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Univest Financial Corporation
UVSP
#5978
Rank
$1.00 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$35.37
Share price
1.00%
Change (1 day)
38.81%
Change (1 year)
๐Ÿฆ Insurance๐Ÿ’ณ Financial services๐Ÿ’ฐ Investment
Categories
  1. Univest Financial Corporation
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2020 Q3

Univest Financial Corporation - 10-Q quarterly report FY2020 Q3


Text size:
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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 September 30, 2020
or
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-7617

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $5 par value29,267,112
(Title of Class)(Number of shares outstanding at October 30, 2020)



UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
 
  Page Number
Part I.
Item 1.
2
3
4
6
8
10
Item 2.
52
Item 3.
71
Item 4.
71
Part II.
Item 1.
71
Item 1A.
71
Item 2.
72
Item 3.
72
Item 4.
72
Item 5.
72
Item 6.
73
74

1
PART I. FINANCIAL INFORMATION
 
Item 1.     Financial Statements
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands, except share data)At September 30, 2020At December 31, 2019
ASSETS
Cash and due from banks$64,537 $50,571 
Interest-earning deposits with other banks323,139 74,557 
Cash and cash equivalents387,676 125,128 
Investment securities held-to-maturity (fair value $182,376 and $194,886 at September 30, 2020 and December 31, 2019, respectively)
176,817 192,052 
Investment securities available-for-sale (amortized cost $191,202 and $251,014, net of allowance for credit losses of $692 and $— at September 30, 2020 and December 31, 2019, respectively)
189,227 246,924 
Investments in equity securities 2,786 2,623 
       Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost29,723 28,254 
Loans held for sale14,465 5,504 
Loans and leases held for investment5,211,856 4,386,836 
Less: Allowance for credit losses, loans and leases(91,870)(35,331)
Net loans and leases held for investment5,119,986 4,351,505 
Premises and equipment, net55,410 56,676 
Operating lease right-of-use assets34,573 34,418 
Goodwill172,559 172,559 
Other intangibles, net of accumulated amortization9,015 10,284 
Bank owned life insurance116,985 114,778 
Accrued interest receivable and other assets73,609 40,219 
Total assets$6,382,831 $5,380,924 
LIABILITIES
Noninterest-bearing deposits$1,714,505 $1,279,681 
Interest-bearing deposits:
Demand deposits2,055,164 1,677,682 
Savings deposits885,715 796,702 
Time deposits556,219 606,010 
Total deposits5,211,603 4,360,075 
Short-term borrowings17,681 18,680 
Long-term debt205,010 150,098 
Subordinated notes193,413 94,818 
Operating lease liabilities37,891 37,617 
Accrued interest payable and other liabilities48,126 44,514 
Total liabilities5,713,724 4,705,802 
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at September 30, 2020 and December 31, 2019; 31,556,799 shares issued at September 30, 2020 and December 31, 2019; 29,241,302 and 29,334,629 shares outstanding at September 30, 2020 and December 31, 2019, respectively
157,784 157,784 
Additional paid-in capital296,599 294,999 
Retained earnings281,026 288,803 
Accumulated other comprehensive loss, net of tax benefit(19,100)(21,730)
Treasury stock, at cost; 2,315,497 and 2,222,170 shares at September 30, 2020 and December 31, 2019, respectively
(47,202)(44,734)
Total shareholders’ equity669,107 675,122 
Total liabilities and shareholders’ equity$6,382,831 $5,380,924 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
2
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months EndedNine Months Ended
 September 30,September 30,
(Dollars in thousands, except per share data)2020201920202019
Interest income
Interest and fees on loans and leases:
Taxable$46,039 $46,933 $136,357 $139,766 
Exempt from federal income taxes2,271 2,774 7,312 8,216 
Total interest and fees on loans and leases48,310 49,707 143,669 147,982 
Interest and dividends on investment securities:
Taxable1,646 2,581 6,569 7,939 
Exempt from federal income taxes137 315 573 1,147 
Interest on deposits with other banks100 1,178 492 2,016 
Interest and dividends on other earning assets419 519 1,308 1,640 
Total interest income50,612 54,300 152,611 160,724 
Interest expense
Interest on deposits4,028 9,434 15,806 26,748 
Interest on short-term borrowings97 94 325 949 
Interest on long-term debt and subordinated notes2,633 2,127 6,640 6,224 
Total interest expense6,758 11,655 22,771 33,921 
Net interest income43,854 42,645 129,840 126,803 
Provision for credit losses3,935 1,533 49,515 6,286 
Net interest income after provision for credit losses39,919 41,112 80,325 120,517 
Noninterest income
Trust fee income1,915 1,973 5,729 5,914 
Service charges on deposit accounts1,187 1,513 3,474 4,395 
Investment advisory commission and fee income4,005 4,032 11,800 11,876 
Insurance commission and fee income3,776 3,877 12,575 12,962 
Other service fee income2,093 2,255 5,451 7,112 
Bank owned life insurance income741 743 2,207 2,438 
Net gain on sales of investment securities57 33 817 41 
Net gain on mortgage banking activities5,860 1,629 12,119 2,908 
Other income2,171 544 4,017 1,606 
Total noninterest income21,805 16,599 58,189 49,252 
Noninterest expense
Salaries, benefits and commissions24,059 22,758 69,595 66,356 
Net occupancy2,609 2,475 7,661 7,687 
Equipment972 1,088 2,890 3,143 
Data processing2,862 2,624 8,372 7,765 
Professional fees1,321 1,517 3,902 4,088 
Marketing and advertising463 558 1,400 1,884 
Deposit insurance premiums707 (444)1,826 438 
Intangible expenses283 378 934 1,221 
Other expense5,251 5,313 16,684 16,028 
Total noninterest expense38,527 36,267 113,264 108,610 
Income before income taxes23,197 21,444 25,250 61,159 
Income tax expense5,078 3,782 4,208 10,950 
Net income$18,119 $17,662 $21,042 $50,209 
Net income per share:
Basic$0.62 $0.60 $0.72 $1.71 
Diluted0.62 0.60 0.72 1.71 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
3
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended September 30,
(Dollars in thousands)20202019
Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount		Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount
Income$23,197 $5,078 $18,119 $21,444 $3,782 $17,662 
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized holding gains (losses) arising during the period726 153 573 (219)(46)(173)
Reversal of provision for credit losses(163)(35)(128)— — — 
Less: reclassification adjustment for net gains on sales realized in net income (1)(57)(12)(45)(33)(7)(26)
Total net unrealized gains (losses) on available-for-sale investment securities506 106 400 (252)(53)(199)
Net unrealized gains (losses) on interest rate swaps used in cash flow hedges:
Net unrealized holding gains (losses) arising during the period5 2 3 (68)(14)(54)
Less: reclassification adjustment for net losses (gains) realized in net income (2)78 16 62 (4)(1)(3)
Total net unrealized gains (losses) on interest rate swaps used in cash flow hedges 83 18 65 (72)(15)(57)
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)307 65 242 294 62 232 
Accretion of prior service cost included in net periodic pension costs (3)— — — (45)(10)(35)
Total defined benefit pension plans307 65 242 249 52 197 
Other comprehensive income (loss)896 189 707 (75)(16)(59)
Total comprehensive income$24,093 $5,267 $18,826 $21,369 $3,766 $17,603 

(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 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
 Nine Months Ended September 30,
(Dollars in thousands)20202019
Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount		Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount
Income$25,250 $4,208 $21,042 $61,159 $10,950 $50,209 
Other comprehensive income:
Net unrealized gains on available-for-sale investment securities:
Net unrealized holding gains arising during the period2,930 615 2,315 7,834 1,645 6,189 
Provision for credit losses392 82 310 — — — 
Less: reclassification adjustment for net gains on sales realized in net income (1)(817)(172)(645)(41)(9)(32)
Total net unrealized gains on available-for-sale investment securities2,505 525 1,980 7,793 1,636 6,157 
Net unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period(554)(116)(438)(499)(105)(394)
Less: reclassification adjustment for net losses (gains) realized in net income (2)176 37 139 (34)(7)(27)
Total net unrealized losses on interest rate swaps used in cash flow hedges (378)(79)(299)(533)(112)(421)
Defined benefit pension plans:
Amortization of net actuarial loss included in net periodic pension costs (3)901 189 712 882 186 696 
Accretion of prior service cost included in net periodic pension costs (3)— — — (136)(29)(107)
Total defined benefit pension plans901 189 712 746 157 589 
Other comprehensive income3,028 635 2,393 8,006 1,681 6,325 
Total comprehensive income$28,278 $4,843 $23,435 $69,165 $12,631 $56,534 

(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 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.
5
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

(Dollars in thousands, except per share data)Common
Shares
Outstanding		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Treasury
Stock		Total
Three Months Ended September 30, 2020
Balance at June 30, 202029,201,985 $157,784 $296,028 $268,751 $(19,807)$(47,883)$654,873 
Net income — — — 18,119 — — 18,119 
Other comprehensive income, net of income tax— — — — 707 — 707 
Cash dividends declared ($0.20 per share)
— — — (5,845)— — (5,845)
Stock-based compensation— — 658 1 — — 659 
Stock issued under dividend reinvestment and employee stock purchase plans39,317 — (87)— — 681 594 
Balance at September 30, 202029,241,302 $157,784 $296,599 $281,026 $(19,100)$(47,202)$669,107 

(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 September 30, 2019
Balance at June 30, 201929,294,942 $157,784 $293,947 $267,357 $(21,949)$(45,469)$651,670 
Net income — — — 17,662 — — 17,662 
Other comprehensive loss, net of income tax benefit— — — — (59)— (59)
Cash dividends declared ($0.20 per share)
— — — (5,861)— — (5,861)
Stock-based compensation— — 640 — — — 640 
Stock issued under dividend reinvestment and employee stock purchase plans20,943 — 37 — — 497 534 
Exercise of stock options19,045 — (68)— — 382 314 
Purchases of treasury stock(22,396)— — — — (601)(601)
Balance at September 30, 201929,312,534 $157,784 $294,556 $279,158 $(22,008)$(45,191)$664,299 


6
(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
Nine Months Ended September 30, 2020
Balance at December 31, 201929,334,629 $157,784 $294,999 $288,803 $(21,730)$(44,734)$675,122 
Adjustment to initially apply ASU No. 2016-13 for CECL (1)— — — (11,284)237 — (11,047)
Net income — — — 21,042 — — 21,042 
Other comprehensive income, net of income tax— — — — 2,393 — 2,393 
Cash dividends declared ($0.60 per share)
— — — (17,522)— — (17,522)
Stock-based compensation— — 1,733 (13)— — 1,720 
Stock issued under dividend reinvestment and employee stock purchase plans103,471 — (198)— — 1,955 1,757 
Vesting of restricted stock unit awards17,035 — (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(204,056)— — — — (4,452)(4,452)
Balance at September 30, 202029,241,302 $157,784 $296,599 $281,026 $(19,100)$(47,202)$669,107 

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2020" for additional information.

(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
Nine Months Ended September 30, 2019
Balance at December 31, 201829,270,852 $157,784 $292,401 $248,167 $(28,416)$(45,803)$624,133 
Adjustment to initially apply ASU No. 2016-02 for leases— — — (1,525)— — (1,525)
Adjustment to initially apply ASU No. 2017-12 for derivatives— — — (83)83 — — 
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities— — — (39)— — (39)
Net income — — — 50,209 — — 50,209 
Other comprehensive income, net of income tax— — — — 6,325 — 6,325 
Cash dividends declared ($0.60 per share)
— — — (17,572)— — (17,572)
Stock-based compensation— — 1,870 — — — 1,870 
Stock issued under dividend reinvestment and employee stock purchase plans69,126 — 114 1 — 1,554 1,669 
Exercise of stock options58,545 — (170)— — 1,175 1,005 
Cancellations of performance-based restricted stock awards(17,349)— 341 — — (341)— 
Purchases of treasury stock(68,640)— — — — (1,776)(1,776)
Balance at September 30, 201929,312,534 $157,784 $294,556 $279,158 $(22,008)$(45,191)$664,299 

Note: See accompanying note to the unaudited condensed consolidated financial statements.
7
UNIVEST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended September 30,
(Dollars in thousands)20202019
Cash flows from operating activities:
Net income$21,042 $50,209 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses49,515 6,286 
Depreciation of premises and equipment3,620 3,983 
Net amortization of investment securities premiums and discounts1,755 1,375 
Net gain on sales of investment securities(817)(41)
Net gain on mortgage banking activities(12,119)(2,908)
Bank owned life insurance income(2,207)(2,438)
Stock-based compensation1,853 1,918 
Intangible expenses934 1,221 
Other adjustments to reconcile net income to cash used in operating activities(3,392)(911)
Originations of loans held for sale(322,135)(139,744)
Proceeds from the sale of loans held for sale321,233 140,906 
Contributions to pension and other postretirement benefit plans(203)(199)
Increase in accrued interest receivable and other assets(18,774)(3,259)
Increase (decrease) in accrued interest payable and other liabilities5,786 (2,486)
Net cash provided by operating activities46,091 53,912 
Cash flows from investing activities:
Net capital expenditures(2,363)(1,647)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity56,933 20,903 
Proceeds from maturities, calls and principal repayments of securities available-for-sale43,853 49,127 
Proceeds from sales of securities available-for-sale65,621 24,987 
Purchases of investment securities held-to-maturity(43,116)(62,919)
Purchases of investment securities available-for-sale(49,329)(997)
Proceeds from sales of money market mutual funds10,487 1,032 
Purchases of money market mutual funds(10,971)(1,314)
Net decrease in other investments(1,469)(917)
Proceeds from sale of portfolio loans14,416 — 
Net increase in loans and leases(851,403)(246,453)
Proceeds from sales of other real estate owned75 670 
Net cash used in investing activities(767,266)(217,528)
Cash flows from financing activities:
Net increase in deposits851,521 452,101 
Net decrease in short-term borrowings(999)(170,798)
Proceeds from issuance of long-term debt125,000 25,000 
Repayment of long-term debt(70,000)(10,000)
Proceeds from issuance of subordinated notes98,448 — 
Payment of contingent consideration on acquisitions(91)(97)
Purchases of treasury stock(4,452)(1,776)
Stock issued under dividend reinvestment and employee stock purchase plans1,757 1,669 
Proceeds from exercise of stock options94 1,005 
Cash dividends paid(17,555)(17,574)
Net cash provided by financing activities983,723 279,530 
Net increase in cash and cash equivalents262,548 115,914 
Cash and cash equivalents at beginning of year125,128 109,420 
Cash and cash equivalents at end of period$387,676 $225,334 
8
 Nine Months Ended September 30,
(Dollars in thousands)20202019
Supplemental disclosures of cash flow information:
Cash paid for interest$23,089 $33,724 
Cash paid for income taxes, net of refunds12,014 14,148 
Non cash transactions:
Transfer of loans to other real estate owned$8,125 $— 
Transfer of loans to loans held for sale14,416 — 
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
9
UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Univest Financial Corporation (the Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations for interim financial information. The accompanying unaudited consolidated financial statements reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods presented. Certain prior period amounts have been reclassified to conform to the current-period presentation. Operating results for the three-month or nine-month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020 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, 2019, which was filed with the SEC on February 28, 2020.

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 calculation of the allowance for credit losses.

Accounting Pronouncements Adopted in 2020

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases accounted for under ASC 842, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This guidance became effective on January 1, 2020 for the Corporation. The results reported for periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards. See Note 1, "Summary of Significant Accounting Polices - Reserve for Loan and Lease Losses" in the Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 28, 2020, for further information on the Corporation's reserve for loan and lease losses methodology under the incurred loss model.

The Corporation adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, available-for-sale debt securities and unfunded commitments. On January 1, 2020, the Corporation recorded a cumulative effect decrease to retained earnings of $11.3 million, net of tax, of which $10.2 million related to loans and net investment in leases, $905 thousand related to unfunded commitments, and $237 thousand related to available-for-sale securities.

The Corporation adopted the provisions of ASC 326 related to financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30 using the prospective transition approach. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $84 thousand of the allowance for credit losses (ACL).

10
The Corporation adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2020 using the prospective transition approach, though no such charges had been recorded on the securities held by the Corporation as of the date of adoption.

In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Financial Instruments (Topic 825)." The amendments to Topic 326 are the most significant and address how a company considers recoveries and extension options when estimating expected credit losses. The ASU clarifies that a company’s estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off. The ASU also clarifies that a company should consider contractual extension or renewal options that it cannot unconditionally cancel when determining the contractual term over which expected credit losses are measured. This new guidance was effective on January 1, 2020 for the Corporation.

The Corporation adopted ASU No. 2019-04 and incorporated the applicable items into the CECL model described as follows. Management addressed the provision in ASU No. 2019-04 related to how a company considers recoveries by performing an analysis to estimate recoveries that could be reasonably expected based on historical experience as described further below. Management addressed the provision in ASU No. 2019-04 related to how a company considers extension options when estimating expected credit losses as described further below. Management reviewed the provision in the ASU No. 2019-04 related to Topics 815 and 825 and determined these amendments did not have a material impact on the Corporation's financial statements.

The Corporation expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk. The impact of the change from the incurred loss model to the current expected credit loss model is detailed below.
January 1, 2020
(Dollars in thousands)Pre-adoptionAdoption Impact As Reported
Assets:
ACL on debt securities: available-for-sale:
Corporate bonds$— $300 $300 
ACL on loans and leases:
Commercial, financial and agricultural8,759 5,284 14,043 
Real estate-commercial15,750 6,208 21,958 
Real estate-construction2,446 29 2,475 
Real estate-residential secured for business purpose2,622 2,502 5,124 
Real estate-residential secured for personal purpose2,713 (706)2,007 
Real estate-home equity secured for personal purpose1,076 (364)712 
Loans to individuals470 104 574 
Lease financings1,311 (135)1,176 
Unallocated184 — 184 
Total ACL on loans and leases35,331 12,922 48,253 
Liabilities:
Reserve for unfunded commitments$420 $1,145 $1,565 

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies certain disclosures relating to investments in certain entities that calculate net asset value, changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Corporation adopted this guidance and the related required disclosures prospectively on January 1, 2020.

11
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This ASU eliminates Step 2 of the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or for the Corporation's goodwill impairment test in 2020. The Corporation adopted this guidance as of January 1, 2020. The adoption did not have a material impact on the Corporation's financial statements.

Recent Accounting Pronouncements Yet to Be Adopted

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. All amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2020 or January 1, 2021 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statement disclosures but will result in revised disclosures for retirement plans and other postretirement benefits.

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 is effective for fiscal years beginning after December 15, 2020 or January 1, 2021 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 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 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, which we anticipate will be the Secured Overnight Financing Rate (SOFR), and the adoption of the ASU, will have a material impact on the Corporation's financial statements.

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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.

Investment Securities

Securities are classified as investment securities held-to-maturity and carried at amortized cost if management has the positive intent and ability to hold the securities to maturity. Securities purchased with the intention of recognizing short-term profits are placed in the trading account and are carried at fair value. Securities classified as available-for-sale are those securities that the Corporation intends to hold for an indefinite period of time but not necessarily to maturity. Securities available-for-sale are carried at fair value with unrealized gains and losses, net of estimated income taxes, reflected in accumulated other comprehensive income, a separate component of shareholders' equity, and credit losses are recognized in earnings. Any decision to sell a security classified as available-for-sale would be based on various factors, including interest rates, changes in the maturity or mix of the Corporation's assets and liabilities, liquidity needs, regulatory capital considerations and other factors. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

Purchase premiums and discounts are recognized in interest income using the interest method over the expected life of the securities except for premiums on callable debt securities which are amortized to the earliest call date. Due to volatility in the financial markets, there is the risk that any future fair value could vary from that disclosed in the accompanying financial statements. Realized gains and losses on the sale of investment securities are recorded on the trade date, determined using the specific identification method and are included in the consolidated statements of income.

The Corporation measures expected credit losses on held-to-maturity debt securities, which are comprised of U.S. government agency securities and residential mortgage-backed securities. The Corporation's residential mortgage-backed security holdings are issued by 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.

Accrued interest receivable on held-to-maturity debt securities totaled $474 thousand at September 30, 2020 and is included within Accrued interest receivable and other assets. This amount is excluded from the estimate of expected credit losses. Held-to-maturity debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held-to-maturity debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

The Corporation measures expected credit losses on available-for-sale debt securities when the Corporation does not intend to sell, or when it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Corporation considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate the present value of expected cash flows. The forecast data is obtained via a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The allowance for credit losses on available-for-sale debt securities is included within Investment securities available-for-sale on the condensed consolidated balance sheet. Changes in the allowance for credit losses are recorded within Provision for
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credit losses on the condensed consolidated statement of income. Losses are charged against the allowance when the Corporation believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale debt securities totaled $547 thousand at September 30, 2020 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. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Equity securities are measured at fair value with changes in fair value recognized in net income.

Loans and Leases

Loans that the Corporation has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, which is the principal amount, net of deferred fees and costs, and the allowance for credit losses. Lease financings are stated at net investment amount, consisting of the present value of lease payments and unguaranteed residual value, plus initial direct costs. Loan commitments are made to accommodate the financial needs of customers. These commitments represent off-balance sheet items that are unfunded. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments. Accrual of interest income on loans and leases ceases when collectability of interest and/or principal is questionable. If it is determined that the collection of interest previously accrued is uncertain, such accrual is reversed and charged to current earnings. Loans and leases are considered past due based upon the failure to comply with contractual terms.

A loan or lease is typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest, even though the loan or lease is currently performing. When a loan or lease is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of the deferred fees and costs is suspended. Interest payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the ultimate collectability of principal. Loans and leases are usually restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

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

Certain loan modifications made during the year were done in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. Accordingly, these loans and leases were not categorized as troubled debt restructurings.

Accrued interest receivable on loans and leases held for investment totaled $14.9 million at September 30, 2020 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. $12.3 million of this amount is excluded from the estimate of expected credit losses. $2.6 million of this amount represents accrued interest receivable on loans that were modified in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus and includes an allowance for credit losses of $50 thousand.

Overdraft deposits are re-classified as loans and are included in the total loans and leases on the balance sheet.

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Loan and Lease Fees

Fees collected upon loan or lease origination and certain direct costs of originating loans and leases are deferred and recognized over the contractual lives of the related loans and leases as yield adjustments using the interest method. Upon prepayment or other disposition of the underlying loans and leases before their contractual maturities, any associated unearned fees or unamortized costs are recognized. Initial direct costs, comprised of commissions paid that would not have been incurred if the lease had not been obtained, are deferred and amortized over the life of the contract, and are classified within net interest income on leases.

Allowance for Credit Losses on Loans and Leases

The allowance for credit losses (ACL) on loans and leases is a valuation account that is used to present the net amount expected to be collected on a loan or lease. The ACL for loans and leases is adjusted through provision for credit losses as a charge against, or credit to, earnings. Loans and leases deemed to be uncollectible are charged against the ACL on loans and leases, and any subsequent recoveries are credited to the ACL. Management evaluates the ACL on a quarterly basis. When changes in the reserve are necessary, an adjustment is made.

Management utilizes a discounted cash flow (DCF) model to calculate the present value of the expected cash flows for pools of loans and leases that share similar risk characteristics and compares the results of this calculation to the amortized cost basis to determine its allowance for credit loss balance.

Management uses relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts in calculating its ACL. Historical credit loss experience provides the basis for the estimation of expected credit losses. Management determines whether there is a need to make qualitative adjustments to historical loss information by monitoring certain factors including differences in current loan-specific risk characteristics as well as for changes in external or environmental conditions, or other relevant factors.

The contractual term used in projecting the cash flows of a loan is based on the maturity date of a loan, and is adjusted for prepayment or curtailment assumptions which may shorten that contractual time period. Options to extend are considered by management in determining the contractual term.
The key inputs to the DCF model are (1) probability of default, (2) loss given default, (3) prepayment and curtailment rates, (4) reasonable and supportable economic forecasts, (5) forecast reversion period, (6) expected recoveries on charged off loans, and (7) discount rate.

Probability of Default (PD)

In order to incorporate economic factors into forecasting within the DCF model, management elected to use the Loss Driver method to generate the PD rate inputs. The Loss Driver method analyzes how one or more economic factors change the default rate using a statistical regression analysis. Management selected economic factors that had strong correlations to historical default rates.

Loss Given Default (LGD)

Management elected to use the Frye Jacobs parameter for determining the LGD input, which is an estimation technique that derives a LGD input from segment specific risk curves that correlates LGD with PD.

Prepayment and Curtailment rates

Prepayment Rates: Loan level transaction data is used to calculate a quarterly prepayment rate for each of the most recent four quarters prior to the measurement date. Those quarterly rates are annualized and the average of the annualized rates is used in the DCF calculation for fixed payment or term loans. Rates are calculated for each pool.

Curtailment Rates: Loan level transaction data is used to calculate annual curtailment rates using any available historical loan level data. The average of the historical rates is used in the DCF model for interest only payment or line of credit type loans. Rates are calculated for each pool.

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Reasonable and Supportable Forecasts

The forecast data used in the DCF model is obtained via a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario.

Forecast Reversion Period

Management uses forecasts to predict how economic factors will perform and has determined to use a four quarter forecast period as well as a four quarter straight-line reversion period to historical averages (also commonly referred to as the mean reversion period).
Expected Recoveries on Charged-off Loans

Management performs an analysis to estimate recoveries that could be reasonably expected based on historical experience in order to account for expected recoveries on loans that have already been fully charged-off and are not included in the ACL calculation.

Discount Rate

The effective interest rate of the underlying loans and leases of the Corporation serves as the discount rate applied to the expected periodic cash flows. Management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

Individual Evaluation

Management evaluates individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. Management individually analyzes these instruments and will establish a specific reserve for instruments as applicable. Instruments will not be included in both collective and individual analyses. All loans on nonaccrual status are individually evaluated for a specific reserve.

Management considers a financial asset as collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral, based on management's assessment as of the reporting date.

The allowance for credit losses on loans and leases is included within Allowance for credit losses, loans and leases on the condensed consolidated balance sheet. Changes in the allowance for credit losses on loans and leases are recorded within Provision for credit losses on the condensed consolidated statement of income.

Reserve for Unfunded Commitments

The Corporation maintains a reserve for off-balance sheet credit exposures such as unfunded commitments that are currently unfunded in categories with historical loss experience. Management calculates funding rates using loan level data history at the portfolio level. The most recent quarter’s (the actual measurement quarter) funding rate is subtracted from the maximum historical funding rate which is then applied to each pool’s total available line of credit. The applicable pool level loss rates for the current quarter is then applied to calculate the reserve for unfunded commitments liability each period.

The reserve for off-balance sheet credit exposures is included within Accrued expenses and other liabilities on the condensed consolidated balance sheet. Changes in the reserve for off-balance sheet credit exposures are recorded within Provision for credit losses on the condensed consolidated statement of income.

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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, 2019.

Three Months EndedNine Months Ended
 September 30,September 30,
(Dollars and shares in thousands, except per share data)2020201920202019
Numerator:
Net income$18,119 $17,662 $21,042 $50,209 
Net income allocated to unvested restricted stock awards(23)(58)(29)(186)
Net income allocated to common shares$18,096 $17,604 $21,013 $50,023 
Denominator:
Weighted average shares outstanding29,227 29,306 29,233 29,290 
Average unvested restricted stock awards(38)(95)(47)(111)
Denominator for basic earnings per share—weighted-average shares outstanding
29,189 29,211 29,186 29,179 
Effect of dilutive securities—employee stock options and restricted stock units28 74 32 64 
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,217 29,285 29,218 29,243 
Basic earnings per share$0.62 $0.60 $0.72 $1.71 
Diluted earnings per share$0.62 $0.60 $0.72 $1.71 
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share526 323 509 326 

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Note 3. Investment Securities

The following table shows the amortized cost, the estimated fair value and the allowance for credit losses of the held-to-maturity securities and available-for-sale securities at September 30, 2020 and the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at December 31, 2019, by contractual maturity within each type:
 At September 30, 2020At December 31, 2019
(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair ValueAmortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
After 1 year to 5 years$6,998 $202 $— $— $7,200 $6,997 $66 $— $7,063 
6,998 202 — — 7,200 6,997 66 — 7,063 
Residential mortgage-backed securities:
After 5 years to 10 years7,065 286 — — 7,351 9,083 129 — 9,212 
Over 10 years162,754 5,071 — — 167,825 175,972 2,749 (110)178,611 
169,819 5,357 — — 175,176 185,055 2,878 (110)187,823 
Total$176,817 $5,559 $— $— $182,376 $192,052 $2,944 $(110)$194,886 
Securities Available-for-Sale
U.S. government corporations and agencies:
Within 1 year$— $— $— — $— $301 $— $(1)$300 
— — — — — 301 — (1)300 
State and political subdivisions:
After 1 year to 5 years3,645 41 — — 3,686 4,717 23 — 4,740 
After 5 years to 10 years11,387 114 — — 11,501 29,563 292 — 29,855 
15,032 155 — — 15,187 34,280 315 — 34,595 
Residential mortgage-backed securities:
Within 1 year12 — — — 12 304 9 — 313 
After 1 year to 5 years93 2 — — 95 611 3 (1)613 
After 5 years to 10 years2,112 72 — — 2,184 36,893 107 (21)36,979 
Over 10 years77,400 2,041 (61)— 79,380 80,630 378 (453)80,555 
79,617 2,115 (61)— 81,671 118,438 497 (475)118,460 
Collateralized mortgage obligations:
After 5 years to 10 years821 30 — — 851 2,377 6 (22)2,361 
Over 10 years4,982 — (3)— 4,979 — — — — 
5,803 30 (3)— 5,830 2,377 6 (22)2,361 
Corporate bonds:
Within 1 year999 4 — — 1,003 6,012 1 (4)6,009 
After 1 year to 5 years29,751 1,637 (1)(1)31,386 29,606 596 (61)30,141 
After 5 years to 10 years60,000 — (5,159)(691)54,150 — — — — 
Over 10 years— — — — — 60,000 — (4,942)55,058 
90,750 1,641 (5,160)(692)86,539 95,618 597 (5,007)91,208 
Total$191,202 $3,941 $(5,224)$(692)$189,227 $251,014 $1,415 $(5,505)$246,924 

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

Securities with a carrying value of $289.6 million and $340.8 million at September 30, 2020 and December 31, 2019, respectively, were pledged to secure public funds deposits and other contractual obligations. In addition, securities of $38.9
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million and $12.5 million were pledged to secure credit derivatives and interest rate swaps at September 30, 2020 and December 31, 2019, 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 nine months ended September 30, 2020 and 2019:
 Nine Months Ended September 30,
(Dollars in thousands)20202019
Securities available-for-sale:
Proceeds from sales$65,621 $24,987 
Gross realized gains on sales831 65 
Gross realized losses on sales14 24 
Tax expense related to net realized gains on sales172 9 

At September 30, 2020 and December 31, 2019, there were no reportable investments in any single issuer representing more than 10% of shareholders’ equity.

The following table shows the fair value of securities that were in an unrealized loss position for which an allowance for credit losses has not been recorded at September 30, 2020 and December 31, 2019, 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 September 30, 2020
Securities Held-to-Maturity
Total$— $— $— $— $— $— 
Securities Available-for-Sale
Residential mortgage-backed securities$8,747 $(60)$32 $(1)$8,779 $(61)
Collateralized mortgage obligations4,979 (3)— — 4,979 (3)
Total$13,726 $(63)$32 $(1)$13,758 $(64)
At December 31, 2019
Securities Held-to-Maturity
Residential mortgage-backed securities$26,767 $(110)$— $— $26,767 $(110)
Total$26,767 $(110)$— $— $26,767 $(110)
Securities Available-for-Sale
U.S. government corporations and agencies$— $— $300 $(1)$300 $(1)
Residential mortgage-backed securities21,827 (62)48,672 (413)70,499 (475)
Collateralized mortgage obligations— — 1,295 (22)1,295 (22)
Corporate bonds998 — 65,506 (5,007)66,504 (5,007)
Total$22,825 $(62)$115,773 $(5,443)$138,598 $(5,505)

At September 30, 2020, 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 $13.8 million, including unrealized losses of $64 thousand. These holdings were comprised of four 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. The Corporation did not recognize any other-than-temporary impairment charges for the nine months ended September 30, 2019.

At September 30, 2020, no held-to-maturity securities held by the Corporation were in an unrealized loss position. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the nine months ended September 30, 2020 or other-than-temporary impairment charges for the nine months ended September 30, 2019.

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The table below presents a rollforward by major security type for the three and nine months ended September 30, 2020 of the allowance for credit losses on securities available-for-sale.

(Dollars in thousands)Corporate Bonds
Three months ended September 30, 2020
Securities Available-for-Sale
Beginning balance$(855)
Additions for securities for which no previous expected credit losses were recognized(1)
Change in securities for which a previous expected credit loss was recognized164 
Ending balance$(692)
Nine months ended September 30, 2020
Securities Available-for-Sale
Beginning balance$— 
Adjustment to initially apply ASU No. 2016-13 for CECL(300)
Additions for securities for which no previous expected credit losses were recognized(1)
Change in securities for which a previous expected credit loss was recognized(391)
Ending balance$(692)

At September 30, 2020, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has been recorded was $55.1 million, including unrealized losses of $5.9 million, and allowance for credit losses of $692 thousand. These holdings were comprised of eight investment grade corporate bonds which fluctuate in value based on changes in market conditions, which for these underlying securities was 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 interest payments on the securities. The Corporation concluded that a portion of decline in the value of these securities was indicative of a credit loss and recorded a provision for credit losses of $392 thousand for the nine months ended September 30, 2020. The Corporation did not record any other-than-temporary impairment charges for the nine months ended September 30, 2019.

The Corporation recognized a $321 thousand net loss and $12 thousand net gain on equity securities during the nine months ended September 30, 2020 and 2019, respectively, in other noninterest income. There were no sales of equity securities during the nine months ended September 30, 2020 or September 30, 2019.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories

(Dollars in thousands)At September 30, 2020At December 31, 2019
Commercial, financial and agricultural$894,314 $947,029 
Paycheck Protection Program501,580 — 
Real estate-commercial2,369,691 2,040,441 
Real estate-construction233,590 232,595 
Real estate-residential secured for business purpose378,239 373,973 
Real estate-residential secured for personal purpose474,688 439,059 
Real estate-home equity secured for personal purpose172,448 174,435 
Loans to individuals27,771 29,883 
Lease financings159,535 149,421 
Total loans and leases held for investment, net of deferred income$5,211,856 $4,386,836 
Imputed interest on lease financings, included in the above table$(17,319)$(16,340)
Net deferred (fees) costs, included in the above table(4,340)5,999 
Overdraft deposits included in the above table182 407 
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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 September 30, 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 September 30, 2020
Commercial, financial and agricultural$6,886 $244 $27 $7,157 $883,348 $890,505 $3,809 $894,314 
Paycheck Protection Program— — — — 501,580 501,580 — 501,580 
Real estate—commercial real estate and construction:
Commercial real estate5,341 7,835 1,539 14,715 2,334,512 2,349,227 20,464 2,369,691 
Construction5,501 — — 5,501 228,089 233,590 — 233,590 
Real estate—residential and home equity:
Residential secured for business purpose2,844 1,553 1,027 5,424 370,664 376,088 2,151 378,239 
Residential secured for personal purpose2,119 47 228 2,394 469,899 472,293 2,395 474,688 
Home equity secured for personal purpose428 96 — 524 170,976 171,500 948 172,448 
Loans to individuals104 29 23 156 27,615 27,771 — 27,771 
Lease financings761 1,807 729 3,297 155,986 159,283 252 159,535 
Total$23,984 $11,611 $3,573 $39,168 $5,142,669 $5,181,837 $30,019 $5,211,856 

The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current, acquired credit impaired loans and nonaccrual loans and leases at December 31, 2019:
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 LeasesAcquired Credit ImpairedNonaccrual Loans and LeasesTotal Loans
and Leases
Held for
Investment
At December 31, 2019
Commercial, financial and agricultural$2,602 $150 $20 $2,772 $940,815 $943,587 $— $3,442 $947,029 
Real estate—commercial real estate and construction:
Commercial real estate3,473 266 — 3,739 2,008,568 2,012,307 206 27,928 2,040,441 
Construction— — — — 232,338 232,338 — 257 232,595 
Real estate—residential and home equity:
Residential secured for business purpose2,078 2,442 — 4,520 366,473 370,993 — 2,980 373,973 
Residential secured for personal purpose2,969 446 — 3,415 433,548 436,963 58 2,038 439,059 
Home equity secured for personal purpose605 297 — 902 172,106 173,008 — 1,427 174,435 
Loans to individuals157 73 74 304 29,579 29,883 — — 29,883 
Lease financings1,409 296 49 1,754 147,161 148,915 — 506 149,421 
Total$13,293 $3,970 $143 $17,406 $4,330,588 $4,347,994 $264 $38,578 $4,386,836 

21
Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at September 30, 2020 and December 31, 2019.
 At September 30, 2020At December 31, 2019
(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$3,809 $— $27 $3,836 $3,442 $— $20 $3,462 
Real estate—commercial real estate and construction:
Commercial real estate20,464 — 1,539 22,003 27,928 — — 27,928 
Construction— — — — 257 — — 257 
Real estate—residential and home equity:
Residential secured for business purpose2,151 — 1,027 3,178 2,980 — — 2,980 
Residential secured for personal purpose2,395 — 228 2,623 2,038 — — 2,038 
Home equity secured for personal purpose948 53 — 1,001 1,427 54 — 1,481 
Loans to individuals— — 23 23 — — 74 74 
Lease financings252 — 729 981 506 — 49 555 
Total$30,019 $53 $3,573 $33,645 $38,578 $54 $143 $38,775 
 * Includes nonaccrual troubled debt restructured loans of $14.2 million and $13.8 million at September 30, 2020 and December 31, 2019, respectively.

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 September 30, 2020.
(Dollars in thousands)Nonaccrual With No ACLNonaccrual With ACLTotal NonaccrualLoans 90 Days or more Past Due and Accruing Interest
At September 30, 2020
Commercial, financial and agricultural$2,361 $1,448 $3,809 $27 
Real estate-commercial20,238 226 20,464 1,539 
Real estate-residential secured for business purpose1,987 164 2,151 1,027 
Real estate-residential secured for personal purpose1,862 533 2,395 228 
Real estate-home equity secured for personal purpose948 — 948 — 
Loans to individuals— — — 23 
Lease financings— 252 252 729 
Total$27,396 $2,623 $30,019 $3,573 

22
The following table presents the amortized cost basis of collateral-dependent nonaccrual loans by class of loans and type of collateral as of September 30, 2020.

(Dollars in thousands)Real Estate
Other (1)
None (2)
Total
At September 30, 2020
Commercial, financial and agricultural$1,459 $1,784 $566 $3,809 
Real estate-commercial20,464 — — 20,464 
Real estate-residential secured for business purpose2,151 — — 2,151 
Real estate-residential secured for personal purpose2,395 — — 2,395 
Real estate-home equity secured for personal purpose948 — — 948 
Total$27,417 $1,784 $566 $29,767 
(1) Collateral consists of business assets, including accounts receivable and personal property.
(2) Loans fully reserved given lack of collateral.

Credit Quality Indicators

The following tables present by class, the recorded investment in loans and leases held for investment by credit quality indicator at September 30, 2020 and December 31, 2019.

The Corporation employs a risk rating system related to the credit quality of commercial loans and real estate loans secured for a business purpose. The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with a relationship balance of less than $1 million are reviewed on a performance basis, with the primary monitored metrics being delinquency status. 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, 2019. 

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

23
Commercial Credit Exposure Credit Risk by Internally Assigned Grades

The following table presents by class, the recorded investment in loans and leases held for investment by credit quality indicator at September 30, 2020 under ASC 326.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
At September 30, 2020
Commercial, Financial and Agricultural
Risk Rating
1. Pass$147,403 $102,389 $78,294 $44,321 $29,672 $60,750 $410,169 $872,998 
2. Special Mention916 804 333 529 849 1,226 7,723 12,380 
3. Substandard375 714 724 60 — 687 6,376 8,936 
Total$148,694 $103,907 $79,351 $44,910 $30,521 $62,663 $424,268 $894,314 
Paycheck Protection Program
Risk Rating
1. Pass$501,580 $— $— $— $— $— $— $501,580 
2. Special Mention— — — — — — — — 
3. Substandard— — — — — — — — 
Total$501,580 $— $— $— $— $— $— $501,580 
Real Estate-Commercial
Risk Rating
1. Pass$912,215 $494,465 $245,307 $279,472 $153,490 $191,043 $45,464 $2,321,456 
2. Special Mention1,776 13,082 — 1,128 1,345 5,935 1,912 25,178 
3. Substandard— 1,365 1,047 11,648 1,218 6,942 837 23,057 
Total$913,991 $508,912 $246,354 $292,248 $156,053 $203,920 $48,213 $2,369,691 
Real Estate-Construction
Risk Rating
1. Pass$86,135 $72,157 $45,140 $1,804 $2,950 $— $4,925 $213,111 
2. Special Mention20,479 — — — — — — 20,479 
3. Substandard— — — — — — — — 
Total$106,614 $72,157 $45,140 $1,804 $2,950 $— $4,925 $233,590 
Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass$84,624 $76,313 $60,041 $47,244 $41,529 $40,042 $24,058 $373,851 
2. Special Mention108 464 189 77 180 481 200 1,699 
3. Substandard30 537 51 69 1,071 863 68 2,689 
Total$84,762 $77,314 $60,281 $47,390 $42,780 $41,386 $24,326 $378,239 

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at September 30, 2020. The Corporation had no loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at September 30, 2020.

24
The following table presents by class, the recorded investment in loans and leases held for investment by credit quality indicator at December 31, 2019 under ASC 310.
(Dollars in thousands)Commercial,
Financial and
Agricultural		Real Estate—
Commercial		Real Estate—
Construction		Real Estate—
Residential Secured
for Business Purpose		Total
At December 31, 2019
Grade:
1. Pass$911,848 $1,974,561 $201,424 $367,122 $3,454,955 
2. Special Mention18,843 24,199 20,987 3,769 67,798 
3. Substandard16,338 41,681 10,184 3,082 71,285 
Total$947,029 $2,040,441 $232,595 $373,973 $3,594,038 

The Corporation had no loans with a risk rating of Doubtful included in loans and leases held for investment at December 31, 2019.

Credit Exposure—Real Estate—Residential Secured for Personal Purpose, Real Estate—Home Equity Secured for Personal Purpose, Loans to individuals, Lease Financings Credit Risk Profile by Payment Activity

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans, home equity loans secured for a personal purpose and loans to individuals and lease financings. 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. 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, 2019. 

25
The following table presents by class, the recorded investment in loans and leases held for investment by performance status at September 30, 2020 under ASC 326.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
At September 30, 2020
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$117,318 $78,421 $67,015 $60,289 $46,982 $100,749 $1,291 $472,065 
2. Nonperforming— — 56 544 — 2,023 — 2,623 
Total$117,318 $78,421 $67,071 $60,833 $46,982 $102,772 $1,291 $474,688 
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$1,002 $891 $1,179 $1,218 $588 $2,627 $163,942 $171,447 
2. Nonperforming— — 103 — — 42 856 1,001 
Total$1,002 $891 $1,282 $1,218 $588 $2,669 $164,798 $172,448 
Loans to Individuals
Payment Performance
1. Performing$967 $1,747 $1,158 $532 $317 $2,397 $20,630 $27,748 
2. Nonperforming— — — — — 23 — 23 
Total$967 $1,747 $1,158 $532 $317 $2,420 $20,630 $27,771 
Lease Financings
Payment Performance
1. Performing$53,992 $49,890 $34,527 $13,866 $5,380 $899 $— $158,554 
2. Nonperforming— 41 545 257 124 14 — 981 
Total$53,992 $49,931 $35,072 $14,123 $5,504 $913 $— $159,535 

The following table presents by class, he recorded investment in loans and lease held for investment by performance status at December 31, 2019 under ASC 310.
(Dollars in thousands)Real Estate—
Residential
Secured for
Personal Purpose		Real Estate—
Home Equity
Secured for
Personal Purpose		Loans to
Individuals		Lease
Financings		Total
At December 31, 2019
Performing$437,021 $172,954 $29,809 $148,866 $788,650 
Nonperforming2,038 1,481 74 555 4,148 
Total$439,059 $174,435 $29,883 $149,421 $792,798 

26
Allowance for Credit Losses on Loans and Leases and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the allowance for credit losses, loans and leases, for the three and nine months ended September 30, 2020 and 2019:

(Dollars in thousands)Beginning balance(Reversal of provision) provision for credit lossesCharge-offsRecoveriesEnding balance
Three Months Ended September 30, 2020
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural$16,736 $(2,401)$(142)$354 $14,547 
Real Estate-Commercial50,671 7,481 — — 58,152 
Real Estate-Construction4,130 355 — — 4,485 
Real Estate-Residential Secured for Business Purpose8,180 251 (88)23 8,366 
Real Estate-Residential Secured for Personal Purpose2,669 47 — — 2,716 
Real Estate-Home Equity Secured for Personal Purpose1,071 204 — 4 1,279 
Loans to Individuals771 (170)(69)17 549 
Lease Financings1,839 (149)(149)85 1,626 
Unallocated150 — N/AN/A150 
Total$86,217 $5,618 $(448)$483 $91,870 
Three Months Ended September 30, 2019
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural$9,129 $222 $(283)$182 $9,250 
Real Estate-Commercial and Construction15,478 593 (251)1 15,821 
Real Estate-Residential Secured for Business Purpose2,478 109 — 98 2,685 
Real Estate-Residential and Home Equity Secured for Personal Purpose3,518 273 (183)4 3,612 
Loans to Individuals481 47 (73)20 475 
Lease Financings1,241 (24)(54)71 1,234 
Unallocated275 310 N/AN/A585 
Total$32,600 $1,530 $(844)$376 $33,662 

N/A – Not applicable
27
(Dollars in thousands)Beginning balance, prior to adoption of ASU No. 2016-13 for CECLAdjustment to initially apply ASU No. 2016-13 for CECLProvision (reversal of provision) for credit lossesCharge-offsRecoveriesEnding balance
Nine Months Ended September 30, 2020
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural$8,759 $5,284 $1,195 $(1,367)$676 $14,547 
Real Estate-Commercial15,750 6,208 38,961 (2,802)35 58,152 
Real Estate-Construction2,446 29 2,010 — — 4,485 
Real Estate-Residential Secured for Business Purpose2,622 2,502 3,398 (187)31 8,366 
Real Estate-Residential Secured for Personal Purpose2,713 (706)709 — — 2,716 
Real Estate-Home Equity Secured for Personal Purpose1,076 (364)555 — 12 1,279 
Loans to Individuals470 104 116 (197)56 549 
Lease Financings1,311 (135)737 (513)226 1,626 
Unallocated184 — (34)N/AN/A150 
Total$35,331 $12,922 $47,647 $(5,066)$1,036 $91,870 
Nine Months Ended September 30, 2019
Allowance for credit losses, loans and leases:
Commercial, Financial and Agricultural$7,983 $— $2,753 $(1,769)$283 $9,250 
Real Estate-Commercial and Construction13,903 — 2,151 (325)92 15,821 
Real Estate-Residential Secured for Business Purpose2,236 — 341 — 108 2,685 
Real Estate-Residential and Home Equity Secured for Personal Purpose3,199 — 595 (198)16 3,612 
Loans to Individuals484 — 142 (209)58 475 
Lease Financings1,288 — (5)(268)219 1,234 
Unallocated271 — 314 N/AN/A585 
Total$29,364 $— $6,291 $(2,769)$776 $33,662 

N/A – Not applicable

28
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 September 30, 2020 and 2019:

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 September 30, 2020
Commercial, Financial and Agricultural$891 $13,656 $14,547 $3,809 $890,505 $— $894,314 
Paycheck Protection Program— — — — 501,580 — 501,580 
Real Estate-Commercial19 58,133 58,152 20,464 2,349,006 221 2,369,691 
Real Estate-Construction— 4,485 4,485 — 233,590 — 233,590 
Real Estate-Residential Secured for Business Purpose1 8,365 8,366 2,151 376,088 — 378,239 
Real Estate-Residential Secured for Personal Purpose181 2,535 2,716 2,395 472,293 — 474,688 
Real Estate-Home Equity Secured for Personal Purpose— 1,279 1,279 948 171,500 — 172,448 
Loans to Individuals— 549 549 — 27,771 — 27,771 
Lease Financings— 1,626 1,626 — 159,535 — 159,535 
UnallocatedN/A150 150 N/AN/AN/AN/A
Total$1,092 $90,778 $91,870 $29,767 $5,181,868 $221 $5,211,856 
At September 30, 2019
Commercial, Financial and Agricultural$390 $8,860 $9,250 $2,233 $956,920 $— $959,153 
Real Estate-Commercial and Construction1,485 14,336 15,821 28,280 2,122,066 349 2,150,695 
Real Estate-Residential Secured for Business Purpose414 2,271 2,685 2,887 357,834 — 360,721 
Real Estate-Residential and Home Equity Secured for Personal Purpose155 3,457 3,612 3,520 606,322 — 609,842 
Loans to Individuals— 475 475 2 30,713 — 30,715 
Lease Financings— 1,234 1,234 306 140,501 — 140,807 
UnallocatedN/A585 585 N/AN/AN/AN/A
Total$2,444 $31,218 $33,662 $37,228 $4,214,356 $349 $4,251,933 
N/A – Not applicable

29
Troubled Debt Restructured Loans

The following presents, by class of loans, information regarding accruing and nonaccrual loans that were restructured:
 Three Months Ended September 30, 2020Three Months Ended September 30, 2019
(Dollars in thousands)Number
of
Loans		Pre-
Restructuring
Outstanding
Recorded
Investment		Post-
Restructuring
Outstanding
Recorded
Investment		Number
of
Loans		Pre-
Restructuring
Outstanding
Recorded
Investment		Post-
Restructuring
Outstanding
Recorded
Investment
Accruing Troubled Debt Restructured Loans:
Total— $— $— — $— $— 
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural— $— $— 1 $19 $19 
Real estate—residential secured for personal purpose1 544 544 — — — 
Total1 $544 $544 1 $19 $19 

 Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
(Dollars in thousands)Number
of
Loans		Pre-
Restructuring
Outstanding
Recorded
Investment		Post-
Restructuring
Outstanding
Recorded
Investment		Number
of
Loans		Pre-
Restructuring
Outstanding
Recorded
Investment		Post-
Restructuring
Outstanding
Recorded
Investment
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose— $— $— 1 $55 $55 
Total— $— $— 1 $55 $55 
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural*1 $619 $619 3 $975 $975 
Real estate—commercial real estate*— — — 1 1,313 1,313 
Real estate—residential secured for personal purpose1 544 544 — — — 
Total2 $1,163 $1,163 4 $2,288 $2,288 
* Three nonaccrual troubled debt restructured loans in the above table totaling $2.3 million were modified via the execution of a forbearance agreement during the nine months ended September 30, 2019. These loans relate to one borrower and were on nonaccrual status at the time of modification.

The Corporation modified certain loans and leases via principal and/or interest deferrals in accordance with Section 4013 of the CARES Act 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.

30
The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the three and nine months ended September 30, 2020 and 2019.
 Maturity Date
Extension		Amortization Period ExtensionTotal Concessions
Granted
(Dollars in thousands)No. of
Loans		AmountNo. of
Loans		AmountNo. of
Loans		Amount
Three Months Ended September 30, 2020
Accruing Troubled Debt Restructured Loans:
Total— $— — $— — $— 
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose— $— 1 $544 1 $544 
Total— $— 1 $544 1 $544 
Three Months Ended September 30, 2019
Accruing Troubled Debt Restructured Loans:
Total— $— — $— — $— 
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural1 $19 — $— 1 $19 
Total1 $19 — $— 1 $19 
Nine Months Ended September 30, 2020
Accruing Troubled Debt Restructured Loans:
Total— $— — $— — $— 
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural— $— 1 $619 1 $619 
Real estate—residential secured for personal purpose— — 1 544 1 544 
Total— $— 2 $1,163 2 $1,163 
Nine Months Ended September 30, 2019
Accruing Troubled Debt Restructured Loans:
Real estate—home equity secured for personal purpose— $— 1 $55 1 $55 
Total— $— 1 $55 1 $55 
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural1 $19 2 $956 3 $975 
Real estate—commercial real estate— — 1 1,313 1 1,313 
Total1 $19 3 $2,269 4 $2,288 

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 and nine months ended September 30, 2020 or September 30, 2019.
The following presents, by class of loans, information regarding consumer mortgages collateralized by residential real estate property that are in the process of foreclosure at September 30, 2020 and December 31, 2019:
(Dollars in thousands)At September 30, 2020At December 31, 2019
Real estate-residential secured for personal purpose$64 $714 
Real estate-home equity secured for personal purpose226 1,058 
Total$290 $1,772 

The following presents foreclosed residential real estate property included in other real estate owned at September 30, 2020 and December 31, 2019.
(Dollars in thousands)At September 30, 2020At December 31, 2019
Foreclosed residential real estate$— $71 

31
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 September 30, 2020At December 31, 2019
2020 (excluding the nine months ended September 30, 2020)$14,587 $57,515 
202158,029 45,510 
202244,933 32,233 
202330,902 18,345 
202417,204 6,639 
Thereafter7,822 2,259 
Total future minimum lease payments receivable173,477 162,501 
Plus: Unguaranteed residual825 886 
Plus: Initial direct costs2,552 2,374 
Less: Imputed interest(17,319)(16,340)
Lease financings$159,535 $149,421 

Note 5. Goodwill and Other Intangible Assets

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

Changes in the carrying amount of the Corporation's goodwill by business segment for the nine months ended September 30, 2020 were as follows:
(Dollars in thousands)BankingWealth ManagementInsuranceConsolidated
Balance at December 31, 2019$138,476 $15,434 $18,649 $172,559 
Addition to goodwill from acquisitions— — — — 
Balance at September 30, 2020$138,476 $15,434 $18,649 $172,559 
The following table reflects the components of intangible assets at the dates indicated:
At September 30, 2020At December 31, 2019
(Dollars in thousands)Gross Carrying Amount
Accumulated Amortization (1)
Net Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Amortized intangible assets:
Core deposit intangibles$6,788 $4,610 $2,178 $6,788 $4,026 $2,762 
Customer related intangibles7,604 7,046 558 8,819 7,923 896 
Servicing rights (1)21,421 15,142 6,279 19,160 12,534 6,626 
Total amortized intangible assets$35,813 $26,798 $9,015 $34,767 $24,483 $10,284 
(1) Included within accumulated amortization is a valuation allowance of $206 thousand on mortgage servicing rights at September 30, 2020. There was no valuation allowance as of December 31, 2019.
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The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of 2020 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2020$278 
2021923 
2022666 
2023409 
2024267 
Thereafter193 
Total$2,736 
The aggregate fair value of mortgage servicing rights was $6.3 million and $9.2 million at September 30, 2020 and December 31, 2019, respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at September 30, 2020 and December 31, 2019.
Changes in the servicing rights balance are summarized as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2020201920202019
Beginning of period$6,081 $6,599 $6,626 $6,768 
Servicing rights capitalized900 464 2,261 1,051 
Amortization of servicing rights(834)(585)(2,402)(1,320)
Changes in valuation allowance132 18 (206)(3)
End of period$6,279 $6,496 $6,279 $6,496 
Loans serviced for others$1,167,316 $1,055,823 $1,167,316 $1,055,823 
Activity in the valuation allowance for mortgage servicing rights was as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2020201920202019
Valuation allowance, beginning of period$(338)$(21)$— $— 
Additions— — (206)(3)
Reductions132 18 — — 
Valuation allowance, end of period$(206)$(3)$(206)$(3)
The estimated amortization expense of servicing rights for the remainder of 2020 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2020$1,724 
20211,276 
2022941 
2023693 
2024302 
Thereafter1,343 
Total$6,279 

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Note 6. Deposits

Deposits and their respective weighted average interest rate at September 30, 2020 and December 31, 2019 consisted of the following:
At September 30, 2020At December 31, 2019
Weighted Average Interest RateAmountWeighted Average Interest RateAmount
(Dollars in thousands)
Noninterest-bearing deposits— %$1,714,505 — %$1,279,681 
Demand deposits0.23 2,055,164 0.96 1,677,682 
Savings deposits0.15 885,715 0.37 796,702 
Time deposits1.44 556,219 1.95 606,010 
Total0.27 %$5,211,603 0.71 %$4,360,075 
The aggregate amount of time deposits in denominations of $100 thousand or more was $277.9 million at September 30, 2020 and $293.2 million at December 31, 2019. 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 $144.7 million at September 30, 2020 and $143.0 million at December 31, 2019.

At September 30, 2020, the scheduled maturities of time deposits are as follows:
Year(Dollars in thousands)Amount
Remainder of 2020$114,934 
2021220,305 
202278,418 
2023110,856 
202423,634 
Thereafter8,072 
Total$556,219 

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 September 30, 2020At December 31, 2019
(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$17,681 0.05 %$18,680 0.05 %
Long-term debt:
FHLB advances$200,000 1.44 %$140,000 2.04 %
Security repurchase agreements5,010 0.57 10,098 2.07 
Subordinated notes$193,413 4.90 %$94,818 5.32 %

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (the FHLB) with a maximum borrowing capacity of approximately $2.1 billion. All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At September 30, 2020 and December 31, 2019, the Bank had outstanding short-term letters of credit with the FHLB totaling $650.8 million and $535.6 million, respectively, which were utilized to collateralize public funds 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 $1.2 billion at September 30, 2020.
    

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The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia (the FRB of Philadelphia) in order to access the Discount Window Lending program. The collateral, consisting of investment securities, was valued at $69.5 million and $94.8 million at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020 and December 31, 2019, the Corporation had no outstanding borrowings under the Discount Window Lending program. As part of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated Paycheck Protection Program (PPP) loans through the Paycheck Protection Program Liquidity Facility (PPPLF) program. At September 30, 2020, the Bank had no outstanding borrowings under the PPPLF program.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At September 30, 2020 and December 31, 2019, the Corporation had no outstanding borrowings under this line.

The Corporation and the Bank have a total of $2.2 billion and $1.9 billion of committed borrowing capacity at September 30, 2020 and December 31, 2019, respectively, of which $1.3 billion and $1.2 billion was available as of September 30, 2020 and December 31, 2019, respectively. The Corporation, through the Bank, also maintains uncommitted funding sources from correspondent banks of $460.0 million and $504.0 million at September 30, 2020 and December 31, 2019, respectively, which were fully available. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
Long-term advances with the FHLB of Pittsburgh mature as follows:
(Dollars in thousands)As of September 30, 2020Weighted Average Rate
Remainder of 2020$10,000 1.47 %
202145,000 1.93 
202235,000 1.17 
202350,000 1.73 
202460,000 0.98 
Thereafter— — 
Total$200,000 1.44 %
Long-term debt under security repurchase agreements with large commercial banks mature as follows:
(Dollars in thousands)As of September 30, 2020Weighted Average Rate
Remainder of 2020$5,010 0.57 %
2021— — 
2022— — 
2023— — 
2024— — 
Thereafter— — 
Total$5,010 0.57 %
Long-term debt under security repurchase agreements totaling $5.0 million hold variable interest rates and are based on the one-month LIBOR rate plus a spread.
On August 5, 2020, the Corporation issued $100.0 million aggregate principal amount of 5.00% fixed-to-floating rate subordinated notes (the "2020 Notes") due 2030. The net proceeds, which approximated $98.4 million, will be used for general corporate purposes. The subordinated notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations.
The 2020 Notes bear interest at an annual rate of 5.00%, payable semi-annually in arrears commencing on February 15, 2021. The last interest payment date for the fixed rate period will be August 15, 2025. From and including August 15, 2025 to, but excluding, August 15, 2030 or the date of earlier redemption, the Notes will bear interest at an annual floating rate of interest equivalent to the expected Benchmark rate, which is expected to be the Three-Month Term SOFR, plus 495.2 basis points, payable quarterly in arrears, commencing on November 15, 2025. Notwithstanding the foregoing, if the Benchmark rate is less than zero, the Benchmark rate shall be deemed to be zero. The related issuance costs of $1.6 million are being amortized on a straight line basis into interest expense over 5 years.
The Corporation may redeem the 2020 Notes (i) in whole or in part beginning with the interest payment date of August 15, 2025, and on any interest payment date thereafter or (ii) in whole, but not in part, at any time within 90 days upon the
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occurrence of certain tax, regulatory capital and Investment Company Act of 1940 events. The redemption price for any redemption is 100% of the principal amount of the subordinated notes being redeemed, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any redemption of the subordinated notes will be subject to the receipt of the approval of the Board of Governors of the Federal Reserve System to the extent then required under applicable laws or regulations, including capital regulations.

Note 8. Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a non-contributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the non-contributory retirement plan.

The Corporation also maintains a non-qualified benefit plan that provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law. This non-qualified benefit plan is not offered to new participants and all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

The Corporation also provides certain postretirement healthcare and life insurance benefits for retired employees. Information on these benefits is reported under “Other Postretirement Benefits” within this footnote.

Components of net periodic benefit cost were as follows: 
 Three Months Ended September 30,
 2020201920202019
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$117 $109 $27 $17 
Interest cost425 476 23 23 
Expected loss on plan assets(816)(772)— — 
Amortization of net actuarial loss300 294 7 — 
Accretion of prior service cost— (45)— — 
Net periodic benefit cost$26 $62 $57 $40 

 Nine Months Ended September 30,
 2020201920202019
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$350 $328 $82 $50 
Interest cost1,259 1,428 72 70 
Expected loss on plan assets(2,450)(2,313)— — 
Amortization of net actuarial loss882 882 19 — 
Accretion of prior service cost— (136)— — 
Net periodic benefit cost$41 $189 $173 $120 

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, 2019 that it expected to make contributions of $159 thousand to its non-qualified retirement plans and $89 thousand to its other postretirement benefit plans in 2020. During the nine months ended September 30, 2020, the Corporation contributed $120 thousand to its non-qualified retirement plans and $83 thousand to its other postretirement plans. During the nine months ended September 30, 2020, $2.0 million was paid to participants from the retirement plans and $83 thousand was paid to participants from the other postretirement plans.

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Note 9. Stock-Based Incentive Plan

The Corporation has a shareholder approved 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 nine months ended September 30, 2020:
(Dollars in thousands, except per share data)Shares Under OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value at September 30, 2020
Outstanding at December 31, 2019508,111 $24.83 
Expired(2,000)28.33 
Forfeited(19,018)24.70 
Exercised(5,000)18.70 
Outstanding at September 30, 2020482,093 24.88 5.9$— 
Exercisable at September 30, 2020428,615 24.43 5.7— 
The following is a summary of nonvested stock options at September 30, 2020 including changes during the nine 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, 2019163,261 $6.54 
Vested(106,131)6.58 
Forfeited(3,652)6.50 
Nonvested stock options at September 30, 202053,478 6.46 
The Corporation did not issue stock options during the nine months ended September 30, 2020 or September 30, 2019.
The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at September 30, 2020 including changes during the nine 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, 2019209,378 $26.76 
Granted179,080 18.62 
Vested(59,855)27.17 
Cancelled(20,993)27.17 
Nonvested stock awards and units at September 30, 2020307,610 21.91 

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Certain information regarding restricted stock awards and units is summarized below for the periods indicated:
Nine Months Ended September 30,
(Dollars in thousands, except per share data)20202019
Restricted stock awards and units granted179,080 113,729 
Weighted average grant date fair value$18.62 $25.66 
Intrinsic value of awards granted$3,335 $2,901 
Restricted stock awards and units vested59,855 44,807 
Weighted average grant date fair value$27.17 $21.65 
Intrinsic value of awards vested$1,375 $1,119 

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested stock options and nonvested restricted stock awards and units at September 30, 2020 is presented below:
(Dollars in thousands)Unrecognized Compensation CostWeighted-Average Period Remaining (Years)
Stock options$147 0.5
Restricted stock awards and units4,058 2.0
$4,205 1.9
The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:
Nine Months Ended September 30,
(Dollars in thousands)20202019
Stock-based compensation expense:
Stock options$274 $546 
Restricted stock awards and units1,579 1,372 
Employee stock purchase plan65 54 
Total$1,918 $1,972 
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options$375 $444 

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, 2019$(3,231)$(185)$(18,314)$(21,730)
Adjustment to initially apply ASU No. 2016-13 for CECL (1)237 — — 237 
Other comprehensive income (loss)1,980 (299)712 2,393 
Balance, September 30, 2020$(1,014)$(484)$(17,602)$(19,100)
Balance, December 31, 2018$(11,221)$81 $(17,276)$(28,416)
Adjustment to initially apply ASU No. 2017-12 for derivatives— 83 — 83 
Other comprehensive income (loss)6,157 (421)589 6,325 
Balance, September 30, 2019$(5,064)$(257)$(16,687)$(22,008)
(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2020" for additional information.

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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 September 30, 2020, approximately $235 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 September 30, 2020. At September 30, 2020, the notional amount of the interest rate swap was $15.7 million and the fair value was a liability of $614 thousand.

The Corporation has an interest rate swap with a current notional amount of $211 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 September 30, 2020, the Corporation reported seventy-seven variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $552.2 million and remaining maturities ranging from 18 months to 10 years. At September 30, 2020, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $716 thousand. At September 30, 2020, the fair value of the swaps to the customers was a net liability of $36.9 million and these swaps were in paying positions to the third-party financial institution.

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

Mortgage Banking Derivatives

Derivative loan commitments represent agreements for delayed delivery of financial instruments in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument at a specified price or yield. The Corporation’s derivative loan commitments are commitments to sell loans secured by 1-to 4-family residential properties whose predominant risk characteristic is interest rate risk.

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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 September 30, 2020 and December 31, 2019. 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 September 30, 2020
Interest rate swap - cash flow hedge $15,673  $— Other liabilities$614 
Total$15,673 $— $614 
At December 31, 2019
Interest rate swap - cash flow hedge $16,286  $— Other liabilities$235 
Total$16,286 $— $235 
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 September 30, 2020 and December 31, 2019:
  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount		Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value
At September 30, 2020
Interest rate swap$211  $— Other liabilities$10 
Credit derivatives552,219  — Other liabilities716 
Interest rate locks with customers139,309 Other assets4,896  — 
Forward loan sale commitments142,044  — Other liabilities474 
Total$833,783 $4,896 $1,200 
At December 31, 2019
Interest rate swap$303 $— Other liabilities$14 
Credit derivatives270,147 — Other liabilities176 
Interest rate locks with customers19,966 Other assets399  — 
Forward loan sale commitments21,846  — Other liabilities19 
Total$312,262 $399 $209 

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 EndedNine Months Ended
September 30,September 30,
(Dollars in thousands)2020201920202019
Interest rate swap—cash flow hedge—net interest paymentsInterest expense$78 $(4)$176 $(34)
Interest rate swap—fair value hedge—effectivenessInterest income— (6)— (5)
Total net (loss) gain$(78)$(2)$(176)$29 

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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 EndedNine Months Ended
September 30,September 30,
(Dollars in thousands)2020201920202019
Credit derivativesOther noninterest income$2,339 $186 $4,143 $768 
Interest rate locks with customersNet gain on mortgage banking activities1,442 109 4,496 417 
Forward loan sale commitmentsNet gain (loss) on mortgage banking activities108 366 (455)319 
Total net gain$3,889 $661 $8,184 $1,504 

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at September 30, 2020 and December 31, 2019:
(Dollars in thousands)Accumulated Other
Comprehensive (Loss) Income		At September 30, 2020At December 31, 2019
Interest rate swap—cash flow hedgeFair value, net of taxes$(484)$(185)
Total$(484)$(185)

Note 12. Fair Value Disclosures

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Corporation determines the fair value of financial instruments based on the fair value hierarchy. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Corporation. Unobservable inputs are inputs that reflect the Corporation’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement. Transfers between levels were recognized at the end of the reporting period for the year ended December 31, 2019.
Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2: Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

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

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

On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at September 30, 2020.

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 September 30, 2020 since lending credit risk is not an observable input for this loan. The unrealized gain on the one loan was $9 thousand at September 30, 2020.

Contingent Consideration Liability

The Corporation estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on projected revenue related to the acquired business. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on projected revenue of the acquired business affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the projected revenue, the contingent consideration liability is classified within Level 3 of the valuation hierarchy. An increase in the projected revenue may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the projected revenue may result in a lower estimated fair value of the contingent consideration liability.
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The following table presents the assets and liabilities measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019, classified using the fair value hierarchy:
 At September 30, 2020
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$— $15,187 $— $15,187 
Residential mortgage-backed securities— 81,671 — 81,671 
Collateralized mortgage obligations— 5,830 — 5,830 
Corporate bonds— 86,539 — 86,539 
Total available-for-sale securities— 189,227 — 189,227 
Equity securities:
Equity securities - financial services industry683 — — 683 
Money market mutual funds2,103 — — 2,103 
Total equity securities2,786 — — 2,786 
Loans*— — 221 221 
Interest rate locks with customers*— 4,896 — 4,896 
Total assets$2,786 $194,123 $221 $197,130 
Liabilities:
Contingent consideration liability$— $— $83 $83 
Interest rate swaps*— 624 — 624 
Credit derivatives*— — 716 716 
Forward loan sale commitments*— 474 — 474 
Total liabilities$— $1,098 $799 $1,897 
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."

The Corporation recorded no unrealized gains and losses within other comprehensive income for recurring Level 3 fair value measurements held at September 30, 2020. The $716 thousand of credit derivatives liability represents the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of seventy-seven interest rate swaps with a current notional amount of $552.2 million. The September 30, 2020 CVA assumes a zero-deal recovery percentage based on the most recent index credit curve.

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 At December 31, 2019
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies$— $300 $— $300 
State and political subdivisions— 34,595 — 34,595 
Residential mortgage-backed securities— 118,460 — 118,460 
Collateralized mortgage obligations— 2,361 — 2,361 
Corporate bonds— 91,208 — 91,208 
Total available-for-sale securities— 246,924 — 246,924 
Equity securities:
Equity securities - financial services industry1,004 — — 1,004 
Money market mutual funds1,619 — — 1,619 
Total equity securities2,623 — — 2,623 
Loans*— — 317 317 
Interest rate locks with customers*— 399 — 399 
Total assets$2,623 $247,323 $317 $250,263 
Liabilities:
Contingent consideration liability$— $— $160 $160 
Interest rate swaps*— 249 — 249 
Credit derivatives*— — 176 176 
Forward loan sale commitments*— 19 — 19 
Total liabilities$— $268 $336 $604 
* 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 nine months ended September 30, 2020 and 2019:
 Nine Months Ended September 30, 2020
(Dollars in thousands)Balance at
December 31,
2019		AdditionsPayments receivedIncrease in valueBalance at September 30, 2020
Loans$317 $— $(91)$(5)$221 
Credit derivatives(176)(4,683)— 4,143 (716)
Net total $141 $(4,683)$(91)$4,138 $(495)

 Nine Months Ended September 30, 2019
(Dollars in thousands)Balance at
December 31,
2018		AdditionsPayments receivedIncrease in valueBalance at September 30, 2019
Corporate bonds$25,729 $— $— $675 $26,404 
Loans1,779 — (1,432)2 349 
Credit derivatives(72)(958)— 767 (263)
Net total$27,436 $(958)$(1,432)$1,444 $26,490 
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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 nine months ended September 30, 2020 and 2019:
 Nine Months Ended September 30, 2020
(Dollars in thousands)Balance at
December 31,
2019		Contingent
Consideration
from New
Acquisition		Payment of
Contingent
Consideration		Adjustment
of Contingent
Consideration		Balance at September 30, 2020
Girard Partners$160 $— $91 $14 $83 
Total contingent consideration liability$160 $— $91 $14 $83 

 Nine Months Ended September 30, 2019
(Dollars in thousands)Balance at
December 31,
2018		Contingent
Consideration
from New
Acquisition		Payment of
Contingent
Consideration		Adjustment
of Contingent
Consideration		Balance at September 30, 2019
Girard Partners$259 $— $97 $24 $186 
Total contingent consideration liability$259 $— $97 $24 $186 

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 September 30, 2020 and December 31, 2019:
 At September 30, 2020
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$— $— $28,675 $28,675 
Other real estate owned— — 8,270 8,270 
Total$— $— $36,945 $36,945 

 At December 31, 2019
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Impaired loans held for investment$— $— $36,018 $36,018 
Impaired leases held for investment— — 277 277 
Other real estate owned— — 516 516 
Total$— $— $36,811 $36,811 
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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 September 30, 2020 and December 31, 2019. The disclosed fair values are classified using the fair value hierarchy.
 At September 30, 2020
(Dollars in thousands)Level 1Level 2Level 3Fair
Value		Carrying
Amount
Assets:
Cash and short-term interest-earning assets$387,676 $— $— $387,676 $387,676 
Held-to-maturity securities— 182,376 — 182,376 176,817 
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA29,723 
Loans held for sale— 14,612 — 14,612 14,465 
Net loans and leases held for investment— — 5,253,500 5,253,500 5,091,090 
Servicing rights— — 6,404 6,404 6,279 
Total assets$387,676 $196,988 $5,259,904 $5,844,568 $5,706,050 
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$4,655,384 $— $— $4,655,384 $4,655,384 
Time deposits— 567,257 — 567,257 556,219 
Total deposits4,655,384 567,257 — 5,222,641 5,211,603 
Short-term borrowings— 17,681 — 17,681 17,681 
Long-term debt— 209,494 — 209,494 205,010 
Subordinated notes— 199,473 — 199,473 193,413 
Total liabilities$4,655,384 $993,905 $— $5,649,289 $5,627,707 




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 At December 31, 2019
(Dollars in thousands)Level 1Level 2Level 3Fair
Value		Carrying
Amount
Assets:
Cash and short-term interest-earning assets$125,128 $— $— $125,128 $125,128 
Held-to-maturity securities— 194,886 — 194,886 192,052 
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA28,254 
Loans held for sale— 5,560 — 5,560 5,504 
Net loans and leases held for investment— — 4,309,208 4,309,208 4,314,893 
Servicing rights— — 9,340 9,340 6,626 
Total assets$125,128 $200,446 $4,318,548 $4,644,122 $4,672,457 
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$3,754,065 $— $— $3,754,065 $3,754,065 
Time deposits— 609,387 — 609,387 606,010 
Total deposits3,754,065 609,387 — 4,363,452 4,360,075 
Short-term borrowings— 18,680 — 18,680 18,680 
Long-term debt— 151,343 — 151,343 150,098 
Subordinated notes— 96,663 — 96,663 94,818 
Total liabilities$3,754,065 $876,073 $— $4,630,138 $4,623,671 

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 September 30, 2020, individually analyzed loans held for investment had a carrying amount of $29.8 million with a valuation allowance of $1.1 million. At December 31, 2019, impaired loans held for investment had a
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carrying amount of $38.1 million with a valuation allowance of $2.1 million. The Corporation had no individually analyzed leases at September 30, 2020. The Corporation had impaired leases of $277 thousand with no reserve at December 31, 2019.

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 September 30, 2020, servicing rights had a net carrying amount of $6.3 million which included a valuation allowance of $206 thousand. At December 31, 2019, servicing rights carrying amount of $6.6 million with no valuation allowance.

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 nine months ended September 30, 2020, there were no required valuation adjustments of goodwill and other identifiable intangible assets.

Other real estate owned: The fair value of other real estate owned (OREO) is originally estimated based upon the appraised value less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. Subsequently, OREO is reported at the lower of the original cost or the current fair value less cost to sell. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the capitalized expenses may not increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost to sell. New appraisals are generally obtained on an annual basis if an agreement of sale does not exist. During the nine months ended September 30, 2020, one property was transferred to OREO with a carrying balance of $8.1 million, one property had a write-down totaling $300 thousand, and one property sold with total proceeds of $75 thousand for a net gain of $4 thousand. At September 30, 2020 and December 31, 2019, OREO had a carrying amount of $8.3 million and $540 thousand, 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.

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.


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Note 13. Segment Reporting

At September 30, 2020, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.
Each segment generates revenue from a variety of products and services it provides. Examples of products and services provided for each reportable segment are indicated below.
●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 trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions.
●The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, 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 September 30, 2020At December 31, 2019At September 30, 2019
Banking$6,277,894 $5,282,505 $5,256,435 
Wealth Management47,550 44,591 43,305 
Insurance35,168 34,291 33,239 
Other22,219 19,537 20,632 
Consolidated assets$6,382,831 $5,380,924 $5,353,611 
The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and nine months ended September 30, 2020 and 2019.
Three Months Ended
September 30, 2020
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$50,603 $1 $— $8 $50,612 
Interest expense4,867 — — 1,891 6,758 
Net interest income45,736 1 — (1,883)43,854 
Provision for credit losses3,935 — — — 3,935 
Noninterest income11,919 5,963 3,924 (1)21,805 
Noninterest expense31,304 3,845 2,974 404 38,527 
Intersegment (revenue) expense*(296)168 128 — — 
Income (expense) before income taxes22,712 1,951 822 (2,288)23,197 
Income tax expense4,367 396 171 144 5,078 
Net income (loss)$18,345 $1,555 $651 $(2,432)$18,119 
Capital expenditures$646 $15 $14 $8 $683 

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Three Months Ended
September 30, 2019
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$54,280 $12 $— $8 $54,300 
Interest expense10,394 — — 1,261 11,655 
Net interest income43,886 12 — (1,253)42,645 
Provision for credit losses1,533 — — — 1,533 
Noninterest income6,491 6,049 4,039 20 16,599 
Noninterest expense29,205 3,860 3,056 146 36,267 
Intersegment (revenue) expense*(307)177 130 — — 
Income (expense) before income taxes19,946 2,024 853 (1,379)21,444 
Income tax expense (benefit)3,719 391 72 (400)3,782 
Net income (loss)$16,227 $1,633 $781 $(979)$17,662 
Capital expenditures$52 $5 $24 $134 $215 

Nine Months Ended
September 30, 2020
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$152,578 $8 $— $25 $152,611 
Interest expense18,399 — — 4,372 22,771 
Net interest income134,179 8 — (4,347)129,840 
Provision for credit losses49,515 — — — 49,515 
Noninterest income27,755 17,654 13,020 (240)58,189 
Noninterest expense91,097 11,752 9,095 1,320 113,264 
Intersegment (revenue) expense*(852)466 386 — — 
Income (expense) before income taxes22,174 5,444 3,539 (5,907)25,250 
Income tax expense (benefit)2,944 1,109 749 (594)4,208 
Net income (loss)$19,230 $4,335 $2,790 $(5,313)$21,042 
Capital expenditures$2,291 $21 $23 $28 $2,363 

Nine Months Ended
September 30, 2019
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$160,667 $33 $— $24 $160,724 
Interest expense30,138 — — 3,783 33,921 
Net interest income130,529 33 — (3,759)126,803 
Provision for credit losses6,286 — — — 6,286 
Noninterest income17,476 17,924 13,537 315 49,252 
Noninterest expense85,556 11,652 9,421 1,981 108,610 
Intersegment (revenue) expense*(901)504 397 — — 
Income (expense) before income taxes57,064 5,801 3,719 (5,425)61,159 
Income tax expense (benefit)10,499 1,115 334 (998)10,950 
Net income (loss)$46,565 $4,686 $3,385 $(4,427)$50,209 
Capital expenditures$1,187 $80 $88 $292 $1,647 

*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.

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Note 14. Leases
The following table provides information with respect to the Corporation's operating leases:
Three months ended September 30,Nine months ended September 30,
(Dollars in thousands)2020201920202019
Operating lease cost $969 $948 $2,883 $2,842 
Short-term lease cost3 — 9 — 
Variable lease cost1 — 4 — 
Total lease cost$973 $948 $2,896 $2,842 
Cash paid for amounts included in the measurement of lease liabilities:
    Operating cash flows from leases$930 $897 2,762 2,636 
At September 30, 2020At December 31, 2019
Weighted-average remaining lease term in years14.215.2
Weighted-average discount rate4.17 %4.24 %

At September 30, 2020, maturities of lease liabilities are as follows:
Maturity of Lease Liabilities(Dollars in thousands)Amount
Remainder of 2020$941 
20213,838 
20223,833 
20233,782 
20243,653 
Thereafter35,233 
Total lease payments51,280 
Less: imputed interest(13,389)
Present value of lease liabilities$37,891 

Note 15. 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.

Note 16. Subsequent Event

On October 19, 2020, the Corporation announced Univest Bank and Trust Co.’s plan to optimize its financial service center footprint with the consolidation or relocation of eight locations. The plan is being executed in two phases with the first being completed on January 29, 2021 and the second being completed on June 30, 2021. The pre-tax expense associated with this plan are estimated to be $1.7 million, which will primarily be recognized in the fourth quarter of 2020.
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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 inherently 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;
•Return on investment decisions;
•System failures or cyber-security breaches of our information technology infrastructure and those of our third-party service providers;
•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 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
52
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;
•If the economy is unable to substantially and successfully reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase;
•Collateral for loans, especially real estate, may decline in value;
•Our allowance for credit losses on loans and leases may increase if borrowers experience financial difficulties;
•The net worth and liquidity of loan guarantors may decline;
•A further and sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on its goodwill or core deposit and customer relationships intangibles that could result in an impairment charge being recorded for that period, that would adversely impact our results of operations and the ability of the Bank to pay dividends to us;
•As a result of the decline in the Federal Reserve’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities;
•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;
•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, 2019 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 had identified the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses, loans and leases, as critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation’s 2019 Annual Report on Form 10-K. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of ASC 326, which changed the methodology under which management calculates its reserve for loans and leases, now referred to as the allowance for credit losses. Management considers the measurement of the allowance for credit losses, in accordance with ASC 326, to be a critical accounting policy.

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 and the Bank.

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Through its wholly-owned subsidiaries, the Bank provides a variety of financial services for individuals, businesses, municipalities and non-profit organizations. 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 EndedNine Months Ended
 September 30,ChangeSeptember 30,Change
(Dollars in thousands, except per share data)20202019AmountPercent20202019AmountPercent
Net income$18,119 $17,662 $457 2.6 %$21,042 $50,209 $(29,167)(58.1 %)
Net income per share:
Basic$0.62 $0.60 $0.02 3.3 $0.72 $1.71 $(0.99)(57.9)
Diluted0.62 0.60 0.02 3.3 0.72 1.71 (0.99)(57.9)
Return on average assets1.15 %1.32 %(17 BP)(12.9)0.48 %1.30 %(82 BP)(63.1)
Return on average equity10.89 %10.62 %27 BP2.5 4.22 %10.40 %(618 BP)(59.4)

The Corporation reported net income of $18.1 million, or $0.62 diluted earnings per share, for the three months ended September 30, 2020, compared to net income of $17.7 million, or $0.60 diluted earnings per share, for the three months ended September 30, 2019. Net income for the nine months ended September 30, 2020 was $21.0 million, or $0.72 diluted earnings per share, compared to net income of $50.2 million, or $1.71 diluted earnings per share, for the nine months ended September 30, 2019.

The Corporation adopted CECL effective January 1, 2020, as discussed in Note 1. Summary of Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements. Upon adoption, the allowance for credit losses on loans and leases increased by $12.9 million, the allowance for credit losses on investments increased by $300 thousand, and the reserve for unfunded commitments increased by $1.1 million, which, in the aggregate, resulted in an after-tax retained earnings adjustment of $11.3 million.

During the three months ended September 30, 2020, the Corporation recorded a provision for credit losses of $3.9 million, of which $5.6 million provision was related to loans and leases, ($163) thousand was a reversal of provision related to investment securities and ($1.5) million was a reversal of provision related to unfunded commitments. Included within the $3.9 million in provision for credit losses was $280 thousand (after-tax charge of $221 thousand), or $0.01 diluted earnings per share, which was attributable to changes in economic assumptions within the Corporation’s CECL model, which were predominately driven by COVID-19. During the nine months ended September 30, 2020, the Corporation recorded CECL related charges of $49.5 million, of which $40.5 million (after-tax charge of $32.0 million), or $1.10 diluted earnings per share, was attributable to changes in economic assumptions within the CECL model. The provision for loan and lease losses for the three and nine months ended September 30, 2019 was $1.5 million and $6.3 million, respectively.

The Corporation originated approximately 2,570 loans totaling approximately $511 million through the PPP, which was enacted as a component of the CARES Act that was signed into law on March 27, 2020. Through this program, the Corporation recorded income of $4.7 million within interest income related to these loans, in addition to recording incremental capitalized compensation of $1.3 million related to the origination of PPP loans. As of September 30, 2020, the Corporation had $9.5 million of net deferred fees on our balance sheet related to these loans.
54
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, the tax-equivalent yields earned on average assets, the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the three and nine months ended September 30, 2020 and 2019. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread represents the weighted average tax-equivalent yield on interest-earning assets less the weighted average cost of interest-bearing liabilities. The effect of net interest-free funding sources represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.

Three and nine months ended September 30, 2020 versus 2019

Net interest income on a tax-equivalent basis for the three months ended September 30, 2020 was $44.5 million, an increase of $1.2 million, or 2.7%, compared to the three months ended September 30, 2019. Net interest income on a tax-equivalent basis for the nine months ended September 30, 2020 was $131.7 million, an increase of $3.0 million, or 2.3%, compared to the same period in 2019. The increase in tax-equivalent net interest income for the three and nine months ended September 30, 2020 compared to same period in the prior year was primarily due to lower deposit and borrowing costs and growth in loans partially offset by a decrease in yield on loans.

The net interest margin, on a tax-equivalent basis, was 3.02% and 3.21% for the three and nine months ended September 30, 2020, respectively, compared to 3.52% and 3.64% for the three and nine months ended September 30, 2019, respectively. Excess liquidity reduced the net interest margin by approximately 18 and 14 basis points for the three and nine months ended September 30, 2020, respectively, compared to 13 and seven basis points for the three and nine months ended September 30, 2019, respectively. This excess liquidity was primarily driven by strong deposit balance growth over the last year. PPP loans reduced net interest margin by ten and seven basis points for the three and nine months ended September 30, 2020, respectively. Excluding the impact of excess liquidity and the impact of PPP loans, the net interest margin, on a tax-equivalent basis, was 3.30% and 3.42% for the three and nine months ended September 30, 2020, respectively, compared to 3.65% and 3.70% for the three and nine months ended September 30, 2019, respectively.


55
Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
 Three Months Ended September 30,
 20202019
(Dollars in thousands)Average
Balance		Income/
Expense		Average
Rate		Average
Balance		Income/
Expense		Average
Rate
Assets:
Interest-earning deposits with other banks$368,181 $100 0.11 %$213,623 $1,178 2.19 %
U.S. government obligations6,998 36 2.05 14,154 62 1.74 
Obligations of states and political subdivisions18,004 167 3.69 42,465 316 2.95 
Other debt and equity securities360,219 1,610 1.78 403,480 2,519 2.48 
Federal Home Loan Bank, Federal Reserve Bank and other stock28,651 419 5.82 30,857 519 6.67 
Total interest-earning deposits, investments and other interest-earning assets782,053 2,332 1.19 704,579 4,594 2.59 
Commercial, financial and agricultural loans807,376 7,330 3.61 800,006 9,952 4.94 
Paycheck Protection Program loans500,549 2,811 2.23 — — — 
Real estate—commercial and construction loans2,358,971 23,547 3.97 1,966,593 23,439 4.73 
Real estate—residential loans1,009,407 10,380 4.09 956,224 11,570 4.80 
Loans to individuals28,663 309 4.29 31,504 490 6.17 
Municipal loans and leases267,364 2,839 4.22 333,734 3,413 4.06 
Lease financings97,707 1,662 6.77 82,424 1,482 7.13 
Gross loans and leases5,070,037 48,878 3.84 4,170,485 50,346 4.79 
Total interest-earning assets5,852,090 51,210 3.48 4,875,064 54,940 4.47 
Cash and due from banks56,715 53,019 
Allowance for credit losses, loans and leases(87,046)(33,152)
Premises and equipment, net55,755 57,881 
Operating lease right-of-use assets33,875 35,238 
Other assets354,216 329,817 
Total assets$6,265,605 $5,317,867 
Liabilities:
Interest-bearing checking deposits$725,580 $468 0.26 $497,185 $678 0.54 
Money market savings1,116,628 897 0.32 1,004,806 4,112 1.62 
Regular savings901,716 449 0.20 805,632 963 0.47 
Time deposits525,656 2,214 1.68 715,520 3,681 2.04 
Total time and interest-bearing deposits3,269,580 4,028 0.49 3,023,143 9,434 1.24 
Short-term borrowings130,359 97 0.30 32,375 94 1.15 
Long-term debt208,776 742 1.41 167,338 866 2.05 
Subordinated notes155,945 1,891 4.82 94,724 1,261 5.28 
Total borrowings495,080 2,730 2.19 294,437 2,221 2.99 
Total interest-bearing liabilities3,764,660 6,758 0.71 3,317,580 11,655 1.39 
Noninterest-bearing deposits1,760,818 1,265,027 
Operating lease liabilities37,170 38,364 
Accrued expenses and other liabilities41,010 37,373 
Total liabilities5,603,658 4,658,344 
Shareholders’ Equity:
Common stock157,784 157,784 
Additional paid-in capital296,272 294,138 
Retained earnings and other equity207,891 207,601 
Total shareholders’ equity661,947 659,523 
Total liabilities and shareholders’ equity$6,265,605 $5,317,867 
Net interest income$44,452 $43,285 
Net interest spread2.77 3.08 
Effect of net interest-free funding sources0.25 0.44 
Net interest margin3.02 %3.52 %
Ratio of average interest-earning assets to average interest-bearing liabilities155.45 %146.95 %
Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs and purchase accounting adjustments. Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the three months ended September 30, 2020 and 2019 have been calculated using the Corporation's federal applicable rate of 21%.
56

 Nine Months Ended September 30,
 20202019
(Dollars in thousands)Average
Balance		Income/
Expense		Average
Rate		Average
Balance		Income/
Expense		Average
Rate
Assets:
Interest-earning deposits with other banks$267,023 $492 0.25 %$120,231 $2,016 2.24 %
U.S. government obligations7,176 109 2.03 17,148 217 1.69 
Obligations of states and political subdivisions26,019 696 3.57 55,220 1,369 3.31 
Other debt and equity securities379,729 6,460 2.27 394,834 7,722 2.61 
Federal Home Loan Bank, Federal Reserve Bank and other stock29,689 1,308 5.88 31,713 1,640 6.91 
Total interest-earning deposits, investments and other interest-earning assets709,636 9,065 1.71 619,146 12,964 2.80 
Commercial, financial and agricultural loans815,178 23,291 3.82 810,321 31,299 5.16 
Paycheck Protection Program loans291,173 4,939 2.27 — — — 
Real estate—commercial and construction loans2,244,143 70,574 4.20 1,900,901 68,108 4.79 
Real estate—residential loans1,001,904 31,702 4.23 945,477 34,465 4.87 
Loans to individuals29,251 1,043 4.76 31,985 1,518 6.35 
Municipal loans and leases291,845 9,081 4.16 333,816 9,939 3.98 
Lease financings92,780 4,808 6.92 81,698 4,376 7.16 
Gross loans and leases4,766,274 145,438 4.08 4,104,198 149,705 4.88 
Total interest-earning assets5,475,910 154,503 3.77 4,723,344 162,669 4.60 
Cash and due from banks51,544 48,231 
Allowance for credit losses, loans and leases(66,977)(31,714)
Premises and equipment, net55,967 58,640 
Operating lease right-of-use assets34,278 36,056 
Other assets342,196 330,782 
Total assets$5,892,918 $5,165,339 
Liabilities:
Interest-bearing checking deposits$642,935 $1,636 0.34 $477,848 $1,849 0.52 
Money market savings1,079,279 4,653 0.58 968,894 12,094 1.67 
Regular savings863,772 1,716 0.27 804,457 2,790 0.46 
Time deposits568,517 7,801 1.83 686,794 10,015 1.95 
Total time and interest-bearing deposits3,154,503 15,806 0.67 2,937,993 26,748 1.22 
Short-term borrowings110,689 325 0.39 65,804 949 1.93 
Long-term debt 196,053 2,268 1.55 157,484 2,441 2.07 
Subordinated notes115,376 4,372 5.06 94,664 3,783 5.34 
Total borrowings422,118 6,965 2.20 317,952 7,173 3.02 
Total interest-bearing liabilities3,576,621 22,771 0.85 3,255,945 33,921 1.39 
Noninterest-bearing deposits1,571,629 1,184,909 
Operating lease liabilities37,538 39,103 
Accrued expenses and other liabilities41,691 39,735 
Total liabilities5,227,479 4,519,692 
Shareholders’ Equity:
Common stock157,784 157,784 
Additional paid-in capital295,759 293,465 
Retained earnings and other equity211,896 194,398 
Total shareholders’ equity665,439 645,647 
Total liabilities and shareholders’ equity$5,892,918 $5,165,339 
Net interest income$131,732 $128,748 
Net interest spread2.92 3.21 
Effect of net interest-free funding sources0.29 0.43 
Net interest margin3.21 %3.64 %
Ratio of average interest-earning assets to average interest-bearing liabilities153.10 %145.07 %
Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs and purchase accounting adjustments. Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the nine months ended September 30, 2020 and 2019 have been calculated using the Corporation's federal applicable rate of 21%.
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Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.
Three Months EndedNine Months Ended
 September 30, 2020 Versus 2019September 30, 2020 Versus 2019
(Dollars in thousands)Volume
Change		Rate
Change		TotalVolume
Change		Rate
Change		Total
Interest income:
Interest-earning deposits with other banks$502 $(1,580)$(1,078)$1,190 $(2,714)$(1,524)
U.S. government obligations(35)9 (26)(145)37 (108)
Obligations of states and political subdivisions(214)65 (149)(773)100 (673)
Other debt and equity securities(250)(659)(909)(287)(975)(1,262)
Federal Home Loan Bank, Federal Reserve Bank and other stock(36)(64)(100)(100)(232)(332)
Interest on deposits, investments and other earning assets(33)(2,229)(2,262)(115)(3,784)(3,899)
Commercial, financial and agricultural loans91 (2,713)(2,622)186 (8,194)(8,008)
Paycheck Protection Program loans2,811 — 2,811 4,939 — 4,939 
Real estate—commercial and construction loans4,228 (4,120)108 11,444 (8,978)2,466 
Real estate—residential loans609 (1,799)(1,190)1,965 (4,728)(2,763)
Loans to individuals(41)(140)(181)(121)(354)(475)
Municipal loans and leases(704)130 (574)(1,292)434 (858)
Lease financings259 (79)180 582 (150)432 
Interest and fees on loans and leases7,253 (8,721)(1,468)17,703 (21,970)(4,267)
Total interest income7,220 (10,950)(3,730)17,588 (25,754)(8,166)
Interest expense:
Interest-bearing checking deposits231 (441)(210)537 (750)(213)
Money market savings409 (3,624)(3,215)1,243 (8,684)(7,441)
Regular savings100 (614)(514)184 (1,258)(1,074)
Time deposits(880)(587)(1,467)(1,632)(582)(2,214)
Interest on time and interest-bearing deposits(140)(5,266)(5,406)332 (11,274)(10,942)
Short-term borrowings113 (110)3 411 (1,035)(624)
Long-term debt184 (308)(124)520 (693)(173)
Subordinated notes 749 (119)630 795 (206)589 
Interest on borrowings1,046 (537)509 1,726 (1,934)(208)
Total interest expense906 (5,803)(4,897)2,058 (13,208)(11,150)
Net interest income$6,314 $(5,147)$1,167 $15,530 $(12,546)$2,984 

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Interest Income

Three and nine months ended September 30, 2020 versus 2019

Interest income on a tax-equivalent basis for the three months ended September 30, 2020 was $51.2 million, a decrease of $3.7 million, or 6.8%, from the same period in the prior year. Interest income on a tax-equivalent basis for the nine months ended September 30, 2020 was $154.5 million, a decrease of $8.2 million, or 5.0%, from the same period in 2019. The decrease in interest income for the three and nine months ended September 30, 2020 was primarily due to the Federal Reserve interest rate reductions of 75 basis points in the third and fourth quarters of 2019 and 150 basis points in the first quarter of 2020, offset by increases in average gross loans and leases held for investment.

Interest Expense

Three and nine months ended September 30, 2020 versus 2019

Interest expense for the three months ended September 30, 2020 was $6.8 million, a decrease of $4.9 million, or 42.0%, from the same period in 2019. Interest expense for the nine months ended September 30, 2020 was $22.8 million, a decrease of $11.2 million, or 32.9%, from the same period in the prior year. Interest expense decreased for the three and nine months ended September 30, 2020 primarily due to the Federal Reserve interest rate decreases in 2019 and 2020, partially offset by growth in average interest-bearing liabilities of $447.1 million and $320.7 million, during the three and nine months ended September 30, 2020, respectively.

Provision for Credit Losses

The provision for credit losses for the three months ended September 30, 2020 was $3.9 million compared to $1.5 million for the same period in the prior year. Net loan and lease recoveries for the three months ended September 30, 2020 were $35 thousand compared to net loan and lease charge-offs of $468 thousand for the same period in the prior year. The provision for credit losses for the nine months ended September 30, 2020 was $49.5 million compared to $6.3 million for the same period in the prior year. Net loan and lease charge-offs for the nine months ended September 30, 2020 were $4.0 million compared to $2.0 million for the same period in the prior year. Refer to the Executive Overview for discussion of the drivers of provision expense for the three and nine months ended September 30, 2020 and 2019. Refer to Asset Quality for discussion of the drivers for the increase in charge-offs for the three and nine months ended September 30, 2020 and 2019.

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Noninterest Income

The following table presents noninterest income for the three and nine months ended September 30, 2020 and 2019:
Three Months EndedNine Months Ended
 September 30,ChangeSeptember 30,Change
(Dollars in thousands)20202019AmountPercent20202019AmountPercent
Trust fee income$1,915 $1,973 $(58)(2.9 %)$5,729 $5,914 $(185)(3.1 %)
Service charges on deposit accounts1,187 1,513 (326)(21.5)3,474 4,395 (921)(21.0)
Investment advisory commission and fee income4,005 4,032 (27)(0.7)11,800 11,876 (76)(0.6)
Insurance commission and fee income3,776 3,877 (101)(2.6)12,575 12,962 (387)(3.0)
Other service fee income2,093 2,255 (162)(7.2)5,451 7,112 (1,661)(23.4)
Bank owned life insurance income741 743 (2)(0.3)2,207 2,438 (231)(9.5)
Net gain on sales of investment securities57 33 24 72.7817 41 776 NM
Net gain on mortgage banking activities5,860 1,629 4,231 NM12,119 2,908 9,211 NM
Other income2,171 544 1,627 NM4,017 1,606 2,411 NM
Total noninterest income$21,805 $16,599 $5,206 31.4 %$58,189 $49,252 $8,937 18.1 %
Three and nine months ended September 30, 2020 versus 2019

Noninterest income for the three months ended September 30, 2020 was $21.8 million, an increase of $5.2 million, or 31.4%, from the three months ended September 30, 2019. Noninterest income for the nine months ended September 30, 2020 was $58.2 million, an increase of $8.9 million, or 18.1%, from the nine months ended September 30, 2019.

The net gain on mortgage banking activities increased $4.2 million, or 259.7%, for the three months ended September 30, 2020 and $9.2 million, or 316.7%, for the nine months ended September 30, 2020, due to an increase in volume and an expansion of margins. Net gain on sales of investment securities increased $776 thousand for the nine months ended September 30, 2020 from the comparable period in the prior year primarily due to a $652 thousand gain on the sale of $58.3 million of agency backed mortgage backed securities in the first quarter of 2020.

Other income increased $1.6 million, or 299.1%, for the three months ended September 30, 2020 and $2.4 million, or 150.1%, for the nine months ended September 30, 2020 from the comparable periods in the prior year. Fees on risk participation agreements for interest rate swaps increased $2.2 million for the three months ended September 30, 2020 and $3.4 million for the nine months ended September 30, 2020 from the comparable periods in the prior year, driven by increased customer activity due to the current rate environment. Net gains or losses related to valuations and sales of other real estate owned decreased $323 thousand for the three months ended September 30, 2020 and $268 thousand for the nine months ended September 30, 2020 from the comparable periods in the prior year, primarily due to a $300 thousand valuation adjustment on other real estate owned for a property that is under agreement of sale and is expected to be sold in the fourth quarter of 2020. Gain on sale of small business administration (SBA) loans decreased $52 thousand for the three months ended September 30, 2020 and $346 thousand for the nine months ended September 30, 2020 from the comparable periods in the prior year due to decreased SBA loan sale activity. Equity securities measured at fair value decreased $21 thousand for the three months ended September 30, 2020 and $333 thousand for the nine months ended September 30, 2020.

Service charges on deposit accounts decreased $326 thousand, or 21.5%, for the three months ended September 30, 2020 and $921 thousand, or 21.0%, for the nine months ended September 30, 2020 from the comparable periods in the prior year primarily due to the waiving of certain deposit service charges for customers in response to COVID-19 during the second quarter of 2020 and a decline in customer activity in the third quarter of 2020.

Other service fee income decreased $1.7 million, or 23.4%, for the nine months ended September 30, 2020 from the comparable period in the prior year. Mortgage servicing right amortization increased $1.1 million for the nine months ended September 30, 2020 from the comparable period in the prior year driven by the decline in interest rates and their impact on prepayment activity. Additionally, valuation allowance adjustments of $206 thousand during the nine months ended September 30, 2020 were recorded against mortgage servicing right assets due to declines in fair value. Interchange income decreased
60
$320 thousand for the nine months ended September 30, 2020 from the comparable period in the prior year due to decreased customer transaction activity.

Noninterest Expense

The following table presents noninterest expense for the three and nine months ended September 30, 2020 and 2019:
Three Months EndedNine Months Ended
 September 30,ChangeSeptember 30,Change
(Dollars in thousands)20202019AmountPercent20202019AmountPercent
Salaries, benefits and commissions$24,059 $22,758 $1,301 5.7 %$69,595 $66,356 $3,239 4.9 %
Net occupancy2,609 2,475 134 5.4 7,661 7,687 (26)(0.3)
Equipment972 1,088 (116)(10.7)2,890 3,143 (253)(8.0)
Data processing2,862 2,624 238 9.1 8,372 7,765 607 7.8 
Professional fees1,321 1,517 (196)(12.9)3,902 4,088 (186)(4.5)
Marketing and advertising463 558 (95)(17.0)1,400 1,884 (484)(25.7)
Deposit insurance premiums707 (444)1,151 NM1,826 438 1,388 NM
Intangible expenses283 378 (95)(25.1)934 1,221 (287)(23.5)
Other expense5,251 5,313 (62)(1.2)16,684 16,028 656 4.1 
Total noninterest expense$38,527 $36,267 $2,260 6.2 %$113,264 $108,610 $4,654 4.3 %
Three and nine months ended September 30, 2020 versus 2019

Noninterest expense for the three months ended September 30, 2020 was $38.5 million, an increase of $2.3 million, or 6.2%, from the three months ended September 30, 2019. Noninterest expense for the nine months ended September 30, 2020 was $113.3 million, an increase of $4.7 million, or 4.3%, from the nine months ended September 30, 2019.

Salaries, benefits and commissions increased $1.3 million, or 5.7%, for the three months ended September 30, 2020 and increased $3.2 million, or 4.9%, for the nine months ended September 30, 2020 from the comparable periods in the prior year. The increase for the three and nine months ended September 30, 2020 was attributable to additional staff hired, primarily during 2019, to support revenue generation across all business lines, expansion of our commercial lending groups in the first and second quarters of 2019, annual merit increases and increased variable compensation due to strong mortgage banking activity. Deposit insurance premiums increased $1.2 million, or 259.2%, for the three months ended September 30, 2020 and increased $1.4 million, or 316.9%, for the nine months ended September 30, 2020 from the comparable periods in the prior year primarily due to an FDIC small bank assessment credit of $988 thousand, which was recognized during the third quarter of 2019 and an increased assessment base for 2020 due to asset growth.

Tax Provision

The provision for income taxes for the three months ended September 30, 2020 and 2019 was $5.1 million and $3.8 million, respectively, at effective tax rates of 21.9% and 17.6%, respectively. The provision for income taxes for the nine months ended September 30, 2020 and 2019 was $4.2 million and $11.0 million, respectively, at effective tax rates of 16.7% and 17.9%, respectively. The effective tax rate of 16.7% for the nine months ended September 30, 2020, was calculated using the annual effective tax rate methodology and reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. The calculation of the effective tax rate for income taxes for the six months ended June 30, 2020 was based on the actual effective tax rate for the year-to-date period, given the uncertainty of the impact of COVID-19 and its potential impact on the Corporation's estimate of the annual effective tax rate.
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Financial Condition

Assets

The following table presents assets at the dates indicated:
 At September 30, 2020At December 31, 2019Change
(Dollars in thousands)AmountPercent
Cash and interest-earning deposits$387,676 $125,128 $262,548 NM
Investment securities, net of allowance for credit losses368,830 441,599 (72,769)(16.5)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost29,723 28,254 1,469 5.2 
Loans held for sale14,465 5,504 8,961 NM
Loans and leases held for investment5,211,856 4,386,836 825,020 18.8 
Allowance for credit losses, loans and leases(91,870)(35,331)(56,539)NM
Premises and equipment, net55,410 56,676 (1,266)(2.2)
Operating lease right-of-use assets34,573 34,418 155 0.5 
Goodwill and other intangibles, net181,574 182,843 (1,269)(0.7)
Bank owned life insurance116,985 114,778 2,207 1.9 
Accrued interest receivable and other assets73,609 40,219 33,390 83.0 
Total assets$6,382,831 $5,380,924 $1,001,907 18.6 %
Cash and Interest-Earning Deposits

Cash and interest-earning deposits increased $262.5 million, or 209.8%, from December 31, 2019, primarily due to increased interest earning deposits at the Federal Reserve Bank of $247.5 million.

Investment Securities

Total investments securities at September 30, 2020 decreased $72.8 million from December 31, 2019. Sales of $76.1 million, maturities and pay-downs of $75.5 million, calls of $25.3 million, a provision for credit losses of $693 thousand and net amortization of purchased premiums and discounts of $1.9 million were partially offset by purchases of $103.4 million and increases in the fair value of available-for-sale investment securities of $2.8 million.

Loans and Leases

Gross loans and leases held for investment increased $825.0 million, or 18.8%, from December 31, 2019. The growth in gross loans and leases held for investment was due to PPP loans outstanding of $501.6 million, and increases in commercial real estate loans partially offset by a decrease in commercial loans.

Asset Quality

The Bank's strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans and leases. Performance of the loan and lease portfolio is monitored on a regular basis by Bank management and lending officers.

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

At September 30, 2020, nonaccrual loans and leases and accruing troubled debt restructured loans were $30.1 million and had a related allowance for credit losses on loans and leases of $1.1 million. At December 31, 2019, loans and leases that were considered to be impaired was $38.4 million. The related reserve for loan losses was $2.1 million. Individual reserves have been established based on current facts and management's judgements about the ultimate outcome of these credits. During the first quarter of 2020, three residential real estate loans totaling $710 thousand and two home equity loans totaling $741
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thousand were returned to accruing status as these loans have maintained a period of repayment performance in accordance with the Corporation's policy. The second quarter of 2020 included a charge-off of $2.7 million and provision for credit losses of $1.3 million related to one commercial real estate loan, which was transferred from nonaccrual loans to other real estate owned. As of September 30, 2020, the property was carried at $8.1 million in other real estate owned. The property is under an agreement of sale and is expected to be sold during the fourth quarter of 2020. The amount of the individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits.

Other real estate owned was $8.3 million and $516 thousand at September 30, 2020 and December 31, 2019, respectively. During the nine months ended September 30, 2020, other real estate owned increased $8.1 million related to the commercial real estate loan discussed above. This increase was offset by a $300 thousand write-down on one property based on an agreement of sale that is expected to be sold in the fourth quarter of 2020. In addition, a residential real estate property with a carrying value of $71 thousand was sold for a gain of $4 thousand.

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

The following table details information pertaining to the Corporation’s nonperforming assets at the dates indicated.
(Dollars in thousands)At September 30, 2020At December 31, 2019
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:
Loans held for investment:
Commercial, financial and agricultural$3,809 $3,442 
Real estate—commercial20,464 27,928 
Real estate—construction— 257 
Real estate—residential5,494 6,445 
Lease financings252 506 
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*30,019 38,578 
Accruing troubled debt restructured loans and lease modifications not included in the above53 54 
Accruing loans and leases 90 days or more past due:
Commercial, financial and agricultural27 20 
Real estate—commercial1,539 — 
Real estate—residential1,255 — 
Loans to individuals23 74 
Lease financings729 49 
Total accruing loans and leases, 90 days or more past due3,573 143 
Total nonperforming loans and leases33,645 38,775 
Other real estate owned8,270 516 
Total nonperforming assets$41,915 $39,291 
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment0.58 %0.88 %
Nonperforming loans and leases / loans and leases held for investment0.65 %0.88 %
Nonperforming assets / total assets0.66 %0.73 %
Allowance for credit losses, loans and leases$91,870 $35,331 
Allowance for credit losses, loans and leases / loans and leases held for investment1.76 %0.81 %
Allowance for credit losses, loans and leases / nonaccrual loans and leases held for investment306.04 %91.58 %
Allowance for credit losses, loans and leases / nonperforming loans and leases held for investment273.06 %91.12 %
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table$14,206 $13,817 

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The following table provides additional information on the Corporation’s nonaccrual loans held for investment:
(Dollars in thousands)At September 30, 2020At December 31, 2019
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications$30,019 $38,578 
Nonaccrual loans and leases with partial charge-offs3,435 1,966 
Life-to-date partial charge-offs on nonaccrual loans and leases1,958 1,320 
Specific reserves on individually analyzed loans1,092 2,108 
The Corporation modified certain loans and leases via principal and/or interest deferrals in accordance with Section 4013 of the CARES Act 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. As of October 16, 2020, there were approximately 165 loan and lease modifications outstanding with principal balances totaling $191.0 million. As of June 30, 2020, there were approximately 1,420 loan and lease modifications outstanding with principal balances totaling $720.1 million.

Table 4—Loan Concentration

The following table provides summarized detail related to outstanding commercial loan balances, excluding PPP loans, segmented by industry description, PPP loans segmented by industry description, and certain loan modifications segmented by industry description for commercial loans and segmented by loan category for other loan types as of September 30, 2020:
(Dollars in thousands)As of September 30, 2020As of October 16, 2020
Industry DescriptionTotal Outstanding Balance (excl PPP)% of Commercial Loan PortfolioPPP $ (1)% of Portfolio with PPP Loans (2)$ Balance of Modified Loans (3)Modified Loans as a % of Portfolio (3) (4)
CRE - Retail$295,654 7.6 %$239 — %$45,121 15.3 %
Animal Production252,752 6.5 706 2.0 135 0.1 
CRE - Office240,521 6.2 — — 1,702 0.7 
CRE - 1-4 Family Residential Investment237,378 6.1 1,282 0.2 212 0.1 
CRE - Multi-family204,488 5.3 — — 1,281 0.6 
Real Estate Lenders, Secondary Market Financing189,743 4.9 4,318 27.8 — — 
Hotels & Motels (Accommodation)175,894 4.5 2,407 49.6 56,288 32.0 
Nursing and Residential Care Facilities160,238 4.1 7,935 26.4 — — 
CRE - Industrial / Warehouse158,356 4.1 139 3.8 — — 
CRE - Mixed-Use - Residential111,613 2.9 — — 15,440 13.8 
Specialty Trade Contractors111,201 2.9 67,508 14.3 — — 
Professional, Scientific, and Technical Services93,463 2.4 70,163 29.4 63 0.1 
CRE - Medical Office88,557 2.3 — — 9,864 11.1 
Homebuilding (tract developers, remodelers)85,177 2.2 15,049 5.2 — — 
Education77,676 2.0 15,577 26.7 1,071 1.4 
Merchant Wholesalers, Durable Goods73,251 1.9 20,726 22.9 — — 
Fabricated Metal Product Manufacturing65,549 1.7 12,860 3.5 — — 
Crop Production62,689 1.6 289 0.5 — — 
Motor Vehicle and Parts Dealers61,306 1.6 11,623 2.9 — — 
Food Services and Drinking Places59,261 1.5 15,998 25.7 1,298 2.2 
Administrative and Support Services55,217 1.4 28,943 32.9 — — 
Industries with >$50 million in outstandings$2,859,984 73.7 %$275,762 11.1 %$132,475 4.6 %
Industries with <$50 million in outstandings$1,015,850 26.3 %$225,818 17.3 %$33,566 3.3 %
Total Commercial Loans$3,875,834 100.0 %$501,580 12.7 %$166,041 4.3 %
Consumer Loans and Lease FinancingsTotal Outstanding BalancePPP $ (1)$ Balance of Modified Loans (3)Modified Loans as a % of Portfolio (3) (4)
Real Estate-Residential Secured for Personal Purpose$474,688 — $22,937 4.8 %
Real Estate-Home Equity Secured for Personal Purpose172,448 — 1,633 0.9 
Loans to Individuals27,771 — 184 0.7 
Lease Financings159,535 — 232 0.1 
Total Consumer Loans and Lease Financings$834,442 $— $24,986 3.0 %
Total$4,710,276 $501,580 $191,027 4.1 %
(1) Includes ($9.5) million of net deferred fees.
(2) Represents weighted average percent of the portfolio which received a PPP loan.
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(3) Loan modifications referenced above were made in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus and therefore were not classified as TDRs as of October 16, 2020.
(4) Balance of modified loans as of October 16, 2020 as a percentage of portfolio loans at September 30, 2020.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions. The Corporation has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The amortization of intangible assets was $1.1 million and $955 thousand for the three months ended September 30, 2020 and 2019, respectively. The amortization of intangible assets was $3.3 million and $2.5 million for the nine months ended September 30, 2020 and 2019, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at September 30, 2020 and December 31, 2019.

The Corporation also has goodwill with a net carrying value of $172.6 million at September 30, 2020 and December 31, 2019, which is deemed to be an indefinite intangible asset and is not amortized. The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the nine months ended September 30, 2020 and 2019. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Liabilities
The following table presents liabilities at the dates indicated:
(Dollars in thousands)At September 30, 2020At December 31, 2019Change
AmountPercent
Deposits$5,211,603 $4,360,075 $851,528 19.5 %
Short-term borrowings17,681 18,680 (999)(5.3)
Long-term debt205,010 150,098 54,912 36.6 
Subordinated notes193,413 94,818 98,595 NM
Operating lease liabilities37,891 37,617 274 0.7 
Accrued interest payable and other liabilities48,126 44,514 3,612 8.1 
Total liabilities$5,713,724 $4,705,802 $1,007,922 21.4 %

Deposits

Total deposits increased $851.5 million, or 19.5%, from December 31, 2019, primarily due to increases in commercial and consumer deposits.

Borrowings

Total borrowings increased $152.5 million, or 57.9%, from December 31, 2019. Long-term borrowings increased $54.9 million primarily due to an increase in long-term FHLB borrowings to fund future loan growth. Subordinated notes increased from the issuance of $100.0 million aggregate principal amount fixed-to-floating rate subordinated notes on August 5, 2020. Refer to Note 7 for further discussion on the issuance of the 2020 Notes.

Other Liabilities

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve for these off-balance sheet credits was $3.0 million and $420 thousand at September 30, 2020 and December 31, 2019. Refer to the Executive Overview for discussion of the increase of $2.6 million.
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Shareholders’ Equity

The following table presents total shareholders’ equity at the dates indicated:
(Dollars in thousands)At September 30, 2020At December 31, 2019Change
AmountPercent
Common stock$157,784 $157,784 $— — %
Additional paid-in capital296,599 294,999 1,600 0.5 
Retained earnings281,026 288,803 (7,777)(2.7)
Accumulated other comprehensive loss(19,100)(21,730)2,630 (12.1)
Treasury stock(47,202)(44,734)(2,468)5.5 
Total shareholders’ equity$669,107 $675,122 $(6,015)(0.9 %)

Total shareholders' equity decreased $6.0 million, or 0.9%, from December 31, 2019. Retained earnings at September 30, 2020 decreased by $7.8 million primarily due to a $11.3 million decrease upon adoption of CECL and a $17.5 million decrease due to cash dividends declared, partially offset by net income of $21.0 million for the nine months ended September 30, 2020. Accumulated other comprehensive loss decreased by $2.6 million mainly attributable to increases in the fair value of available-for-sale investment securities of $2.2 million, net of tax. Treasury stock increased $2.5 million from December 31, 2019 primarily related to repurchases of $4.4 million of stock offset by $2.0 million of stock issued under dividend reinvestment and employee stock purchase plans.

Discussion of Segments

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

The Banking segment reported pre-tax income of $22.7 million and $19.9 million for the three months ended September 30, 2020 and 2019, respectively and pre-tax income of $22.2 million and $57.1 million for the nine months ended September 30, 2020 and 2019, respectively. See the section of this MD&A under the headings “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for Credit Losses” for a discussion of the Banking Segment.

The Wealth Management segment reported pre-tax income of $2.0 million for the three months ended September 30, 2020 and 2019, and $5.4 million and $5.8 million for the nine months ended September 30, 2020 and 2019, respectively. Noninterest income was $6.0 million for the three months ended September 30, 2020 and 2019, and $17.7 million and $17.9 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in noninterest income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to a decline in the value of assets under management and supervision, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management and supervision balance. Assets under management and supervision were $3.6 billion as of September 30, 2020 and 2019, $3.6 billion and $3.7 billion as of June 30, 2020 and 2019, respectively, and $3.8 billion as of December 31, 2019. The decrease in assets under management and supervision of $44.1 million for the period from December 31, 2019 to September 30, 2020 was primarily due to the general downturn in the equity markets driven by the impact of COVID-19.

The Insurance segment reported pre-tax income of $822 thousand and $853 thousand for the three months ended September 30, 2020 and 2019, respectively, and $3.5 million and $3.7 million for the nine months ended September 30, 2020 and 2019, respectively. Noninterest income was $3.9 million and $4.0 million for the three months ended September 30, 2020 and 2019, respectively, and $13.0 million and $13.5 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in pre-tax income and noninterest income for the nine months ended September 30, 2020 was primarily due to a decrease in contingent commission income, which was $1.4 million and $1.7 million for the nine months ended September 30, 2020 and 2019, respectively.

Capital Adequacy

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

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Under current rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, which requires Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50%. The Corporation and the Bank were in compliance with these requirements at September 30, 2020.
Table 5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of September 30, 2020 and December 31, 2019 under regulatory capital rules were as follows.
 ActualFor Capital Adequacy
Purposes		To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions
(Dollars in thousands)AmountRatioAmountRatioAmount  Ratio  
At September 30, 2020
Total Capital (to Risk-Weighted Assets):
Corporation$786,638 15.35 %$409,867 8.00 %$512,334 10.00 %
Bank608,871 11.94 408,080 8.00 510,100 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation539,115 10.52 307,400 6.00 409,867 8.00 
Bank545,037 10.68 306,060 6.00 408,080 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation539,115 10.52 230,550 4.50 333,017 6.50 
Bank545,037 10.68 229,545 4.50 331,565 6.50 
Tier 1 Capital (to Average Assets):
Corporation539,115 8.97 240,383 4.00 300,478 5.00 
Bank545,037 9.10 239,674 4.00 299,592 5.00 
At December 31, 2019
Total Capital (to Risk-Weighted Assets):
Corporation$655,010 13.78 %$380,276 8.00 %$475,344 10.00 %
Bank552,142 11.66 378,724 8.00 473,405 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation524,137 11.03 285,207 6.00 380,276 8.00 
Bank516,087 10.90 284,043 6.00 378,724 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation524,137 11.03 213,905 4.50 308,974 6.50 
Bank516,087 10.90 213,032 4.50 307,713 6.50 
Tier 1 Capital (to Average Assets):
Corporation524,137 10.02 209,330 4.00 261,663 5.00 
Bank516,087 9.90 208,589 4.00 260,737 5.00 
At September 30, 2020 and December 31, 2019, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. At September 30, 2020, the Bank is categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as of the beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts are calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the
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transitional amounts are phased in over each of the next two years and at the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital.
Additionally, in March 2020, the Office of the Comptroller of the Currency, Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation announced the 2020 CECL interim final rule (IFR) designed to allow eligible firms to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the coronavirus (COVID-19). The 2020 CECL IFR allows Corporations that adopt CECL before December 31, 2020 to defer 100 percent of the day one transitional amounts described above through December 31, 2021 for regulatory capital purposes. Additionally, the 2020 CECL IFR allows electing firms to defer through December 31, 2021 the approximate portion of the post day-one allowance attributable to CECL relative to the incurred loss methodology. This is calculated by applying a 25% scaling factor to the CECL provision.
The Corporation adopted the transition guidance and the 2020 CECL IFR relief and applied these effects to regulatory capital. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of CECL.

Asset/Liability Management

The primary functions of Asset/Liability Management are to assure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities. Management's objective with regard to interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.

The Corporation uses gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a simulation model to measure short-term rate exposure. The Corporation runs various earnings simulation scenarios to quantify the impact of declining or rising interest rates on net interest income over a one-year and two-year horizon. The simulation uses expected cash flows and repricing characteristics for all financial instruments at a point in time and incorporates company-developed, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets that banks hold tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold tend to increase in value.

Liquidity

The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks. Liquidity refers to the Corporation’s ability to ensure that sufficient cash flows and liquid assets are available to satisfy demand for loans, deposit withdrawals, repayment of borrowings and certificates of deposit at maturity, operating expense, and capital expenditures. The Corporation manages liquidity risk by measuring and monitoring liquidity sources and estimated funding needs on a daily basis. The Corporation has a contingency funding plan in place to address liquidity needs in the event of an institution-specific or a systemic financial crisis.

Sources of Funds

Core deposits continue to be the largest significant funding source for the Corporation. These deposits are primarily generated from individuals, businesses, municipalities and non-profit customers located in our primary service areas. The Corporation faces increased competition for these deposits from a large array of financial market participants, including banks, credit unions, savings institutions, mutual funds, security dealers and others.

As part of its diversified funding strategy, the Corporation also utilizes a mix of short-term and long-term wholesale funding providers. Wholesale funding includes federal funds purchases from correspondent banks, secured borrowing lines from the Federal Home Loan Bank of Pittsburgh, the Federal Reserve Bank of Philadelphia and, at times, brokered deposits and other similar sources.

Cash Requirements

The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The most significant contractual obligation, in both the under and over one-year time period, is for the Bank to repay certificates of deposit and long-term borrowings. The Bank anticipates meeting these obligations by continuing to provide convenient depository and cash management services through its financial center network,
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thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.

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

Recent Accounting Pronouncements

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

Recent Regulatory and Legislative Developments

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

On March 22, 2020, the federal banking agencies issued an interagency statement to provide additional guidance to financial institutions who are working with borrowers affected by COVID-19. The statement provided that agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”). The agencies have confirmed with staff of the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

The statement further provided that working with borrowers that are current on existing loans, either individually or as part of a program for creditworthy borrowers who are experiencing short-term financial or operational problems as a result of COVID-19, generally would not be considered TDRs. For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

The statement indicated that the agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs.

In addition, the statement noted that efforts to work with borrowers of one- to-four family residential mortgages, where the loans are prudently underwritten, and not past due or carried on non-accrual status, will not result in the loans being considered restructured or modified for the purposes of their risk-based capital rules. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) and stimulate the economy. The law had several provisions relevant to financial institutions, including:

•Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring and also allowing them to suspend the corresponding impairment determination for accounting purposes.

•An option to delay the implementation of the accounting standard for current expected credit losses (CECL) until the earlier of December 31, 2020 or when the President declares that the coronavirus emergency is terminated.

•The ability of a borrower of a federally backed mortgage loan (VA, FHA, USDA, Freddie and Fannie) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance will be granted for up to 180 days, which can be extended for an additional 180-day
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period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract will accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally backed mortgage is prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020.

•The ability of a borrower of a multi-family federally backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance to the borrower’s servicer affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. A forbearance will be granted for up to 30 days, which can be extended for up to two additional 30-day periods upon the request of the borrower. During the time of the forbearance, the multi-family borrower cannot evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent. Additionally, a multi-family borrower that receives a forbearance may not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on which the borrower provides the tenant notice to vacate and may not issue a notice to vacate until after the expiration of the forbearance.

The Paycheck Protection Program

The CARES Act provides approximately $350 billion to fund loans to eligible small businesses through the Small Business Administration’s (“SBA”) 7(a) loan guaranty program. These loans will be 100% federally guaranteed (principal and interest) through December 31, 2020. An eligible business can apply for a Paycheck Protection Program (“PPP”) loan up to 2.5 times its average monthly “payroll costs" limited to a loan amount of $10.0 million. The proceeds of the loan can be used for payroll (excluding individual employee compensation over $100,000 per year), mortgage, interest, rent, insurance, utilities and other qualifying expenses. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.

The Paycheck Protection Program Lending Facility

On April 9, 2020, the Federal Reserve Board created the Paycheck Protection Program Lending Facility (the “Facility”) to facilitate lending by eligible borrowers to small businesses under the Paycheck Protection Program. Under the Facility, the Federal Reserve Banks will lend to depository institutions that originated PPP loans on a non-recourse basis, taking the PPP Loans as collateral. Only PPP loans guaranteed by the SBA are eligible to serve as collateral for the Facility. The maturity date of an extension of credit under the Facility will equal the maturity date of the PPP Loan pledged to secure the extension of credit. The maturity date of the Facility’s extension of credit will be accelerated if the underlying PPP Loan goes into default and the eligible borrower sells the PPP Loan to the SBA to realize on the SBA guarantee. The maturity date of the Facility’s extension of credit also will be accelerated to the extent of any loan forgiveness reimbursement received by the eligible borrower from the SBA. Extensions of credit under the Facility will be made at a rate of 35 basis points. There are no fees associated with the Facility. The principal amount of an extension of credit under the Facility will be equal to the principal amount of the PPP Loan pledged as collateral to secure the extension of credit.

The Paycheck Protection Program and Health Care Enhancement Act

On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law, which provides $310 billion in additional funding (the “New PPP Funds”) to the U.S. Small Business Administration’s Paycheck Protection Program previously established by the CARES Act. This increases the PPP’s original funding limit of $349 billion to $659 billion, as the original funds were fully exhausted by PPP borrowers. To ensure businesses have access to PPP loans from smaller lenders, the PPP Enhancement Act requires that a portion of the New PPP Funds are allocated to smaller insured depository institutions, federal and state credit unions and “community financial institutions,” which includes community development and minority-owned financial institutions. Specifically: (1) $30 billion of the New PPP Funds must be used for PPP loans made by (a) community financial institutions, (b) insured depository institutions with consolidated assets of less than $10 billion and (b) credit unions with consolidated assets of less than $10 billion; and (2) an additional $30 billion of the New PPP Funds must be used for PPP loans made by insured depository institutions and credit unions with consolidated assets between $10 billion and $50 billion. The foregoing allocations do not prohibit smaller institutions and community financial institutions from making PPP loans above their respective allocation amounts. Rather, institutions with $50 billion or more in consolidated assets and non-bank lenders would not have access to $60 billion of the New PPP Funds.
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The Paycheck Protection Program Flexibility Act

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 was signed into law that amends the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and eases rules on how and when small businesses can use loans and still be eligible for forgiveness. The PPP Flexibility Act changed many aspects of the Paycheck Protection Program (“PPP”), including: (1) extending the covered period for loan forgiveness purposes to the earlier of 24 weeks or December 31, 2020; (2) lowering the amount required to be spent on payroll costs from 75% to 60% of the PPP loan funds; (3) extending the loan maturity period from two to five years; and (4) revising the loan deferral period.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

No material changes in the Corporation’s market risk occurred during the current period. A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2020.

Changes in Internal Control over Financial Reporting

Effective January 1, 2020, the Corporation adopted CECL. The Corporation designed new controls and modified existing controls as part of this adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. There were no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended September 30, 2020 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION
 
Item 1.    Legal Proceedings

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

Item 1A.    Risk Factors

There have been no material changes in risk factors applicable to the Corporation from those disclosed in "Risk Factors" in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

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

The following table provides information on repurchases by the Corporation of its common stock under the Corporation's Board approved program.
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number
of Shares
Purchased		Average
Price Paid
per Share		Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs		Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
July 1 – 31, 2020— $— — 679,174 
August 1 – 31, 2020— — — 679,174 
September 1 – 30, 2020— — — 679,174 
Total— $— — 

1.On October 23, 2013, the Corporation’s Board of Directors approved a stock repurchase plan for the repurchase of up to 800,000 shares, or approximately 5% of the shares outstanding. On May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares available for repurchase under the Corporation's share repurchase program, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. The stock repurchase plan does not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

In addition to the repurchases disclosed above, participants in the Corporation's stock-based incentive plans may have shares withheld to cover income taxes upon the vesting of restricted stock awards and may use a stock swap to exercise non-qualified stock options. Shares withheld to pay income taxes upon the vesting of restricted stock awards and stock swaps to exercise stock options are repurchased pursuant to the terms of the applicable plan and not under the Corporation's share repurchase program. Share repurchased pursuant to these plans during the three months ended September 30, 2020 were as follows:

PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
July 1 – 31, 2020— $— 
August 1 – 31, 2020— — 
September 1 – 30, 2020— — 
Total— $— 

Item 3.    Defaults Upon Senior Securities
None.

Item 4.    Mine Safety Disclosures
Not Applicable.

Item 5.    Other Information
None.
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Table of Contents
Item 6.    Exhibits
 
a.Exhibits
Exhibit 3.1
Amended and Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of Form 10-K, filed with the SEC on February 28, 2019.
Exhibit 3.2
Amended By-Laws are incorporated by reference to Exhibit 3.2 of Form 10-K, filed with the SEC on February 28, 2019.
Exhibit 4.1
Indenture, dated August 5, 2020, between Univest Financial Corporation and U.S. Bank National Association, as trustee, is incorporated herein by reference to Exhibit 4.1 of Form 8-K, filed with the SEC on August 5, 2020.
Exhibit 4.2
First Supplemental Indenture, dated August 5, 2020, between Univest Financial Corporation and U.S. Bank National Association, as trustee, is incorporated herein by reference to Exhibit 4.2 of Form 8-K, filed with the SEC on August 5, 2020.
Exhibit 4.3
Form of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (included in Exhibit 4.2).
Exhibit 31.1
Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2
Certification of Brian J. Richardson, Executive Vice President and Chief Financial Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1
Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2
Certification of Brian J. Richardson, Executive Vice President and Chief Financial Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101The following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
Exhibit 104The cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Univest Financial Corporation
(Registrant)
Date: November 2, 2020/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 2, 2020/s/ Brian J. Richardson
Brian J. Richardson
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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