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Univest Financial Corporation
UVSP
#5972
Rank
$1.01 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$35.79
Share price
1.19%
Change (1 day)
40.46%
Change (1 year)
๐Ÿฆ Insurance๐Ÿ’ณ Financial services๐Ÿ’ฐ Investment
Categories
  1. Univest Financial Corporation
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q3

Univest Financial Corporation - 10-Q quarterly report FY2023 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, 2023
or
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-7617

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒
Accelerated filer
☐
Non-accelerated 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 value29,508,128
(Title of Class)(Number of shares outstanding at October 31, 2023)



UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
 
  Page Number
Part I.
Item 1.
2
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022
3
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022
4
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022
6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022
8
10
Item 2.
45
Item 3.
61
Item 4.
61
Part II.
Item 1.
61
Item 1A.
62
Item 2.
62
Item 3.
62
Item 4.
62
Item 5.
62
Item 6.
63
64

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, 2023At December 31, 2022
ASSETS
Cash and due from banks$68,900 $84,176 
Interest-earning deposits with other banks221,441 68,623 
Cash and cash equivalents290,341 152,799 
Investment securities held-to-maturity (fair value $123,760 and $134,068 at September 30, 2023 and December 31, 2022, respectively)
149,451 154,727 
Investment securities available-for-sale (amortized cost $396,804 and $402,111, net of allowance for credit losses of $1,537 and $1,140 at September 30, 2023 and December 31, 2022, respectively)
334,538 350,256 
Investments in equity securities 4,054 2,579 
       Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost42,417 33,841 
Loans held for sale16,473 5,037 
Loans and leases held for investment6,574,958 6,123,230 
Less: Allowance for credit losses, loans and leases(83,837)(79,004)
Net loans and leases held for investment6,491,121 6,044,226 
Premises and equipment, net51,287 50,939 
Operating lease right-of-use assets31,053 30,059 
Goodwill175,510 175,510 
Other intangibles, net of accumulated amortization11,079 11,384 
Bank owned life insurance130,522 120,297 
Accrued interest receivable and other assets100,220 90,362 
Total assets$7,828,066 $7,222,016 
LIABILITIES
Noninterest-bearing deposits$1,432,559 $2,047,263 
Interest-bearing deposits5,006,606 3,866,263 
Total deposits6,439,165 5,913,526 
Short-term borrowings14,676 197,141 
Long-term debt320,000 95,000 
Subordinated notes148,636 148,260 
Operating lease liabilities34,017 33,153 
Accrued interest payable and other liabilities64,374 58,436 
Total liabilities7,020,868 6,445,516 
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at September 30, 2023 and December 31, 2022; 31,556,799 shares issued at September 30, 2023 and December 31, 2022; 29,508,128 and 29,271,915 shares outstanding at September 30, 2023 and December 31, 2022, respectively
157,784 157,784 
Additional paid-in capital300,171 300,808 
Retained earnings464,634 428,637 
Accumulated other comprehensive loss, net of tax benefit(71,586)(62,104)
Treasury stock, at cost; 2,048,671 and 2,284,884 shares at September 30, 2023 and December 31, 2022, respectively
(43,805)(48,625)
Total shareholders’ equity807,198 776,500 
Total liabilities and shareholders’ equity$7,828,066 $7,222,016 
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)2023202220232022
Interest income
Interest and fees on loans and leases$90,974 $63,162 $254,949 $164,065 
Interest and dividends on investment securities:
Taxable3,540 3,013 10,547 8,116 
Exempt from federal income taxes15 15 44 44 
Interest on deposits with other banks1,865 252 2,856 1,433 
Interest and dividends on other earning assets712 435 2,102 1,134 
Total interest income97,106 66,877 270,498 174,792 
Interest expense
Interest on deposits37,082 6,451 82,885 12,928 
Interest on short-term borrowings1,117 524 7,094 537 
Interest on long-term debt and subordinated notes5,317 1,652 13,282 4,946 
Total interest expense43,516 8,627 103,261 18,411 
Net interest income53,590 58,250 167,237 156,381 
Provision for credit losses2,024 3,558 8,839 6,782 
Net interest income after provision for credit losses51,566 54,692 158,398 149,599 
Noninterest income
Trust fee income1,910 1,835 5,789 5,935 
Service charges on deposit accounts1,816 1,522 5,088 4,600 
Investment advisory commission and fee income4,843 4,199 14,303 14,163 
Insurance commission and fee income4,852 4,442 16,447 14,641 
Other service fee income3,020 3,124 9,414 9,189 
Bank owned life insurance income806 1,153 2,362 2,557 
Net gain on sales of investment securities— — — 30 
Net gain on mortgage banking activities1,216 817 2,880 3,976 
Other income228 867 1,921 2,336 
Total noninterest income18,691 17,959 58,204 57,427 
Noninterest expense
Salaries, benefits and commissions29,978 29,400 90,867 86,778 
Net occupancy2,594 2,504 7,935 7,642 
Equipment1,087 968 3,066 2,927 
Data processing4,189 3,901 12,355 11,176 
Professional fees1,763 2,521 5,373 7,503 
Marketing and advertising555 605 1,548 1,723 
Deposit insurance premiums1,258 662 3,475 2,367 
Intangible expenses220 309 726 992 
Restructuring charges— — 1,330 — 
Other expense7,344 5,795 21,641 18,340 
Total noninterest expense48,988 46,665 148,316 139,448 
Income before income taxes21,269 25,986 68,286 67,578 
Income tax expense4,253 5,185 13,436 13,294 
Net income$17,016 $20,801 $54,850 $54,284 
Net income per share:
Basic$0.58 $0.71 $1.86 $1.85 
Diluted0.58 0.71 1.86 1.84 
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)20232022
Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount		Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount
Income$21,269 $4,253 $17,016 $25,986 $5,185 $20,801 
Other comprehensive loss:
Net unrealized losses on available-for-sale investment securities:
Net unrealized holding losses arising during the period(12,622)(2,651)(9,971)(18,093)(3,800)(14,293)
Reversal of provision for credit losses— — — (393)(82)(311)
Total net unrealized losses on available-for-sale investment securities(12,622)(2,651)(9,971)(18,486)(3,882)(14,604)
Net unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period(2,541)(534)(2,007)(9,418)(1,978)(7,440)
Less: reclassification adjustment for net losses (gains) realized in net income (1)1,558 327 1,231 (422)(89)(333)
Total net unrealized losses on interest rate swaps used in cash flow hedges (983)(207)(776)(9,840)(2,067)(7,773)
Defined benefit pension plans:
Amortization of net actuarial gains included in net periodic pension costs (2)247 52 195 219 46 173 
Total defined benefit pension plans247 52 195 219 46 173 
Other comprehensive loss(13,358)(2,806)(10,552)(28,107)(5,903)(22,204)
Total comprehensive income (loss)$7,911 $1,447 $6,464 $(2,121)$(718)$(1,403)
(1) Included in interest expense on demand deposits on the condensed consolidated statements of income (before tax amount).
(2) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
4
Nine Months Ended September 30,
(Dollars in thousands)20232022
Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount		Before
Tax
Amount		Tax
Expense
(Benefit)		Net of
Tax
Amount
Income$68,286 $13,436 $54,850 $67,578 $13,294 $54,284 
Other comprehensive income (loss):
Net unrealized losses on available-for-sale investment securities:
Net unrealized holding losses arising during the period(10,411)(2,186)(8,225)(53,798)(11,298)(42,500)
Provision for credit losses397 83 314 370 78 292 
Less: reclassification adjustment for net gains on sales realized in net income (1)— — — (30)(6)(24)
Total net unrealized losses on available-for-sale investment securities(10,014)(2,103)(7,911)(53,458)(11,226)(42,232)
Net unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized holding losses arising during the period(6,716)(1,411)(5,305)(7,716)(1,621)(6,095)
Less: reclassification adjustment for net losses (gains) losses realized in net income (2)3,989 838 3,151 (1,040)(218)(822)
Total net unrealized losses on interest rate swaps used in cash flow hedges (2,727)(573)(2,154)(8,756)(1,839)(6,917)
Defined benefit pension plans:
Amortization of net actuarial gains included in net periodic pension costs (3)739 156 583 655 138 517 
Total defined benefit pension plans739 156 583 655 138 517 
Other comprehensive loss(12,002)(2,520)(9,482)(61,559)(12,927)(48,632)
Total comprehensive income$56,284 $10,916 $45,368 $6,019 $367 $5,652 
(1) Included in net gain on sales of investment securities on the condensed consolidated statements of income (before tax amount).
(2) Included in interest expense on demand deposits on the condensed consolidated statements of income (before tax amount).
(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
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		Treasury
Stock		Total
Three Months Ended September 30, 2023
Balance at June 30, 202329,471,124 $157,784 $299,212 $453,806 $(61,034)$(44,546)$805,222 
Net income — — — 17,016 — — 17,016 
Other comprehensive loss, net of income tax benefit— — — — (10,552)— (10,552)
Cash dividends declared ($0.21 per share)
— — — (6,190)— — (6,190)
Stock-based compensation— — 1,031 2 — — 1,033 
Stock issued under dividend reinvestment and employee stock purchase plans36,766 — (65)— — 735 670 
Vesting of restricted stock units, net of shares withheld to cover taxes238 — (7)— — 6 (1)
Balance at September 30, 202329,508,128 $157,784 $300,171 $464,634 $(71,586)$(43,805)$807,198 
(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, 2022
Balance at June 30, 202229,365,775 $157,784 $298,800 $396,295 $(42,781)$(46,173)$763,925 
Net income — — — 20,801 — — 20,801 
Other comprehensive loss, net of income tax benefit— — — — (22,204)— (22,204)
Cash dividends declared ($0.21 per share)
— — — (6,153)— — (6,153)
Stock-based compensation— — 973 (1)— — 972 
Stock issued under dividend reinvestment and employee stock purchase plans26,438 — 25 — — 634 659 
Vesting of restricted stock units, net of shares withheld to cover taxes238 — (7)— — 5 (2)
Purchases of treasury stock(150,000)— — — — (3,811)(3,811)
Balance at September 30, 202229,242,451 $157,784 $299,791 $410,942 $(64,985)$(49,345)$754,187 
(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, 2023
Balance at December 31, 202229,271,915 $157,784 $300,808 $428,637 $(62,104)$(48,625)$776,500 
Net income — — — 54,850 — — 54,850 
Other comprehensive loss, net of income tax benefit— — — — (9,482)— (9,482)
Cash dividends declared ($0.63 per share)
— — — (18,521)— — (18,521)
Stock-based compensation— — 3,322 (332)— — 2,990 
Stock issued under dividend reinvestment and employee stock purchase plans98,402 — (84)— — 2,063 1,979 
Vesting of restricted stock units, net of shares withheld to cover taxes131,601 — (3,857)— — 2,625 (1,232)
Exercise of stock options6,210 — (18)— — 132 114 
Balance at September 30, 202329,508,128 $157,784 $300,171 $464,634 $(71,586)$(43,805)$807,198 
6
(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, 2022
Balance at December 31, 202129,500,542 $157,784 $299,181 $375,124 $(16,353)$(41,942)$773,794 
Net income — — — 54,284 — — 54,284 
Other comprehensive loss, net of income tax benefit— — — — (48,632)— (48,632)
Cash dividends declared ($0.62 per share)
— — — (18,258)— — (18,258)
Stock-based compensation— — 2,982 (208)— — 2,774 
Stock issued under dividend reinvestment and employee stock purchase plans74,055 — 129 — — 1,805 1,934 
Vesting of restricted stock units, net of shares withheld to cover taxes92,073 — (2,551)— — 1,648 (903)
Exercise of stock options25,781 — 50 — — 525 575 
Purchases of treasury stock(450,000)— — — — (11,381)(11,381)
Balance at September 30, 202229,242,451 $157,784 $299,791 $410,942 $(64,985)$(49,345)$754,187 
Note: See accompanying notes 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)20232022
Cash flows from operating activities:
Net income$54,850 $54,284 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses8,839 6,782 
Depreciation of premises and equipment3,752 3,323 
Net amortization of investment securities premiums and discounts873 1,168 
Net gain on sales of investment securities— (30)
Net gain on mortgage banking activities(2,880)(3,976)
Bank owned life insurance income(2,362)(2,557)
Stock-based compensation3,229 2,998 
Intangible expenses726 992 
Other adjustments to reconcile net income to cash used in operating activities(1,455)(2,896)
Originations of loans held for sale(165,076)(198,547)
Proceeds from the sale of loans held for sale162,728 215,424 
Contributions to pension and other postretirement benefit plans(186)(189)
(Increase) decrease in accrued interest receivable and other assets(8,200)2,252 
Increase in accrued interest payable and other liabilities7,029 4,449 
Net cash provided by operating activities61,867 83,477 
Cash flows from investing activities:
Proceeds from sale of premises and equipment1,032 6,844 
Purchases of premises and equipment(5,220)(3,673)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity11,225 27,700 
Proceeds from maturities, calls and principal repayments of securities available-for-sale24,052 25,132 
Proceeds from sales of securities available-for-sale— 1,530 
Purchases of investment securities held-to-maturity(6,253)(10,427)
Purchases of investment securities available-for-sale(19,348)(111,611)
Proceeds from sales of money market mutual funds252 3,506 
Purchases of money market mutual funds(1,845)(3,708)
Net increase in other investments(8,576)(1,289)
Proceeds from sale of loans originally held-for-investment19,631 2,500 
Net increase in loans and leases(481,200)(562,235)
Proceeds from sales of other real estate owned260 — 
Purchases of bank owned life insurance(7,862)— 
Proceeds from bank owned life insurance— 1,221 
Net cash used in investing activities(473,852)(624,510)
Cash flows from financing activities:
Net increase (decrease) in deposits525,619 (268,171)
Net (decrease) increase in short-term borrowings(182,465)60,605 
Proceeds from issuance of long-term debt250,000 — 
Repayment of long-term debt(25,000)— 
Payment of contingent consideration on acquisitions(635)— 
Payment for shares withheld to cover taxes on vesting of restricted stock units(1,232)(903)
Purchases of treasury stock— (11,381)
Stock issued under dividend reinvestment and employee stock purchase plans1,979 1,934 
Proceeds from exercise of stock options114 575 
Cash dividends paid(18,853)(18,466)
Net cash provided by (used in) financing activities549,527 (235,807)
Net increase (decrease) in cash and cash equivalents137,542 (776,840)
Cash and cash equivalents at beginning of year152,799 890,150 
Cash and cash equivalents at end of period$290,341 $113,310 
8
 Nine Months Ended September 30,
(Dollars in thousands)20232022
Supplemental disclosures of cash flow information:
Cash paid for interest$93,435 $20,095 
Cash paid for income taxes, net of refunds13,232 6,629 
Non cash transactions:
Transfer of loans to other real estate owned$79 $18,325 
Transfer of loans to loans held for sale25,646 2,500 
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 the rules and regulations for interim financial information. The accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature and are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three-month or nine-month period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, 2023 or for any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 24, 2023.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include the fair value measurement of investment securities available-for-sale and the determination of the allowance for credit losses.

Modified Loans

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

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

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

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

Accounting Pronouncements Adopted in 2023

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases in the existing vintage disclosures. This ASU became
10
effective on January 1, 2023 for the Corporation. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Corporation's financial statements.

Recent Accounting Pronouncements Yet to Be Adopted

In March 2023, the FASB issued ASU No. 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)". This ASU allows entities to elect the proportional amortization method, on a tax-credit-program-by-tax-credit-program basis, for all equity investments in tax credit programs meeting the eligibility criteria in Accounting Standards Codification (ASC) 323-740-25-1. While the ASU does not significantly alter the existing eligibility criteria, it does provide clarifications to address existing interpretive issues. It also prescribes specific information reporting entities must disclose about tax credit investments each period. This ASU is effective for reporting periods beginning after December 15, 2023, for public business entities, or January 1, 2024 for the Corporation. The Corporation does not expect the adoption of this ASU to have a material impact on the Corporation's financial statements.

In July 2023, the FASB issued ASU No. 2023-03, "Presentation Of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities From Equity (Topic 480), Equity (Topic 505), And Compensation—Stock Compensation (Topic 718)". The ASU amends or supersedes various SEC paragraphs within the codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide new guidance and therefore there is no transition or effective date for implementation.

Note 2. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share. For additional information on the calculation of basic and diluted earnings per share, see Note 1, "Summary of Significant Accounting Policies - Earnings per Share" of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2022.
Three Months EndedNine Months Ended
 September 30,September 30,
(Dollars and shares in thousands, except per share data)2023202220232022
Numerator for basic and diluted earnings per share—net income available to common shareholders
$17,016 $20,801 $54,850 $54,284 
Denominator for basic earnings per share—weighted-average shares outstanding
29,479 29,291 29,411 29,440 
Effect of dilutive securities—stock options and restricted stock units79 141 95 148 
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
29,558 29,432 29,506 29,588 
Basic earnings per share$0.58 $0.71 $1.86 $1.85 
Diluted earnings per share$0.58 $0.71 $1.86 $1.84 
Average antidilutive options and restricted stock units excluded from computation of diluted earnings per share540 250 432 250 

11
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, 2023 and December 31, 2022, by contractual maturity within each type:
 At September 30, 2023
(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair Value
Securities Held-to-Maturity
Residential mortgage-backed securities:
After 1 year to 5 years$2,077 $— $(95)$— $1,982 
After 5 years to 10 years10,100 — (763)— 9,337 
Over 10 years137,274 — (24,833)— 112,441 
149,451 — (25,691)— 123,760 
Total$149,451 $— $(25,691)$— $123,760 
Securities Available-for-Sale
State and political subdivisions:
Within 1 year$1,030 $— $(5)$— $1,025 
After 1 year to 5 years1,298 — (56)— 1,242 
2,328 — (61)— 2,267 
Residential mortgage-backed securities:
After 1 year to 5 years632 — (27)— 605 
After 5 years to 10 years14,257 — (1,818)— 12,439 
Over 10 years286,909 — (50,788)— 236,121 
301,798 — (52,633)— 249,165 
Collateralized mortgage obligations:
After 5 years to 10 years262 — (16)— 246 
Over 10 years2,030 — (242)— 1,788 
2,292 — (258)— 2,034 
Corporate bonds:
Within 1 year16,518 — (147)(117)16,254 
After 1 year to 5 years13,868 — (987)(74)12,807 
After 5 years to 10 years60,000 — (6,643)(1,346)52,011 
90,386 — (7,777)(1,537)81,072 
Total$396,804 $— $(60,729)$(1,537)$334,538 

12
 At December 31, 2022
(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair Value
Securities Held-to-Maturity
Residential mortgage-backed securities:
After 1 year to 5 years$1,654 $— $(70)$— $1,584 
After 5 years to 10 years6,076 — (342)— 5,734 
Over 10 years146,997 — (20,247)— 126,750 
154,727 — (20,659)— 134,068 
Total$154,727 $— $(20,659)$— $134,068 
Securities Available-for-Sale
State and political subdivisions:
After 1 year to 5 years$2,327 $— $(42)$— $2,285 
2,327 — (42)— 2,285 
Residential mortgage-backed securities:
After 1 year to 5 years864 — (37)— 827 
After 5 years to 10 years10,399 — (815)— 9,584 
Over 10 years294,261 7 (41,291)— 252,977 
305,524 7 (42,143)— 263,388 
Collateralized mortgage obligations:
After 5 years to 10 years324 — (22)— 302 
Over 10 years2,257 — (237)— 2,020 
2,581 — (259)— 2,322 
Corporate bonds:
Within 1 year1,000 — — — 1,000 
After 1 year to 5 years30,679 3 (1,516)(152)29,014 
After 5 years to 10 years60,000 — (6,765)(988)52,247 
91,679 3 (8,281)(1,140)82,261 
Total$402,111 $10 $(50,725)$(1,140)$350,256 

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

Securities with a carrying value of $413.2 million and $429.4 million at September 30, 2023 and December 31, 2022, respectively, were pledged to secure public funds deposits and contingency funding. There were no pledged securities to secure credit derivatives and interest rate swaps at September 30, 2023 or December 31, 2022. See Note 11, "Derivative Instruments and Hedging Activities" for additional information.

The following table presents information related to sales of securities available-for-sale during the nine months ended September 30, 2023 and 2022:

 Nine Months Ended September 30,
(Dollars in thousands)20232022
Securities available-for-sale:
Proceeds from sales$— $1,530 
Gross realized gains on sales— 30 
Tax expense related to net realized gains on sales— 6 

At September 30, 2023 and December 31, 2022, there were no reportable investments in any single issuer representing more than 10% of shareholders’ equity.
13
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, 2023 and December 31, 2022, by the length of time those securities were in a continuous loss position.
 Less than
Twelve Months		Twelve Months
or Longer		Total
(Dollars in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
At September 30, 2023
Securities Held-to-Maturity
Residential mortgage-backed securities$5,771 $(350)$117,989 $(25,341)$123,760 $(25,691)
Total$5,771 $(350)$117,989 $(25,341)$123,760 $(25,691)
Securities Available-for-Sale
State and political subdivisions$— $— $1,242 $(56)$1,242 $(56)
Residential mortgage-backed securities21,292 (942)227,657 (51,691)248,949 (52,633)
Collateralized mortgage obligations— — 2,034 (258)2,034 (258)
Corporate bonds— — 280 (1)280 (1)
Total$21,292 $(942)$231,213 $(52,006)$252,505 $(52,948)
At December 31, 2022
Securities Held-to-Maturity
Residential mortgage-backed securities$65,044 $(5,894)$69,024 $(14,765)$134,068 $(20,659)
Total$65,044 $(5,894)$69,024 $(14,765)$134,068 $(20,659)
Securities Available-for-Sale
State and political subdivisions$1,255 $(42)$— $— $1,255 $(42)
Residential mortgage-backed securities128,831 (13,843)133,902 (28,300)262,733 (42,143)
Collateralized mortgage obligations302 (22)2,020 (237)2,322 (259)
Corporate bonds500 (1)— — 500 (1)
Total$130,888 $(13,908)$135,922 $(28,537)$266,810 $(42,445)

At September 30, 2023, the fair value of held-to-maturity securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $123.8 million, including unrealized losses of $25.7 million. These holdings were comprised of 88 federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The Corporation did not recognize any credit losses on held-to-maturity debt securities for the nine months ended September 30, 2023.

At September 30, 2023, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded was $252.5 million, including unrealized losses of $52.9 million. These holdings were comprised of (1) 112 federal agency mortgage-backed securities, which are U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses, (2) two collateralized mortgage obligation bonds, (3) two investment grade corporate bonds, and (4) one state and political subdivision bond. The Corporation does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. The Corporation concluded that the decline in fair value of these securities was not indicative of a credit loss. Accrued interest receivable on available-for-sale debt securities totaled $1.2 million at September 30, 2023 and is included within Accrued interest receivable and other assets on the condensed consolidated balance sheet. This amount is excluded from the estimate of expected credit losses.

14
The table below presents a rollforward by major security type for the nine months ended September 30, 2023 and September 30, 2022 of the allowance for credit losses on securities available-for-sale.

(Dollars in thousands)Corporate Bonds
Nine months ended September 30, 2023
Securities Available-for-Sale
Beginning balance$(1,140)
Additions for securities for which no previous expected credit losses were recognized(2)
Change in securities for which a previous expected credit loss was recognized(395)
Ending balance$(1,537)
Nine months ended September 30, 2022
Securities Available-for-Sale
Beginning balance$(929)
Additions for securities for which no previous expected credit losses were recognized(153)
Change in securities for which a previous expected credit loss was recognized(217)
Ending balance$(1,299)

At September 30, 2023, the fair value of available-for-sale securities in an unrealized loss position for which an allowance for credit losses has been recorded was $81.8 million, including unrealized losses of $8.9 million, and allowance for credit losses of $1.5 million. These holdings were comprised of 39 investment grade corporate bonds which fluctuate in value based on changes in market conditions. For these securities, fluctuations were primarily due to changes in the interest rate environment. The Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery. The underlying issuers continue to make timely principal and interest payments on the securities.

The Corporation recognized a $118 thousand and a $207 thousand net loss on equity securities during the nine months ended September 30, 2023 and 2022, respectively, in other noninterest income. There were no sales of equity securities during the nine months ended September 30, 2023 or 2022.

Note 4. Loans and Leases

Summary of Major Loan and Lease Categories

(Dollars in thousands)At September 30, 2023At December 31, 2022
Commercial, financial and agricultural$1,050,004 $1,088,928 
Real estate-commercial3,275,140 3,027,955 
Real estate-construction427,561 381,811 
Real estate-residential secured for business purpose516,471 478,254 
Real estate-residential secured for personal purpose861,122 730,395 
Real estate-home equity secured for personal purpose176,855 176,699 
Loans to individuals27,331 27,873 
Lease financings240,474 211,315 
Total loans and leases held for investment, net of deferred income$6,574,958 $6,123,230 
Less: Allowance for credit losses, loans and leases(83,837)(79,004)
Net loans and leases held for investment$6,491,121 $6,044,226 
Imputed interest on lease financings, included in the above table$(28,625)$(21,932)
Net deferred costs, included in the above table7,568 6,053 
Overdraft deposits included in the above table97 93 
15
Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases held for investment, an aging of past due loans and leases, loans and leases which are current and nonaccrual loans and leases at September 30, 2023 and December 31, 2022:
Accruing Loans and Leases
(Dollars in thousands)30-59
Days
Past Due		60-89
Days
Past Due		90 Days
or more
Past Due		Total
Past Due		CurrentTotal Accruing Loans and LeasesNonaccrual Loans and LeasesTotal Loans
and Leases
Held for
Investment
At September 30, 2023
Commercial, financial and agricultural$9,134 $249 $1,733 $11,116 $1,037,477 $1,048,593 $1,411 $1,050,004 
Real estate—commercial real estate and construction:
Commercial real estate5,548 335 220 6,103 3,264,174 3,270,277 4,863 3,275,140 
Construction9,450 — — 9,450 418,111 427,561 — 427,561 
Real estate—residential and home equity:
Residential secured for business purpose2,155 650 — 2,805 512,730 515,535 936 516,471 
Residential secured for personal purpose4,042 41 — 4,083 852,793 856,876 4,246 861,122 
Home equity secured for personal purpose445 251 — 696 175,406 176,102 753 176,855 
Loans to individuals175 25 26 226 27,105 27,331 — 27,331 
Lease financings854 784 156 1,794 238,623 240,417 57 240,474 
Total$31,803 $2,335 $2,135 $36,273 $6,526,419 $6,562,692 $12,266 $6,574,958 
Accruing Loans and Leases
(Dollars in thousands)30-59
Days
Past Due		60-89
Days
Past Due		90 Days
or more
Past Due		Total
Past Due		CurrentTotal Accruing Loans and LeasesNonaccrual Loans and LeasesTotal Loans
and Leases
Held for
Investment
At December 31, 2022
Commercial, financial and agricultural$1,616 $343 $— $1,959 $1,081,897 $1,083,856 $5,072 $1,088,928 
Real estate—commercial real estate and construction:
Commercial real estate3,281 290 20 3,591 3,019,827 3,023,418 4,537 3,027,955 
Construction315 — — 315 381,496 381,811 — 381,811 
Real estate—residential and home equity:
Residential secured for business purpose375 203 263 841 476,400 477,241 1,013 478,254 
Residential secured for personal purpose4,127 162 319 4,608 723,798 728,406 1,989 730,395 
Home equity secured for personal purpose953 225 — 1,178 174,781 175,959 740 176,699 
Loans to individuals32 153 39 224 27,649 27,873 — 27,873 
Lease financings3,555 341 234 4,130 207,183 211,313 2 211,315 
Total$14,254 $1,717 $875 $16,846 $6,093,031 $6,109,877 $13,353 $6,123,230 

16
Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at September 30, 2023 and December 31, 2022.
 At September 30, 2023At December 31, 2022
(Dollars in thousands)Nonaccrual
Loans and
Leases		Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest		Total Nonperforming
Loans and
Leases		Nonaccrual
Loans and
Leases		Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest		Total Nonperforming
Loans and
Leases
Loans held for sale *$5,819 $— $5,819 $— $— $— 
Loans and leases held for investment:
Commercial, financial and agricultural$1,411 $1,733 $3,144 $5,072 $— $5,072 
Real estate—commercial real estate and construction:
Commercial real estate4,863 220 5,083 4,537 20 4,557 
Real estate—residential and home equity:
Residential secured for business purpose936 — 936 1,013 263 1,276 
Residential secured for personal purpose4,246 — 4,246 1,989 319 2,308 
Home equity secured for personal purpose753 — 753 740 — 740 
Loans to individuals— 26 26 — 39 39 
Lease financings57 156 213 2 234 236 
Total$18,085 $2,135 $20,220 $13,353 $875 $14,228 
*Includes one construction loan at September 30, 2023.

The following table presents the amortized cost basis of loans and leases held for investment on nonaccrual status and loans and leases held for investment 90 days or more past due and still accruing as of September 30, 2023 and December 31, 2022.
(Dollars in thousands)Nonaccrual With No Allowance for Credit LossesNonaccrual With Allowance for Credit LossesTotal NonaccrualLoans and Leases 90 Days or more Past Due and Accruing Interest
At September 30, 2023
Commercial, financial and agricultural$297 $1,114 $1,411 $1,733 
Real estate-commercial4,841 22 4,863 220 
Real estate-residential secured for business purpose936 — 936 — 
Real estate-residential secured for personal purpose4,246 — 4,246 — 
Real estate-home equity secured for personal purpose753 — 753 — 
Loans to individuals— — — 26 
Lease financings— 57 57 156 
Total$11,073 $1,193 $12,266 $2,135 
At December 31, 2022
Commercial, financial and agricultural$225 $4,847 $5,072 $— 
Real estate-commercial4,537 — 4,537 20 
Real estate-residential secured for business purpose1,013 — 1,013 263 
Real estate-residential secured for personal purpose1,989 — 1,989 319 
Real estate-home equity secured for personal purpose740 — 740 — 
Loans to individuals— — — 39 
Lease financings— 2 2 234 
Total$8,504 $4,849 $13,353 $875 

For the nine months ended September 30, 2023, $70 thousand of interest income was recognized on nonaccrual loans and leases.
17
The following table presents, by class of loans and leases, the amortized cost basis of collateral-dependent nonaccrual loans and leases and type of collateral as of September 30, 2023 and December 31, 2022.

(Dollars in thousands)Real Estate
Other (1)
NoneTotal
At September 30, 2023
Commercial, financial and agricultural$1,362 $49 $— $1,411 
Real estate-commercial4,863 — — 4,863 
Real estate-residential secured for business purpose936 — — 936 
Real estate-residential secured for personal purpose4,246 — — 4,246 
Real estate-home equity secured for personal purpose753 — — 753 
Lease financings— 57 — 57 
Total$12,160 $106 $— $12,266 
(Dollars in thousands)Real Estate
Other (1)
None (2)
Total
At December 31, 2022
Commercial, financial and agricultural$2,743 $— $2,329 $5,072 
Real estate-commercial4,537 — — 4,537 
Real estate-residential secured for business purpose1,013 — — 1,013 
Real estate-residential secured for personal purpose1,989 — — 1,989 
Real estate-home equity secured for personal purpose740 — — 740 
Lease financings— 2 — 2 
Total$11,022 $2 $2,329 $13,353 
(1) Collateral consists of business assets, including accounts receivable, personal property and equipment.
(2) Loans fully guaranteed by the SBA or fully reserved given lack of collateral.

Credit Quality Indicators

The Corporation categorizes risk based on relevant information about the ability of the borrower to service their debt. Loans with a relationship balance of less than $1 million are reviewed when necessary based on their performance, primarily when such loans are delinquent. Loans with relationships greater than $1 million are reviewed at least annually. Loan relationships with a higher risk profile or classified as special mention or substandard are reviewed at least quarterly. The Corporation reviews credit quality key risk indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2022. The following is a description of the internal risk ratings and the likelihood of loss related to the credit quality of commercial, financial and agricultural loans, real estate-commercial loans, real estate-construction loans and real estate-residential secured for a business purpose loans.

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

18
Based on the most recent analysis performed, the following table presents the recorded investment in loans and leases held for investment for commercial, financial and agricultural loans, real estate-commercial loans, real estate-construction loans and real estate-residential secured for a business purpose loans by credit quality indicator at September 30, 2023 and December 31, 2022.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
At September 30, 2023
Commercial, Financial and Agricultural
Risk Rating
1. Pass$128,857 $151,968 $139,953 $29,147 $21,655 $59,173 $473,162 $1,416 $1,005,331 
2. Special Mention— 1,390 645 — 6,118 — 13,628 — 21,781 
3. Substandard— 852 8,804 — 589 — 12,647 — 22,892 
Total$128,857 $154,210 $149,402 $29,147 $28,362 $59,173 $499,437 $1,416 $1,050,004 
Current period gross charge-offs$6 $50 $296 $67 $— $151 $3,321 $— $3,891 
Real Estate-Commercial
Risk Rating
1. Pass$391,320 $854,572 $644,754 $621,144 $339,709 $332,824 $63,383 $— $3,247,706 
2. Special Mention1,250 231 8,899 5,873 — 1,420 — — 17,673 
3. Substandard— 1,036 1,948 1,687 226 1,911 2,953 — 9,761 
Total$392,570 $855,839 $655,601 $628,704 $339,935 $336,155 $66,336 $— $3,275,140 
Current period gross charge-offs$— $— $— $— $— $50 $— $— $50 
Real Estate-Construction
Risk Rating
1. Pass$100,825 $274,531 $5,633 $2,649 $244 $2,241 $18,117 $— $404,240 
2. Special Mention— — 3,132 — — 5,266 9,599 — 17,997 
3. Substandard2,761 — — — — — 2,563 — 5,324 
Total$103,586 $274,531 $8,765 $2,649 $244 $7,507 $30,279 $— $427,561 
Current period gross charge-offs$— $207 $— $— $— $— $— $— $207 
Real Estate-Residential Secured for Business Purpose
Risk Rating
1. Pass$89,444 $153,772 $122,981 $62,977 $39,173 $18,243 $28,944 $— $515,534 
2. Special Mention— — — — — — — — — 
3. Substandard— — — 621 — 316 — — 937 
Total$89,444 $153,772 $122,981 $63,598 $39,173 $18,559 $28,944 $— $516,471 
Totals By Risk Rating
1. Pass$710,446 $1,434,843 $913,321 $715,917 $400,781 $412,481 $583,606 $1,416 $5,172,811 
2. Special Mention1,250 1,621 12,676 5,873 6,118 6,686 23,227 — 57,451 
3. Substandard2,761 1,888 10,752 2,308 815 2,227 18,163 — 38,914 
Total$714,457 $1,438,352 $936,749 $724,098 $407,714 $421,394 $624,996 $1,416 $5,269,176 
Total current period gross charge-offs$6 $257 $296 $67 $— $201 $3,321 $— $4,148 

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

The Corporation had no loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at September 30, 2023 or December 31, 2022.

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: real estate-residential secured for personal purpose loans, real estate-home equity secured for personal purpose loans, loans to individuals and lease financings. The Corporation reviews credit quality indicators on at least an annual basis and last completed this review in conjunction with the period ended December 31, 2022. Loans and leases past due 90 days or more and loans and leases on nonaccrual status are considered nonperforming. Nonperforming loans and leases are reviewed monthly. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due.



20
Based on the most recent analysis performed, the following table presents the recorded investment in loans and leases held for investment for real estate-residential secured for personal purpose loans, real estate-home equity secured for personal purpose loans, loans to individuals and lease financings by credit quality indicator at September 30, 2023 and December 31, 2022.
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
At September 30, 2023
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$118,896 $290,452 $211,229 $130,133 $23,124 $83,042 $— $856,876 
2. Nonperforming— 156 44 2,805 — 1,241 — 4,246 
Total$118,896 $290,608 $211,273 $132,938 $23,124 $84,283 $— $861,122 
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$380 $2,626 $558 $427 $172 $1,563 $170,376 $176,102 
2. Nonperforming— — — — — — 753 753 
Total$380 $2,626 $558 $427 $172 $1,563 $171,129 $176,855 
Current period gross charge-offs$— $— $— $— $85 $— $— $85 
Loans to Individuals
Payment Performance
1. Performing$1,460 $1,038 $593 $129 $89 $1,167 $22,829 $27,305 
2. Nonperforming— — — — — 26 — 26 
Total$1,460 $1,038 $593 $129 $89 $1,193 $22,829 $27,331 
Current period gross charge-offs$155 $33 $— $5 $28 $21 $98 $340 
Lease Financings
Payment Performance
1. Performing$86,834 $76,340 $46,368 $21,533 $7,684 $1,502 $— $240,261 
2. Nonperforming— 85 — 44 78 6 — 213 
Total$86,834 $76,425 $46,368 $21,577 $7,762 $1,508 $— $240,474 
Current period gross charge-offs$— $143 $133 $31 $6 $1 $— $314 
Totals by Payment Performance
1. Performing$207,570 $370,456 $258,748 $152,222 $31,069 $87,274 $193,205 $1,300,544 
2. Nonperforming— 241 44 2,849 78 1,273 753 5,238 
Total$207,570 $370,697 $258,792 $155,071 $31,147 $88,547 $193,958 $1,305,782 
Total current period gross charge-offs$155 $176 $133 $36 $119 $22 $98 $739 
21
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
At December 31, 2022
Real Estate-Residential Secured for Personal Purpose
Payment Performance
1. Performing$258,293 $211,638 $140,822 $23,827 $18,273 $75,126 $108 $728,087 
2. Nonperforming— 48 466 319 306 1,169 — 2,308 
Total$258,293 $211,686 $141,288 $24,146 $18,579 $76,295 $108 $730,395 
Real Estate-Home Equity Secured for Personal Purpose
Payment Performance
1. Performing$2,945 $642 $491 $192 $205 $1,565 $169,870 $175,910 
2. Nonperforming— — — — 157 3 629 789 
Total$2,945 $642 $491 $192 $362 $1,568 $170,499 $176,699 
Loans to Individuals
Payment Performance
1. Performing$1,581 $857 $554 $247 $138 $1,340 $23,117 $27,834 
2. Nonperforming— — — — — 39 — 39 
Total$1,581 $857 $554 $247 $138 $1,379 $23,117 $27,873 
Lease Financings
Payment Performance
1. Performing$94,430 $61,680 $33,468 $15,164 $5,569 $768 $— $211,079 
2. Nonperforming41 56 17 21 90 11 — 236 
Total$94,471 $61,736 $33,485 $15,185 $5,659 $779 $— $211,315 
Totals by Payment Performance
1. Performing$357,249 $274,817 $175,335 $39,430 $24,185 $78,799 $193,095 $1,142,910 
2. Nonperforming41 104 483 340 553 1,222 629 3,372 
Total$357,290 $274,921 $175,818 $39,770 $24,738 $80,021 $193,724 $1,146,282 

The Corporation had no revolving loans which were converted to term loans included within recorded investment in loans and leases held for investment at September 30, 2023 or December 31, 2022.

22
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, 2023 and 2022. There were no changes to the reasonable and supportable forecast period, the reversion period, or any significant methodology changes during the nine months ended September 30, 2023.
(Dollars in thousands)Beginning balanceProvision (reversal of provision) for credit lossesCharge-offsRecoveriesEnding balance
Three Months Ended September 30, 2023
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural$13,871 $979 $(744)$30 $14,136 
Real estate-commercial44,757 519 — 3 45,279 
Real estate-construction5,433 298 — 1 5,732 
Real estate-residential secured for business purpose8,696 (44)— 4 8,656 
Real estate-residential secured for personal purpose5,588 254 — — 5,842 
Real estate-home equity secured for personal purpose1,296 (38)— 33 1,291 
Loans to individuals560 (61)(124)12 387 
Lease financings2,508 190 (189)5 2,514 
Unallocated— — N/AN/A— 
Total$82,709 $2,097 $(1,057)$88 $83,837 
Three Months Ended September 30, 2022
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural$13,004 $2,110 $(310)$181 $14,985 
Real estate-commercial41,678 1,286 (999)3 41,968 
Real estate-construction4,223 (376)— — 3,847 
Real estate-residential secured for business purpose6,420 433 — 2 6,855 
Real estate-residential secured for personal purpose2,937 419 — — 3,356 
Real estate-home equity secured for personal purpose1,074 73 — 49 1,196 
Loans to individuals376 54 (79)21 372 
Lease financings2,299 115 (70)6 2,350 
Unallocated— — N/AN/A— 
Total$72,011 $4,114 $(1,458)$262 $74,929 
N/A – Not applicable
23
(Dollars in thousands)Beginning balanceProvision (reversal of provision) for credit lossesCharge-offsRecoveriesEnding balance
Nine Months Ended September 30, 2023
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural$16,920 $937 $(3,891)$170 $14,136 
Real estate-commercial41,673 3,647 (50)9 45,279 
Real estate-construction4,952 986 (207)1 5,732 
Real estate-residential secured for business purpose7,054 1,417 — 185 8,656 
Real estate-residential secured for personal purpose3,685 2,157 — — 5,842 
Real estate-home equity secured for personal purpose1,287 6 (85)83 1,291 
Loans to individuals351 314 (340)62 387 
Lease financings3,082 (308)(314)54 2,514 
Unallocated— — N/AN/A— 
Total$79,004 $9,156 $(4,887)$564 $83,837 
Nine Months Ended September 30, 2022
Allowance for credit losses, loans and leases:
Commercial, financial and agricultural$13,538 $1,560 $(524)$411 $14,985 
Real estate-commercial41,095 3,559 (2,689)3 41,968 
Real estate-construction4,575 (728)— — 3,847 
Real estate-residential secured for business purpose6,482 320 — 53 6,855 
Real estate-residential secured for personal purpose2,403 953 — — 3,356 
Real estate-home equity secured for personal purpose1,028 130 — 38 1,196 
Loans to individuals363 125 (181)65 372 
Lease financings2,290 223 (187)24 2,350 
Unallocated150 (150)N/AN/A— 
Total$71,924 $5,992 $(3,581)$594 $74,929 
N/A – Not applicable
24
The following presents, by portfolio segment, the balance in the allowance for credit losses on loans and leases disaggregated on the basis of whether the loan or lease was measured for credit loss as a pooled loan or lease or if it was individually analyzed for a reserve at September 30, 2023 and 2022:
Allowance for credit losses, loans and leasesLoans and leases held for investment
(Dollars in thousands)Ending balance: individually analyzedEnding balance: pooledTotal ending balanceEnding balance: individually analyzedEnding balance: pooledLoans measured at fair valueTotal ending balance
At September 30, 2023
Commercial, financial and agricultural$814 $13,322 $14,136 $1,754 $1,048,250 $— $1,050,004 
Real estate-commercial20 45,259 45,279 4,863 3,270,277 — 3,275,140 
Real estate-construction— 5,732 5,732 — 427,561 — 427,561 
Real estate-residential secured for business purpose— 8,656 8,656 936 515,535 — 516,471 
Real estate-residential secured for personal purpose— 5,842 5,842 4,246 856,876 — 861,122 
Real estate-home equity secured for personal purpose— 1,291 1,291 753 176,102 — 176,855 
Loans to individuals— 387 387 — 27,331 — 27,331 
Lease financings— 2,514 2,514 — 240,474 — 240,474 
Total$834 $83,003 $83,837 $12,552 $6,562,406 $— $6,574,958 
At September 30, 2022
Commercial, financial and agricultural$1,407 $13,578 $14,985 $2,630 $1,052,310 $— $1,054,940 
Real estate-commercial250 41,718 41,968 7,527 2,928,677 — 2,936,204 
Real estate-construction— 3,847 3,847 — 329,915 — 329,915 
Real estate-residential secured for business purpose— 6,855 6,855 1,009 442,828 — 443,837 
Real estate-residential secured for personal purpose— 3,356 3,356 1,868 683,903 — 685,771 
Real estate-home equity secured for personal purpose— 1,196 1,196 522 175,321 — 175,843 
Loans to individuals— 372 372 — 26,679 — 26,679 
Lease financings— 2,350 2,350 — 196,070 — 196,070 
Total$1,657 $73,272 $74,929 $13,556 $5,835,703 $— $5,849,259 

Modified Loans to Borrowers Experiencing Financial Difficulty

The following presents, by class of loans, information regarding accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

 Three Months Ended September 30, 2023
(Dollars in thousands)Number
of
Loans		Amortized Cost Basis% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Total— $— 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Total— $— 
25
 Nine Months Ended September 30, 2023
(Dollars in thousands)Number
of
Loans		Amortized Cost Basis*% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate1 $1,948 0.06 %
Total1 $1,948 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate1 $1,741 0.05 %
Total1 $1,741 
*Amortized cost excludes $15 thousand of accrued interest receivable on modified loans.

During the first quarter of 2023, a $5.8 million construction loan was modified. During the second quarter of 2023, the modified loan was placed on nonaccrual status. During the third quarter of 2023, the nonaccrual modified loan was transferred to held for sale.

The following presents, by class of loans, information regarding the financial effect on accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.
 Term Extension
(Dollars in thousands)No. of
Loans		Financial Effect
Three Months Ended September 30, 2023
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Total— 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Total— 
Nine Months Ended September 30, 2023
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate1 Extended loan maturity by 5 months to give borrower time to seek refinance.
Total1 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate1 Extended loan maturity by 16 months to give borrower time to seek refinance.
Total1 

There were no accruing or nonaccrual modified loans to borrowers experiencing financial difficulty for which there were payment defaults during the period that were modified in the 12 months before default for the three and nine months ended September 30, 2023.
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The following presents, by class of loans, the amortized cost and performance status of accruing and nonaccrual modified loans to borrowers experiencing financial difficulty that have been modified in the last 12 months.
At September 30, 2023
(Dollars in thousands)Current30-89 Days Past Due90 Days or More Past DueTotal
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate$1,948 $— $— $1,948 
Total$1,948 $— $— $1,948 
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Real estate—commercial real estate$1,741 $— $— $1,741 
Total$1,741 $— $— $1,741 

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

The following presents the amount of consumer mortgages collateralized by residential real estate property that were in the process of foreclosure at September 30, 2023 or December 31, 2022.
(Dollars in thousands)At September 30, 2023At December 31, 2022
Real estate-residential secured for personal purpose$3,140 $822 
Real estate-home equity secured for personal purpose22 72 
Total$3,162 $894 

The following presents foreclosed residential real estate property included in other real estate owned at September 30, 2023 or December 31, 2022.
(Dollars in thousands)At September 30, 2023At December 31, 2022
Foreclosed residential real estate$79 $— 

Lease Financings

The following presents the schedule of minimum lease payments receivable:
(Dollars in thousands)At September 30, 2023At December 31, 2022
2023 (excluding the nine months ended September 30, 2023)$26,581 $75,900 
202476,785 61,793 
202563,625 45,738 
202649,774 29,902 
202732,846 13,091 
Thereafter15,011 2,552 
Total future minimum lease payments receivable264,622 228,976 
Plus: Unguaranteed residual1,079 1,387 
Plus: Initial direct costs3,398 2,884 
Less: Imputed interest(28,625)(21,932)
Lease financings$240,474 $211,315 

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Note 5. Goodwill and Other Intangible Assets

The Corporation has goodwill from acquisitions which is deemed to be an indefinite intangible asset and is not amortized. Changes in the carrying amount of the Corporation's goodwill by business segment for the nine months ended September 30, 2023 were as follows:
(Dollars in thousands)BankingWealth ManagementInsuranceConsolidated
Balance at December 31, 2022$138,476 $15,434 $21,600 $175,510 
Addition to goodwill from acquisitions— — — — 
Balance at September 30, 2023$138,476 $15,434 $21,600 $175,510 

The Corporation also has core deposit and customer-related intangibles, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The following table reflects the components of intangible assets at the dates indicated:
At September 30, 2023At December 31, 2022
(Dollars in thousands)Gross Carrying Amount
Accumulated Amortization (1)
Net Carrying AmountGross Carrying Amount
Accumulated Amortization (1)
Net Carrying Amount
Amortized intangible assets:
Core deposit intangibles$6,788 $6,244 $544 $6,788 $5,939 $849 
Customer related intangibles4,162 2,548 1,614 8,493 6,530 1,963 
Servicing rights30,360 21,439 8,921 28,904 20,332 8,572 
Total amortized intangible assets$41,310 $30,231 $11,079 $44,185 $32,801 $11,384 
(1) Included within accumulated amortization is a valuation allowance of $12 thousand and $5 thousand on servicing rights at September 30, 2023 and December 31, 2022, respectively.

The estimated aggregate amortization expense for core deposit and customer-related intangibles for the remainder of 2023 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2023$190 
2024648 
2025469 
2026319 
2027216 
Thereafter316 
Total$2,158 
The aggregate fair value of servicing rights was $19.0 million and $16.8 million at September 30, 2023 and December 31, 2022, respectively. The fair value of these rights was determined using a discount rate of 12.2% at September 30, 2023 and a range of 10.1% to 12.0% at December 31, 2022.
Changes in the servicing rights balance are summarized as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2023202220232022
Beginning of period$8,568 $8,372 $8,572 $7,878 
Servicing rights capitalized707 578 1,456 1,969 
Amortization of servicing rights(350)(383)(1,100)(1,290)
Changes in valuation allowance(4)2 (7)12 
End of period$8,921 $8,569 $8,921 $8,569 
Loans serviced for others$1,568,817 $1,484,738 $1,568,817 $1,484,738 

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Activity in the valuation allowance for servicing rights was as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2023202220232022
Valuation allowance, beginning of period$(8)$(3)$(5)$(13)
Additions(4)— (7)— 
Reductions— 2 — 12 
Valuation allowance, end of period$(12)$(1)$(12)$(1)

The estimated amortization expense of servicing rights for the remainder of 2023 and the succeeding fiscal years is as follows:
Year(Dollars in thousands)Amount
Remainder of 2023$1,042 
2024943 
2025850 
2026765 
2027687 
Thereafter4,634 
Total$8,921 

Note 6. Deposits

Deposits and their respective weighted average interest rate at September 30, 2023 and December 31, 2022 consisted of the following:
At September 30, 2023At December 31, 2022
Weighted Average Interest RateAmountWeighted Average Interest RateAmount
(Dollars in thousands)
Noninterest-bearing deposits— %$1,432,559 — %$2,047,263 
Demand deposits3.40 3,021,009 2.02 2,321,748 
Savings deposits0.48 817,078 0.25 1,025,431 
Time deposits4.08 1,168,519 2.07 519,084 
Total2.40 %$6,439,165 1.02 %$5,913,526 

Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC, which is currently $250 thousand per account owner. The aggregate amount of time deposits in denominations over $250 thousand was $176.4 million at September 30, 2023 and $95.0 million at December 31, 2022.

At September 30, 2023, the scheduled maturities of time deposits were as follows:
Year(Dollars in thousands)Amount
Remainder of 2023$213,065 
2024411,122 
2025301,253 
202639,288 
202769,372 
Thereafter134,419 
Total$1,168,519 

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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, 2023At December 31, 2022
(Dollars in thousands)Balance at End of PeriodWeighted Average Interest Rate at End of PeriodBalance at End of PeriodWeighted Average Interest Rate at End of Period
Short-term borrowings:
FHLB borrowings$— — %$125,000 4.45 %
Federal funds purchased— — 60,000 4.63 
Customer repurchase agreements14,676 0.05 12,141 0.05 
Long-term debt:
FHLB advances$320,000 3.71 %$95,000 1.34 %
Subordinated notes148,636 6.08 148,260 6.09 

The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (the FHLB) with a maximum borrowing capacity of approximately $3.1 billion. All borrowings and letters of credit from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At September 30, 2023 and December 31, 2022, the Bank had outstanding short-term letters of credit with the FHLB totaling $1.3 billion and $690.5 million, respectively, which were utilized to collateralize public funds deposits and other secured deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank. The available borrowing capacity from the FHLB totaled $1.5 billion at September 30, 2023.    

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia to provide access to the Discount Window Lending program. The collateral, consisting of investment securities, was valued at $127.9 million and $98.1 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 and December 31, 2022, the Corporation had no outstanding borrowings under the Discount Window Lending program.

The Corporation has a $10.0 million committed line of credit with a correspondent bank. At September 30, 2023 and December 31, 2022, the Corporation had no outstanding borrowings under this line.

The Corporation and the Bank had $3.3 billion and $3.0 billion of committed borrowing capacity at September 30, 2023 and December 31, 2022, respectively, of which $1.7 billion and $2.1 billion was available as of September 30, 2023 and December 31, 2022, respectively. The Corporation, through the Bank, also maintained unused uncommitted funding sources from correspondent banks of $369.0 million at September 30, 2023 and $410.0 million at December 31, 2022, of which $369.0 million and $350.0 million were unused as of September 30, 2023 and December 31, 2022, respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
Long-term advances with the FHLB of Pittsburgh mature as follows:
(Dollars in thousands)As of September 30, 2023Weighted Average Rate
Remainder of 2023$10,000 3.02 %
202485,000 2.10 
202575,000 4.46 
2026100,000 4.29 
202725,000 3.99 
Thereafter25,000 4.61 
Total$320,000 3.71 %

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Note 8. Retirement Plans and Other Postretirement Benefits

Information with respect to the Retirement Plans and Other Postretirement Benefits follows: 
 Three Months Ended September 30,
 2023202220232022
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$133 $140 $19 $30 
Interest cost590 393 32 25 
Expected loss on plan assets(762)(940)— — 
Amortization of net actuarial loss (gain)250 205 (3)14 
Net periodic benefit cost (income)$211 $(202)$48 $69 

 Nine Months Ended September 30,
 2023202220232022
(Dollars in thousands)Retirement PlansOther Post Retirement
Benefits
Service cost$399 $419 $57 $92 
Interest cost1,774 1,180 96 73 
Expected loss on plan assets(2,293)(2,818)— — 
Amortization of net actuarial loss (gain)750 614 (11)41 
Net periodic benefit cost (income)$630 $(605)$142 $206 

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

The Corporation expects to make total contributions of $156 thousand to the Retirement Plans and $130 thousand to Other Postretirement Benefit Plans in 2023. During the nine months ended September 30, 2023, the Corporation contributed $117 thousand to its Non-Qualified Retirement Benefit Plans and $69 thousand to its Other Postretirement Benefit Plans. During the nine months ended September 30, 2023, $2.1 million was paid to participants from the Retirement Plans and $69 thousand was paid to participants from the Other Postretirement Benefit Plans.

Note 9. Stock-Based Incentive Plan

The Corporation maintains the 2023 Long-Term Incentive Plan (the Plan), which replaced the expired 2013 Long-Term Incentive Plan. On April 26, 2023, the Plan was approved by shareholders at the Corporation's annual meeting.

The following is a summary of the Corporation's stock option activity and related information for the nine months ended September 30, 2023:
(Dollars in thousands, except per share data)Shares Under OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value at September 30, 2023
Outstanding at December 31, 2022294,111 $26.11 
Forfeited(14,487)28.35 
Exercised(6,210)18.48 
Outstanding at September 30, 2023273,414 26.16 3.4$— 
Exercisable at September 30, 2023273,414 26.16 3.4— 
The Corporation did not issue stock options during the nine months ended September 30, 2023 or September 30, 2022.
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The following is a summary of nonvested restricted stock units at September 30, 2023 including changes during the nine months then ended:
(Dollars in thousands, except per share data) Nonvested Stock Units Weighted Average Grant Date Fair Value
Nonvested stock units at December 31, 2022408,264 $25.57 
Granted213,429 25.04 
Added by performance factor814 19.20 
Vested(181,508)22.21 
Forfeited(28,396)27.20 
Nonvested stock units at September 30, 2023412,603 $26.65 

Certain information regarding restricted stock units is summarized below for the periods indicated:
Nine Months Ended September 30,
(Dollars in thousands, except per share data)20232022
Restricted stock units granted213,429 184,863 
Weighted average grant date fair value$25.04 $28.07 
Intrinsic value of units granted$5,345 $5,189 
Restricted stock units vested181,508 124,167 
Weighted average grant date fair value$22.21 $23.53 
Intrinsic value of units vested$4,512 $3,519 

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested restricted stock units at September 30, 2023 is presented below:
(Dollars in thousands)Unrecognized Compensation CostWeighted-Average Period Remaining (Years)
Restricted stock units$6,844 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)20232022
Stock-based compensation expense:
Restricted stock units$3,229 $2,998 
Employee stock purchase plan83 78 
Total$3,312 $3,076 
Tax benefit on nonqualified stock option expense and disqualifying dispositions of incentive stock options$492 $436 

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Note 10. Accumulated Other Comprehensive (Loss) Income

The following table shows the components of accumulated other comprehensive (loss) income, net of taxes, for the periods presented:
(Dollars in thousands)Net Unrealized
Losses 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
Balance, December 31, 2022$(40,066)$(6,831)$(15,207)$(62,104)
Other comprehensive (loss) income(7,911)(2,154)583 (9,482)
Balance, September 30, 2023$(47,977)$(8,985)$(14,624)$(71,586)
Balance, December 31, 2021$(1,216)$(159)$(14,978)$(16,353)
Other comprehensive (loss) income(42,232)(6,917)517 (48,632)
Balance, September 30, 2022$(43,448)$(7,076)$(14,461)$(64,985)

Note 11. Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Corporation periodically uses interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. The Corporation’s credit exposure on interest rate swaps includes changes in fair value and any collateral that is held by a third party.

In May 2022, the Corporation entered into an interest rate swap classified as a cash flow hedge with a notional amount of $250.0 million to hedge the interest payments received on a pool of variable rate loans. Under the terms of the swap agreement, the Corporation pays a variable rate equal to the Prime Rate and receives a fixed rate of 5.99%. The swap matures in May 2026. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and performs an assessment on a recurring basis and determined that the derivative currently is and is expected to be highly effective in offsetting changes in cash flows of the hedged item. At September 30, 2023, approximately $5.1 million, net of tax, which is recorded in accumulated other comprehensive loss, is expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to September 30, 2023. At September 30, 2023, the notional amount of the interest rate swap was $250.0 million and the fair value was a liability of $11.4 million.

Credit Derivatives

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

At September 30, 2023, the Corporation had exposure to 137 variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $880.9 million and remaining maturities ranging from 7 months to 11 years. At September 30, 2023, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $167 thousand. At September 30, 2023, the fair value of the swaps to the customers was a net gain of $88.0 million. At September 30, 2023, the Corporation's credit exposure related to the customer totaled $106 thousand.

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

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Mortgage Banking Derivatives

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

Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.
  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount		Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value
At September 30, 2023
Interest rate swap - cash flow hedge $250,000  $— Other liabilities$11,374 
Total$250,000 $— $11,374 
At December 31, 2022
Interest rate swap - cash flow hedge $250,000  $— Other liabilities$8,647 
Total$250,000 $— $8,647 
The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022:
  Derivative AssetsDerivative Liabilities
(Dollars in thousands)Notional
Amount		Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value
At September 30, 2023
Credit derivatives$880,933  $— Other liabilities$167 
Interest rate locks with customers28,744 Other assets136  — 
Forward loan sale commitments39,467 Other assets148  — 
Total$949,144 $284 $167 
At December 31, 2022
Credit derivatives$815,469 $— Other liabilities$360 
Interest rate locks with customers10,269 Other assets119  — 
Forward loan sale commitments15,306 Other assets29  — 
Total$841,044 $148 $360 

The following table presents amounts included in the condensed consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:
Statement of Income
Classification		Three Months EndedNine Months Ended
September 30,September 30,
(Dollars in thousands)2023202220232022
Interest rate swap—cash flow hedge—net interest paymentsInterest expense (income)$1,558 $(422)$3,989 $(1,040)
Total net (loss) gain$(1,558)$422 $(3,989)$1,040 

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The following table presents amounts included in the condensed consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:
Statement of Income ClassificationThree Months EndedNine Months Ended
September 30,September 30,
(Dollars in thousands)2023202220232022
Credit derivativesOther noninterest income$263 $316 $1,170 $1,355 
Interest rate locks with customersNet (loss) gain on mortgage banking activities(66)(862)16 (1,189)
Forward loan sale commitmentsNet (loss) gain on mortgage banking activities(13)640 119 584 
Total net gain$184 $94 $1,305 $750 

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at September 30, 2023 and December 31, 2022:
(Dollars in thousands)Accumulated Other
Comprehensive (Loss) Income		At September 30, 2023At December 31, 2022
Interest rate swap—cash flow hedgeFair value, net of taxes$(8,985)$(6,831)
Total$(8,985)$(6,831)

Note 12. Fair Value Disclosures

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

Investment Securities

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

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

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

Loans Held for Sale

The fair value of our mortgage loans held for sale is based on estimates using Level 2 inputs. These inputs are based on pricing information obtained from wholesale mortgage banks and brokers and applied to loans with similar interest rates and maturities. At September 30, 2023, loans held for sale included a $5.8 million nonperforming construction loan. The fair value of this loan was measured based on the estimated sale price of the loan and is classified within Level 2 in the fair value hierarchy.

Derivative Financial Instruments

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

Contingent Consideration Liability

The Corporation estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on projected revenue related to the acquired business. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on projected revenue of the acquired business affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the projected revenue, the contingent consideration liability is classified within Level 3 of the valuation hierarchy. An increase in the projected revenue may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the projected revenue may result in a lower estimated fair value of the contingent consideration liability.
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The following table presents the assets and liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022, classified using the fair value hierarchy:
 At September 30, 2023
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$— $2,267 $— $2,267 
Residential mortgage-backed securities— 249,165 — 249,165 
Collateralized mortgage obligations— 2,034 — 2,034 
Corporate bonds— 81,072 — 81,072 
Total available-for-sale securities— 334,538 — 334,538 
Equity securities:
Equity securities - financial services industry663 — — 663 
Money market mutual funds3,391 — — 3,391 
Total equity securities4,054 — — 4,054 
Loans held for sale— 16,473 — 16,473 
Interest rate locks with customers*— 136 — 136 
Forward loan sale commitments*— 148 — 148 
Total assets$4,054 $351,295 $— $355,349 
Liabilities:
Contingent consideration liability$— $— $1,203 $1,203 
Interest rate swaps*— 11,374 — 11,374 
Credit derivatives*— — 167 167 
Total liabilities$— $11,374 $1,370 $12,744 
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."

The $167 thousand of credit derivatives liability represented the Credit Valuation Adjustment (CVA), which is obtained from real-time financial market data, of 137 interest rate swaps with a notional amount of $880.9 million. The September 30, 2023 CVA is calculated using a 40% loss given default rate on the most recent investment grade curve calculated by a third party.

The contingent consideration liability resulting from the Sheaffer acquisition was calculated using a discount rate of 8.3% on the acquisition date. During the nine months ended September 30, 2023, the Corporation paid $635 thousand in contingent consideration related to this acquisition. The contingent consideration liability was $1.2 million at September 30, 2023. The remaining potential cash payments that could result from the contingent consideration arrangement for the Sheaffer acquisition range from $0 to a maximum of $1.3 million through the period ending November 30, 2024.

37
 At December 31, 2022
(Dollars in thousands)Level 1Level 2Level 3Assets/
Liabilities at
Fair Value
Assets:
Available-for-sale securities:
State and political subdivisions$— $2,285 $— $2,285 
Residential mortgage-backed securities— 263,388 — 263,388 
Collateralized mortgage obligations— 2,322 — 2,322 
Corporate bonds— 82,261 — 82,261 
Total available-for-sale securities— 350,256 — 350,256 
Equity securities:
Equity securities - financial services industry780 — — 780 
Money market mutual funds1,799 — — 1,799 
Total equity securities2,579 — — 2,579 
Loans held for sale— 5,037 — 5,037 
Interest rate locks with customers*— 119 — 119 
Forward loan sale commitments*— 29 — 29 
Total assets$2,579 $355,441 $— $358,020 
Liabilities:
Contingent consideration liability$— $— $1,765 $1,765 
Interest rate swaps*— 8,647 — 8,647 
Credit derivatives*— — 360 360 
Total liabilities$— $8,647 $2,125 $10,772 
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."
The $360 thousand of credit derivatives liability represented the CVA, which is obtained from real-time financial market data, of 127 interest rate swaps with a notional amount of $815.5 million. The December 31, 2022 CVA assumed a zero-deal recovery percentage based on the most recent index credit curve.

The contingent consideration liability resulting from the Sheaffer acquisition was $1.6 million, which was calculated using a discount rate of 8.3%. The potential cash payments that could result from the contingent consideration arrangement for the Sheaffer acquisition range from $0 to a maximum of $1.9 million over the three-year period ending November 30, 2024.
The following table includes a roll forward of loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the nine months ended September 30, 2023 and 2022:
 Nine Months Ended September 30, 2023
(Dollars in thousands)Balance at
December 31,
2022		AdditionsPayments receivedIncrease in valueBalance at September 30, 2023
Credit derivatives$(360)$(973)$— $1,166 $(167)
Net total $(360)$(973)$— $1,166 $(167)
 Nine Months Ended September 30, 2022
(Dollars in thousands)Balance at
December 31,
2021		AdditionsPayments receivedIncrease in valueBalance at September 30, 2022
Loans$48 $— $(48)$— $— 
Credit derivatives(381)(1,332)— 1,355 (358)
Net total$(333)$(1,332)$(48)$1,355 $(358)

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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, 2023 and 2022:
 Nine Months Ended September 30, 2023
(Dollars in thousands)Balance at
December 31,
2022		Payment of
Contingent
Consideration		Adjustment
of Contingent
Consideration		Balance at September 30, 2023
Paul I. Sheaffer Insurance Agency$1,765 $635 $73 $1,203 
Total contingent consideration liability$1,765 $635 $73 $1,203 
 Nine Months Ended September 30, 2022
(Dollars in thousands)Balance at
December 31,
2021		Payment of
Contingent
Consideration		Adjustment
of Contingent
Consideration		Balance at September 30, 2022
Paul I. Sheaffer Insurance Agency$1,629 $— $105 $1,734 
Total contingent consideration liability$1,629 $— $105 $1,734 

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, 2023 and December 31, 2022:
 At September 30, 2023
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$— $— $11,718 $11,718 
Other real estate owned— — 19,916 19,916 
Total$— $— $31,634 $31,634 
 At December 31, 2022
(Dollars in thousands)Level 1Level 2Level 3Assets at
Fair Value
Individually analyzed loans held for investment$— $— $10,586 $10,586 
Other real estate owned— — 19,258 19,258 
Total$— $— $29,844 $29,844 

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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, 2023 and December 31, 2022. The disclosed fair values are classified using the fair value hierarchy.
 At September 30, 2023
(Dollars in thousands)Level 1Level 2Level 3Fair
Value		Carrying
Amount
Assets:
Cash and short-term interest-earning assets$290,341 $— $— $290,341 $290,341 
Held-to-maturity securities— 123,760 — 123,760 149,451 
Federal Home Loan Bank, Federal Reserve Bank and other stockNANANANA42,417 
Net loans and leases held for investment— — 6,213,204 6,213,204 6,479,403 
Servicing rights— — 18,963 18,963 8,921 
Total assets$290,341 $123,760 $6,232,167 $6,646,268 $6,970,533 
Liabilities:
Deposits:
Demand and savings deposits, non-maturity$5,270,646 $— $— $5,270,646 $5,270,646 
Time deposits— 1,153,897 — 1,153,897 1,168,519 
Total deposits5,270,646 1,153,897 — 6,424,543 6,439,165 
Short-term borrowings— 14,676 — 14,676 14,676 
Long-term debt— 316,366 — 316,366 320,000 
Subordinated notes— 135,000 — 135,000 148,636 
Total liabilities$5,270,646 $1,619,939 $— $6,890,585 $6,922,477 

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

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

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

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

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

Loans held for sale: Loans held for sale are carried at the lower of cost or estimated fair value. The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. At September 30, 2023, loans held for sale also included a $5.8 million nonperforming loan. The fair value of this loan was measured based on the estimated sale price of the loan and is classified within Level 2 in the fair value hierarchy.

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

Individually analyzed loans and leases held for investment: For individually analyzed loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At September 30, 2023, individually analyzed loans held for investment had a carrying amount of $12.6 million with a valuation allowance of $834 thousand. At December 31, 2022, individually analyzed loans held for investment had a carrying amount of $13.4 million with a valuation allowance of $2.8 million. The Corporation had no individually analyzed leases at September 30, 2023 or December 31, 2022.

Servicing rights: The Corporation estimates the fair value of servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the servicing rights portfolio on a quarterly basis for impairment and the servicing rights are carried at the lower of amortized cost or estimated fair value. At September 30, 2023, servicing rights had a net carrying amount of $8.9 million, which included a valuation allowance of $12 thousand. At December 31, 2022, servicing rights had a net carrying amount of $8.6 million, which included a valuation allowance of $5 thousand.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the nine months ended September 30, 2023, there were no required valuation adjustments of goodwill and other identifiable intangible assets.

Other real estate owned: Other real estate owned (OREO) represents properties that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that were used as loan collateral. The Corporation reports OREO at the lower of cost or fair value less cost to sell, adjusted periodically based on a current appraisal or an executed agreement of sale. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset. Write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. OREO is reported in other assets on the condensed consolidated balance sheet. At September 30, 2023 and December 31, 2022, OREO had a carrying amount of $19.9 million and $19.3 million, respectively. During the nine months ended September 30, 2023, one property was transferred to OREO with a carrying value of $79
41
thousand and an additional property had $558 thousand of capitalized improvements. Other real estate owned is classified within Level 3 in the fair value hierarchy based on appraisals, letters of intent or agreement of sale received from third parties.

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

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

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

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

Note 13. Segment Reporting

At September 30, 2023, the Corporation had three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.
Each segment generates revenue from a variety of products and services it provides. Examples of products and services provided for each reportable segment are indicated as follows:
●The Banking segment provides financial services to individuals, businesses, municipalities and nonprofit organizations. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing.
●The Wealth Management segment offers investment advisory, financial planning, trust and brokerage services. The Wealth Management segment serves a diverse client base of private families and individuals, municipal pension plans, retirement plans, trusts and guardianships.
●The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, employee benefit solutions, personal insurance lines and human resources consulting.
The following table provides total assets by reportable business segment as of the dates indicated.
(Dollars in thousands)At September 30, 2023At December 31, 2022At September 30, 2022
Banking$7,706,141 $7,104,727 $6,793,567 
Wealth Management57,845 58,239 55,771 
Insurance47,507 44,728 43,547 
Other16,573 14,322 14,512 
Consolidated assets$7,828,066 $7,222,016 $6,907,397 
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The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and nine months ended September 30, 2023 and 2022.
Three Months Ended
September 30, 2023
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$97,079 $18 $— $9 $97,106 
Interest expense41,235 — — 2,281 43,516 
Net interest income (expense)55,844 18 — (2,272)53,590 
Provision for credit losses2,024 — — — 2,024 
Noninterest income6,950 6,803 4,912 26 18,691 
Noninterest expense39,299 5,130 3,987 572 48,988 
Intersegment (revenue) expense*(236)114 122 — — 
Income (loss) before income taxes21,707 1,577 803 (2,818)21,269 
Income tax expense (benefit)4,452 284 185 (668)4,253 
Net income (loss)$17,255 $1,293 $618 $(2,150)$17,016 
Net capital expenditures$560 $9 $5 $33 $607 

Three Months Ended
September 30, 2022
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$66,862 $6 $— $9 $66,877 
Interest expense7,299 — — 1,328 8,627 
Net interest income (expense)59,563 6 — (1,319)58,250 
Provision for credit losses3,558 — — — 3,558 
Noninterest income7,216 6,082 4,642 19 17,959 
Noninterest expense37,452 4,298 3,879 1,036 46,665 
Intersegment (revenue) expense*(432)210 222 — — 
Income (loss) before income taxes26,201 1,580 541 (2,336)25,986 
Income tax expense (benefit)5,407 241 108 (571)5,185 
Net income (loss)$20,794 $1,339 $433 $(1,765)$20,801 
Net capital expenditures$1,128 $269 $15 $171 $1,583 

Nine Months Ended
September 30, 2023
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$270,422 $49 $— $27 $270,498 
Interest expense96,417 — — 6,844 103,261 
Net interest income (expense)174,005 49 — (6,817)167,237 
Provision for credit losses8,839 — — — 8,839 
Noninterest income21,139 20,246 16,846 (27)58,204 
Noninterest expense119,984 14,790 11,877 1,665 148,316 
Intersegment (revenue) expense*(709)344 365 — — 
Income (loss) before income taxes67,030 5,161 4,604 (8,509)68,286 
Income tax expense (benefit)13,913 580 1,015 (2,072)13,436 
Net income (loss)$53,117 $4,581 $3,589 $(6,437)$54,850 
Net capital expenditures$3,595 $15 $124 $454 $4,188 
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Nine Months Ended
September 30, 2022
(Dollars in thousands)BankingWealth ManagementInsuranceOtherConsolidated
Interest income$174,758 $8 $— $26 $174,792 
Interest expense14,428 — — 3,983 18,411 
Net interest income (expense)160,330 8 — (3,957)156,381 
Provision for credit losses6,782 — — — 6,782 
Noninterest income (expense)22,066 20,249 15,234 (122)57,427 
Noninterest expense112,119 13,398 11,626 2,305 139,448 
Intersegment (revenue) expense*(1,299)632 667 — — 
Income (loss) before income taxes64,794 6,227 2,941 (6,384)67,578 
Income tax expense (benefit)13,038 1,169 612 (1,525)13,294 
Net income (loss)$51,756 $5,058 $2,329 $(4,859)$54,284 
Net capital expenditures$(3,944)$495 $53 $225 $(3,171)
*Includes an allocation of general and administrative expenses from both the parent holding company and the Bank. These expenses are generally allocated based upon number of employees and square footage utilized.

Note 14. Contingencies

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

44
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Forward-Looking Statements

The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words "believe" "anticipate," "estimate," "expect," "project," "target," "goal" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may include but are not limited to: statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to certain risks, uncertainties and assumptions, including but not limited to those set forth below:
 
•Operating, legal and regulatory risks;
•Economic, political and competitive forces;
•General economic conditions, either nationally or in our market areas, that are worse than expected included as a result of employment levels and labor shortages, and the effect of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise;
•Legislative, regulatory and accounting changes, including increased assessments by the Federal Deposit Insurance Corporation;
•Monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;
•Demand for our financial products and services in our market area;
•Major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;
•The effects of a government shutdown;
•Inflation or volatility in interest rates that reduce our margins and yields, the fair value of financial instruments or our level of loan originations or prepayments on loans we have made and make;
•Fluctuations in real estate values in our market area;
•A failure to maintain adequate levels of capital and liquidity to support our operations;
•The composition and credit quality of our loan and investment portfolios;
•Changes in the level and direction of loan delinquencies, classified and criticized loans and charge-offs and changes in estimates of the adequacy of the allowance for credit losses;
•Changes in the economic assumptions utilized to calculate the allowance for credit losses;
•Our ability to access cost-effective funding;
•Changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;
•Our ability to implement our business strategies;
•Our ability to manage market risk, credit risk and operational risk;
•Timing and amount of revenue and expenditures;
•Adverse changes in the securities markets;
•The impact of any military conflict, terrorist act or other geopolitical acts;
•Our ability to enter new markets successfully and capitalize on growth opportunities;
•Competition for loans, deposits and employees;
•System failures or cyber-security breaches of our information technology infrastructure and those of our third-party service providers;
•The failure to maintain current technologies and/or to successfully implement future information technology enhancements;
•Our ability to retain key employees;
•Other risks and uncertainties, including those occurring in the U.S. and world financial systems; and
•The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.
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Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These and other risk factors are more fully described in this report and in the Univest Financial Corporation Annual Report on Form 10-K for the year ended December 31, 2022 under the section entitled "Item 1A - Risk Factors," and from time to time in other filings made by the Corporation with the SEC.

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

Critical Accounting Policies

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

General

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

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

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

Executive Overview

The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:
Three Months EndedNine Months Ended
 September 30,ChangeSeptember 30,Change
(Dollars in thousands, except per share data)20232022AmountPercent20232022AmountPercent
Net income$17,016 $20,801 $(3,785)(18.2)%$54,850 $54,284 $566 1.0 %
Net income per share:
Basic$0.58 $0.71 $(0.13)(18.3)$1.86 $1.85 $0.01 0.5 
Diluted0.58 0.71 (0.13)(18.3)1.86 1.84 0.02 1.1 
Return on average assets0.88 %1.21 %(33 BP)(27.3)0.98 %1.05 %(7 BP)(6.7)
Return on average equity8.32 %10.67 %(235 BP)(22.0)9.14 %9.39 %(25 BP)(2.7)

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Results of Operations

Net Interest Income

Net interest income is the difference between interest earned primarily on loans, leases and investment securities and interest paid on deposits, borrowings, long-term debt and subordinated notes. Net interest income is the principal source of the Corporation’s revenue. Table 1 presents the Corporation’s average balances, tax-equivalent interest income, interest expense, tax-equivalent yields earned on average assets, cost of average liabilities, and shareholders' equity on a tax-equivalent basis for the three and nine months ended September 30, 2023 and 2022. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread represents the weighted average tax-equivalent yield on interest-earning assets less the weighted average cost of interest-bearing liabilities. The effect of net interest-free funding sources represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders' equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.

Three and nine months ended September 30, 2023 versus 2022

Net interest income on a tax-equivalent basis for the three months ended September 30, 2023 was $53.9 million, a decrease of $4.9 million, or 8.3%, compared to $58.7 million for the three months ended September 30, 2022. The decrease in tax-equivalent net interest income for the three months ended September 30, 2023 compared to the comparable period in the prior year was largely due to increases in the cost of funds and the average balance of interest-bearing liabilities, partially offset by increases in the yield and average balance of interest-earning assets. The increase in the yield on interest-earning assets and the cost of funds was primarily driven by the increase in market interest rates. The increase in the cost of funds also reflected a higher proportion of deposits in higher-costing certificates of deposit and money market savings accounts.

Net interest income on a tax-equivalent basis for the nine months ended September 30, 2023 was $168.2 million, an increase of $10.3 million, or 6.5%, compared to $157.9 million for the nine months ended September 30, 2022. The increase in tax-equivalent net interest income for the nine months ended September 30, 2023 compared to the comparable period in the prior year was largely due to an increase in average loan balances and asset yields, offset by increases in the average balance of interest bearing liabilities and the cost of funds. The increase in the yield on interest-earning assets and the cost of funds was primarily driven by the increase in market interest rates. The increase in the cost of funds also reflected a higher proportion of deposits in higher-costing certificates of deposit and money market savings accounts.

The net interest margin, on a tax-equivalent basis, was 2.96% and 3.22% for the three and nine months ended September 30, 2023, respectively, compared to 3.67% and 3.25% for the three and nine months ended September 30, 2022, respectively. Excess liquidity reduced net interest margin by approximately four and one basis points for the three and nine months ended September 30, 2023, respectively, and approximately one and 20 basis points for the three and nine months ended September 30, 2022, respectively.
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Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
 Three Months Ended September 30,
 20232022
(Dollars in thousands)Average
Balance		Income/
Expense		Average
Rate		Average
Balance		Income/
Expense		Average
Rate
Assets:
Interest-earning deposits with other banks$143,109 $1,865 5.17 %$49,476 $252 2.02 %
U.S. government obligations— — — 565 3 2.11 
Obligations of states and political subdivisions*2,281 16 2.78 2,308 18 3.09 
Other debt and equity securities504,060 3,540 2.79 514,462 3,010 2.32 
Federal Home Loan Bank, Federal Reserve Bank and other stock40,406 712 6.99 28,368 435 6.08 
Total interest-earning deposits, investments and other interest-earning assets689,856 6,133 3.53 595,179 3,718 2.48 
Commercial, financial and agricultural loans995,355 17,545 6.99 981,303 12,036 4.87 
Real estate—commercial and construction loans3,552,709 49,548 5.53 3,105,821 34,100 4.36 
Real estate—residential loans1,543,360 18,270 4.70 1,256,509 12,492 3.94 
Loans to individuals26,538 525 7.85 27,197 381 5.56 
Municipal loans and leases*234,685 2,430 4.11 235,433 2,432 4.10 
Lease financings184,522 2,928 6.30 145,856 2,195 5.97 
Gross loans and leases6,537,169 91,246 5.54 5,752,119 63,636 4.39 
Total interest-earning assets7,227,025 97,379 5.35 6,347,298 67,354 4.21 
Cash and due from banks62,673 62,930 
Allowance for credit losses, loans and leases(83,827)(72,355)
Premises and equipment, net52,071 50,476 
Operating lease right-of-use assets31,647 30,740 
Other assets404,394 378,377 
Total assets$7,693,983 $6,797,466 
Liabilities:
Interest-bearing checking deposits$1,070,063 $6,703 2.49 %$881,395 $1,251 0.56 %
Money market savings1,645,210 17,850 4.30 1,246,795 3,709 1.18 
Regular savings828,672 861 0.41 1,086,191 302 0.11 
Time deposits1,140,622 11,668 4.06 416,539 1,189 1.13 
     Total time and interest-bearing deposits4,684,567 37,082 3.14 3,630,920 6,451 0.70 
Short-term borrowings93,028 1,117 4.76 104,453 524 1.99 
Long-term debt320,000 3,036 3.76 95,000 324 1.35 
Subordinated notes148,568 2,281 6.09 99,065 1,328 5.32 
Total borrowings561,596 6,434 4.55 298,518 2,176 2.89 
Total interest-bearing liabilities5,246,163 43,516 3.29 3,929,438 8,627 0.87 
Noninterest-bearing deposits1,538,143 2,014,371 
Operating lease liabilities34,788 33,786 
Accrued expenses and other liabilities63,374 46,772 
Total liabilities6,882,468 6,024,367 
Total interest-bearing liabilities and noninterest-bearing deposits ("Cost of Funds")6,784,306 2.54 5,943,809 0.58 
Shareholders’ Equity:
Common stock157,784 157,784 
Additional paid-in capital299,575 299,135 
Retained earnings and other equity354,156 316,180 
Total shareholders’ equity811,515 773,099 
Total liabilities and shareholders’ equity$7,693,983 $6,797,466 
Net interest income$53,863 $58,727 
Net interest spread2.06 3.34 
Effect of net interest-free funding sources0.90 0.33 
Net interest margin2.96 %3.67 %
Ratio of average interest-earning assets to average interest-bearing liabilities137.76 %161.53 %
*Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.
Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs and purchase accounting adjustments.
Net interest income includes net deferred costs amortization of $563 thousand and $498 thousand for the three months ended September 30, 2023 and 2022, respectively.
Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the three months ended September 30, 2023 and 2022 have been calculated using the Corporation's federal applicable rate of 21%.
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 Nine Months Ended September 30,
 20232022
(Dollars in thousands)Average
Balance		Income/
Expense		Average
Rate		Average
Balance		Income/
Expense		Average
Rate
Assets:
Interest-earning deposits with other banks$79,630 $2,856 4.80 %$416,466 $1,433 0.46 %
U.S. government obligations— — — 2,578 40 2.07 
Obligations of states and political subdivisions*2,284 48 2.81 2,314 54 3.12 
Other debt and equity securities511,420 10,547 2.76 513,491 8,076 2.10 
Federal Home Loan Bank, Federal Reserve Bank and other stock39,664 2,102 7.09 27,239 1,134 5.57 
Total interest-earning deposits, investments and other interest-earning assets632,998 15,553 3.29 962,088 10,737 1.49 
Commercial, financial and agricultural loans997,590 50,002 6.70 949,141 29,390 4.14 
Real estate—commercial and construction loans3,447,551 137,929 5.35 3,005,714 88,447 3.93 
Real estate—residential loans1,478,871 51,216 4.63 1,180,202 33,132 3.75 
Loans to individuals26,859 1,453 7.23 26,598 924 4.64 
Municipal loans and leases*233,211 7,159 4.10 237,928 7,270 4.09 
Lease financings175,416 8,128 6.20 141,041 6,375 6.04 
Gross loans and leases6,359,498 255,887 5.38 5,540,624 165,538 3.99 
Total interest-earning assets6,992,496 271,440 5.19 6,502,712 176,275 3.62 
Cash and due from banks59,811 57,455 
Allowance for credit losses, loans and leases(81,829)(70,950)
Premises and equipment, net52,067 51,551 
Operating lease right-of-use assets31,384 30,453 
Other assets399,141 363,810 
Total assets$7,453,070 $6,935,031 
Liabilities:
Interest-bearing checking deposits$980,725 $15,259 2.08 %$871,393 $2,264 0.35 %
Money market savings1,532,318 43,020 3.75 1,397,220 6,165 0.59 
Regular savings900,448 2,375 0.35 1,059,644 777 0.10 
Time deposits845,635 22,231 3.51 447,497 3,722 1.11 
     Total time and interest-bearing deposits4,259,126 82,885 2.60 3,775,754 12,928 0.46 
Short-term borrowings195,606 7,094 4.85 46,765 537 1.54 
Long-term debt 245,366 6,438 3.51 95,000 962 1.35 
Subordinated notes148,444 6,844 6.16 98,989 3,984 5.38 
Total borrowings589,416 20,376 4.62 240,754 5,483 3.04 
Total interest-bearing liabilities4,848,542 103,261 2.85 4,016,508 18,411 0.61 
Noninterest-bearing deposits1,709,533 2,067,428 
Operating lease liabilities34,548 33,514 
Accrued expenses and other liabilities57,906 44,630 
Total liabilities6,650,529 6,162,080 
Total interest-bearing liabilities and noninterest-bearing deposits ("Cost of Funds")6,558,075 2.11 6,083,936 0.40 
Shareholders’ Equity:
Common stock157,784 157,784 
Additional paid-in capital299,550 298,784 
Retained earnings and other equity345,207 316,383 
Total shareholders’ equity802,541 772,951 
Total liabilities and shareholders’ equity$7,453,070 $6,935,031 
Net interest income$168,179 $157,864 
Net interest spread2.34 3.01 
Effect of net interest-free funding sources0.88 0.24 
Net interest margin3.22 %3.25 %
Ratio of average interest-earning assets to average interest-bearing liabilities144.22 %161.90 %
*Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.
Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs and purchase accounting adjustments.
Net interest income includes net deferred costs amortization of $1.7 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively.
Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances. Tax-equivalent amounts for the nine months ended September 30, 2023 and 2022 have been calculated using the Corporation's federal applicable rate of 21%.
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Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.
Three Months EndedNine Months Ended
 September 30, 2023 Versus 2022September 30, 2023 Versus 2022
(Dollars in thousands)Volume
Change		Rate
Change		TotalVolume
Change		Rate
Change		Total
Interest income:
Interest-earning deposits with other banks$884 $729 $1,613 $(2,023)$3,446 $1,423 
U.S. government obligations(3)— (3)(40)— (40)
Obligations of states and political subdivisions— (2)(2)(1)(5)(6)
Other debt and equity securities(63)593 530 (33)2,504 2,471 
Federal Home Loan Bank, Federal Reserve Bank and other stock205 72 277 606 362 968 
Interest on deposits, investments and other earning assets1,023 1,392 2,415 (1,491)6,307 4,816 
Commercial, financial and agricultural loans175 5,334 5,509 1,572 19,040 20,612 
Real estate—commercial and construction loans5,392 10,056 15,448 14,309 35,173 49,482 
Real estate—residential loans3,132 2,646 5,778 9,383 8,701 18,084 
Loans to individuals(9)153 144 9 520 529 
Municipal loans and leases(8)6 (2)(131)20 (111)
Lease financings607 126 733 1,581 172 1,753 
Interest and fees on loans and leases9,289 18,321 27,610 26,723 63,626 90,349 
Total interest income10,312 19,713 30,025 25,232 69,933 95,165 
Interest expense:
Interest-bearing checking deposits318 5,134 5,452 321 12,674 12,995 
Money market savings1,525 12,616 14,141 653 36,202 36,855 
Regular savings(86)645 559 (134)1,732 1,598 
Time deposits4,205 6,274 10,479 5,395 13,114 18,509 
     Total time and interest-bearing deposits5,962 24,669 30,631 6,235 63,722 69,957 
Short-term borrowings(63)656 593 3,913 2,644 6,557 
Long-term debt1,547 1,165 2,712 2,723 2,753 5,476 
Subordinated notes 739 214 953 2,217 643 2,860 
Interest on borrowings2,223 2,035 4,258 8,853 6,040 14,893 
Total interest expense8,185 26,704 34,889 15,088 69,762 84,850 
Net interest income$2,127 $(6,991)$(4,864)$10,144 $171 $10,315 

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Provision for Credit Losses

The provision for credit losses for the three months ended September 30, 2023 and 2022 was $2.0 million and $3.6 million, respectively. The provision for credit losses for the nine months ended September 30, 2023 and 2022 was $8.8 million and $6.8 million, respectively. The following table details information pertaining to the Corporation’s allowance for credit losses on loans and leases as a percentage of loans and leases held for investment at the dates indicated.

(Dollars in thousands)September 30, 2023June 30, 2023March 31, 2023December 31, 2022September 30, 2022June 30, 2022
Allowance for credit losses, loans and leases$83,837 $82,709 $80,034 $79,004 $74,929 $72,011 
Loans and leases held for investment6,574,958 6,462,238 6,239,804 6,123,230 5,849,259 5,661,777 
Allowance for credit losses, loans and leases / loans and leases held for investment1.28 %1.28 %1.28 %1.29 %1.28 %1.27 %

Noninterest Income

The following table presents noninterest income for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
 September 30,ChangeSeptember 30,Change
(Dollars in thousands)20232022AmountPercent20232022AmountPercent
Trust fee income$1,910 $1,835 $75 4.1 %$5,789 $5,935 $(146)(2.5 %)
Service charges on deposit accounts1,816 1,522 294 19.3 5,088 4,600 488 10.6 
Investment advisory commission and fee income4,843 4,199 644 15.3 14,303 14,163 140 1.0 
Insurance commission and fee income4,852 4,442 410 9.2 16,447 14,641 1,806 12.3 
Other service fee income3,020 3,124 (104)(3.3)9,414 9,189 225 2.4 
Bank owned life insurance income806 1,153 (347)(30.1)2,362 2,557 (195)(7.6)
Net gain on sales of investment securities— — — N/A— 30 (30)N/M
Net gain on mortgage banking activities1,216 817 399 48.8 2,880 3,976 (1,096)(27.6)
Other income228 867 (639)(73.7)1,921 2,336 (415)(17.8)
Total noninterest income$18,691 $17,959 $732 4.1 %$58,204 $57,427 $777 1.4 %

Three and nine months ended September 30, 2023 versus 2022

Noninterest income for the three months ended September 30, 2023 was $18.7 million, an increase of $732 thousand, or 4.1%, from the three months ended September 30, 2022. Noninterest income for the nine months ended September 30, 2023 was $58.2 million, an increase of $777 thousand, or 1.4%, from the nine months ended September 30, 2022.

Investment advisory commission and fee income increased $644 thousand, or 15.3%, for the three months ended September 30, 2023 from the comparable period in the prior year primarily due to new customer relationships and appreciation of assets under management, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management.

Insurance commission and fee income increased $410 thousand, or 9.2%, for the three months ended September 30, 2023 and $1.8 million, or 12.3%, for the nine months ended September 30, 2023 from the comparable periods in the prior year. The increases were primarily due to increased revenue from commercial lines. In addition, the increase for the nine months ended September 30, 2023 included an increase in contingent commission income of $592 thousand, which was $1.9 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. Contingent income is largely recognized in the first quarter of the year.

Net gain on mortgage banking activities increased $399 thousand, or 48.8%, for the three months ended September 30, 2023 and decreased $1.1 million, or 27.6%, for the nine months ended September 30, 2023 from the comparable periods in the prior year. The increase for the three months ended September 30, 2023 was due to increased volume, and the decrease for the
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nine months ended September 30, 2023 was due to a decrease in loan sales and a contraction of margins due to the higher interest rate environment in 2023.

Bank owned life insurance decreased $347 thousand, or 30.1%, for the three months ended September 30, 2023 and $195 thousand, or 7.6%, for the nine months ended September 30, 2023 from the comparable periods in the prior year, primarily due to a death benefit claim of $446 thousand received in the third quarter of 2022.

Other income decreased $639 thousand, or 73.7%, for the three months ended September 30, 2023 and $415 thousand, or 17.8%, for the nine months ended September 30, 2023 from the comparable periods in the prior year primarily due to a $412 thousand and $230 thousand decrease in the gain on sale of Small Business Administration loans for the respective periods due to less activity.

Noninterest Expense

The following table presents noninterest expense for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
 September 30,ChangeSeptember 30,Change
(Dollars in thousands)20232022AmountPercent20232022AmountPercent
Salaries, benefits and commissions$29,978 $29,400 $578 2.0 %$90,867 $86,778 $4,089 4.7 %
Net occupancy2,594 2,504 90 3.6 7,935 7,642 293 3.8 
Equipment1,087 968 119 12.3 3,066 2,927 139 4.7 
Data processing4,189 3,901 288 7.4 12,355 11,176 1,179 10.5 
Professional fees1,763 2,521 (758)(30.1)5,373 7,503 (2,130)(28.4)
Marketing and advertising555 605 (50)(8.3)1,548 1,723 (175)(10.2)
Deposit insurance premiums1,258 662 596 90.0 3,475 2,367 1,108 46.8
Intangible expenses220 309 (89)(28.8)726 992 (266)(26.8)
Restructuring charges— — — N/A1,330 — 1,330 N/M
Other expense7,344 5,795 1,549 26.7 21,641 18,340 3,301 18.0 
Total noninterest expense$48,988 $46,665 $2,323 5.0 %$148,316 $139,448 $8,868 6.4 %
Three and nine months ended September 30, 2023 versus 2022

Noninterest expense for the three months ended September 30, 2023 was $49.0 million, an increase of $2.3 million, or 5.0%, from the three months ended September 30, 2022. Noninterest expense for the nine months ended September 30, 2023 was $148.3 million, an increase of $8.9 million, or 6.4%, from the nine months ended September 30, 2022.

Salaries, benefits and commissions increased $578 thousand, or 2.0%, for the three months ended September 30, 2023 and $4.1 million, or 4.7%, for the nine months ended September 30, 2023 from the comparable periods in the prior year. These increases reflect our expansion into Maryland and Western Pennsylvania and annual merit increases, increases in medical claims and decreases in compensation capitalized driven by lower loan production, offset by decreases due to the staff reduction that was announced during the second quarter, and a reduction in incentive compensation due to decreased profitability.

Deposit insurance premiums increased $596 thousand, or 90.0%, for the three months ended September 30, 2023 and $1.1 million, or 46.8%, for the nine months ended September 30, 2023 from the comparable periods in the prior year, primarily driven by an increased industry-wide assessment rate and an increase in our assessment base.

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

Other expense increased $1.5 million, or 26.7%, for the three months ended September 30, 2023 and $3.3 million, or 18.0%, for the nine months ended September 30, 2023 from the comparable periods in the prior year, primarily due to increases in retirement plan costs of $527 thousand and $1.2 million, respectively. Other increases included $324 thousand and $769 thousand of loan processing and workout fees for the three and nine months ended September 30, 2023, respectively. Federal
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Home Loan Bank letter of credit fees increased by $138 thousand and $244 thousand for the three and nine months ended September 30, 2023, respectively, due to increases in public fund deposits and related collateral costs.

Professional fees decreased $758 thousand, or 30.1%, and $2.1 million, or 28.4%, for the three and nine months ended September 30, 2023 primarily due to consultant fees incurred in the second quarter of 2022 related to our digital transformation initiative.

Tax Provision

The Corporation recognized a tax expense of $4.3 million and $5.2 million for the three months ended September 30, 2023 and 2022, respectively, resulting in an effective rate of 20.0% for both periods. The Corporation recognized a tax expense of $13.4 million and $13.3 million for the nine months ended September 30, 2023 and 2022, respectively, resulting in an effective rate of 19.7% for both periods. The effective tax rates for the three and nine months ended September 30, 2023 and 2022 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. Additionally, the effective tax rate for the nine months ended September 30, 2022 was favorably impacted by discrete tax benefits and proceeds from BOLI death benefits.

Financial Condition

Assets

The following table presents assets at the dates indicated:
 At September 30, 2023At December 31, 2022Change
(Dollars in thousands)AmountPercent
Cash, interest-earning deposits and federal funds sold$290,341 $152,799 $137,542 90.0 %
Investment securities488,043 507,562 (19,519)(3.8)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost42,417 33,841 8,576 25.3 
Loans held for sale16,473 5,037 11,436 227.0 
Loans and leases held for investment6,574,958 6,123,230 451,728 7.4 
Allowance for credit losses, loans and leases(83,837)(79,004)(4,833)6.1 
Premises and equipment, net51,287 50,939 348 0.7 
Operating lease right-of-use assets31,053 30,059 994 3.3 
Goodwill and other intangibles, net186,589 186,894 (305)(0.2)
Bank owned life insurance130,522 120,297 10,225 8.5 
Accrued interest receivable and other assets100,220 90,362 9,858 10.9 
        Total assets$7,828,066 $7,222,016 $606,050 8.4 %
Cash and Interest-Earning Deposits

Cash and interest-earning deposits increased $137.5 million, or 90.0%, from December 31, 2022, primarily due to increased interest earning deposits at the Federal Reserve Bank of $151.6 million due to increased long-term debt and deposit growth outpacing loan funding, offset by decreased borrowings.

Investment Securities

Total investment securities at September 30, 2023 decreased $19.5 million, or 3.8%, from December 31, 2022. Maturities and pay-downs of $34.8 million, net amortization of purchased premiums and discounts of $907 thousand, calls of $500 thousand, a provision for credit losses of $397 thousand, sales of $252 thousand and and decreases in the fair value of available-for-sale investment securities of $10.0 million, which were partially offset by purchases of $27.4 million, which were primarily residential mortgage-backed securities.

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Loans and Leases Held for Sale

Gross loans and leases held for sale increased $11.4 million, or 227.0%, from December 31, 2022. During the third quarter of 2023, a $5.8 million nonperforming construction loan was transferred to held for sale and was sold on October 16, 2023.

Loans and Leases

Gross loans and leases held for investment increased $451.7 million, or 7.4%, from December 31, 2022. The growth in gross loans and leases held for investment was primarily due to increases in commercial real estate, construction, residential mortgage loans and lease financings.

Asset Quality

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

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

At September 30, 2023, nonaccrual loans and leases were $18.1 million and had a related allowance for credit losses on loans and leases of $834 thousand. At December 31, 2022, nonaccrual loans and leases were $13.4 million and had a related allowance for credit losses on loans and leases of $2.8 million. During the second quarter of 2023, a $5.8 million construction loan was placed on nonaccrual status and a $2.5 million nonaccrual commercial loan was paid off, with a related allowance of $448 thousand. Based on the value of the underlying collateral, an individual reserve was not recorded for the $5.8 million construction loan as of June 30, 2023. Subsequently, during the third quarter of 2023, the loan was transferred to held for sale and was sold on October 16, 2023. Individual reserves have been established based on current facts and management's judgements about the ultimate outcome of these credits, including the most recent known data available on any related underlying collateral and the borrower's cash flows. The amount of individual reserve needed for these credits could change in future periods subject to changes in facts and judgements related to these credits.

Net loan and lease charge-offs for the three months ended September 30, 2023 were $969 thousand compared to $1.2 million for the same period in the prior year. Net loan and lease charge-offs for the nine months ended September 30, 2023 were $4.3 million compared to $3.0 million for the same period in the prior year. The increase in charge-offs for the nine months ended September 30, 2023 was primarily due to $2.4 million of charge-offs recorded against two existing nonaccrual commercial loans to one borrower in the first quarter of 2023. As of December 31, 2022, the allowance for credit losses included a $2.1 million individual reserve for this relationship.

Other real estate owned ("OREO") was $19.9 million at September 30, 2023 compared to $19.3 million at December 31, 2022, primarily due to capitalized improvements on an existing OREO property and the transfer of a residential real estate property with a carrying value of $79 thousand.

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Table 3—Nonaccrual and Past Due Loans and Leases; Other Real Estate Owned; and Related Ratios

The following table details information pertaining to the Corporation’s nonperforming assets at the dates indicated.
(Dollars in thousands)At September 30, 2023At December 31, 2022
Nonaccrual loans held for sale$5,819 $— 
Nonaccrual loans and leases held for investment 12,266 13,353 
Accruing loans and leases, 90 days or more past due2,135 875 
Total nonperforming loans and leases$20,220 $14,228 
Other real estate owned19,916 19,258 
Total nonperforming assets$40,136 $33,486 
Loans and leases held for investment$6,574,958 $6,123,230 
Allowance for credit losses, loans and leases83,837 79,004 
Allowance for credit losses, loans and leases / loans and leases held for investment1.28 %1.29 %
Nonaccrual loans and leases / loans and leases held for investment0.28 %0.22 %
Allowance for credit losses, loans and leases / nonaccrual loans and leases463.57 %591.66 %

The following table provides additional information on the Corporation’s nonaccrual loans held for investment:
(Dollars in thousands)At September 30, 2023At December 31, 2022
Nonaccrual loans and leases, held for investment$12,266 $13,353 
Nonaccrual loans and leases with partial charge-offs702 928 
Life-to-date partial charge-offs on nonaccrual loans and leases519 448 
Reserves on individually analyzed loans834 2,765 

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Table 4—Loan Portfolio Overview

The following table provides summarized detail related to outstanding commercial loan balances segmented by industry description as of September 30, 2023:
(Dollars in thousands)September 30, 2023
Industry DescriptionTotal Outstanding Balance % of Commercial Loan Portfolio
CRE - Retail$466,862 8.9 %
Animal Production359,814 6.8 
CRE - Multi-family304,289 5.8 
CRE - Office301,949 5.7 
CRE - 1-4 Family Residential Investment282,333 5.4 
CRE - Industrial / Warehouse244,107 4.6 
Hotels & Motels (Accommodation)190,698 3.6 
Nursing and Residential Care Facilities173,781 3.3 
Specialty Trade Contractors164,837 3.1 
Education157,875 3.0 
Homebuilding (tract developers, remodelers)153,490 2.9 
Motor Vehicle and Parts Dealers134,118 2.5 
Merchant Wholesalers, Durable Goods125,105 2.4 
CRE - Mixed-Use - Residential109,187 2.1 
Crop Production101,973 1.9 
Repair and Maintenance94,011 1.8 
Private Equity & Special Purpose Entities (except 52592)86,549 1.6 
Administrative and Support Services86,053 1.6 
Rental and Leasing Services82,213 1.6 
Wood Product Manufacturing81,813 1.6 
Real Estate Lenders, Secondary Market Financing79,310 1.5 
CRE - Mixed-Use - Commercial75,797 1.4 
Religious Organizations, Advocacy Groups73,665 1.4 
Fabricated Metal Product Manufacturing71,827 1.4 
Personal and Laundry Services71,060 1.3 
Amusement, Gambling, and Recreation Industries70,759 1.3 
Merchant Wholesalers, Nondurable Goods69,919 1.3 
Miniwarehouse / Self-Storage65,069 1.2 
Food Services and Drinking Places63,662 1.2 
Food Manufacturing59,897 1.1 
Truck Transportation55,250 1.0 
Industries with >$50 million in outstandings$4,457,272 84.6 %
Industries with <$50 million in outstandings$811,904 15.4 %
Total Commercial Loans$5,269,176 100.0 %
Consumer Loans and Lease FinancingsTotal Outstanding Balance
Real Estate-Residential Secured for Personal Purpose$861,122 
Real Estate-Home Equity Secured for Personal Purpose176,855 
Loans to Individuals27,331 
Lease Financings240,474 
Total Consumer Loans and Lease Financings$1,305,782 
Total$6,574,958 

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Goodwill and Other Intangible Assets

Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions. The Corporation has core deposit and customer-related intangibles, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The amortization of core deposit and customer-related intangibles was $229 thousand and $274 thousand for the three months ended September 30, 2023 and 2022, respectively. The amortization of core deposit and customer-related intangibles was $458 thousand and $888 thousand for the nine months ended September 30, 2023 and 2022, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at September 30, 2023 and December 31, 2022.

The Corporation also has goodwill with a net carrying value of $175.5 million at September 30, 2023 and December 31, 2022, which is deemed to be an indefinite intangible asset and is not amortized. The Corporation completes a goodwill impairment analysis on an annual basis, or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the nine months ended September 30, 2023 or 2022. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Bank Owned Life Insurance

The Bank purchases bank owned life insurance to protect itself against the loss of key employees due to death and to offset or finance the Corporation's future costs and obligations to employees under its benefits plans. Bank owned life insurance increased $10.2 million, or 8.5%, from December 31, 2022, primarily due to $7.9 million of policies purchased during the first quarter of 2023.

Liabilities
The following table presents liabilities at the dates indicated:
(Dollars in thousands)At September 30, 2023At December 31, 2022Change
AmountPercent
Deposits$6,439,165 $5,913,526 $525,639 8.9 %
Short-term borrowings14,676 197,141 (182,465)(92.6)
Long-term debt320,000 95,000 225,000 236.8 
Subordinated notes148,636 148,260 376 0.3 
Operating lease liabilities34,017 33,153 864 2.6 
Accrued interest payable and other liabilities64,374 58,436 5,938 10.2 
Total liabilities$7,020,868 $6,445,516 $575,352 8.9 %

Deposits

Total deposits increased $525.6 million, or 8.9%, from December 31, 2022, primarily due to increases in brokered deposits and seasonal public funds deposits partially offset by decreases in commercial and consumer deposits. At September 30, 2023, noninterest bearing deposits represented 22.2% of total deposits, down from 34.6% at December 31, 2022. At September 30, 2023, unprotected deposits, which excludes insured, internal, and collateralized deposit accounts, represented 20.8% of total deposits, down from 31.0% at December 31, 2022.

Borrowings

Total borrowings increased $42.9 million, or 9.7%, from December 31, 2022, due to increases of $225.0 million in long-term debt, partially offset by decreases of $125.0 million in short-term FHLB overnight borrowings and $60.0 million in federal funds purchased.

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Shareholders’ Equity

The following table presents total shareholders’ equity at the dates indicated:
(Dollars in thousands)At September 30, 2023At December 31, 2022Change
AmountPercent
Common stock$157,784 $157,784 $— — %
Additional paid-in capital300,171 300,808 (637)(0.2)
Retained earnings464,634 428,637 35,997 8.4 
Accumulated other comprehensive loss(71,586)(62,104)(9,482)15.3 
Treasury stock(43,805)(48,625)4,820 (9.9)
Total shareholders’ equity$807,198 $776,500 $30,698 4.0 %

Total shareholders' equity increased $30.7 million, or 4.0%, from December 31, 2022. Retained earnings at September 30, 2023 increased by $36.0 million primarily due to net income of $54.9 million offset by $18.5 million in cash dividends paid for the nine months ended September 30, 2023. Accumulated other comprehensive loss increased by $9.5 million, primarily attributable to decreases in the fair value of available-for-sale investment securities of $7.9 million, net of tax and a decrease in the fair value of derivatives of $2.2 million, net of tax. Treasury stock decreased $4.8 million from December 31, 2022 primarily due to stock issued under the dividend reinvestment and employee stock purchase plans and stock-based incentive plan activity.

Discussion of Segments

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

The Banking segment reported pre-tax income of $21.7 million and $26.2 million for the three months ended September 30, 2023 and 2022, respectively, and pre-tax income of $67.0 million and $64.8 million for the nine months ended September 30, 2023 and 2022, respectively. See the section of this Management's Discussion & Analysis under the headings "Results of Operations" and "Financial Condition" for a discussion of key items impacting the Banking Segment.

The Wealth Management segment reported noninterest income of $6.8 million and $6.1 million for the three months ended September 30, 2023 and 2022, respectively, and $20.2 million for the nine months ended September 30, 2023 and 2022. Noninterest expense was $5.1 million and $4.3 million for the three months ended September 30, 2023 and 2022, respectively, and $14.8 million and $13.4 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in noninterest income for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was due to new customer relationships and appreciation 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 $4.3 billion as of September 30, 2023, $4.5 billion as of June 30, 2023, $4.0 billion as of September 30, 2022 and $4.1 billion as of June 30, 2022. The increase in noninterest expense for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022 was primarily driven by increases in salaries, benefits and commissions due to annual merit increases and additional staffing.

The Insurance segment reported noninterest income of $4.9 million and $4.6 million for the three months ended September 30, 2023 and 2022, respectively, and $16.8 million and $15.2 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in noninterest income for the three and nine months ended September 30, 2023 was primarily due to increased revenue from commercial lines. In addition, the increase for the nine months ended September 30, 2023 included an increase in contingent commission income of $592 thousand, which was $1.9 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. Contingent income is largely recognized in the first quarter of the year.

Capital Adequacy

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

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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 2.50% of total risk-weighted assets. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, which requires Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50%. The Corporation and the Bank were in compliance with these requirements at September 30, 2023.
Table 5—Regulatory Capital

The Corporation's and Bank's actual and required capital ratios as of September 30, 2023 and December 31, 2022 under regulatory capital rules were as follows.
 ActualFor Capital Adequacy
Purposes		To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions
(Dollars in thousands)AmountRatioAmountRatioAmount  Ratio  
At September 30, 2023
Total Capital (to Risk-Weighted Assets):
Corporation$940,654 13.58 %$554,045 8.00 %$692,556 10.00 %
Bank795,341 11.51 552,738 8.00 690,923 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation715,035 10.32 415,533 6.00 554,045 8.00 
Bank718,358 10.40 414,554 6.00 552,738 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation715,035 10.32 311,650 4.50 450,161 6.50 
Bank718,358 10.40 310,915 4.50 449,100 6.50 
Tier 1 Capital (to Average Assets):
Corporation715,035 9.43 303,270 4.00 379,087 5.00 
Bank718,358 9.50 302,525 4.00 378,157 5.00 
At December 31, 2022
Total Capital (to Risk-Weighted Assets):
Corporation$894,343 13.67 %$523,498 8.00 %$654,372 10.00 %
Bank740,936 11.35 522,370 8.00 652,962 10.00 
Tier 1 Capital (to Risk-Weighted Assets):
Corporation678,403 10.37 392,623 6.00 523,498 8.00 
Bank673,256 10.31 391,777 6.00 522,370 8.00 
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation678,403 10.37 294,467 4.50 425,342 6.50 
Bank673,256 10.31 293,833 4.50 424,426 6.50 
Tier 1 Capital (to Average Assets):
Corporation678,403 9.81 276,586 4.00 345,732 5.00 
Bank673,256 9.76 276,014 4.00 345,017 5.00 
At September 30, 2023 and December 31, 2022, the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. At September 30, 2023, the Bank was categorized as "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that management believes have changed the Bank’s category.

In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as of the beginning of the fiscal year in which CECL was adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts are calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the
59
transitional amounts are phased in over each of the next two years and at the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital.
Additionally, in March 2020, the Office of the Comptroller of the Currency, the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation announced the 2020 CECL interim final rule (IFR) designed to allow eligible firms to better focus on supporting lending to creditworthy households and businesses in light of the then-recent strains on the U.S. economy as a result of the coronavirus (COVID-19). The 2020 CECL IFR allows corporations that adopt CECL before December 31, 2020 to defer 100 percent of the day-one transitional amounts described above through December 31, 2021 for regulatory capital purposes. Additionally, the 2020 CECL IFR allows electing firms to defer through December 31, 2021 the approximate portion of the post day-one allowance attributable to CECL relative to the incurred loss methodology. This is calculated by applying a 25% scaling factor to the CECL provision.
The Corporation adopted the transition guidance and the 2020 CECL IFR relief and applied these effects to regulatory capital.

Asset/Liability Management

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

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

Liquidity

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

The Corporation and its subsidiaries maintain ample ability to meet the liquidity needs of its customers. Our most liquid asset, cash and cash equivalents, were $290.3 million at September 30, 2023. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $334.5 million at September 30, 2023. Further, the Corporation and its subsidiaries had committed borrowing capacity from the Federal Home Loan Bank and Federal Reserve Bank of $3.3 billion at September 30, 2023, of which $1.7 billion was available. The Corporation and its subsidiaries also maintained unused uncommitted funding sources from correspondent banks of $369.0 million at September 30, 2023. Future availability under these uncommitted funding sources is subject to the prerogatives of the granting banks and may be withdrawn at will.

Sources of Funds

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

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

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Cash Requirements

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

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

Recent Accounting Pronouncements

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

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

No material changes in the Corporation’s market risk occurred during the period ended September 30, 2023. A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION
 
Item 1.    Legal Proceedings

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

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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, 2022 and Item 1A of the Corporation's Quarterly Report of Form 10-Q for the quarter ended March 31, 2023.


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

The following table provides information on repurchases by the Corporation of its common stock under the Corporation's Board approved program.
ISSUER PURCHASES OF EQUITY SECURITIES
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, 2023— $— — 1,229,174 
August 1 – 31, 2023— — — 1,229,174 
September 1 – 30, 2023— — — 1,229,174 
Total— $— — 

1.On May 27, 2015, the Corporation's Board of Directors approved the repurchase of 1,000,000 shares, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. On October 26, 2022, the Corporation's Board of Directors approved the repurchase of 1,000,000 additional shares, or approximately 3.4% of the Corporation's common stock outstanding as of September 30, 2022. The stock repurchase plans do not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The plans have no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the plans at any time.

In addition to the repurchases disclosed above, participants in the Corporation's stock-based incentive plans may have shares withheld to cover income taxes upon the vesting of restricted stock awards and may use a stock swap to exercise stock options. Shares withheld to cover income taxes upon the vesting of restricted stock awards and stock swaps to exercise stock options are repurchased pursuant to the terms of the applicable plan and not under the Corporation's share repurchase program. Shares repurchased pursuant to these plans during the three months ended September 30, 2023 were as follows:

PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
July 1 – 31, 2023— $— 
August 1 – 31, 2023— — 
September 1 – 30, 2023— — 
Total— $— 

Item 3.    Defaults Upon Senior Securities
None.

Item 4.    Mine Safety Disclosures
Not Applicable.

 Item 5.    Other Information
Securities Trading Plans of Directors and Executive Officers
During the three months ended September 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Corporation's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."
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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 8-K, filed with the SEC on April 27, 2022.
Exhibit 31.1
Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2
Certification of Brian J. Richardson, Senior Executive Vice President and Chief Financial Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1
Certification of Jeffrey M. Schweitzer, President and Chief Executive Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2
Certification of Brian J. Richardson, Senior Executive Vice President and Chief Financial Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101
The following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
Exhibit 104
The cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL.

63
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 1, 2023/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 1, 2023/s/ Brian J. Richardson
Brian J. Richardson
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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