UNIVEST FINANCIAL CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

(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;
•Legislative, regulatory and accounting changes;
•Demand for our financial products and services in our market area;
•Major catastrophes such as earthquakes, floods or other natural or human
disasters and infectious disease outbreaks, including the current coronavirus
(COVID-19) pandemic, the related disruption to local, regional and global
economic activity and financial markets, and the impact that any of the
foregoing may have on us and our customers and other constituencies;
•Inflation or volatility in interest rates;
•Fluctuations in real estate values in our market area;
•The composition and credit quality of our loan and investment portfolios;
•Changes in the level and direction of loan delinquencies, classified and
criticized loans and charge-offs and changes in estimates of the adequacy of the
allowance for credit losses;
•Economic assumptions utilized to calculate the allowance for credit losses;
•Our ability to access cost-effective funding;
•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 anticipated 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.

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

•Demand for our products and services may decline;
•If the economy worsens, loan delinquencies, problem assets, and foreclosures
may increase;
•Collateral for loans, especially real estate, may decline in value;
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•Our allowance for credit losses on loans and leases may have to be increased if
economic conditions worsen or borrowers experience financial difficulties;
•The net worth and liquidity of loan guarantors may decline, impairing their
ability to honor commitments to us;
•A material decrease in net income or a net loss over several quarters could
result in the elimination of or a decrease in the rate of our quarterly cash
dividend;
•Our wealth management revenues may decline with market turmoil;
•Our cyber security risks are increased as the result of an increase in the
number of employees working remotely; and
•FDIC premiums may increase if the agency experiences additional resolution
costs.

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, 2021
under the section entitled "Item 1A - Risk Factors," and from time to time in
other filings made by the Corporation with the SEC.

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

Critical Accounting Policies

Management, in order to prepare the Corporation's financial statements in
conformity with U.S. generally accepted accounting principles, is required to
make estimates and assumptions that affect the amounts reported in the
Corporation's financial statements. There are uncertainties inherent in making
these estimates and assumptions. Certain critical accounting policies could
materially affect the results of operations and financial position of the
Corporation should changes in circumstances require a change in related
estimates or assumptions. The Corporation has identified the fair value
measurement of investment securities available-for-sale and the calculation of
the allowance for credit losses on loans and leases as critical accounting
policies. For more information on these critical accounting policies, please
refer to the Corporation's 2021 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.

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Executive Overview

The Corporation’s consolidated net income, earnings per share and return on
average assets and average equity were as follows:

                                                    Three Months Ended
                                                        March 31,                      Change
(Dollars in thousands, except per share data)      2022           2021          Amount        Percent
Net income                                      $ 20,317       $ 32,603       $ (12,286)      (37.7) %
Net income per share:
Basic                                           $   0.69       $   1.11       $   (0.42)      (37.8)
Diluted                                             0.68           1.11           (0.43)      (38.7)
Return on average assets                            1.17  %        2.07  %        (90 BP)     (43.5)
Return on average equity                           10.64  %       18.90  %       (826 BP)     (43.7)



The Corporation reported net income of $20.3 million, or $0.68 diluted earnings
per share, for the three months ended March 31, 2022, compared to net income of
$32.6 million, or $1.11 diluted earnings per share, for the three months ended
March 31, 2021.

During the three months ended March 31, 2022, the Corporation recorded a
reversal of provision for credit losses of $3.5 million, of which $5.7 million
(after-tax benefit of $4.5 million), or $0.15 diluted earnings per share, was
attributable to favorable changes in economic-related assumptions within the
Corporation's CECL model, partially offset by increases in reserves for loans,
unfunded commitments and investment securities. The reversal of provision for
credit losses for the three months ended March 31, 2021 was $11.3 million, of
which $12.9 million (after-tax benefit of $10.2 million), or $0.35 diluted
earnings per share, was attributable to favorable changes in economic-related
assumptions within the Corporation's CECL model partially offset by a reserve
increase attributable to loan growth.

As of March 31, 2022, $10.3 million in PPP loan originations remained
outstanding. During the first quarter of 2022, $591 thousand was recorded as net
interest income related to these loans, of which $552 thousand was the result of
recognition of associated net deferred loan fees upon forgiveness and pay downs
of PPP loans totaling $22.0 million. As of March 31, 2022, the Corporation had
$272 thousand of net deferred fees on the balance sheet related to PPP loans,
which represented approximately 1.5% of the initial deferred fee amount.

Results of Operations


Net Interest Income

Net interest income is the difference between interest earned on loans and
leases and investment securities and interest paid on deposits and borrowings.
Net interest income is the principal source of the Corporation's revenue. Table
1 presents the Corporation's average balances, tax-equivalent interest income,
interest expense, tax-equivalent yields earned on average assets, cost of
average liabilities, and shareholders' equity on a tax-equivalent basis for the
three months ended March 31, 2022 and 2021. 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 months ended March 31, 2022 versus 2021


Net interest income on a tax-equivalent basis for the three months ended March
31, 2022 was $47.2 million, an increase of $1.2 million, or 2.6%, compared to
$46.0 million for the three months ended March 31, 2021. The increase in
tax-equivalent net interest income for the three months ended March 31, 2022
compared to the comparable period in the prior year was due to loan and
investment balance growth outpacing declines in yield on interest-bearing assets
and a decrease in the cost of interest-bearing liabilities, offset by a decrease
in PPP loan income.

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The net interest margin, on a tax-equivalent basis, was 2.89% for the three
months ended March 31, 2022 compared to 3.12% for the three months ended March
31, 2021. Excess liquidity reduced the net interest margin by approximately 33
basis points for the three months ended March 31, 2022 compared to eleven basis
points for the three months ended March 31, 2021. This excess liquidity was
primarily driven by strong growth of deposit balances since the beginning of the
COVID-19 pandemic, primarily due to the various pandemic-related stimulus
initiatives. PPP loans had a favorable impact on net interest margin of three
and four basis points for the three months ended March 31, 2022 and March 31,
2021, respectively. As PPP loans are forgiven, the associated deferred fees are
recognized in earnings, which occurred with greater frequency in 2021 as
compared to 2022. Excluding the impact of excess liquidity and PPP loans, the
net interest margin, on a tax-equivalent basis, was 3.19% for the three months
ended March 31, 2022 and 2021.


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

                                                                                       Three Months Ended March 31,
                                                                     2022                                                        2021
                                                Average             Income/            Average              Average             Income/            Average
(Dollars in thousands)                          Balance             Expense              Rate               Balance             Expense              Rate
Assets:

Interest-earning deposits with other banks $ 733,173 $ 357

               0.20  %       $   237,548          $     56                 0.10  %
U.S. government obligations                        5,222                26                 2.02                6,998                36                 2.09
Obligations of states and political
subdivisions*                                      2,332                19                 3.30               11,544               105                 

3.69

Other debt and equity securities                 514,574             2,339                 1.84              355,827             1,267                 

1.44

Federal Home Loan Bank, Federal Reserve Bank
and other stock                                   27,115               355                 5.31               26,368               348                 

5.35

Total interest-earning deposits, investments
and other interest-earning assets              1,282,416             3,096                 0.98              638,285             1,812                 

1.15

Commercial, financial and agricultural loans     901,555             7,571                 3.41              782,208             6,798                 

3.52

Paycheck Protection Program loans                 18,402               591                13.02              506,939             4,524                 

3.62

Real estate-commercial and construction
loans                                          2,904,602            25,820                 3.61            2,621,981            24,458                 3.78
Real estate-residential loans                  1,116,356             9,882                 3.59            1,037,000             9,873                 3.86
Loans to individuals                              25,799               238                 3.74               26,447               265                 4.06
Municipal loans and leases*                      242,508             2,434                 4.07              245,638             2,530                 4.18
Lease financings                                 135,476             2,075                 6.21              105,684             1,737                 6.67
Gross loans and leases                         5,344,698            48,611                 3.69            5,325,897            50,185                 3.82
Total interest-earning assets                  6,627,114            51,707                 3.16            5,964,182            51,997                 3.54
Cash and due from banks                           53,698                                                      55,311
Allowance for credit losses, loans and
leases                                           (72,067)                                                    (83,254)
Premises and equipment, net                       53,948                                                      55,826
Operating lease right-of-use assets               30,394                                                      34,033
Other assets                                     354,893                                                     357,365
Total assets                                 $ 7,047,980                                                 $ 6,383,463
Liabilities:
Interest-bearing checking deposits           $   881,462          $    443                 0.20          $   817,940          $    490                 0.24
Money market savings                           1,542,581               904                 0.24            1,243,673               853                 0.28
Regular savings                                1,021,550               238                 0.09              959,232               298                 0.13
Time deposits                                    473,589             1,306                 1.12              525,800             1,759                 1.36
   Total time and interest-bearing deposits    3,919,182             2,891                 0.30            3,546,645             3,400                 0.39
Short-term borrowings                             17,636                 2                 0.05               17,894                 2                 0.05
Long-term debt                                    95,000               317                 1.35              101,333               348                 1.39
Subordinated notes                                98,911             1,328                 5.45              183,340             2,293                 5.07
Total borrowings                                 211,547             1,647                 3.16              302,567             2,643                 3.54
Total interest-bearing liabilities             4,130,729             4,538                 0.45            3,849,212             6,043                 0.64
Noninterest-bearing deposits                   2,065,633                                                   1,749,502
Operating lease liabilities                       33,452                                                      37,415
Accrued expenses and other liabilities            43,808                                                      47,598
Total liabilities                              6,273,622                                                   5,683,727
Shareholders' Equity:
Common stock                                     157,784                                                     157,784
Additional paid-in capital                       298,975                                                     296,136
Retained earnings and other equity               317,599                                                     245,816
Total shareholders' equity                       774,358                                                     699,736
Total liabilities and shareholders' equity   $ 7,047,980                                                 $ 6,383,463
Net interest income                                               $ 47,169                                                    $ 45,954
Net interest spread                                                                        2.71                                                        2.90
Effect of net interest-free funding sources                                                0.18                                                        0.22
Net interest margin                                                                        2.89  %                                                     3.12  %
Ratio of average interest-earning assets to
average interest-bearing liabilities              160.43  %                                                   154.95  %


*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) fees of $(136) thousand and
$2.3 million for the three months ended March 31, 2022 and 2021, 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 March 31, 2022 and 2021 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 Ended
                                                                              March 31, 2022 Versus 2021
                                                                    Volume                  Rate
(Dollars in thousands)                                              Change                 Change               Total
Interest income:
Interest-earning deposits with other banks                    $       203               $       98          $      301
U.S. government obligations                                            (9)                      (1)                (10)
Obligations of states and political subdivisions                      (76)                     (10)                (86)
Other debt and equity securities                                      661                      411               1,072
Federal Home Loan Bank, Federal Reserve Bank and other stock           10                       (3)                  7
Interest on deposits, investments and other earning assets            789                      495               1,284
Commercial, financial and agricultural loans                          994                     (221)                773
Paycheck Protection Program loans                                  (7,426)                   3,493              (3,933)
Real estate-commercial and construction loans                       2,512                   (1,150)              1,362
Real estate-residential loans                                         726                     (717)                  9
Loans to individuals                                                   (6)                     (21)                (27)
Municipal loans and leases                                            (31)                     (65)                (96)
Lease financings                                                      464                     (126)                338
Interest and fees on loans and leases                              (2,767)                   1,193              (1,574)
Total interest income                                              (1,978)                   1,688                (290)
Interest expense:
Interest-bearing checking deposits                                     37                      (84)                (47)
Money market savings                                                  186                     (135)                 51
Regular savings                                                        23                      (83)                (60)
Time deposits                                                        (163)                    (290)               (453)
   Total time and interest-bearing deposits                            83                     (592)               (509)

Long-term debt                                                        (21)                     (10)                (31)
Subordinated notes                                                 (1,126)                     161                (965)
Interest on borrowings                                             (1,147)                     151                (996)
Total interest expense                                             (1,064)                    (441)             (1,505)
Net interest income                                           $      (914)              $    2,129          $    1,215



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Provision for Credit Losses


The reversal of the provision for credit losses for the three months ended March
31, 2022 was $3.5 million, of which $5.7 million (after-tax benefit of $4.5
million) was attributable to favorable changes in economic-related assumptions
within the Corporation's CECL model, partially offset by increases in reserves
for loans, unfunded commitments and investment securities. The reversal of the
provision for credit losses for the three months ended March 31, 2021 was $11.3
million, of which $12.9 million (after-tax benefit of $10.2 million) was
attributable to favorable changes in economic-related assumptions within the
Corporation's CECL model partially offset by a reserve increase attributable to
loan growth.

Noninterest Income

The following table presents noninterest income for the three months ended March
31, 2022 and 2021:

                                                    Three Months Ended
                                                        March 31,                      Change
(Dollars in thousands)                              2022           2021         Amount       Percent
Trust fee income                                $    2,102      $  2,034      $     68         3.3  %
Service charges on deposit accounts                  1,504         1,282           222        17.3
Investment advisory commission and fee income        5,152         4,697           455         9.7
Insurance commission and fee income                  5,570         4,955           615        12.4
Other service fee income                             2,756         2,192           564        25.7
Bank owned life insurance income                       699           717           (18)       (2.5)
Net gain on sales of investment securities              30            65           (35)      (53.8)
Net gain on mortgage banking activities              1,929         5,938        (4,009)      (67.5)

Other income                                           728         1,370          (642)      (46.9)
Total noninterest income                        $   20,470      $ 23,250      $ (2,780)      (12.0  %)


Three months ended March 31, 2022 versus 2021

Noninterest income for the three months ended March 31, 2022 was $20.5 million,
a decrease of $2.8 million, or 12.0%, from the three months ended March 31,
2021
.


The net gain on mortgage banking activities decreased $4.0 million, or 67.5%,
for the three months ended March 31, 2022 from the comparable period in the
prior year. The decrease for the three months ended March 31, 2022 was primarily
due to a decrease in loan sales and a contraction of margins. Other income
decreased $642 thousand, or 46.9%, for the three months ended March 31, 2022
from the comparable period in the prior year, primarily due to a decrease of
$657 thousand in fees on risk participation agreements for interest rate swaps
driven by a decrease in customer demand.

Investment advisory commission and fee income increased $455 thousand, or 9.7%,
for the three months ended March 31, 2022 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 balance. Insurance
commission and fee income increased $615 thousand, or 12.4%, for the three
months ended March 31, 2022 from the comparable period in the prior year,
primarily due to incremental revenue attributable to the insurance agency the
Corporation acquired in the fourth quarter of 2021.

Other service fee income increased $564 thousand, or 25.7%, for the three months
ended March 31, 2022 from the comparable period in the prior year. Interchange
fee income increased $176 thousand for the three months ended March 31, 2022
from the comparable period in the prior year, due to increased customer
activity. Mortgage servicing fees increased $262 thousand for the three months
ended March 31, 2022 from the comparable period in the prior year, driven by
reduced amortization as a result of a decrease in prepayment speeds.


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Noninterest Expense


The following table presents noninterest expense for the three months ended
March 31, 2022 and 2021:

                                                Three Months Ended
                                                    March 31,                     Change
       (Dollars in thousands)                   2022           2021       

Amount Percent

       Salaries, benefits and commissions   $   28,245      $ 24,780      $ 3,465        14.0  %
       Net occupancy                             2,716         2,739          (23)       (0.8)
       Equipment                                   982           946           36         3.8
       Data processing                           3,567         3,050          517        17.0
       Professional fees                         2,138         1,748          390        22.3
       Marketing and advertising                   425           280          145        51.8
       Deposit insurance premiums                  893           636          257        40.4
       Intangible expenses                         341           249           92        36.9

       Other expense                             6,105         5,112          993        19.4
       Total noninterest expense            $   45,412      $ 39,540      $

5,872 14.9 %

Three months ended March 31, 2022 versus 2021


Noninterest expense for the three months ended March 31, 2022 was $45.4 million,
an increase of $5.9 million, or 14.9%, from the three months ended March 31,
2021.

Salaries, benefits and commissions increased $3.5 million, or 14.0%, for the
three months ended March 31, 2022 from the comparable period in the prior year.
These increases reflect our continued investment in revenue producing staff
across all business lines, including the acquisition of the Paul I. Sheaffer
insurance agency, and annual merit increases. Additionally, during the three
months ended March 31, 2022, we incurred $387 thousand of short-term incremental
guaranties related to the hiring of new producers in our Mortgage Banking line
of business. Finally, the three months ended March 31, 2022 was benefited by
$582 thousand of incremental capitalized compensation related to the origination
of PPP loans.

Data processing expenses increased $517 thousand, or 17.0%, for the three months
ended March 31, 2022 from the comparable period in the prior year, primarily due
to continued investments in our end-to-end loan origination solution for loans
below $1.0 million, customer relationship management software, internal
infrastructure improvements, outsourced data processing solutions, and our
digital transformation initiative.

Professional fees increased $390 thousand, or 22.3%, for the three months ended
March 31, 2022 from the comparable period in the prior year, primarily
attributable to $658 thousand in consultant fees spent in support of our digital
transformation initiative, as compared to our $276 thousand investment in
support of our Diversity, Equity and Inclusion training initiatives during the
three months ended March 31, 2021. Deposit insurance premiums increased $257
thousand, or 40.4%, for the three months ended March 31, 2022 from the
comparable period in the prior year, attributable to an increased assessment
base primarily driven by excess liquidity.

Other expense increased $993 thousand, or 19.4%, for the three months ended
March 31, 2022 from the comparable period in the prior year, driven by increases
in recruiting costs of $282 thousand due to increased hiring activity and travel
and entertainment expenses of $265 thousand, which have begun to normalize as
the markets we operate in continue to remain open. Additionally, we incurred
costs of $330 thousand as a result of a customer who was defrauded.

Tax Provision


The Corporation recognized a tax expense of $4.9 million and $7.8 million for
the three months ended March 31, 2022 and 2021, respectively, resulting in an
effective rate of 19.3% for both periods. The effective tax rates for the three
months ended March 31, 2022 and 2021 were favorably impacted by eight and four
basis points, respectively, of discrete tax benefits resulting from equity
compensation awards vesting in the respective quarters. Additionally, the
effective tax rates for the three months ended March 31, 2022 and 2021 reflected
the benefits of tax-exempt income from investments in municipal securities and
loans and leases.
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Financial Condition

Assets

The following table presents assets at the dates indicated:


                                                                        At December 31,                       Change
(Dollars in thousands)                       At March 31, 2022               2021                 Amount               Percent
Cash and cash equivalents                  $          773,781          $      890,150          $ (116,369)                (13.1  %)
Investment securities, net of allowance
for credit losses                                     518,902                 496,989              21,913                   4.4
Federal Home Loan Bank, Federal Reserve
Bank and other stock, at cost                          26,330                  28,186              (1,856)                 (6.6)
Loans held for sale                                    14,521                  21,600              (7,079)                (32.8)
Loans and leases held for investment                5,400,786               5,310,017              90,769                   1.7
Allowance for credit losses, loans and
leases                                                (68,286)                (71,924)              3,638                  (5.1)
Premises and equipment, net                            50,429                  56,882              (6,453)                (11.3)
Operating lease right-of-use assets                    30,498                  30,407                  91                   0.3
Goodwill and other intangibles, net                   187,294                 187,358                 (64)                    -
Bank owned life insurance                             119,398                 118,699                 699                   0.6
Accrued interest receivable and other
assets                                                 54,087                  54,057                  30                   0.1
Total assets                               $        7,107,740          $    7,122,421          $  (14,681)                 (0.2  %)

Cash and Interest-Earning Deposits


Cash and interest-earning deposits decreased $116.4 million, or 13.1%, from
December 31, 2021, primarily due to decreased interest earning deposits at the
Federal Reserve Bank of $120.4 million as the Corporation used excess liquidity
to fund securities and loan growth.

Investment Securities


Total investment securities at March 31, 2022 increased $21.9 million, or 4.4%,
from December 31, 2021. Purchases of $69.6 million, primarily residential
mortgage-backed securities, were partially offset by maturities and pay-downs of
$22.8 million, decreases in the fair value of available-for-sale investment
securities of $20.1 million, sales of $4.0 million, net amortization of
purchased premiums and discounts of $491 thousand and a provision for credit
losses of $346 thousand.

Loans and Leases

Gross loans and leases held for investment increased $90.8 million, or 1.7%,
from December 31, 2021. Gross loans and leases held for investment, excluding
PPP loans, at March 31, 2022 increased $112.2 million or 2.1% from December 31,
2021. The growth in gross loans and leases held for investment, excluding PPP
loans, was primarily due to increases in commercial real estate and residential
mortgage loans.

Asset Quality

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

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

At March 31, 2022, nonaccrual loans and leases and accruing troubled debt
restructured loans were $30.9 million and had a related allowance for credit
losses on loans and leases of $954 thousand. At December 31, 2021, nonaccrual
loans and leases and accruing troubled debt restructured loans were $33.3
million and had a related allowance for credit losses on loans and
                                       49
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leases of $11 thousand. 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 March 31, 2022 were
$76 thousand compared to $288 thousand for the same period in the prior year.

Other real estate owned was $279 thousand at March 31, 2022 and December 31,
2021
.

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

The following table details information pertaining to the Corporation’s
nonperforming assets at the dates indicated.


(Dollars in thousands)                                        At March 31, 

2022 At December 31, 2021
Nonaccrual loans and leases, including nonaccrual troubled
debt restructured loans and lease modifications*

             $          30,876          $            33,210

Accruing troubled debt restructured loans and lease
modifications not included in the above

                                     51                           51
Accruing loans and leases, 90 days or more past due                        274                          498
Total nonperforming loans and leases                         $          31,201          $            33,759
Other real estate owned                                                    279                          279
Total nonperforming assets                                   $          31,480          $            34,038

*Nonaccrual troubled debt restructured loans and lease
modifications in nonaccrual loans and leases in the above
table

                                                        $             830          $               758

Loans and leases held for investment                         $       5,400,786          $         5,310,017
Allowance for credit losses, loans and leases                           68,286                       71,924

Allowance for credit losses, loans and leases / loans and
leases held for investment

                                                1.26  %                      1.35  %

Nonaccrual loans and leases (including nonaccrual troubled
debt restructured loans and lease modifications) / loans and
leases held for investment

                                                0.57  %                      0.63  %
Allowance for credit losses, loans and leases / nonaccrual
loans and leases                                                        221.16  %                    216.57  %


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


                                                                                         At December 31,
(Dollars in thousands)                                        At March 31, 2022                2021

Total nonaccrual loans and leases, including nonaccrual
troubled debt restructured loans and lease modifications $ 30,876 $ 33,210
Nonaccrual loans and leases with partial charge-offs

                     1,417                    1,429

Life-to-date partial charge-offs on nonaccrual loans and
leases

                                                                     534                      536
Specific reserves on individually analyzed loans                           954                       11


The Corporation modified certain loans and leases via principal and/or interest
deferrals in accordance with Section 4013 of the CARES Act, the Consolidated
Appropriations Act, 2021 and the Interagency Statement on Loan Modifications and
Reporting for Financial Institutions Working with Customers Affected by the
Coronavirus and have not categorized these modifications as troubled debt
restructurings. As of March 31, 2022, there were four loan modifications
outstanding with principal balances totaling $2.7 million, which represented
approximately 0.1% of the loan portfolio, excluding PPP loans. As of December
31, 2021, there were nine loan and lease modifications outstanding with
principal balances totaling $6.2 million, which represented approximately 0.1%
of the loan portfolio, excluding PPP loans. See Table 4 below for a breakdown of
these loans by industry.


                                       50
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Table 4-Loan Concentration


The following table provides summarized detail related to outstanding commercial
loan balances, excluding PPP loans, segmented by industry description, and
certain loan modifications segmented by industry description for commercial
loans and segmented by loan category for other loan types as of March 31, 2022:

(Dollars in thousands)                                                        As of March 31, 2022
                                        Total Outstanding                                    $ Balance of          Modified Loans as a %
                                          Balance (excl         % of Commercial Loan        Modified Loans           of Portfolio (excl
         Industry Description                 PPP)                   Portfolio                    (1)                     PPP) (1)
CRE - Retail                            $      359,125                        8.1  %       $            -                            -  %
Animal Production                              310,747                        7.0                       -                            -
CRE - Multi-family                             244,480                        5.5                       -                            -
CRE - 1-4 Family Residential Investment        234,653                        5.3                       -                            -
CRE - Office                                   231,125                        5.2                       -                            -
Hotels & Motels (Accommodation)                186,497                        4.2                   1,437                          0.8
Nursing and Residential Care Facilities        168,896                        3.8                       -                            -
CRE - Industrial / Warehouse                   160,318                        3.6                       -                            -
Education                                      151,238                        3.4                       -                            -
Specialty Trade Contractors                    133,455                        3.0                       -                            -
CRE - Mixed-Use - Residential                  116,479                        2.6                       -                            -
CRE - Medical Office                           108,836                        2.4                       -                            -
Homebuilding (tract developers,
remodelers)                                    101,112                        2.3                       -                            -
Merchant Wholesalers, Durable Goods             93,073                        2.1                       -                            -
Motor Vehicle and Parts Dealers                 89,723                        2.0                       -                            -
Crop Production                                 85,886                        1.9                       -                            -
Food Manufacturing                              78,597                        1.8                       -                            -
Wood Product Manufacturing                      77,165                        1.7                       -                            -
Rental and Leasing Services                     72,878                        1.6                       -                            -
Food Services and Drinking Places               71,327                        1.6                     473                          0.7
Administrative and Support Services             69,578                        1.6                       -                            -
Merchant Wholesalers, Nondurable Goods          64,564                        1.5                       -                            -
Personal and Laundry Services                   61,402                        1.4                       -                            -
Fabricated Metal Product Manufacturing          60,398                        1.4                       -                            -
Religious Organizations, Advocacy
Groups                                          56,869                        1.3                       -                            -
Miniwarehouse / Self-Storage                    54,382                        1.2                       -                            -
Repair and Maintenance                          53,267                        1.2                       -                            -
Industries with >$50 million in
outstandings                            $    3,496,070                       78.6  %       $        1,910                          0.1  %
Industries with <$50 million in
outstandings                            $      950,721                       21.4  %       $          790                          0.1  %
Total Commercial Loans                  $    4,446,791                      100.0  %       $        2,700                          0.1  %

                                                                                             $ Balance of          Modified Loans as a %
                                        Total Outstanding                                   Modified Loans           of Portfolio (excl
  Consumer Loans and Lease Financings        Balance                                              (1)                     PPP) (1)
Real Estate-Residential Secured for
Personal Purpose                        $      568,735                                     $            -                            -  %
Real Estate-Home Equity Secured for
Personal Purpose                               160,134                                                  -                            -
Loans to Individuals                            26,249                                                  -                            -
Lease Financings                               188,579                                                  -                            -
Total Consumer Loans and Lease
Financings                              $      943,697                                     $            -                            -  %

Total                                   $    5,390,488                                     $        2,700                          0.1  %


(1) Loan modifications referenced above were made in accordance with Section
4013 of the CARES Act, the Consolidated Appropriations Act, 2021 and the
Interagency Statement on Loan Modifications and Reporting for Financial
Institutions Working with Customers Affected by the Coronavirus and therefore
were not classified as TDRs as of March 31, 2022.

Goodwill and Other Intangible Assets


Goodwill and other intangible assets have been recorded on the books of the
Corporation in connection with acquisitions. The Corporation has core deposit
and customer-related intangibles and servicing rights, which are not deemed to
have an indefinite life and therefore will continue to be amortized over their
useful life using the present value of projected cash flows. The amortization of
intangible assets was $784 thousand and $1.0 million for the three months ended
March 31, 2022 and 2021, respectively. See Note 5 to the Condensed Unaudited
Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a
summary of intangible assets at March 31, 2022 and December 31, 2021.

                                       51
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The Corporation also has goodwill with a net carrying value of $175.5 million at
March 31, 2022 and December 31, 2021, 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 three months ended March 31, 2022 and 2021. There can be no assurance
that future impairment assessments or tests will not result in a charge to
earnings.


Liabilities

The following table presents liabilities at the dates indicated:

                                                                  At December 31,                      Change
(Dollars in thousands)                 At March 31, 2022               2021                 Amount              Percent
Deposits                             $        6,047,932          $    6,055,124          $  (7,192)                 (0.1  %)
Short-term borrowings                            18,976                  20,106             (1,130)                 (5.6)
Long-term debt                                   95,000                  95,000                  -                     -
Subordinated notes                               98,952                  98,874                 78                   0.1
Operating lease liabilities                      33,566                  33,453                113                   0.3
Accrued interest payable and other
liabilities                                      39,459                  46,070             (6,611)                (14.3)
Total liabilities                    $        6,333,885          $    6,348,627          $ (14,742)                 (0.2  %)



Deposits

Total deposits decreased $7.2 million, or 0.1%, from December 31, 2021,
primarily due to decreases in consumer and public funds deposits offset by an
increase in commercial deposits.

Borrowings

Total borrowings decreased $1.1 million, or 0.5%, from December 31, 2021, due to
a decrease in short-term customer repurchase agreements.

Accrued Interest Payable and Other Liabilities


Other liabilities decreased $6.6 million, or 14.3%, from December 31, 2021, due
to the payment in the first quarter of $5.9 million of annual incentive payments
that were previously accrued.

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