(27,628)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
Net unrealized holding (losses) gains arising during the period	(4,175)		(877)		(3,298)		1,702		358		1,344
Less: reclassification adjustment for net losses (gains) losses realized in net income (2)	2,431		511		1,920		(618)		(130)		(488)
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges	(1,744)		(366)		(1,378)		1,084		228		856
Defined benefit pension plans:

Amortization of net actuarial gains included in net periodic pension costs (3)	492		104		388		436		92		344



Total defined benefit pension plans	492		104		388		436		92		344
Other comprehensive income (loss)	1,356		286		1,070		(33,452)		(7,024)		(26,428)
Total comprehensive income	$	48,373	$	9,469	$	38,904	$	8,140	$	1,085	$	7,055

(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.

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Three Months Ended June 30, 2023
Balance at March 31, 2023	29,427,696	$	157,784	$	298,167	$	443,493	$	(55,550)	$	(45,398)	$	798,496
Net income	—	—		—		16,800		—		—		16,800
Other comprehensive loss, net of income tax benefit	—	—		—		—		(5,484)		—		(5,484)
Cash dividends declared ($0.21 per share)	—	—		—		(6,180)		—		—		(6,180)
Stock-based compensation	—	—		1,234		(307)		—		—		927
Stock issued under dividend reinvestment and employee stock purchase plans	36,292	—		(48)		—		—		695		647
Vesting of restricted stock units, net of shares withheld to cover taxes	5,093	—		(137)		—		—		113		(24)

Exercise of stock options	2,043	—		(4)		—		—		44		40


Balance at June 30, 2023	29,471,124	$	157,784	$	299,212	$	453,806	$	(61,034)	$	(44,546)	$	805,222


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

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

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


(Dollars in thousands, except per share data)	Common Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total
Six Months Ended June 30, 2023
Balance at December 31, 2022	29,271,915	$	157,784	$	300,808	$	428,637	$	(62,104)	$	(48,625)	$	776,500
Net income	—	—		—		37,834		—		—		37,834
Other comprehensive income, net of income tax	—	—		—		—		1,070		—		1,070
Cash dividends declared ($0.42 per share)	—	—		—		(12,331)		—		—		(12,331)
Stock-based compensation	—	—		2,291		(334)		—		—		1,957
Stock issued under dividend reinvestment and employee stock purchase plans	61,636	—		(19)		—		—		1,328		1,309
Vesting of restricted stock units, net of shares withheld to cover taxes	131,363	—		(3,850)		—		—		2,619		(1,231)

Exercise of stock options	6,210	—		(18)		—		—		132		114


Balance at June 30, 2023	29,471,124	$	157,784	$	299,212	$	453,806	$	(61,034)	$	(44,546)	$	805,222


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

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

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

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

UNIVEST FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(Dollars in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	37,834	$	33,483
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	6,815		3,224
Depreciation of premises and equipment	2,450		2,193
Net amortization of investment securities premiums and discounts	569		837
Net gain on sales of investment securities	—		(30)
Net gain on mortgage banking activities	(1,664)		(3,159)



Bank owned life insurance income	(1,556)		(1,404)
Stock-based compensation	2,115		1,949
Intangible expenses	506		683
Other adjustments to reconcile net income to cash used in operating activities	(945)		(1,922)

Originations of loans held for sale	(87,921)		(138,112)
Proceeds from the sale of loans held for sale	84,694		154,671
Contributions to pension and other postretirement benefit plans	(85)		(126)
(Increase) decrease in accrued interest receivable and other assets	(6,601)		3,854
Increase in accrued interest payable and other liabilities	3,852		3,592
Net cash provided by operating activities	40,063		59,733
Cash flows from investing activities:

Proceeds from sale of premises and equipment	693		6,844
Purchases of premises and equipment	(4,274)		(2,090)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	7,266		20,705
Proceeds from maturities, calls and principal repayments of securities available-for-sale	15,260		17,417
Proceeds from sales of securities available-for-sale	—		1,530
Purchases of investment securities held-to-maturity	(6,252)		(3,936)
Purchases of investment securities available-for-sale	(19,348)		(89,494)
Proceeds from sales of money market mutual funds	242		3,496
Purchases of money market mutual funds	(1,220)		(3,628)
Net increase in other investments	(8,970)		(930)
Proceeds from sale of loans originally held-for-investment	175		—

Net increase in loans and leases	(361,702)		(371,495)
Proceeds from sales of other real estate owned	260		—

Purchases of bank owned life insurance	(7,862)		—

Net cash used in investing activities	(385,732)		(421,581)
Cash flows from financing activities:
Net increase (decrease) in deposits	73,863		(492,092)
Net increase in short-term borrowings	47,525		77,500
Proceeds from issuance of long-term debt	250,000		—
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	(1,230)		(901)
Purchases of treasury stock	—		(7,570)
Stock issued under dividend reinvestment and employee stock purchase plans	1,309		1,275
Proceeds from exercise of stock options	114		575
Cash dividends paid	(12,665)		(12,312)
Net cash provided by (used in) financing activities	333,281		(433,525)
Net decrease in cash and cash equivalents	(12,388)		(795,373)
Cash and cash equivalents at beginning of year	152,799		890,150
Cash and cash equivalents at end of period	$	140,411	$	94,777


	Six Months Ended June 30,
(Dollars in thousands)	2023		2022
Supplemental disclosures of cash flow information:
Cash paid for interest	$	53,708	$	10,088
Cash paid for income taxes, net of refunds	7,845		2,329
Non cash transactions:
Transfer of loans to other real estate owned	$	—	$	18,325
Transfer of loans to loans held for sale	19,895		—

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

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Univest Financial Corporation (the Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to 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 or six-month period ended June 30, 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

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				Six Months Ended
	June 30,				June 30,
(Dollars and shares in thousands, except per share data)	2023		2022		2023		2022
Numerator for basic and diluted earnings per share—net income available to common shareholders	$	16,800	$	13,166	$	37,834	$	33,483
Denominator for basic earnings per share—weighted-average shares outstanding	29,439		29,490		29,376		29,516
Effect of dilutive securities—employee stock options and restricted stock units	65		110		117		153
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding	29,504		29,600		29,493		29,669
Basic earnings per share	$	0.57	$	0.45	$	1.29	$	1.14
Diluted earnings per share	$	0.57	$	0.45	$	1.28	$	1.13
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share	575		400		367		253

Note 3. Investment Securities

The following table shows the amortized cost, the estimated fair value and the allowance for credit losses of the held-to-maturity securities and available-for-sale securities at June 30, 2023 and December 31, 2022, by contractual maturity within each type:


	At June 30, 2023
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Securities Held-to-Maturity




Residential mortgage-backed securities:
After 1 year to 5 years	$	2,305	$	—	$	(104)			$	2,201
After 5 years to 10 years	8,619		—		(539)		—		8,080
Over 10 years	142,585		—		(19,031)		—		123,554
	153,509		—		(19,674)		—		133,835




Total	$	153,509	$	—	$	(19,674)	$	—	$	133,835
Securities Available-for-Sale









State and political subdivisions:
Within 1 year	$	1,030	$	—	$	(1)	$	—	$	1,029
After 1 year to 5 years	1,298		—		(44)		—		1,254


	2,328		—		(45)		—		2,283
Residential mortgage-backed securities:

After 1 year to 5 years	708		—		(32)		—		676
After 5 years to 10 years	14,916		—		(1,347)		—		13,569
Over 10 years	294,572		—		(39,046)		—		255,526
	310,196		—		(40,425)		—		269,771
Collateralized mortgage obligations:

After 5 years to 10 years	279		—		(17)		—		262
Over 10 years	2,115		—		(239)		—		1,876
	2,394		—		(256)		—		2,138
Corporate bonds:
Within 1 year	17,025		1		(268)		(117)		16,641
After 1 year to 5 years	13,865		—		(986)		(74)		12,805
After 5 years to 10 years	60,000		—		(6,128)		(1,346)		52,526

	90,890		1		(7,382)		(1,537)		81,972
Total	$	405,808	$	1	$	(48,108)	$	(1,537)	$	356,164


	At December 31, 2022
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair 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 years	6,076		—		(342)		—		5,734
Over 10 years	146,997		—		(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 years	864		—		(37)		—		827
After 5 years to 10 years	10,399		—		(815)		—		9,584
Over 10 years	294,261		7		(41,291)		—		252,977
	305,524		7		(42,143)		—		263,388
Collateralized mortgage obligations:

After 5 years to 10 years	324		—		(22)		—		302
Over 10 years	2,257		—		(237)		—		2,020
	2,581		—		(259)		—		2,322
Corporate bonds:
Within 1 year	1,000		—		—		—		1,000
After 1 year to 5 years	30,679		3		(1,516)		(152)		29,014
After 5 years to 10 years	60,000		—		(6,765)		(988)		52,247

	91,679		3		(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 $342.7 million and $429.4 million at June 30, 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 June 30, 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 six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
(Dollars in thousands)	2023		2022
Securities available-for-sale:
Proceeds from sales	$	—	$	1,530
Gross realized gains on sales	—		30

Tax expense related to net realized gains on sales	—		6

At June 30, 2023 and December 31, 2022, there were no reportable investments in any single issuer representing more than 10% of shareholders’ equity.

The following table shows the fair value of securities that were in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 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 Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At June 30, 2023
Securities Held-to-Maturity

Residential mortgage-backed securities	$	24,517	$	(1,228)	$	109,318	$	(18,446)	$	133,835	$	(19,674)

Total	$	24,517	$	(1,228)	$	109,318	$	(18,446)	$	133,835	$	(19,674)
Securities Available-for-Sale


State and political subdivisions	$	—	$	—	$	1,254	$	(45)	$	1,254	$	(45)
Residential mortgage-backed securities	61,628		(2,067)		208,143		(38,358)		269,771		(40,425)
Collateralized mortgage obligations	—		—		2,139		(256)		2,139		(256)
Corporate bonds	—		—		280		(1)		280		(1)
Total	$	61,628	$	(2,067)	$	211,816	$	(38,660)	$	273,444	$	(40,727)
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 securities	128,831		(13,843)		133,902		(28,300)		262,733		(42,143)
Collateralized mortgage obligations	302		(22)		2,020		(237)		2,322		(259)
Corporate bonds	500		(1)		—		—		500		(1)
Total	$	130,888	$	(13,908)	$	135,922	$	(28,537)	$	266,810	$	(42,445)

At June 30, 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 $133.8 million, including unrealized losses of $19.7 million. These holdings were comprised of 88 federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the six months ended June 30, 2023.

At June 30, 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 $273.4 million, including unrealized losses of $40.7 million. These holdings were comprised of (1) 113 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) two investment grade corporate bonds, and (4) one state and political subdivisions bond. The Corporation does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. The Corporation concluded that the decline in fair value of these securities was not indicative of a credit loss. Accrued interest receivable on available-for-sale debt securities totaled $1.1 million at June 30, 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.

The table below presents a rollforward by major security type for the six months ended June 30, 2023 and June 30, 2022 of the allowance for credit losses on securities available-for-sale.


(Dollars in thousands)	Corporate Bonds
Six months ended June 30, 2023
Securities Available-for-Sale
Beginning balance	$	(1,140)
Additions for securities for which no previous expected credit losses were recognized	(2)
Change in securities for which a previous expected credit loss was recognized	(395)
Ending balance	$	(1,537)
Six months ended June 30, 2022
Securities Available-for-Sale
Beginning balance	$	(929)
Additions for securities for which no previous expected credit losses were recognized	(147)
Change in securities for which a previous expected credit loss was recognized	(616)
Ending balance	$	(1,692)

At June 30, 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 $81.8 million, including unrealized losses of $8.9 million, and allowance for credit losses of $1.5 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 $114 thousand and a $197 thousand net loss on equity securities during the six months ended June 30, 2023 and 2022, respectively, in other noninterest income. There were no sales of equity securities during the six months ended June 30, 2023 or 2022.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories


(Dollars in thousands)	At June 30, 2023		At December 31, 2022
Commercial, financial and agricultural	$	1,039,265	$	1,088,928
Real estate-commercial	3,221,993		3,027,955
Real estate-construction	413,404		381,811
Real estate-residential secured for business purpose	517,521		478,254
Real estate-residential secured for personal purpose	832,632		730,395
Real estate-home equity secured for personal purpose	175,090		176,699
Loans to individuals	25,544		27,873
Lease financings	236,789		211,315
Total loans and leases held for investment, net of deferred income	$	6,462,238	$	6,123,230
Less: Allowance for credit losses, loans and leases	(82,709)		(79,004)
Net loans and leases held for investment	$	6,379,529	$	6,044,226
Imputed interest on lease financings, included in the above table	$	(27,307)	$	(21,932)
Net deferred costs, included in the above table	7,051		6,053
Overdraft deposits included in the above table	466		93

Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases held for investment, an aging of past due loans and leases, loans and leases which are current and nonaccrual loans and leases at June 30, 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		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At June 30, 2023
Commercial, financial and agricultural	$	2,216	$	747	$	—	$	2,963	$	1,035,085	$	1,038,048	$	1,217	$	1,039,265
Real estate—commercial real estate and construction:
Commercial real estate	1,465		285		—		1,750		3,215,838		3,217,588		4,405		3,221,993
Construction	613		—		—		613		406,589		407,202		6,202		413,404
Real estate—residential and home equity:
Residential secured for business purpose	2,451		831		—		3,282		513,207		516,489		1,032		517,521
Residential secured for personal purpose	4,956		2,714		—		7,670		823,808		831,478		1,154		832,632
Home equity secured for personal purpose	482		68		—		550		173,656		174,206		884		175,090
Loans to individuals	73		59		13		145		25,399		25,544		—		25,544
Lease financings	626		253		42		921		235,675		236,596		193		236,789
Total	$	12,882	$	4,957	$	55	$	17,894	$	6,429,257	$	6,447,151	$	15,087	$	6,462,238


	Accruing Loans and Leases
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases Held for Investment
At December 31, 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 estate	3,281		290		20		3,591		3,019,827		3,023,418		4,537		3,027,955
Construction	315		—		—		315		381,496		381,811		—		381,811
Real estate—residential and home equity:
Residential secured for business purpose	375		203		263		841		476,400		477,241		1,013		478,254
Residential secured for personal purpose	4,127		162		319		4,608		723,798		728,406		1,989		730,395
Home equity secured for personal purpose	953		225		—		1,178		174,781		175,959		740		176,699
Loans to individuals	32		153		39		224		27,649		27,873		—		27,873
Lease financings	3,555		341		234		4,130		207,183		211,313		2		211,315
Total	$	14,254	$	1,717	$	875	$	16,846	$	6,093,031	$	6,109,877	$	13,353	$	6,123,230

Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at June 30, 2023 and December 31, 2022.


	At June 30, 2023						At 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	$	1,217	$	—	$	1,217	$	5,072	$	—	$	5,072
Real estate—commercial real estate and construction:
Commercial real estate	4,405		—		4,405		4,537		20		4,557
Construction	6,202		—		6,202		—		—		—
Real estate—residential and home equity:
Residential secured for business purpose	1,032		—		1,032		1,013		263		1,276
Residential secured for personal purpose	1,154		—		1,154		1,989		319		2,308
Home equity secured for personal purpose	884		—		884		740		—		740
Loans to individuals	—		13		13		—		39		39
Lease financings	193		42		235		2		234		236
Total	$	15,087	$	55	$	15,142	$	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 June 30, 2023 and December 31, 2022.


(Dollars in thousands)	Nonaccrual With No Allowance for Credit Losses		Nonaccrual With Allowance for Credit Losses		Total Nonaccrual		Loans and Leases 90 Days or more Past Due and Accruing Interest
At June 30, 2023
Commercial, financial and agricultural	$	628	$	589	$	1,217	$	—
Real estate-commercial	4,405		—		4,405		—
Real estate-construction	6,202		—		6,202		—
Real estate-residential secured for business purpose	1,032		—		1,032		—
Real estate-residential secured for personal purpose	1,154		—		1,154		—
Real estate-home equity secured for personal purpose	884		—		884		—
Loans to individuals	—		—		—		13
Lease financings	—		193		193		42
Total	$	14,305	$	782	$	15,087	$	55
At December 31, 2022
Commercial, financial and agricultural	$	225	$	4,847	$	5,072	$	—
Real estate-commercial	4,537		—		4,537		20

Real estate-residential secured for business purpose	1,013		—		1,013		263
Real estate-residential secured for personal purpose	1,989		—		1,989		319
Real estate-home equity secured for personal purpose	740		—		740		—
Loans to individuals	—		—		—		39
Lease financings	—		2		2		234
Total	$	8,504	$	4,849	$	13,353	$	875

For the six months ended June 30, 2023, $65 thousand of interest income was recognized on nonaccrual loans and leases.

The following table presents, by class of loans and leases, the amortized cost basis of collateral-dependent nonaccrual loans and leases and type of collateral as of June 30, 2023 and December 31, 2022.


(Dollars in thousands)	Real Estate		Other (1)		None		Total
At June 30, 2023
Commercial, financial and agricultural	$	803	$	414	$	—	$	1,217
Real estate-commercial	4,405		—		—		4,405
Real estate-construction	6,202		—		—		6,202
Real estate-residential secured for business purpose	1,032		—		—		1,032
Real estate-residential secured for personal purpose	1,154		—		—		1,154
Real estate-home equity secured for personal purpose	884		—		—		884

Lease financings	—		193		—		193
Total	$	14,480	$	607	$	—	$	15,087

(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-commercial	4,537		—		—		4,537

Real estate-residential secured for business purpose	1,013		—		—		1,013
Real estate-residential secured for personal purpose	1,989		—		—		1,989
Real estate-home equity secured for personal purpose	740		—		—		740

Lease financings	—		2		—		2
Total	$	11,022	$	2	$	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

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 June 30, 2023 and December 31, 2022.


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
At June 30, 2023
Commercial, Financial and Agricultural
Risk Rating
1. Pass	$	91,064	$	164,694	$	143,438	$	30,955	$	23,380	$	62,174	$	473,017	$	1,184	$	989,906
2. Special Mention	—		1,390		9,803		2,177		6,881		—		18,400		—		38,651
3. Substandard	—		899		522		—		589		—		8,698		—		10,708

Total	$	91,064	$	166,983	$	153,763	$	33,132	$	30,850	$	62,174	$	500,115	$	1,184	$	1,039,265
Current period gross charge-offs	$	5	$	50	$	296	$	67	$	—	$	151	$	2,578	$	—	$	3,147

Real Estate-Commercial
Risk Rating
1. Pass	$	301,704	$	869,531	$	666,018	$	666,109	$	337,150	$	299,905	$	55,249	$	—	$	3,195,666
2. Special Mention	—		236		8,943		5,612		—		2,699		2,483		—		19,973
3. Substandard	—		118		1,949		1,701		226		2,360		—		—		6,354

Total	$	301,704	$	869,885	$	676,910	$	673,422	$	337,376	$	304,964	$	57,732	$	—	$	3,221,993
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	50	$	—	$	—	$	50

Real Estate-Construction
Risk Rating
1. Pass	$	73,183	$	274,773	$	18,235	$	3,948	$	247	$	2,396	$	23,345	$	—	$	396,127
2. Special Mention	—		—		—		—		—		5,506		5,565		—		11,071
3. Substandard	—		380		—		—		5,826		—		—		—		6,206

Total	$	73,183	$	275,153	$	18,235	$	3,948	$	6,073	$	7,902	$	28,910	$	—	$	413,404
Current period gross charge-offs	$	—	$	207	$	—	$	—	$	—	$	—	$	—	$	—	$	207

Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass	$	77,196	$	153,995	$	128,799	$	63,057	$	39,465	$	26,300	$	27,677	$	—	$	516,489
2. Special Mention	—		—		—		—		—		—		—		—		—
3. Substandard	—		—		—		623		—		409		—		—		1,032

Total	$	77,196	$	153,995	$	128,799	$	63,680	$	39,465	$	26,709	$	27,677	$	—	$	517,521


Totals By Risk Rating
1. Pass	$	543,147	$	1,462,993	$	956,490	$	764,069	$	400,242	$	390,775	$	579,288	$	1,184	$	5,098,188
2. Special Mention	—		1,626		18,746		7,789		6,881		8,205		26,448		—		69,695
3. Substandard	—		1,397		2,471		2,324		6,641		2,769		8,698		—		24,300

Total	$	543,147	$	1,466,016	$	977,707	$	774,182	$	413,764	$	401,749	$	614,434	$	1,184	$	5,192,183
Total current period gross charge-offs	$	5	$	257	$	296	$	67	$	—	$	201	$	2,578	$	—	$	3,404


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
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 Mention	2,732		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 Mention	869		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 Mention	3,601		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 June 30, 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.

Based on the most recent analysis performed, the following table presents the recorded investment in loans and leases held for investment for real estate-residential secured for personal purpose loans, real estate-home equity secured for personal purpose loans, loans to individuals and lease financings by credit quality indicator at June 30, 2023 and December 31, 2022.


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
At June 30, 2023
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing	$	94,420	$	277,912	$	213,974	$	134,139	$	23,317	$	87,698	$	18	$	831,478
2. Nonperforming	—		158		46		—		309		641		—		1,154
Total	$	94,420	$	278,070	$	214,020	$	134,139	$	23,626	$	88,339	$	18	$	832,632


Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing	$	189	$	2,607	$	580	$	446	$	178	$	1,664	$	168,542	$	174,206
2. Nonperforming	—		—		—		—		—		—		884		884
Total	$	189	$	2,607	$	580	$	446	$	178	$	1,664	$	169,426	$	175,090
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	85	$	—	$	—	$	85

Loans to Individuals
Payment Performance
1. Performing	$	1,401	$	1,160	$	664	$	448	$	131	$	1,299	$	20,428	$	25,531
2. Nonperforming	—		—		—		—		—		13		—		13
Total	$	1,401	$	1,160	$	664	$	448	$	131	$	1,312	$	20,428	$	25,544
Current period gross charge-offs	$	106	$	19	$	—	$	5	$	24	$	19	$	43	$	216

Lease Financings
Payment Performance
1. Performing	$	64,065	$	82,532	$	51,695	$	25,667	$	10,172	$	2,423	$	—	$	236,554
2. Nonperforming	25		143		33		16		8		10		—		235
Total	$	64,090	$	82,675	$	51,728	$	25,683	$	10,180	$	2,433	$	—	$	236,789
Current period gross charge-offs	$	—	$	—	$	99	$	20	$	6	$	—	$	—	$	125

Totals by Payment Performance
1. Performing	$	160,075	$	364,211	$	266,913	$	160,700	$	33,798	$	93,084	$	188,988	$	1,267,769
2. Nonperforming	25		301		79		16		317		664		884		2,286
Total	$	160,100	$	364,512	$	266,992	$	160,716	$	34,115	$	93,748	$	189,872	$	1,270,055
Total current period gross charge-offs	$	106	$	19	$	99	$	25	$	115	$	19	$	43	$	426


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
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		3		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. Nonperforming	41		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. Nonperforming	41		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 June 30, 2023 or December 31, 2022.

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

The following presents, by portfolio segment, a summary of the activity in the allowance for credit losses, loans and leases, for the three and six months ended June 30, 2023 and 2022. There were no changes to the reasonable and supportable forecast period, the reversion period, or any significant methodology changes during the six months ended June 30, 2023.


(Dollars in thousands)	Beginning balance		(Reversal of provision) provision for credit losses		Charge-offs		Recoveries		Ending balance
Three Months Ended June 30, 2023
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	14,725	$	(589)	$	(299)	$	34	$	13,871
Real estate-commercial	43,150		1,604		—		3		44,757
Real estate-construction	4,681		752		—		—		5,433
Real estate-residential secured for business purpose	8,360		336		—		—		8,696
Real estate-residential secured for personal purpose	5,012		576		—		—		5,588
Real estate-home equity secured for personal purpose	1,271		110		(85)		—		1,296
Loans to individuals	375		262		(111)		34		560
Lease financings	2,460		136		(105)		17		2,508
Unallocated	—		—		N/A		N/A		—
Total	$	80,034	$	3,187	$	(600)	$	88	$	82,709
Three Months Ended June 30, 2022
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	11,841	$	1,122	$	—	$	41	$	13,004
Real estate-commercial	40,426		2,942		(1,690)		—		41,678
Real estate-construction	3,634		589		—		—		4,223
Real estate-residential secured for business purpose	6,202		215		—		3		6,420
Real estate-residential secured for personal purpose	2,592		345		—		—		2,937
Real estate-home equity secured for personal purpose	976		110		—		(12)		1,074
Loans to individuals	369		14		(27)		20		376
Lease financings	2,246		103		(58)		8		2,299
Unallocated	—		—		N/A		N/A		—
Total	$	68,286	$	5,440	$	(1,775)	$	60	$	72,011

N/A – Not applicable


(Dollars in thousands)	Beginning balance		(Reversal of provision) provision for credit losses		Charge-offs		Recoveries		Ending balance
Six Months Ended June 30, 2023
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	16,920	$	(42)	$	(3,147)	$	140	$	13,871
Real estate-commercial	41,673		3,128		(50)		6		44,757
Real estate-construction	4,952		688		(207)		—		5,433
Real estate-residential secured for business purpose	7,054		1,461		—		181		8,696
Real estate-residential secured for personal purpose	3,685		1,903		—		—		5,588
Real estate-home equity secured for personal purpose	1,287		44		(85)		50		1,296
Loans to individuals	351		375		(216)		50		560
Lease financings	3,082		(498)		(125)		49		2,508
Unallocated	—		—		N/A		N/A		—
Total	$	79,004	$	7,059	$	(3,830)	$	476	$	82,709
Six Months Ended June 30, 2022
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural	$	13,538	$	(550)	$	(214)	$	230	$	13,004
Real estate-commercial	41,095		2,273		(1,690)		—		41,678
Real estate-construction	4,575		(352)		—		—		4,223
Real estate-residential secured for business purpose	6,482		(113)		—		51		6,420
Real estate-residential secured for personal purpose	2,403		534		—		—		2,937
Real estate-home equity secured for personal purpose	1,028		57		—		(11)		1,074
Loans to individuals	363		71		(102)		44		376
Lease financings	2,290		108		(117)		18		2,299
Unallocated	150		(150)		N/A		N/A		—
Total	$	71,924	$	1,878	$	(2,123)	$	332	$	72,011

N/A – Not applicable

The following presents, by portfolio segment, the balance in the allowance for credit losses on loans and leases disaggregated on the basis of whether the loan or lease was measured for credit loss as a pooled loan or lease or if it was individually analyzed for a reserve at June 30, 2023 and 2022:


	Allowance for credit losses, loans and leases						Loans and leases held for investment
(Dollars in thousands)	Ending balance: individually analyzed		Ending balance: pooled		Total ending balance		Ending balance: individually analyzed		Ending balance: pooled		Loans measured at fair value		Total ending balance
At June 30, 2023
Commercial, financial and agricultural	$	373	$	13,498	$	13,871	$	1,217	$	1,038,048	$	—	$	1,039,265
Real estate-commercial	—		44,757		44,757		4,405		3,217,588		—		3,221,993
Real estate-construction	—		5,433		5,433		6,202		407,202		—		413,404
Real estate-residential secured for business purpose	—		8,696		8,696		1,032		516,489		—		517,521
Real estate-residential secured for personal purpose	—		5,588		5,588		1,154		831,478		—		832,632
Real estate-home equity secured for personal purpose	—		1,296		1,296		884		174,206		—		175,090
Loans to individuals	—		560		560		—		25,544		—		25,544
Lease financings	—		2,508		2,508		—		236,789		—		236,789
Total	$	373	$	82,336	$	82,709	$	14,894	$	6,447,344	$	—	$	6,462,238
At June 30, 2022
Commercial, financial and agricultural	$	—	$	13,004	$	13,004	$	448	$	1,033,264	$	—	$	1,033,712
Real estate-commercial	1,089		40,589		41,678		9,137		2,861,149		—		2,870,286
Real estate-construction	—		4,223		4,223		—		319,449		—		319,449
Real estate-residential secured for business purpose	—		6,420		6,420		961		418,691		—		419,652
Real estate-residential secured for personal purpose	—		2,937		2,937		2,202		626,942		—		629,144
Real estate-home equity secured for personal purpose	—		1,074		1,074		394		168,142		—		168,536
Loans to individuals	—		376		376		—		27,061		—		27,061
Lease financings	—		2,299		2,299		—		193,937		—		193,937
Total	$	1,089	$	70,922	$	72,011	$	13,142	$	5,648,635	$	—	$	5,661,777

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 and six months ended June 30, 2023.


	Three Months Ended June 30, 2023
(Dollars in thousands)	Number of Loans	Amortized Cost Basis*		% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate	1	$	1,949	0.06	%



Total	1	$	1,949
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate	1	$	1,779	0.06	%


Total	1	$	1,779

*Amortized cost excludes $12 thousand of accrued interest receivable on modified loans.


	Six Months Ended June 30, 2023
(Dollars in thousands)	Number of Loans	Amortized Cost Basis*		% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate	1	$	1,949	0.06	%



Total	1	$	1,949
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate	1	$	1,779	0.06	%
Real estate—construction**	1	5,826		1.41


Total	2	$	7,605

*Amortized cost excludes $12 thousand of accrued interest receivable on modified loans.

**Loan was modified during the first quarter of 2023. Subsequently, during the second quarter of 2023, the modified loan was placed on nonaccrual status.

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 and six months ended June 30, 2023.

Term Extension

(Dollars in thousands)

No. of
Loans

Financial Effect

Three Months Ended June 30, 2023

Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate

Extended loan maturity by 3 months to give borrower time to seek refinance.

Total

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate

Extended loan maturity by 14 months to give borrower time to seek refinance.

Total

Six Months Ended June 30, 2023

Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate

Extended loan maturity by 3 months to give borrower time to seek refinance.

Total

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate

Extended loan maturity by 14 months to give borrower time to seek refinance.

Real estate—construction*

Extended 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.

Total

*Loan was modified during the first quarter of 2023. Subsequently, during the second quarter of 2023, the modified loan was placed on nonaccrual status.

There were no accruing or nonaccrual modified loans to borrowers experiencing financial difficulty for which there were payment defaults during the period and were modified in the 12 months before default for the three and six months ended June 30, 2023.

The following presents, by class of loans, the amortized cost and performance status of accruing and nonaccrual modified loans to borrowers experiencing financial difficulty that have been modified in the last 12 months.


	At June 30, 2023
(Dollars in thousands)	Current		30-89 Days Past Due		90 Days or More Past Due		Total
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate	$	1,949	$	—	$	—	$	1,949

Total	$	1,949	$	—	$	—	$	1,949
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Real estate—commercial real estate	$	1,779	$	—	$	—	$	1,779
Real estate—construction	—		5,826		—		5,826
Total	$	1,779	$	5,826	$	—	$	7,605

As of June 30, 2023, the Bank had no commitments to extend credit to borrowers experiencing financial difficulty whose terms had been modified.

The following presents the amount of consumer mortgages collateralized by residential real estate property that were in the process of foreclosure at June 30, 2023 or December 31, 2022.


(Dollars in thousands)	At June 30, 2023		At December 31, 2022
Real estate-residential secured for personal purpose	$	949	$	822
Real estate-home equity secured for personal purpose	—		72
Total	$	949	$	894

There was no foreclosed residential real estate property included in other real estate owned at June 30, 2023 or December 31, 2022.

Lease Financings

The following presents the schedule of minimum lease payments receivable:


(Dollars in thousands)	At June 30, 2023		At December 31, 2022
2023 (excluding the six months ended June 30, 2023)	$	43,661	$	75,900
2024	76,182		61,793
2025	60,812		45,738
2026	44,001		29,902
2027	25,478		13,091
Thereafter	9,479		2,552
Total future minimum lease payments receivable	259,613		228,976
Plus: Unguaranteed residual	1,106		1,387
Plus: Initial direct costs	3,377		2,884
Less: Imputed interest	(27,307)		(21,932)
Lease financings	$	236,789	$	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 six months ended June 30, 2023 were as follows:


(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated
Balance at December 31, 2022	$	138,476	$	15,434	$	21,600	$	175,510
Addition to goodwill from acquisitions	—		—		—		—
Balance at June 30, 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 June 30, 2023						At December 31, 2022
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization (1)		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization (1)		Net Carrying Amount
Amortized intangible assets:


Core deposit intangibles	$	6,788	$	6,158	$	630	$	6,788	$	5,939	$	849
Customer related intangibles	4,162		2,437		1,725		8,493		6,530		1,963
Servicing rights	29,653		21,085		8,568		28,904		20,332		8,572
Total amortized intangible assets	$	40,603	$	29,680	$	10,923	$	44,185	$	32,801	$	11,384

(1) Included within accumulated amortization is a valuation allowance of $8 thousand and $5 thousand on servicing rights at June 30, 2023 and December 31, 2022, respectively.

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		$	387
2024		648
2025		469
2026		319
2027		216
Thereafter		316
Total		$	2,355

The aggregate fair value of servicing rights was $18.2 million and $16.8 million at June 30, 2023 and December 31, 2022, respectively. The fair value of these rights was determined using a discount rate of 12.3% at June 30, 2023 and a range of 10.1% to 12.0% at December 31, 2022.

Changes in the servicing rights balance are summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Beginning of period	$	8,460	$	8,122	$	8,572	$	7,878
Servicing rights capitalized	472		677		749		1,391

Amortization of servicing rights	(396)		(431)		(750)		(907)
Changes in valuation allowance	32		4		(3)		10
End of period	$	8,568	$	8,372	$	8,568	$	8,372
Loans serviced for others	$	1,525,320	$	1,475,659	$	1,525,320	$	1,475,659

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


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Valuation allowance, beginning of period	$	(40)	$	(7)	$	(5)	$	(13)
Additions	—		—		(3)		—
Reductions	32		4		—		10

Valuation allowance, end of period	$	(8)	$	(3)	$	(8)	$	(3)

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		$	1,026
2024		924
2025		829
2026		743
2027		662
Thereafter		4,384
Total		$	8,568

Note 6. Deposits

Deposits and their respective weighted average interest rate at June 30, 2023 and December 31, 2022 consisted of the following:


	At June 30, 2023				At December 31, 2022
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Dollars in thousands)
Noninterest-bearing deposits	—	%	$	1,582,767	—	%	$	2,047,263
Demand deposits	2.78		2,433,585		2.02		2,321,748
Savings deposits	0.43		866,687		0.25		1,025,431
Time deposits	3.85		1,104,363		2.07		519,084
Total	1.90	%	$	5,987,402	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 $163.7 million at June 30, 2023 and $95.0 million at December 31, 2022.

At June 30, 2023, the scheduled maturities of time deposits were as follows:


Year	(Dollars in thousands)	Amount
Remainder of 2023		$	297,744
2024		318,548
2025		246,735
2026		37,892
2027		69,622
Thereafter		133,822
Total		$	1,104,363

Note 7. Borrowings

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


	At June 30, 2023				At December 31, 2022
(Dollars in thousands)	Balance at End of Period		Weighted Average Interest Rate at End of Period		Balance at End of Period		Weighted Average Interest Rate at End of Period
Short-term borrowings:
FHLB borrowings	$	102,800	5.39	%	$	125,000	4.45	%
Federal funds purchased	125,000		5.40		60,000		4.63
Customer repurchase agreements	16,866		0.05		12,141		0.05


Long-term debt:
FHLB advances	$	320,000	3.71	%	$	95,000	1.34	%

Subordinated notes	148,510		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 $3.1 billion. All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At June 30, 2023 and December 31, 2022, the Bank had outstanding short-term letters of credit with the FHLB totaling $816.1 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 $1.8 billion at June 30, 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 $137.4 million and $98.1 million at June 30, 2023 and December 31, 2022, respectively. At June 30, 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 June 30, 2023 and December 31, 2022, the Corporation had no outstanding borrowings under this line.

The Corporation and the Bank had $3.2 billion and $3.0 billion of committed borrowing capacity at June 30, 2023 and December 31, 2022, respectively, of which $2.0 billion and $2.1 billion was available as of June 30, 2023 and December 31, 2022, respectively. The Corporation, through the Bank, also maintained uncommitted funding sources from correspondent banks of $410.0 million at June 30, 2023 and December 31, 2022, of which $285.0 million and $350.0 million were unused as of June 30, 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 June 30, 2023		Weighted Average Rate
Remainder of 2023	$	10,000	3.02	%
2024	85,000		2.10
2025	75,000		4.46
2026	100,000		4.29
2027	25,000		3.99
Thereafter	25,000		4.61
Total	$	320,000	3.71	%

Note 8. Retirement Plans and Other Postretirement Benefits

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


	Three Months Ended June 30,
	2023		2022		2023		2022
(Dollars in thousands)	Retirement Plans				Other Post Retirement Benefits
Service cost	$	136	$	142	$	19	$	32
Interest cost	587		397		32		24
Expected loss on plan assets	(761)		(945)		—		—
Amortization of net actuarial loss (gain)	250		205		(4)		13

Net periodic benefit cost (income)	$	212	$	(201)	$	47	$	69


	Six Months Ended June 30,
	2023		2022		2023		2022
(Dollars in thousands)	Retirement Plans				Other Post Retirement Benefits
Service cost	$	266	$	279	$	38	$	62
Interest cost	1,184		787		64		48
Expected loss on plan assets	(1,531)		(1,878)		—		—
Amortization of net actuarial loss (gain)	500		409		(8)		27

Net periodic benefit cost (income)	$	419	$	(403)	$	94	$	137

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 six months ended June 30, 2023, the Corporation contributed $78 thousand to its Non-Qualified Retirement Benefit Plans and $46 thousand to its Other Postretirement Benefit Plans. During the six months ended June 30, 2023, $1.4 million was paid to participants from the Retirement Plans and $46 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.

The following is a summary of the Corporation's stock option activity and related information for the six months ended June 30, 2023:


(Dollars in thousands, except per share data)	Shares Under Option	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value at June 30, 2023
Outstanding at December 31, 2022	294,111	$	26.11


Forfeited	(6,987)	28.33
Exercised	(6,210)	18.48
Outstanding at June 30, 2023	280,914	26.22		3.7	$	—
Exercisable at June 30, 2023	280,914	26.22		3.7	—

The Corporation did not issue stock options during the six months ended June 30, 2023 or June 30, 2022.

The following is a summary of nonvested restricted stock units at June 30, 2023 including changes during the six months then ended:


(Dollars in thousands, except per share data)	Nonvested Stock Units	Weighted Average Grant Date Fair Value
Nonvested stock units at December 31, 2022	408,264	$	25.57
Granted	213,429	25.04
Added by performance factor	814	19.20
Vested	(181,175)	22.20
Forfeited	(27,994)	27.23
Nonvested stock units at June 30, 2023	413,338	$	26.65

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


	Six Months Ended June 30,
(Dollars in thousands, except per share data)	2023		2022
Restricted stock units granted	213,429		178,719
Weighted average grant date fair value	$	25.04	$	28.18
Intrinsic value of units granted	$	5,345	$	5,037
Restricted stock units vested	181,175		123,834
Weighted average grant date fair value	$	22.20	$	23.53
Intrinsic value of units vested	$	4,506	$	3,510

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested restricted stock units at June 30, 2023 is presented below:


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

Restricted stock units	$	7,985	2.1

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


	Six Months Ended June 30,
(Dollars in thousands)	2023		2022
Stock-based compensation expense:

Restricted stock units	$	2,115	$	1,949
Employee stock purchase plan	55		52
Total	$	2,170	$	2,001
Tax benefit on nonqualified stock option expense and disqualifying dispositions of incentive stock options	$	247	$	215

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 income (loss)	2,060		(1,378)		388		1,070
Balance, June 30, 2023	$	(38,006)	$	(8,209)	$	(14,819)	$	(61,034)

Balance, December 31, 2021	$	(1,216)	$	(159)	$	(14,978)	$	(16,353)
Other comprehensive (loss) income	(27,628)		856		344		(26,428)
Balance, June 30, 2022	$	(28,844)	$	697	$	(14,634)	$	(42,781)

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 June 30, 2023, approximately $4.7 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 June 30, 2023. At June 30, 2023, the notional amount of the interest rate swap was $250.0 million and the fair value was a liability of $10.4 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 June 30, 2023, the Corporation had exposure to 134 variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $870.4 million and remaining maturities ranging from 10 months to 11 years. At June 30, 2023, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $283 thousand. At June 30, 2023, the fair value of the swaps to the customers was a net gain of $73.6 million. At June 30, 2023, the Corporation's credit exposure related to the customer totaled $570 thousand.

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

Mortgage Banking Derivatives

Derivative loan commitments represent agreements for delayed delivery of financial instruments in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument at a specified price or yield. The

Corporation’s derivative loan commitments are commitments to sell loans secured by 1-to 4-family residential properties whose predominant risk characteristic is interest rate risk.

Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the condensed consolidated balance sheets at June 30, 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 Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2023
Interest rate swap - cash flow hedge	$	250,000		$	—	Other liabilities	$	10,391

Total	$	250,000		$	—		$	10,391
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 June 30, 2023 and December 31, 2022:


			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2023

Credit derivatives	$	870,389		$	—	Other liabilities	$	283
Interest rate locks with customers	32,880		Other assets	202			—
Forward loan sale commitments	42,686		Other assets	161			—
Total	$	945,955		$	363		$	283
At December 31, 2022

Credit derivatives	$	815,469		$	—	Other liabilities	$	360
Interest rate locks with customers	10,269		Other assets	119			—
Forward loan sale commitments	15,306		Other assets	29			—
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				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2023		2022		2023		2022

Interest rate swap—cash flow hedge—net interest payments	Interest expense (income)	$	1,371	$	(686)	$	2,431	$	(618)



Total net (loss) gain		$	(1,371)	$	686	$	(2,431)	$	618

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


	Statement of Income Classification	Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2023		2022		2023		2022

Credit derivatives	Other noninterest income	$	821	$	589	$	907	$	1,039
Interest rate locks with customers	Net (loss) gain on mortgage banking activities	(64)		683		82		(327)
Forward loan sale commitments	Net gain (loss) on mortgage banking activities	166		(775)		132		(56)
Total net gain		$	923	$	497	$	1,121	$	656

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at June 30, 2023 and December 31, 2022:


(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At June 30, 2023		At December 31, 2022
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(8,209)	$	(6,831)
Total		$	(8,209)	$	(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.

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

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at June 30, 2023.

Loans Held for Sale

The fair value of our mortgage 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. At June 30, 2023, loans held for sale included a $19.7 million interest in a shared national credit. The fair value of this interest was measured based on the estimated sale price of the loans and is classified within Level 2 in the fair value hierarchy.

Derivative Financial Instruments

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

Contingent Consideration Liability

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

The following table presents the assets and liabilities measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022, classified using the fair value hierarchy:


	At June 30, 2023
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:


State and political subdivisions	$	—	$	2,283	$	—	$	2,283
Residential mortgage-backed securities	—		269,771		—		269,771
Collateralized mortgage obligations	—		2,138		—		2,138
Corporate bonds	—		81,972		—		81,972
Total available-for-sale securities	—		356,164		—		356,164
Equity securities:
Equity securities - financial services industry	666		—		—		666
Money market mutual funds	2,777		—		—		2,777
Total equity securities	3,443		—		—		3,443

Loans held for sale	—		29,526		—		29,526

Interest rate locks with customers*	—		202		—		202
Forward loan sale commitments*	—		161		—		161
Total assets	$	3,443	$	386,053	$	—	$	389,496
Liabilities:
Contingent consideration liability	$	—	$	—	$	1,179	$	1,179
Interest rate swaps*	—		10,391		—		10,391
Credit derivatives*	—		—		283		283


Total liabilities	$	—	$	10,391	$	1,462	$	11,853

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

The $283 thousand of credit derivatives liability represented the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of 134 interest rate swaps with a notional amount of $870.4 million. The June 30, 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 calculated using a discount rate of 8.3% on the acquisition date. During the six months ended June 30, 2023, the Corporation paid $635 thousand in contingent consideration related to this acquisition. The contingent consideration liability was $1.2 million at June 30, 2023. The remaining potential cash payments that could result from the contingent consideration arrangement for the Sheaffer acquisition range from $0 to a maximum of $1.3 million through the period ending November 30, 2024.


	At December 31, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:


State and political subdivisions	$	—	$	2,285	$	—	$	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 industry	780		—		—		780
Money market mutual funds	1,799		—		—		1,799
Total equity securities	2,579		—		—		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 six months ended June 30, 2023 and 2022:


	Six Months Ended June 30, 2023
(Dollars in thousands)	Balance at December 31, 2022		Additions		Payments received		Increase in value		Balance at June 30, 2023


Credit derivatives	$	(360)	$	(826)	$	—	$	903	$	(283)
Net total	$	(360)	$	(826)	$	—	$	903	$	(283)


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

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

The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30, 2023
(Dollars in thousands)	Balance at December 31, 2022		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at June 30, 2023
Paul I. Sheaffer Insurance Agency	$	1,765	$	635	$	49	$	1,179
Total contingent consideration liability	$	1,765	$	635	$	49	$	1,179


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

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or changes in the value of loans held for investment analyzed on an individual basis. The following table represents assets measured at fair value on a non-recurring basis at June 30, 2023 and December 31, 2022:


	At June 30, 2023
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Individually analyzed loans held for investment	$	—	$	—	$	14,521	$	14,521

Other real estate owned	—		—		19,345		19,345
Total	$	—	$	—	$	33,866	$	33,866


	At December 31, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets 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

The following table presents assets and liabilities not measured at fair value on a recurring or non-recurring basis in the Corporation’s condensed consolidated balance sheets but for which the fair value is required to be disclosed at June 30, 2023 and December 31, 2022. The disclosed fair values are classified using the fair value hierarchy.


	At June 30, 2023
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	140,411	$	—	$	—	$	140,411	$	140,411

Held-to-maturity securities	—		133,835		—		133,835		153,509
Federal Home Loan Bank, Federal Reserve Bank and other stock	NA		NA		NA		NA		42,811
Net loans and leases held for investment	—		—		6,210,474		6,210,474		6,365,008
Servicing rights	—		—		17,826		17,826		8,568
Total assets	$	140,411	$	133,835	$	6,228,300	$	6,502,546	$	6,710,307
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	4,883,039	$	—	$	—	$	4,883,039	$	4,883,039
Time deposits	—		1,093,890		—		1,093,890		1,104,363
Total deposits	4,883,039		1,093,890		—		5,976,929		5,987,402
Short-term borrowings	—		244,666		—		244,666		244,666
Long-term debt	—		317,491		—		317,491		320,000
Subordinated notes	—		138,250		—		138,250		148,510
Total liabilities	$	4,883,039	$	1,794,297	$	—	$	6,677,336	$	6,700,578


	At December 31, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair 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 stock	NA		NA		NA		NA		33,841
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 deposits	5,394,442		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

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. At June 30, 2023, loans held for sale included a $19.7 million interest in a shared national credit. The fair value of this interest was measured based on the estimated sale price of the loans and is classified within Level 2 in the fair value hierarchy.

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

Individually analyzed loans and leases held for investment: For individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At June 30, 2023, individually analyzed loans held for investment had a carrying amount of $14.9 million with a valuation allowance of $373 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 June 30, 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 June 30, 2023, servicing rights had a net carrying amount of $8.6 million, which included a valuation allowance of $8 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 six months ended June 30, 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 June 30, 2023 and December 31, 2022, OREO had a carrying amount of $19.3 million. 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.

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

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

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

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

Note 13. Segment Reporting

At June 30, 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 June 30, 2023		At December 31, 2022		At June 30, 2022
Banking	$	7,479,212	$	7,104,727	$	6,588,292
Wealth Management	57,927		58,239		54,531
Insurance	46,880		44,728		43,138
Other	16,131		14,322		14,852
Consolidated assets	$	7,600,150	$	7,222,016	$	6,700,813

The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and six months ended June 30, 2023 and 2022.


	Three Months Ended
	June 30, 2023
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	90,108	$	22	$	—	$	9	$	90,139
Interest expense	33,527		—		—		2,282		35,809
Net interest income (expense)	56,581		22		—		(2,273)		54,330
Provision for credit losses	3,428		—		—		—		3,428
Noninterest income	7,952		6,684		5,214		(17)		19,833
Noninterest expense	40,753		4,800		3,955		291		49,799
Intersegment (revenue) expense*	(237)		115		122		—		—
Income (loss) before income taxes	20,589		1,791		1,137		(2,581)		20,936
Income tax expense (benefit)	4,276		132		247		(519)		4,136
Net income (loss)	$	16,313	$	1,659	$	890	$	(2,062)	$	16,800
Net capital expenditures	$	834	$	3	$	63	$	96	$	996


	Three Months Ended
	June 30, 2022
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	56,706	$	2	$	—	$	9	$	56,717
Interest expense	3,919		—		—		1,327		5,246
Net interest income (expense)	52,787		2		—		(1,318)		51,471
Provision for credit losses	6,674		—		—		—		6,674
Noninterest income	7,480		6,862		4,828		(172)		18,998
Noninterest expense	38,179		4,391		3,882		919		47,371
Intersegment (revenue) expense*	(433)		211		222		—		—
Income (loss) before income taxes	15,847		2,262		724		(2,409)		16,424
Income tax expense (benefit)	3,088		435		147		(412)		3,258
Net income (loss)	$	12,759	$	1,827	$	577	$	(1,997)	$	13,166
Net capital expenditures	$	520	$	163	$	23	$	34	$	740


	Six Months Ended
	June 30, 2023
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	173,332	$	42	$	—	$	18	$	173,392
Interest expense	55,182		—		—		4,563		59,745
Net interest income (expense)	118,150		42		—		(4,545)		113,647
Provision for credit losses	6,815		—		—		—		6,815
Noninterest income	14,189		13,443		11,934		(53)		39,513
Noninterest expense	80,685		9,660		7,890		1,093		99,328
Intersegment (revenue) expense*	(473)		230		243		—		—
Income (loss) before income taxes	45,312		3,595		3,801		(5,691)		47,017
Income tax expense (benefit)	9,461		296		830		(1,404)		9,183
Net income (loss)	$	35,851	$	3,299	$	2,971	$	(4,287)	$	37,834
Net capital expenditures	$	3,035	$	6	$	119	$	421	$	3,581


	Six Months Ended
	June 30, 2022
(Dollars in thousands)	Banking		Wealth Management		Insurance		Other		Consolidated
Interest income	$	107,895	$	3	$	—	$	17	$	107,915
Interest expense	7,129		—		—		2,655		9,784
Net interest income (expense)	100,766		3		—		(2,638)		98,131
Provision for credit losses	3,224		—		—		—		3,224
Noninterest income	14,850		14,167		10,592		(141)		39,468
Noninterest expense	74,667		9,100		7,747		1,269		92,783
Intersegment (revenue) expense*	(867)		422		445		—		—
Income (loss) before income taxes	38,592		4,648		2,400		(4,048)		41,592
Income tax expense (benefit)	7,631		927		505		(954)		8,109
Net income (loss)	$	30,961	$	3,721	$	1,895	$	(3,094)	$	33,483
Net capital expenditures	$	(5,072)	$	226	$	38	$	54	$	(4,754)

*Includes an allocation of general and administrative expenses from both the parent holding company and the Bank. These expenses are generally allocated based upon number of employees and square footage utilized.

Note 14. Contingencies

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

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

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

Forward-Looking Statements

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

•Operating, legal and regulatory risks;

•Economic, political and competitive forces;

•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, 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.

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										Six Months Ended
	June 30,						Change				June 30,						Change
(Dollars in thousands, except per share data)	2023			2022			Amount		Percent		2023			2022			Amount		Percent
Net income	$	16,800		$	13,166		$	3,634	27.6	%	$	37,834		$	33,483		$	4,351	13.0	%
Net income per share:
Basic	$	0.57		$	0.45		$	0.12	26.7		$	1.29		$	1.14		$	0.15	13.2
Diluted	0.57			0.45			0.12		26.7		1.28			1.13			0.15		13.3
Return on average assets	0.91		%	0.76		%	15 BP		19.7		1.04		%	0.96		%	8 BP		8.3
Return on average equity	8.35		%	6.85		%	150 BP		21.9		9.56		%	8.74		%	82 BP		9.4

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 and six months ended June 30, 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 and six months ended June 30, 2023 versus 2022

Net interest income on a tax-equivalent basis for the three months ended June 30, 2023 was $54.6 million, an increase of $2.7 million, or 5.1%, compared to $52.0 million for the three months ended June 30, 2022. The increase in tax-equivalent net interest income for the three months ended June 30, 2023 compared to the comparable period in the prior year was largely due to an increase in average loan balances and asset yields, offset by increases in the average balance of interest-bearing liabilities and the cost of funds.

Net interest income on a tax-equivalent basis for the six months ended June 30, 2023 was $114.3 million, an increase of $15.2 million, or 15.3%, compared to $99.1 million for the six months ended June 30, 2022. The increase in tax-equivalent net interest income for the six months ended June 30, 2023 compared to the comparable period in the prior year was largely due to an increase in average loan balances and asset yields, offset by increases in the average balance of interest bearing liabilities and the cost of funds.

The net interest margin, on a tax-equivalent basis, was 3.14% and 3.35% for the three and six months ended June 30, 2023, respectively, compared to 3.19% and 3.04% for the three and six months ended June 30, 2022, respectively. Excess liquidity reduced net interest margin by approximately 23 and 28 basis points for the three and six months ended June 30, 2022, respectively.

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


	Three Months Ended June 30,
	2023							2022
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	46,897		$	512	4.38	%	$	474,260		$	824	0.70	%
U.S. government obligations	—			—		—		2,000			11		2.21
Obligations of states and political subdivisions*	2,284			15		2.63		2,302			17		2.96
Other debt and equity securities	516,711			3,512		2.73		511,439			2,727		2.14
Federal Home Loan Bank, Federal Reserve Bank and other stock	43,783			781		7.15		26,221			344		5.26
Total interest-earning deposits, investments and other interest-earning assets	609,675			4,820		3.17		1,016,222			3,923		1.55
Commercial, financial and agricultural loans	1,005,499			16,919		6.75		945,490			9,192		3.90
Real estate—commercial and construction loans	3,445,431			45,960		5.35		3,004,509			28,527		3.81
Real estate—residential loans	1,483,478			17,216		4.65		1,166,201			10,758		3.70
Loans to individuals	26,794			479		7.17		26,782			305		4.57
Municipal loans and leases*	234,940			2,388		4.08		235,922			2,404		4.09
Lease financings	176,200			2,659		6.05		141,676			2,105		5.96
Gross loans and leases	6,372,342			85,621		5.39		5,520,580			53,291		3.87
Total interest-earning assets	6,982,017			90,441		5.20		6,536,802			57,214		3.51
Cash and due from banks	58,675							55,634
Allowance for credit losses, loans and leases	(81,641)							(68,426)
Premises and equipment, net	52,540							50,266
Operating lease right-of-use assets	31,200							30,222
Other assets	398,007							357,903
Total assets	$	7,440,798						$	6,962,401
Liabilities:
Interest-bearing checking deposits	$	1,011,889		$	5,392	2.14	%	$	851,324		$	570	0.27	%
Money market savings	1,460,899			14,089		3.87		1,405,536			1,552		0.44
Regular savings	888,680			845		0.38		1,070,480			237		0.09
Time deposits	823,665			7,141		3.48		452,989			1,227		1.09
Total time and interest-bearing deposits	4,185,133			27,467		2.63		3,780,329			3,586		0.38
Short-term borrowings	255,090			3,249		5.11		17,253			11		0.26
Long-term debt	301,593			2,811		3.74		95,000			321		1.36
Subordinated notes	148,443			2,282		6.17		98,988			1,328		5.38
Total borrowings	705,126			8,342		4.75		211,241			1,660		3.15
Total interest-bearing liabilities	4,890,259			35,809		2.94		3,991,570			5,246		0.53
Noninterest-bearing deposits	1,659,449							2,122,844
Operating lease liabilities	34,415							33,300
Accrued expenses and other liabilities	49,966							43,277
Total liabilities	6,634,089							6,190,991
Total interest-bearing liabilities and noninterest-bearing deposits ("Cost of Funds")	6,549,708					2.19		6,114,414					0.34
Shareholders’ Equity:
Common stock	157,784							157,784
Additional paid-in capital	298,788							298,241
Retained earnings and other equity	350,137							315,385
Total shareholders’ equity	806,709							771,410
Total liabilities and shareholders’ equity	$	7,440,798						$	6,962,401
Net interest income				$	54,632						$	51,968
Net interest spread						2.26							2.98
Effect of net interest-free funding sources						0.88							0.21
Net interest margin						3.14	%						3.19	%
Ratio of average interest-earning assets to average interest-bearing liabilities	142.77		%					163.77		%

*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 $668 thousand and $618 thousand for the three months ended June 30, 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 June 30, 2023 and 2022 have been calculated using the Corporation's federal applicable rate of 21%.


	Six Months Ended June 30,
	2023							2022
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	47,364		$	991	4.22	%	$	603,002		$	1,181	0.39	%
U.S. government obligations	—			—		—		3,602			37		2.07
Obligations of states and political subdivisions*	2,285			32		2.82		2,317			36		3.13
Other debt and equity securities	515,161			7,007		2.74		512,998			5,066		1.99
Federal Home Loan Bank, Federal Reserve Bank and other stock	39,287			1,390		7.13		26,665			699		5.29
Total interest-earning deposits, investments and other interest-earning assets	604,097			9,420		3.14		1,148,584			7,019		1.23
Commercial, financial and agricultural loans	998,726			32,457		6.55		932,795			17,354		3.75
Real estate—commercial and construction loans	3,394,100			88,381		5.25		2,954,831			54,347		3.71
Real estate—residential loans	1,446,093			32,946		4.59		1,141,416			20,640		3.65
Loans to individuals	27,023			928		6.93		26,293			543		4.16
Municipal loans and leases*	232,461			4,729		4.10		239,197			4,838		4.08
Lease financings	170,787			5,200		6.14		138,593			4,180		6.08
Gross loans and leases	6,269,190			164,641		5.30		5,433,125			101,902		3.78
Total interest-earning assets	6,873,287			174,061		5.11		6,581,709			108,921		3.34
Cash and due from banks	58,356							54,671
Allowance for credit losses, loans and leases	(80,813)							(70,237)
Premises and equipment, net	52,064							52,097
Operating lease right-of-use assets	31,251							30,308
Other assets	396,471							356,406
Total assets	$	7,330,616						$	7,004,954
Liabilities:
Interest-bearing checking deposits	$	935,316		$	8,556	1.84	%	$	866,310		$	1,013	0.24	%
Money market savings	1,474,936			25,170		3.44		1,473,680			2,456		0.34
Regular savings	936,930			1,514		0.33		1,046,150			475		0.09
Time deposits	695,697			10,563		3.06		463,232			2,533		1.10
Total time and interest-bearing deposits	4,042,879			45,803		2.28		3,849,372			6,477		0.34
Short-term borrowings	247,745			5,977		4.87		17,443			13		0.15
Long-term debt	207,431			3,402		3.31		95,000			638		1.35
Subordinated notes	148,381			4,563		6.20		98,950			2,656		5.41
Total borrowings	603,557			13,942		4.66		211,393			3,307		3.15
Total interest-bearing liabilities	4,646,436			59,745		2.59		4,060,765			9,784		0.49
Noninterest-bearing deposits	1,796,647							2,094,397
Operating lease liabilities	34,427							33,375
Accrued expenses and other liabilities	55,126							43,541
Total liabilities	6,532,636							6,232,078
Total interest-bearing liabilities and noninterest-bearing deposits ("Cost of Funds")	6,443,083					1.87		6,155,162					0.32
Shareholders’ Equity:
Common stock	157,784							157,784
Additional paid-in capital	299,537							298,606
Retained earnings and other equity	340,659							316,486
Total shareholders’ equity	797,980							772,876
Total liabilities and shareholders’ equity	$	7,330,616						$	7,004,954
Net interest income				$	114,316						$	99,137
Net interest spread						2.52							2.85
Effect of net interest-free funding sources						0.83							0.19
Net interest margin						3.35	%						3.04	%
Ratio of average interest-earning assets to average interest-bearing liabilities	147.93		%					162.08		%

*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 $1.1 million and $754 thousand for the six months ended June 30, 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 six months ended June 30, 2023 and 2022 have been calculated using the Corporation's federal applicable rate of 21%.

Table 2—Analysis of Changes in Net Interest Income

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


	Three Months Ended						Six Months Ended
	June 30, 2023 Versus 2022						June 30, 2023 Versus 2022
(Dollars in thousands)	Volume Change		Rate Change		Total		Volume Change		Rate Change		Total
Interest income:
Interest-earning deposits with other banks	$	(1,319)	$	1,007	$	(312)	$	(1,982)	$	1,792	$	(190)
U.S. government obligations	(11)		—		(11)		(37)		—		(37)
Obligations of states and political subdivisions	—		(2)		(2)		—		(4)		(4)
Other debt and equity securities	28		757		785		21		1,920		1,941
Federal Home Loan Bank, Federal Reserve Bank and other stock	284		153		437		398		293		691
Interest on deposits, investments and other earning assets	(1,018)		1,915		897		(1,600)		4,001		2,401
Commercial, financial and agricultural loans	617		7,110		7,727		1,306		13,797		15,103
Real estate—commercial and construction loans	4,643		12,790		17,433		8,974		25,060		34,034
Real estate—residential loans	3,323		3,135		6,458		6,263		6,043		12,306
Loans to individuals	—		174		174		15		370		385
Municipal loans and leases	(10)		(6)		(16)		(133)		24		(109)
Lease financings	521		33		554		979		41		1,020
Interest and fees on loans and leases	9,094		23,236		32,330		17,404		45,335		62,739
Total interest income	8,076		25,151		33,227		15,804		49,336		65,140
Interest expense:
Interest-bearing checking deposits	128		4,694		4,822		89		7,454		7,543
Money market savings	63		12,474		12,537		2		22,712		22,714
Regular savings	(47)		655		608		(55)		1,094		1,039
Time deposits	1,607		4,307		5,914		1,765		6,265		8,030
Total time and interest-bearing deposits	1,751		22,130		23,881		1,801		37,525		39,326
Short-term borrowings	1,374		1,864		3,238		1,761		4,203		5,964
Long-term debt	1,379		1,111		2,490		1,242		1,522		2,764
Subordinated notes	737		217		954		1,475		432		1,907
Interest on borrowings	3,490		3,192		6,682		4,478		6,157		10,635
Total interest expense	5,241		25,322		30,563		6,279		43,682		49,961
Net interest income	$	2,835	$	(171)	$	2,664	$	9,525	$	5,654	$	15,179

Provision for Credit Losses

The provision for credit losses for the three months ended June 30, 2023 and 2022 was $3.4 million and $6.7 million, respectively. The provision for credit losses for the six months ended June 30, 2023 and 2022 was $6.8 million and $3.2 million, respectively. 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)	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
Allowance for credit losses, loans and leases	$	82,709		$	80,034		$	79,004		$	74,929		$	72,011		$	68,286
Loans and leases held for investment	6,462,238			6,239,804			6,123,230			5,849,259			5,661,777			5,400,786
Allowance for credit losses, loans and leases / loans and leases held for investment	1.28		%	1.28		%	1.29		%	1.28		%	1.27		%	1.26		%

Noninterest Income

The following table presents noninterest income for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
(Dollars in thousands)	2023		2022		Amount		Percent		2023		2022		Amount		Percent
Trust fee income	$	1,924	$	1,998	$	(74)	(3.7	%)	$	3,879	$	4,100	$	(221)	(5.4	%)
Service charges on deposit accounts	1,725		1,574		151		9.6		3,272		3,078		194		6.3
Investment advisory commission and fee income	4,708		4,812		(104)		(2.2)		9,460		9,964		(504)		(5.1)
Insurance commission and fee income	5,108		4,629		479		10.3		11,595		10,199		1,396		13.7
Other service fee income	3,318		3,309		9		0.3		6,394		6,065		329		5.4
Bank owned life insurance income	789		705		84		11.9		1,556		1,404		152		10.8
Net gain on sales of investment securities	—		—		—		N/A		—		30		(30)		N/M
Net gain on mortgage banking activities	1,039		1,230		(191)		(15.5)		1,664		3,159		(1,495)		(47.3)


Other income	1,222		741		481		64.9		1,693		1,469		224		15.2
Total noninterest income	$	19,833	$	18,998	$	835	4.4	%	$	39,513	$	39,468	$	45	0.1	%

Three and six months ended June 30, 2023 versus 2022

Noninterest income for the three months ended June 30, 2023 was $19.8 million, an increase of $835 thousand, or 4.4%, from the three months ended June 30, 2022. Noninterest income for the six months ended June 30, 2023 was $39.5 million, an increase of $45 thousand, or 0.1%, from the six months ended June 30, 2022.

Insurance commission and fee income increased $479 thousand, or 10.3%, for the three months ended June 30, 2023 and $1.4 million, or 13.7%, for the six months ended June 30, 2023 from the comparable periods in the prior year. The increase for the three months ended June 30, 2023 was primarily due to an increase in premiums for commercial lines. The increase for the six months ended June 30, 2023 was primarily due to increases in premiums for commercial lines and group life and health and an increase in contingent commission income of $566 thousand, which was $1.8 million and $1.3 million for the six months ended June 30, 2023 and 2022, respectively. Contingent income is largely recognized in the first quarter of the year.

Other income increased $481 thousand, or 64.9%, for the three months ended June 30, 2023 and $224 thousand, or 15.2%, for the six months ended June 30, 2023 from the comparable periods in the prior year. The increase for the three months ended June 30, 2023 was primarily due to $292 thousand of OREO income related to a commercial real estate loan transferred to OREO during the second quarter of 2022 and an increase of $232 thousand in fees on risk participation agreements for interest rate swaps. The increase for the six months ended June 30, 2023 was primarily due to $397 thousand of OREO income related to a commercial real estate loan transferred to OREO during the second quarter of 2022 and an increase of $181 thousand on the sale of $5.2 million of small business administration loans, partially offset by a decrease of $157 thousand in fees on risk

participation agreements for interest rate swaps. Additionally, both the three and six months ended June 30, 2023 included a loss of $250 thousand on the planned sale of an interest in a shared national credit.

The net gain on mortgage banking activities decreased $191 thousand, or 15.5%, for the three months ended June 30, 2023 and $1.5 million, or 47.3%, for the six months ended June 30, 2023 from the comparable periods in the prior year 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.

Noninterest Expense

The following table presents noninterest expense for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
(Dollars in thousands)	2023		2022		Amount		Percent		2023		2022		Amount		Percent
Salaries, benefits and commissions	$	29,875	$	29,133	$	742	2.5	%	$	60,889	$	57,378	$	3,511	6.1	%
Net occupancy	2,614		2,422		192		7.9		5,341		5,138		203		4.0
Equipment	986		977		9		0.9		1,979		1,959		20		1.0
Data processing	4,137		3,708		429		11.6		8,166		7,275		891		12.2
Professional fees	1,669		2,844		(1,175)		(41.3)		3,610		4,982		(1,372)		(27.5)
Marketing and advertising	622		693		(71)		(10.2)		993		1,118		(125)		(11.2)
Deposit insurance premiums	1,116		812		304		37.4		2,217		1,705		512		30.0
Intangible expenses	253		342		(89)		(26.0)		506		683		(177)		(25.9)


Restructuring charges	1,330		—		1,330		N/M		1,330		—		1,330		N/M
Other expense	7,197		6,440		757		11.8		14,297		12,545		1,752		14.0
Total noninterest expense	$	49,799	$	47,371	$	2,428	5.1	%	$	99,328	$	92,783	$	6,545	7.1	%

Three and six months ended June 30, 2023 versus 2022

Noninterest expense for the three months ended June 30, 2023 was $49.8 million, an increase of $2.4 million, or 5.1%, from the three months ended June 30, 2022. Noninterest expense for the six months ended June 30, 2023 was $99.3 million, an increase of $6.5 million, or 7.1%, from the six months ended June 30, 2022.

Salaries, benefits and commissions increased $742 thousand, or 2.5%, for the three months ended June 30, 2023 and $3.5 million, or 6.1%, for the six months ended June 30, 2023 from the comparable periods in the prior year. These increases reflect our expansion into Maryland and Western Pennsylvania and annual merit increases, offset by a reduction in incentive compensation.

Data processing expenses increased $429 thousand, or 11.6%, for the three months ended June 30, 2023 and $891 thousand, or 12.2%, for the six months ended June 30, 2023 from the comparable periods in the prior year, primarily due to our investments in technology and general price increases incurred in the second half of 2022.

Restructuring charges increased $1.3 million for the three and six months ended June 30, 2023 as a result of the Corporation's financial service center optimization and expense management strategies deployed during the second quarter of 2023 in response to macroeconomic headwinds.

Other expense increased $757 thousand, or 11.8%, for the three months ended June 30, 2023 and $1.8 million, or 14.0%, for the six months ended June 30, 2023 from the comparable periods in the prior year, primarily due to increases in retirement plan costs of $410 thousand and $817 thousand, respectively, which was primarily driven by the current interest rate environment. The six months ended June 30, 2023 also included an increase of $150 thousand related to Bank Shares tax expense driven by year over year growth of the Bank's Shareholders' Equity.

Professional fees decreased $1.2 million, or 41.3%, for the three months ended June 30, 2023 and $1.4 million, or 27.5%, for the six months ended June 30, 2023, primarily due to consultant fees incurred in the second quarter of 2022 related to our digital transformation initiative.

Tax Provision

The Corporation recognized a tax expense of $4.1 million and $3.3 million for the three months ended June 30, 2023 and 2022, respectively, resulting in an effective rate of 19.8% for both periods. The Corporation recognized a tax expense of $9.2 million and $8.1 million for the six months ended June 30, 2023 and 2022, respectively, resulting in an effective rate of 19.5% for both periods. The effective tax rates for the three and six months ended June 30, 2023 and 2022 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases.

Financial Condition

Assets

The following table presents assets at the dates indicated:


	At June 30, 2023		At December 31, 2022		Change
(Dollars in thousands)					Amount		Percent
Cash, interest-earning deposits and federal funds sold	$	140,411	$	152,799	$	(12,388)	(8.1)	%
Investment securities	513,116		507,562		5,554		1.1
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	42,811		33,841		8,970		26.5
Loans held for sale	29,526		5,037		24,489		486.2
Loans and leases held for investment	6,462,238		6,123,230		339,008		5.5
Allowance for credit losses, loans and leases	(82,709)		(79,004)		(3,705)		4.7
Premises and equipment, net	52,058		50,939		1,119		2.2
Operating lease right-of-use assets	30,237		30,059		178		0.6
Goodwill and other intangibles, net	186,433		186,894		(461)		(0.2)
Bank owned life insurance	129,715		120,297		9,418		7.8

Accrued interest receivable and other assets	96,314		90,362		5,952		6.6
Total assets	$	7,600,150	$	7,222,016	$	378,134	5.2	%

Cash and Interest-Earning Deposits

Cash and interest-earning deposits decreased $12.4 million, or 8.1%, from December 31, 2022, primarily due to decreased interest earning deposits at the Federal Reserve Bank of $11.3 million as funds from increased deposits and borrowings were used to fund loan growth.

Investment Securities

Total investment securities at June 30, 2023 increased $5.6 million, or 1.1%, from December 31, 2022. Purchases of $26.8 million, primarily residential mortgage-backed securities and increases in the fair value of available-for-sale investment securities of $2.6 million were partially offset by maturities and pay-downs of $22.0 million, net amortization of purchased premiums and discounts of $592 thousand, calls of $500 thousand, a provision for credit losses of $397 thousand and sales of $242 thousand.

Loans and Leases Held for Sale

Gross loans and leases held for sale increased $24.5 million, or 486.2%, from December 31, 2022. During the second quarter of 2023, a $19.7 million interest in a shared national credit was transferred to held for sale and is expected to be sold in the third quarter of 2023.

Loans and Leases

Gross loans and leases held for investment increased $339.0 million, or 5.5%, 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 June 30, 2023, nonaccrual loans and leases were $15.1 million and had a related allowance for credit losses on loans and leases of $373 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 second quarter of 2023, a $5.8 million construction loan was placed on nonaccrual status and a $2.5 million nonaccrual commercial loan was paid off, with a related allowance of $448 thousand. Based on the value of the underlying collateral, an individual reserve was not recorded for the $5.8 million construction loan as of June 30, 2023. Individual reserves have been established based on current facts and management's judgements about the ultimate outcome of these credits, including the most recent known data available on any related underlying collateral and the borrower's cash flows. The amount of individual reserve needed for these credits could change in future periods subject to changes in facts and judgements related to these credits.

Net loan and lease charge-offs for the three months ended June 30, 2023 were $512 thousand compared to $1.7 million for the same period in the prior year. Net loan and lease charge-offs for the six months ended June 30, 2023 were $3.4 million compared to $1.8 million for the same period in the prior year. The increase in charge-offs for the six months ended June 30, 2023 was primarily due to $2.4 million of charge-offs recorded against two existing nonaccrual commercial loans to one borrower in the first quarter of 2023. As of December 31, 2022, the allowance for credit losses included a $2.1 million individual reserve for this relationship.

Other real estate owned was $19.3 million at June 30, 2023 and December 31, 2022.

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 June 30, 2023			At December 31, 2022
Nonaccrual loans and leases	$	15,087		$	13,353
Accruing loans and leases, 90 days or more past due	55			875
Total nonperforming loans and leases	$	15,142		$	14,228
Other real estate owned	19,345			19,258
Total nonperforming assets	$	34,487		$	33,486

Loans and leases held for investment	$	6,462,238		$	6,123,230
Allowance for credit losses, loans and leases	82,709			79,004

Allowance for credit losses, loans and leases / loans and leases held for investment	1.28		%	1.29		%
Nonaccrual loans and leases / loans and leases held for investment	0.23		%	0.22		%
Allowance for credit losses, loans and leases / nonaccrual loans and leases	548.21		%	591.66		%

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


(Dollars in thousands)	At June 30, 2023		At December 31, 2022
Nonaccrual loans and leases	$	15,087	$	13,353
Nonaccrual loans and leases with partial charge-offs	1,085		928
Life-to-date partial charge-offs on nonaccrual loans and leases	727		448
Reserves on individually analyzed loans	373		2,765

Table 4—Loan Portfolio Overview

The following table provides summarized detail related to outstanding commercial loan balances segmented by industry description as of June 30, 2023:


(Dollars in thousands)	June 30, 2023
Industry Description	Total Outstanding Balance		% of Commercial Loan Portfolio
CRE - Retail	$	468,650	9.0	%
Animal Production	350,654		6.8
CRE - Multi-family	306,508		5.9
CRE - Office	303,848		5.9
CRE - 1-4 Family Residential Investment	282,613		5.4
CRE - Industrial / Warehouse	226,781		4.4
Hotels & Motels (Accommodation)	191,824		3.7
Nursing and Residential Care Facilities	174,408		3.4
Specialty Trade Contractors	170,316		3.3
Education	155,108		3.0
Homebuilding (tract developers, remodelers)	151,225		2.9
Merchant Wholesalers, Durable Goods	132,533		2.6
Motor Vehicle and Parts Dealers	120,027		2.3
CRE - Mixed-Use - Residential	110,604		2.1
Crop Production	98,772		1.9
Administrative and Support Services	88,027		1.7
Rental and Leasing Services	86,872		1.7
Wood Product Manufacturing	81,867		1.6
Repair and Maintenance	81,038		1.6
Real Estate Lenders, Secondary Market Financing	79,265		1.5
CRE - Mixed-Use - Commercial	77,981		1.5
Religious Organizations, Advocacy Groups	74,106		1.4
Amusement, Gambling, and Recreation Industries	71,243		1.4
Fabricated Metal Product Manufacturing	70,147		1.4
Merchant Wholesalers, Nondurable Goods	68,736		1.3
Personal and Laundry Services	67,717		1.3
Miniwarehouse / Self-Storage	63,917		1.2
Food Services and Drinking Places	63,769		1.2
Private Equity & Special Purpose Entities (excluding Trusts, Estates and Agency Accounts)	61,598		1.2
Food Manufacturing	57,748		1.1
Truck Transportation	54,135		1.0
Industries with >$50 million in outstandings	$	4,392,037	84.6	%
Industries with <$50 million in outstandings	$	800,146	15.4	%
Total Commercial Loans	$	5,192,183	100.0	%

Consumer Loans and Lease Financings	Total Outstanding Balance
Real Estate-Residential Secured for Personal Purpose	$	832,632
Real Estate-Home Equity Secured for Personal Purpose	175,090
Loans to Individuals	25,544
Lease Financings	236,789
Total Consumer Loans and Lease Financings	$	1,270,055

Total	$	6,462,238

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 June 30, 2023 and 2022, respectively. The amortization of core deposit and customer-related intangibles was $458 thousand and $614 thousand for the six months ended June 30, 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 June 30, 2023 and December 31, 2022.

The Corporation also has goodwill with a net carrying value of $175.5 million at June 30, 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 six months ended June 30, 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 $9.4 million, or 7.8%, 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 June 30, 2023		At December 31, 2022		Change
					Amount		Percent
Deposits	$	5,987,402	$	5,913,526	$	73,876	1.2	%
Short-term borrowings	244,666		197,141		47,525		24.1
Long-term debt	320,000		95,000		225,000		236.8
Subordinated notes	148,510		148,260		250		0.2
Operating lease liabilities	33,428		33,153		275		0.8
Accrued interest payable and other liabilities	60,922		58,436		2,486		4.3
Total liabilities	$	6,794,928	$	6,445,516	$	349,412	5.4	%

Deposits

Total deposits increased $73.9 million, or 1.2%, from December 31, 2022, primarily due to increases in public funds and brokered deposits partially offset by decreases in commercial and consumer deposits. At June 30, 2023, brokered deposits represented 7.2% of total deposits, compared to 1.7% at December 31, 2022. At June 30, 2023, unprotected deposits, which excludes insured accounts, internal accounts, and collateralized trust accounts, represented 23.3% of total deposits, down from 31.0% at December 31, 2022.

Borrowings

Total borrowings increased $272.8 million, or 61.9%, from December 31, 2022, due to increases of $225.0 million in long-term debt, $65.0 million in federal funds purchased and $4.7 million in short-term customer repurchase agreements, partially offset by a decrease of $22.2 million in short-term FHLB overnight borrowings. The funds were used to fund loan growth, purchase investment securities and to maintain liquidity.

Shareholders’ Equity

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


(Dollars in thousands)	At June 30, 2023		At December 31, 2022		Change
					Amount		Percent
Common stock	$	157,784	$	157,784	$	—	—	%
Additional paid-in capital	299,212		300,808		(1,596)		(0.5)
Retained earnings	453,806		428,637		25,169		5.9
Accumulated other comprehensive loss	(61,034)		(62,104)		1,070		(1.7)
Treasury stock	(44,546)		(48,625)		4,079		(8.4)
Total shareholders’ equity	$	805,222	$	776,500	$	28,722	3.7	%

Total shareholders' equity increased $28.7 million, or 3.7%, from December 31, 2022. Retained earnings at June 30, 2023 increased by $25.2 million primarily due to net income of $37.8 million offset by $12.3 million in cash dividends paid for the six months ended June 30, 2023. Accumulated other comprehensive loss decreased by $1.1 million, primarily attributable to increases in the fair value of available-for-sale investment securities of $2.1 million, net of tax, partially offset by a decrease in the fair value of derivatives of $1.4 million, net of tax. Treasury stock decreased $4.1 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 $20.6 million and $15.8 million for the three months ended June 30, 2023 and 2022, respectively, and pre-tax income of $45.3 million and $38.6 million for the six months ended June 30, 2023 and 2022, respectively. See the section of this Management's Discussion & Analysis under the headings "Results of Operations" and "Financial Condition" for a discussion of key items impacting the Banking Segment.

The Wealth Management segment reported noninterest income of $6.7 million and $6.9 million for the three months ended June 30, 2023 and 2022, respectively, and $13.4 million and $14.2 million for the six months ended June 30, 2023 and 2022, respectively. Noninterest expense was $4.8 million and $4.4 million for the three months ended June 30, 2023 and 2022, respectively, and $9.7 million and $9.1 million for the six months ended June 30, 2023 and 2022, respectively. The decrease in noninterest income for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 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. Assets under management and supervision were $4.5 billion as of June 30, 2023, $4.3 billion as of March 31, 2023, $4.1 billion as of June 30, 2022 and $4.6 billion as of March 31, 2022. The increase in noninterest expense for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily driven by increases in salaries, benefits and commissions due to annual merit increases and additional staffing.

The Insurance segment reported noninterest income of $5.2 million and $4.8 million for the three months ended June 30, 2023 and 2022, respectively, and $11.9 million and $10.6 million for the six months ended June 30, 2023 and 2022, respectively. The increase in pre-tax income and noninterest income for the three and six months ended June 30, 2023 was primarily due to increases in premiums for commercial lines. The increase for the six months ended June 30, 2023 was primarily due to increases in premiums for commercial lines and group life and health and an increase in contingent commission income of $566 thousand, which was $1.8 million and $1.3 million for the six months ended June 30, 2023 and 2022, respectively. Contingent income is largely recognized in the first quarter of the year.

Capital Adequacy

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

Under current rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.50% of total risk-weighted assets. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, which requires Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50%. The Corporation and the Bank were in compliance with these requirements at June 30, 2023.

Table 5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of June 30, 2023 and December 31, 2022 under regulatory capital rules were as follows.


	Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
At June 30, 2023
Total Capital (to Risk-Weighted Assets):
Corporation	$	926,639	13.54	%	$	547,465	8.00	%	$	684,332	10.00	%
Bank	780,471		11.43		546,194		8.00		682,742		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	702,204		10.26		410,599		6.00		547,465		8.00
Bank	704,546		10.32		409,645		6.00		546,194		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	702,204		10.26		307,949		4.50		444,816		6.50
Bank	704,546		10.32		307,234		4.50		443,783		6.50
Tier 1 Capital (to Average Assets):
Corporation	702,204		9.59		292,962		4.00		366,202		5.00
Bank	704,546		9.64		292,366		4.00		365,458		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	%
Bank	740,936		11.35		522,370		8.00		652,962		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	678,403		10.37		392,623		6.00		523,498		8.00
Bank	673,256		10.31		391,777		6.00		522,370		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	678,403		10.37		294,467		4.50		425,342		6.50
Bank	673,256		10.31		293,833		4.50		424,426		6.50
Tier 1 Capital (to Average Assets):
Corporation	678,403		9.81		276,586		4.00		345,732		5.00
Bank	673,256		9.76		276,014		4.00		345,017		5.00

At June 30, 2023 and December 31, 2022, the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. At June 30, 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 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 risk 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, were $140.4 million at June 30, 2023. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $356.2 million at June 30, 2023. Further, the Corporation and its subsidiaries had committed borrowing capacity from the Federal Home Loan Bank and Federal Reserve Bank of $3.2 billion at June 30, 2023, of which $2.0 billion was available. The Corporation and its subsidiaries also maintained uncommitted funding sources from correspondent banks of $410.0 million at June 30, 2023, of which $285.0 million was unused as of June 30, 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 services through its financial center network, thereby replacing these contractual obligations with similar funding 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 June 30, 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 June 30, 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 June 30, 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 and Item 1A of the Corporation's Quarterly Report of Form 10-Q for the quarter ended March 31, 2023.

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

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


ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 – 30, 2023	—	$	—	—	1,229,174
May 1 – 31, 2023	—	—		—	1,229,174
June 1 – 30, 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 June 30, 2023 were as follows:


Period	Total Number of Shares Purchased	Average Price Paid per Share
April 1 – 30, 2023	—	$	—
May 1 – 31, 2023	—	—
June 1 – 30, 2023	—	—
Total	—	$	—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers

During the three months ended June 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Corporation's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."

Item 6. Exhibits


a.	Exhibits

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

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

	Exhibit 10.1	Univest Financial Corporation 2023 Equity Incentive Plan in incorporated by reference to Appendix A to the proxy statement for the 2023 Annual Meeting of Shareholders filed with the SEC on March 17, 2023.

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

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

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

	Exhibit 32.2	Certification of Brian J. Richardson, Senior Executive Vice President and Chief Financial Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

	Exhibit 101	The following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 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 June 30, 2023, formatted in Inline XBRL.

SIGNATURES

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


			Univest Financial Corporation
			(Registrant)

Date: August 1, 2023			/s/ Jeffrey M. Schweitzer
			Jeffrey M. Schweitzer President and Chief Executive Officer (Principal Executive Officer)

Date: August 1, 2023			/s/ Brian J. Richardson
			Brian J. Richardson Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)