Equibles

10-Q

UNIVEST FINANCIAL Corp (UVSP)

10-Q 2023-08-01 For: 2023-06-30
View Original
Added on April 04, 2026

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

or

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

For the transition period from __________ to __________

Commission File Number: 0-7617

UNIVEST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

14 North Main Street, Souderton, Pennsylvania 18964

(Address of principal executive offices) (Zip Code)

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

Not applicable

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

Securities registered pursuant to Section 12(b) of the Act:Title of classTrading symbolName of exchange on which registeredCommon Stock, $5 par valueUVSPThe NASDAQ Stock Market

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

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

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

Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated 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 atJune 30, 2023 and December 31, 2022 2
Condensed Consolidated Statements of Income for theThreeand SixMonths EndedJune 30, 2023and2022 3
Condensed Consolidated Statements of Comprehensive Income for the Threeand Six Months EndedJune 30, 2023and2022 4
Condensed Consolidated Statements of Changes in Shareholders’ Equity for theThreeand SixMonths EndedJune 30, 2023and2022 6
Condensed Consolidated Statements of Cash Flows for theSix Months EndedJune 30, 2023and2022 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<br>Tax<br>Amount Tax<br>Expense<br>(Benefit) Net of<br>Tax<br>Amount Before<br>Tax<br>Amount Tax<br>Expense<br>(Benefit) Net of<br>Tax<br>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<br>Tax<br>Amount Tax<br>Expense<br>(Benefit) Net of<br>Tax<br>Amount Before<br>Tax<br>Amount Tax<br>Expense<br>(Benefit) Net of<br>Tax<br>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<br>Shares<br>Outstanding Common<br>Stock Additional<br>Paid-in<br>Capital Retained<br>Earnings Accumulated<br>Other<br>Comprehensive<br>Loss Treasury<br>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<br>Shares<br>Outstanding Common<br>Stock Additional<br>Paid-in<br>Capital Retained<br>Earnings Accumulated<br>Other<br>Comprehensive<br>Loss Treasury<br>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<br>Shares<br>Outstanding Common<br>Stock Additional<br>Paid-in<br>Capital Retained<br>Earnings Accumulated<br>Other<br>Comprehensive<br>(Loss) Income Treasury<br>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<br>Shares<br>Outstanding Common<br>Stock Additional<br>Paid-in<br>Capital Retained<br>Earnings Accumulated<br>Other<br>Comprehensive<br>Loss Treasury<br>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<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>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<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>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<br>Twelve Months Twelve Months<br>or Longer Total
(Dollars in thousands) Fair Value Unrealized<br>Losses Fair Value Unrealized<br>Losses Fair Value Unrealized<br>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<br>Days<br>Past Due 60-89<br>Days<br>Past Due 90 Days<br>or more<br>Past Due Total<br>Past Due Current Total Accruing Loans and Leases Nonaccrual Loans and Leases Total Loans<br>and Leases<br>Held for<br>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<br>Days<br>Past Due 60-89<br>Days<br>Past Due 90 Days<br>or more<br>Past Due Total<br>Past Due Current Total Accruing Loans and Leases Nonaccrual Loans and Leases Total Loans<br>and Leases<br>Held for<br>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<br>Loans and<br>Leases Loans and<br>Leases<br>90 Days<br>or more<br>Past Due<br>and<br>Accruing<br>Interest Total Nonperforming<br>Loans and<br>Leases Nonaccrual<br>Loans and<br>Leases Loans and<br>Leases<br>90 Days<br>or more<br>Past Due<br>and<br>Accruing<br>Interest Total Nonperforming<br>Loans and<br>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<br>of<br>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<br>of<br>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<br>Loans Financial Effect
Three Months Ended June 30, 2023
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate 1 Extended loan maturity by 3 months to give borrower time to seek refinance.
Total 1
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate 1 Extended loan maturity by 14 months to give borrower time to seek refinance.
Total 1
Six Months Ended June 30, 2023
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate 1 Extended loan maturity by 3 months to give borrower time to seek refinance.
Total 1
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate 1 Extended loan maturity by 14 months to give borrower time to seek refinance.
Real estate—construction* 1 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 2

*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<br>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<br>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<br>(Losses) Gains on<br>Available-for-Sale<br>Investment<br>Securities Net Change<br>Related to<br>Derivatives Used for Cash Flow Hedges Net Change<br>Related to<br>Defined Benefit<br>Pension Plans Accumulated<br>Other<br>Comprehensive<br>(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<br>Amount Balance Sheet<br>Classification Fair<br>Value Balance Sheet<br>Classification Fair<br>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<br>Amount Balance Sheet<br>Classification Fair<br>Value Balance Sheet<br>Classification Fair<br>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<br>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 <br>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/<br>Liabilities at<br>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/<br>Liabilities at<br>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<br>December 31,<br>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<br>December 31,<br>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<br>December 31,<br>2022 Payment of<br>Contingent<br>Consideration Adjustment<br>of Contingent<br>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<br>December 31,<br>2021 Payment of<br>Contingent<br>Consideration Adjustment<br>of Contingent<br>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<br>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<br>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<br>Value Carrying<br>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<br>Value Carrying<br>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<br>Balance Income/<br>Expense Average<br>Rate Average<br>Balance Income/<br>Expense Average<br>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<br>Balance Income/<br>Expense Average<br>Rate Average<br>Balance Income/<br>Expense Average<br>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<br>Change Rate<br>Change Total Volume<br>Change Rate<br>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

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<br>Purposes To Be Well-Capitalized<br>Under Prompt<br>Corrective Action<br>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<br>of Shares<br>Purchased Average<br>Price Paid<br>per Share Total Number of<br>Shares Purchased as<br>Part of Publicly<br>Announced Plans or<br>Programs Maximum Number of<br>Shares that May Yet Be<br>Purchased Under the<br>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<br>President and Chief Executive Officer<br>(Principal Executive Officer)
Date: August 1, 2023 /s/ Brian J. Richardson
Brian J. Richardson <br>Senior Executive Vice President and Chief Financial Officer<br>(Principal Financial and Accounting Officer)

63

Document

Exhibit 31.1

CERTIFICATION

I, Jeffrey M. Schweitzer, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Univest Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 1, 2023

/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer<br>(Principal Executive Officer)

Document

Exhibit 31.2

CERTIFICATION

I, Brian J. Richardson, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Univest Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 1, 2023

/s/ Brian J. Richardson
Brian J. Richardson
Senior Executive Vice President and Chief Financial Officer<br>(Principal Financial and Accounting Officer)

Document

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Univest Financial Corporation on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation.

A signed original of this written statement required by Section 906 has been provided to Univest Financial Corporation and will be retained by Univest Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer<br>(Principal Executive Officer)
August 1, 2023

Document

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Univest Financial Corporation on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation.

A signed original of this written statement required by Section 906 has been provided to Univest Financial Corporation and will be retained by Univest Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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

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