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UVSP Univest Financial

Filed: 3 May 21, 4:00pm
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2021
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-7617

 UNIVEST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania23-1886144
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
14 North Main Street, Souderton, Pennsylvania 18964
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (215) 721-2400
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of classTrading symbolName of exchange on which registered
Common Stock, $5 par valueUVSPThe NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $5 par value29,379,575
(Title of Class)(Number of shares outstanding at April 30, 2021)



Table of Contents

UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
 

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Table of Contents
PART I. FINANCIAL INFORMATION
 
Item 1.     Financial Statements
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands, except share data)At March 31, 2021At December 31, 2020
ASSETS
Cash and due from banks$35,117 $62,555 
Interest-earning deposits with other banks152,200 157,303 
Cash and cash equivalents187,317 219,858 
Investment securities held-to-maturity (fair value $139,298 and $156,325 at March 31, 2021 and December 31, 2020, respectively)135,153 151,257 
Investment securities available-for-sale (amortized cost $239,314 and $221,254, net of allowance for credit losses of $485 and $869 at March 31, 2021 and December 31, 2020, respectively)238,829 218,640 
Investments in equity securities3,524 3,279 
       Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost25,571 28,183 
Loans held for sale22,636 37,039 
Loans and leases held for investment5,415,006 5,306,841 
Less: Allowance for credit losses, loans and leases(71,497)(83,044)
Net loans and leases held for investment5,343,509 5,223,797 
Premises and equipment, net55,650 55,636 
Operating lease right-of-use assets34,317 34,325 
Goodwill172,559 172,559 
Other intangibles, net of accumulated amortization9,225 8,866 
Bank owned life insurance118,435 117,718 
Accrued interest receivable and other assets69,940 65,339 
Total assets$6,416,665 $6,336,496 
LIABILITIES
Noninterest-bearing deposits$1,857,547 $1,690,663 
Interest-bearing deposits:
Demand deposits2,006,368 2,070,183 
Savings deposits973,466 918,094 
Time deposits474,211 563,775 
Total deposits5,311,592 5,242,715 
Short-term borrowings26,676 17,906 
Long-term debt95,000 110,000 
Subordinated notes173,617 183,515 
Operating lease liabilities37,737 37,690 
Accrued interest payable and other liabilities49,588 52,198 
Total liabilities5,694,210 5,644,024 
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at March 31, 2021 and December 31, 2020; 31,556,799 shares issued at March 31, 2021 and December 31, 2020; 29,379,575 and 29,295,052 shares outstanding at March 31, 2021 and December 31, 2020, respectively157,784 157,784 
Additional paid-in capital296,177 296,186 
Retained earnings333,581 306,899 
Accumulated other comprehensive loss, net of tax benefit(20,440)(22,144)
Treasury stock, at cost; 2,177,224 and 2,261,747 shares at March 31, 2021 and December 31, 2020, respectively(44,647)(46,253)
Total shareholders’ equity722,455 692,472 
Total liabilities and shareholders’ equity$6,416,665 $6,336,496 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
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Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
 March 31,
(Dollars in thousands, except per share data)20212020
Interest income
Interest and fees on loans and leases:
Taxable$47,655 $45,561 
Exempt from federal income taxes2,008 2,661 
Total interest and fees on loans and leases49,663 48,222 
Interest and dividends on investment securities:
Taxable1,303 2,705 
Exempt from federal income taxes87 240 
Interest on deposits with other banks56 325 
Interest and dividends on other earning assets348 527 
Total interest income51,457 52,019 
Interest expense
Interest on deposits3,400 7,406 
Interest on short-term borrowings2 106 
Interest on long-term debt and subordinated notes2,641 2,039 
Total interest expense6,043 9,551 
Net interest income45,414 42,468 
(Reversal of provision) provision for credit losses(11,283)21,843 
Net interest income after provision for credit losses56,697 20,625 
Noninterest income
Trust fee income2,034 1,890 
Service charges on deposit accounts1,282 1,397 
Investment advisory commission and fee income4,697 4,255 
Insurance commission and fee income4,955 4,732 
Other service fee income2,192 1,870 
Bank owned life insurance income717 734 
Net gain on sales of investment securities65 695 
Net gain on mortgage banking activities5,938 2,744 
Other income1,370 67 
Total noninterest income23,250 18,384 
Noninterest expense
Salaries, benefits and commissions24,780 23,836 
Net occupancy2,739 2,574 
Equipment946 995 
Data processing3,050 2,760 
Professional fees1,748 1,317 
Marketing and advertising280 402 
Deposit insurance premiums636 504 
Intangible expenses249 330 
Other expense5,112 6,059 
Total noninterest expense39,540 38,777 
Income before income taxes40,407 232 
Income tax expense (benefit)7,804 (606)
Net income$32,603 $838 
Net income per share:
Basic$1.11 $0.03 
Diluted1.11 0.03 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
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Table of Contents
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended March 31,
(Dollars in thousands)20212020
Before
Tax
Amount
Tax
Expense
(Benefit)
Net of
Tax
Amount
Before
Tax
Amount
Tax
Expense
(Benefit)
Net of
Tax
Amount
Income$40,407 $7,804 $32,603 $232 $(606)$838 
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period2,194 461 1,733 (4,965)(1,042)(3,923)
(Reversal of provision) provision for credit losses(384)(81)(303)597 125 472 
Less: reclassification adjustment for net gains on sales realized in net income (1)(65)(14)(51)(695)(146)(549)
Total net unrealized gains (losses) on available-for-sale investment securities1,745 366 1,379 (5,063)(1,063)(4,000)
Net unrealized gains (losses) on interest rate swaps used in cash flow hedges:
Net unrealized holding gains (losses) arising during the period6 1 5 (497)(104)(393)
Less: reclassification adjustment for net losses realized in net income (2)76 16 60 29 23 
Total net unrealized gains (losses) on interest rate swaps used in cash flow hedges82 17 65 (468)(98)(370)
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)329 69 260 297 62 235 
Total defined benefit pension plans329 69 260 297 62 235 
Other comprehensive income (loss)2,156 452 1,704 (5,234)(1,099)(4,135)
Total comprehensive income (loss)$42,563 $8,256 $34,307 $(5,002)$(1,705)$(3,297)

(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).
(2) Included in interest expense on demand deposits on the 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.


4


UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

(Dollars in thousands, except per share data)Common
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Treasury
Stock
Total
Three Months Ended March 31, 2021
Balance at December 31, 202029,295,052 $157,784 $296,186 $306,899 $(22,144)$(46,253)$692,472 
Net income 0 0 32,603 0 0 32,603 
Other comprehensive income, net of income tax 0 0 0 1,704 0 1,704 
Cash dividends declared ($0.20 per share) 0 0 (5,864)0 0 (5,864)
Stock-based compensation 0 878 (56)0 0 822 
Stock issued under dividend reinvestment and employee stock purchase plans23,311 0 65 (1)0 545 609 
Vesting of restricted stock units, net of shares withheld to cover income taxes42,619 0 (1,126)0 0 771 (355)
Exercise of stock options36,286 0 17 0 0 742 759 
Cancellation of performance-based restricted stock awards(7,199)0 157 0 0 (157)0 
Purchases of treasury stock(10,494)0 0 0 0 (295)(295)
Balance at March 31, 202129,379,575 $157,784 $296,177 $333,581 $(20,440)$(44,647)$722,455 

(Dollars in thousands, except per share data)Common
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Three Months Ended March 31, 2020
Balance at December 31, 202029,334,629 $157,784 $294,999 $288,803 $(21,730)$(44,734)$675,122 
Adjustment to initially apply ASU No. 2016-13 for CECL— (11,284)237 (11,047)
Net income— 838 838 
Other comprehensive loss, net of income tax benefit— (4,135)(4,135)
Cash dividends declared ($0.20 per share)— (5,866)(5,866)
Stock-based compensation— 424 (13)411 
Stock issued under dividend reinvestment and employee stock purchase plans26,045 (49)621 572 
Vesting of restricted stock units17,035 0(346)346 
Exercise of stock options5,000 (7)101 94 
Cancellations of performance-based restricted stock awards(14,777)418 (418)
Purchases of treasury stock(203,150)(4,438)(4,438)
Balance at March 31, 202029,164,782 $157,784 $295,439 $272,478 $(25,628)$(48,522)$651,551 

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





5


UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended March 31,
(Dollars in thousands)20212020
Cash flows from operating activities:
Net income$32,603 $838 
Adjustments to reconcile net income to net cash provided by operating activities:
(Reversal of provision) provision for credit losses(11,283)21,843 
Depreciation of premises and equipment1,173 1,258 
Net amortization of investment securities premiums and discounts768 383 
Net gain on sales of investment securities(65)(695)
Net gain on mortgage banking activities(5,938)(2,744)
Bank owned life insurance income(717)(734)
Stock-based compensation874 435 
Intangible expenses249 330 
Other adjustments to reconcile net income to cash (used in) provided by operating activities(2,036)273 
Originations of loans held for sale(142,877)(63,730)
Proceeds from the sale of loans held for sale163,052 58,959 
Contributions to pension and other postretirement benefit plans(66)(68)
Increase in accrued interest receivable and other assets(5,488)(2,752)
Decrease in accrued interest payable and other liabilities(376)(2,544)
Net cash provided by operating activities29,873 11,052 
Cash flows from investing activities:
Proceeds from sale of premises and equipment0 
Purchases of premises and equipment(1,311)(387)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity20,197 12,475 
Proceeds from maturities, calls and principal repayments of securities available-for-sale12,708 12,896 
Proceeds from sales of securities available-for-sale1,563 62,276 
Purchases of investment securities held-to-maturity(4,625)(43,116)
Purchases of investment securities available-for-sale(32,540)(32,242)
Proceeds from sales of money market mutual funds2,020 4,753 
Purchases of money market mutual funds(2,150)(4,644)
Net decrease (increases) in other investments2,612 (211)
Net increase in loans and leases(108,296)(62,368)
Net cash used in investing activities(109,822)(50,560)
Cash flows from financing activities:
Net increase in deposits68,869 47,229 
Net increase (decrease) in short-term borrowings8,770 (265)
Proceeds from issuance of long-term debt0 125,000 
Repayment of long-term debt(15,000)(65,000)
Repayment of subordinated debt(10,000)
Payment of contingent consideration on acquisitions(29)(31)
Purchases of treasury stock(650)(4,438)
Stock issued under dividend reinvestment and employee stock purchase plans609 572 
Proceeds from exercise of stock options759 94 
Cash dividends paid(5,920)(5,879)
Net cash provided by financing activities47,408 97,282 
Net (decrease) increase in cash and cash equivalents(32,541)57,774 
Cash and cash equivalents at beginning of year219,858 125,128 
Cash and cash equivalents at end of period$187,317 $182,902 
Supplemental disclosures of cash flow information:
Cash paid for interest$6,856 $9,420 
Cash paid for income taxes, net of refunds130 32 
Non cash transactions:
Transfer of loans to other real estate owned$126 $
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
6


UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Univest Financial Corporation (the Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations for interim financial information. The accompanying unaudited consolidated financial statements reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods presented. Certain prior period amounts have been reclassified to conform to the current-period presentation. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021 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 registrant’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021.

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 fair value measurement of investment securities available-for-sale and the determination of the allowance for credit losses.

Accounting Pronouncements Adopted in 2021

In August 2018, the FASB issued ASU No. 2018-14, "Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit plans or other postretirement plans. Disclosures removed by this ASU include the following: 1) amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year; 2) the amount and timing of plan assets expected to be returned to the employer; and 3) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. Additional disclosures required by this ASU include: 1) the weighted-average interest crediting rates used in an entity's cash balance pension plans and other similar plans and 2) explanations for reasons for significant changes in the benefit obligation or plan assets. These amendments are to be applied retrospectively. This ASU became effective on January 1, 2021 for the Corporation. The adoption of this ASU did not have a material impact on the Corporation's financial statement disclosures but will result in the elimination of certain disclosures for retirement plans and other postretirement benefits in the Form 10-K.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The ASU adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. This ASU became effective on January 1, 2021 for the Corporation. The adoption of this ASU did not have a material impact on the Corporation's financial statements.

Recent Accounting Pronouncements Yet to Be Adopted

In January 2020, the FASB issued ASU No. 2020-01, "Investments—Equity Securities (Topic 321): Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." This ASU 2020-01 clarifies the interactions between ASC 321, ASC 323 and ASC 815 and addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. This ASU is effective for fiscal years beginning after December 15, 2021 or January 1, 2022
7


for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance allows for companies to: (1) account for certain contract modifications as a continuation of the existing contract without additional analysis; (2) continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness; and (3) make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading. This ASU is available for adoption effective immediately, or as of January 1, 2020 or any date thereafter for the Corporation, and applies prospectively to contract modifications and hedging relationships. The one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made at any time after March 12, 2020. The Corporation anticipates adopting this ASU and will continue to analyze the provisions of the ASU in connection with ongoing procedures to monitor the work of the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York in identifying an alternative U.S. dollar reference interest rate. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Corporation's financial statements.

In August 2020, the FASB issued ASU No. 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)." This guidance simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40 by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and require entities to presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. This ASU is effective for fiscal years beginning after December 15, 2021 or January 1, 2022 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In January 2021, the FASB issued ASU No. 2021-01, which refines the scope of ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets (the “discounting transition”). This ASU is available for adoption retrospective to March 12, 2020, or prospectively from January 7, 2021, through December 31, 2022, at which time transition is expected to be complete. The Corporation will analyze the potential impact of the provisions of this ASU in connection with its ongoing evaluation of ASU No. 2020-04.





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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, 2020.

Three Months Ended
 March 31,
(Dollars and shares in thousands, except per share data)20212020
Numerator:
Net income$32,603 $838 
Net income allocated to unvested restricted stock awards(37)
Net income allocated to common shares$32,566 $838 
Denominator:
Weighted average shares outstanding29,329 29,286 
Average unvested restricted stock awards(32)(68)
Denominator for basic earnings per share—weighted-average shares outstanding
29,297 29,218 
Effect of dilutive securities—employee stock options and restricted stock units135 65 
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,432 29,283 
Basic earnings per share$1.11 $0.03 
Diluted earnings per share$1.11 $0.03 
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share315 329 

9


Note 3. Investment Securities

The following table shows the amortized cost, the estimated fair value and the allowance for credit losses of the held-to-maturity securities and available-for-sale securities at March 31, 2021 and December 31, 2020, by contractual maturity within each type:
 At March 31, 2021
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
Within 1 year$5,000 $87 $0 $0 $5,087 
After 1 year to 5 years1,999 51 0 0 2,050 
6,999 138 0 0 7,137 
Residential mortgage-backed securities:
After 5 years to 10 years5,683 248 0 0 5,931 
Over 10 years122,471 3,916 (157)0 126,230 
128,154 4,164 (157)0 132,161 
Total$135,153 $4,302 $(157)$0 $139,298 
Securities Available-for-Sale
State and political subdivisions:
After 1 year to 5 years$3,562 $22 $0 $0 $3,584 
After 5 years to 10 years6,602 24 0 0 6,626 
10,164 46 0 0 10,210 
Residential mortgage-backed securities:
After 1 year to 5 years287 10 0 0 297 
After 5 years to 10 years1,498 58 0 0 1,556 
Over 10 years132,250 1,184 (1,896)0 131,538 
134,035 1,252 (1,896)0 133,391 
Collateralized mortgage obligations:
After 5 years to 10 years694 20 0 0 714 
Over 10 years3,943 0 0 0 3,943 
4,637 20 0 0 4,657 
Corporate bonds:
Within 1 year998 9 0 0 1,007 
After 1 year to 5 years29,480 1,239 (56)(6)30,657 
After 5 years to 10 years60,000 150 (764)(479)58,907 
90,478 1,398 (820)(485)90,571 
Total$239,314 $2,716 $(2,716)$(485)$238,829 

10


 At December 31, 2020
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
After 1 year to 5 years$6,998 $171 $$$7,169 
6,998 171 7,169 
Residential mortgage-backed securities:
After 5 years to 10 years6,325 253 6,578 
Over 10 years137,934 4,644 142,578 
144,259 4,897 149,156 
Total$151,257 $5,068 $$$156,325 
Securities Available-for-Sale
State and political subdivisions:
After 1 year to 5 years3,560 33 3,593 
After 5 years to 10 years9,881 63 9,944 
13,441 96 13,537 
Residential mortgage-backed securities:
After 1 year to 5 years323 10 333 
After 5 years to 10 years1,664 58 1,722 
Over 10 years110,018 2,153 (63)112,108 
112,005 2,221 (63)114,163 
Collateralized mortgage obligations:
After 5 years to 10 years754 21 775 
Over 10 years4,561 (15)4,546 
5,315 21 (15)5,321 
Corporate bonds:
Within 1 year499 501 
After 1 year to 5 years29,498 1,440 (16)30,922 
After 5 years to 10 years60,496 (5,450)(853)54,196 
90,493 1,445 (5,450)(869)85,619 
Total$221,254 $3,783 $(5,528)$(869)$218,640 

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 $248.9 million and $249.6 million at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public funds deposits and other contractual obligations. In addition, securities of $15.5 million and $32.6 million were pledged to secure credit derivatives and interest rate swaps at March 31, 2021 and December 31, 2020, respectively. See Note 11, "Derivative Instruments and Hedging Activities" for additional information.

The following table presents information related to sales of securities available-for-sale during the three months ended March 31, 2021 and 2020:
 Three Months Ended March 31,
(Dollars in thousands)20212020
Securities available-for-sale:
Proceeds from sales$1,563 $62,276 
Gross realized gains on sales65 709 
Gross realized losses on sales0 14 
Tax expense related to net realized gains on sales14 146 

At March 31, 2021 and December 31, 2020, there were 0 reportable investments in any single issuer representing more than 10% of shareholders’ equity.
11


The following table shows the fair value of securities that were in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2021 and December 31, 2020, by the length of time those securities were in a continuous loss position.
 Less than
Twelve Months
Twelve Months
or Longer
Total
(Dollars in thousands)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
At March 31, 2021
Securities Held-to-Maturity
Residential mortgage-backed securities$4,462 $(157)$0 $0 $4,462 $(157)
Total$4,462 $(157)$0 $0 $4,462 $(157)
Securities Available-for-Sale
Residential mortgage-backed securities$77,457 $(1,895)$29 $(1)$77,486 $(1,896)
Total$77,457 $(1,895)$29 $(1)$77,486 $(1,896)
At December 31, 2020
Securities Held-to-Maturity
Total$$$$$$
Securities Available-for-Sale
Residential mortgage-backed securities13,677 (62)31 (1)13,708 (63)
Collateralized mortgage obligations4,545 (15)4,545 (15)
Total$18,222 $(77)$31 $(1)$18,253 $(78)

At March 31, 2021, 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 $4.5 million, including unrealized losses of $157 thousand. These holdings were comprised of two federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the three months ended March 31, 2021 or March 31, 2020. Accrued interest receivable on held-to-maturity debt securities totaled $357 thousand at March 31, 2021 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

At March 31, 2021, 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 $77.5 million, including unrealized losses of $1.9 million. These holdings were comprised of 16 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 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 $602 thousand at March 31, 2021 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.

12


The table below presents a rollforward by major security type for the three months ended March 31, 2021 of the allowance for credit losses on securities available-for-sale.

(Dollars in thousands)Corporate Bonds
Three months ended March 31, 2021
Securities Available-for-Sale
Beginning balance$(869)
Additions for securities for which no previous expected credit losses were recognized(19)
Change in securities for which a previous expected credit loss was recognized403 
Ending balance$(485)
Three months ended March 31, 2020
Securities Available-for-Sale
Beginning balance$
Adjustment to initially apply ASU No. 2016-13 for CECL(300)
Additions for securities for which no previous expected credit losses were recognized(25)
Change in securities for which a previous expected credit loss was recognized(572)
Ending balance$(897)

At March 31, 2021, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has been recorded was $52.6 million, including unrealized losses of $820 thousand, and allowance for credit losses of $485 thousand. These holdings were comprised of 13 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 reversal of the provision for credit losses of $403 thousand for the three months ended March 31, 2021 was primarily related to the improvement in fair value of six underlying securities that are tied to the 10-year swap curve which had significantly steepened during the quarter.

The Corporation recognized a $115 thousand net gain and a $268 thousand net loss on equity securities during the three months ended March 31, 2021 and 2020, respectively, in other noninterest income. There were 0 sales of equity securities during the three months ended March 31, 2021 or March 31, 2020.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories

(Dollars in thousands)At March 31, 2021At December 31, 2020
Commercial, financial and agricultural$871,996 $892,665 
Paycheck Protection Program528,452 483,773 
Real estate-commercial2,531,700 2,458,872 
Real estate-construction249,652 243,355 
Real estate-residential secured for business purpose387,801 381,446 
Real estate-residential secured for personal purpose494,349 487,600 
Real estate-home equity secured for personal purpose162,529 166,609 
Loans to individuals25,468 27,482 
Lease financings163,059 165,039 
Total loans and leases held for investment, net of deferred income$5,415,006 $5,306,841 
Less: Allowance for credit losses, loans and leases(71,497)(83,044)
Net loans and leases held for investment$5,343,509 $5,223,797 
Imputed interest on lease financings, included in the above table$(17,283)$(17,670)
Net deferred fees, included in the above table(4,967)(2,903)
Overdraft deposits included in the above table4,705 948 
13


Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current and nonaccrual loans and leases at March 31, 2021 and December 31, 2020:
Accruing Loans and Leases
(Dollars in thousands)30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or more
Past Due
Total
Past Due
CurrentTotal Accruing Loans and LeasesNonaccrual Loans and LeasesTotal Loans
and Leases
Held for
Investment
At March 31, 2021
Commercial, financial and agricultural$1,195 $0 $40 $1,235 $868,755 $869,990 $2,006 $871,996 
Paycheck Protection Program0 0 0 0 528,452 528,452 0 528,452 
Real estate—commercial real estate and construction:
Commercial real estate3,893 88 0 3,981 2,505,693 2,509,674 22,026 2,531,700 
Construction1,164 0 0 1,164 248,488 249,652 0 249,652 
Real estate—residential and home equity:
Residential secured for business purpose2,364 660 0 3,024 381,918 384,942 2,859 387,801 
Residential secured for personal purpose1,014 0 403 1,417 491,065 492,482 1,867 494,349 
Home equity secured for personal purpose682 132 0 814 160,626 161,440 1,089 162,529 
Loans to individuals73 33 123 229 25,239 25,468 0 25,468 
Lease financings290 324 98 712 162,198 162,910 149 163,059 
Total$10,675 $1,237 $664 $12,576 $5,372,434 $5,385,010 $29,996 $5,415,006 

Accruing Loans and Leases
(Dollars in thousands)30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or more
Past Due
Total
Past Due
CurrentTotal Accruing Loans and LeasesNonaccrual Loans and LeasesTotal Loans
and Leases
Held for
Investment
At December 31, 2020
Commercial, financial and agricultural$1,104 $279 $50 $1,433 $888,405 $889,838 $2,827 $892,665 
Paycheck Protection Program483,773 483,773 483,773 
Real estate—commercial real estate and construction:
Commercial real estate3,230 859 945 5,034 2,431,099 2,436,133 22,739 2,458,872 
Construction361 361 242,994 243,355 243,355 
Real estate—residential and home equity:
Residential secured for business purpose3,726 603 4,329 374,331 378,660 2,786 381,446 
Residential secured for personal purpose6,057 80 6,137 479,377 485,514 2,086 487,600 
Home equity secured for personal purpose607 32 639 164,923 165,562 1,047 166,609 
Loans to individuals190 74 185 449 27,033 27,482 27,482 
Lease financings898 291 212 1,401 163,431 164,832 207 165,039 
Total$16,173 $2,218 $1,392 $19,783 $5,255,366 $5,275,149 $31,692 $5,306,841 

14


Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at March 31, 2021 and December 31, 2020.
 At March 31, 2021At December 31, 2020
(Dollars in thousands)Nonaccrual
Loans and
Leases*
Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications
Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest
Total Nonperforming
Loans and
Leases
Nonaccrual
Loans and
Leases*
Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications
Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest
Total Nonperforming
Loans and
Leases
Commercial, financial and agricultural$2,006 $0 $40 $2,046 $2,827 $$50 $2,877 
Real estate—commercial real estate and construction:
Commercial real estate22,026 0 0 22,026 22,739 945 23,684 
Real estate—residential and home equity:
Residential secured for business purpose2,859 0 0 2,859 2,786 2,786 
Residential secured for personal purpose1,867 0 403 2,270 2,086 2,086 
Home equity secured for personal purpose1,089 52 0 1,141 1,047 53 1,100 
Loans to individuals0 0 123 123 185 185 
Lease financings149 0 98 247 207 212 419 
Total$29,996 $52 $664 $30,712 $31,692 $53 $1,392 $33,137 
 *Includes nonaccrual troubled debt restructured loans of $13.5 million and $14.1 million at March 31, 2021 and December 31, 2020, respectively.

15


The following table presents the amortized cost basis of loans and leases on nonaccrual status and loans and leases 90 days or more past due and still accruing as of March 31, 2021 and December 31, 2020.
(Dollars in thousands)Nonaccrual With No ACLNonaccrual With ACLTotal NonaccrualLoans 90 Days or more Past Due and Accruing Interest
At March 31, 2021
Commercial, financial and agricultural$1,647 $359 $2,006 $40 
Real estate-commercial22,026 0 22,026 0 
Real estate-residential secured for business purpose2,832 27 2,859 0 
Real estate-residential secured for personal purpose1,740 127 1,867 403 
Real estate-home equity secured for personal purpose1,089 0 1,089 0 
Loans to individuals0 0 0 123 
Lease financings0 149 149 98 
Total$29,334 $662 $29,996 $664 
At December 31, 2020
Commercial, financial and agricultural$2,187 $640 $2,827 $50 
Real estate-commercial22,739 22,739 945 
Real estate-residential secured for business purpose2,663 123 2,786 
Real estate-residential secured for personal purpose1,958 128 2,086 
Real estate-home equity secured for personal purpose1,047 1,047 
Loans to individuals185 
Lease financings207 207 212 
Total$30,594 $1,098 $31,692 $1,392 

The following table presents the amortized cost basis of collateral-dependent nonaccrual loans by class of loans and type of collateral as of March 31, 2021 and December 31, 2020.
(Dollars in thousands)Real Estate
Other (1)
None (2)
Total
At March 31, 2021
Commercial, financial and agricultural$874 $1,132 $0 $2,006 
Real estate-commercial22,026 0 0 22,026 
Real estate-residential secured for business purpose2,859 0 0 2,859 
Real estate-residential secured for personal purpose1,867 0 0 1,867 
Real estate-home equity secured for personal purpose1,089 0 0 1,089 
Total$28,715 $1,132 $0 $29,847 
At December 31, 2020
Commercial, financial and agricultural$1,351 $1,194 $282 $2,827 
Real estate-commercial22,739 22,739 
Real estate-residential secured for business purpose2,786 2,786 
Real estate-residential secured for personal purpose2,086 2,086 
Real estate-home equity secured for personal purpose1,047 1,047 
Total$30,009 $1,194 $282 $31,485 
(1) Collateral consists of business assets, including accounts receivable and personal property.
(2) Loans 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 indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2020. The following is a description of the internal risk ratings and the likelihood of loss related to the credit quality of Commercial, financial and agricultural loans, Paycheck Protection Program loans, Real-estate commercial loans, Real-estate construction loans and Real-estate residential secured for a business purpose loans.

16


1.Pass—Loans considered satisfactory with no indications of deterioration
2.Special Mention—Potential weakness that deserves management's close attention
3.Substandard—Well-defined weakness or weaknesses that jeopardize the liquidation of the debt
4.Doubtful—Collection or liquidation in-full, on the basis of current existing facts, conditions and values, highly questionable and improbable

Based on the most recent analysis performed, the following table presents the recorded investment in loans and leases held for investment for Commercial, financial and agricultural loans, Paycheck Protection Program loans, Real-estate commercial loans, Real-estate construction loans and Real-estate residential secured for a business purpose loans by credit quality indicator at March 31, 2021 and December 31, 2020.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
At March 31, 2021
Commercial, Financial and Agricultural
Risk Rating
1. Pass$69,723 $146,523 $90,985 $71,413 $34,561 $64,820 $374,556 $852,581 
2. Special Mention0 2,680 783 299 408 1,766 6,280 12,216 
3. Substandard0 0 36 145 17 714 6,287 7,199 
Total$69,723 $149,203 $91,804 $71,857 $34,986 $67,300 $387,123 $871,996 
Paycheck Protection Program
Risk Rating
1. Pass$161,718 $366,734 $0 $0 $0 $0 $0 $528,452 
2. Special Mention0 0 0 0 0 0 0 0 
3. Substandard0 0 0 0 0 0 0 0 
Total$161,718 $366,734 $0 $0 $0 $0 $0 $528,452 
Real Estate-Commercial
Risk Rating
1. Pass$207,223 $1,011,644 $466,297 $202,198 $255,578 $262,380 $40,041 $2,445,361 
2. Special Mention0 6,173 26,482 3,472 0 6,992 1,248 44,367 
3. Substandard0 12,274 4,597 6,647 11,154 6,964 336 41,972 
Total$207,223 $1,030,091 $497,376 $212,317 $266,732 $276,336 $41,625 $2,531,700 
Real Estate-Construction
Risk Rating
1. Pass$28,695 $100,814 $56,044 $34,940 $124 $2,949 $4,821 $228,387 
2. Special Mention0 21,265 0 0 0 0 0 21,265 
3. Substandard0 0 0 0 0 0 0 0 
Total$28,695 $122,079 $56,044 $34,940 $124 $2,949 $4,821 $249,652 
Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass$55,096 $105,094 $61,128 $45,109 $39,084 $51,891 $24,543 $381,945 
2. Special Mention0 1,343 0 187 75 304 0 1,909 
3. Substandard0 27 985 50 46 2,008 831 3,947 
Total$55,096 $106,464 $62,113 $45,346 $39,205 $54,203 $25,374 $387,801 
Totals By Risk Rating
1. Pass$522,455 $1,730,809 $674,454 $353,660 $329,347 $382,040 $443,961 $4,436,726 
2. Special Mention0 31,461 27,265 3,958 483 9,062 7,528 79,757 
3. Substandard0 12,301 5,618 6,842 11,217 9,686 7,454 53,118 
Total$522,455 $1,774,571 $707,337 $364,460 $341,047 $400,788 $458,943 $4,569,601 

17



Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
At December 31, 2020
Commercial, Financial and Agricultural
Risk Rating
1. Pass$162,547 $93,967 $74,722 $38,906 $17,371 $56,053 $427,336 $870,902 
2. Special Mention2,723 783 316 500 777 1,144 8,318 14,561 
3. Substandard430 362 28 627 5,755 7,202 
Total$165,270 $95,180 $75,400 $39,434 $18,148 $57,824 $441,409 $892,665 
Paycheck Protection Program
Risk Rating
1. Pass$483,773 $$$$$$$483,773 
2. Special Mention
3. Substandard
Total$483,773 $$$$$$$483,773 
Real Estate-Commercial
Risk Rating
1. Pass$1,084,157 $481,997 $223,646 $268,236 $143,041 $157,503 $43,008 $2,401,588 
2. Special Mention6,220 10,076 3,498 1,250 5,870 1,247 28,161 
3. Substandard3,803 3,998 709 11,383 1,207 6,690 1,333 29,123 
Total$1,094,180 $496,071 $227,853 $279,619 $145,498 $170,063 $45,588 $2,458,872 
Real Estate-Construction
Risk Rating
1. Pass$116,840 $59,507 $39,009 $113 $2,950 $$3,711 $222,130 
2. Special Mention21,225 21,225 
3. Substandard
Total$138,065 $59,507 $39,009 $113 $2,950 $$3,711 $243,355 
Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass$118,925 $72,149 $52,775 $43,347 $37,768 $25,170 $25,510 $375,644 
2. Special Mention1,354 188 77 175 130 1,924 
3. Substandard28 991 50 64 1,065 962 718 3,878 
Total$120,307 $73,140 $53,013 $43,488 $39,008 $26,262 $26,228 $381,446 
Totals By Risk Rating
1. Pass$1,966,242 $707,620 $390,152 $350,602 $201,130 $238,726 $499,565 $4,354,037 
2. Special Mention31,522 10,859 4,002 577 2,202 7,144 9,565 65,871 
3. Substandard3,831 5,419 1,121 11,475 2,272 8,279 7,806 40,203 
Total$2,001,595 $723,898 $395,275 $362,654 $205,604 $254,149 $516,936 $4,460,111 

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at March 31, 2021 and December 31, 2020. The Corporation had 0 loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at March 31, 2021 and December 31, 2020.

18


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, 2020. Loans and leases past due 90 days or more, loans and leases on nonaccrual status and troubled debt restructured loans and lease modifications are considered nonperforming. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss. 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 for the recorded investment in loans and leases held for investment for Real-estate residential secured for personal purpose loans, Real-estate home equity secured for personal purpose loans, Loans to individuals and Lease financings by credit quality indicator at March 31, 2021 and December 31, 2020.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
At March 31, 2021
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$65,849 $186,428 $51,724 $37,244 $37,472 $112,249 $1,113 $492,079 
2. Nonperforming0 1,065 0 55 0 1,150 0 2,270 
Total$65,849 $187,493 $51,724 $37,299 $37,472 $113,399 $1,113 $494,349 
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$311 $1,061 $601 $724 $1,105 $2,367 $155,219 $161,388 
2. Nonperforming0 0 0 186 0 33 922 1,141 
Total$311 $1,061 $601 $910 $1,105 $2,400 $156,141 $162,529 
Loans to Individuals
Payment Performance
1. Performing$263 $1,305 $1,183 $823 $342 $2,180 $19,249 $25,345 
2. Nonperforming0 0 0 0 0 123 0 123 
Total$263 $1,305 $1,183 $823 $342 $2,303 $19,249 $25,468 
Lease Financings
Payment Performance
1. Performing$15,160 $67,256 $42,254 $26,121 $9,364 $2,657 $0 $162,812 
2. Nonperforming0 0 23 3 216 5 0 247 
Total$15,160 $67,256 $42,277 $26,124 $9,580 $2,662 $0 $163,059 
Totals by Payment Performance
1. Performing$81,583 $256,050 $95,762 $64,912 $48,283 $119,453 $175,581 $841,624 
2. Nonperforming0 1,065 23 244 216 1,311 922 3,781 
Total$81,583 $257,115 $95,785 $65,156 $48,499 $120,764 $176,503 $845,405 
19



Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
At December 31, 2020
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$191,987 $61,880 $56,314 $50,983 $38,975 $84,138 $1,237 $485,514 
2. Nonperforming666 56 1,364 2,086 
Total$192,653 $61,880 $56,370 $50,983 $38,975 $85,502 $1,237 $487,600 
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$1,195 $815 $829 $1,160 $518 $2,189 $158,803 $165,509 
2. Nonperforming198 36 866 1,100 
Total$1,195 $815 $1,027 $1,160 $518 $2,225 $159,669 $166,609 
Loans to Individuals
Payment Performance
1. Performing$1,795 $1,425 $970 $441 $220 $2,266 $20,180 $27,297 
2. Nonperforming23 162 185 
Total$1,795 $1,425 $970 $441 $220 $2,289 $20,342 $27,482 
Lease Financings
Payment Performance
1. Performing$72,173 $45,972 $30,679 $11,613 $3,616 $567 $$164,620 
2. Nonperforming12 182 205 419 
Total$72,185 $46,154 $30,684 $11,818 $3,623 $575 $$165,039 
Totals by Payment Performance
1. Performing$267,150 $110,092 $88,792 $64,197 $43,329 $89,160 $180,220 $842,940 
2. Nonperforming678 182 259 205 1,431 1,028 3,790 
Total$267,828 $110,274 $89,051 $64,402 $43,336 $90,591 $181,248 $846,730 

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at March 31, 2021 and December 31, 2020.
20


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

The allowance for credit losses (ACL) on loans decreased during the three months ended March 31, 2021 primarily due to favorable changes in economic assumptions, which were impacted by the ongoing recovery from the COVID-19 pandemic, partially offset by loan growth. There were no changes to the reasonable and supportable forecast period, the reversion period, or any other significant methodology changes during the three months ended March 31, 2021. The following presents, by portfolio segment, a summary of the activity in the allowance for credit losses, loans and leases, for the three months ended March 31, 2021 and 2020:
(Dollars in thousands)Beginning balanceAdjustment to initially apply ASU No. 2016-13 for CECL(Reversal of provision) provision for credit lossesCharge-offsRecoveriesEnding balance
Three Months Ended March 31, 2021
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural$13,584 $0 $(3,078)$(338)$65 $10,233 
Real Estate-Commercial52,230 0 (6,771)0 0 45,459 
Real Estate-Construction3,298 0 (499)0 0 2,799 
Real Estate-Residential Secured for Business Purpose7,317 0 (679)0 54 6,692 
Real Estate-Residential Secured for Personal Purpose3,055 0 1 0 0 3,056 
Real Estate-Home Equity Secured for Personal Purpose1,176 0 79 0 2 1,257 
Loans to Individuals533 0 (58)(56)28 447 
Lease Financings1,701 0 (254)(91)48 1,404 
Unallocated150 0 0 N/AN/A150 
Total$83,044 $0 $(11,259)$(485)$197 $71,497 
Three Months Ended March 31, 2020
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural$8,759 $5,284 $5,630 $(481)$52 $19,244 
Real Estate-Commercial15,750 6,208 12,817 35 34,810 
Real Estate-Construction2,446 29 642 3,117 
Real Estate-Residential Secured for Business Purpose2,622 2,502 782 (3)5,906 
Real Estate-Residential Secured for Personal Purpose2,713 (706)114 2,121 
Real Estate-Home Equity Secured for Personal Purpose1,076 (364)78 795 
Loans to Individuals470 104 47 (35)14 600 
Lease Financings1,311 (135)376 (152)73 1,473 
Unallocated184 (34)N/AN/A150 
Total$35,331 $12,922 $20,452 $(671)$182 $68,216 

N/A – Not applicable



21


The following presents, by portfolio segment, the balance in the ACL on loans and leases, disaggregated on the basis of whether the loan or lease was measured for credit loss as a pooled loan or lease or if it was individually analyzed for a reserve at March 31, 2021 and 2020:

Allowance for credit losses, loans and leasesLoans and leases held for investment
(Dollars in thousands)Ending balance: individually analyzedEnding balance: pooledTotal ending balanceEnding balance: individually analyzedEnding balance: pooledLoans measured at fair valueTotal ending balance
At March 31, 2021
Commercial, Financial and Agricultural$253 $9,980 $10,233 $2,006 $869,990 $0 $871,996 
Paycheck Protection Program0 0 0 0 528,452 0 528,452 
Real Estate-Commercial0 45,459 45,459 22,026 2,509,522 152 2,531,700 
Real Estate-Construction0 2,799 2,799 0 249,652 0 249,652 
Real Estate-Residential Secured for Business Purpose3 6,689 6,692 2,859 384,942 0 387,801 
Real Estate-Residential Secured for Personal Purpose25 3,031 3,056 1,867 492,482 0 494,349 
Real Estate-Home Equity Secured for Personal Purpose0 1,257 1,257 1,089 161,440 0 162,529 
Loans to Individuals0 447 447 0 25,468 0 25,468 
Lease Financings0 1,404 1,404 0 163,059 0 163,059 
UnallocatedN/A150 150 N/AN/AN/AN/A
Total$281 $71,216 $71,497 $29,847 $5,385,007 $152 $5,415,006 
At March 31, 2020
Commercial, Financial and Agricultural$698 $18,546 $19,244 $3,934 $940,255 $$944,189 
Real Estate-Commercial1,547 33,263 34,810 28,827 2,071,584 288 2,100,699 
Real Estate-Construction3,117 3,117 215,150 215,150 
Real Estate-Residential Secured for Business Purpose95 5,811 5,906 1,270 376,374 377,644 
Real Estate-Residential Secured for Personal Purpose195 1,926 2,121 1,280 453,718 454,998 
Real Estate-Home Equity Secured for Personal Purpose795 795 820 176,585 177,405 
Loans to Individuals600 600 29,170 29,170 
Lease Financings1,473 1,473 149,570 149,570 
UnallocatedN/A150 150 N/AN/AN/AN/A
Total$2,535 $65,681 $68,216 $36,131 $4,412,406 $288 $4,448,825 
N/A – Not applicable

Troubled Debt Restructured Loans

There were no loans that were restructured during the three months ended March 31, 2021 or March 31, 2020.

The Corporation modified certain loans and leases via principal and/or interest deferrals in accordance with Section 4013 of the CARES Act, the Consolidated Appropriations Act, 2021 and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus and have not categorized these modifications as troubled debt restructurings. These loan and leases had a combined principal balance of approximately $73.0 million as of March 31, 2021, which represents approximately 1.5% of the loan portfolio, excluding PPP loans.

There were no accruing or nonaccrual troubled debt restructured loans for which there were payment defaults within twelve months of the restructuring date for the three months ended March 31, 2021 or March 31, 2020.



0
0
22


The following presents the amount of consumer mortgages collateralized by residential real estate property that were in the process of foreclosure at March 31, 2021 and December 31, 2020:
(Dollars in thousands)At March 31, 2021At December 31, 2020
Real estate-residential secured for personal purpose$57 $64 
Total$57 $64 

There was no foreclosed residential real estate property included in other real estate owned at March 31, 2021 and December 31, 2020.

Lease Financings

The Corporation, through Univest Capital, Inc., an equipment financing business and a subsidiary of the Bank, provides lease financing to customers primarily in the form of sales-type leases with fixed payment terms and $1.00 buyout clauses. A minor number of contracts are classified as either direct financing leases or operating leases. The fair value of the identified assets within sales-type and direct financing leases are equal to the carrying amount such that there is no profit or loss recorded or deferred upon lease commencement. All receivables related to the equipment financing business are recorded within lease financings.
The following presents the schedule of minimum lease payments receivable:
(Dollars in thousands)At March 31, 2021At December 31, 2020
2021 (excluding the three months ended March 31, 2021)$47,581 $61,724 
202253,034 49,970 
202338,736 35,631 
202423,604 20,821 
202510,937 8,319 
Thereafter3,044 2,763 
Total future minimum lease payments receivable176,936 179,228 
Plus: Unguaranteed residual938 914 
Plus: Initial direct costs2,468 2,567 
Less: Imputed interest(17,283)(17,670)
Lease financings$163,059 $165,039 

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. The Corporation also has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows.

Changes in the carrying amount of the Corporation's goodwill by business segment for the three months ended March 31, 2021 were as follows:
(Dollars in thousands)BankingWealth ManagementInsuranceConsolidated
Balance at December 31, 2020$138,476 $15,434 $18,649 $172,559 
Addition to goodwill from acquisitions
Balance at March 31, 2021$138,476 $15,434 $18,649 $172,559 
23


The following table reflects the components of intangible assets at the dates indicated:
At March 31, 2021At December 31, 2020
(Dollars in thousands)Gross Carrying Amount
Accumulated Amortization (1)
Net Carrying AmountGross Carrying Amount
Accumulated Amortization (1)
Net Carrying Amount
Amortized intangible assets:
Core deposit intangibles$6,788 $4,960 $1,829 $6,788 $4,787 $2,001 
Customer related intangibles6,017 5,635 381 7,604 7,147 457 
Servicing rights23,667 16,652 7,015 22,354 15,946 6,408 
Total amortized intangible assets$36,472 $27,247 $9,225 $36,746 $27,880 $8,866 
(1) Included within accumulated amortization is a valuation allowance of $1 thousand and $87 thousand on mortgage servicing rights at March 31, 2021 and December 31, 2020, respectively.

The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of 2021 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2021$675 
2022666 
2023409 
2024267 
2025144 
Thereafter49 
Total$2,210 
The aggregate fair value of mortgage servicing rights was $9.5 million and $6.7 million at March 31, 2021 and December 31, 2020, respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at March 31, 2021 and December 31, 2020.
Changes in the servicing rights balance are summarized as follows:
 Three Months Ended March 31,
(Dollars in thousands)20212020
Beginning of period$6,408 $6,626 
Servicing rights capitalized1,313 526 
Amortization of servicing rights(792)(657)
Changes in valuation allowance86 (55)
End of period$7,015 $6,440 
Loans serviced for others$1,255,124 $1,087,174 
Activity in the valuation allowance for mortgage servicing rights was as follows:
 Three Months Ended March 31,
(Dollars in thousands)20212020
Valuation allowance, beginning of period$(87)$
Additions0 (55)
Reductions86 
Valuation allowance, end of period$(1)$(55)
24


The estimated amortization expense of servicing rights for the remainder of 2021 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2021$1,307 
20221,077 
2023885 
2024725 
2025593 
Thereafter2,428 
Total$7,015 

Note 6. Deposits

Deposits and their respective weighted average interest rate at March 31, 2021 and December 31, 2020 consisted of the following:
At March 31, 2021At December 31, 2020
Weighted Average Interest RateAmountWeighted Average Interest RateAmount
(Dollars in thousands)
Noninterest-bearing deposits0 %$1,857,547 %$1,690,663 
Demand deposits0.19 2,006,368 0.22 2,070,183 
Savings deposits0.09 973,466 0.08 918,094 
Time deposits1.31 474,211 1.30 563,775 
Total0.21 %$5,311,592 0.24 %$5,242,715 
The aggregate amount of time deposits in denominations of $100 thousand or more was $226.3 million at March 31, 2021 and $296.7 million at December 31, 2020. Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently $250 thousand. The aggregate amount of time deposits in denominations over $250 thousand was $91.7 million at March 31, 2021 and $161.6 million at December 31, 2020.

At March 31, 2021, the scheduled maturities of time deposits are as follows:
Year(Dollars in thousands)Amount
Remainder of 2021$11,944 
2022174,693 
2023118,952 
2024124,004 
202527,477 
Thereafter17,141 
Total$474,211 

25


Note 7. Borrowings

The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less.
At March 31, 2021At December 31, 2020
(Dollars in thousands)Balance at End of PeriodWeighted Average Interest Rate at End of PeriodBalance at End of PeriodWeighted Average Interest Rate at End of Period
Short-term borrowings:
Customer repurchase agreements$26,676 0.05 %$17,906 0.05 %
Long-term debt:
FHLB advances$95,000 1.34 %$110,000 1.42 %
Subordinated notes$173,617 5.02 %$183,515 4.96 %

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (the FHLB) with a maximum borrowing capacity of approximately $2.3 billion. All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At March 31, 2021 and December 31, 2020, the Bank had outstanding short-term letters of credit with the FHLB totaling $560.7 million and $669.7 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 $1.6 billion at March 31, 2021.    

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia (the FRB of Philadelphia) to provide access to the Discount Window Lending program. The collateral, consisting of investment securities, was valued at $37.7 million and $40.7 million at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, the Corporation had 0 outstanding borrowings under the Discount Window Lending program.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At March 31, 2021 and December 31, 2020, the Corporation had 0 outstanding borrowings under this line.

The Corporation and the Bank have $2.3 billion and $2.2 billion of committed borrowing capacity at March 31, 2021 and December 31, 2020, respectively, of which $1.7 billion and $1.5 billion was available as of March 31, 2021 and December 31, 2020, respectively. The Corporation, through the Bank, also maintained uncommitted funding sources from correspondent banks of $460.0 million at March 31, 2021 and December 31, 2020, which were fully available. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
Long-term advances with the FHLB mature as follows:
(Dollars in thousands)As of March 31, 2021Weighted Average Rate
Remainder of 2021$%
2022
202335,000 1.94 
202460,000 0.98 
2025
Thereafter
Total$95,000 1.34 %

26


Note 8. Retirement Plans and Other Postretirement Benefits

Information with respect to the Retirement Plans and Other Postretirement Benefits follows: 
 Three Months Ended March 31,
 2021202020212020
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$130 $117 $36 $28 
Interest cost354 417 21 24 
Expected loss on plan assets(892)(816)0 
Amortization of net actuarial loss317 291 12 
Net periodic benefit (income) cost$(91)$$69 $58 

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

The Corporation previously disclosed in its financial statements for the year ended December 31, 2020 that it expected to make contributions of $156 thousand to its non-qualified retirement plans and $94 thousand to its other postretirement benefit plans in 2021. During the three months ended March 31, 2021, the Corporation contributed $39 thousand to its non-qualified retirement plans and $27 thousand to its other postretirement plans. During the three months ended March 31, 2021, $664 thousand was paid to participants from the retirement plans and $27 thousand was paid to participants from the other postretirement 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.

Beginning in 2019, the Corporation issued to directors and employees ("grantees") restricted stock units rather than restricted stock awards or stock options, which were issued to grantees in prior reporting periods. Restricted stock units differ from restricted stock awards in that Corporation stock is not issued to grantees at the date of the grant and the grantee does not have voting or dividend rights during the vesting period. In the following schedules, issued restricted stock units have been combined with restricted stock awards, as the determination of the value at the grant date and methodology for recording stock-based compensation expense is the same.    

The following is a summary of the Corporation's stock option activity and related information for the three months ended March 31, 2021:
(Dollars in thousands, except per share data)Shares Under OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value at March 31, 2021
Outstanding at December 31, 2020453,785 $25.06 
Forfeited(9,500)28.33 
Exercised(36,286)20.90 
Outstanding at March 31, 2021407,999 25.35 5.6$1,322 
Exercisable at March 31, 2021407,999 25.35 5.61,322 
The following is a summary of nonvested stock options at March 31, 2021 including changes during the three months then ended:
(Dollars in thousands, except per share data) Nonvested Stock Options Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 202049,771 $6.46 
Vested(49,771)6.46 
Nonvested stock options at March 31, 20210 0 
27


The Corporation did not issue stock options during the three months ended March 31, 2021 or March 31, 2020.
The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at March 31, 2021 including changes during the three months then ended:
(Dollars in thousands, except per share data) Nonvested Stock Awards and Units Weighted Average Grant Date Fair Value
Nonvested stock awards and units at December 31, 2020305,704 $21.18 
Granted139,007 27.67 
Vested(85,731)22.68 
Cancelled(9,953)22.35 
Nonvested stock units at March 31, 2021349,027 23.37 

Certain information regarding restricted stock awards and units is summarized below for the periods indicated:
Three Months Ended March 31,
(Dollars in thousands, except per share data)20212020
Restricted stock units granted139,007 179,080 
Weighted average grant date fair value$27.67 $18.62 
Intrinsic value of units granted$3,847 $2,923 
Restricted stock awards and units vested85,731 57,355 
Weighted average grant date fair value$22.68 $27.23 
Intrinsic value of awards and units vested$2,354 $1,335 

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested restricted stock units at March 31, 2021 is presented below:
(Dollars in thousands)Unrecognized Compensation CostWeighted-Average Period Remaining (Years)
Restricted stock units$6,925 2.3
$6,925 2.3
The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:
Three Months Ended March 31,
(Dollars in thousands)20212020
Stock-based compensation expense:
Stock options$62 $108 
Restricted stock awards and units812 327 
Employee stock purchase plan23 20 
Total$897 $455 
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options$33 $106 

28


Note 10. Accumulated Other Comprehensive (Loss) Income

The following table shows the components of accumulated other comprehensive (loss) income, net of taxes, for the periods presented:
(Dollars in thousands)Net Unrealized
(Losses) Gains on
Available-for-Sale
Investment
Securities
Net Change
Related to
Derivatives Used for Cash Flow Hedges
Net Change
Related to
Defined Benefit
Pension Plans
Accumulated
Other
Comprehensive
(Loss) Income
Balance, December 31, 2020$(1,379)$(421)$(20,344)$(22,144)
Other comprehensive income1,379 65 260 1,704 
Balance, March 31, 2021$0 $(356)$(20,084)$(20,440)
Balance, December 31, 2019$(3,231)$(185)$(18,314)$(21,730)
Adjustment to initially apply ASU No. 2016-13 for CECL237 237 
Other comprehensive (loss) income(4,000)(370)235 (4,135)
Balance, March 31, 2020$(6,994)$(555)$(18,079)$(25,628)

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 fair value and any collateral that is held by a third party.

In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. At March 31, 2021, approximately $233 thousand in net deferred losses, net of tax, recorded in accumulated other comprehensive loss are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to March 31, 2021. At March 31, 2021, the notional amount of the interest rate swap was $15.3 million and the fair value was a liability of $450 thousand.

The Corporation has an interest rate swap with a current notional amount of $147 thousand, for a 15-year fixed rate loan that is earning interest at 7.43%. The Corporation pays a fixed rate of 7.43% and receives a floating rate based on the one-month LIBOR plus 224 basis points. The swap matures in April 2022. The interest rate swap is carried at fair value in accordance with FASB ASC 815 "Derivatives and Hedging." The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 "Financial Instruments."

Credit Derivatives

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

At March 31, 2021, the Corporation reported 110 variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $707.3 million and remaining maturities ranging from 12 months to 10 years. At March 31, 2021, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $271 thousand. At March 31, 2021, the fair value of the swaps to the customers was a net liability of $15.5 million and these swaps were in paying positions to the third-party financial institution.
29


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 March 31, 2021 and December 31, 2020. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.
  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount
Balance Sheet
Classification
Fair
Value
Balance Sheet
Classification
Fair
Value
At March 31, 2021
Interest rate swap - cash flow hedge$15,255  $0 Other liabilities$450 
Total$15,255 $0 $450 
At December 31, 2020
Interest rate swap - cash flow hedge$15,465  $Other liabilities$533 
Total$15,465 $$533 
The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the condensed consolidated balance sheets at March 31, 2021 and December 31, 2020:
  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount
Balance Sheet
Classification
Fair
Value
Balance Sheet
Classification
Fair
Value
At March 31, 2021
Interest rate swap$147  $0 Other liabilities$5 
Credit derivatives707,333  0 Other liabilities271 
Interest rate locks with customers97,001 Other assets1,163  0 
Forward loan sale commitments119,637 Other assets1,222  0 
Total$924,118 $2,385 $276 
At December 31, 2020
Interest rate swap$179 $Other liabilities$
Credit derivatives643,556 Other liabilities535 
Interest rate locks with customers77,246 Other assets2,894  
Forward loan sale commitments112,690  Other liabilities752 
Total$833,671 $2,894 $1,295 

30


The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:
Statement of Income
Classification
Three Months Ended
March 31,
(Dollars in thousands)20212020
Interest rate swap—cash flow hedge—net interest paymentsInterest expense$76 $29 
Total net loss$(76)$(29)

The following table presents amounts included in the consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:
Statement of Income ClassificationThree Months Ended
March 31,
(Dollars in thousands)20212020
Credit derivativesOther noninterest income$1,107 $140 
Interest rate locks with customersNet (loss) gain on mortgage banking activities(1,730)2,512 
Forward loan sale commitmentsNet gain (loss) on mortgage banking activities1,974 (867)
Total net gain$1,351 $1,785 

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at March 31, 2021 and December 31, 2020:
(Dollars in thousands)Accumulated Other
Comprehensive (Loss) Income
At March 31, 2021At December 31, 2020
Interest rate swap—cash flow hedgeFair value, net of taxes$(356)$(421)
Total$(356)$(421)

Note 12. Fair Value Disclosures

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Corporation determines the fair value of financial instruments based on the fair value hierarchy. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Corporation. Unobservable inputs are inputs that reflect the Corporation’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement.
Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2: Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.
31


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 March 31, 2021.

Loans Held for Sale

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

Derivative Financial Instruments

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

One commercial loan associated with an interest rate swap is classified in Level 3 of the valuation hierarchy at March 31, 2021 since lending credit risk is not an observable input for this loan. The unrealized gain on the 1 loan was $4 thousand at March 31, 2021.

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
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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 March 31, 2021 and December 31, 2020, classified using the fair value hierarchy:
 At March 31, 2021
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$0 $10,210 $0 $10,210 
Residential mortgage-backed securities0 133,391 0 133,391 
Collateralized mortgage obligations0 4,657 0 4,657 
Corporate bonds0 80,971 9,600 90,571 
Total available-for-sale securities0 229,229 9,600 238,829 
Equity securities:
Equity securities - financial services industry933 0 0 933 
Money market mutual funds2,591 0 0 2,591 
Total equity securities3,524 0 0 3,524 
Loans*0 0 152 152 
Loans held for sale0 22,636 0 22,636 
Interest rate locks with customers*0 1,163 0 1,163 
Forward loan sale commitments*0 1,222 0 1,222 
Total assets$3,524 $254,250 $9,752 $267,526 
Liabilities:
Contingent consideration liability$0 $0 $28 $28 
Interest rate swaps*0 455 0 455 
Credit derivatives*0 0 271 271 
Total liabilities$0 $455 $299 $754 
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."

The $9.6 million of corporate bonds was comprised of one investment grade bond and the Corporation utilizes a third party to estimate fair value. The value is derived from a discounted cash flow analysis which utilizes a probability of default input. The $271 thousand of credit derivatives liability represents the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of 110 interest rate swaps with a current notional amount of $707.3 million. The March 31, 2021 CVA assumes a zero-deal recovery percentage based on the most recent index credit curve.


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 At December 31, 2020
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$$13,537 $$13,537 
Residential mortgage-backed securities114,163 114,163 
Collateralized mortgage obligations5,321 5,321 
Corporate bonds76,019 9,600 85,619 
Total available-for-sale securities209,040 9,600 218,640 
Equity securities:
Equity securities - financial services industry818 818 
Money market mutual funds2,461 2,461 
Total equity securities3,279 3,279 
Loans*187 187 
Loans held for sale37,039 37,039 
Interest rate locks with customers*2,894 2,894 
Total assets$3,279 $248,973 $9,787 $262,039 
Liabilities:
Contingent consideration liability$$$55 $55 
Interest rate swaps*541 541 
Credit derivatives*535 535 
Forward loan sale commitments*752 752 
Total liabilities$$1,293 $590 $1,883 
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."
The following table includes a rollforward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three months ended March 31, 2021 and 2020:
 Three Months Ended March 31, 2021
(Dollars in thousands)Balance at
December 31,
2020
AdditionsPayments received(Decrease) increase in valueBalance at March 31, 2021
Corporate bonds$9,600 $0 $0 $0 $9,600 
Loans187 0 (33)(2)152 
Credit derivatives(535)(843)0 1,107 (271)
Net total$9,252 $(843)$(33)$1,105 $9,481 

 Three Months Ended March 31, 2020
(Dollars in thousands)Balance at
December 31,
2019
AdditionsPayments receivedIncrease in valueBalance at March 31, 2020
Loans$317 $$(30)$$288 
Credit derivatives(176)(1,073)140 (1,109)
Net total$141 $(1,073)$(30)$141 $(821)
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The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three months ended March 31, 2021 and 2020:
 Three Months Ended March 31, 2021
(Dollars in thousands)Balance at
December 31,
2020
Contingent
Consideration
from New
Acquisition
Payment of
Contingent
Consideration
Adjustment
of Contingent
Consideration
Balance at March 31, 2021
Girard Partners$55 $0 $29 $2 $28 
Total contingent consideration liability$55 $0 $29 $2 $28 

 Three Months Ended March 31, 2020
(Dollars in thousands)Balance at
December 31,
2019
Contingent
Consideration
from New
Acquisition
Payment of
Contingent
Consideration
Adjustment
of Contingent
Consideration
Balance at March 31, 2020
Girard Partners$160 $$31 $$135 
Total contingent consideration liability$160 $$31 $$135 

The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or changes in the value of loans held for investment analyzed on an individual basis. The following table represents assets measured at fair value on a non-recurring basis at March 31, 2021 and December 31, 2020:
 At March 31, 2021
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$0 $0 $29,564 $29,564 
Other real estate owned0 0 7,481 7,481 
Total$0 $0 $37,045 $37,045 

 At December 31, 2020
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$$$30,900 $30,900 
Other real estate owned7,355 7,355 
Total$$$38,255 $38,255 
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The following table presents assets and liabilities not measured at fair value on a recurring or non-recurring basis in the Corporation’s condensed consolidated balance sheets but for which the fair value is required to be disclosed at March 31, 2021 and December 31, 2020. The disclosed fair values are classified using the fair value hierarchy.
 At March 31, 2021
(Dollars in thousands)Level 1Level 2Level 3Fair
Value
Carrying
Amount
Assets:
Cash and short-term interest-earning assets$187,317 $0 $0 $187,317 $187,317 
Held-to-maturity securities0 139,298 0 139,298 135,153 
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA25,571 
Net loans and leases held for investment0 0 5,381,681 5,381,681 5,313,793 
Servicing rights0 0 9,655 9,655 7,015 
Total assets$187,317 $139,298 $5,391,336 $5,717,951 $5,668,849 
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$4,837,381 $0 $0 $4,837,381 $4,837,381 
Time deposits0 482,098 0 482,098 474,211 
Total deposits4,837,381 482,098 0 5,319,479 5,311,592 
Short-term borrowings0 26,676 0 26,676 26,676 
Long-term debt0 97,193 0 97,193 95,000 
Subordinated notes0 181,000 0 181,000 173,617 
Total liabilities$4,837,381 $786,967 $0 $5,624,348 $5,606,885 

 At December 31, 2020
(Dollars in thousands)Level 1Level 2Level 3Fair
Value
Carrying
Amount
Assets:
Cash and short-term interest-earning assets$219,858 $$$219,858 $219,858 
Held-to-maturity securities156,325 156,325 151,257 
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA28,183 
Net loans and leases held for investment5,338,782 5,338,782 5,192,710 
Servicing rights6,783 6,783 6,408 
Total assets$219,858 $156,325 $5,345,565 $5,721,748 $5,598,416 
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$4,678,940 $$$4,678,940 $4,678,940 
Time deposits574,018 574,018 563,775 
Total deposits4,678,940 574,018 5,252,958 5,242,715 
Short-term borrowings17,906 17,906 17,906 
Long-term debt112,968 112,968 110,000 
Subordinated notes190,045 190,045 183,515 
Total liabilities$4,678,940 $894,937 $$5,573,877 $5,554,136 

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

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

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

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

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

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

Individually analyzed loans and leases held for investment: For individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At March 31, 2021, individually analyzed loans held for investment had a carrying amount of $29.8 million with a valuation allowance of $281 thousand. At December 31, 2020, individually analyzed loans held for investment had a carrying amount of $31.5 million with a valuation allowance of $585 thousand. The Corporation had 0 individually analyzed leases at March 31, 2021 or December 31, 2020.

Servicing rights: The Corporation estimates the fair value of servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the servicing rights portfolio on a quarterly basis for impairment and the servicing rights are carried at the lower of amortized cost or estimated fair value. At March 31, 2021, servicing rights had a net carrying amount of $7.0 million, which included a valuation allowance of $1 thousand. At December 31, 2020, servicing rights had a net carrying amount of $6.5 million, which included a valuation allowance of $87 thousand.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the three months ended March 31, 2021, 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. During the three months ended March 31, 2021, three commercial real estate properties were transferred to OREO with a carrying balance of $126 thousand. At March 31, 2021 and December 31, 2020, OREO had a carrying amount of $7.5 million and $7.4 million, respectively. Other real estate owned is classified within Level 3 of the valuation hierarchy due to the unique characteristics of the collateral for each loan.

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

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

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

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

Note 13. Segment Reporting

At March 31, 2021, the Corporation has 3 reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.
Each segment generates revenue from a variety of products and services it provides. Examples of products and services provided for each reportable segment are indicated as follows:
The Banking segment provides financial services to individuals, businesses, municipalities and nonprofit organizations. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing.
The Wealth Management segment offers investment advisory, financial planning, trust and brokerage services. The Wealth Management segment serves a diverse client base of private families and individuals, municipal pension plans, retirement plans, trusts and guardianships.
The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, employee benefit solutions, personal insurance lines and human resources consulting.
The following table provides total assets by reportable business segment as of the dates indicated.
(Dollars in thousands)At March 31, 2021At December 31, 2020At March 31, 2020
Banking$6,313,000 $6,234,336 $5,362,279 
Wealth Management48,124 48,646 45,786 
Insurance37,075 35,906 35,935 
Other18,466 17,608 20,768 
Consolidated assets$6,416,665 $6,336,496 $5,464,768 
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The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three months ended March 31, 2021 and 2020.
Three Months Ended
March 31, 2021
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$51,449 $0 $0 $8 $51,457 
Interest expense3,750 0 0 2,293 6,043 
Net interest income (expense)47,699 0 0 (2,285)45,414 
Reversal of provision for credit losses(11,283)0 0 0 (11,283)
Noninterest income11,230 6,773 5,105 142 23,250 
Noninterest expense30,496 4,191 3,304 1,549 39,540 
Intersegment (revenue) expense*(323)164 159 0 0 
Income (expense) before income taxes40,039 2,418 1,641 (3,692)40,407 
Income tax expense (benefit)8,271 498 351 (1,316)7,804 
Net income (loss)$31,768 $1,920 $1,290 $(2,376)$32,603 
Net capital expenditures$1,111 $5 $9 $62 $1,187 

Three Months Ended
March 31, 2020
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$52,004 $$$$52,019 
Interest expense8,276 1,275 9,551 
Net interest income (expense)43,728 (1,267)42,468 
Provision for credit losses21,843 21,843 
Noninterest income7,552 6,187 4,887 (242)18,384 
Other noninterest expense31,247 4,178 3,196 156 38,777 
Intersegment (revenue) expense*(282)152 130 
(Loss) income before income taxes(1,528)1,864 1,561 (1,665)232 
Income tax (benefit) expense(844)382 336 (480)(606)
Net (loss) income$(684)$1,482 $1,225 $(1,185)$838 
Net capital expenditures$371 $$$$379 
*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.

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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 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 assumptions with respect to future business strategies and decisions that are subject to change. Such 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 impacting various lines of business;
Legislative, regulatory and accounting changes;
Demand for our financial products and services in our market area;
Major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, including the current coronavirus (COVID-19) pandemic, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;
Volatility in interest rates;
Fluctuations in real estate values in our market area;
The composition and credit quality of our loan and investment portfolios;
Changes in the level and direction of loan delinquencies, classified and criticized loans and charge-offs and changes in estimates of the adequacy of the allowance for credit losses;
Our ability to access cost-effective funding;
Our ability to continue to implement our business strategies;
Our ability to manage market risk, credit risk and operational risk;
Timing of revenue and expenditures;
Adverse changes in the securities markets;
Our ability to enter new markets successfully and capitalize on growth opportunities;
Competition for loans and deposits;
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 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.

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home. While jurisdictions in which we operate have gradually allowed the reopening of businesses and other organizations and removed the sheltering restrictions, it is premature to assess whether doing so will result in a meaningful increase in economic activity and the impact of such actions on further COVID-19 cases. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the
40


COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, our forward-looking statements are also subject to the following risks, uncertainties and assumptions:

Demand for our products and services may decline, making it difficult to grow assets and income;
If the economy is unable to remain open, and higher levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charge-offs and reduced income;
Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
Our allowance for credit losses on loans and leases may increase if borrowers experience financial difficulties, which will adversely affect our net income;
The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
A sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could result in a goodwill or intangible impairment charge being recorded that would adversely impact our results of operations and the ability of the Bank to pay dividends to us;
A material decrease in net income or a net loss over several quarters could result in the elimination of or a decrease in the rate of our quarterly cash dividend;
Our wealth management revenues may decline with continuing market turmoil;
Our cyber security risks are increased as a result of an increase in the number of employees working remotely;
We rely on third-party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and
FDIC premiums may increase if the agency experience additional resolution costs; and
We face litigation, regulatory enforcement and reputation risk as a result of our participation in the PPP and the risk that the Small Business Administration may not fund some or all PPP loan guaranties.

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, 2020 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 2020 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.

41


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

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

Executive Overview

The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:
Three Months Ended
 March 31,Change
(Dollars in thousands, except per share data)20212020AmountPercent
Net income$32,603 $838 $31,765 NM
Net income per share:
Basic$1.11 $0.03 $1.08 NM
Diluted1.11 0.03 1.08 NM
Return on average assets2.07 %0.06 %201 BPNM
Return on average equity18.90 %0.50 %1,840 BPNM

The Corporation reported net income of $32.6 million, or $1.11 diluted earnings per share, for the three months ended March 31, 2021, compared to net income of $838 thousand, or $0.03 diluted earnings per share, for the three months ended March 31, 2020.

During the three months ended March 31, 2021, the Corporation recorded a reversal of provision for credit losses of $11.3 million, of which $12.9 million (after-tax benefit of $10.2 million), or $0.35 diluted earnings per share, was attributable to favorable changes in economic-related assumptions within the Corporation’s CECL model partially offset by a reserve increase attributable to loan growth. The provision for credit losses for the three months ended March 31, 2020 was $21.8 million of which $20.3 million (after-tax charge of $16.1 million), or $0.55 diluted earnings per share, was attributable to adverse changes in economic-related assumptions.

On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law, which provides new COVID-19 relief funds, additional funding under the PPP and the establishment of PPP Second Draw Loans. The Small Business Administration (SBA) announced the taking of certain steps under the PPP to further promote equitable relief for smaller businesses. Under this program, we successfully originated approximately 1,200 PPP loans and secured funding of approximately $168.6 million for our customers as of April 15, 2021. During the quarter, we recorded income of $4.5 million within net interest income related to these loans, of which $2.3 million was the result of forgiveness and pay downs of PPP loans totaling $119.7 million. As of March 31, 2021, the Corporation had $9.5 million of net deferred fees on our balance sheet related to PPP loans.

Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on loans and leases and investment securities and interest paid on deposits and borrowings. Net interest income is the principal source of the Corporation’s revenue. Table 1 presents the Corporation’s average balances, tax-equivalent interest income, interest expense, tax-equivalent yields earned on average assets, cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the three months ended March 31, 2021 and 2020. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning
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assets. The tax-equivalent net interest spread represents the weighted average tax-equivalent yield on interest-earning assets less the weighted average cost of interest-bearing liabilities. The effect of net interest-free funding sources represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.

Three months ended March 31, 2021 versus 2020

Net interest income on a tax-equivalent basis for the three months ended March 31, 2021 was $46.0 million, an increase of $2.8 million, or 6.6%, compared to the three months ended March 31, 2020. The increase in tax-equivalent net interest income for the three months ended March 31, 2021 compared to same period in the prior year was primarily due to $4.5 million in PPP income, a $3.5 million decrease in the cost of interest-bearing liabilities and growth in loans partially offset by a decrease in loan and investment yields.

The net interest margin, on a tax-equivalent basis, was 3.12% for the three months ended March 31, 2021 compared to 3.48% for the three months ended March 31, 2020. Excess liquidity reduced net interest margin by approximately eleven basis points for the three months ended March 31, 2021 compared to six basis points for the three months ended March 31, 2020. This excess liquidity was primarily driven by strong deposit balance growth over the last twelve months, which was partially attributable to the various stimulus initiatives associated with the COVID-19 pandemic. PPP loans had a favorable impact on net interest margin of four basis points for the three months ended March 31, 2021 compared to no impact for the three months ended March 31, 2020. Excluding the impact of excess liquidity and PPP loans, the net interest margin, on a tax-equivalent basis, was 3.19% and 3.54% for the three months ended March 31, 2021 and March 31, 2020, respectively.


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Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
 Three Months Ended March 31,
 20212020
(Dollars in thousands)Average
Balance
Income/
Expense
Average
Rate
Average
Balance
Income/
Expense
Average
Rate
Assets:
Interest-earning deposits with other banks$237,548 $56 0.10 %$118,108 $325 1.11 %
U.S. government obligations6,998 36 2.09 7,298 37 2.04 
Obligations of states and political subdivisions11,544 105 3.69 33,595 289 3.46 
Other debt and equity securities355,827 1,267 1.44 401,007 2,668 2.68 
Federal Home Loan Bank, Federal Reserve Bank and other stock26,368 348 5.35 31,450 527 6.74 
Total interest-earning deposits, investments and other interest-earning assets638,285 1,812 1.15 591,458 3,846 2.62 
Commercial, financial and agricultural loans782,208 6,798 3.52 821,267 8,631 4.23 
Paycheck Protection Program loans506,939 4,524 3.62 — — — 
Real estate—commercial and construction loans2,621,981 24,458 3.78 2,139,369 23,917 4.50 
Real estate—residential loans1,037,000 9,873 3.86 991,550 11,052