UNIVEST FINANCIAL Corp (Form: 10-K, Received: 02/28/2019 16:30:36)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

Commission File number 0-7617

UNIVEST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



Pennsylvania		23-1886144
(State or other jurisdiction of 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
Securities registered pursuant to Section 12(b) of the Act:

Title of class		Name of each exchange on which registered
Common Stock, $5 par value		The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 twelve 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 x 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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):



Large accelerated filer x	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 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 x

The approximate aggregate market value of voting stock held by non-affiliates of the registrant is $790,045,535 as of June 30, 2018 based on the June 30, 2018 closing price of the Registrant's Common Stock of $27.50 per share.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, $5 par value		29,289,730
(Title of Class)		(Number of shares outstanding at February 14, 2019)

DOCUMENTS INCORPORATED BY REFERENCE

Part I and Part III incorporate information by reference from the proxy statement for the annual meeting of shareholders on April 16, 2019.

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UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

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PART I
Item 1.	Business	2
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	16
Item 4.	Mine Safety Disclosures	16
PART II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	19
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	111
Item 9A.	Controls and Procedures	111
Item 9B.	Other Information	113
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	113
Item 11.	Executive Compensation	113
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	113
Item 13.	Certain Relationships and Related Transactions, and Director Independence	114
Item 14.	Principal Accounting Fees and Services	114
PART IV
Item 15.	Exhibits and Financial Statement Schedules	114
Item 16.	Form 10-K Summary	116
Signatures		117

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PART I

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. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including but not limited to those set forth below as well as the risk factors described in Item 1A. “Risk Factors”:


•	Operating, legal and regulatory risks;


•	Economic, political and competitive forces impacting various lines of business;


•	Legislative, regulatory and accounting changes;


•	Demand for our financial products and services in our market area;


•	Volatility in interest rates;


•	The composition and credit quality of our loan and investment portfolios;


•	Our ability to access cost-effective funding;


•	Our ability to continue to implement our business strategies;


•	Our ability to manage market risk, credit risk and operational risk;


•	Timing of revenue and expenditures;


•	Returns on investment decisions;


•	System failures or cyber-security breaches of our information technology infrastructure and those of our third-party service providers;


•	Our ability to retain key employees;


•	Other risks and uncertainties, including those occurring in the U.S. and world financial systems; and


•	The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

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 forward-looking statements speak only as of the date of the report. Univest Financial Corporation (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.


Item 1.	Business

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. Effective January 1, 2019, the name of the Corporation was changed from Univest Corporation of Pennsylvania to Univest Financial Corporation. The Corporation owns all of the capital stock of Univest Bank and Trust Co. (the Bank). The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiary, the Bank. The Corporation’s and the Bank’s legal headquarters are located at 14 North Main Street, Souderton, PA 18964. At December 31, 2018 , the Corporation had total assets of $5.0 billion , net loans and leases of $4.0 billion , total deposits of $3.9 billion and total shareholders’ equity of $624.1 million .

The Bank is a Pennsylvania state-chartered bank and trust company. As a state-chartered member bank of the Federal Reserve System, the Bank is regulated primarily by the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia.

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. Effective January 1, 2019, the Bank's wealth management segment was re-branded under the Girard name with associated name changes of several subsidiaries while continuing to provide fiduciary services, investment management, and financial and retirement planning. The Bank is the parent company of Girard Investment Services, LLC (formerly Univest Investments, Inc.), a full-service registered broker-dealer and a licensed insurance agency, Girard Advisory Services, LLC (formerly Girard Partners Ltd.), a registered investment advisory firm, Girard Pension Services, LLC (formerly TCG Investment Advisory, Inc.), a registered investment advisor,

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which provides investment consulting and management services to municipal entities. Girard Investments has two offices in Pennsylvania. Girard Advisory Services is headquartered in King of Prussia, Pennsylvania with a satellite office in Florida. The Bank is also the parent company of Univest Insurance, LLC, an independent insurance agency and Univest Capital, Inc., an equipment financing business. Univest Insurance has three offices in Pennsylvania and one in Maryland. The Bank's former subsidiary, Delview, Inc. was dissolved effective January 1, 2019.

At December 31, 2018 , the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines its 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. For more detailed discussion and financial information on the business segments, see Note 22, “Segment Reporting” included in the Notes to the Consolidated Financial Statements included herein under Item 8.

Employees

At December 31, 2018 , the Corporation and its subsidiaries employed approximately 841 individuals. None of these employees are covered by collective bargaining agreements, and the Corporation believes it enjoys good relations with its personnel.

Market Area

The Corporation is headquartered in Souderton, Pennsylvania, which is located in Southeastern Pennsylvania, approximately thirty-five miles north of Philadelphia. The Corporation provides banking and financial services to customers primarily in Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia counties in Pennsylvania and Atlantic and Cape May counties in New Jersey. The highest concentration of our deposits and loans are in Montgomery and Bucks counties where twenty-four out of our thirty-nine financial centers are located. The acquisition of Fox Chase Bancorp (Fox Chase) on July 1, 2016 expanded the Corporation's presence in Montgomery, Bucks, Philadelphia, and Chester counties in Pennsylvania and into Cape May County in New Jersey. During 2017, the Corporation opened a financial center in Northampton County and three financial centers in Lancaster County, Pennsylvania. During 2018, the Corporation opened an additional financial center in Lancaster County, Pennsylvania.

Montgomery and Bucks counties are two of the wealthiest counties in Pennsylvania. Significant types of employment industries include pharmaceuticals, health care, electronics, computer services, insurance, industrial machinery, retail, schools and universities and meat processing. Major companies throughout the two counties include Merck and Company, Abington Hospital-Jefferson Health, SmithKline Beecham, Hatfield Quality Meats, St. Mary Medical Center, Giant Food Stores LLC, Doylestown Hospital, Grand View Health, Central Bucks School District, Pennsbury School District and Northtec LLC. Unemployment rates at December 2018 were 3.1% in Montgomery County and 3.4% in Bucks County, lower than Pennsylvania’s state unemployment rate of 4.0% and the federal unemployment rate of 3.7%, according to the Bureau of Labor Statistics.

The Corporation ranks fifth in deposit market share in Montgomery County with thirteen financial centers and sixth in Bucks County with eleven financial centers, with 6.4% of total combined deposit market share in the two counties according to data provided by SNL Financial. Montgomery County’s population has grown 4% to 832,000 from the year 2010 to 2019, and is expected to grow another 1.9% through 2024, while Bucks County’s population has increased 0.7% to 630,000 during the same period, and is expected to grow 0.7% through 2024, according to SNL Financial. The median age is 41 years and 44 years in Montgomery and Bucks counties, respectively, consistent with the median age of 41 years in Pennsylvania and slightly higher than the median age in the United States of 38 years. County estimates project the median age to increase over the next two decades. The median yearly household income was $91,000 for Montgomery County and $87,000 for Bucks County during 2018 and is expected to increase 7% for Montgomery County and 7% for Bucks County through 2024, according to SNL Financial. The yearly median income for both counties is well above that of the Commonwealth of Pennsylvania of $62,000 and the United States at $63,000 during 2018.

Competition

The Corporation’s service areas are characterized by intense competition for banking business among commercial banks, savings institutions and other financial institutions. In competing with other banks, savings institutions and other financial institutions, the Bank seeks to provide personalized services and local decision making through management’s knowledge and awareness of its service area, customers and borrowers.

Other competitors, including credit unions, consumer finance companies, insurance companies, wealth management providers, leasing companies, financial technology companies and mutual funds, compete with certain lending and deposit gathering services

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and insurance and wealth management services offered by the Bank and its operating segments.

Supervision and Regulation

The financial services industry in the United States, particularly entities that are chartered as banks, is highly regulated by federal and state laws that limit the types of businesses in which banks and their holding companies may engage, and which impose significant operating requirements and limitations on banking entities. The discussion below is only a brief summary of some of the significant laws and regulations that affect the Bank and the Corporation, and is not intended to be a complete description of all such laws.

The Bank is subject to supervision and is regularly examined by the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia. The Bank is also subject to examination by the Federal Deposit Insurance Corporation (FDIC).

The Corporation is a registered bank holding company, subject to the provisions of the Bank Holding Company Act of 1956, as amended. The Corporation is subject to the reporting requirements of the Board of Governors of the Federal Reserve System (the Board); and the Corporation, together with its subsidiaries, is subject to examination by the Board. The Federal Reserve Act limits the amount of credit that a member bank may extend to its affiliates, and the amount of its funds that it may invest in or lend on the collateral of the securities of its affiliates. Under the Federal Deposit Insurance Act, insured banks are subject to the same limitations.

The Corporation is subject to the Sarbanes-Oxley Act of 2002 (SOX). SOX adopted new standards of corporate governance and imposed additional requirements on the board of directors and management of public companies. SOX also requires that the chief executive officer and chief financial officer certify the accuracy of periodic reports filed with the Securities and Exchange Commission (SEC). Pursuant to Section 404 of SOX (SOX 404), management of the Corporation is required to furnish a report on internal control over financial reporting, identify any material weaknesses in its internal control over financial reporting and assert that such internal controls are effective. The Corporation has continued to be in compliance with SOX 404 during 2018. The Corporation must maintain effective internal controls, which requires an on-going commitment by management and oversight by the Corporation’s Audit Committee. The process has and will continue to require substantial resources in both financial costs and human capital.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

The Dodd-Frank Act was signed into law on July 21, 2010. The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies such as:


•	Centralized responsibility for consumer financial protection by the creation of a new agency, the Consumer Financial Protection Bureau, that has rulemaking authority for a wide range of consumer protection laws that apply to all banks and has broad powers to supervise and enforce consumer protection laws;

•

Increased the FDIC assessment for depository institutions with assets of $10 billion or more, changed the basis for determining FDIC premiums from insured deposits to consolidated assets less tangible capital and increased the minimum reserve ratio for the deposit insurance fund to 1.35% by September 30, 2020. On September 30, 2018, the deposit insurance fund reserve ratio reached 1.36%, exceeding the statutorily required minimum reserve ratio of 1.35%, ahead of the target date of September 30, 2020. The FDIC will not be lowering rates until a target ratio of 2.0% is reached. The FDIC will be giving small banks credits for their portion of assessments that contributed to the growth in the reserve ratio between 1.15% and 1.35%.


•	Permanently increased the federal deposit insurance coverage to $250 thousand and increased the Securities Investor Protection Corporation protection from $100 thousand to $250 thousand;


•	Provided for new disclosures and other requirements relating to executive compensation, proxy access by shareholders and corporate governance;

•

Provided for mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions; and

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•	Created a financial stability oversight council responsible for recommending to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

Basel III

In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. Basel III generally implements higher minimum capital requirements, adds a common equity Tier 1 capital requirement, and establishes criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. The minimum capital to risk-adjusted assets requirements include a common equity Tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and a Tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total capital ratio remains at 8.0% under the rules (10.0% to be considered “well capitalized”). Under BASEL III, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. BASEL III permits institutions, other than certain large institutions, to elect to continue to treat most components of accumulated other comprehensive income as permitted under the current general risk-based capital rules, and not reflect these items in common equity Tier 1 calculations (such as unrealized gains and losses on available-for-sale securities, amounts recorded in accumulated other comprehensive income attributed to defined benefit retirement plans resulting from the initial and subsequent application of the relevant U.S. generally accepted accounting principles and accumulated net gains and losses on cash flow hedges related to items that are reported on the balance sheet at fair value). The minimum capital requirements were effective on January 1, 2015. The capital conservation buffer requirements were phased in beginning January 1, 2016 through January 1, 2019. See Note 20, "Regulatory Matters" included in the Notes to the Consolidated Financial Statements included herein under Item 8 for further discussion.

Tax Cuts and Jobs Act

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA includes many provisions that affect the Corporation's income tax expense, including a reduction of the Corporation's federal tax rate from 35% to 21% effective January 1, 2018. As a result of the rate reduction, the Corporation was required to re-measure, through income tax expense in the period of enactment, the deferred tax assets and liabilities using the enacted rate at which they were expected to be recovered or settled. The re-measurement of the Corporation's net deferred tax asset resulted in additional 2017 income tax expense of $1.1 million. The Corporation completed the calculations of provisional items with the completion of the 2017 tax returns. The impact of the completed calculations to the re-measurement of the Corporation's net deferred tax asset resulted in an income tax benefit of $300 thousand which the Corporation recorded in 2018. See Note 11, "Income Taxes" included in the Notes to the Consolidated Financial Statements included herein under Item 8 for further discussion.

Economic Growth, Regulatory Relief, and Consumer Protection Act

On May 24, 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), which was designed to ease certain restrictions imposed by the Dodd-Frank Act. Most of the changes made by the Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation. Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a community bank leverage ratio of tangible equity to average consolidated assets of a ratio between 8% and 10%, and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings. The Corporation continues to analyze the changes implemented by the Act, but does not believe that such changes will materially impact the Corporation’s business, operations, or financial results.

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SEC Disclosure Update and Simplification

On August 17, 2018, the SEC issued Release No. 33-10532, "Disclosure Update and Simplification." This rule amends certain disclosure requirements that were redundant with or superseded by other SEC disclosure requirements or U.S. GAAP or for changes in the information environment. The changes are generally expected to reduce or eliminate some of a SEC registrant's disclosures in certain topics but some provisions require additional disclosures. The rule extends to interim periods the annual disclosure requirement under Regulation S-X of presenting changes in shareholders' equity for the current and comparative year-to-date interim periods. Under the amendments, an analysis of changes in each caption of shareholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should include a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed. The amendments are effective on November 5, 2018. The Corporation currently includes year-to-date changes in shareholders' equity in the Form 10-Q and will additionally provide the quarterly changes in shareholders' equity in the Form 10-Q for the quarter ending March 31, 2019. The Corporation continues to analyze the amended disclosure requirements under this rule, but does not believe that such changes will materially impact the Corporation’s disclosures.

Wealth Management and Insurance Businesses

The Corporation's wealth management and insurance businesses are subject to additional regulatory requirements. The securities brokerage activities of Girard Investment Services, LLC are subject to regulation by the SEC, the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Girard Advisory Services, LLC and Girard Pension Services, LLC are registered investment advisory firms which are subject to regulation by the SEC. Univest Insurance, LLC is subject to Pennsylvania insurance laws and the regulations of the Pennsylvania Department of Insurance.

Credit and Monetary Policies

The Bank is affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve Board of Governors. An important function of these policies is to curb inflation and control recessions through control of the supply of money and credit. The Board uses its powers to regulate reserve requirements of member banks, the discount rate on member-bank borrowings, interest rates on time and savings deposits of member banks, and to conduct open-market operations in United States Government securities to exercise control over the supply of money and credit. The policies have a direct effect on the amount of bank loans and deposits and on the interest rates charged on loans and paid on deposits, with the result that the policies have a material effect on bank earnings. Future policies of the Board and other authorities cannot be predicted, nor can their effect on future bank earnings.

The Bank is a member of the Federal Home Loan Bank System (FHLBanks), which consists of 11 regional Federal Home Loan Banks, and is subject to supervision and regulation by the Federal Housing Finance Agency. The FHLBanks provide a central credit facility primarily for member institutions. The Bank, as a member of the Federal Home Loan Bank of Pittsburgh (FHLB), is required to acquire and hold shares of capital stock in the FHLB. At December 31, 2018 , the Bank owned $13.6 million in FHLB capital stock.

Acquisitions

The Corporation, through its business segments, provide financial solutions to individuals, businesses, municipalities and non-profit organizations. The Corporation prides itself on being a financial organization that continues to increase its scope of services while maintaining traditional beliefs and a determined commitment to the communities it serves. Over the past five years, the Corporation and its subsidiaries have experienced stable growth, both organically and through various acquisitions, to be the best integrated financial solutions provider in the market.

The acquisitions included:


•	Fox Chase Bancorp on July 1, 2016;


•	Valley Green Bank on January 1, 2015;


•	Sterner Insurance Associates on July 1, 2014; and


•	Girard Partners on January 1, 2014.

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Securities and Exchange Commission Reports

The Corporation makes available free-of-charge its reports that are electronically filed with the SEC including its Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports on its website as a hyperlink to the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. These reports are available as soon as reasonably practicable after the material is electronically filed. The Corporation’s website address is www.univest.net . Information included on the Corporation’s website is not part of this Annual Report on Form 10-K. The Corporation will provide at no charge a copy of the SEC Form 10-K annual report for the year 2018 to each shareholder who requests one in writing. Requests should be directed to: Megan Duryea Santana, Corporate Secretary, Univest Financial Corporation, P.O. Box 197, Souderton, PA 18964.

The SEC maintains an internet site that contains the Corporation's SEC filings electronically at www.sec.gov .

Item 1A. Risk Factors

An investment in the Corporation’s common stock is subject to risks inherent to the Corporation’s business. Before making an investment, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this report. This report is qualified in its entirety by these risk factors.

Risks Related to the Banking Industry

The Corporation is subject to interest rate risk.

Our profitability is dependent to a large extent on our net interest income. Like most financial institutions, we are affected by changes in general interest rate levels and by other economic factors beyond our control. Although we believe we have implemented strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial and prolonged change in market interest rates could adversely affect our operating results.

Net interest income may decline in a particular period if:


•	In a declining interest rate environment, more interest-earning assets than interest-bearing liabilities re-price or mature, or


•	In a rising interest rate environment, more interest-bearing liabilities than interest-earning assets re-price or mature.

Our net interest income may decline based on our exposure to a difference in short-term and long-term interest rates. If the difference between the short-term and long-term interest rates shrinks or disappears, the difference between rates paid on deposits and received on loans could narrow significantly resulting in a decrease in net interest income. In addition to these factors, if market interest rates rise rapidly, interest rate adjustment caps may limit increases in the interest rates on adjustable rate loans, thus reducing our net interest income. Also, certain adjustable rate loans re-price based on lagging interest rate indices. This lagging effect may also negatively impact our net interest income when general interest rates continue to rise periodically. Increasing interest rates may also reduce the fair value of our fixed rate available-for-sale investment securities negatively impacting shareholders' equity.

The Corporation is subject to lending risk.

Risks associated with lending activities include, among other things, the impact of changes in interest rates and economic conditions, which may adversely impact the ability of borrowers to repay outstanding loans and the value of the associated collateral. Various laws and regulations also affect our lending activities, and failure to comply with such applicable laws and regulations could subject the Corporation to enforcement actions and civil monetary penalties.

At December 31, 2018 , approximately 84.8% of our loan and lease portfolio consisted of commercial, financial and agricultural, commercial real estate and construction loans and leases which are generally perceived as having more risk of default than residential real estate and consumer loans. Commercial business, commercial real estate and construction loans are more susceptible to a risk of loss during a downturn in the business cycle. These types of loans involve larger loan balances to a single borrower or groups of related borrowers. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers. An increase in nonperforming loans and leases could result in a net loss of earnings from these loans and leases, an increase in the provision for possible loan and lease losses, and an increase in loan and lease charge-offs. The risk of loan and lease losses increases if the economy worsens.

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Commercial real estate loans secured by owner-occupied properties are dependent upon the successful operation of the borrower’s business. If the operating company suffers difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and at a profit.

Commercial business loans and leases are typically based on the borrowers’ ability to repay the loans from the cash flows of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. The collateral securing the loans and leases often depreciates over time, is difficult to appraise and liquidate and fluctuates in value based on the success of the business. In addition, many commercial business loans have a variable rate which is indexed off of a floating rate such as Prime or LIBOR. If interest rates rise, the borrower's debt service requirement may increase, negatively impacting the borrower's ability to service their debt.

Risk of loss on a construction loan depends largely upon whether our initial estimate of the property’s value at completion of construction equals or exceeds the cost of the property construction (including interest). During the construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, borrower liquidation of collateral or by seizure of collateral. Included in real estate-construction is track development financing. Risk factors related to track development financing include the demand for residential housing and the real estate valuation market. When projects move slower than anticipated, the properties may have significantly lower values than when the original underwriting was completed, resulting in lower collateral values to support the loan. Extended time frames also cause the interest carrying cost for projects to be higher than the builder projected, negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.

The Corporation’s allowance for possible loan and lease losses may be insufficient, and an increase in the allowance would reduce earnings.

We maintain an allowance for loan and lease losses. The allowance is established through a provision for loan and lease losses based on management’s evaluation of the risks inherent in our loan portfolio and the general economy. The allowance is based upon a number of factors, including the size and composition of the loan and lease portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherent in the portfolio, historical loan and lease loss experience and loan underwriting policies. In addition, we evaluate all loans and leases identified as impaired loans and augment the allowance based upon our estimation of the potential loss associated with those impaired loans and leases. Additions to our allowance for loan and lease losses decrease our net income.

If the evaluation we perform in connection with establishing loan and lease loss reserves is wrong, our allowance for loan and lease losses may not be sufficient to cover our losses, which would have an adverse effect on our operating results.

The regulators, in reviewing our loan and lease portfolio as part of a regulatory examination, may from time to time require us to increase our allowance for loan and lease losses, thereby negatively affecting our earnings, financial condition and capital ratios at that time. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of additional impaired loans and leases and other factors, both within and outside of our control. Additions to the allowance could have a negative impact on our results of operations.

The Corporation is required to adopt the FASB's accounting standard which requires measurement of certain financial assets (including loans and certain investments) using the current expected credit losses (CECL) beginning in calendar year 2020.

Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The FASB's amendment replaces the current incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the allowance will increase upon the adoption of CECL and that the increased allowance level will decrease shareholders' equity and the Corporation's and Bank's regulatory capital ratios.

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Our results of operations may be adversely affected by other-than-temporary impairment charges relating to our investment portfolio.

We may be required to record future impairment charges on our investment securities if they suffer declines in value that we consider other-than-temporary. Numerous factors, including the lack of liquidity for re-sales of certain investment securities, the absence of reliable pricing information for investment securities, adverse changes in the business climate, adverse regulatory actions or unanticipated changes in the competitive environment, could have a negative effect on our investment portfolio in future periods. Significant impairment charges could negatively impact our earnings and regulatory capital ratios.

Changes in economic conditions and the composition of our loan portfolio could lead to higher loan charge-offs or an increase in our provision for loan losses and may reduce our net income.

Changes in national and regional economic conditions could impact our loan portfolios. For example, an increase in unemployment, a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the communities we serve. Weakness in the market areas we serve could depress our earnings and consequently our financial condition because customers may not demand our products or services, borrowers may not be able to repay their loans, the value of the collateral securing our loans to borrowers may decline and the quality of our loan portfolio may decline. Any of these scenarios could require us to charge off a higher percentage of our loans and/or increase our provision for loan and lease losses which would reduce our net income and capital levels.

The Corporation is subject to environmental liability risk associated with lending activities.

In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. The Corporation may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. Our policies and procedures require environmental factors to be considered during the loan application process. An environmental review is performed before initiating any commercial foreclosure action; however, these reviews may not be sufficient to detect all potential environmental hazards. Possible remediation costs and liabilities could have a material adverse effect on our financial condition.

The Corporation is subject to extensive government regulation and supervision.

We are subject to extensive regulation, supervision, and examination by our primary federal regulators, the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia, and by the FDIC, the regulating authority that insures customer deposits. Also, as a member of the FHLB, the Bank must comply with applicable regulations of the Federal Housing Finance Agency and the FHLB. Regulation by these agencies is intended primarily for the protection of our depositors and the deposit insurance fund and not for the benefit of our shareholders. The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit, and other activities. A large claim against the Bank under these laws could have a material adverse effect on our financial condition and results of operations.

In prior years, financial reform legislation has been enacted by Congress changing the bank regulatory framework, creating an independent consumer protection bureau and establishing more stringent capital standards for financial institutions and their holding companies. The legislation has, and may continue to result, in new regulations including those that affect lending, funding, trading and investment activities of financial institutions and their holding companies. Such additional regulation and oversight could have a material and adverse impact on us.

Consumers may decide not to use banks to complete their financial transactions.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams could have an adverse effect on our financial condition and results of operations.

Risks Relating to Recent Economic Conditions and Governmental Response Efforts

The Corporation’s earnings are impacted by general business and economic conditions.

The Corporation’s operations and profitability are impacted by general business and economic conditions; these conditions include long-term and short-term interest rates, inflation, money supply, political issues, legislative and regulatory changes,

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fluctuations in both debt and equity capital markets, broad trends in industry and finance, values of real estate and other collateral and the strength of the U.S. economy and the local economies in which we operate, all of which are beyond our control. Negative changes in these general business and economic conditions could have a material adverse effect on the Corporation's business, financial condition and results of operations.

We cannot predict the effect of recent legislative and regulatory initiatives, and they could increase our costs of doing business and adversely affect our results of operations and financial condition.

The Dodd-Frank Act has had a material impact on our operations and may continue to do so, particularly through increased compliance costs resulting from consumer and fair lending regulations. Other changes to statutes, regulations or regulatory policies could affect the Corporation in substantial and unpredictable ways. Such changes could subject the Corporation to additional costs, limit the types of financial services and products the Corporation may offer, limit the fees we may charge, increase the ability of non-banks to offer competing financial services and products, change regulatory capital requirements (such as BASEL III) and change deposit insurance assessments. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Corporation's business, financial condition and results of operations.

We borrow from the Federal Home Loan Bank, the Federal Reserve and correspondent banks, and these lenders could modify or terminate their current programs which could have an adverse effect on our liquidity and profitability.

We utilize the FHLB for overnight borrowings and term advances. We also borrow from the Federal Reserve and from correspondent banks under our federal funds lines of credit. The amount loaned to us is generally dependent on the value of the collateral pledged as well as the FHLB’s internal credit rating of the Bank. These lenders could reduce the percentages loaned against various collateral categories, could eliminate certain types of collateral and could otherwise modify or even terminate their loan programs, particularly to the extent they are required to do so, because of capital adequacy or other balance sheet concerns. Any change or termination of our borrowings from the FHLB, the Federal Reserve or correspondent banks would have an adverse effect on our liquidity and profitability.

We may need to raise additional capital in the future and such capital may not be available when needed or at all.

Federal regulatory agencies have the authority to change the Corporation's and Bank's capital requirements. In addition, BASEL III and new accounting rules, such as Lease Accounting (ASU No. 2016-02) and CECL (ASU No. 2016-13) will have a negative impact on our regulatory capital ratios. Accordingly, we may need to raise additional capital in the future to provide us with sufficient capital resources to meet our commitments and business needs. We may also at some point need to raise additional capital to support our continued growth. If we raise capital through the issuance of additional shares of our common stock or other securities, it would dilute the ownership interests of existing shareholders and may dilute the per share book value of our common stock. New investors may also have rights, preferences and privileges senior to our current shareholders, which may adversely impact our current shareholders. Our ability to raise additional capital, if needed, or at attractive prices, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Market and Business

The Corporation’s profitability is affected by economic conditions in Southeastern Pennsylvania and Southern New Jersey.

Unlike larger regional banks that operate in large geographies, the Corporation provides banking and financial services to customers primarily in Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia counties in Pennsylvania and Atlantic and Cape May counties in New Jersey. Because of our geographic concentration, a downturn in the local economy could make it more difficult to attract deposits and could cause higher rates of loss and delinquency on our loans than if the loans were more geographically diversified. Adverse economic conditions in the region, including, without limitation, declining real estate values, could cause our levels of nonperforming assets and loan losses to increase. Regional economic conditions have a significant impact on the ability of borrowers to repay their loans as scheduled. A sluggish economy could, therefore, result in losses that materially and adversely affect our financial condition and results of operations.

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The Corporation operates in a highly competitive industry and market area which could adversely impact its business and results of operations.

We face substantial competition in all phases of our businesses from a variety of different competitors. Our competitors, including commercial banks, community banks, savings institutions, credit unions, consumer finance companies, insurance companies, securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and other financial technology and financial institutions, compete with us for loans and deposits and insurance and wealth management services offered by us. Increased competition in our markets may result in reduced loans and deposits or may require us to pay higher prices when offering such products.

Many of these competing institutions have much greater financial and marketing resources than we have. Due to their size, many competitors can achieve larger economies of scale and may offer a broader range of products and services than we can. If we are unable to compete effectively in the offerings of our products and services, our business may be negatively affected.

Some of the financial services organizations with which we compete are not subject to the same degree of regulation or tax structure as is imposed on bank holding companies and federally insured financial institutions. As a result, these non-bank competitors have certain advantages over us in accessing funding and in providing various services. The banking business in our primary market areas is very competitive, and the level of competition and their pricing structure facing us may increase further, which may limit our asset growth and financial results.

The Corporation’s controls and procedures may fail or be circumvented.

Our management diligently reviews and updates the Corporation’s internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any failure or undetected circumvention of these controls could have a material adverse impact on our financial condition and results of operations.

Potential acquisitions may disrupt the Corporation’s business and dilute shareholder value.

We regularly evaluate opportunities to acquire and invest in banks and in other complementary businesses. As a result, we may engage in negotiations or discussions that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short and long-term liquidity and capital structure. Our acquisition activities could be material to us. For example, we could issue additional shares of common stock in a purchase transaction, which could dilute current shareholders’ ownership interest. These activities could require us to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our prior or potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill would not impact cash flow, tangible capital or liquidity but would decrease shareholders' equity.

Our acquisition activities could involve a number of additional risks, including the risks of:


•	Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions;


•	Using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or its assets;


•	The time and expense required to integrate the operations and personnel of the combined businesses;


•	Creating an adverse short-term effect on our results of operations; and


•	Losing key employees and customers or a reduction in our stock price as a result of an acquisition that is poorly received.

We may not be successful in overcoming these risks or any other problems encountered in connection with potential acquisitions. Our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and could have an adverse effect on our financial condition and results of operations.

The Corporation may not be able to attract and retain skilled people.

We are dependent on the ability and experience of a number of key management personnel who have substantial experience with our operations, the financial services industry, and the markets in which we offer products and services. The loss of one or more senior executives or key managers may have an adverse effect on our businesses. We maintain change in control agreements

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with certain executive officers to aid in our retention of these individuals. As we continue to grow businesses, our success depends on our ability to continue to attract, manage, and retain other qualified management personnel.

If we lose a significant portion of our low-cost deposits, it would negatively impact our liquidity and profitability.

Our profitability depends in part on our success in attracting and retaining a stable base of low-cost deposits. At December 31, 2018 , 27% of our deposit base was comprised of noninterest-bearing deposits, of which 18% consisted of business deposits, which are primarily operating accounts for businesses, and 9% consisted of consumer deposits. The competition for these deposits in our markets is strong and customers are increasingly seeking investments with higher interest rates that are safe, including the purchase of U.S. Treasury securities and other government-guaranteed obligations, as well as the establishment of accounts at the largest, most-well capitalized banks. If we were to lose a significant portion of our low-cost deposits, it would negatively impact our liquidity and profitability.

The Corporation's information technology systems and the systems of third parties upon which the Corporation relies may experience a failure, interruption or breach in security which could negatively affect our operations and reputation.

The Corporation relies heavily on information technology systems to conduct its business, including the systems of third-party service providers. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in the Corporation’s customer relationship management and general ledger, deposit, loan, and other systems. While the Corporation has policies and procedures designed to prevent or limit the impact of any failure, interruption, or breach in our security systems (including privacy and cyber-attacks), there can be no assurance that such events will not occur or if they do occur, that they will be adequately addressed. Information security and cyber-security risks have increased significantly in recent years because of new technologies, the use of the Internet and other electronic delivery channels (including mobile devices) to conduct financial transactions. Accordingly, the Corporation may be required to expend additional resources to continue to enhance its protective measures or to investigate and remediate any information security vulnerabilities or exposures. The occurrence of any system failures, interruptions, or breaches in security could expose the Corporation to reputation risk, civil litigation, regulatory scrutiny and possible financial liability that could have a material adverse effect on our financial condition and results of operations.

The failure to maintain current technologies and the costs to update technology could negatively impact the Corporation's business and financial results.

Our future success depends, in part, on our ability to effectively embrace technology to better serve customers and reduce costs. The Corporation may be required to expand additional resources to employ this technology. Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations.

The Corporation is subject to claims and litigation.

Customer claims and other legal actions, whether founded or unfounded, could result in financial or reputation damage and have a material adverse effect on our financial condition and results of operations if such claims are not resolved in a manner favorable to the Corporation.

Natural disasters, acts of war or terrorism and other external events could negatively impact the Corporation.

Natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on the Corporation’s ability to conduct business. In addition, such events could affect the stability of the Corporation’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Corporation to incur additional expenses. Our management has established disaster recovery policies and procedures that are expected to mitigate events related to natural or man-made disasters; however, the occurrence of any such event and the impact of an overall economic decline resulting from such a disaster could have a material adverse effect on the Corporation’s financial condition and results of operations.

The Corporation depends on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a customer’s audited financial statements conform to U.S. generally accepted accounting

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principles (U.S. GAAP) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. Our financial condition, results of operations and capital could be negatively impacted to the extent we incorrectly assess the creditworthiness of our borrowers, fail to detect or respond to deterioration in asset quality in a timely manner, or rely on financial statements that do not comply with U.S. GAAP or are materially misleading.

Risks Related to the Wealth Management and Insurance Industries

Revenues and profitability from our wealth management business may be adversely affected by any reduction in assets under management, which could reduce fees earned.

The wealth management business derives the majority of its revenue from noninterest income, which consists of trust, investment advisory and brokerage and other servicing fees. Substantial revenues are generated from investment management contracts with clients. Under these contracts, the investment advisory fees paid to us are typically based on the market value of assets under management. Assets under management and supervision may decline for various reasons including declines in the market value of the assets in the funds and accounts managed or supervised, which could be caused by price declines in the securities markets generally or by price declines in specific market segments. Assets under management may also decrease due to redemptions and other withdrawals by clients or termination of contracts. This could be in response to adverse market conditions or in pursuit of other investment opportunities. If the assets under management we supervise decline and there is a related decrease in fees, it will negatively affect our results of operations.

We may not be able to attract and retain wealth management clients.

Due to strong competition, our wealth management business may not be able to attract and retain clients. Competition is strong because there are numerous well-established and successful investment management and wealth advisory firms including commercial banks and trust companies, investment advisory firms, mutual fund companies, stock brokerage firms, and other financial companies. Many of our competitors have greater resources than we have.

Our ability to successfully attract and retain wealth management clients is dependent upon our ability to compete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities. If we are not successful, our results of operations and financial condition may be negatively impacted.

The wealth management industry is subject to extensive regulation, supervision and examination by regulators, and any enforcement action or adverse changes in the laws or regulations governing our business could decrease our revenues and profitability.

The wealth management business is subject to regulation by a number of regulatory agencies that are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets. In the event of non-compliance with regulation, governmental regulators, including the SEC, and FINRA, may institute administrative or judicial proceedings that may result in censure, fines, civil penalties, the issuance of cease-and-desist orders or the deregistration or suspension of the non-compliant broker-dealer or investment adviser or other adverse consequences. The imposition of any such penalties or orders could have a material adverse effect on the wealth management segment's operating results and financial condition. We may be adversely affected as a result of new or revised legislation or regulations. Regulatory changes have imposed and may continue to impose additional costs, which could adversely impact our profitability.

Revenues and profitability from our insurance business may be adversely affected by market conditions, which could reduce insurance commissions and fees earned.

The revenues of our fee based insurance business are derived primarily from commissions from the sale of insurance policies, which commissions are generally calculated as a percentage of the policy premium. These insurance policy commissions can fluctuate as insurance carriers change the premiums on the insurance products we sell. Due to the cyclical nature of the insurance market and the impact of other market and macroeconomic conditions on insurance premiums, commission levels may vary. The reduction of these commission rates, along with general volatility and/or declines in premiums, may adversely impact our profitability.

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Risks Related to Our Common Stock

An investment in the Corporation’s common stock is not an insured deposit.

The Corporation’s common stock is not a bank deposit, is not insured by the FDIC or any other deposit insurance fund, and is subject to investment risk, including the loss of some or all of your investment. Our common stock is subject to the same market forces that affect the price of common stock in any public company.

The Corporation’s stock price can be volatile.

The Corporation’s stock price can fluctuate in response to a variety of factors, some of which are not under our control. The factors that could cause the Corporation’s stock price to decrease include, but are not limited to:


•	Our past and future dividend practice;


•	Our financial condition, performance, creditworthiness and prospects;


•	Variations in our operating results or the quality of our assets;


•	Operating results that vary from the expectations of management, securities analysts and investors;


•	Changes in expectations as to our future financial performance;


•	Changes in financial markets related to market valuations of financial industry companies;


•	The operating and securities price performance of other companies that investors believe are comparable to us;


•	Future sales of our equity or equity-related securities;


•	The credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; and


•	Changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events.

While the Corporation’s common stock is listed for trading on the NASDAQ Global Select Market under the symbol “UVSP,” the trading volume has historically been less than that of larger financial services companies. Stock price volatility may make it more difficult for investors to sell their common stock when they want and at prices they find attractive.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the relatively low trading volume of our common stock, significant sales of our common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.

Anti-takeover provisions could negatively impact our shareholders.

Certain provisions in the Corporation’s Articles of Incorporation and Bylaws, as well as federal banking laws, regulatory approval requirements, and Pennsylvania law could make it more difficult for a third party to acquire the Corporation, even if doing so would be perceived to be beneficial to the Corporation’s shareholders.

There may be future sales or other dilution of the Corporation’s equity, which may adversely affect the market price of our common stock.

The Corporation is generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of any additional shares of common stock or preferred stock or securities convertible into, exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to shareholders of our common stock. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series. The market price of our common stock could decline as a result of offerings or because of sales of shares of our common stock made after offerings or the perception that such sales could occur. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

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The Corporation relies on dividends from our subsidiaries for most of our revenue.

The Corporation is a bank holding company and our operations are conducted by our subsidiaries from which we receive dividends. The ability of our subsidiaries to pay dividends is subject to legal and regulatory limitations, profitability, financial condition, capital expenditures and other cash flow requirements. The ability of the Bank to pay cash dividends to the Corporation is limited by its obligation to maintain sufficient capital and by other restrictions on its cash dividends that are applicable to state member banks in the Federal Reserve System. If the Bank is not permitted to pay cash dividends to the Corporation, it is unlikely that we would be able to pay cash dividends on our common stock.


Item 1B.	Unresolved Staff Comments

None.


Item 2.	Properties

The Corporation and its subsidiaries occupy fifty-five properties in Montgomery, Bucks, Philadelphia, Chester, Lehigh, Northampton, and Lancaster Counties in Pennsylvania, Cape May County in New Jersey, Calvert County in Maryland and Lee County in Florida, most of which are used principally as banking offices.

The following table detail the Corporation's properties as of December 31, 2018 :



Property Address		Owned/Leased

Full Service Branches (Banking Segment):
195 East Butler Ave., Chalfont, PA 18914		Owned
4390 Davisville Rd., Hatboro, PA 19040	(3)	Owned
5871 Lower York Rd., Lahaska, PA 18931		Owned
Route 309 & Line Lexington Rd., Line Lexington, PA 18932		Owned
1950 John Fries Highway, Milford Square, PA 18935		Owned
Route 309 & Stump Rd., Montgomeryville, PA 18936		Owned
15 Swamp Rd., Newtown, PA 18940		Owned
921 West Ave., Ocean City, NJ 08226		Owned
401 Rhawn St., Philadelphia, PA 19111		Owned
415 Main St., Schwenksville, PA 19473		Owned
Township Line Rd. and Route 113, Schwenksville, PA 19473		Owned
10 W. Broad St., Souderton, PA 18964		Owned
500 Harleysville Pk., Souderton, PA 18964		Owned
Routes 113 and Bethlehem Pk., Souderton, PA 18964		Owned
1041 York Rd., Warminster, PA 18974		Owned
1 Fitzwatertown Rd., Willow Grove, PA 19090		Owned
574 Main St., Bethlehem, PA 18018		Leased
694 DeKalb Pk., Blue Bell, PA 19422		Leased
4250 Oregon Pk., Brownstown, PA 17508		Leased
1135 Georgetown Rd., Christiana, PA 17509		Leased
191 W. State St., Doylestown, PA 18901		Leased
321 Main St., East Greenville, PA 18041		Leased
23 W. Highland Ave., Philadelphia, PA 19118		Leased
1536 S. Broad St., Philadelphia, PA 19146		Leased
1642 Fairmount Ave., Philadelphia, PA 19130		Leased
3601 Market St., Philadelphia, PA 19104		Leased
7226 Germantown Ave., Philadelphia, PA 19119		Leased
216 Hartman Bridge Rd., Ronks, PA 17572		Leased
200 North High St., West Chester, PA 19380	(3)	Leased
90 Willow Valley Lakes Dr., Willow Street, PA 17584		Leased
5089 Hamilton Blvd., Allentown, PA 18106		Land Lease
2645 Street Rd., Bensalem, PA 19020		Land Lease
380 Water Loop Dr., Collegeville, PA 19426		Land Lease
5829 Easton Rd., Doylestown, PA 18901		Land Lease

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1 Heritage Drive, Gordonville, PA 17529		Land Lease
2870 Shelly Rd., Harleysville, PA 19438		Land Lease
120 Forty Foot Rd., Hatfield, PA 19440		Land Lease
545 Constitution Ave., Perkasie, PA 18944		Land Lease
940 2nd Street Pk., Richboro, PA 18954		Land Lease

Corporate Headquarters:
14 North Main St., Souderton, PA 18964	(1) (2)	Owned
15 Washington Ave., Souderton, PA 18964		Owned
16 Harbor Pl., Souderton, PA 18964		Owned

Subsidiary Offices (Wealth Management Segment)
4600 Broadway, Allentown, PA 18104	(1) (3)	Leased
5237 Summerlin Commons Blvd., Fort Meyers, FL 33907		Leased
555 Croton Rd., King of Prussia, PA 19406		Leased
5000 Ritter Rd., Mechanicsburg, PA 17055		Leased

Subsidiary Offices (Insurance Segment)
6339 Beverly Hills Rd., Coopersburg, PA 18036		Owned
521 Main St., Lansdale, PA 19446		Owned
9120 Chesapeake Ave., Suite 300, North Beach, MD 20714		Leased
Glenloch Corporate Campus, 1473 Dunwoody Dr., West Chester, PA 19380	(1)	Owned

Other Offices:
3220 Tillman Dr., Suite 503, Bensalem, PA 19020	(1)	Leased
1317 2nd Ave., Cumberland, WI 54829	(1)	Leased
1980 S. Easton Rd., Doylestown, PA 18901	(1) (2) (3)	Leased
Greenfield Corporate Center, 1869 Charter Ln., Suite 301, Lancaster, PA 17601	(3)	Leased
2000 Market St., Suite 700, Philadelphia, PA 19103	(3)	Leased

(1) Banking Segment

(2) Wealth Management Segment

(3) Corporate banking

Additionally, the Bank provides banking services for the residents and employees of fourteen retirement home communities and has seven off-premise automated teller machines. The Bank provides banking services nationwide through the internet via its website www.univest.net .


Item 3.	Legal Proceedings

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


Item 4.	Mine Safety Disclosures

Not Applicable.

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PART II


Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol “UVSP.” At February 14, 2019, the Corporation had 2,596 stockholders of record.

Broadridge Corporate Issuer Solutions, Inc. (Broadridge), serves as the Corporation’s transfer agent. Broadridge is located at 1155 Long Island Avenue, Edgewood, NY 11717. Shareholders can contact a representative by calling 866-321-8021.

Stock Performance Graph

The following chart compares the yearly percentage change in the cumulative shareholder return on the Corporation’s common stock during the five years ended December 31, 2018 , with (1) the Total Return Index for the NASDAQ Stock Market (U.S. Companies) and (2) the Total Return Index for NASDAQ Bank Stocks. This comparison assumes $100.00 was invested on December 31, 2013 , in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends.

Five Year Cumulative Total Return Summary



	2013	2014	2015	2016	2017	2018
Univest Financial Corporation	100.00	101.84	109.22	167.48	156.30	124.00
NASDAQ Stock Market (US)	100.00	114.80	122.98	133.96	173.74	168.89
NASDAQ Banks	100.00	104.88	114.13	157.32	165.85	139.16

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ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information on repurchases by the Corporation of its common stock during the fourth quarter of 2018 , under the Corporation's Board approved program:



Period	Total 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
October 1 - 31, 2018	100,000	$	25.39	100,000	914,246
November 1 - 30, 2018	—	—		—	914,246
December 1 – 31, 2018	50,000	21.22		50,000	864,246
Total	150,000	$	24.00	150,000


1.	Transactions are reported as of trade dates.

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

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Item 6.	Selected Financial Data



	For the Years Ended December 31,
(Dollars in thousands, except per share data)	2018			2017			2016			2015			2014
Earnings
Interest income	$	190,488		$	163,015		$	126,607		$	101,983		$	76,192
Interest expense	32,426			19,839			12,382			8,065			3,996
Net interest income	158,062			143,176			114,225			93,918			72,196
Provision for loan and lease losses	20,310			9,892			4,821			3,802			3,607
Net interest income after provision for loan and lease losses	137,752			133,284			109,404			90,116			68,589
Noninterest income	60,173			59,240			55,963			52,425			48,344
Noninterest expense	137,239			130,713			141,981			105,515			87,254
Net income before income taxes	60,686			61,811			23,386			37,026			29,679
Income taxes	10,143			17,717			3,881			9,758			7,448
Net income	$	50,543		$	44,094		$	19,505		$	27,268		$	22,231
Financial Condition at Year End
Cash and interest-earning deposits	$	109,420		$	75,409		$	57,825		$	60,799		$	38,565
Investment securities	473,306			454,082			468,518			370,760			368,630
Net loans and leases held for investment	3,977,210			3,598,512			3,268,387			2,161,385			1,605,963
Assets	4,984,347			4,554,862			4,230,528			2,879,451			2,235,321
Deposits	3,885,933			3,554,919			3,257,567			2,394,360			1,861,341
Borrowings	429,672			355,590			417,780			73,588			41,974
Shareholders' equity	624,133			603,374			505,209			361,574			284,554
Per Common Share Data
Average shares outstanding (in thousands)	29,370			26,862			23,098			19,663			16,235
Earnings per share – basic	$	1.72		$	1.64		$	0.85		$	1.39		$	1.37
Earnings per share – diluted	1.72			1.64			0.84			1.39			1.37
Dividends declared per share	0.80			0.80			0.80			0.80			0.80
Book value (at year-end)	21.32			20.57			19.00			18.51			17.54
Dividends declared to net income	46.5		%	49.6		%	94.5		%	57.4		%	58.4		%
Profitability Ratios
Return on average assets	1.07		%	1.01		%	0.56		%	0.98		%	1.01		%
Return on average equity	8.26			8.37			4.46			7.58			7.74
Average equity to average assets	12.92			12.10			12.50			12.96			13.03
Asset Quality Ratios
Nonaccrual loans and leases (including nonaccrual, troubled debt restructured loans and lease modifications) to loans and leases held for investment	0.65		%	0.40		%	0.55		%	0.65		%	1.07		%
Nonperforming loans and leases to loans and leases held for investment	0.67			0.74			0.67			0.91			1.43
Net charge-offs to average loans and leases outstanding	0.33			0.17			0.18			0.33			0.47
Allowance for loan and lease losses to total loans and leases held for investment	0.73			0.60			0.53			0.81			1.27
Allowance for loan and lease losses to total loans and leases held for investment (excluding acquired loans at period-end)	0.81			0.70			0.73			0.94			1.27
Allowance for loan and lease losses to nonaccrual loans and leases	112.04			148.48			97.67			124.29			119.18
Allowance for loan and leases losses to nonperforming loans and leases	108.99			80.69			78.98			89.00			88.84

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Item 7. 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”; “N/ M” 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.)

The information contained in this report may contain forward-looking statements, including statements relating to Univest Financial Corporation (the Corporation) and its financial condition and results of operations that involve certain risks, uncertainties and assumptions. The Corporation’s actual results may differ materially from those anticipated, expected or projected as discussed in forward-looking statements. A discussion of forward-looking statements and factors that might cause such a difference includes those discussed in Part I, “Forward-Looking Statements,” Item 1A. “Risk Factors,” as well as those within this Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations and elsewhere in this report.

Critical Accounting Policies

The discussion below outlines the Corporation’s critical accounting policies. For further information regarding accounting policies, refer to Note 1, “Summary of Significant Accounting Policies” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K.

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, discussed below, 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, reserve for loan and lease losses and purchase accounting as areas with critical accounting policies.

Fair Value Measurement of Investment Securities Available-for-Sale: The Corporation designates its investment securities as held-to-maturity, available-for-sale or trading. Each of these designations affords different treatment in the balance sheet and statement of income for market value changes affecting securities. Should evidence emerge that indicates that management’s intent or ability to manage the securities as originally asserted is not supportable, securities in the held-to-maturity or available-for-sale designations may be re-categorized so that adjustments to either the balance sheet or statement of condition may be required.

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 flows 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 have not 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.

Reserve for Loan and Lease Losses: Reserves for loan and lease losses are provided using techniques that specifically identify losses on impaired loans and leases, estimate losses on pools of homogeneous loans and leases, and estimate the amount of unallocated reserve necessary to account for losses that are present in the loan and lease portfolio but not yet currently identifiable. The adequacies of these reserves are sensitive to changes in current economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral committed to secure such payments. Although management believes it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and the Corporation’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance for loan losses in conformity with GAAP, our regulators, in reviewing the loan portfolio, may request us to increase our reserve for loan and lease losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing reserve for loan and lease losses may not be adequate or increases may be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses would adversely affect the Corporation's financial condition and results of operations.

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Purchase Accounting: The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. The Corporation completed the acquisitions of Fox Chase in July 2016 and Valley Green in January 2015, which generated significant amounts of fair value adjustments to assets and liabilities. The fair value adjustments assigned to assets and liabilities, as well as their related useful lives, are subject to judgment and estimation by management. In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Corporation to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest, which requires the utilization of significant estimates and judgment in accounting for the acquisition.

The most significant fair value determination relates to the valuation of acquired loan portfolios. Level 3 inputs are utilized to value the portfolio and include the use of present value techniques employing cash flow estimates and incorporate assumptions that marketplace participants would use in estimating fair values. Specifically, management utilizes three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment, which are: 1) interest rate loan fair value analysis; 2) general credit fair value analysis; and 3) specific credit fair value analysis. For loans acquired with evidence of credit quality deterioration, the Corporation prepares a specific credit fair value adjustment. Actual performance of loans could differ from management’s initial estimates. If a loan outperforms the original fair value estimate, the difference between the original estimate and the actual performance of the loan is accreted into net interest income. Therefore, the net interest margin may initially increase due to the discount accretion. The yields on acquired loans are expected to decline as the acquired loan portfolio pays down or matures and the discount decreases. This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods. For more information, see Note 1, “Summary of Significant Accounting Policies" included in the Notes to the Consolidated Financial Statements included herein under Item 8.

Valuation of intangible assets is generally based on the estimated cash flows related to those assets, while the initial value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable assets acquired and liabilities assumed. The most significant other intangible asset is the core deposit intangible (CDI). In order to initially record the fair value of the CDI, the income approach is used. Estimates are based upon financial, economic, market and other conditions that exist at the time of the acquisition to develop the projected market interest rate, future interest and maintenance costs, and attrition rates. Useful lives are determined based on the expected future period of the benefit of the asset or liability, the assessment of which considers various characteristics of the asset or liability, including the historical cash flows.

Readers of the Corporation’s financial statements should be aware that the estimates and assumptions used in the Corporation’s current financial statements may need to be updated in future financial presentations for changes in circumstances, business or economic conditions in order to fairly represent the condition of the Corporation at that time.

General

The Corporation earns revenues primarily from the margins and fees generated from the lending and depository services to customers as well as fee-based income from trust, insurance, mortgage banking and investment services to customers. The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting its exposure to credit and interest rate risk to Board of Directors approved levels. Growth is pursued through expansion of current customer relationships and development of additional relationships with new offices and strategic acquisitions.

The principal component of earnings for the Corporation is net interest income, the income earned on loans and investments less the cost of interest-bearing liabilities. The net interest margin, the ratio of net interest income to average earning assets, is impacted by several factors including market interest rates, economic conditions, loan and lease demand, and deposit activity. As interest rates increase, fixed-rate assets that banks hold will tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold will tend to increase in value. The Corporation is in a slightly asset sensitive position and net interest income is projected to increase in a rising rate environment, however, actual results could be materially different than modeled, due to numerous factors influencing interest rates earned on new loans and investments as well as rates paid on new and existing deposits and new borrowings.

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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:



	For the Years Ended December 31,									Amount of Change				Percent Change
(Dollars in thousands, except per share data)	2018			2017			2016			2018 to 2017		2017 to 2016		2018 to 2017		2017 to 2016
Net income	$	50,543		$	44,094		$	19,505		$	6,449	$	24,589	14.6	%	126.1	%
Net income per share:
Basic	$	1.72		$	1.64		$	0.85		$	0.08	$	0.79	4.9		92.9
Diluted	1.72			1.64			0.84			0.08		0.80		4.9		95.2
Return on average assets	1.07		%	1.01		%	0.56		%	6 BP		45 BP		5.9		80.4
Return on average equity	8.26			8.37			4.46			(11 BP)		391 BP		(1.3	)	87.7

2018 versus 2017

The Corporation reported net income of $50.5 million , or $1.72 diluted earnings per share, for 2018 compared to net income of $44.1 million , or $1.64 diluted earnings per share for 2017 . The financial results for the year ended December 31, 2018 included a pre-tax charge to the provision for loan and lease losses of $10.9 million (after-tax charge of $8.6 million) which represented $0.29 diluted earnings per share, related to fraudulent activities by employees of a borrower. In addition, the financial results for the year ended December 31, 2018 included tax-free bank owned life insurance (BOLI) death benefit of $446 thousand during the second quarter of 2018, which represented $0.02 diluted earnings per share, offset by restructuring costs related to financial center closures of $451 thousand, net of tax, or $0.02 diluted earnings per share, recognized in the first quarter of 2018. There were no restructuring costs during the year ended December 31, 2017 . The financial results for the year ended December 31, 2018 also included a reduction in the Corporation's statutory federal income tax rate from 35% to 21% effective January 1, 2018 in accordance with the Tax Cuts and Jobs Act of 2017 (TCJA).

The financial results for the year ended December 31, 2017 included a revaluation of the Corporation’s net deferred tax asset associated with the passage of the TCJA. The revaluation, which was recorded as additional income tax expense, was $1.1 million, or $0.04 diluted earnings per share in 2017. The financial results for the year ended December 31, 2017 included a tax-free BOLI death benefit of $889 thousand recognized in the second quarter of 2017, which represented $0.03 diluted earnings per share.

2017 versus 2016

The Corporation reported net income of $44.1 million, or $1.64 diluted earnings per share, for 2017 compared to net income of $19.5 million, or $0.84 diluted earnings per share, for 2016. The financial results for the year ended December 31, 2017 included a re-measurement of the Corporation’s net deferred tax asset associated with the passage of the Tax Cuts and Jobs Act of 2017. The re-measurement, which was recorded as additional income tax expense during the fourth quarter of 2017, was $1.1 million, or $0.04 diluted earnings per share. The financial results for the year ended December 31, 2017 also included a tax-free bank owned life insurance death benefit of $889 thousand recognized in the second quarter of 2017, which represented $0.03 diluted earnings per share for the year ended December 31, 2017.

The financial results for the year ended December 31, 2016 included acquisition and integration costs related to the acquisition of Fox Chase plus restructuring costs related to facility closures and staffing rationalization of $11.8 million, net of tax, or $0.51 diluted earnings per share. There were no acquisition, integration costs or restructuring costs during the year ended December 31, 2017. The results for the year ended December 31, 2016 also included a charge of $1.2 million, net of tax, or $0.05 diluted earnings per share related to the Corporation’s agreement to settle its future obligations related to the acquisition of Girard Partners.

In December 2017, the Corporation completed its public offering of 2,645,000 shares of common stock at a price of $28.25 per share, which resulted in an increase in shareholders' equity of $70.5 million. In July 2016, the Corporation issued 6,857,529 shares of common stock related to the Fox Chase acquisition, which resulted in an increase in shareholders' equity of $144.1 million.

Results of Operations

The Corporation acquired Fox Chase on July 1, 2016. The comparative results of operations for 2017 versus 2016 include a full year of operations for the combined entities for the year ended December 31, 2017 and six months of combined operations for the year ended December 31, 2016.

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Net Interest Income

Table 1 presents a summary of the Corporation’s average balances, tax-equivalent interest income, interest expense, the tax-equivalent yields earned on average assets, the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the years ended December 31, 2018 , 2017 and 2016 . 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.

Table 1, Table 2, and the interest income and net interest income analysis contains tax-equivalent financial information and measures determined by methods other than in accordance with U.S. GAAP. The management of the Corporation uses this non-GAAP financial information and measures in its analysis of the Corporation's performance. This financial information and measures should not be considered a substitute for GAAP basis financial information or measures nor should they be viewed as a substitute for operating results determined in accordance with GAAP. Management believes the presentation of the non-GAAP financial information and measures provide useful information that is essential to a proper understanding of the financial results of the Corporation.

The statutory federal tax rate utilized in the respective tables and analyses was 21% for the year ended December 31, 2018 and 35% for the years ended December 31, 2017 and December 31, 2016.

2018 versus 2017

Reported net interest income for the year ended December 31, 2018 was $158.1 million , an increase of $14.9 million , or 10.4% , from the prior year. Net interest income, on a tax-equivalent basis, for the year ended December 31, 2018 was $160.7 million , an increase of $11.9 million , or 8.0% , from the prior year. The increase in reported and tax-equivalent net interest income was primarily due to the growth in average loans of 10.4%, growth in interest free funding and 16.1% growth in average equity. The net interest margin on a tax-equivalent basis for the year ended December 31, 2018 was 3.72% compared to 3.78% for 2017 which incorporates the utilization of a 21% tax rate for 2018 and 35% for 2017. The favorable impact of purchase accounting accretion was two basis points ($1.0 million) for the year ended December 31, 2018, compared to eight basis points ($3.0 million) for 2017.

2017 versus 2016

Net interest income on a tax-equivalent basis for the year ended December 31, 2017 was $148.8 million, an increase of $29.1 million, or 24.3%, from the prior year. The net interest margin on a tax-equivalent basis for the year ended December 31, 2017 was 3.78% compared to 3.82% for 2016. The increase in net interest income on a tax-equivalent basis was mainly due to the impact of the Fox Chase acquisition, which occurred on July 1, 2016, organic loan growth and increases in loan yields partially offset by deposit growth and higher deposit costs. The favorable impact of purchase accounting accretion was eight basis points ($3.0 million) for the year ended December 31, 2017, compared to nine basis points ($2.8 million) for 2016.

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



	For the Years Ended December 31,
	2018							2017							2016
(Dollars in thousands)	Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate		Average Balance			Income/ Expense		Average Rate
Assets:
Interest-earning deposits with other banks	$	56,984		$	1,101	1.93	%	$	26,128		$	280	1.07	%	$	13,438		$	61	0.45	%
U.S. government obligations	22,930			364		1.59		30,638			423		1.38		54,220			649		1.20
Obligations of states and political subdivisions ⁽¹⁾	69,842			2,330		3.34		82,487			3,498		4.24		97,325			4,172		4.29
Other debt and equity securities	363,840			9,024		2.48		350,527			6,920		1.97		254,508			4,731		1.86
Federal funds sold and other earning assets	30,786			1,965		6.38		27,893			1,500		5.38		16,370			790		4.83
Total interest-earning deposits, investments, federal funds sold and other earning assets	544,382			14,784		2.72		517,673			12,621		2.44		435,861			10,403		2.39
Commercial, financial and agricultural loans	793,028			39,156		4.94		749,563			33,278		4.44		552,322			21,964		3.98
Real estate—commercial and construction loans	1,689,983			78,498		4.64		1,519,883			68,166		4.48		1,146,293			52,232		4.56
Real estate—residential loans	870,846			41,270		4.74		765,493			34,563		4.52		633,886			28,101		4.43
Loans to individuals	30,242			1,866		6.17		28,050			1,636		5.83		30,501			1,654		5.42
Municipal loans and leases ⁽¹⁾	316,280			12,049		3.81		282,475			12,856		4.55		261,057			11,556		4.43
Lease financings	76,561			5,514		7.20		75,383			5,533		7.34		75,914			6,168		8.12
Gross loans and leases	3,776,940			178,353		4.72		3,420,847			156,032		4.56		2,699,973			121,675		4.51
Total interest-earning assets	4,321,322			193,137		4.47		3,938,520			168,653		4.28		3,135,834			132,078		4.21
Cash and due from banks	45,979							44,424							37,050
Reserve for loan and lease losses	(25,154		)					(20,219		)					(17,147		)
Premises and equipment, net	61,006							64,583							53,036
Other assets	334,619							329,232							287,239
Total assets	$	4,737,772						$	4,356,540						$	3,496,012
Liabilities:
Interest-bearing checking deposits	$	461,676		1,924		0.42		$	437,678		527		0.12		$	386,176		362		0.09
Money market savings	764,777			9,137		1.19		582,703			3,390		0.58		414,121			1,540		0.37
Regular savings	798,332			2,357		0.30		847,510			2,089		0.25		714,809			1,052		0.15
Time deposits	601,674			8,768		1.46		566,079			5,271		0.93		512,557			4,261		0.83
Total time and interest-bearing deposits	2,626,459			22,186		0.84		2,433,970			11,277		0.46		2,027,663			7,215		0.36
Short-term borrowings	144,312			2,420		1.68		105,552			904		0.86		103,238			748		0.72
Long-term debt	150,032			2,777		1.85		186,109			2,621		1.41		60,965			549		0.90
Subordinated notes	94,451			5,043		5.34		94,208			5,037		5.35		71,851			3,870		5.39
Total borrowings	388,795			10,240		2.63		385,869			8,562		2.22		236,054			5,167		2.19
Total interest-bearing liabilities	3,015,254			32,426		1.08		2,819,839			19,839		0.70		2,263,717			12,382		0.55
Noninterest-bearing deposits	1,069,805							973,253							751,592
Accrued expenses and other liabilities	40,516							36,361							43,605
Total liabilities	4,125,575							3,829,453							3,058,914
Shareholders’ Equity:
Common stock	157,784							145,564							127,509
Additional paid-in capital	291,148							235,578							175,609
Retained earnings and other equity	163,265							145,945							133,980
Total shareholders’ equity	612,197							527,087							437,098
Total liabilities and shareholders’ equity	$	4,737,772						$	4,356,540						$	3,496,012
Net interest income				$	160,711						$	148,814						$	119,696
Net interest spread						3.39							3.58							3.66
Effect of net interest-free funding sources						0.33							0.20							0.16
Net interest margin						3.72	%						3.78	%						3.82	%
Ratio of average interest-earning assets to average interest-bearing liabilities	143.32		%					139.67		%					138.53		%

(1) The average rate for these categories utilizes a statutory federal tax rate of 21% for 2018 and 35% for 2017 and 2016, which reduces the reported Average Rate for 2018 as compared to 2017 and 2016.

Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs, purchase accounting adjustments, and unearned discount.

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 years ended December 31, 2018 , 2017 and 2016 have been calculated using the Corporation’s federal applicable rate of 21%, 35% and 35%, respectively.

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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 year ended December 31, 2018 compared to 2017 and for the year ended December 31, 2017 compared to 2016 , indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.



	For the Years Ended December 31, 2018 Versus 2017									For the Years Ended December 31, 2017 Versus 2016
(Dollars in thousands)	Volume Change			Rate Change			Total			Volume Change			Rate Change			Total
Interest income:
Interest-earning deposits with other banks	$	488		$	333		$	821		$	89		$	130		$	219
U.S. government obligations	(117		)	58			(59		)	(313		)	87			(226		)
Obligations of states and political subdivisions	(490		)	(678		)	(1,168		)	(626		)	(48		)	(674		)
Other debt and equity securities	269			1,835			2,104			1,892			297			2,189
Federal funds sold and other earning assets	167			298			465			611			99			710
Interest on deposits, investments, federal funds sold and other earning assets	317			1,846			2,163			1,653			565			2,218
Commercial, financial and agricultural loans	1,998			3,880			5,878			8,547			2,767			11,314
Real estate—commercial and construction loans	7,832			2,500			10,332			16,860			(926		)	15,934
Real estate—residential loans	4,955			1,752			6,707			5,886			576			6,462
Loans to individuals	132			98			230			(138		)	120			(18		)
Municipal loans and leases	1,430			(2,237		)	(807		)	978			322			1,300
Lease financings	86			(105		)	(19		)	(43		)	(592		)	(635		)
Interest and fees on loans and leases	16,433			5,888			22,321			32,090			2,267			34,357
Total interest income	16,750			7,734			24,484			33,743			2,832			36,575
Interest expense:
Interest-bearing checking deposits	30			1,367			1,397			47			118			165
Money market savings	1,316			4,431			5,747			773			1,077			1,850
Regular savings	(130		)	398			268			226			811			1,037
Time deposits	347			3,150			3,497			469			541			1,010
Interest on time and interest-bearing deposits	1,563			9,346			10,909			1,515			2,547			4,062
Short-term borrowings	421			1,095			1,516			16			140			156
Long-term debt	(568		)	724			156			1,624			448			2,072
Subordinated notes	14			(8		)	6			1,196			(29		)	1,167
Interest on borrowings	(133		)	1,811			1,678			2,836			559			3,395
Total interest expense	1,430			11,157			12,587			4,351			3,106			7,457
Net interest income	$	15,320		$	(3,423	)	$	11,897		$	29,392		$	(274	)	$	29,118

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Interest Income

2018 versus 2017

Interest income on a tax-equivalent basis for the year ended December 31, 2018 was $193.1 million , an increase of $24.5 million , or 14.5% , from 2017 . The increase in interest income (tax-equivalent) was primarily due to organic loan growth in commercial real estate, commercial business and residential real estate loans. In addition, loan yields increased as the Federal Reserve increased interest rates 100 basis points in 2018 and 75 basis points in 2017. The favorable impact of purchase accounting accretion on interest-earning assets was one basis point ($383 thousand) for 2018, compared to a favorable impact of two basis points ($888 thousand) for 2017.

2017 versus 2016

Interest income on a tax-equivalent basis for the year ended December 31, 2017 was $168.7 million, an increase of $36.6 million, or 27.7%, from 2016. The increase was mainly due to the impact of the Fox Chase acquisition and organic loan growth in commercial real estate, commercial business and residential real estate loans. In addition, loan yields increased slightly as the Federal Reserve increased interest rates a total of 100 basis points collectively in the fourth quarter of 2016 and 2017. The favorable impact of purchase accounting accretion on interest-earning assets was two basis points ($888 thousand) for 2017, compared to a favorable impact of five basis points ($1.4 million) for 2016.

Interest Expense

2018 versus 2017

Interest expense for the year ended December 31, 2018 was $32.4 million , an increase of $12.6 million , or 63.4%, from 2017. The increase was primarily due to higher deposit and borrowing costs, which were impacted by the Federal Reserve interest rate increases in 2017 and 2018. The favorable impact of purchase accounting amortization on interest-bearing liabilities was two basis points ($654 thousand) for 2018, compared to a favorable impact of eight basis points ($2.1 million) for 2017.

2017 versus 2016

Interest expense for the year ended December 31, 2017 was $19.8 million, an increase of $7.5 million, or 60.2%, from 2016. The increase was primarily due to the impact of the Fox Chase acquisition, organic deposit growth and higher deposit costs. Deposits costs were impacted by the Federal Reserve interest rate increases in the fourth quarter of 2016 and 2017. The favorable impact of purchase accounting amortization on interest-bearing liabilities was eight basis points ($2.1 million) for 2017, compared to a favorable impact of six basis points ($1.4 million) for 2016.

Provision for Loan and Lease Losses

The provision for loan and leases losses for the years ended December 31, 2018 , 2017 , and 2016 was $20.3 million , $9.9 million , and $4.8 million , respectively. Net loan and lease charge-offs for the years ended December 31, 2018 , 2017 , and 2016 were $12.5 million, $5.8 million and $5.0 million, respectively. The increase in both the provision for loan and lease losses and loan and lease charge-offs in 2018 was primarily due to a commercial loan net charge-off of $10.9 million previously discussed in the Executive Overview.

The provision for loan and lease losses increased in 2017 due to the increased charge-offs and a $690.5 million increase in originated loans. During 2017, the Corporation charged-off $2.8 million and recognized $2.8 million in provision for loan and lease losses related to $5.0 million of software leases under a vendor referral program.

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Noninterest Income

The following table presents noninterest income for the years ended December 31, 2018 , 2017 and 2016 :



	For the Years Ended December 31,						$ Change						% Change
(Dollars in thousands)	2018		2017		2016		2018 to 2017			2017 to 2016			2018 to 2017		2017 to 2016
Trust fee income	$	7,882	$	8,055	$	7,741	$	(173	)	$	314		(2.1	)%	4.1	%
Service charges on deposit accounts	5,632		5,482		4,691		150			791			2.7		16.9
Investment advisory commission and fee income	15,098		13,454		11,424		1,644			2,030			12.2		17.8
Insurance commission and fee income	15,658		14,788		14,603		870			185			5.9		1.3
Other service fee income	9,332		8,656		7,836		676			820			7.8		10.5
Bank owned life insurance income	3,174		3,988		2,931		(814		)	1,057			(20.4	)	36.1
Net gain on sales of investment securities	10		48		518		(38		)	(470		)	(79.2	)	(90.7	)
Net gain on mortgage banking activities	3,125		4,023		6,027		(898		)	(2,004		)	(22.3	)	(33.3	)
Other income	262		746		192		(484		)	554			(64.9	)	N/M
Total noninterest income	$	60,173	$	59,240	$	55,963	$	933		$	3,277		1.6	%	5.9	%

2018 versus 2017

Noninterest income for the year ended December 31, 2018 was $60.2 million , an increase of $933 thousand , or 1.6% , compared to 2017. Investment advisory commission and fee income increased $1.6 million, or 12.2%, for the year ended December 31, 2018, primarily due to new customer relationships and favorable market performance for the majority of 2018. Insurance commission and fee income increased $870 thousand, or 5.9%, for the year ended December 31, 2018, primarily due to an increase in group life and health premiums and an increase in contingent commission income of $371 thousand, which is largely recognized in the first quarter of the year. Other service fee income increased $676 thousand, or 7.8%, for the year ended December 31, 2018, primarily due to increases in debit card interchange income, mortgage servicing fees and human resource and payroll consulting services within the insurance line of business. Service charges on deposit accounts increased $150 thousand, or 2.7%, for the year ended December 31, 2018, primarily due to increased fee income on cash management accounts.

BOLI income decreased $814 thousand for the year ended December 31, 2018 primarily due to proceeds from death benefits of $446 thousand in 2018 as compared to $889 thousand in 2017 and a decrease in value of our non-qualified annuity portfolio of $109 thousand in 2018 compared to an increase of $343 thousand in 2017. The net gain on mortgage banking decreased $898 thousand, or 22.3%, for the year ended December 31, 2018, primarily due to a decrease in refinance mortgage volume, a shortage of housing supply and the Bank retaining, on balance-sheet, a higher percentage of its mortgage originations. Such on balance-sheet loans are predominantly hybrid adjustable-rate mortgages. Other income decreased $484 thousand, or 64.9%, for the year ended December 31, 2018, primarily due to a net loss of $355 thousand related to valuations and sales of other real estate owned and sales of closed branches as compared to a net loss of $31 thousand of such assets in the prior year.

2017 versus 2016

Noninterest income for the year ended December 31, 2017 was $59.2 million, an increase of $3.3 million, or 5.9%, compared to 2016. Trust fee income increased $314 thousand, or 4.1%, for the year ended December 31, 2017 primarily due to an increase in trust assets under management during 2017. Service charges on deposits increased $791 thousand, or 16.9%, for the year ended December 31, 2017 primarily due to fees on deposit accounts acquired from Fox Chase. Investment advisory commission and fee income increased $2.0 million, or 17.8%, for the year ended December 31, 2017 primarily due to new customer relationships and favorable market performance during 2017. Insurance commission and fee income increased $185 thousand, or 1.3%, for the year ended December 31, 2017. Insurance contingent commission income was $1.1 million for the year ended December 31, 2017, a decrease of $363 thousand from the year ended December 31, 2016. Excluding the decrease in contingent commission income, insurance commission and fee income increased $548 thousand or 4.2%. Other service fee income increased $820 thousand, or 10.5%, primarily due to interchange fee income, partially related to Fox Chase customers and an increase in mortgage servicing fee income mainly due to higher volume and lower amortization expense as a result of reduced loan prepayments. BOLI income increased $1.1 million for the year ended December 31, 2017, primarily due to proceeds from BOLI death benefits of $889 thousand recognized in the second quarter of 2017 and policies acquired from Fox Chase. BOLI death benefits of $450 thousand were recognized in 2016. Other income increased $554 thousand for the year ended December 31, 2017, mainly due to an increase in swap fee income of $308 thousand and an increase in net gains on sales of other real estate owned of $524 thousand partially offset by the loss on the sale of a closed Fox Chase branch of $309 thousand.

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These increases in noninterest income were partially offset by a decrease in the net gain on sale of securities of $470 thousand for the year ended December 31, 2017. In addition, the net gain on mortgage banking decreased $2.0 million, or 33.3%, for the year ended December 31, 2017 primarily due to a decrease in mortgage refinance volume and a shortage of housing supply.

Noninterest Expense

The following table presents noninterest expense for the years ended December 31, 2018 , 2017 and 2016 :



	For the Years Ended December 31,						$ Change						% Change
(Dollars in thousands)	2018		2017		2016		2018 to 2017			2017 to 2016			2018 to 2017		2017 to 2016
Salaries, benefits and commissions	$	80,609	$	75,992	$	69,244	$	4,617		$	6,748		6.1	%	9.7	%
Net occupancy	10,260		10,433		9,638		(173		)	795			(1.7	)	8.2
Equipment	4,146		4,118		3,489		28			629			0.7		18.0
Data processing	9,014		8,500		6,981		514			1,519			6.0		21.8
Professional fees	5,391		5,325		4,547		66			778			1.2		17.1
Marketing and advertising	1,800		1,485		2,015		315			(530		)	21.2		(26.3	)
Deposit insurance premiums	1,836		1,636		1,713		200			(77		)	12.2		(4.5	)
Intangible expenses	2,166		2,582		5,528		(416		)	(2,946		)	(16.1	)	(53.3	)
Acquisition-related costs	—		—		10,257		—			(10,257		)	—		N/M
Integration costs	—		—		5,667		—			(5,667		)	—		N/M
Restructuring charges	571		—		1,731		571			(1,731		)	N/M		N/M
Other expense	21,446		20,642		21,171		804			(529		)	3.9		(2.5	)
Total noninterest expense	$	137,239	$	130,713	$	141,981	$	6,526		$	(11,268	)	5.0	%	(7.9	)%

2018 versus 2017

Noninterest expense for the year ended December 31, 2018 was $137.2 million , an increase of $6.5 million , or 5.0% , compared to 2017. Salaries, benefits and commissions increased $4.6 million, or 6.1%, for the year ended December 31, 2018, primarily attributable to additional staff hired to support revenue generation across all business lines, expansion of our financial center footprint in Lancaster County and annual merit increases. Data processing expense increased $514 thousand, or 6.0%, for the year ended December 31, 2018 primarily due to increased investments in customer relationship management software, internal infrastructure improvements and outsourced data processing solutions. Marketing and advertising expense increased $315 thousand, or 21.2%, for the year ended December 31, 2018 primarily related to deposit product campaigns and expenses related to re-branding our wealth management division during the fourth quarter of 2018. Other expense increased $804 thousand, or 3.9%, for the year ended December 31, 2018 primarily due to increases in Bank shares tax, loan processing expenses and increased corporate development expenses. Restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the first quarter of 2018. There were no restructuring costs during the year ended December 31, 2017.

2017 versus 2016

Noninterest expense for the year ended December 31, 2017 was $130.7 million, a decrease of $11.3 million, or 7.9% , compared to 2016. Acquisition and integration costs related to the Fox Chase acquisition and restructuring costs were $17.7 million for the year ended December 31, 2016. There were no acquisition, integration costs or restructuring costs during the year ended December 31, 2017. In addition, intangible expense decreased $2.9 million for the year ended December 31, 2017 primarily as a result of the settlement of the Girard Partners acquisition earn-out in the fourth quarter of 2016 and the conclusion of the earn-out period for the Sterner Insurance Associates acquisition, which resulted in a reversal of a prior accrual of $303 thousand during the second quarter of 2017.

These decreases were partially offset by the following increases in noninterest expense for the year ended December 31, 2017. Salaries, benefits and commissions increased $6.7 million, or 9.7%, for the year ended December 31, 2017, primarily attributable to higher staffing levels resulting from the Fox Chase acquisition, additional staff hired to support revenue generation across all business lines and the expansion into Lancaster County. Premises and equipment expenses increased $1.4 million, or 10.8%, for the year ended December 31, 2017, primarily due to higher premises expense related to Fox Chase locations and continued expansion into Philadelphia, Lancaster County and the Lehigh Valley. Data processing expense increased $1.5 million, or 21.8%, for the year ended December 31, 2017 due to increased investments in customer relationship management software and outsourced data processing solutions as well as the addition of Fox Chase processing expense. Other expense decreased $529 thousand for the year ended December 31, 2017 primarily due to the cost of a pension settlement of $1.4 million in 2016 partially offset by an increase

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of $1.1 million related to Bank shares tax as a result of a statutory rate increase in 2017 and the Bank’s growth following the Fox Chase acquisition.

Tax Provision

The provision for income taxes was $10.1 million , $17.7 million and $3.9 million for the years ended December 31, 2018 , 2017 , and 2016 , respectively, at effective rates of 16.7% , 28.7% , and 16.6% , respectively. The effective tax rates reflect the reduction in the statutory federal tax rate to 21% in 2018 compared to 35% in 2017 and 2016. Additionally, the effective tax rates reflect the excess tax benefits from equity compensation activity and the benefits of tax-exempt income from investments in municipal securities and loans and leases and bank-owned life insurance. For 2016, these benefits were partially offset by non-deductible merger expenses.

The Corporation's effective income tax rate for the year ended December 31, 2018 was favorably impacted by discrete tax benefits and proceeds from BOLI death benefits. Excluding these discrete items, the effective tax rate was 18.3% for the year ended December 31, 2018. The Corporation completed the calculations of provisional items with the completion of the 2017 tax returns. The impact of the completed calculations to the re-measurement of the Corporation's net deferred tax asset resulted in an income tax benefit of $300 thousand which the Corporation recorded in 2018.

The effective tax rate for 2017 was impacted by the TCJA due to the re-measurement of the Corporation's net deferred tax asset. The re-measurement adjustment of the net deferred tax asset was recorded as additional income tax expense of $1.1 million in the fourth quarter of 2017. In addition, the Corporation recognized a BOLI death benefit of $889 thousand in the second quarter of 2017 and a discrete tax benefit related to the vesting of restricted stock and exercise of stock options of $684 thousand for 2017 which provided a tax deduction greater than previously recorded. This change was in accordance with ASU No. 2016-09, which was implemented by the Corporation in the fourth quarter of 2016 and requires the impact of such equity-based compensation activities to be recorded as an adjustment to the income tax provision in the period incurred, rather than an adjustment to equity. Excluding these items, the effective tax rate was 28.5% for the year ended December 31, 2017.

Financial Condition

ASSETS

The following table presents assets at the dates indicated:



	At December 31,
(Dollars in thousands)	2018			2017			$ Change			% Change
Cash and interest-earning deposits	$	109,420		$	75,409		$	34,011		45.1	%
Investment securities	473,306			454,082			19,224			4.2
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	28,337			27,204			1,133			4.2
Loans held for sale	1,754			1,642			112			6.8
Loans and leases held for investment	4,006,574			3,620,067			386,507			10.7
Reserve for loan and lease losses	(29,364		)	(21,555		)	(7,809		)	(36.2	)
Premises and equipment, net	59,559			61,797			(2,238		)	(3.6	)
Goodwill and other intangibles, net	184,549			186,468			(1,919		)	(1.0	)
Bank owned life insurance	111,599			108,246			3,353			3.1
Accrued interest receivable and other assets	38,613			41,502			(2,889		)	(7.0	)
Total assets	$	4,984,347		$	4,554,862		$	429,485		9.4	%

Investment Securities

Total investment securities at December 31, 2018 increased $19.2 million from December 31, 2017 . Purchases of $107.6 million were partially offset by maturities and pay-downs of $67.4 million , calls of $10.1 million , sales of $1.0 million , net amortization of purchased premiums and discounts of $2.5 million and decreases in the fair value of available-for-sale investment securities of $7.3 million . The decrease in the fair value of available-for-sale securities was due to increased interest rates during the year.

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Table 3—Investment Securities

The following table shows the carrying amount of investment securities at the dates indicated. Held-to-maturity, available-for-sale and equity security portfolios are combined.



	At December 31,
(Dollars in thousands)	2018		2017		2016
U.S. government corporations and agencies	$	22,311	$	23,956	$	32,266
State and political subdivisions	65,415		78,297		88,350
Residential mortgage-backed securities	287,400		233,990		203,641
Collateralized mortgage obligations	2,888		3,602		4,554
Corporate bonds	93,127		107,176		128,008
Equity securities	2,165		7,061		11,699
Total investment securities	$	473,306	$	454,082	$	468,518

Table 4—Investment Securities (Yields)

The following table shows the maturity distribution and weighted average yields of the investment securities at the dates indicated. Expected maturities will differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties. Therefore, the stated yield may not be recognized in future periods. Additionally, residential mortgage-backed securities, which are collateralized by residential mortgage loans, typically prepay at a rate faster than stated maturity. Equity securities have no stated maturity and the current dividend yields may not be recognized in future periods. The weighted average yield is calculated by dividing income, which has not been tax equated on tax-exempt obligations, within each contractual maturity range by the outstanding amount of the related investment. Held-to-maturity, available-for-sale and equity security portfolios are combined.



	At December 31,
(Dollars in thousands)	2018 Amount		2018 Yield		2017 Amount		2017 Yield		2016 Amount		2016 Yield
1 Year or less	$	28,654	1.58	%	$	14,213	1.44	%	$	36,044	1.08	%
After 1 Year to 5 Years	46,641		2.18		67,893		1.80		77,649		1.54
After 5 Years to 10 Years	121,533		2.53		133,660		2.50		93,477		2.66
After 10 Years	274,313		2.77		231,255		2.37		249,649		2.33
No stated maturity	2,165		2.63		7,061		1.37		11,699		0.23
Total	$	473,306	2.58	%	$	454,082	2.28	%	$	468,518	2.12	%

Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost

The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $13.6 million and $12.5 million at December 31, 2018 and 2017 , respectively. FHLB stock increased $1.1 million mainly due to purchase requirements related to the increase in FHLB borrowing volume during the year.

At December 31, 2018 and 2017 , the Bank held $14.6 million in Federal Reserve Bank stock as required by the Federal Reserve Bank.

Loans and Leases

Gross loans and leases held for investment at December 31, 2018 increased $386.5 million , or 10.7%, from December 31, 2017 . The growth in loans was primarily commercial real estate, commercial business and residential real estate loans. The loan growth in 2018 resulted from both new and existing customer relationships and $172.8 million in growth in the Corporation’s Lancaster portfolio to $434.2 million at December 31, 2017 as the Corporation continued to take advantage of opportunities as a result of market disruption caused by other bank acquisitions.

At December 31, 2018 , there were no concentrations of loans or leases exceeding 10% of total loans and leases other than as disclosed in Table 5.

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Table 5—Loan and Lease Portfolio

The following table presents the composition of the loan and lease portfolio at the dates indicated:



	At December 31,
(Dollars in thousands)	2018		2017		2016		2015		2014
Commercial, financial and agricultural	$	937,685	$	896,211	$	823,266	$	504,515	$	457,827
Real estate-commercial	1,741,204		1,542,141		1,374,949		885,892		628,478
Real estate-construction	215,513		175,836		174,844		96,541		79,887
Real estate-residential	937,457		847,811		747,715		536,893		312,032
Loans to individuals	32,759		28,300		30,373		29,732		29,941
Lease financings	141,956		129,768		134,739		125,440		118,460
Total loans and leases held for investment, net of deferred income	$	4,006,574	$	3,620,067	$	3,285,886	$	2,179,013	$	1,626,625

Table 6—Loan and Lease Maturities and Sensitivity to Changes in Interest Rates

The following table presents the maturity and interest rate sensitivity of the loan and lease portfolio at December 31, 2018 :



(Dollars in thousands)	Total		Due in One Year or Less		Due after One Year to Five Years		Due After Five Years
Commercial, financial and agricultural	$	937,685	$	616,856	$	206,884	$	113,945
Real estate-commercial	1,741,204		471,118		1,073,646		196,440
Real estate-construction	215,513		140,192		23,607		51,714
Real estate-residential	937,457		284,882		346,677		305,898
Loans to individuals	32,759		23,029		6,995		2,735
Lease financings	141,956		49,179		91,535		1,242
Total gross loans and leases held for investment	$	4,006,574	$	1,585,256	$	1,749,344	$	671,974
Loans and leases with fixed predetermined interest rates	$	1,933,763	$	216,269	$	1,388,718	$	328,776
Loans and leases with variable or floating interest rates	2,072,811		1,368,987		360,626		343,198
Total gross loans and leases held for investment	$	4,006,574	$	1,585,256	$	1,749,344	$	671,974

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.

Loans and leases are deemed impaired when, based on current information and events, it is probable that the Bank will be unable to collect all proceeds due according to the contractual terms of the agreement or when a loan or lease is classified as a troubled debt restructuring. Factors considered by management in determining impairment include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due.

When a loan or lease, including a loan or lease that is impaired, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease is typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest, even though the loan or lease is currently performing. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of net deferred fees and costs is suspended. Interest payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the ultimate collectability of principal.

Loans or leases are usually restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

At December 31, 2018 , the recorded investment in loans and leases held for investment that were considered to be impaired was $26.6 million . The related reserve for loan and lease losses was $1.4 million . At December 31, 2017 , the recorded investment in loans and leases that were considered to be impaired was $29.7 million . The related reserve for loan and lease losses was $131

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thousand . During 2018, one commercial real estate loan in the amount of $12.3 million was placed on non-accrual status during the first quarter of 2018. At December 31, 2018, the loan had a carrying balance of $11.5 million due to pay-downs during 2018. This was partially offset by an accruing troubled debt restructured commercial real estate loans for another borrower totaling $10.3 million being returned to performing status during the first quarter of 2018 as the borrower was in compliance with the modified terms of the restructuring for the required time period. The impaired loan and lease balances consisted mainly of commercial real estate loans and business loans. Impaired loans and leases include nonaccrual loans and leases and accruing troubled debt restructured loans and lease modifications for which it is probable that not all principal and interest payments due will be collectible in accordance with the contractual terms. The amount of the specific reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits. Specific reserves have been established based on current facts and management’s judgments about the ultimate outcome of these credits. For the years ended December 31, 2018 , 2017 , and 2016 , additional interest income that would have been recognized under the original terms for impaired loans was $1.7 million , $889 thousand and $909 thousand , respectively. Interest income recognized on impaired loans for the years ended December 31, 2018 , 2017 and 2016 was $382 thousand , $1.1 million and $1.4 million , respectively.

Other real estate owned was $1.2 million at December 31, 2018 , compared to $1.8 million at December 31, 2017 . During the year ended December 31, 2018, two residential properties with a carrying value of $403 thousand and two parcels of land with a carrying value of $74 thousand were transferred to other real estate owned and four residential properties with a carrying value of $423 thousand were sold for a net gain of $67 thousand. Additionally, the market value of a parcel of land was written down by $460 thousand based on an agreement to sell the property. The carrying value of four other properties were written down by $233 thousand to reflect current market conditions for the underlying properties.

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Table 7—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. Nonperforming loans and assets exclude acquired credit impaired loans from Fox Chase and Valley Green.



	At December 31,
(Dollars in thousands)	2018			2017			2016			2015			2014
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*:
Loans held for investment:
Commercial, financial and agricultural	$	3,365		$	4,448		$	5,746		$	6,915		$	5,002
Real estate—commercial	18,214			4,285			5,651			4,314			4,413
Real estate—construction	106			365			—			—			5,931
Real estate—residential	4,353			3,820			5,983			2,514			1,611
Lease financings	170			1,599			536			440			380
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*	26,208			14,517			17,916			14,183			17,337
Accruing troubled debt restructured loans and lease modifications not included in the above	542			11,435			3,252			5,245			5,469
Accruing loans and leases 90 days or more past due:
Real estate—residential	—			310			652			—			31
Loans to individuals	55			195			142			173			365
Lease financings	137			256			193			206			55
Total accruing loans and leases, 90 days or more past due	192			761			987			379			451
Total nonperforming loans and leases	26,942			26,713			22,155			19,807			23,257
Other real estate owned	1,187			1,843			4,969			1,276			955
Total nonperforming assets	$	28,129		$	28,556		$	27,124		$	21,083		$	24,212
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment	0.65		%	0.40		%	0.55		%	0.65		%	1.07		%
Nonperforming loans and leases / loans and leases held for investment	0.67			0.74			0.67			0.91			1.43
Nonperforming assets / total assets	0.56			0.63			0.64			0.73			1.09

Allowance for loan and lease losses	$	29,364		$	21,555		$	17,499		$	17,628		$	20,662
Allowance for loan and lease losses / loans and leases held for investment	0.73		%	0.60		%	0.53		%	0.81		%	1.27		%
Allowance for loan and lease losses / loans and leases held for investment (excluding acquired loans at period-end)	0.81			0.70			0.73			0.94			1.27
Allowance for loan and lease losses / nonaccrual loans and leases	112.04			148.48			97.67			124.29			119.18
Allowance for loan and lease losses / nonperforming loans and leases	108.99			80.69			78.98			89.00			88.84
Acquired credit impaired loans	$	695		$	1,583		$	7,352		$	1,253		$	—
Nonperforming loans and leases and acquired credit impaired loans / loans and leases held for investment	0.69		%	0.78		%	0.90		%	0.97		%	1.43		%
Nonperforming assets and acquired credit impaired loans / total assets	0.58			0.66			0.81			0.78			1.09
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table	$	1,284		$	2,513		$	1,753		$	93		$	3,104

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



	At December 31,
(Dollars in thousands)	2018			2017			2016			2015
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications	$	26,208		$	14,517		$	17,916		$	14,183
Nonaccrual loans and leases with partial charge-offs	2,210			5,397			5,000			6,451
Life-to-date partial charge-offs on nonaccrual loans and leases	1,320			4,107			2,857			3,853
Charge-off rate of nonaccrual loans and leases with partial charge-offs	37.4		%	43.2		%	36.4		%	37.4		%
Specific reserves on impaired loans	$	1,415		$	131		$	235		$	322

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Reserve for Loan and Lease Losses

The reserve for loan and lease losses is maintained at a level representing management's best estimate of known risks and inherent losses in the portfolio, based upon management's evaluation of the portfolio's collectability. Management evaluates the need to establish reserves against losses on loans and leases on a quarterly basis. When changes in the reserve are necessary, an adjustment is made.

The reserve for loan and lease losses consists of a reserve for impaired loans and leases and a general valuation allowance on the remainder of the originated portfolio. Although management determines the amount of each element of the reserve separately, the entire reserve for loan and lease losses is available for losses on the portfolio. The Corporation does not provide a reserve for loan loss for acquired loans unless additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan losses.

Reserve Required for Impaired Loans and Leases

A loan or lease is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect future payments of principal or interest as contractually due. The Bank applies its normal loan review procedures in determining if a loan is impaired, which includes reviewing the collectability of delinquent and internally classified loans on a regular basis and at least quarterly. In determining the likelihood of collecting principal and interest, the Bank considers all available and relevant information, including the borrower's actual and projected cash flows, balance sheet strength, liquidity and overall financial position. Additionally, all loans classified as troubled debt restructurings are considered impaired. When a loan is classified as impaired, an impairment analysis is performed within the quarter in which a loan is identified as impaired to determine if a specific reserve is needed. The Bank re-examines each impaired loan on a quarterly basis to determine if any adjustment to the valuation allowance or net carrying amount of a loan is required. The Bank recognizes charge-offs associated with impaired loans when all or a portion of a loan is considered to be uncollectible. In measuring impairment, the Bank determines whether or not the loan is collateral dependent. A loan is collateral dependent if repayment is expected to be provided solely by the underlying collateral, which includes repayment from the proceeds from the sale of the collateral, cash flows from the continued operation of the collateral, or both, and there are no other available and reliable repayment sources. To determine the initial amount of impairment for a collateral dependent loan, the Bank utilizes a recent appraisal, an agreement of sale or a letter of intent. If the fair value of the underlying collateral, less costs to sell, is less than the loan's carrying amount, the Bank adds a provision to the reserve for loan and lease losses in the amount of the difference between fair value, less costs to sell, and the loan or lease's carrying amount. In subsequent periods, the Bank takes into consideration current facts and circumstances in analyzing whether the fair value of the collateral has increased or decreased significantly such that a change to the corresponding valuation allowance is required. If current facts and circumstances are insufficient to determine fair value, the Bank obtains a new appraisal.

For loans that are not collateral dependent, the Bank establishes a specific reserve on impaired loans based on management's estimate of the discounted cash flows the Bank expects to receive from the borrower. Factors considered in evaluating such cash flows include: (1) the strength of the customer's personal or business cash flows and personal guarantees; (2) the borrower's effort to cure the delinquency; (3) the availability of other sources of repayment; (4) the type and value of collateral, if applicable; and (5) the strength of our collateral position, if applicable.

General Reserve on the Remainder of the Loan Portfolio

The Bank establishes a general reserve for loans and leases that are not considered impaired to recognize the inherent losses associated with lending activities. This general reserve is determined by segmenting the loan portfolio and assigning reserve factors to each category. The reserve factors are calculated using the Bank's historical losses and loss emergence periods, and are adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors include:


•	Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not considered elsewhere in estimating credit losses;


•	Changes in national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;


•	Changes in the size and composition of the portfolio and in the terms of loans;


•	Changes in the experience, ability, and depth of lending management and other relevant staff;


•	Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

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•	Changes in the quality of the institution’s loan review system;


•	Changes in the value of underlying collateral for collateral-dependent loans;


•	The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and


•	The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve for these off-balance sheet credits was $426 thousand and $390 thousand at December 31, 2018 and 2017 , respectively.

Table 8—Summary of Loan and Lease Loss Experience

The following table presents average loans and leases and summarizes loan and lease loss experience for the periods indicated.



	For the Years Ended December 31,
(Dollars in thousands)	2018			2017			2016			2015			2014
Average amount of loans and leases outstanding	$	3,776,940		$	3,420,847		$	2,699,973		$	2,080,817		$	1,580,835
Loan and lease loss reserve at beginning of period	21,555			$	17,499		$	17,628		$	20,662		$	24,494
Charge-offs:
Commercial, financial and agricultural loans	14,655			1,030			4,827			4,793			2,834
Real estate loans	71			1,798			1,007			2,353			4,644
Loans to individuals	353			317			395			549			796
Lease financings	572			3,992			759			801			576
Total charge-offs	15,651			7,137			6,988			8,496			8,850
Recoveries:
Commercial, financial and agricultural loans	2,140			801			1,454			1,032			247
Real estate loans	691			158			260			238			618
Loans to individuals	88			136			133			176			265
Lease financings	231			206			191			214			281
Total recoveries	3,150			1,301			2,038			1,660			1,411
Net charge-offs	12,501			5,836			4,950			6,836			7,439
Provision to loan and lease loss reserve	20,299			9,892			4,646			3,623			3,607
Provision for acquired credit impaired loans	11			—			175			179			—
Loan and lease loss reserve at end of period	$	29,364		$	21,555		$	17,499		$	17,628		$	20,662
Ratio of net charge-offs to average loans and leases	0.33		%	0.17		%	0.18		%	0.33		%	0.47		%

During the second quarter of 2018, the Corporation charged-off $12.7 million related to a commercial loan borrower. During the fourth quarter of 2018, the Corporation recovered $1.8 million related to this previously charged-off loan. See Note 5, "Loans and Leases" of the consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information. During 2017, the Corporation charged-off $2.8 million related to $5.0 million of software leases under a vendor referral program. The decrease in charge-off activity in commercial, financial and agricultural loans during 2017 compared to 2016 was primarily due to improvements in asset quality.

Table 9—Loan and Lease Loss Reserves

The following table summarizes the allocation of the allowance for loan and lease losses and the percentage of loans and leases in each major loan category to total loans and leases held for investment at the dates indicated.



	At December 31,
(Dollars in thousands)	2018				2017				2016				2015				2014
Commercial, financial and agricultural loans	$	7,983	23.4	%	$	6,742	24.8	%	$	7,037	25.1	%	$	6,418	23.2	%	$	6,920	28.1	%
Real estate loans	19,338		72.3		13,254		70.8		9,272		69.9		8,910		69.6		10,830		62.8
Loans to individuals	484		0.8		373		0.8		364		0.9		346		1.4		360		1.8
Lease financings	1,288		3.5		1,132		3.6		788		4.1		1,042		5.8		985		7.3
Unallocated	271		N/A		54		N/A		38		N/A		912		N/A		1,567		N/A
Total	$	29,364	100.0	%	$	21,555	100.0	%	$	17,499	100.0	%	$	17,628	100.0	%	$	20,662	100.0	%

The allowance for loan and lease losses to nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications, was 112.04% at December 31, 2018 , 148.48% at December 31, 2017 and 97.67% at December 31, 2016 .

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At December 31, 2018 , the specific allowance on impaired loans was $1.4 million , or 5.3% of the balance of impaired loans of $26.6 million . At December 31, 2017 , the specific allowance on impaired loans was $131 thousand , or 0.5% of the balance of impaired loans of $28.5 million . At December 31, 2016 , the specific allowance on impaired loans was $235 thousand , or 0.5% of the balance of impaired loans of $43.9 million .

The ratio of the reserve for loan and lease losses to total loans and leases was 0.73% at December 31, 2018 compared to 0.60% at December 31, 2017 and 0.53% at December 31, 2016 . Excluding the loans acquired in the Fox Chase Bank and Valley Green Bank acquisitions, which were recorded at fair value, the ratio of the reserve for loan and lease losses to total loans and leases was 0.81% at December 31, 2018 , 0.70% at December 31, 2017 and 0.73% at December 31, 2016 . The allocated reserves for real estate loans increased by $6.1 million at December 31, 2018 compared to December 31, 2017, primarily due to growth in real estate loans and a $902 increase in specific reserves for impaired loans.

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 these intangible assets for the years ended December 31, 2018 , 2017 and 2016 was $3.4 million , $4.2 million and $4.1 million , respectively. The Corporation also has goodwill with a net carrying value of $172.6 million at December 31, 2018 and 2017 , which is deemed to be an indefinite intangible asset and is not amortized.

The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often, if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles recorded during 2016 through 2018 . 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 benefit plans. Bank owned life insurance increased $3.4 million from December 31, 2017 primarily due to $1.6 million of policies purchased during 2018 and BOLI income on the underlying policies.

LIABILITIES

The following table presents liabilities at the dates indicated:



	At December 31,
(Dollars in thousands)	2018		2017		$ Change			% Change
Deposits	$	3,885,933	$	3,554,919	$	331,014		9.3	%
Short-term borrowings	189,768		105,431		84,337			80.0
Long-term debt	145,330		155,828		(10,498		)	(6.7	)
Subordinated notes	94,574		94,331		243			0.3
Accrued interest payable and other liabilities	44,609		40,979		3,630			8.9
Total liabilities	$	4,360,214	$	3,951,488	$	408,726		10.3	%

Deposits

Total deposits grew $331.0 million , or 9.3%, from December 31, 2017 primarily due to increases in commercial, public funds and consumer time deposits.

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Table 10—Deposits

The following table summarizes the average amount of deposits for the periods indicated:



(Dollars in thousands)	For the Years Ended December 31,
	2018		2017		2016
Noninterest-bearing deposits	$	1,069,805	$	973,253	$	751,592
Interest-bearing checking deposits	461,676		437,678		386,176
Money market savings	764,777		582,703		414,121
Regular savings	798,332		847,510		714,809
Time deposits	601,674		566,079		512,557
Total average deposits	$	3,696,264	$	3,407,223	$	2,779,255

The following table summarizes the maturities of time deposits with balances of $100 thousand or more. Brokered deposits in the amount of $107.8 million at December 31, 2018 are not included in total certificates of deposit of $100 thousand or more.



(Dollars in thousands)	At December 31, 2018
Due Three Months or Less	$	79,145
Due Over Three Months to Six Months	38,399
Due Over Six Months to Twelve Months	52,970
Due Over Twelve Months	112,854
Total	$	283,368

Borrowings

Total borrowings increased $74.1 million from December 31, 2017 primarily due to an increase in short-term borrowings of

$84.3 million partially offset by the repayment of long-term commercial bank borrowings of $10.0 million.

Short-term borrowings at December 31, 2018 consisted of FHLB borrowings, federal funds purchased and customer repurchase agreements on an overnight basis totaling $189.8 million . Long-term debt at December 31, 2018 consisted of Federal Home Loan bank advances and commercial bank borrowings totaling $145.3 million and subordinated notes of $94.6 million . At December 31, 2018 and 2017 , the Bank had outstanding short-term letters of credit with the FHLB totaling $347.5 million and $234.2 million , respectively, which were utilized to collateralize public funds deposits.

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. The long-term debt balances and weighted average interest rates include purchase accounting fair value adjustments, net of related amortization from the Fox Chase acquisition.

Table 11—Borrowings

The following table summarizes the Corporation's borrowing activity at the dates indicated:



(Dollars in thousands)	Balance at End of Year		Weighted Average Interest Rate		Maximum Amount Outstanding at Month End During the Year		Average Amount Outstanding During the Year		Weighted Average Interest Rate During the Year
2018
Short-term borrowings	$	189,768	2.32	%	$	290,309	$	144,312	1.68	%
Long-term debt	145,330		2.03		155,782		150,032		1.85
Subordinated notes	94,574		5.33		94,574		94,451		5.34

2017
Short-term borrowings	$	105,431	1.26	%	$	231,726	$	105,552	0.86	%
Long-term debt	155,828		1.69		221,762		186,109		1.41
Subordinated notes	94,331		5.35		94,331		94,208		5.35

2016
Short-term borrowings	$	196,171	0.68	%	$	282,333	$	103,238	0.72	%
Long-term debt	127,522		0.93		127,826		60,965		0.90
Subordinated notes	94,087		5.27		94,087		71,851		5.39

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SHAREHOLDERS' EQUITY

The following table presents total shareholders’ equity at the dates indicated:



(Dollars in thousands)	At December 31,
	2018			2017			$ Change			% Change
Common stock	$	157,784		$	157,784		$	—		—	%
Additional paid-in capital	292,401			290,133			2,268			0.8
Retained earnings	248,167			216,761			31,406			14.5
Accumulated other comprehensive loss	(28,416		)	(17,771		)	(10,645		)	(59.9	)
Treasury stock	(45,803		)	(43,533		)	(2,270		)	(5.2	)
Total shareholders’ equity	$	624,133		$	603,374		$	20,759		3.4	%

The increase in shareholders' equity at December 31, 2018 of $20.8 million from December 31, 2017 was primarily related to an increase in retained earnings of $31.4 million . Retained earnings was impacted by net income of $50.5 million and the reclassification of $3.9 million and $433 thousand from accumulated other comprehensive income related to the January 1, 2018 adoption of ASU 2016-01 and ASU 2018-02, respectively, partially offset by cash dividends declared of $23.5 million . Accumulated other comprehensive loss increased by $10.6 million from December 31, 2017 mainly attributable to decreases in the fair value of available-for-sale investment securities of $5.8 million , net of tax , and the reclassification of retained earnings from the previously discussed adoption of ASU 2016-01 and ASU 2018-02 ( $3.0 million related to the defined benefit pension plans and $1.4 million related to investment securities). Treasury stock increased $2.3 million from December 31, 2017 primarily related to purchases of $3.6 million under the Corporation's share repurchase program partially offset by a reduction in treasury stock of $1.2 million related to the issuance of restricted stock.

Discussion of Segments

The Corporation has three operating segments: Banking, Wealth Management and Insurance. Detailed segment information appears in Note 22, "Segment Reporting" included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K (Note 22 in the Notes to the Consolidated Financial Statements).

Banking segment, as presented in Note 22 in the Notes to the Consolidated Financial Statements, reports a pre-tax income of $56.0 million in 2018, $59.0 million in 2017 and $31.5 million in 2016. See the section of this MD&A under the heading “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for Loan and Lease Losses” for a discussion of the Banking Segment.

Wealth Management segment, as presented in Note 22 in the Notes to the Consolidated Financial Statements, reports a pre-tax income of $7.2 million in 2018, $6.7 million in 2017 and $2.4 million in 2016 and noninterest income of $23.2 million in 2018, $21.7 million in 2017 and $19.3 million in 2016. Noninterest income has increased primarily due to new customer relationships and favorable market performance throughout 2016, 2017 and most of 2018. I ntangible expense decreased $2.5 million for the year ended December 31, 2017 primarily as a result of the settlement of the Girard Partners acquisition earn-out in the fourth quarter of 2016. Wealth Management assets under management and supervision were $3.3 billion as of December 31, 2018, $3.5 billion as of December 31, 2017, and $3.2 billion as of December 31, 2016. The decrease in assets under management and supervision as of December 31, 2018, as compared to December 31, 2017, was primarily a result of the decrease in the equity markets in the fourth quarter of 2018.

Insurance segment, as presented in Note 22 in the Notes to the Consolidated Financial Statements, reports a pre-tax income of $7.2 million in 2018, $6.7 million in 2017 and $2.4 million in 2016 and noninterest income of $16.4 million in 2018, $15.3 million in 2017 and $15.2 million in 2016. Noninterest income has increased primarily due to increases in group life and health premiums, contingent commission income, and payroll and human resources consulting services.

Capital Adequacy

Capital guidelines, which banking regulators have adopted, assign minimum capital requirements for categories of assets depending on their assigned risks. The components of risk-based capital for the Corporation are Tier 1 and Tier 2. Minimum required total risk-based capital is 8.00%. In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The rules are discussed in Note 20, “Regulatory Matters,” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K.

The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules,

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primarily relating to regulatory deductions and adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a four-year period beginning January 1, 2015. Additionally under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. During 2018, the Corporation and the Bank were required to hold a capital conservation buffer greater than 1.875% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. The Corporation and the Bank were in compliance with these requirements for 2018. During 2019, the Corporation and the Bank must hold a capital conservation buffer greater than 2.50% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions.

At December 31, 2018 , the Corporation had a Tier 1 risk-based capital ratio of 10.88% and total risk-based capital ratio of 13.70% . At December 31, 2017 , the Corporation had a Tier 1 capital ratio of 11.11% and total risk-based capital ratio of 14.00% . The Corporation continues to be in the “well-capitalized” category under regulatory standards. Details on the capital ratios can be found in Note 20, “Regulatory Matters,” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K along with a discussion on dividend and other restrictions.

Asset/Liability Management

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

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

Credit Risk

Extending credit exposes the Corporation to credit risk, which is the risk that the principal balance of a loan and any related interest will not be collected due to the inability of the borrower to repay the loan. The Corporation manages credit risk in the loan portfolio through adherence to consistent standards, guidelines and limitations established by the Board of Directors. Written loan policies establish underwriting standards, lending limits and other standards or limits as deemed necessary and prudent. While the Corporation has strict underwriting, review, and monitoring procedures in place, these procedures cannot eliminate all of the risks related to these lending activities.

The loan review department conducts ongoing, independent reviews of the lending process to ensure adherence to established policies and procedures, monitors compliance with applicable laws and regulations, provides objective measurement of the risk inherent in the loan portfolio, and ensures that proper documentation exists.

The Corporation focuses on both assessing the borrower’s capacity and willingness to repay and on obtaining sufficient collateral. Commercial, financial and agricultural loans are generally secured by the borrower’s assets and by personal guarantees. Commercial real estate loans are originated primarily within the Southeastern Pennsylvania and New Jersey market areas at prudent loan-to-value ratios and are often supported by a guarantee of the borrowers. Management closely monitors the composition and quality of the total commercial loan portfolio to ensure that any credit concentrations by borrower or industry are closely monitored.

The Corporation originates fixed-rate and adjustable-rate real estate-residential mortgage loans that are secured by the underlying 1- to 4-family residential properties for personal purposes. Credit risk exposure in this area of lending is minimized by the evaluation of the creditworthiness of the borrower, including debt-to-equity ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans granted in excess of the 80% loan-to-value ratio criterion are generally insured by private mortgage insurance.

Credit risk in the consumer loan portfolio is controlled by strict adherence to underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values. In the home equity loan portfolio, combined loan-to-value ratios are generally limited to 80%, but increased to 85% for the Corporation’s strongest profile borrower. Other credit considerations and compensating factors may warrant higher combined loan-to-value ratios.

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The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review, and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term.

The Corporation closely monitors delinquencies as another means of maintaining asset quality. Collection efforts begin after a loan payment is missed, by attempting to contact all borrowers. If collection attempts fail, the Corporation will proceed to gain control of any and all collateral in a timely manner in order to minimize losses. While liquidation and recovery efforts continue, officers continue to work with the borrowers, if appropriate, to recover all monies owed to the Corporation.

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 flow and liquid assets are available to satisfy demand for loans, deposit withdrawals, repayment of borrowings and certificates of deposit at maturity, operating expense, and capital expenditures. The Corporation manages liquidity risk by measuring and monitoring liquidity sources and estimated funding needs on a daily basis. The Corporation has a contingency funding plan in place to address liquidity needs in the event of an institution-specific or a systemic financial crisis.

Sources of Funds

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

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

The Corporation, through the Bank, has a credit facility with the FHLB with a maximum borrowing capacity of approximately $ 1.6 billion . At December 31, 2018 and 2017 , the carrying amount of overnight borrowings with the FHLB was $108.3 million and $30.2 million , respectively. At December 31, 2018 and 2017 , the carrying amount of long-term borrowings with the FHLB was $125.0 million . At December 31, 2018 and 2017 , the Bank had outstanding short-term letters of credit with the FHLB totaling $347.5 million and $234.2 million , respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.

The Corporation, through the Bank, maintains uncommitted federal fund lines with several correspondent banks that totaled $367.0 million at December 31, 2018 and 2017 . At December 31, 2018 and 2017 , the Corporation had outstanding federal funds purchased with these correspondent banks of $60.0 million and $55.0 million , respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia in order to access the Discount Window Lending program. The collateral consisting of investment securities was valued at $69.5 million and $52.0 million at December 31, 2018 and 2017 , respectively. At December 31, 2018 and 2017 , the Corporation had no outstanding borrowings under this program.

The Corporation has a $10.0 million line of credit with a correspondent bank. At December 31, 2018 and 2017 , the Corporation had no outstanding borrowings under this line.

Cash Requirements

The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The following contractual obligations and commitments table presents, at December 31, 2018 , significant

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

The table also shows the amounts and expected maturities of significant commitments at December 31, 2018 . These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon. Commitments to extend credit are the Bank’s most significant commitment in both the under and over one year time periods.

Contractual Obligations and Commitments

The Corporation enters into contractual obligations in the normal course of business as a source of funds for its asset growth and its asset/liability management and to meet required capital needs. These obligations require the Corporation to make cash payments over time as detailed in the table that follows.

The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to manage the Corporation’s exposure to fluctuation in interest rates and to support loan growth. These financial instruments include commitments to extend credit, standby and performance letters of credit and forward loan sale contracts. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these financial instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Corporation does not require and is not required to pledge collateral or other security to support financial instruments with credit risk. These commitments expire over time as detailed in Table 12.

Table 12—Contractual Obligations and Commitments

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows, including interest payable, at December 31, 2018 . The contractual amounts to be paid on variable rate obligations are affected by changes in the market interest rates. Future changes in the market interest rates could materially affect the contractual amounts to be paid.



	Payments Due by Period
(Dollars in thousands)	Total		Due in One Year or Less		Due after One Year to Three Years		Due after Three Years to Five Years		Due in Over Five Years
Short-term borrowings	$	189,768	$	189,768	$	—	$	—	$	—
Long-term debt and interest	151,719		23,110		107,935		20,674		—
Subordinated notes (a)	133,815		4,800		8,523		11,634		108,858
Time deposits (b)	691,507		401,432		177,775		108,414		3,886
Operating leases	55,515		3,536		7,320		7,270		37,389
Standby, performance and other letters of credit	61,192		53,192		7,727		149		124
Commitments to extend credit (c)	1,276,745		376,770		209,307		96,117		594,551
Net asset/liability derivative loan commitments (d)	437		437		—		—		—
Other long-term obligations (e)	14,922		5,421		7,766		1,656		79
Total contractual obligations	$	2,575,620	$	1,058,466	$	526,353	$	245,914	$	744,887

Notes: (a) Includes interest for fixed and variable rate components. As specified in the note agreements, the Corporation has the option to redeem the Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed Notes, plus accrued and unpaid interest to the date of the redemption.


(b)	Includes interest on both fixed and variable rate obligations. The interest expense is based upon the fourth quarter average interest rate.


(c)	Includes both revolving and straight lines of credit. Revolving lines are reported in the “Due in One Year or Less” category.


(d)	Includes the fair value of these contractual arrangements at December 31, 2018 .

(e) Represents obligations to the Corporation's third-party data processing provider and other vendors.

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Interest Rate Sensitivity

Interest rate sensitivity is a function of the repricing characteristics of the Corporation's assets and liabilities. Minimizing the balance sheet's maturity and repricing risk is a continual focus in a changing interest rate environment. The Corporation uses a variety of techniques to assist in identifying the potential range of risk. A simulation model is utilized to prepare a maturity/repricing Gap analysis as well as an Earnings at Risk analysis under various interest rate scenarios.

The gap analysis identifies interest rate risk by identifying re-pricing gaps in the Corporation’s balance sheet. The model is based on expected cash flows and re-pricing characteristics for all financial instruments at a point in time and incorporates Corporation developed, market influenced assumptions regarding the impact of changing interest rates on these financial instruments. All assets and liabilities are modeled to reflect some level of behavioral optionality, such as prepayments on loans, early call features on investments or potential pricing change and/or product change to interest bearing deposits. The Corporation projects all non-interest bearing deposits to be considered non-rate sensitive. These assumptions are based upon historic behavior; however, they are inherently uncertain and thus cannot precisely predict the impact of changes in interest rates. While actual results will differ from simulated results due to customer behavioral change and/or market and regulatory influences, the following models are important tools to guide management.

Table 13—Interest Rate Sensitivity Gap Analysis

The following table presents the Corporation’s gap analysis at December 31, 2018 :



(Dollars in thousands)	Within Three Months			After Three Months to Twelve Months			After One Year to Five Years			Over Five Years			Non-Rate Sensitive			Total
Assets:
Cash and due from banks	$	—		$	—		$	—		$	—		$	61,573		$	61,573
Interest-earning deposits with other banks	47,847			—			—			—			—			47,847
Investment securities	30,350			65,517			257,214			128,637			(8,412		)	473,306
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	—			—			—			—			28,337			28,337
Loans held for sale	1,754			—			—			—			—			1,754
Loans and leases, net of reserve for loan and lease losses	2,181,551			353,963			1,358,146			109,428			(25,878		)	3,977,210
Other assets	—			—			—			—			394,320			394,320
Total assets	$	2,261,502		$	419,480		$1,615,360			$238,065			$	449,940		$	4,984,347
Liabilities and shareholders' equity:
Noninterest-bearing deposits	$	—		$	—		$	—		$	—		$	1,055,919		$	1,055,919
Interest-bearing demand deposits	1,377,171			—			—			—			—			1,377,171
Savings deposits	784,720			—			—			—			(1,954		)	782,766
Time deposits	148,837			245,493			272,402			3,519			(174		)	670,077
Borrowings	209,768			10,000			210,000			—			(96		)	429,672
Other liabilities	—			—			—			—			44,609			44,609
Shareholders' equity	—			—			—			—			624,133			624,133
Total liabilities and shareholders' equity	$	2,520,496		$	255,493		$	482,402		$	3,519		$	1,722,437		$	4,984,347
Interest rate swaps	$	18,839		$	—		$	—		$	—		$	—
Incremental gap	$	(240,155	)	$	163,987		$	1,132,958		$	234,546		$	(1,272,497	)
Cumulative gap	$	(240,155	)	$	(76,168	)	$	1,056,790		$	1,291,336
Cumulative gap as a percentage of interest-earning assets	(5.3		)%	(1.7		)%	23.2		%	28.4		%

The table above indicates that the Corporation should anticipate a greater amount of liabilities repricing over assets in the near term. However, this table and analysis is limited as it does not take into account the magnitude of repricing due to rate changes.

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Table 14—Net Interest Income - Summary of Earnings at Risk Simulation

Management also performs a simulation of net interest income to measure interest rate exposure. The following table demonstrates the anticipated impact of an instantaneous and parallel interest rate shift, or "shock," to the yield curve on the Corporation’s net interest income over the next twelve months. This simulation incorporates the same assumptions noted above and assumes a static balance sheet with no incremental growth in interest-earning assets or interest-bearing liabilities over the next twelve months.

The changes to net interest income are shown in the below table at December 31, 2018 . The results suggest the Corporation's year-end balance sheet is slightly asset sensitive as net interest income is projected to increase in a rising rate environment. The level of asset sensitivity decreased slightly from prior year-end results as a loan beta of 50% was recently added to new loan volume in the model to reflect competitive pricing in a changing rate environment. The changes to net interest income shown below are in compliance with the Corporation's policy guidelines.



	Estimated Change in Net Interest Income Over Next 12 Months
(Dollars in thousands)	Amount			Percent
Rate shock - Change in interest rates
+300 basis points	$	13,517		7.96	%
+200 basis points	8,687			5.11
+100 basis points	3,862			2.27
-100 basis points	(7,178		)	(4.23	)
-200 basis points	(15,829		)	(9.32	)

The down 200 basis points rate scenario was included in the above table as short-term rates have exceeded 2.00% during the latter half of 2018.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 1, “Summary of Significant Accounting Policies” of this Form 10-K.


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. In the normal course of its business activities including lending, investing, receiving deposits and borrowing funds, the Corporation is subject to changes in the economic value and/or earnings potential of the assets and liabilities due to changes in interest rates. The Corporation’s Investment Asset/Liability Management Committee, is responsible for managing interest rate risk in a manner so as to provide adequate and reliable earnings. This is accomplished through the establishment of policy limits on maximum risk exposures, as well as the regular and timely monitoring of reports designed to quantify risk and return levels. The Corporation’s Board of Directors establishes policies that govern interest rate risk management.

Information with respect to quantitative and qualitative disclosures about market risk can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including Liquidity and Interest Rate Sensitivity.

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Item 8.	Financial Statements and Supplementary Data

The following audited consolidated financial statements and related documents are set forth in this Annual Report on Form 10-K on the following pages:



	Page
Report of Independent Registered Public Accounting Firm	45
Consolidated Balance Sheets	46
Consolidated Statements of Income	47
Consolidated Statements of Comprehensive Income	48
Consolidated Statements of Changes in Shareholders’ Equity	49
Consolidated Statements of Cash Flows	50
Notes to Consolidated Financial Statements	52

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Univest Financial Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Univest Financial Corporation and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2004.

Philadelphia, Pennsylvania

February 28, 2019

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UNIVEST FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS



	At December 31,
(Dollars in thousands, except share data)	2018			2017

ASSETS
Cash and due from banks	$	61,573		$	46,721
Interest-earning deposits with other banks	47,847			28,688
Cash and cash equivalents	109,420			75,409
Investment securities held-to-maturity (fair value $141,575 and $55,320 at December 31, 2018 and 2017 , respectively)	142,634			55,564
Investment securities available-for-sale	328,507			391,457
Investments in equity securities	2,165			7,061
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost	28,337			27,204
Loans held for sale	1,754			1,642
Loans and leases held for investment	4,006,574			3,620,067
Less: Reserve for loan and lease losses	(29,364		)	(21,555		)
Net loans and leases held for investment	3,977,210			3,598,512
Premises and equipment, net	59,559			61,797
Goodwill	172,559			172,559
Other intangibles, net of accumulated amortization and fair value adjustments of $25,203 and $21,825 at December 31, 2018 and 2017 , respectively	11,990			13,909
Bank owned life insurance	111,599			108,246
Accrued interest receivable and other assets	38,613			41,502
Total assets	$	4,984,347		$	4,554,862
LIABILITIES
Noninterest-bearing deposits	$	1,055,919		$	1,040,026
Interest-bearing deposits:
Demand deposits	1,377,171			1,109,438
Savings deposits	782,766			830,706
Time deposits	670,077			574,749
Total deposits	3,885,933			3,554,919
Short-term borrowings	189,768			105,431
Long-term debt	145,330			155,828
Subordinated notes	94,574			94,331
Accrued interest payable and other liabilities	44,609			40,979
Total liabilities	4,360,214			3,951,488
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at December 31, 2018 and 2017 ; 31,556,799 shares issued at December 31, 2018 and 2017 ; 29,270,852 and 29,334,859 shares outstanding at December 31, 2018 and 2017 , respectively	157,784			157,784
Additional paid-in capital	292,401			290,133
Retained earnings	248,167			216,761
Accumulated other comprehensive loss, net of tax benefit	(28,416		)	(17,771		)
Treasury stock, at cost; 2,285,947 and 2,221,940 shares at December 31, 2018 and 2017 , respectively	(45,803		)	(43,533		)
Total shareholders’ equity	624,133			603,374
Total liabilities and shareholders’ equity	$	4,984,347		$	4,554,862

See accompanying notes to consolidated financial statements.

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UNIVEST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME



	For the Years Ended December 31,
(Dollars in thousands, except per share data)	2018		2017		2016

Interest income
Interest and fees on loans and leases:
Taxable	$	166,304	$	143,176	$	110,119
Exempt from federal income taxes	9,889		8,442		7,545
Total interest and fees on loans and leases	176,193		151,618		117,664
Interest and dividends on investment securities:
Taxable	9,388		7,343		5,380
Exempt from federal income taxes	1,841		2,274		2,712
Interest on deposits with other banks	1,101		280		61
Interest and dividends on other earning assets	1,965		1,500		790
Total interest income	190,488		163,015		126,607
Interest expense
Interest on demand deposits	11,061		3,917		1,902
Interest on savings deposits	2,357		2,089		1,052
Interest on time deposits	8,768		5,271		4,261
Interest on short-term borrowings	2,420		904		748
Interest on long-term debt and subordinated notes	7,820		7,658		4,419
Total interest expense	32,426		19,839		12,382
Net interest income	158,062		143,176		114,225
Provision for loan and lease losses	20,310		9,892		4,821
Net interest income after provision for loan and lease losses	137,752		133,284		109,404
Noninterest income
Trust fee income	7,882		8,055		7,741
Service charges on deposit accounts	5,632		5,482		4,691
Investment advisory commission and fee income	15,098		13,454		11,424
Insurance commission and fee income	15,658		14,788		14,603
Other service fee income	9,332		8,656		7,836
Bank owned life insurance income	3,174		3,988		2,931
Net gain on sales of investment securities	10		48		518
Net gain on mortgage banking activities	3,125		4,023		6,027
Other income	262		746		192
Total noninterest income	60,173		59,240		55,963
Noninterest expense
Salaries, benefits and commissions	80,609		75,992		69,244
Net occupancy	10,260		10,433		9,638
Equipment	4,146		4,118		3,489
Data processing	9,014		8,500		6,981
Professional fees	5,391		5,325		4,547
Marketing and advertising	1,800		1,485		2,015
Deposit insurance premiums	1,836		1,636		1,713
Intangible expenses	2,166		2,582		5,528
Acquisition-related costs	—		—		10,257
Integration costs	—		—		5,667
Restructuring charges	571		—		1,731
Other expense	21,446		20,642		21,171
Total noninterest expense	137,239		130,713		141,981
Income before income taxes	60,686		61,811		23,386
Income taxes	10,143		17,717		3,881
Net income	$	50,543	$	44,094	$	19,505
Net income per share:
Basic	$	1.72	$	1.64	$	0.85
Diluted	1.72		1.64		0.84
Dividends declared	0.80		0.80		0.80

See accompanying notes to consolidated financial statements.

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UNIVEST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the Years Ended December 31,
(Dollars in thousands)	2018									2017									2016
	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount

Income	$	60,686		$	10,143		$	50,543		$	61,811		$	17,717		$	44,094		$	23,386		$	3,881		$	19,505
Other comprehensive income:
Net unrealized (losses) gains on available-for-sale investment securities:
Net unrealized holding (losses) gains arising during the period	(7,280		)	(1,529		)	(5,751		)	1,474			516			958			(6,245		)	(2,186		)	(4,059		)
Less: reclassification adjustment for net gains on sales realized in net income (1)	(10		)	(2		)	(8		)	(48		)	(17		)	(31		)	(518		)	(181		)	(337		)
Total net unrealized (losses) gains on available-for-sale investment securities	(7,290		)	(1,531		)	(5,759		)	1,426			499			927			(6,763		)	(2,367		)	(4,396		)
Net unrealized gains on interest rate swaps used in cash flow hedges:
Net unrealized holding gains (losses) arising during the period	74			16			58			49			17			32			(86		)	(30		)	(56		)
Less: reclassification adjustment for net losses realized in net income (2)	15			3			12			182			64			118			308			108			200
Total net unrealized gains on interest rate swaps used in cash flow hedges	89			19			70			231			81			150			222			78			144
Defined benefit pension plans:
Net unrealized losses arising during the period	(1,603		)	(337		)	(1,266		)	(14		)	(5		)	(9		)	(155		)	(54		)	(101		)
Less: amortization of net actuarial loss included in net periodic pension costs (3)	1,124			236			888			1,227			429			798			1,321			462			859
Less: accretion of prior service cost included in net periodic pension costs (3)	(283		)	(59		)	(224		)	(282		)	(99		)	(183		)	(283		)	(99		)	(184		)
Less: reclassification adjustment for net losses realized in net income (4)	—			—			—			—			—			—			1,434			502			932
Total defined benefit pension plans	(762		)	(160		)	(602		)	931			325			606			2,317			811			1,506
Other comprehensive (loss) income	(7,963		)	(1,672		)	(6,291		)	2,588			905			1,683			(4,224		)	(1,478		)	(2,746		)
Total comprehensive income	$	52,723		$	8,471		$	44,252		$	64,399		$	18,622		$	45,777		$	19,162		$	2,403		$	16,759

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

(2) Included in interest expense on demand deposits on the consolidated statements of income (before tax amount).

(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 12, "Retirement Plans and Other Postretirement Benefits" for additional details.

(4) Included in pension cost (before tax amount). See Note 12, "Retirement Plans and Other Postretirement Benefits" for additional details.

See accompanying notes to consolidated financial statements.

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UNIVEST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY



(Dollars in thousands, except per share data)	Common Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total

Balance at December 31, 2015	19,530,930		$	110,271	$	121,280		$	193,446		$	(16,708	)	$	(46,715	)	$	361,574

Net income	—		—		—			19,505			—			—			19,505
Other comprehensive loss, net of income tax benefit	—		—		—			—			(2,746		)	—			(2,746		)
Cash dividends declared ($0.80 per share)	—		—		—			(18,435		)	—			—			(18,435		)
Stock issued under dividend reinvestment and employee stock purchase plans	115,269		—		59			—			—			2,413			2,472
Issuance of common stock, acquisition	6,857,529		34,288		109,858			—			—			—			144,146
Exercise of stock options	261,050		—		59			—			—			4,909			4,968
Stock-based compensation	—		—		2,084			—			—			—			2,084
Purchases of treasury stock	(328,271	)	—		—			—			—			(8,359		)	(8,359		)
Restricted stock awards granted, net of cancellations	152,846		—		(2,846		)	—			—			2,846			—
Balance at December 31, 2016	26,589,353		$	144,559	$	230,494		$	194,516		$	(19,454	)	$	(44,906	)	$	505,209

Net income	—		—		—			44,094			—			—			44,094
Other comprehensive income, net of income tax	—		—		—			—			1,683			—			1,683
Cash dividends declared ($0.80 per share)	—		—		—			(21,849		)	—			—			(21,849		)
Stock issued under dividend reinvestment and employee stock purchase plans	82,694		—		181			—			—			2,232			2,413
Issuance of common stock, public offering	2,645,000		13,225		57,276			—			—			—			70,501
Exercise of stock options	92,370		—		(119		)	—			—			1,795			1,676
Stock-based compensation	—		—		3,166			—			—			—			3,166
Purchases of treasury stock	(119,798	)	—		—			—			—			(3,519		)	(3,519		)
Restricted stock awards granted, net of cancellations	45,240		—		(865		)	—			—			865			—
Balance at December 31, 2017	29,334,859		$	157,784	$	290,133		$	216,761		$	(17,771	)	$	(43,533	)	$	603,374

Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value (1)	—		—		—			433			(433		)	—			—
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges (1)	—		—		—			3,921			(3,921		)	—			—
Net income	—		—		—			50,543			—			—			50,543
Other comprehensive loss, net of income tax benefit	—		—		—			—			(6,291		)	—			(6,291		)
Cash dividends declared ($0.80 per share)	—		—		—			(23,492		)	—			—			(23,492		)
Stock issued under dividend reinvestment and employee stock purchase plans	84,466		—		152			1			—			2,142			2,295
Exercise of stock options	59,750		—		(43		)	—			—			1,174			1,131
Stock-based compensation	—		—		2,557			—			—			—			2,557
Purchases of treasury stock	(233,977	)	—		—			—			—			(5,984		)	(5,984		)
Restricted stock awards granted, net of cancellations	25,754		—		(398		)	—			—			398			—
Balance at December 31, 2018	29,270,852		$	157,784	$	292,401		$	248,167		$	(28,416	)	$	(45,803	)	$	624,133

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2018" for additional information.

See accompanying notes to consolidated financial statements.

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UNIVEST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the Years Ended December 31,
(Dollars in thousands)	2018			2017			2016
Cash flows from operating activities:
Net income	$	50,543		$	44,094		$	19,505
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	20,310			9,892			4,821
Depreciation of premises and equipment	5,581			5,561			4,089
Net gain on sales of investment securities	(10		)	(48		)	(518		)
Net gain on mortgage banking activities	(3,125		)	(4,023		)	(6,027		)
Bank owned life insurance income	(3,174		)	(3,988		)	(2,931		)
Net amortization of investment securities premiums and discounts	1,602			1,838			1,853
Amortization, fair market value adjustments and capitalization of mortgage servicing rights	(196		)	(87		)	(521		)
Net accretion of acquisition accounting fair value adjustments	(1,037		)	(3,022		)	(2,779		)
Stock-based compensation	2,557			3,166			2,084
Intangible expenses	2,166			2,582			5,528
Other adjustments to reconcile net income to cash provided by operating activities	305			(80		)	659
Deferred tax (benefit) expense	(599		)	7,483			942
Originations of loans held for sale	(158,097		)	(188,072		)	(258,202		)
Proceeds from the sale of loans held for sale	161,357			196,813			262,948
Contributions to pension and other postretirement benefit plans	(3,264		)	(2,295		)	(2,261		)
Decrease (increase) in accrued interest receivable and other assets	4,547			(1,369		)	1,956
Increase in accrued interest payable and other liabilities	6,540			215			2,160
Net cash provided by operating activities	86,006			68,660			33,306
Cash flows from investing activities:
Net cash paid due to acquisitions	—			—			(79,206		)
Net capital expenditures	(3,119		)	(3,961		)	(12,644		)
Proceeds from maturities, calls and principal repayments of securities held-to-maturity	11,526			23,265			21,000
Proceeds from maturities, calls and principal repayments of securities available-for-sale	54,702			64,954			72,541
Proceeds from sales of securities available-for-sale	1,010			7,069			77,290
Purchases of investment securities held-to-maturity	(99,132		)	(54,149		)	(5,071		)
Purchases of investment securities available-for-sale	(1,986		)	(33,334		)	(48,032		)
Proceeds from sales of money market mutual funds	11,225			29,948			38,386
Purchases of money market mutual funds	(6,482		)	(25,149		)	(32,444		)
Net increase in other investments	(1,133		)	(2,335		)	(11,773		)
Proceeds from sale of portfolio loans	—			—			2,435
Net increase in loans and leases	(398,240		)	(338,481		)	(337,961		)
Proceeds from sales of other real estate owned	490			3,996			885
Purchases of bank owned life insurance	(1,563		)	(7,271		)	—
Proceeds from bank owned life insurance	1,384			2,961			662
Net cash used in investing activities	(431,318		)	(332,487		)	(313,932		)
Cash flows from financing activities:
Net increase in deposits	331,170			297,792			125,425
Net increase (decrease) in short-term borrowings	84,337			(90,740		)	123,207
Proceeds from issuance of long-term debt	10,000			95,000			20,000
Repayment of long-term debt	(20,000		)	(65,000		)	(15,000		)
Proceeds from issuance of subordinated notes	—			—			44,515
Payment of contingent consideration on acquisitions	(131		)	(5,413		)	(2,552		)
Proceeds from public offering of common stock	—			70,501			—
Purchases of treasury stock	(5,984		)	(3,519		)	(8,359		)
Stock issued under dividend reinvestment and employee stock purchase plans	2,295			2,413			2,472
Proceeds from exercise of stock options	1,131			1,676			4,968
Cash dividends paid	(23,495		)	(21,299		)	(17,024		)
Net cash provided by financing activities	379,323			281,411			277,652
Net decrease (increase) in cash and cash equivalents	34,011			17,584			(2,974		)
Cash and cash equivalents at beginning of year	75,409			57,825			60,799
Cash and cash equivalents at end of year	$	109,420		$	75,409		$	57,825

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	For the Years Ended December 31,
	2018		2017		2016
Supplemental disclosures of cash flow information:
Cash paid for interest	$	30,875	$	21,493	$	13,982
Cash paid for income taxes, net of refunds	2,022		12,599		8,053
Non cash transactions:
Transfer of loans to other real estate owned	$	477	$	729	$	2,347
Assets acquired through acquisitions	—		—		1,090,395
Liabilities assumed through acquisitions	—		—		911,316

See accompanying notes to consolidated financial statements.

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UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(All dollar amounts presented in tables are in thousands, except per share data. “N/M” equates to “not meaningful”; “-” equates to “zero” or “doesn’t round to a reportable number”; and “N/A” equates to “not applicable”.)

Note 1. Summary of Significant Accounting Policies

Organization

Effective January 1, 2019, Univest Corporation of Pennsylvania changed its name to Univest Financial Corporation (the Corporation). The Corporation through its wholly owned subsidiary, Univest Bank and Trust Co. (the Bank), is engaged in domestic banking services for individuals, businesses, municipalities and non-profit organizations. Effective January 1, 2019, the Bank's wholly-owned subsidiary, Delview, Inc. was dissolved, with its wholly owned subsidiaries, transferring to the Bank upon dissolution. The Bank is the parent company of Girard Investment Services, LLC (formerly Univest Investments, Inc.), a full-service registered broker-dealer and a licensed insurance agency, Girard Advisory Services, LLC (formerly Girard Partners Ltd.), a registered investment advisory firm and Girard Pension Services, LLC (formerly TCG Investment Advisory, Inc.), a registered investment advisor, which provides investment consulting and management services to municipal entities. Effective January 1, 2019, the Bank's wealth management division was re-branded under the Girard name with the aforementioned name changes of several subsidiaries. The Bank is also the parent company of Univest Insurance, LLC, an independent insurance agency and Univest Capital, Inc., an equipment financing business. The Bank's subsidiaries serve to enhance the traditional banking services provided by the Bank.

At December 31, 2018 , the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. For more detailed discussion and financial information on the business segments, see Note 22, “Segment Reporting.”

The Bank serves Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia Counties in Pennsylvania and Atlantic and Cape May Counties in New Jersey through thirty-nine banking offices and provides banking services to the residents and employees of fourteen retirement communities.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, including the Bank as the Corporation’s primary subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current-year presentation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include fair value measurement of investment securities available-for-sale, reserve for loan and lease losses and purchase accounting.

Interest-earning Deposits with Other Banks

Interest-earning deposits with other banks consist of deposit accounts with other financial institutions generally having maturities of three months or less. At times, such balances exceed the FDIC limits for insurance coverage.

Investment Securities

Securities are classified as investment securities held-to-maturity and carried at amortized cost if management has the positive intent and ability to hold the securities to maturity. Securities purchased with the intention of recognizing short-term profits are placed in the trading account and are carried at fair value. The Corporation did not have any trading account securities at December 31, 2018 or 2017 . Securities classified as available-for-sale are those securities that the Corporation intends to hold for an indefinite period of time but not necessarily to maturity. Securities available-for-sale are carried at fair value with unrealized gains and losses, net of estimated income taxes, reflected in accumulated other comprehensive income, a separate component of shareholders' equity. Any decision to sell a security classified as available-for-sale would be based on various factors, including interest rates, changes in the maturity or mix of the Corporation's assets and liabilities, liquidity needs, regulatory capital considerations and other factors.

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Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

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

Management evaluates debt securities, which are comprised of U.S. government, government sponsored agencies, municipalities, corporate bonds and other issuers, for other-than-temporary impairment by considering the current economic conditions, the length of time and the extent to which the fair value has been less than cost, market interest rates, creditworthiness of the issuer and the credit rating of each security. Unrealized losses on the Corporation’s investments in debt securities that are deemed temporary in nature are recognized in other comprehensive income, net of tax. Should it be determined that a security is impacted by deteriorating credit or if it is expected the value will not recover during the expected holding period, the credit portion of the loss is recognized in earnings. The Corporation does not have the intent to sell the debt securities and believes it is more likely than not, that it will not have to sell the securities before recovery of their cost basis.

The Corporation evaluates its equity securities for impairment. In addition, effective January 1, 2018, in accordance with ASU No. 2016-01, equity securities are measured at fair value with changes in fair value recognized in net income. See "Recent Accounting Pronouncements" for additional information.

Federal Home Loan Bank Stock, Federal Reserve Bank Stock and Certain Other Investments without Readily Determinable Fair Values

At December 31, 2018 and 2017 , the Bank held $14.6 million , respectively, in Federal Reserve Bank stock as required by the Federal Reserve Bank. The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $13.6 million and $12.5 million at December 31, 2018 and 2017 , respectively. Because ownership is restricted, the fair values of these investments are not readily determinable. As such, these investments are recorded at cost and evaluated for other-than-temporary impairment. The Corporation determined there was no other-than-temporary impairment of its investments in these stocks at December 31, 2018 or 2017 .

Loans Held for Sale

The Corporation originates mortgage loans for investment and for sale. At origination, a mortgage loan is identified as either for sale or for investment. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Net unrealized losses are recognized by charges to non-interest income. Cash payments and cash receipts resulting from acquisitions and sales of loans are classified as operating cash flows if those loans are acquired specifically for resale. Cash receipts resulting from sales of loans that were not specifically acquired for resale are classified as investing cash inflows regardless of a change in the purpose for holding those loans.

Loans and Leases

Loans and leases are stated at the principal amount, net of deferred fees and costs and unearned discounts. Loan commitments are made to accommodate the financial needs of the customers. These commitments represent off-balance sheet items that are unfunded. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments. Accrual of interest income on loans and leases ceases when collectability of interest and/or principal is questionable. If it is determined that the collection of interest previously accrued is uncertain, such accrual is reversed and charged to current earnings. Loans and leases are considered past due based upon failure to comply with contractual terms.

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

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contractual terms of the loan agreement or when a loan or lease is classified as a troubled debt restructuring. Interest on impaired loans and leases, which are not classified as nonaccrual, is recognized on the accrual basis.

Acquired Loans

Acquired loan portfolios are initially recorded at the acquisition date fair value. The fair value is based on guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Level 3 inputs are utilized to value the portfolio and include the use of present value techniques employing cash flow estimates and incorporate assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information is not available, the Corporation uses assumptions in an effort to determine reasonable fair value. Specifically, management utilizes three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used are: 1) interest rate loan fair value analysis; 2) general credit fair value analysis; and 3) specific credit fair value analysis. There is no carryover related allowance for loan losses.

For loans acquired without evidence of credit quality deterioration, the fair value adjustments to reflect the fair value of the loans and the fair value adjustments to reflect the general credit risk of the loan portfolio are substantially recognized as interest income on a level yield amortization method based upon the expected life of the loan. Subsequent to the acquisition, the Corporation records a provision for loan losses for the acquired non-impaired loans only when additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis.

For loans acquired with evidence of credit quality deterioration, the Corporation prepares a specific credit fair value adjustment. Management reviews the acquired loan portfolio for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this definition are reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value results in an accretable yield amount. The accretable discount amount is recognized over the life of the loans on a level yield basis as an adjustment to yield. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the derecognition of the loan at its carrying value with differences in actual results reflected in interest income. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan losses, resulting in an increase to the allowance.

Loan and Lease Fees

Fees collected upon loan or lease origination and certain direct costs of originating loans and leases are deferred and recognized over the contractual lives of the related loans and leases as yield adjustments using the interest method. Upon prepayment or other disposition of the underlying loans and leases before their contractual maturities, any associated unearned fees or unamortized costs are recognized.

Reserve for Loan and Lease Losses

The reserve for loan and lease losses is adjusted through provisions for loan and lease losses charged against or credited to income. Loans deemed to be uncollectible are charged against the reserve for loan and lease losses, and any subsequent recoveries are credited to the reserve.

Reserve Required for Impaired Loans and Leases

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which includes repayment from the proceeds from the sale of the collateral, cash flows from the continued operation of the collateral, or both, and there are no other available and reliable repayment sources. To determine the initial amount of impairment for a collateral dependent loan, the Bank utilizes a recent appraisal, an agreement of sale or a letter of intent. If the fair value of the underlying collateral, less costs to sell, is less than the loan's carrying amount, the Bank adds a provision to the reserve for loan and lease losses in the amount of the difference between fair value, less costs to sell, and the loan or lease's carrying amount. In subsequent periods, the Bank takes into consideration current facts and circumstances in analyzing whether the fair value of the collateral has increased or decreased significantly such that a change to the corresponding valuation allowance is required. If current facts and circumstances are insufficient to determine fair value, the Bank obtains a new appraisal.

General Reserve on the Remainder of the Portfolio


•	Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not considered elsewhere in estimating credit losses;


•	Changes in national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;


•	Changes in the size and composition of the portfolio and in the terms of loans;


•	Changes in the experience, ability, and depth of lending management and other relevant staff;


•	Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;


•	Changes in the quality of the institution’s loan review system;


•	Changes in the value of underlying collateral for collateral-dependent loans;


•	The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and


•	The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience.

Premises and Equipment

Land is stated at cost, and premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method and charged to operating expenses over the estimated useful lives of the assets or, for leasehold improvements, over the expected life of the related lease if less than the estimated useful life of the asset. The estimated useful life for new buildings constructed on land owned is forty years . For new buildings constructed on leased land or land improvements, the estimated useful life is the initial term including anticipated renewable terms, typically not exceeding twenty-five years . The useful life of purchased existing buildings is the estimated remaining useful life at the time of the purchase. Furniture, fixtures and equipment have estimated useful lives ranging from three to ten years. When assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts.

Goodwill and Other Intangible Assets

The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the purchase method. Core deposit intangibles are amortized using the sum of the year’s digits over their estimated useful lives of up to fifteen years . Customer related intangibles are amortized over their estimated useful lives of five to twelve years. The Corporation completes a goodwill analysis at least on an annual basis or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for

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other intangible assets on an annual basis or more often if events and circumstances indicate a possible impairment.

Mortgage servicing rights are recognized as separate assets when loans are sold and the servicing rights are retained. Capitalized mortgage servicing rights are reported in other intangible assets on the consolidated balance sheets and are amortized into noninterest income in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are evaluated for impairment, on a quarterly basis, based upon the fair value of the servicing rights as compared to amortized cost. The Corporation estimates the fair value of mortgage 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 current interest rates of the portfolios serviced. Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the unamortized capitalized amount. The Corporation also records servicing rights on Small Business Administration (SBA) loans.

Bank Owned Life Insurance

The Corporation has invested in bank-owned life insurance (BOLI). BOLI involves the purchasing of life insurance by the Corporation for certain employees. The Corporation is the owner and beneficiary of the policies, however certain policies include split-dollar endorsements. Under these endorsements, beneficiaries of the insured individuals are entitled to a portion of the proceeds from the policy upon death of the insured. The life insurance investment is carried at the net cash surrender value of the underlying policies. Changes in the net cash surrender value of these policies are reflected in noninterest income. Proceeds from and purchases of bank owned life insurance are reflected in the consolidated statements of cash flows under investing activities. The Corporation recognizes a liability for the future death benefit for certain endorsement split-dollar life insurance arrangements that provide an employee with a death benefit in a postretirement/termination period.

Other Real Estate Owned

Other real estate owned (OREO) represents properties acquired through customers’ loan defaults and is included in other assets. The real estate is originally stated at an amount equal to the fair value of the property, less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. The amount, if any, by which the carrying amount of the loan plus recorded accrued interest (the recorded loan amount) exceeds the fair value less cost to sell of the OREO, is charged against the reserve for loan and lease losses at the time of foreclosure or repossession. If the fair value less cost to sell of the OREO asset when taken into possession is greater than the recorded loan amount, the excess is first applied as a recovery against any prior charge-offs of the loan and any remaining gain is recorded as other noninterest income. Subsequently, OREO is reported at the lower of the original cost or the current fair value less cost to sell. Subsequent write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the capitalized expenses may not increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost to sell. Overages and subsequent carrying costs are expensed as incurred.

Derivative Financial Instruments

The Corporation recognizes all derivative financial instruments on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the underlying transaction is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized in earnings immediately. To determine fair value, the Corporation uses third party pricing models that incorporate assumptions about market conditions and risks that are current at the reporting date.

The Corporation may use 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 accounts for its interest-rate swap contracts in cash flow hedging relationships by establishing and documenting the effectiveness of the instrument in offsetting the change in cash flows of assets or liabilities that are being hedged. To determine effectiveness, the Corporation performs an analysis to identify if changes in fair value of the derivative correlate to the equivalent changes in the forecasted interest receipts related to a specified hedged item. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. The change in fair value of the ineffective part of the instrument would be charged to earnings, potentially causing material fluctuations in reported earnings in the period of the change relative to comparable periods. In a fair value hedge, the fair values of the interest rate swap agreements and changes in the fair values of the hedged items are recorded in the Corporation’s consolidated balance sheet with the corresponding gain or loss being recognized in the consolidated statement of income. The

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difference between changes in the fair values of interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded in net interest income in the consolidated statement of income. The Corporation performs an assessment, both at the inception of the hedge and quarterly thereafter, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged items.

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. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of income.

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sale of mortgage loans to third-party investors to hedge the effect of changes in interest rates on the value of the interest rate locks. Forward loan sale commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. Both the interest rate locks and the forward loan sale commitments are accounted for as derivatives and carried at fair value, determined as the amount that would be necessary to settle each derivative financial instrument at the balance sheet date. Gross derivative assets and liabilities are recorded within other assets and other liabilities on the consolidated balance sheets, with changes in fair value during the period recorded within the net gain on mortgage banking activities on the consolidated statements of income.

Income Taxes

There are two components of income tax expense: current and deferred. Current income tax expense approximates cash to be paid or refunded for taxes for the applicable period. Deferred income taxes are provided for temporary differences between amounts reported for financial statement and tax purposes. Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect for the periods in which the differences are expected to reverse. Deferred tax assets are subject to management’s judgment based upon available evidence that future taxes are “more likely than not” to be realized. If management determines that the Corporation is not more likely than not to realize some or all of the net deferred tax asset in the future, a charge to income tax expense may be required to reduce the value of the net deferred tax asset to the expected realizable value. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Penalties are recorded in noninterest expense in the year they are assessed and paid and are treated as a nondeductible expense for tax purposes. Interest is recorded in noninterest expense in the year it is assessed and paid and is treated as a deductible expense for tax purposes. On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (Act) was signed into law. The Act reduced the Corporation's federal tax rate from 35% to 21% effective January 1, 2018. See Note 11, "Income Taxes" for additional information.

Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Effective December 31, 2009, the benefits previously accrued under the noncontributory retirement plan were frozen and the plan was amended and converted to a cash balance plan, with participants not losing any pension benefits already earned in the plan. Prior to the cash balance plan conversion effective December 31, 2009, the plan provided benefits based on a formula of each participant’s final average pay. Future benefits under the cash balance plan accrue by crediting participants annually with an amount equal to a percentage of earnings in that year based on years of credited service as defined in the plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law. These plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants and all current participants are now retired. The Corporation provides certain postretirement healthcare and life insurance benefits for retired employees. The Corporation’s measurement date for plan assets and obligation is fiscal year-end. The Corporation recognizes on its consolidated balance sheet the funded status of its defined pension plans and changes in the funded status of the plan in the year in which the changes occur. An under-funded position would create a liability and an over-funded position would create an asset, with a correlating deferred tax asset or liability. The net impact would be an adjustment to equity as accumulated other comprehensive income (loss). The Corporation recognizes as a component of other comprehensive income (loss), net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period.

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defined by the plan.

The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP) which was established in 1981 prior to the existence of 401(k) deferred salary savings, employee stock purchase and long-term incentive plans and therefore is not offered to new participants. All current participants are now retired. These non-qualified plans are accounted for under guidance for deferred compensation arrangements.

Stock-Based Compensation

The fair value of share based awards is recognized as compensation expense over the vesting period based on the grant-date fair value of the awards. The Corporation uses the Black-Scholes Model to estimate the fair value of each option on the date of grant. The Black-Scholes Model estimates the fair value of employee stock options using a pricing model which takes into consideration the exercise price of the option, the expected life of the option, the current market price and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Corporation grants stock options to employees with an exercise price equal to the fair value of the shares at the date of grant.

The Corporation grants both fixed and variable (performance-based) restricted stock. The performance-based restricted stock awards vest based upon the Corporation’s performance with respect to certain financial measures over a three -year period. The fair value of fixed restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. The fair value of the performance-based restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period adjusted for a probability factor of achieving the performance goals.

Dividend Reinvestment and Employee Stock Purchase Plans

The Univest Dividend Reinvestment Plan allows for the issuance of 1,968,750 shares of common stock. During 2018 and 2017 , 57,838 and 60,602 shares, respectively, were issued under the dividend reinvestment plan, with 259,445 shares available for future purchase at December 31, 2018 .

The 1996 Employee Stock Purchase Plan allows for the issuance of 984,375 shares of common stock. Employees may elect to make contributions to the plan in an aggregate amount not less than 2% or more than 10% of such employee’s total compensation. These contributions are then used to purchase stock during an offering period determined by the Corporation’s Employee Stock Purchase Plan Committee. The purchase price of the stock is 90% of the closing sale price on the last trading day of each quarter. Compensation expense is recognized as the discount is greater than 5% of the fair value. During 2018 and 2017 , 26,628 and 22,092 shares, respectively, were issued under the employee stock purchase plan, with 628,545 shares available for future purchase at December 31, 2018 .

Marketing and Advertising Costs

The Corporation’s accounting policy is to expense marketing and advertising costs as incurred.

Statement of Cash Flows

The Corporation has defined those items included in the caption “Cash and due from banks” and "Interest-earning deposits with other banks" as cash and cash equivalents.

Assets under Management

Assets held by the Corporation in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such items are not assets of the Corporation.

Earnings per Share

The Corporation uses the two-class method to calculate earnings per share as the unvested restricted stock issued under the Corporation's equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if options on common shares had been exercised, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Corporation relate solely to outstanding stock

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options, and are determined using the treasury stock method. The effects of options to issue common stock are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

Accounting Pronouncements Adopted in 2018

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-02, "Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This ASU clarifies the accounting treatment of the reclassification of certain income tax effects within accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act. The Corporation elected to early adopt this guidance effective January 1, 2018 for all stranded tax effects resulting from tax reform and reclassified stranded tax effects, totaling $3.9 million from accumulated other comprehensive income to retained earnings. The Corporation's policy for releasing income tax effects from accumulated other comprehensive income is to release such effects on an individual basis as each item is liquidated, sold or extinguished. See Note 14, "Accumulated Other Comprehensive (Loss) Income" for additional detail.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this ASU require that an employer that sponsors defined benefit pension plans and other postretirement plans present the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The Corporation adopted this guidance effective January 1, 2018 with retrospective application for prior period presentation. Effective January 1, 2018, components of net benefit income other than the service cost component are presented in the Corporation's statement of income in other noninterest expense rather than in salaries, benefits and commission expense. Prior period components of net benefit income other than the service cost component were reclassed to other noninterest expense in the Corporation's statement of income.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income. At December 31, 2017 , the Corporation had financial services equity securities with a carrying value of $1.1 million which included an unrealized net gain of $666 thousand . At December 31, 2017 , $433 thousand was recorded in accumulated other comprehensive income which represented the unrealized net gain, net of incomes taxes, based on the Corporation's statutory tax rate at December 31, 2017 . In addition, at December 31, 2017 , the Corporation had money market mutual funds with a fair value and amortized cost of $6.0 million which were reclassified to equity securities under this guidance. The Corporation adopted this guidance effective January 1, 2018 with a cumulative-effect adjustment to the balance sheet as of January 1, 2018. The balance in accumulated other comprehensive income of $433 thousand was reclassified to retained earnings effective January 1, 2018. The carrying value of the equity securities, at January 1, 2018, did not change; however, any future increases or decreases in fair value is recorded as an increase or decrease to the carrying value and recognized in other noninterest income. During the year ended December 31, 2018 , the Corporation recognized a $153 thousand net loss on equity securities in other noninterest income.

Recent Accounting Pronouncements Yet to Be Adopted

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" and subsequent related updates to revise the accounting for leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases based on the present value of future lease payments. Lessor accounting activities are largely unchanged from existing lease accounting. Disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Early adoption is permitted. This new guidance is effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019 for the Corporation.

The Corporation will adopt this new guidance effective January 1, 2019, retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings at January 1, 2019. The Corporation expects to elect the package of practical expedients permitted under the transition guidance which among other things, allows carry forward of the historical lease classification. All leases in which the Corporation is the lessee are classified as operating leases and continue to be

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classified as such. The Corporation continues to separately account for lease and non-lease components as historically reported and expects to elect the hindsight practical expedient to determine the lease term for existing leases. The Corporation has implemented a third party lease accounting system to assist with the measurement of lease liabilities and related right-of-use assets, the post-implementation administration aspect of lease accounting, and the preparation of applicable disclosures related to the new guidance. The Corporation has identified and reviewed the lease contracts applicable to the new guidance that will impact the financial statements at the transition date. The Corporation expects to record approximately $40.0 million of operating lease liabilities and $37.0 million of related right-of-use assets at January 1, 2019. Additionally, existing deferred rent liability of approximately $1.0 million will be released through retained earnings effective January 1, 2019. The Corporation expects to record a cumulative effect adjustment to retained earnings of approximately $1.5 million , net of tax, at January 1, 2019, representing the difference between the value of the Corporation’s lease liabilities and related right-of-use assets, offset by the release of existing deferred rent liability. These estimates, based on our active lease portfolio, may change as the Corporation finalizes the implementation process, or due to changes in the lease portfolio, which could include changes in lease commencement dates or changes to renewal options and lease termination expectations. The initial and continued impact of the recording of operating lease assets will have a negative impact on all Corporation and Bank regulatory capital ratios.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities " and subsequent related updates. The amendments in this update expand and refine hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU amends the presentation and disclosure requirements and changes how entities assess effectiveness. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires all items that affect earnings be presented in the same income statement line as the hedged items. The amendments in this guidance permit the use of the Overnight Index Swap rate based on Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes to facilitate the LIBOR to SOFR transition. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. The amended presentation and disclosure guidance is required only prospectively. The Corporation will adopt this guidance on a modified retrospective basis through a cumulative-effect adjustment to retained earnings effective January 1, 2019. For the years ended December 31, 2018 and 2017, the Corporation recorded income of $83 thousand and $0 thousand , respectively, related to ineffectiveness for a cash flow hedge, which will be reclassified from retaining earnings in the amount of $66 thousand , net of tax, to accumulated other comprehensive income, effective January 1, 2019. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date rather than the maturity of the security. Securities within the scope of this guidance are those that have explicit, non-contingent call features that are callable at fixed prices and on preset dates. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. This ASU is to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. At December 31, 2018 , the Corporation had $11.3 million of callable debt securities. Upon implementation, using the modified retrospective basis effective January 1, 2019, the Corporation expects to record a cumulative-effect adjustment resulting in a reduction in the unamortized premium balance for certain callable debt securities of approximately $50 thousand and a reduction in retained earnings of approximately $40 thousand , net of tax, for the incremental amortization. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for

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which an other-than-temporary impairment has been recognized before the effective date. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or January 1, 2020 for the Corporation. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the reserve for loan and lease losses will increase upon adoption of CECL and that the increased reserve level will decrease shareholders' equity and regulatory capital and ratios.

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

In August 2018, the FASB issued ASU No. 2018-14, " Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit plans or other postretirement plans. Disclosures removed by this ASU include the following: 1) amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year; 2) amount and timing of plan assets expected to be returned to the employer; and 3) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. Additional disclosures required by this ASU include: 1) the weighted-average interest crediting rates used in an entity's cash balance pension plans and other similar plans and 2) explanations for reasons for significant changes in the benefit obligation or plan assets. All amendments should be applied retrospectively. This ASU is effective for fiscal years ending after December 15, 2020 or December 31, 2020 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statement disclosures but will result in revised disclosures for retirement plans and other postretirement benefits.

In August 2018, the FASB issued ASU No. 2018-13, " Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that calculate net asset value. Additional disclosures required by this ASU include: 1) change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The prospective method of transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1, 2020 for the Corporation. Early adoption is permitted. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements but will result in revised disclosures for fair value.

Prior Period Adjustments

In connection with preparing the consolidated financial statements for December 31, 2018, the statement of cash flows as originally presented for December 31, 2017 has been revised as a result of incorrect amounts in the “Originations of loans held for sale” and “Proceeds from the sale of loans held sale” line items within the “Net cash provided by operating activities” section of the consolidated statement of cash flows.

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The Corporation will present these revised amounts for each of the affected periods, including in the Form 10-Q for March 31, 2017, the Form 10-Q for June 30, 2017, the Form 10-Q for September 30, 2017, the Form 10-Q for March 31, 2018, the Form 10-Q for June 30, 2018, and the Form 10-Q for September 30, 2018, in any future filings where the applicable information is presented on a comparative basis. The following table outlines the impact of the corrections to the consolidated statement of cash flows for each of the affected periods.



	For the Three Months Ended,		For the Six Months Ended,		For the Nine Months Ended,
	March 31, 2018		June 30, 2018		September 30, 2018

(Dollars in thousands)	As Reported
Originations of loans held for sale	(28,468	)	(61,508	)	(95,665	)
Proceeds from sales of loans held for sale	30,320		63,076		99,842
Net cash provided by operating activities	1,852		1,568		4,177

	Adjustments
Originations of loans held for sale	(6,683	)	(13,187	)	(22,441	)
Proceeds from sales of loans held for sale	6,683		13,187		22,441
Net cash provided by operating activities	—		—		—

	As Adjusted
Originations of loans held for sale	(35,151	)	(74,695	)	(118,106	)
Proceeds from sales of loans held for sale	37,003		76,263		122,283
Net cash provided by operating activities	1,852		1,568		4,177



	For the Three Months Ended,		For the Six Months Ended,		For the Nine Months Ended,		For the Year Ended,
	March 31, 2017		June 30, 2017		September 30, 2017		December 31, 2017

(Dollars in thousands)	As Reported
Originations of loans held for sale	(24,828	)	(64,035	)	(105,557	)	(143,993	)
Proceeds from sales of loans held for sale	30,568		69,847		112,602		152,734
Net cash provided by operating activities	5,740		5,812		7,045		8,741

	Adjustments
Originations of loans held for sale	(12,642	)	(24,422	)	(35,424	)	(44,079	)
Proceeds from sales of loans held for sale	12,642		24,422		35,424		44,079
Net cash provided by operating activities	—		—		—		—

	As Adjusted
Originations of loans held for sale	(37,470	)	(88,457	)	(140,981	)	(188,072	)
Proceeds from sales of loans held for sale	43,210		94,269		148,026		196,813
Net cash provided by operating activities	5,740		5,812		7,045		8,741

We evaluated these cumulative errors on both a quantitative and qualitative basis under the guidance of ASC 250, "Accounting Changes and Error Corrections." We determined that the cumulative impact of the errors described above did not affect the net cash provided (used) by operating activities, investing activities or financing activities, the total increase (decrease) in cash and cash equivalents and does not represent a change to total assets, total liabilities, total equity, or net income and therefore did not have a material impact to previously issued financial statements.

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Note 2. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:



	For the Years Ended December 31,
(Dollars and shares in thousands)	2018			2017			2016
Numerator:
Net income	$	50,543		$	44,094		$	19,505
Net income allocated to unvested restricted stock	(333		)	(409		)	(167		)
Net income allocated to common shares	$	50,210		$	43,685		$	19,338
Denominator:
Weighted average shares outstanding	29,370			26,862			23,098
Average unvested restricted stock	(193		)	(256		)	(227		)
Denominator for basic earnings per share— weighted-average shares outstanding	29,177			26,606			22,871
Effect of dilutive securities—employee stock options	82			102			60
Denominator for diluted earnings per share— adjusted weighted-average shares outstanding	29,259			26,708			22,931
Basic earnings per share	$	1.72		$	1.64		$	0.85
Diluted earnings per share	$	1.72		$	1.64		$	0.84
Average anti-dilutive options excluded from computation of diluted earnings per share	319			169			280

Note 3. Restrictions on Cash and Due from Banks and Interest-earning Deposit Accounts

The Bank maintains reserve balances under Federal Reserve Bank requirements. The reserve requirement at December 31, 2018 and 2017 was $8.3 million and $6.7 million , respectively, and was satisfied by vault cash held at the Bank’s branches. The average balances at the Federal Reserve Bank of Philadelphia were $48.3 million and $24.5 million for the years ended December 31, 2018 and 2017 , respectively.

The Corporation maintains interest-earning deposit accounts at other financial institutions and pledges certain deposits as collateral for credit derivatives and interest rate swap agreements. Deposits pledged at December 31, 2018 and 2017 were $0 thousand and $400 thousand , respectively. See Note 16, "Derivative Instruments and Hedging Activities" for additional information.

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Note 4. Investment Securities

The following table shows the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at December 31, 2018 and 2017 , by contractual maturity within each type:



	At December 31, 2018									At December 31, 2017
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Held-to-Maturity
U.S. government corporations and agencies:
After 1 year to 5 years	$	6,996	$	—	$	(104	)	$	6,892	$	6,995	$	—	$	(77	)	$	6,918
	6,996		—		(104		)	6,892		6,995		—		(77		)	6,918
Residential mortgage-backed securities:
After 5 years to 10 years	11,573		—		(135		)	11,438		8,944		—		(51		)	8,893
Over 10 years	124,065		287		(1,107		)	123,245		39,625		44		(160		)	39,509
	135,638		287		(1,242		)	134,683		48,569		44		(211		)	48,402
Total	$	142,634	$	287	$	(1,346	)	$	141,575	$	55,564	$	44	$	(288	)	$	55,320
Securities Available-for-Sale
U.S. government corporations and agencies:
Within 1 year	$	15,108	$	—	$	(90	)	$	15,018	$	1,499	$	—	$	(3	)	$	1,496
After 1 year to 5 years	303		—		(6		)	297		15,590		—		(125		)	15,465
	15,411		—		(96		)	15,315		17,089		—		(128		)	16,961
State and political subdivisions:
Within 1 year	5,900		4		(6		)	5,898		2,721		1		(6		)	2,716
After 1 year to 5 years	15,459		36		(56		)	15,439		16,787		33		(44		)	16,776
After 5 years to 10 years	43,923		318		(163		)	44,078		54,846		897		(73		)	55,670
Over 10 years	—		—		—			—		3,120		15		—			3,135
	65,282		358		(225		)	65,415		77,474		946		(123		)	78,297
Residential mortgage-backed securities:
After 1 year to 5 years	5,799		3		(70		)	5,732		3,913		12		(26		)	3,899
After 5 years to 10 years	49,904		6		(1,381		)	48,529		51,428		5		(852		)	50,581
Over 10 years	100,873		26		(3,398		)	97,501		133,237		87		(2,383		)	130,941
	156,576		35		(4,849		)	151,762		188,578		104		(3,261		)	185,421
Collateralized mortgage obligations:
After 5 years to 10 years	1,677		—		(78		)	1,599		2,103		—		(82		)	2,021
Over 10 years	1,305		—		(16		)	1,289		1,567		14		—			1,581
	2,982		—		(94		)	2,888		3,670		14		(82		)	3,602
Corporate bonds:
Within 1 year	7,806		—		(68		)	7,738		10,006		—		(5		)	10,001
After 1 year to 5 years	18,508		1		(332		)	18,177		24,885		20		(147		)	24,758
After 5 years to 10 years	16,146		—		(392		)	15,754		16,669		71		(296		)	16,444
Over 10 years	60,000		—		(8,542		)	51,458		60,000		—		(4,027		)	55,973
	102,460		1		(9,334		)	93,127		111,560		91		(4,475		)	107,176
Equity securities*
No stated maturity	N/A		N/A		N/A			N/A		6,395		667		(1		)	7,061
	N/A		N/A		N/A			N/A		6,395		667		(1		)	7,061
Total	$	342,711	$	394	$	(14,598	)	$	328,507	$	404,766	$	1,822	$	(8,070	)	$	398,518

*Equity securities at December 31, 2017 include $6.0 million of money market mutual funds and $1.1 million of financial services equity securities. In accordance with ASU 2016-01, beginning January 1, 2018, such amounts were reclassified from investment securities available-for-sale to investments in equity securities on the Corporation's Consolidated Balance Sheets.

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 $344.5 million and $345.1 million at December 31, 2018 and 2017 , respectively, were pledged to secure public deposits and other contractual obligations. In addition, securities of $296 thousand and $1.8 million were

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pledged to secure credit derivatives and interest rate swaps at December 31, 2018 and 2017 , respectively. See Note 16, "Derivative Instruments and Hedging Activities" for additional information.

The following table presents information related to sales of securities available-for-sale during the years ended December 31, 2018 , 2017 and 2016 :



	For the Years Ended December 31,
(Dollars in thousands)	2018		2017		2016
Securities available-for-sale:
Proceeds from sales	$	1,010	$	7,069	$	77,290
Gross realized gains on sales	10		74		600
Gross realized losses on sales	—		26		82
Tax expense related to net realized gains on sales	2		17		181

At December 31, 2018 and 2017 , there were no investments in any single non-federal issuer representing more than 10% of shareholders’ equity.

The following table shows the fair value of securities that were in an unrealized loss position at December 31, 2018 and 2017 by the length of time those securities were in a continuous loss position. For the investment securities in an unrealized loss position, the Corporation has concluded, based on its analysis, that the unrealized losses are primarily caused by the movement of interest rates and current market conditions and are not an other-than-temporary impairment of the securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. It is more likely than not that the Corporation will not be required to sell the investments before a recovery of carrying value.



	Less than Twelve Months					Twelve Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
At December 31, 2018
Securities Held-to-Maturity
U.S. government corporations and agencies	$	—	$	—		$	6,892	$	(104	)	$	6,892	$	(104	)
Residential mortgage-backed securities	48,192		(472		)	34,501		(770		)	82,693		(1,242		)
Total	$	48,192	$	(472	)	$	41,393	$	(874	)	$	89,585	$	(1,346	)
Securities Available-for-Sale
U.S. government corporations and agencies	$	—	$	—		$	15,315	$	(96	)	$	15,315	$	(96	)
State and political subdivisions	9,311		(61		)	15,302		(164		)	24,613		(225		)
Residential mortgage-backed securities	7,099		(106		)	141,924		(4,743		)	149,023		(4,849		)
Collateralized mortgage obligations	1,289		(16		)	1,599		(78		)	2,888		(94		)
Corporate bonds	16,896		(235		)	75,730		(9,099		)	92,626		(9,334		)
Total	$	34,595	$	(418	)	$	249,870	$	(14,180	)	$	284,465	$	(14,598	)

At December 31, 2017
Securities Held-to-Maturity
U.S. government corporations and agencies	$	6,919	$	(77	)	$	—	$	—		$	6,919	$	(77	)
Residential mortgage-backed securities	40,881		(211		)	—		—			40,881		(211		)
Total	$	47,800	$	(288	)	$	—	$	—		$	47,800	$	(288	)
Securities Available-for-Sale
U.S. government corporations and agencies	$	5,213	$	(38	)	$	11,749	$	(90	)	$	16,962	$	(128	)
State and political subdivisions	18,457		(91		)	6,332		(32		)	24,789		(123		)
Residential mortgage-backed securities	32,217		(210		)	141,371		(3,051		)	173,588		(3,261		)
Collateralized mortgage obligations	—		—			2,021		(82		)	2,021		(82		)
Corporate bonds	18,464		(1,016		)	71,957		(3,459		)	90,421		(4,475		)
Equity securities	—		(1		)	4		—			4		(1		)
Total	$	74,351	$	(1,356	)	$	233,434	$	(6,714	)	$	307,785	$	(8,070	)

At December 31, 2018, gross unrealized losses for securities available-for-sale in an unrealized loss position for twelve months or longer, totaled $14.2 million . Four federal agency bonds, twenty-eight investment grade corporate bonds, 121 federal agency residential mortgage securities, nineteen investment grade municipal bonds and one collateralized mortgage obligation bond had respective unrealized loss positions of $96 thousand , $9.1 million , $4.7 million , $164 thousand and $78 thousand , respectively. The

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fair value of these 173 securities fluctuate with changes in market conditions which for these underlying securities is primarily due to changes in the interest rate environment. 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. Upon review of the attributes of the individual securities, the Corporation concluded these securities were not other-than-temporarily impaired. The Corporation did not recognize any other-than-temporary impairment charges on debt securities for the years ended December 31, 2018 , 2017 and 2016 .

In conjunction with the adoption of ASU 2016-01, the Corporation recognized a $153 thousand net loss on equity securities during the year ended December 31, 2018 in other noninterest income and the net unrealized loss on equity securities held at December 31, 2018 was $153 thousand . See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2018" for additional information.

Note 5. Loans and Leases

Summary of Major Loan and Lease Categories



	At December 31, 2018
(Dollars in thousands)	Originated			Acquired		Total
Commercial, financial and agricultural	$	913,166		$	24,519	$	937,685
Real estate-commercial	1,507,579			233,625		1,741,204
Real estate-construction	215,513			—		215,513
Real estate-residential secured for business purpose	302,393			60,403		362,796
Real estate-residential secured for personal purpose	338,451			49,959		388,410
Real estate-home equity secured for personal purpose	177,523			8,728		186,251
Loans to individuals	32,617			142		32,759
Lease financings	141,956			—		141,956
Total loans and leases held for investment, net of deferred income	$	3,629,198		$	377,376	$	4,006,574

Unearned lease income, included in the above table	$	(15,118	)	$	—	$	(15,118	)
Net deferred costs, included in the above table	3,930			—		3,930
Overdraft deposits included in the above table	139			—		139



	At December 31, 2017
(Dollars in thousands)	Originated			Acquired		Total
Commercial, financial and agricultural	$	833,100		$	63,111	$	896,211
Real estate-commercial	1,235,681			306,460		1,542,141
Real estate-construction	171,244			4,592		175,836
Real estate-residential secured for business purpose	250,800			91,167		341,967
Real estate-residential secured for personal purpose	260,654			60,920		321,574
Real estate-home equity secured for personal purpose	171,884			12,386		184,270
Loans to individuals	28,156			144		28,300
Lease financings	129,768			—		129,768
Total loans and leases held for investment, net of deferred income	$	3,081,287		$	538,780	$	3,620,067

Unearned lease income, included in the above table	$	(14,243	)	$	—	$	(14,243	)
Net deferred costs, included in the above table	4,669			—		4,669
Overdraft deposits included in the above table	222			—		222

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

The carrying amount of acquired loans at December 31, 2018 totaled $377.4 million , including $314.8 million of loans from the Fox Chase acquisition and $62.6 million from the Valley Green Bank acquisition. At December 31, 2018 , loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled $695 thousand representing $63 thousand from the Fox Chase acquisition and $632 thousand from the Valley Green Bank acquisition. Acquired credit impaired loans are accounted for in accordance with Accounting Standards Codification (ASC) Topic 310-30.

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The outstanding principal balance and carrying amount for acquired credit impaired loans at December 31, 2018 and 2017 were as follows:



(Dollars in thousands)	At December 31, 2018		At December 31, 2017
Outstanding principal balance	$	893	$	2,325
Carrying amount	695		1,583
Reserve for loan losses	—		—

The following table presents the changes in accretable yield on acquired credit impaired loans:



	For the Years Ended December 31,
(Dollars in thousands)	2018			2017
Beginning of period	$	11		$	50
Reclassification from nonaccretable discount	582			891
Accretable yield amortized to interest income	(593		)	(926		)
Disposals	—			(4		)
End of period	$	—		$	11

The Corporation is a lessor of equipment under agreements expiring at various dates through the year 2029 . At December 31, 2018 and 2017 , the schedule of minimum lease payments receivable is as follows:



	At December 31,
(Dollars in thousands)	2018			2017
Within 1 year	$	56,386		$	53,625
After 1 year through 2 years	44,027			41,351
After 2 years through 3 years	30,150			27,411
After 3 years through 4 years	18,123			15,557
After 4 years through 5 years	7,085			5,375
Thereafter	1,303			692
Total future minimum lease payments receivable	157,074			144,011
Less: Unearned income	(15,118		)	(14,243		)
Total lease financing receivables, net of unearned income	$	141,956		$	129,768

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Age Analysis of Past Due Loans and Leases

The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current and the recorded investment in loans and leases 90 days or more past due which are accruing interest at December 31, 2018 and 2017 :



(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current		Acquired Credit Impaired		Total Loans and Leases Held for Investment		Recorded Investment 90 Days or more Past Due and Accruing Interest
At December 31, 2018
Commercial, financial and agricultural	$	1,043	$	270	$	2,228	$	3,541	$	934,144	$	—	$	937,685	$	—
Real estate—commercial real estate and construction:
Commercial real estate	5,425		1,538		1,599		8,562		1,732,436		206		1,741,204		—
Construction	2,163		106		—		2,269		213,244		—		215,513		—
Real estate—residential and home equity:
Residential secured for business purpose	2,497		777		1,164		4,438		357,932		426		362,796		—
Residential secured for personal purpose	2,334		—		1,586		3,920		384,427		63		388,410		—
Home equity secured for personal purpose	305		96		1,341		1,742		184,509		—		186,251		—
Loans to individuals	207		29		55		291		32,468		—		32,759		55
Lease financings	2,460		411		307		3,178		138,778		—		141,956		137
Total	$	16,434	$	3,227	$	8,280	$	27,941	$	3,977,938	$	695	$	4,006,574	$	192

At December 31, 2017
Commercial, financial and agricultural	$	2,182	$	1,440	$	1,509	$	5,131	$	890,658	$	422	$	896,211	$	—
Real estate—commercial real estate and construction:
Commercial real estate	733		548		1,410		2,691		1,539,094		356		1,542,141		—
Construction	1,970		—		365		2,335		173,501		—		175,836		—
Real estate—residential and home equity:
Residential secured for business purpose	1,651		315		1,355		3,321		338,061		585		341,967		162
Residential secured for personal purpose	4,368		1,118		23		5,509		315,845		220		321,574		—
Home equity secured for personal purpose	1,414		333		464		2,211		182,059		—		184,270		148
Loans to individuals	221		139		195		555		27,745		—		28,300		195
Lease financings	1,143		392		1,855		3,390		126,378		—		129,768		256
Total	$	13,682	$	4,285	$	7,176	$	25,143	$	3,593,341	$	1,583	$	3,620,067	$	761

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Nonperforming Loans and Leases

The following presents, by class of loans and leases, nonperforming loans and leases at December 31, 2018 and 2017 . Nonperforming loans exclude acquired credit impaired loans from Fox Chase and Valley Green.



	At December 31,
	2018								2017
(Dollars in thousands)	Nonaccrual Loans and Leases*		Accruing Troubled Debt Restructured Loans and Lease Modifications		Loans and Leases 90 Days or more Past Due and Accruing Interest		Total Nonperforming Loans and Leases		Nonaccrual Loans and Leases*		Accruing Troubled Debt Restructured Loans and Lease Modifications		Loans and Leases 90 Days or more Past Due and Accruing Interest		Total Nonperforming Loans and Leases
Commercial, financial and agricultural	$	3,365	$	382	$	—	$	3,747	$	4,448	$	921	$	—	$	5,369
Real estate—commercial real estate and construction:
Commercial real estate	18,214		—		—		18,214		4,285		10,266		—		14,551
Construction	106		—		—		106		365		—		—		365
Real estate—residential and home equity:
Residential secured for business purpose	1,318		160		—		1,478		2,843		206		162		3,211
Residential secured for personal purpose	1,587		—		—		1,587		466		42		—		508
Home equity secured for personal purpose	1,448		—		—		1,448		511		—		148		659
Loans to individuals	—		—		55		55		—		—		195		195
Lease financings	170		—		137		307		1,599		—		256		1,855
Total	$	26,208	$	542	$	192	$	26,942	$	14,517	$	11,435	$	761	$	26,713

* Includes nonaccrual troubled debt restructured loans and lease modifications of $1.3 million and $2.5 million at December 31, 2018 and December 31, 2017 , respectively.

Accruing troubled debt restructuring loans of $11.4 million at December 31, 2017 includes balances of $10.3 million related to one borrower which were classified as troubled debt restructurings as the related loans were granted amortization period extensions. These troubled debt restructured loans were returned to performing status during the first quarter of 2018 as the borrower was in compliance with the modified terms of the restructurings for the required time period. At December 31, 2018 , commercial real estate nonaccrual loans and leases includes an $11.5 million loan that was placed on nonaccrual status during the first quarter of 2018. A specific reserve of $624 thousand was recorded for this loan as of December 31, 2018 .

Credit Quality Indicators

The following tables present by class, the recorded investment in loans and leases held for investment by credit quality indicator at December 31, 2018 and 2017 .

The Corporation employs a ten (10) grade risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business purpose of which the first six categories are pass categories (credits not adversely rated). The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with a relationship balance of less than $1 million are reviewed on a performance basis, with the primary monitored metrics being delinquency (60 days or more past due) and revolving stagnancy. Loans with relationships greater than $1 million are reviewed at least annually. Loan relationships exceeding $15 million or classified as special mention or substandard are reviewed at least quarterly, or more frequently based on management’s discretion.


1.	Cash Secured—No credit risk


2.	Fully Secured—Negligible credit risk


3.	Strong—Minimal credit risk


4.	Satisfactory—Nominal credit risk


5.	Acceptable—Moderate credit risk


6.	Pre-Watch—Marginal, but stable credit risk


7.	Special Mention—Potential weakness


8.	Substandard—Well-defined weakness


9.	Doubtful—Collection in-full improbable


10.	Loss—Considered uncollectible

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Commercial Credit Exposure Credit Risk by Internally Assigned Grades

The following table presents classifications for originated loans:



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At December 31, 2018
Grade:
1. Cash secured/ 2. Fully secured	$	2,783	$	—	$	27,783	$	—	$	30,566
3. Strong	14,762		698		—		—		15,460
4. Satisfactory	20,133		21,790		—		—		41,923
5. Acceptable	627,585		1,118,288		78,855		251,099		2,075,827
6. Pre-watch	217,473		314,458		108,769		47,257		687,957
7. Special Mention	23,287		31,791		—		721		55,799
8. Substandard	7,143		20,554		106		3,316		31,119
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	913,166	$	1,507,579	$	215,513	$	302,393	$	2,938,651

At December 31, 2017
Grade:
1. Cash secured/ 2. Fully secured	$	2,521	$	—	$	20,420	$	—	$	22,941
3. Strong	9,206		1,821		—		—		11,027
4. Satisfactory	30,283		26,950		—		274		57,507
5. Acceptable	593,205		960,258		76,899		215,750		1,846,112
6. Pre-watch	179,990		209,844		72,168		29,738		491,740
7. Special Mention	4,027		12,974		1,392		296		18,689
8. Substandard	13,868		23,834		365		4,742		42,809
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	833,100	$	1,235,681	$	171,244	$	250,800	$	2,490,825

The following table presents classifications for acquired loans:



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial		Real Estate— Construction		Real Estate— Residential Secured for Business Purpose		Total
At December 31, 2018
Grade:
1. Cash secured/ 2. Fully secured	$	—	$	—	$	—	$	—	$	—
3. Strong	—		—		—		—		—
4. Satisfactory	—		—		—		—		—
5. Acceptable	21,468		145,722		—		51,066		218,256
6. Pre-watch	2,982		75,189		—		8,501		86,672
7. Special Mention	—		—		—		—		—
8. Substandard	69		12,714		—		836		13,619
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	24,519	$	233,625	$	—	$	60,403	$	318,547
At December 31, 2017
Grade:
1. Cash secured/ 2. Fully secured	$	1,120	$	—	$	—	$	—	$	1,120
3. Strong	—		—		—		—		—
4. Satisfactory	125		482		—		—		607
5. Acceptable	49,949		183,490		—		73,402		306,841
6. Pre-watch	6,183		98,977		4,592		15,861		125,613
7. Special Mention	1,007		17,028		—		—		18,035
8. Substandard	4,727		6,483		—		1,904		13,114
9. Doubtful	—		—		—		—		—
10. Loss	—		—		—		—		—
Total	$	63,111	$	306,460	$	4,592	$	91,167	$	465,330

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

The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans secured for a personal purpose, home equity loans secured for a personal purpose, loans to individuals and lease financings. Nonperforming loans and leases are loans past due 90 days or more, loans and leases on nonaccrual of interest and troubled debt restructured loans and lease modifications. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss.

The following table presents classifications for originated loans:



(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At December 31, 2018
Performing	$	337,762	$	177,139	$	32,562	$	141,649	$	689,112
Nonperforming	689		384		55		307		1,435
Total	$	338,451	$	177,523	$	32,617	$	141,956	$	690,547

At December 31, 2017
Performing	$	260,589	$	171,527	$	27,961	$	127,913	$	587,990
Nonperforming	65		357		195		1,855		2,472
Total	$	260,654	$	171,884	$	28,156	$	129,768	$	590,462

The following table presents classifications for acquired loans:



(Dollars in thousands)	Real Estate— Residential Secured for Personal Purpose		Real Estate— Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Total
At December 31, 2018
Performing	$	49,061	$	7,664	$	142	$	—	$	56,867
Nonperforming	898		1,064		—		—		1,962
Total	$	49,959	$	8,728	$	142	$	—	$	58,829

At December 31, 2017
Performing	$	60,477	$	12,084	$	144	$	—	$	72,705
Nonperforming	443		302		—		—		745
Total	$	60,920	$	12,386	$	144	$	—	$	73,450

Commercial, financial and agricultural loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as having more risk of default than residential real estate loans with a personal purpose and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties and factors affecting residential real estate borrowers.

Commercial, financial and agricultural business loans are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. In addition, the collateral securing the loans often depreciates over time, is difficult to appraise and liquidate and fluctuates in value based on the success of the business.

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the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral. Included in real estate-construction is track development financing. Risk factors related to track development financing include the demand for residential housing and the real estate valuation market. When projects move slower than anticipated, the properties may have significantly lower values than when the original underwriting was completed, resulting in lower collateral values to support the loan. Extended time frames also cause the interest carrying cost for a project to be higher than the builder projected, negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.

Commercial real estate loans and residential real estate loans with a business purpose secured by owner-occupied properties are dependent upon the successful operation of the borrower’s business. If the operating company suffers difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and at a profit.

The Corporation originates fixed-rate and adjustable-rate real estate-residential mortgage loans and home equity loans that are secured by the underlying 1-to-4 family residential properties for personal purposes. Credit risk exposure in this area of lending is minimized by the evaluation of the creditworthiness of the borrower, including debt-to-equity ratios, credit scores and adherence to underwriting policies.

Credit risk for direct consumer loans is controlled by strict adherence to underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values. These loans are included within the portfolio of loans to individuals.

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Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases

The following presents, by portfolio segment, a summary of the activity in the reserve for loan and lease losses for the years ended December 31, 2018 , 2017 and 2016 :



(Dollars in thousands)	Commercial, Financial and Agricultural			Real Estate— Commercial and Construction			Real Estate— Residential Secured for Business Purpose			Real Estate— Residential and Home Equity Secured for Personal Purpose			Loans to Individuals			Lease Financings			Unallocated			Total
For the Year Ended December 31, 2018
Reserve for loan and lease losses:
Beginning balance	$	6,742		$	9,839		$	1,661		$	1,754		$	373		$	1,132		$	54		$	21,555
Charge-offs	(14,655		)	(40		)	(31		)	—			(353		)	(572		)	N/A			(15,651		)
Recoveries	2,140			333			280			78			88			231			N/A			3,150
Provision	13,756			3,771			318			1,364			376			497			217			20,299
Provision for acquired credit impaired loans	—			—			8			3			—			—			—			11
Ending balance	$	7,983		$	13,903		$	2,236		$	3,199		$	484		$	1,288		$	271		$	29,364

For the Year Ended December 31, 2017
Reserve for loan and lease losses:
Beginning balance	$	7,037		$	7,505		$	774		$	993		$	364		$	788		$	38		$	17,499
Charge-offs	(1,030		)	(232		)	(1,370		)	(196		)	(317		)	(3,992		)	N/A			(7,137		)
Recoveries	801			5			54			99			136			206			N/A			1,301
(Recovery of provision) provision	(66		)	2,561			2,204			857			190			4,130			16			9,892
(Recovery of provision) provision for acquired credit impaired loans	—			—			(1		)	1			—			—			—			—
Ending balance	$	6,742		$	9,839		$	1,661		$	1,754		$	373		$	1,132		$	54		$	21,555


For the Year Ended December 31, 2016
Reserve for loan and lease losses:
Beginning balance	$	6,418		$	6,572		$	763		$	1,575		$	346		$	1,042		$	912		$	17,628
Charge-offs	(4,827		)	(307		)	(522		)	(178		)	(395		)	(759		)	N/A			(6,988		)
Recoveries	1,454			101			71			88			133			191			N/A			2,038
Provision (recovery of provision)	3,992			961			462			(489		)	280			314			(874		)	4,646
Provision (recovery of provision) for acquired credit impaired loans	—			178			—			(3		)	—			—			—			175
Ending balance	$	7,037		$	7,505		$	774		$	993		$	364		$	788		$	38		$	17,499

N/A – Not applicable

Charge-offs for the year ended December 31, 2018 included a charge-off of $12.7 million during the second quarter of 2018 for a commercial loan relationship related to fraudulent activities by employees of the borrower. The Bank owned a participating interest which originally totaled $13.0 million in an approximately $80.0 million commercial lending facility. The charge-off represented the entire principal amount owed to the Bank. During the fourth quarter of 2018, the Bank recovered $1.8 million from this previously charged-off loan. Total net charge-off for this loan for the year ended December 31, 2018 was $10.9 million .

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The following presents, by portfolio segment, the balance in the reserve for loan and lease losses disaggregated on the basis of impairment method and the recorded investment in loans and leases disaggregated on the basis of impairment method at December 31, 2018 and 2017 :



(Dollars in thousands)	Commercial, Financial and Agricultural		Real Estate— Commercial and Construction		Real Estate— Residential Secured for Business Purpose		Real Estate— Residential and Home Equity Secured for Personal Purpose		Loans to Individuals		Lease Financings		Unallocated		Total
At December 31, 2018

Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	413	$	675	$	—	$	327	$	—	$	—	N/A		$	1,415
Ending balance: collectively evaluated for impairment	7,570		13,183		2,233		2,872		484		1,288		271		27,901
Ending balance: acquired non-credit impaired loans evaluated for impairment	—		45		3		—		—		—		—		48
Total ending balance	$	7,983	$	13,903	$	2,236	$	3,199	$	484	$	1,288	$	271	$	29,364

Loans and leases held for investment:
Ending balance: individually evaluated for impairment	$	3,747	$	18,321	$	1,478	$	3,035	$	—	$	—			$	26,581
Ending balance: collectively evaluated for impairment	909,419		1,702,992		300,915		512,939		32,617		141,956				3,600,838
Loans measured at fair value	—		1,779		—		—		—		—				1,779
Acquired non-credit impaired loans	24,519		233,419		59,977		58,624		142		—				376,681
Acquired credit impaired loans	—		206		426		63		—		—				695
Total ending balance	$	937,685	$	1,956,717	$	362,796	$	574,661	$	32,759	$	141,956			$	4,006,574

At December 31, 2017

Reserve for loan and lease losses:
Ending balance: individually evaluated for impairment	$	31	$	99	$	1	$	—	$	—	$	—	N/A		$	131
Ending balance: collectively evaluated for impairment	6,711		9,740		1,660		1,754		373		1,132		54		21,424
Total ending balance	$	6,742	$	9,839	$	1,661	$	1,754	$	373	$	1,132	$	54	$	21,555


Loans and leases held for investment:
Ending balance: individually evaluated for impairment	$	7,079	$	16,919	$	3,465	$	1,019	$	—	$	1,250			$	29,732
Ending balance: collectively evaluated for impairment	826,021		1,388,048		247,335		431,519		28,156		128,518				3,049,597
Loans measured at fair value	—		1,958		—		—		—		—				1,958
Acquired non-credit impaired loans	62,689		310,696		90,582		73,086		144		—				537,197
Acquired credit impaired loans	422		356		585		220		—		—				1,583
Total ending balance	$	896,211	$	1,717,977	$	341,967	$	505,844	$	28,300	$	129,768			$	3,620,067

N/A – Not applicable

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T he Corporation does not provide a reserve for loan loss for acquired loans unless additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan loss.

Impaired Loans (excludes Lease Financings)

The following presents, by class of loans, the recorded investment and unpaid principal balance of impaired loans, the amounts of the impaired loans for which there is not a reserve for credit losses and the amounts for which there is a reserve for credit losses at December 31, 2018 and 2017 . The impaired loans exclude acquired credit impaired loans.



	At December 31,
	2018						2017
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Reserve		Recorded Investment		Unpaid Principal Balance		Related Reserve
Impaired loans with no related reserve recorded:
Commercial, financial and agricultural	$	2,776	$	3,361			$	7,019	$	8,301
Real estate—commercial real estate	6,578		7,516				15,621		16,507
Real estate—construction	106		111				365		365
Real estate—residential secured for business purpose	1,478		1,660				3,430		4,620
Real estate—residential secured for personal purpose	863		911				508		566
Real estate—home equity secured for personal purpose	1,373		1,404				511		523
Total impaired loans with no related reserve recorded	$	13,174	$	14,963			$	27,454	$	30,882

Impaired loans with a reserve recorded:
Commercial, financial and agricultural	$	971	$	1,024	$	413	$	60	$	60	$	31
Real estate—commercial real estate	11,637		12,162		675		933		933		99
Real estate—residential secured for business purpose	—		—		—		35		37		1
Real estate—residential secured for personal purpose	724		724		252		—		—		—
Real estate—home equity secured for personal purpose	75		75		75		—		—		—
Total impaired loans with a reserve recorded	$	13,407	$	13,985	$	1,415	$	1,028	$	1,030	$	131

Total impaired loans:
Commercial, financial and agricultural	$	3,747	$	4,385	$	413	$	7,079	$	8,361	$	31
Real estate—commercial real estate	18,215		19,678		675		16,554		17,440		99
Real estate—construction	106		111		—		365		365		—
Real estate—residential secured for business purpose	1,478		1,660		—		3,465		4,657		1
Real estate—residential secured for personal purpose	1,587		1,635		252		508		566		—
Real estate—home equity secured for personal purpose	1,448		1,479		75		511		523		—
Total impaired loans	$	26,581	$	28,948	$	1,415	$	28,482	$	31,912	$	131

Impaired loans includes nonaccrual loans and accruing troubled debt restructured loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. These loans are individually measured to determine the amount of potential impairment. The loans are reviewed for impairment based on the fair value of the collateral for collateral dependent loans and for certain loans based on discounted cash flows using the loans’ initial effective interest rates.

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The following presents by class of loans, the average recorded investment in impaired loans and an analysis of interest on impaired loans. A loan may remain on accrual status if it is an accruing troubled debt restructured loan or if it is in the process of collection and is either guaranteed or well secured. Therefore, interest income on accruing impaired loans is recognized using the accrual method.



	For the Years Ended December 31,
	2018						2017						2016
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms		Average Recorded Investment		Interest Income Recognized*		Additional Interest Income That Would Have Been Recognized Under Original Terms
Commercial, financial and agricultural	$	6,242	$	134	$	335	$	10,456	$	200	$	347	$	13,126	$	258	$	381
Real estate—commercial real estate	19,665		222		1,073		20,054		792		289		26,698		1,106		272
Real estate—construction	123		—		8		253		—		19		—		—		—
Real estate—residential secured for business purpose	1,844		22		108		3,801		65		169		4,084		67		207
Real estate—residential secured for personal purpose	1,229		3		94		614		3		39		498		2		24
Real estate—home equity secured for personal purpose	1,112		1		85		406		—		26		440		—		25
Total	$	30,215	$	382	$	1,703	$	35,584	$	1,060	$	889	$	44,846	$	1,433	$	909


*	Includes interest income recognized on a cash basis for nonaccrual loans of $27 thousand , $4 thousand and $8 thousand for the years ended December 31, 2018 , 2017 and 2016 , respectively and interest income recognized on the accrual method for accruing impaired loans of $355 thousand , $1.1 million and $1.4 million for the years ended December 31, 2018 , 2017 and 2016 , respectively.

The Bank maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded. The reserve for these off-balance sheet credits was $426 thousand and $390 thousand at December 31, 2018 and 2017 , respectively.

Impaired Leases

The Corporation had no impaired leases at December 31, 2018 . The Corporation had impaired leases of $1.3 million at December 31, 2017 with no related reserves which were paid off in full during the fourth quarter of 2018.

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Troubled Debt Restructured Loans

The following presents, by class of loans, information regarding accruing and nonaccrual loans that were restructured during the years ended December 31, 2018 and 2017 :



	For the Years Ended December 31,
	2018							2017
(Dollars in thousands)	Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Reserve		Number of Loans	Pre- Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Related Reserve
Accruing Troubled Debt Restructured Loans:
Real estate—commercial real estate	—	$	—	$	—	$	—	3	$	9,206	$	9,206	$	—
Total	—	$	—	$	—	$	—	3	$	9,206	$	9,206	$	—

Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	—	$	—	$	—	$	—	2	$	1,127	$	1,127	$	—
Real estate—commercial real estate	—	—		—		—		1	328		328		—
Real estate—residential secured for personal purpose	1	66		66		—		—	—		—		—
Total	1	$	66	$	66	$	—	3	$	1,455	$	1,455	$	—

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

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The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the years ended December 31, 2018 and 2017 :



	Maturity Date Extension			Amortization Period Extension			Total Concessions Granted
(Dollars in thousands)	No. of Loans	Amount		No. of Loans	Amount		No. of Loans	Amount
For the Year Ended December 31, 2018
Accruing Troubled Debt Restructured Loans:
Total	—	$	—	—	$	—	—	$	—

Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for personal purpose	—	$	—	1	$	66	1	$	66
Total	—	$	—	1	$	66	1	$	66


For the Year Ended December 31, 2017
Accruing Troubled Debt Restructured Loans:
Real estate—commercial real estate	—	$	—	3	$	9,206	3	$	9,206
Total	—	$	—	3	$	9,206	3	$	9,206

Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural	—	$	—	2	$	1,127	2	$	1,127
Real estate—commercial real estate	1	328		—	—		1	328
Total	1	$	328	2	$	1,127	3	$	1,455

There were no loans for which there were payment defaults within twelve months of the restructuring date during the years ended December 31, 2018 and 2017 .

The following presents, by class of loans, information regarding consumer mortgages collateralized by residential real estate property that are in the process of foreclosure at December 31, 2018 and 2017 :



(Dollars in thousands)	At December 31, 2018		At December 31, 2017
Real estate-residential secured for personal purpose	$	563	$	31
Real estate-home equity secured for personal purpose	1,134		—
Total	$	1,697	$	31

The following presents foreclosed residential real estate property included in other real estate owned at December 31, 2018 and 2017 .



(Dollars in thousands)	At December 31, 2018		At December 31, 2017
Foreclosed residential real estate	$	—	$	80

Note 6. Premises and Equipment

The following table reflects the components of premises and equipment:



	At December 31,
(Dollars in thousands)	2018			2017
Land and land improvements	$	15,683		$	15,402
Premises and improvements	53,707			54,643
Furniture and equipment	32,068			33,675
Total cost	101,458			103,720
Less: accumulated depreciation	(41,899		)	(41,923		)
Net book value	$	59,559		$	61,797

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The following table summarizes rental expense charged to operations for the periods indicated:



	For the Years Ended December 31,
(Dollars in thousands)	2018			2017			2016
Rental expense	$	3,866		$	3,938		$	3,791
Rental income	(207		)	(227		)	(138		)
Net rental expense	$	3,659		$	3,711		$	3,653

Note 7. Goodwill and Other Intangible Assets

The Corporation has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The amortization of intangible assets for the years ended December 31, 2018 , 2017 and 2016 was $3.4 million , $4.2 million and $4.1 million , respectively. The Corporation also has goodwill which is deemed to be an indefinite intangible asset and is not amortized.

In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill during the fourth quarter of 2018 and determined it was more likely than not that the fair value of the Corporation, including each of the identified reporting units, was more than its carrying amount; therefore, the Corporation did not need to perform the two-step impairment test for the Corporation or the reporting units.

The Corporation also completed an impairment test for other intangible assets during the fourth quarter of 2018 . There was no impairment of goodwill or other identifiable intangibles recorded during 2016 through 2018 .

Changes in the carrying amount of the Corporation's goodwill by business segment for the years ended December 31, 2018 and 2017 were as follows:



(Dollars in thousands)	Banking		Wealth Management		Insurance		Consolidated
Balance at December 31, 2016	$	138,476	$	15,434	$	18,649	$	172,559
Addition to goodwill from acquisitions	—		—		—		—
Balance at December 31, 2017	138,476		15,434		18,649		172,559
Addition to goodwill from acquisitions	—		—		—		—
Balance at December 31, 2018	$	138,476	$	15,434	$	18,649	$	172,559

The following table reflects the components of intangible assets at the dates indicated:



	At December 31, 2018						At December 31, 2017
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization and Fair Value Adjustments		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization and Fair Value Adjustments		Net Carrying Amount
Amortized intangible assets:
Covenants not to compete	$	710	$	710	$	—	$	710	$	580	$	130
Core deposit intangibles	6,788		3,143		3,645		6,788		2,135		4,653
Customer related intangibles	12,381		10,804		1,577		12,381		9,828		2,553
Servicing rights	17,314		10,546		6,768		15,855		9,282		6,573
Total amortized intangible assets	$	37,193	$	25,203	$	11,990	$	35,734	$	21,825	$	13,909

The estimated aggregate amortization expense for core deposit and customer-related intangibles for each of the five succeeding fiscal years and thereafter follows:



Year	(Dollars in thousands)	Amount
2019		$	1,565
2020		1,200
2021		923
2022		666
2023		409
Thereafter		459

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The Corporation has originated mortgage servicing rights, which are included in other intangible assets on the consolidated balance sheet. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are subject to impairment testing on a quarterly basis. The aggregate fair value of these rights was $11.5 million and $10.0 million at December 31, 2018 and 2017 , respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at December 31, 2018 and 2017 . The Corporation also records servicing rights on SBA loans. The value of these servicing rights was $42 thousand and $21 thousand at December 31, 2018 and 2017 , respectively.

Changes in the servicing rights balance are summarized as follows:



	For the Years Ended December 31,
(Dollars in thousands)	2018			2017			2016
Beginning of period	$	6,573		$	6,485		$	5,877
Servicing rights capitalized	1,458			1,487			2,049
Acquired servicing rights	—			—			87
Amortization of servicing rights	(1,263		)	(1,399		)	(1,528		)
Changes in valuation allowance	—			—			—
End of period	$	6,768		$	6,573		$	6,485
Residential mortgage and SBA loans serviced for others	$	1,031,506		$	1,008,123		$	965,729

There was no activity in the valuation allowance for the years ended December 31, 2018 , 2017 and 2016 .

The estimated amortization expense of servicing rights for each of the five succeeding fiscal years and thereafter is as follows:



Year	(Dollars in thousands)	Amount
2019		$	908
2020		801
2021		705
2022		619
2023		541
Thereafter		3,194

Note 8. Accrued Interest Receivable and Other Assets

The following table provides the details of accrued interest receivable and other assets:



	At December 31,
(Dollars in thousands)	2018		2017
Other real estate owned	$	1,187	$	1,843
Accrued interest receivable	14,255		12,362
Accrued income and other receivables	3,933		3,872
Fair market value of derivative financial instruments	679		601
Other prepaid expenses	14,652		21,496
Net federal deferred tax assets	3,585		1,174
Other	322		154
Total accrued interest and other assets	$	38,613	$	41,502

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Note 9. Deposits

Deposits and their respective weighted average interest rate at December 31, 2018 and 2017 consist of the following:



	December 31,
	2018				2017
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Dollars in thousands)
Noninterest-bearing deposits	—	%	$	1,055,919	—	%	$	1,040,026
Demand deposits	1.01		1,377,171		0.43		1,109,438
Savings deposits	0.33		782,766		0.26		830,706
Time deposits	1.76		670,077		1.12		574,749
Total	0.73	%	$	3,885,933	0.38	%	$	3,554,919

The aggregate amount of time deposits in denominations of $100 thousand or more was $283.4 million at December 31, 2018 and $250.0 million at December 31, 2017 . Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently up to $250 thousand. The aggregate amount of time deposits in denominations over $250 thousand was $129.5 million at December 31, 2018 and $118.4 million at December 31, 2017 .

At December 31, 2018 , the scheduled maturities of time deposits are as follows:



Year	(Dollars in thousands)	Amount
Due in 2019		$	394,239
Due in 2020		128,518
Due in 2021		40,750
Due in 2022		32,995
Due in 2023		70,056
Thereafter		3,519
Total		$	670,077

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Note 10. Borrowings



	Balance at End of Year		Weighted Average Interest Rate		Maximum Amount Outstanding at Month End During the Year		Average Amount Outstanding During the Year		Weighted Average Interest Rate During the Year
(Dollars in thousands)
2018
Short-term borrowings:
FHLB borrowings	$	108,300	2.62	%	$	261,240	$	85,601	2.01	%
Federal funds purchased	60,000		2.60		65,003		36,591		1.88
Customer repurchase agreements	21,468		0.05		28,323		22,120		0.05

Long-term debt:
FHLB advances	$	125,000	1.92	%	$	125,031	$	120,983	1.80	%
Security repurchase agreements	20,330		2.71		30,751		29,049		2.08

Subordinated notes	$	94,574	5.33	%	$	94,574	$	94,451	5.34	%

2017
Short-term borrowings:
FHLB borrowings	$	30,225	1.54	%	$	124,500	$	50,063	1.10	%
Federal funds purchased	55,000		1.56		95,000		32,282		1.05
Customer repurchase agreements	20,206		0.05		26,376		23,207		0.05

Long-term debt:
FHLB advances	$	125,036	1.73	%	$	190,689	$	155,073	1.43	%
Security repurchase agreements	30,792		1.52		31,234		31,036		1.30

Subordinated notes	$	94,331	5.35	%	$	94,331	$	94,208	5.35	%

The Corporation, through the Bank, has a credit facility with the FHLB with a maximum borrowing capacity of approximately $1.6 billion . Advances from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. At December 31, 2018 and 2017 , the Bank had outstanding short-term letters of credit with the FHLB totaling $347.5 million and $234.2 million , respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.

The Corporation, through the Bank, maintains uncommitted federal fund credit lines with several correspondent banks totaling $367.0 million at December 31, 2018 and 2017 . Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.

The Corporation has a $10.0 million line of credit with a correspondent bank. At December 31, 2018 and 2017 , the Corporation had no outstanding borrowings under this line.

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Long-term advances with the FHLB of Pittsburgh mature as follows:



(Dollars in thousands)	As of December 31, 2018		Weighted Average Rate
2019	$	10,000	1.35	%
2020	40,000		1.70
2021	55,000		1.94
2022	10,000		2.09
2023	10,000		3.02
Thereafter	—		—
Total	$	125,000	1.92	%

Long-term debt under security repurchase agreements with large commercial banks mature as follows:



(Dollars in thousands)	As of December 31, 2018		Weighted Average Rate
2019	$	10,114	2.72	%
2020	10,216		2.71
2021	—		—
2022	—		—
2023	—		—
Thereafter	—		—
Total	$	20,330	2.71	%

Long-term debt under security repurchase agreements totaling $20.3 million are variable based on the one-month LIBOR rate plus a spread.

Subordinated Debt

On July 1, 2016, the Corporation issued $45.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2026 (2016 Notes) in a private placement transaction to institutional accredited investors. The net proceeds of the offering approximated $44.5 million . The 2016 Notes bear interest at an annual fixed rate of 5.00% from the date of issuance until June 30, 2021, or any early redemption date. From June 30, 2021 to the maturity date of June 30, 2026 (or any early redemption date), the 2016 Notes will bear interest at an annual rate equal to three-month LIBOR rate plus 3.90% . Beginning with the interest payment date of June 30, 2021, the Corporation has the option on each interest payment date, subject to approval of the Federal Reserve Board, to redeem the 2016 Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed 2016 Notes, plus accrued and unpaid interest to the date of the redemption. The Corporation may also redeem the 2016 Notes, in whole but not in part, at any time upon the occurrence of certain tax, regulatory capital and Investment Company Act of 1940 Act events, subject in each case to the approval of the Federal Reserve.

On March 30, 2015 , the Corporation issued $50.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (2015 Notes) in a private placement transaction to institutional accredited investors. The net proceeds of the offering $49.3 million , The 2015 Notes bear interest at an annual fixed rate of 5.10% from the date of issuance until March 30, 2020, or any early redemption date. From March 30, 2020 to the maturity date of March 30, 2025 (or any early redemption date), the 2015 Notes will bear interest at an annual rate equal to the three-month LIBOR rate plus 3.544% . Beginning with the interest payment date of March 30, 2020, the Corporation has the option on each interest payment date, subject to approval of the Federal Reserve Board, to redeem the 2015 Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed 2015 Notes, plus accrued and unpaid interest to the date of the redemption. The Corporation may also redeem the 2015 Notes, in whole, at any time, or in part from time to time upon the occurrence of certain tax, regulatory capital and Investment Company Act of 1940 Act events, subject in each case to the approval of the Federal Reserve.

The subordinated notes qualify as Tier 2 capital for regulatory capital purposes for the first five years of the notes' terms. The Tier 2 capital benefit is phased out at 20% per year after the fifth year (from years six to ten) and have no benefit in the tenth year.

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Note 11. Income Taxes

The provision for federal and state income taxes included in the accompanying consolidated statements of income consists of the following:



	For the Years Ended December 31,
(Dollars in thousands)	2018			2017		2016
Current:
Federal	$	9,770		$	9,273	$	2,400
State	972			961		539
Deferred:
Federal	(862		)	7,350		909
State	263			133		33
	$	10,143		$	17,717	$	3,881

The provision for income taxes differs from the expected statutory provision as follows:



	For the Years Ended December 31,
	2018		2017		2016
Expected provision at statutory rate	21.0	%	35.0	%	35.0	%
Difference resulting from:
Tax exempt interest income, net of disallowance	(4.0	)	(6.1	)	(15.6	)
Increase in value of bank owned life insurance assets	(1.1	)	(2.2	)	(4.2	)
Stock-based compensation	(0.2	)	(1.0	)	(1.7	)
Non-deductible merger-related expenses	—		—		1.2
State income taxes, net of federal benefits	1.6		1.2		(1.5	)
Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates	(0.5	)	1.7		—
Changes in valuation allowance	0.1		0.5		3.1
Other	(0.2	)	(0.4	)	0.3
Effective tax rate	16.7	%	28.7	%	16.6	%

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (TCJA), was signed into law. The TCJA includes many provisions that affected the Corporation's income tax expense, including reducing the Corporation's federal tax rate from 35% to 21% effective January 1, 2018. As a result of the rate reduction, the Corporation was required to re-measure, the deferred tax assets and liabilities using the enacted rate at which they were expected to be recovered or settled. The re-measurement of the Corporation's net deferred tax asset resulted in additional 2017 income tax expense of $1.1 million .

Also, on December 22, 2017, the U.S. Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 118 (SAB 118) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the TCJA in situations where a registrant did not have the necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB 118 allowed for a measurement period not to extend beyond one year from the TCJA's enactment date to complete the necessary accounting.

The Corporation recorded provisional amounts of deferred income taxes using reasonable estimates in four areas where information necessary to complete the accounting was not available, prepared, or analyzed: 1) the Corporation's deferred tax liability for temporary differences between the tax and financial reporting basis of fixed assets is principally due to the accelerated depreciation under the TCJA which allows for full expensing of qualified property purchased and placed in service after September 27, 2017; 2) the Corporation's deferred tax asset for temporary differences associated with accrued compensation was awaiting final determinations of amounts that will be paid and deducted on the 2017 income tax returns; 3) the Corporation's deferred tax liability for temporary differences associated with equity investments in partnerships was awaiting receipt of Schedules K-1 from outside preparers, which was necessary to determine the 2017 tax impact from these investments; and 4) the Corporation's deferred tax liability for temporary differences related to its qualified pension plan is based upon actuarial reports from the Corporation's third party provider. However, the Corporation was still in the process of determining if a contribution related to the 2017 plan year was going to be made.

The Corporation did not make any adjustments to deferred tax assets, representing future deductions for accrued compensation that may be subject to new limitations under Internal Revenue Code Section 162(m) which, generally, limits the annual deduction for certain compensation paid to certain employees to $1.0 million. There was uncertainty in applying the newly-enacted rules to existing contracts, and the Corporation was seeking further clarifications before completing its analysis.

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The Corporation completed the calculations of the provisional items above with the completion of the 2017 tax returns. The impact of the completed calculations to the re-measurement of the Corporation's net deferred tax asset resulted in an income tax benefit of $300 thousand which the Corporation recorded in 2018.

Retained earnings include $6.0 million at December 31, 2018 , 2017 and 2016 , which was originally generated by Fox Chase Bank (acquired in 2016), for which no provision for federal income tax has been made. This amount represents deductions for bad debt reserves for tax purposes, which were only allowed to savings institutions that met certain criteria prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Small Business Job Protection Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Corporation pays a cash dividend in excess of cumulative retained earnings or liquidates.

At December 31, 2018 and 2017 , the Corporation had no unrecognized tax benefits or accrued interest and penalties recorded. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. Interest and penalties are recorded in noninterest expense in the year they are assessed. For tax purposes, interest is treated as a deductible expense and penalties are treated as a non-deductible expense.

The Corporation and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of Pennsylvania and various other state and local jurisdictions. The Corporation and its subsidiaries are generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2015 .

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred state taxes are combined with federal deferred taxes (net of the impact of deferred state tax on the deferred federal tax) and are shown in the table below by major category.

The Corporation has a state net operating loss carry-forward of $59.8 million which will begin to expire after 2019 if not utilized. A valuation allowance at December 31, 2018 and 2017 was attributable to deferred tax assets generated in certain state jurisdictions for which management believes it is more likely than not that such deferred tax assets will not be realized. Other than the valuation allowance on certain state deferred tax assets, management has determined that no additional valuation allowance is necessary for deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing temporary differences and through future taxable income. The Corporation will continue to review the criteria related to the recognition of deferred tax assets on a regular basis.

The assets and liabilities giving rise to the Corporation’s deferred tax assets and liabilities are as follows:



	At December 31,
(Dollars in thousands)	2018			2017
Deferred tax assets:
Allowance for loan and lease losses	$	6,410		$	4,643
Deferred compensation	1,734			2,110
Actuarial adjustments on retirement benefits*	4,592			4,432
State net operating losses	4,730			4,166
Other-than-temporary impairments on equity securities	148			148
Net unrealized holding losses on securities available-for-sale and swaps*	2,968			1,316
Other deferred tax assets	1,368			1,243
Gross deferred tax assets	21,950			18,058
Valuation allowance	(3,830		)	(3,523		)
Total deferred tax assets, net of valuation allowance	18,120			14,535
Deferred tax liabilities:
Mortgage servicing rights	1,463			1,415
Retirement plans	5,263			4,304
Deferred loan fees and costs	1,163			2,614
Acquisition-related fair value adjustments	1,605			1,621
Intangible assets	1,987			1,513
Accounting method change adjustment	1,154			—
Depreciation	937			1,102
Other deferred tax liabilities	963			792
Total deferred tax liabilities	14,535			13,361
Net deferred tax assets	$	3,585		$	1,174

* Represents the amount of deferred taxes recorded in accumulated other comprehensive income.

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Note 12. Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law. These plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants and all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

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

The Corporation sponsors a 401(k) deferred salary savings plan, which is a qualified defined contribution plan, and which covers all employees of the Corporation and its subsidiaries, and provides that the Corporation makes matching contributions as defined by the plan. Expense recorded by the Corporation for the 401(k) deferred salary savings plan for the years ended December 31, 2018 , 2017 and 2016 was $1.4 million , $1.4 million , and $1.2 million , respectively.

The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP), which was established in 1981 prior to the existence of the 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants. All current participants are now retired. Expense recorded by the Corporation for the SNQPP for the years ended December 31, 2018 , 2017 and 2016 was $215 thousand , $222 thousand and $52 thousand , respectively.

Information with respect to the Retirement Plans and Other Postretirement Benefits follows:



	Retirement Plans						Other Postretirement Benefits
(Dollars in thousands)	2018			2017			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	50,364		$	47,389		$	2,611		$	2,968
Service cost	560			524			88			48
Interest cost	1,760			1,927			92			118
Actuarial (gain) loss	(3,205		)	3,169			(404		)	(409		)
Benefits paid	(2,611		)	(2,645		)	(104		)	(114		)
Benefit obligation at end of year	$	46,868		$	50,364		$	2,283		$	2,611

Change in plan assets:
Fair value of plan assets at beginning of year	$	46,753		$	41,418		$	—		$	—
Actual (loss) return on plan assets	(1,923		)	5,799			—			—
Benefits paid	(2,611		)	(2,645		)	(104		)	(114		)
Employer contribution and non-qualified benefit payments	3,160			2,181			104			114
Fair value of plan assets at end of year	$	45,379		$	46,753		$	—		$	—
Funded status	(1,489		)	(3,611		)	(2,283		)	(2,611		)
Unrecognized net actuarial loss (gain)	22,141			21,256			(92		)	316
Unrecognized prior service costs	(181		)	(464		)	—			—
Net amount recognized	$	20,471		$	17,181		$	(2,375	)	$	(2,295	)

The fair value of pension plan assets exceeded the accumulated benefit obligation at December 31, 2018 and 2017.

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Components of net periodic benefit cost were as follows:



	Retirement Plans									Other Post Retirement Benefits
(Dollars in thousands)	2018			2017			2016			2018		2017		2016
Service cost	$	560		$	524		$	661		$	88	$	48	$	46
Interest cost	1,760			1,927			2,071			92		118		133
Expected (loss) return on plan assets	(3,287		)	(3,074		)	(3,041		)	—		—		—
Amortization of net actuarial loss	1,120			1,185			1,296			4		42		25
Accretion of prior service cost	(283		)	(282		)	(283		)	—		—		—
Settlement cost	—			—			1,434			—		—		—
Net periodic benefit (income) cost	$	(130	)	$	280		$	2,138		$	184	$	208	$	204

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

In the fourth quarter of 2016, the Corporation offered to vested participants in the pension plan, who were no longer employees, the option of a one-time lump-sum payment in lieu of any future benefits that would have been payable from the plan. As a result, lump-sum payments from the plan were $3.2 million and exceeded the service cost and interest cost for the year triggering a settlement. The settlement was measured as of December 31, 2016 because the majority of lump sum payments occurred during December 2016. The settlement cost was $1.4 million . The amount represents a reclassification of accumulated other comprehensive income to pension expense (included in other noninterest expense in the statement of income) and had no impact on shareholders' equity.



(Dollars in thousands)	Retirement Plans			Other Postretirement Benefits
Expected amortization expense for 2019 :
Amortization of net actuarial loss	$	1,175		$	—
Accretion of prior service cost	(181		)	—

During 2019 , the Corporation expects to contribute approximately $157 thousand to the Retirement Plans and approximately $89 thousand to Other Postretirement Benefits.

The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid:



(Dollars in thousands)	Retirement Plans		Other Postretirement Benefits
For the fiscal year ending:
2019	$	2,836	$	89
2020	2,839		90
2021	2,892		92
2022	2,898		94
2023	2,964		97
Years 2024-2028	14,946		540

Weighted-average assumptions used to determine benefit obligations at December 31, 2018 and 2017 were as follows:



	Retirement Plans				Other Postretirement Benefits
	2018		2017		2018		2017
Assumed discount rate	4.2	%	3.6	%	4.2	%	3.6	%
Assumed salary increase rate	3.0		3.0		—		—

The benefit obligation for all plans at December 31, 2018 was based on the RP-2014 mortality table using the projection scale MP-2018 published by the Society of Actuaries.

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Weighted-average assumptions used to determine net periodic costs for the years ended December 31, 2018 and 2017 were as follows. The discount rate was determined utilizing the FTSE Pension Discount Curve. Historical investment returns is the basis used to determine the overall expected long-term rate of return on assets.



	Retirement Plans				Other Postretirement Benefits
	2018		2017		2018		2017
Assumed discount rate	3.6	%	4.0	%	3.6	%	4.0	%
Assumed long-term rate of investment return	7.0		7.5		—		—
Assumed salary increase rate	3.0		3.0		—		—

The Corporation's pension plan asset allocation at December 31, 2018 and 2017 , by asset category was as follows:



	Percentage of Plan Assets at December 31,
	2018		2017
Asset Category:
Equity securities	60	%	64	%
Debt securities	39		35
Other	1		1
Total	100	%	100	%

Plan assets include marketable equity securities, corporate and government debt securities, and certificates of deposit. The investment strategy is to keep a 60% equity to 40% fixed income mix to achieve the overall expected long-term rate of return of 7.0% . Equity securities do not include any common stock of the Corporation.

The major categories of assets in the Corporation’s pension plan at year-end are presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy described in Note 17, “Fair Value Disclosures.”



	Fair Value Measurements at December 31,
(Dollars in thousands)	2018		2017
Level 1:
Mutual funds	$	28,360	$	31,144
Short-term investments	666		515
Level 2:
U.S. government obligations	6,167		4,910
Corporate bonds	6,031		5,974
Level 3:
Certificates of deposit	4,155		4,210
Total fair value of plan assets	$	45,379	$	46,753

The following table provides a reconciliation of the beginning and ending balances for measurements in hierarchy Level 3 at December 31, 2018 and 2017 :



(Dollars in thousands)	Balance at December 31, 2017		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2018
Certificates of deposit	$	4,210	$	—	$	—	$	845	$	(900	)	$	4,155
Total Level 3 assets	$	4,210	$	—	$	—	$	845	$	(900	)	$	4,155

(Dollars in thousands)	Balance at December 31, 2016		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2017
Certificates of deposit	$	4,565	$	—	$	—	$	535	$	(890	)	$	4,210
Total Level 3 assets	$	4,565	$	—	$	—	$	535	$	(890	)	$	4,210

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Note 13. Stock-Based Incentive Plan

The Corporation has a shareholder approved 2013 Long-Term Incentive Plan, which replaced the expired 2003 Long-Term Incentive Plan. Under the 2013 Long-Term Incentive Plan, the Corporation may grant up to 3,698,974 options and restricted stock to employees and non-employee directors, which includes 330,625 shares as a result of the Corporation's common stock issuance in 2017, 857,191 shares as a result of the completion of the acquisition of Fox Chase in 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank in 2015. The number of shares of common stock available for issuance under the plan is subject to adjustment, as described in the plan. This includes, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the stock, substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the plan, in the number and option price of shares subject to outstanding options granted under the plan and in the number and price of shares subject to other awards, as described in the plan. The plan provides for the issuance of options to purchase common shares at prices not less than 100 percent of the fair market value on the date of option grant and have a contractual term of ten years ; and for restricted stock awards valued at not less than 100 percent of the fair market value at the date of award grant. The options issued in 2018 become exercisable and vest at 33.3 percent per year for each of the following three years and remain exercisable for a period not exceeding ten years from the date of grant. For the majority of the restricted stock awards, the shares vest based upon the Corporation’s performance with respect to certain financial measures over a three -year period. There were 2,631,983 share awards available for future grants at December 31, 2018 under the plan. At December 31, 2018 , there were 597,405 options to purchase common stock and 157,579 unvested restricted stock awards outstanding under the plan.

In December 2018, the Corporation's Board of Directors approved an Amended and Restated Univest 2013 Long-Term Incentive Plan to allow for the issuance of restricted stock units.

The following is a summary of the Corporation’s stock option activity and related information for the year ended December 31, 2018 :



(Dollars in thousands, except per share data)	Shares Under Option		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value at December 31, 2018
Outstanding at December 31, 2017	512,735		$	21.90
Granted	190,778		28.50
Expired	(6,356	)	24.61
Forfeited	(40,002	)	26.29
Exercised	(59,750	)	18.92
Outstanding at December 31, 2018	597,405		23.98		7.2	$	820
Exercisable at December 31, 2018	253,175		20.36		5.5	670

The following is a summary of nonvested stock options at December 31, 2018 including changes during the year:



(Dollars in thousands, except per share data)	Nonvested Stock Options		Weighted Average Grant Date Fair Value
Nonvested stock options at December 31, 2017	352,142		$	6.47
Granted	190,778		6.46
Vested	(158,688	)	6.43
Forfeited	(40,002	)	6.49
Nonvested stock options at December 31, 2018	344,230		6.48

The Corporation's estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee turnover. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury strip rate in effect at the time of grant. Expected volatility is based on the historical volatility of the Corporation’s stock over the expected life of the grant. The Corporation uses a straight-line accrual method to recognize stock-based compensation expense over the time-period it expects the options to vest.

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The Corporation recognizes compensation expense for stock options over the requisite service period based on the grant-date fair value of the awards. The Corporation records forfeitures as they occur. The following aggregated assumptions were used to estimate the fair value of options granted for the periods indicated:



	For the Years Ended December 31,
	2018		2017		2016
	Actual		Actual		Range			Weighted Average
Expected option life in years	6.6		6.9		7.6	-	8.2	7.9
Risk free interest rate	2.80	%	2.30	%	1.38%	-	1.89%	1.87	%
Expected dividend yield	2.81	%	2.84	%	3.80%	-	4.19%	4.06	%
Expected volatility	27.15	%	29.75	%	37.71%	-	46.22%	45.82	%
Fair value of options	$6.46		$6.72		$5.40	-	$6.27	$6.23

The following is a summary of nonvested restricted stock awards at December 31, 2018 including changes during the year:



(Dollars in thousands, except per share data)	Nonvested Share Awards		Weighted Average Grant Date Fair Value
Nonvested share awards at December 31, 2017	229,026		$	21.93
Granted	59,953		28.39
Vested	(97,201	)	20.13
Forfeited	(34,199	)	22.73
Nonvested share awards at December 31, 2018	157,579		25.33

The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock is summarized below for the periods indicated:



(Dollars in thousands, except per share data)	For the Years Ended December 31,
	2018		2017		2016
Shares granted	59,953		61,823		176,255
Weighted average grant date fair value	$	28.39	$	28.08	$	20.60
Intrinsic value of awards vested	$	2,709	$	2,954	$	1,000

The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested stock options and nonvested restricted stock awards at December 31, 2018 is presented below:



(Dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Stock options	$	1,222	1.8
Restricted stock awards	1,601		1.7
	$	2,823	1.7

The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:



	For the Years Ended December 31,
(Dollars in thousands)	2018		2017		2016
Stock-based compensation expense:
Stock options	$	1,020	$	910	$	577
Restricted stock awards	1,537		2,256		1,507
Employee stock purchase plan	68		64		67
Total	$	2,625	$	3,230	$	2,151
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options	$	620	$	1,432	$	1,135

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There were no significant modifications or accelerations to options or restricted stock awards during the period 2016 through 2018 . The Corporation typically issues shares for stock option exercises and grants of restricted stock awards from its treasury stock.

Note 14. Accumulated Other Comprehensive Loss

The following table shows the components of accumulated other comprehensive loss, net of tax benefit, for the periods presented:



(Dollars in thousands)	Net Unrealized (Losses) Gains on Available-for-Sale Investment Securities			Net Change Related to Derivatives Used for Cash Flow Hedges			Net Change Related to Defined Benefit Pension Plans			Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2015	$	(592	)	$	(285	)	$	(15,831	)	$	(16,708	)
Net Change	(4,396		)	144			1,506			(2,746		)
Balance, December 31, 2016	(4,988		)	(141		)	(14,325		)	(19,454		)
Net Change	927			150			606			1,683
Balance, December 31, 2017	(4,061		)	9			(13,719		)	(17,771		)

Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value (1)	(433		)	—			—			(433		)
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges (1)	(968		)	2			(2,955		)	(3,921		)
Other comprehensive (loss) income	(5,759		)	70			(602		)	(6,291		)
Balance, December 31, 2018	$	(11,221	)	$	81		$	(17,276	)	$	(28,416	)

(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2018" for additional information.

Note 15. Commitments and Contingencies

Lending Operations

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. The Bank offers commercial, mortgage, and consumer credit products to customers in the normal course of business, which are detailed in Note 5. These products result in a diversified credit portfolio and are generally issued to borrowers within the Bank’s market area. Financial instruments with off-balance sheet risk include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated balance sheets.

The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Collateral is obtained based on management’s credit assessment of the customer.

Standby letters of credit and performance letters of credit commit the Bank to make payments on behalf of customers when certain specified future events occur. They are primarily issued to support commercial paper, medium and long-term notes and debentures, including industrial revenue obligations. The approximate term is usually one year but some can be up to five years . Historically, substantially all standby letters of credit expire unfunded. If funded, the majority of the letters of credit carry current market interest rates if converted to loans. Because letters of credit are generally un-assignable by either the Bank or the borrower, they only have value to the Bank and the borrower. The carrying amount is recorded as unamortized deferred fees and the exposure is considered in the reserve for credit risk. At December 31, 2018 , the maximum potential amount of future payments under letters of credit is $61.2 million . The current carrying amount of the contingent obligation is $289 thousand . This arrangement has credit risk essentially the same as that involved in extending loans to customers and is subject to the Bank’s normal credit policies. Collateral is obtained based on management’s credit assessment of the customer.

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The following schedule summarizes the Corporation’s off-balance sheet financial instruments at December 31, 2018 :



(Dollars in thousands)	Contract/Notional Amount
Financial instruments representing credit risk:
Commitments to extend credit	$	1,276,745
Performance letters of credit	31,039
Financial standby letters of credit	29,743
Other letters of credit	410

The Bank maintains a reserve in other liabilities for estimated losses associated with sold mortgages that may be repurchased. At December 31, 2018 , the reserve for sold mortgages was $299 thousand .

Legal Proceedings

Operating Leases

At December 31, 2018 , the Corporation and its subsidiaries were obligated under non-cancelable leases for various premises. A summary of the future minimum rental commitments under non-cancelable operating leases with original or remaining terms greater than one year is as follows:



(Dollars in thousands)
Year	Amount
2019	$	3,536
2020	3,632
2021	3,688
2022	3,660
2023	3,610
Thereafter	37,389
Total	$	55,515

Service Contracts

At December 31, 2018 , the Corporation had contracts with third-party providers to manage the Corporation's network operations, data processing and other related services. The projected amount of the Corporation's future minimum payments due for contracts with original or remaining terms greater than one year is as follows:



(Dollars in thousands)
Year	Amount
2019	$	5,421
2020	4,288
2021	3,478
2022	1,250
2023	406
Thereafter	79
Total	$	14,922

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Note 16. Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Corporation may use 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. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk, adjusts the carrying amount of the hedge item and is recognized in earnings.

In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10 -year fixed rate loans with balances totaling $29.1 million , at time of the hedge, that were originated in 2013. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. The Corporation recorded ineffectiveness in other noninterest income of $83 thousand on the interest rate swap in 2018. At December 31, 2018 , approximately $62 thousand in net deferred losses, net of tax, recorded in accumulated other comprehensive loss are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to December 31, 2018 . At December 31, 2018 , the notional amount of the interest rate swap was $17.1 million , with a positive fair value of $185 thousand .

The Corporation has an interest rate swap classified as a fair value hedge with a current notional amount of $1.3 million to hedge a 10 -year fixed rate loan that is earning interest at 5.83% . The Corporation pays a fixed rate of 5.83% and receives a floating rate based on the one-month LIBOR plus 350 basis points. The swap matures in October 2021. The difference between changes in the fair values of the interest rate swap agreement and the hedged loan represents hedge ineffectiveness and is recorded in other noninterest income in the consolidated statements of operations.

The Corporation has an interest rate swap with a current notional amount of $418 thousand , for a 15 -year fixed rate loan that is earning interest at 7.43% . The Corporation pays a fixed rate of 7.43% and receives a floating rate based on the one-month LIBOR plus 224 basis points. The swap matures in April 2022. The interest rate swap is carried at fair value in accordance with FASB ASC 815 "Derivatives and Hedging." The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 "Financial Instruments."

Credit Derivatives

The Corporation has agreements with third-party financial institutions whereby the third-party financial institution enters into interest rate derivative contracts with loan customers referred to them by the Corporation. By the terms of the agreements, the third-party financial institution has recourse to the Corporation for any exposure created under each swap contract in the event the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. These transactions represent credit derivatives and are a customary arrangement that allows the Corporation to provide access to interest rate transactions for customers without creating the swap. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of income.

At December 31, 2018 , the Corporation has nineteen variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $122.4 million and remaining maturities ranging from one to 10 years. At December 31, 2018 , the fair value of the swaps to the customers was a liability of $72 thousand and $59.6 million of notional amount of the swaps were in paying positions while $62.8 million are in a receiving position to the third-party financial institution.

The maximum potential payments by the Corporation to the third-party financial institution under these credit derivatives are not estimable as they are contingent on future interest rates and exchange 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. The fair values of these derivative loan commitments 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.

Derivatives Tables

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at December 31, 2018 and 2017 . The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.



			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At December 31, 2018
Interest rate swap - cash flow hedge	$	17,076	Other assets	$	185		$	—
Interest rate swap - fair value hedge	1,346		Other assets	4			—
Total	$	18,422		$	189		$	—
At December 31, 2017
Interest rate swap - cash flow hedge	$	17,836	Other assets	$	13		$	—
Interest rate swap - fair value hedge	1,388			—		Other liabilities	12
Total	$	19,224		$	13		$	12

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at December 31, 2018 and 2017 :



			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At December 31, 2018
Interest rate swap	$	418		$	—	Other liabilities	$	20
Credit derivatives	122,410			—		Other liabilities	72
Interest rate locks with customers	21,494		Other assets	490			—
Forward loan sale commitments	23,227			—		Other liabilities	150
Total	$	167,549		$	490		$	242
At December 31, 2017
Interest rate swap	$	523		$	—	Other liabilities	$	38
Credit derivatives	75,622			—		Other liabilities	36
Interest rate locks with customers	27,411		Other assets	527			—
Forward loan sale commitments	29,037		Other assets	61			—
Total	$	132,593		$	588		$	74

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The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:



	Statement of Income Classification	For the Years Ended December 31,
(Dollars in thousands)	Statement of Income Classification	2018		2017			2016
Interest rate swap—cash flow hedge—net interest payments	Interest expense	$	15	$	182		$	308
Interest rate swap—cash flow hedge—ineffectiveness	Other noninterest income	83		—			—
Interest rate swap—fair value hedge—ineffectiveness	Other noninterest income	3		7			9
Total net gain (loss)		$	71	$	(175	)	$	(299	)

The following table presents amounts included in the consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:



	Statement of Income Classification	For the Years Ended December 31,
(Dollars in thousands)	Statement of Income Classification	2018			2017			2016
Credit derivatives	Other noninterest income	$	262		$	403		$	93
Interest rate locks with customers	Net loss on mortgage banking activities	(37		)	(274		)	(288		)
Forward loan sale commitments	Net (loss) gain on mortgage banking activities	(211		)	(196		)	359
Total net gain (loss)		$	14		$	(67	)	$	164

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at December 31, 2018 and 2017 :



	Accumulated Other Comprehensive Income	At December 31,
(Dollars in thousands)	Accumulated Other Comprehensive Income	2018		2017
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	80	$	9
Total		$	80	$	9

Note 17. 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 period.

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.

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Investment Securities

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

Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation’s independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing service’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does have not 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.

Certain corporate bonds owned by the Corporation are classified as Level 3 as they are not traded in active markets. The fair value of each bond is estimated by benchmarking similar transactions of structure, yield and credit which are owned by the Corporation and are actively traded in the market.

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 December 31, 2018 .

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.

Two commercial loans, associated with interest rate swaps are classified in Level 3 of the valuation hierarchy since lending credit risk is not an observable input for these loans. The unrealized gain on the two loans was $21 thousand at December 31, 2018 .

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 December 31, 2018 and 2017 , classified using the fair value hierarchy:



	At December 31, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies	$	—	$	15,315	$	—	$	15,315
State and political subdivisions	—		65,415		—		65,415
Residential mortgage-backed securities	—		151,762		—		151,762
Collateralized mortgage obligations	—		2,888		—		2,888
Corporate bonds	—		67,398		25,729		93,127
Total available-for-sale securities	—		302,778		25,729		328,507
Equity securities:
Equity securities - financial services industry	924		—		—		924
Money market mutual funds	1,241		—		—		1,241
Total equity securities	2,165		—		—		2,165
Loans*	—		—		1,779		1,779
Interest rate swaps*	—		189		—		189
Interest rate locks with customers*	—		490		—		490
Total assets	$	2,165	$	303,457	$	27,508	$	333,130
Liabilities:
Contingent consideration liability	$	—	$	—	$	259	$	259
Interest rate swaps*	—		20		—		20
Credit derivatives*	—		—		72		72
Forward loan sale commitments*	—		150		—		150
Total liabilities	$	—	$	170	$	331	$	501



	At December 31, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/ Liabilities at Fair Value
Assets:
Available-for-sale securities:
U.S. government corporations and agencies	$	—	$	16,961	$	—	$	16,961
State and political subdivisions	—		78,297		—		78,297
Residential mortgage-backed securities	—		185,421		—		185,421
Collateralized mortgage obligations	—		3,602		—		3,602
Corporate bonds	—		79,190		27,986		107,176
Total available-for-sale securities	—		363,471		27,986		391,457
Equity securities:
Equity securities - financial services industry	1,076		—		—		1,076
Money market mutual funds	5,985		—		—		5,985
Total equity securities	7,061		—		—		7,061
Loans*	—		—		1,958		1,958
Interest rate swaps*	—		13		—		13
Interest rate locks with customers*	—		527		—		527
Forward loan sale commitments*	—		61		—		61
Total assets	$	7,061	$	364,072	$	29,944	$	401,077
Liabilities:
Contingent consideration liability	$	—	$	—	$	339	$	339
Interest rate swaps*	—		50		—		50
Credit derivatives*	—		—		36		36
Total liabilities	$	—	$	50	$	375	$	425

*Such financial instruments are recorded at fair value as further described in Note 16, "Derivative Instruments and Hedging Activities."

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The following table includes a rollforward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for year ended December 31, 2018 and 2017 .



	For the Year Ended December 31, 2018
(Dollars in thousands)	Balance at December 31, 2017			Purchases/additions			Sales		Payments received			Premium amortization, net		(Decrease) increase in value			Balance at December 31, 2018
Corporate bonds	$	27,986		$	—		$	—	$	—		$	—	$	(2,257	)	$	25,729
Loans	1,958			—			—		(148		)	—		(31		)	1,779
Credit derivatives	(36		)	(299		)	—		—			—		263			(72		)
Net total	$	29,908		$	(299	)	$	—	$	(148	)	$	—	$	(2,025	)	$	27,436



	For the Year Ended December 31, 2017
(Dollars in thousands)	Balance at December 31, 2016			Purchases/additions			Sales		Payments received			Premium amortization, net		(Decrease) increase in value			Balance at December 31, 2017
Corporate bonds	$	28,778		$	—		$	—	$	—		$	—	$	(792	)	$	27,986
Loans	2,138			—			—		(137		)	—		(43		)	1,958
Credit derivatives	(9		)	(430		)	—		—			—		403			(36		)
Net total	$	30,907		$	(430	)	$	—	$	(137	)	$	—	$	(432	)	$	29,908

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 years ended December 31, 2018 and 2017 :



	For the Year Ended December 31, 2018
(Dollars in thousands)	Balance at December 31, 2017		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration		Balance at December 31, 2018
Girard Partners	$	339	—		131		51		$	259
Total contingent consideration liability	$	339	$	—	$	131	$	51	$	259



	For the Year Ended December 31, 2017
(Dollars in thousands)	Balance at December 31, 2016		Contingent Consideration from New Acquisition		Payment of Contingent Consideration		Adjustment of Contingent Consideration			Balance at December 31, 2017
Sterner Insurance Associates	$	331	$	—	$	30	$	(301	)	$	—
Girard Partners	5,668		—		5,383		54			339
Total contingent consideration liability	$	5,999	$	—	$	5,413	$	(247	)	$	339

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 impairment charges of individual assets. The following table represents assets measured at fair value on a non-recurring basis at December 31, 2018 and 2017 :



	At December 31, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment	$	—	$	—	$	25,166	$	25,166
Other real estate owned	—		—		1,187		1,187
Total	$	—	$	—	$	26,353	$	26,353

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	At December 31, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets at Fair Value
Impaired loans held for investment	$	—	$	—	$	28,351	$	28,351
Impaired leases held for investment	—		—		1,250		1,250
Other real estate owned	—		—		1,843		1,843
Total	$	—	$	—	$	31,444	$	31,444

The following table presents assets and liabilities and off-balance sheet items not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required to be disclosed at December 31, 2018 and 2017 . The disclosed fair values are classified using the fair value hierarchy.



	At December 31, 2018
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	109,420	$	—		$	—	$	109,420		$	109,420
Held-to-maturity securities	—		141,575			—		141,575			142,634
Federal Home Loan Bank, Federal Reserve Bank and other stock	N/A		N/A			N/A		N/A			28,337
Loans held for sale	—		1,798			—		1,798			1,754
Net loans and leases held for investment	—		—			3,924,329		3,924,329			3,950,265
Servicing rights	—		—			11,496		11,496			6,768
Total assets	$	109,420	$	143,373		$	3,935,825	$	4,188,618		$	4,239,178
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	3,215,856	$	—		$	—	$	3,215,856		$	3,215,856
Time deposits	—		664,738			—		664,738			670,077
Total deposits	3,215,856		664,738			—		3,880,594			3,885,933
Short-term borrowings	—		189,768			—		189,768			189,768
Long-term debt	—		144,021			—		144,021			145,330
Subordinated notes	—		95,113			—		95,113			94,574
Total liabilities	$	3,215,856	$	1,093,640		$	—	$	4,309,496		$	4,315,605
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(2,516	)	$	—	$	(2,516	)	$	—



	At December 31, 2017
(Dollars in thousands)	Level 1		Level 2			Level 3		Fair Value			Carrying Amount
Assets:
Cash and short-term interest-earning assets	$	75,409	$	—		$	—	$	75,409		$	75,409
Held-to-maturity securities	—		55,320			—		55,320			55,564
Federal Home Loan Bank, Federal Reserve Bank and other stock	N/A		N/A			N/A		N/A			27,204
Loans held for sale	—		1,676			—		1,676			1,642
Net loans and leases held for investment	—		—			3,547,451		3,547,451			3,566,953
Servicing rights	—		—			10,046		10,046			6,573
Total assets	$	75,409	$	56,996		$	3,557,497	$	3,689,902		$	3,733,345
Liabilities:
Deposits:
Demand and savings deposits, non-maturity	$	2,980,170	$	—		$	—	$	2,980,170		$	2,980,170
Time deposits	—		574,737			—		574,737			574,749
Total deposits	2,980,170		574,737			—		3,554,907			3,554,919
Short-term borrowings	—		105,431			—		105,431			105,431
Long-term debt	—		156,834			—		156,834			155,828
Subordinated notes	—		98,075			—		98,075			94,331
Total liabilities	$	2,980,170	$	935,077		$	—	$	3,915,247		$	3,910,509
Off-Balance-Sheet:
Commitments to extend credit	$	—	$	(2,414	)	$	—	$	(2,414	)	$	—

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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 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, federal funds sold 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: The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. Loans held for sale are carried at the lower of cost or estimated fair value. There were no valuation adjustments for loans held for sale at December 31, 2018 and 2017 .

Loans and leases held for investment: As of December 31, 2018 , the fair values for loans and leases held for investment are estimated using discounted cash flow analysis, 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. As of December 31, 2017 , the fair values for loans and leases held for investment were estimated using discounted cash flow analysis, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers and included components for credit risk, operating expense and embedded prepayment options. An overall valuation adjustment was made for specific credit risks in addition to general portfolio risk and is significant to the valuation. Loans and leases are classified within Level 3 in the fair value hierarchy since credit risk is not an observable input.

Impaired loans and leases held for investment: For impaired 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 December 31, 2018 , impaired loans held for investment had a carrying amount of $26.6 million with a valuation allowance of $1.4 million . At December 31, 2017 , impaired loans held for investment had a carrying amount of $28.5 million with a valuation allowance of $131 thousand . The Corporation had no impaired leases at December 31, 2018 .The Corporation had impaired leases of $1.3 million with no reserve at December 31, 2017 .

Servicing rights: The Corporation estimates the fair value of mortgage 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. Mortgage servicing rights are classified within Level 3 in the fair value hierarchy based upon management’s assessment of the inputs. The Corporation reviews the mortgage servicing rights portfolio on a quarterly basis for impairment and the mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. The Corporation also records servicing rights on small business administration (SBA) loans. At December 31, 2018 and December 31, 2017 , servicing rights had a carrying amount of $6.8 million and $6.6 million , respectively, with no valuation allowance.

Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill during the fourth quarter of 2018 and determined it was more likely than not that the fair value of the Corporation, including each of the identified reporting units, was more than its carrying amount; therefore, the Corporation did not need to perform the two-step impairment test for the Corporation or the reporting units. The Corporation also completed an impairment test for other intangible assets during the fourth quarter of 2018 . There was no impairment of goodwill or identifiable intangibles recorded.

Other real estate owned: The fair value of other real estate owned (OREO) is originally estimated based upon the appraised value less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. Subsequently, OREO is reported at the lower of the original cost or the current fair value less cost to sell. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the capitalized expenses may not increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost

100

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to sell. New appraisals are generally obtained on an annual basis if an agreement of sale does not exist. During 2018 , five properties had write-downs totaling $693 thousand , four properties were transferred into OREO with a fair value of $ 477 thousand and four properties were sold with total proceeds of $490 thousand for a net gain of $67 thousand . At December 31, 2018 and 2017 , OREO had a carrying amount of $1.2 million and $1.8 million , respectively. Other real estate owned is classified within Level 3 of the valuation hierarchy due to the unique characteristics of the collateral for each loan.

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 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.

Off-balance-sheet instruments: Fair values for the Corporation’s off-balance-sheet instruments are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing and are classified within Level 2 in the fair value hierarchy.

Note 18. Restructuring Charges

During January 2018, the Corporation announced the closure of two owned financial centers and one leased financial center and reduced staff associated with these financial centers, resulting in accruing a loss of $571 thousand related to the Banking business segment. These financial centers were closed in April 2018. The remaining accrued restructuring expense at January 1, 2018 of $23 thousand related to 2016 restructuring charges.

A roll-forward of the remaining accrued restructuring expense is as follows:



(Dollars in thousands)	Severance expenses			Write-downs and retirements of fixed assets			Lease cancellations			Total
Accrued at January 1, 2018	$	—		$	—		$	23		$	23
Restructuring charges	366			48			157			571
Payments	(344		)	—			(172		)	(516		)
Non-cash settlement	—			(48		)	—			(48		)
Accrued at December 31, 2018	$	22		$	—		$	8		$	30

Note 19. Share Repurchase Plan

On October 23, 2013, the Corporation’s Board of Directors approved a stock repurchase plan for the repurchase of up to 800,000 shares of common stock, or approximately 5% of the shares outstanding. On May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares in the common shares available for repurchase under the Corporation's share repurchase program, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. During the years ended December 31, 2018 , 2017 and 2016 , the Corporation repurchased 150,000 , 0 and 66,000 shares of common stock at a cost of $3.6 million , $ 0.0 million and $1.4 million , respectively, under the share repurchase program. Shares available for future repurchases under the plan totaled 864,246 at December 31, 2018 . Total shares outstanding at December 31, 2018 were 29,270,852 . At December 31, 2018 , the aggregate purchases recorded as treasury stock, at cost, on the Corporation's consolidated balance sheet was $45.8 million . The Corporation will repurchase shares of its common stock from time to time through open market purchases, tender offers, privately negotiated purchases or other means based on general market conditions, the trading price of the Corporation's common stock, tax considerations, alternative uses of capital and the Corporation's results of operation. The share repurchase program does not obligate the Corporation to acquire any particular amount of common stock. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

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Note 20. Regulatory Matters

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements. Capital adequacy guidelines, and additionally for the Bank the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total capital, Tier 1 capital and Tier 1 common capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), or leverage ratio.

The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules, primarily relating to regulatory deductions and adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a four -year period beginning January 1, 2015 . Under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. During 2019, the Corporation and the Bank must hold a capital conservation buffer greater than 2.50% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer which would require Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50% beginning in the first quarter of 2019.

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The Corporation's and Bank's actual and required capital ratios as of December 31, 2018 and December 31, 2017 under regulatory capital rules were as follows.



(Dollars in thousands)	Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At December 31, 2018
Total Capital (to Risk-Weighted Assets):
Corporation	$	604,213	13.70	%	$	352,764	8.00	%	$	440,955	10.00	%
Bank	506,728		11.54		351,220		8.00		439,026		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	479,550		10.88		264,573		6.00		352,764		8.00
Bank	476,639		10.86		263,415		6.00		351,220		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	479,550		10.88		198,430		4.50		286,621		6.50
Bank	476,639		10.86		197,561		4.50		285,367		6.50
Tier 1 Capital (to Average Assets):
Corporation	479,550		10.13		189,374		4.00		236,718		5.00
Bank	476,639		10.12		188,487		4.00		235,609		5.00
At December 31, 2017
Total Capital (to Risk-Weighted Assets):
Corporation	$	563,797	14.00	%	$	322,148	8.00	%	$	402,685	10.00	%
Bank	464,851		11.62		320,003		8.00		400,004		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	447,228		11.11		241,611		6.00		322,148		8.00
Bank	442,613		11.07		240,002		6.00		320,003		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	447,228		11.11		181,208		4.50		261,745		6.50
Bank	442,613		11.07		180,002		4.50		260,002		6.50
Tier 1 Capital (to Average Assets):
Corporation	447,228		10.48		170,753		4.00		213,441		5.00
Bank	442,613		10.45		169,453		4.00		211,816		5.00

At December 31, 2018 and December 31, 2017 , management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. The Corporation, like other bank holding companies, currently is required to maintain Tier 1 Capital and Total Capital equal to at least 6.0% and 8.0% , respectively, of its total risk-weighted assets (including various off-balance-sheet items). The Bank, like other depository institutions, is required to maintain similar capital levels under capital adequacy guidelines. During 2018, the Corporation and the Bank was required to hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 1.875% of total risk-weighted assets in order to avoid limitations on capital distributions. For a depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective action, Tier 1 and Total Capital ratios must be at least 8.0% and 10.0% on a risk-adjusted basis, respectively. At December 31, 2018 , the Bank is categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the Bank’s category. The Corporation will continue to analyze the impact of the phase in of the capital conservation buffer as well as the impact on new accounting rules, such as Lease Accounting (ASU No. 2016-02) and CECL (ASU No. 2016-13) on its regulatory capital ratios.

During December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due the CECL adoption as of the beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts would be calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the transitional amounts are phased in over each of the next two years and at the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital. The election must be made in the first reporting period that CECL is adopted. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Yet to Be Adopted" for additional information.

Dividends and Other Restrictions

The primary source of the Corporation’s dividends paid to its shareholders is from the earnings of the Bank paid to the Corporation in the form of dividends.

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The approval of the Federal Reserve Board of Governors is required for a state bank member in the Federal Reserve system to pay dividends if the total of all dividends declared in any calendar year exceeds the Bank’s net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the Bank can declare dividends in 2019 without approval of the Federal Reserve Board of Governors of approximately $55.7 million plus an additional amount equal to the Bank’s net profits for 2019 up to the date of any such dividend declaration.

Federal Reserve Board policy applicable to the holding company also provides that, as a general matter, a bank holding company should inform the Federal Reserve and should eliminate, defer or significantly reduce the holding company’s dividends if the holding company’s net income for the preceding four quarters, net of dividends paid during the period, is not sufficient to fully fund the dividends, the holding company’s prospective rate of earnings retention is inconsistent with capital needs and overall current and prospective financial condition, or the holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Federal Reserve Board policy also provides that a bank holding company should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period or that could result in a material adverse change to the organization’s capital structure.

The Federal Reserve Act requires that the extension of credit by the Bank to certain affiliates, including the Corporation (parent), be secured by readily marketable securities, that the extension of credit to any one affiliate be limited to 10% of the Bank’s capital and surplus (as defined), and that extensions of credit to all such affiliates be limited to 20% of the Bank’s capital and surplus.

Note 21. Related Party Transactions

In the ordinary course of business, the Corporation has made loans and commitments to extend credit to certain directors and executive officers of the Corporation and companies in which directors have an interest (Related Parties). These loans and commitments have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with customers not related to the lender and did not involve more than the normal risk of collectability or present other unfavorable terms.

The following table provides a summary of activity for loans to Related Parties during the year ended December 31, 2018 :



(Dollars in thousands)
Balance at January 1, 2018	$	17,845
Additions	920
Amounts collected and other reductions	(15,875		)
Balance at December 31, 2018	$	2,890

The following table provides additional information regarding transactions with Related Parties:



(Dollars in thousands)	At December 31, 2018
Commitments to extend credit	$	869
Deposits received	3,977

Note 22. Segment Reporting

At December 31, 2018 , the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.

The Corporation's Banking segment consists of commercial, consumer and mortgage banking, as well as lease financing. The Wealth Management segment consists of investment advisory services, retirement plan services, trust, municipal pension services and broker/dealer services. The Insurance segment consists of commercial lines, personal lines, benefits and human resources consulting.

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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 trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions.
●	The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions, personal insurance lines and human resources consulting.

The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the years ended December 31, 2018 , 2017 and 2016 .



(Dollars in thousands)	Banking			Wealth Management		Insurance		Other			Consolidated
For the Year Ended December 31, 2018
Interest income	$	190,425		$	32	$	—	$	31		$	190,488
Interest expense	27,383			—		—		5,043			32,426
Net interest income (expense)	163,042			32		—		(5,012		)	158,062
Provision for loan and lease losses	20,310			—		—		—			20,310
Noninterest income	20,815			23,179		16,442		(263		)	60,173
Intangible expenses	1,139			553		474		—			2,166
Restructuring charges	571			—		—		—			571
Other noninterest expense	106,947			14,845		12,419		291			134,502
Intersegment (revenue) expense*	(1,113		)	612		501		—			—
Income (expense) before income taxes	56,003			7,201		3,048		(5,566		)	60,686
Income tax expense (benefit)	9,085			1,913		752		(1,607		)	10,143
Net income (loss)	$	46,918		$	5,288	$	2,296	$	(3,959	)	$	50,543
Total assets	$	4,895,732		$	39,090	$	30,117	$	19,408		$	4,984,347
Capital expenditures	$	3,091		$	45	$	30	$	201		$	3,367

For the Year Ended December 31, 2017
Interest income	$	162,982		$	8	$	—	$	25		$	163,015
Interest expense	14,802			—		—		5,037			19,839
Net interest income (expense)	148,180			8		—		(5,012		)	143,176
Provision for loan and lease losses	9,892			—		—		—			9,892
Noninterest income	21,838			21,707		15,320		375			59,240
Intangible expenses	1,507			674		401		—			2,582
Other noninterest expense	100,670			13,732		11,667		2,062			128,131
Intersegment (revenue) expense*	(1,059		)	585		474		—			—
Income (expense) before income taxes	59,008			6,724		2,778		(6,699		)	61,811
Income tax expense (benefit)	15,735			2,597		374		(989		)	17,717
Net income (loss)	$	43,273		$	4,127	$	2,404	$	(5,710	)	$	44,094
Total assets	$	4,466,301		$	34,600	$	27,846	$	26,115		$	4,554,862
Capital expenditures	$	7,731		$	38	$	222	$	612		$	8,603


For the Year Ended December 31, 2016
Interest income	$	126,571		$	5	$	—	$	31		$	126,607
Interest expense	8,224			—		—		4,158			12,382
Net interest income (expense)	118,347			5		—		(4,127		)	114,225
Provision for loan and lease losses	4,821			—		—		—			4,821
Noninterest income	21,296			19,318		15,150		199			55,963
Intangible expenses	932			3,132		1,464		—			5,528
Acquisition-related and integration costs and restructuring charges	16,096			—		—		1,559			17,655
Other noninterest expense	88,065			12,980		11,924		5,829			118,798
Intersegment (revenue) expense*	(1,766		)	788		978		—			—
Income (expense) before income taxes	31,495			2,423		784		(11,316		)	23,386
Income tax expense (benefit)	6,510			857		348		(3,834		)	3,881
Net income (loss)	$	24,985		$	1,566	$	436	$	(7,482	)	$	19,505
Capital expenditures	$	9,944		$	29	$	30	$	1,660		$	11,663

*Includes an allocation of general and administrative expenses from both the parent holding company and the Bank. These expenses are generally allocated based upon number of employees and square footage utilized.

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Note 23. Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)” and subsequent related updates. The Corporation adopted the guidance effective January 1, 2018 using the modified retrospective method though no adjustments were made to retained earnings as a result of the adoption. The Corporation’s revenue is the sum of net interest income and noninterest income. Revenues are recognized when obligations under the terms of contracts with customers are satisfied, including the transfer of control of the promised goods or services to customers, in an amount that reflects the consideration the Corporation expects to be entitled to in exchange for those goods or services. The Corporation provides services to customers which have related performance obligations that are completed to recognize revenue. The Corporation's revenues are generally recognized either immediately upon the completion of the services or over time as the services are performed. Any services performed over time generally require services to be rendered each period and therefore progress in completing these services is measured based upon the passage of time.

The following tables disaggregate the Corporation's revenue by major source for the years ended December 31, 2018 , 2017 and 2016 .



(Dollars in thousands)	Banking		Wealth Management		Insurance			Other			Consolidated
For the Year Ended December 31, 2018
Net interest income (1)	$	163,042	$	32	$	—		$	(5,012	)	$	158,062

Noninterest income:
Trust fee income	—		7,882		—			—			7,882
Service charges on deposit accounts	5,632		—		—			—			5,632
Investment advisory commission and fee income	—		15,098		—			—			15,098
Insurance commission and fee income	—		—		15,658			—			15,658
Other service fee income (2)	8,347		199		786			—			9,332
Bank owned life insurance income (1)	3,284		—		—			(110		)	3,174
Net gain on sales of investment securities (1)	10		—		—			—			10
Net gain on mortgage banking activities (1)	3,125		—		—			—			3,125
Other income (loss) (2)	417		—		(2		)	(153		)	262
Total noninterest income	$	20,815	$	23,179	$	16,442		$	(263	)	$	60,173



(Dollars in thousands)	Banking		Wealth Management		Insurance		Other			Consolidated
For the Year Ended December 31, 2017
Net interest income (1)	$	148,180	$	8	$	—	$	(5,012	)	$	143,176

Noninterest income:
Trust fee income	—		8,055		—		—			8,055
Service charges on deposit accounts	5,482		—		—		—			5,482
Investment advisory commission and fee income	—		13,454		—		—			13,454
Insurance commission and fee income	—		—		14,788		—			14,788
Other service fee income (2)	7,927		198		531		—			8,656
Bank owned life insurance income (1)	3,616		—		—		372			3,988
Net gain on sales of investment securities (1)	45		—		—		3			48
Net gain on mortgage banking activities (1)	4,023		—		—		—			4,023
Other income (2)	745		—		1		—			746
Total noninterest income	$	21,838	$	21,707	$	15,320	$	375		$	59,240

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(Dollars in thousands)	Banking		Wealth Management		Insurance		Other			Consolidated
For the Year Ended December 31, 2016
Net interest income (1)	$	118,347	$	5	$	—	$	(4,127	)	$	114,225

Noninterest income:
Trust fee income	—		7,741		—		—			7,741
Service charges on deposit accounts	4,691		—		—		—			4,691
Investment advisory commission and fee income	—		11,424		—		—			11,424
Insurance commission and fee income	—		—		14,603		—			14,603
Other service fee income (2)	7,160		153		533		(10		)	7,836
Bank owned life insurance income (1)	2,749		—		—		182			2,931
Net gain on sales of investment securities (1)	494		—		—		24			518
Net gain on mortgage banking activities (1)	6,027		—		—		—			6,027
Other income (2)	175		—		14		3			192
Total noninterest income	$	21,296	$	19,318	$	15,150	$	199		$	55,963


(1)	Net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives are excluded from the scope of the standard. Noninterest income streams that are out-of-scope of the standard include bank owned life insurance income, sales of investment securities and mortgage banking activities.


(2)	Other service fee income and other income include certain items that are in scope and certain items that are out of scope of the standard and are described further in the following paragraphs.

Banking Segment

The banking segment provides financial services to consumer and commercial customers and governmental units. 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.

Service charges on deposit accounts are generally earned on depository accounts for commercial and consumer customers and primarily includes fees for account services, overdraft and non-sufficient funds services, and cash management services for commercial customers. Account services include fees for event-driven services such as ATM transactions and fees for periodic account maintenance activities. Cash management services for commercial customers include fees for event-driven services such as lockbox processing and line sweep services and fees for periodic account maintenance activities. The Corporation's obligation for event-driven services is satisfied at the time of the event when the service is delivered, while the obligation for periodic services is satisfied over the course of each month. Obligations for overdraft services is satisfied at the time of the overdraft.

Other service fee income is earned from commercial and consumer customers and primarily includes credit and debit card interchange and merchant revenues, mortgage servicing income, which is out of scope of the standard, and other deposit related service fee income such as wire transfers, check services and safe deposit boxes. Interchange and merchant revenues are recognized concurrently with the delivery of services on a monthly basis. Other deposit related service fee income include fees for event-driven services, such as wire transfers and check services, and fees for periodic services such as safe deposit box services. The obligation for event-driven services is satisfied at the time of the event when the service is delivered, while the obligation for periodic services is satisfied over the course of each month.

Other income primarily includes net gains or losses from the sales of loans and leases, net gains or losses from the sales or disposition of fixed assets and net gains or losses on interest rate swaps, all of which are out of scope of the standard, and net gains or losses on sales and write-downs of other real estate owned. Net gains or losses on sales of other real estate owned are recognized at the point in time in which control of the other real estate owned is transferred.

Wealth Management Segment

The wealth management segment offers trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions.

Trust fee income is earned for providing trust, investment management and other related services. Obligations for trust and other related services are generally satisfied over time but may be satisfied at points in time for certain activities that are transactional in nature and obligations for investment management services are generally performed over time. Fees for trust fee income are

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typically based on a tiered scale relative to the market value of assets under management and are recognized in conjunction with the delivery of services.

Investment advisory commission and fee income include fees for financial planning, guardian and custodian of employee benefits, investment advisory, and brokerage services. Obligations for financial planning, guardian and custodian of employee benefits, and investment advisory services are generally satisfied over time and fees, typically based on a tiered scale relative to the market value of assets under management, are recognized in conjunction with the delivery of services. Brokerage services are typically event driven and are based on the size and number of transactions executed at the client’s direction and recognized on the trade date.

Insurance Segment

The insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions, personal insurance lines and payroll and human resources consulting.

Insurance commission and fee income is derived primarily from commissions from the sale of insurance policies, which are generally calculated as a percentage of the policy premium, and contingent income, which is calculated based on the performance of the policies held by each carrier. Obligations for the sale of insurance policies are generally satisfied at the point in time which the policy is executed and are recognized at the point in time in which the amounts are known and collection is reasonably assured. Obligations for contingent income are generally satisfied over time and are recognized at the point in time in which the amounts are known and collection is reasonably assured.

Other service fee income is earned from payroll and human resources consulting services. These obligations are generally satisfied over time and are recognized on a periodic basis.

Note 24. Condensed Financial Information - Parent Company Only

Condensed financial statements of the Corporation, parent company only, follow:



(Dollars in thousands)	At December 31,
Balance Sheets	2018		2017
Assets:
Cash	$	78,897	$	73,642
Interest-earning deposits with other banks	145		114
Cash and cash equivalents	79,042		73,756
Investments in securities	924		1,077
Investments in subsidiaries, at equity in net assets:
Bank	638,500		612,045
Non-banks	—		—
Other assets	18,340		32,399
Total assets	$	736,806	$	719,277
Liabilities:
Dividends payable	$	5,863	$	5,866
Subordinated notes	94,574		94,331
Other liabilities	12,236		15,706
Total liabilities	112,673		115,903
Shareholders' equity:	624,133		603,374
Total liabilities and shareholders' equity	$	736,806	$	719,277

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(Dollars in thousands)	For the Years Ended December 31,
Statements of Income	2018			2017			2016
Dividends from Bank	$	22,359		$	26,263		$	94,042
Dividends from non-bank	—			—			—
Net gain on sales of securities	—			3			23
Other income	26,631			24,740			18,663
Total operating income	48,990			51,006			112,728
Interest expense	5,043			5,037			4,158
Operating expenses	27,155			26,405			25,843
Income before income tax benefit and equity in undistributed income (loss) of subsidiaries	16,792			19,564			82,727
Income tax benefit	(1,607		)	(989		)	(3,834		)
Income before equity in undistributed income (loss) of subsidiaries	18,399			20,553			86,561
Equity in undistributed income (loss) of subsidiaries:
Bank	32,144			23,541			(67,056		)
Non-banks	—			—			—
Net income	$	50,543		$	44,094		$	19,505



(Dollars in thousands)	For the Years Ended December 31,
Statements of Cash Flows	2018			2017			2016
Cash flows from operating activities:
Net income	$	50,543		$	44,094		$	19,505
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net (income) loss of subsidiaries	(32,144		)	(23,541		)	67,056
Net gain on sales of securities	—			(3		)	(23		)
Bank owned life insurance income (expense)	109			(343		)	(182		)
Depreciation of premises and equipment	386			387			339
Stock based compensation	2,557			3,166			2,084
Contributions to pension and other postretirement benefit plans	(3,264		)	(2,295		)	(2,261		)
Decrease (increase) in other assets	14,205			(3,384		)	1,098
Increase in other liabilities	(865		)	4,101			213
Net cash provided by operating activities	31,527			22,182			87,829
Cash flow from investing activities:
Investments in subsidiaries	—			—			(40,000		)
Proceeds from sales of securities	—			3			38
Outlays for business acquisitions	—			—			(87,683		)
Proceeds from bank owned life insurance	—			183			—
Other, net	(188		)	(364		)	(1,619		)
Net cash used in investing activities	(188		)	(178		)	(129,264		)
Cash flows from financing activities:
Net decrease in short-term borrowings	—			—			(253		)
Proceeds from issuance of subordinated notes	—			—			44,515
Purchases of treasury stock	(5,984		)	(3,519		)	(8,359		)
Proceeds from public offering of common stock	—			70,501			—
Stock issued under dividend reinvestment and employee stock purchase plans	2,295			2,413			2,472
Proceeds from exercise of stock options	1,131			1,676			4,968
Cash dividends paid	(23,495		)	(21,299		)	(17,024		)
Net cash (used) provided by financing activities	(26,053		)	49,772			26,319
Net increase (decrease) in cash and due from financial institutions	5,286			71,776			(15,116		)
Cash and cash equivalents at beginning of year	73,756			1,980			17,096
Cash and cash equivalents at end of year	$	79,042		$	73,756		$	1,980
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	4,800		$	4,800		$	3,956
Income tax, net of refunds received	643			11,600			6,675

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Note 25. Quarterly Financial Data (Unaudited)

The unaudited results of operations for the quarters for the years ended December 31, 2018 and 2017 were as follows:



(Dollars and shares in thousands)
2018 Quarterly Financial Data:	Fourth		Third		Second		First
Interest income	$	51,239	$	49,255	$	46,460	$	43,534
Interest expense	9,862		8,832		7,470		6,262
Net interest income	41,377		40,423		38,990		37,272
Provision for loan and lease losses	103		2,745		15,409		2,053
Net interest income after provision for loan and lease losses	41,274		37,678		23,581		35,219
Noninterest income	14,416		14,861		15,314		15,582
Noninterest expense	33,396		34,371		34,347		35,125
Income before income taxes	22,294		18,168		4,548		15,676
Income taxes	3,922		3,204		191		2,826
Net income	$	18,372	$	14,964	$	4,357	$	12,850

Per share data:
Weighted average shares outstanding - basic earnings per share	29,161		29,232		29,176		29,140
Weighted average shares outstanding - diluted earnings per share	29,220		29,318		29,271		29,234

Basic earnings per share	$	0.63	$	0.51	$	0.15	$	0.44
Diluted earnings per share	$	0.63	$	0.51	$	0.15	$	0.44
Dividends per share	$	0.20	$	0.20	$	0.20	$	0.20

The financial results for the fourth quarter of 2018 included a loan recovery of $1.8 million (after-tax recovery of $1.5 million ) which represented $0.05 diluted earnings per share. This recovery related to a loan the Corporation previously charged-off in the amount of $12.7 million (after-tax charge of $10.1 million ), or $0.34 diluted earnings per share, in the second quarter of 2018.



2017 Quarterly Financial Data:	Fourth		Third		Second		First
Interest income	$	42,417	$	42,172	$	40,030	$	38,396
Interest expense	5,711		5,285		4,730		4,113
Net interest income	36,706		36,887		35,300		34,283
Provision for loan and lease losses	1,992		2,689		2,766		2,445
Net interest income after provision for loan and lease losses	34,714		34,198		32,534		31,838
Noninterest income	14,152		14,109		16,009		14,970
Noninterest expense	33,440		32,695		32,548		32,030
Income before income taxes	15,426		15,612		15,995		14,778
Income taxes	5,162		4,416		4,217		3,922
Net income	$	10,264	$	11,196	$	11,778	$	10,856

Per share data:
Weighted average shares outstanding - basic earnings per share	27,254		26,437		26,380		26,345
Weighted average shares outstanding - diluted earnings per share	27,356		26,542		26,477		26,448


Basic earnings per share	$	0.37	$	0.42	$	0.44	$	0.41
Diluted earnings per share	$	0.37	$	0.42	$	0.44	$	0.41
Dividends per share	$	0.20	$	0.20	$	0.20	$	0.20

The financial results for the fourth quarter of 2017 included a revaluation of the Corporation's net deferred tax asset associated with the passage of the TCJA. The revaluation, which was recorded as additional income tax expense, was $1.1 million , or $0.04 diluted earnings per share.

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Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.	Controls and Procedures

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 December 31, 2018 .

Management's Report on Internal Control over Financial Reporting

The management of the Univest Financial Corporation (the Corporation) is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2018 , using the criteria set forth in Internal Control - Integrated Framework , published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this assessment, management concluded that, as of December 31, 2018 , the Corporation’s internal control over financial reporting is effective based on those criteria.

KPMG LLP, an independent registered public accounting firm, has audited the Corporation’s consolidated financial statements as of and for the year ended December 31, 2018 and the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2018 , as stated in their reports, which are included herein.

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 December 31, 2018 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Univest Financial Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited Univest Financial Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Philadelphia, Pennsylvania

February 28, 2019

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Item 9B.	Other Information

None.

PART III


Item 10.	Directors, Executive Officers and Corporate Governance

Information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5), of Regulation S-K is incorporated herein by reference from the Corporation’s definitive proxy statement on Schedule 14A for the annual meeting of shareholders on April 16, 2019 ( 2019 Proxy), under the headings: “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “The Board, the Board’s Committees and Their Functions,” “Audit Committee,” “Code of Conduct,” and “Nominating and Governance Committee of the Board.”

The Corporation maintains in effect a Code of Conduct for Directors and a Code of Conduct for all officers and employees, which includes the CEO and senior financial officers. The codes of conduct are available on the Corporation’s website. The Corporation’s website also includes the charters for its audit committee, compensation committee, and nominating and governance committee as well as its corporate governance principles. These documents are located on the Corporation’s website at www.univest.net under “Investors Relations” in Governance Documents and are also available to any person without charge by sending a request to the Corporate Secretary at Univest Financial Corporation, P. O. Box 197, Souderton, PA 18964.


Item 11.	Executive Compensation

Information required by Item 402 and paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K is incorporated herein by reference from the Corporation’s 2019 Proxy under the headings: “The Board, the Board’s Committees and Their Functions,” “Executive Compensation,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and "Compensation Committee Report."


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Item 403 of Regulation S-K is incorporated herein by reference from the Corporation’s 2019 Proxy under the heading, “Security Ownership of Certain Beneficial Owners and Management."

Equity Compensation Plan Information

The Corporation has a shareholder approved Amended and Restated Univest 2013 Long-Term Incentive Plan (LTIP). Under the LTIP, the Corporation may grant options and share awards to employees and non-employee directors up to 3,698,974 shares of common stock, which includes 330,625 shares as a result of the Corporation's common stock issuance in 2017, 857,191 shares as a result of the completion of the acquisition of Fox Chase in 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank in 2015. The number of shares of common stock available for issuance under the plan is subject to adjustment, as described in the plan. This includes, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the stock, substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the plan, in the number and option price of shares subject to outstanding options granted under the plan and in the number and price of shares subject to other awards, as described in the plan.

The following table sets forth information regarding outstanding options and shares under equity compensation plans at December 31, 2018 :



	(a)	(b)		(c)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plan approved by security holders	597,405	$	23.98	2,631,983
Equity compensation plan not approved by security holders	—	—		—
Total	597,405	$	23.98	2,631,983

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Item 13.	Certain Relationships and Related Transactions, and Director Independence

Information required by Items 404 and 407(a) of Regulation S-K is incorporated herein by reference from the Corporation’s 2019 Proxy under the headings, “The Board, the Board’s Committees and Their Functions” and “Related Party Transactions.”


Item 14.	Principal Accounting Fees and Services

Information required by Item 9(e) of Schedule 14A is incorporated herein by reference from the Corporation’s 2019 Proxy under the headings: “Audit Committee” and “Independent Registered Public Accounting Firm Fees.”

PART IV


Item 15.	Exhibits and Financial Statement Schedules



(a)	1. & 2. Financial Statements and Schedules
	The financial statements listed in the accompanying index to financial statements are filed as part of this annual report.
	3. Listing of Exhibits
	The exhibits listed on the accompanying index to exhibits are filed as part of this annual report.
(b)	Exhibits - The response to this portion of Item 15 is submitted as separate section.
(c)	Financial Statements Schedules - none.

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UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES

[Item 15(a) 1. & 2.]

Annual Report of Shareholders



	Page
Report of Independent Registered Public Accounting Firm	45
Consolidated Balance Sheets at December 31, 2018 and 2017	46
Consolidated Statements of Income for each of the three years in the period ended December 31, 2018	47
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2018	48
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2018	49
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2018	50
Notes to Consolidated Financial Statements	52

Certain financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.

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UNIVEST FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX OF EXHIBITS

[Item 15(a) 3. & 15(b)]

Description



(3.1)	Amended and Restated Articles of Incorporation.
(3.2)	Amended By-Laws.
(4.1)*	Form of Fixed-to-Floating Subordinated Notes due 2026 is incorporated by reference to Exhibit 4.2 of Form 8-K, filed with the SEC on July 1, 2016.
(4.2)*	Form of Fixed-to-Floating Subordinated Notes due 2025 is incorporated by reference to Exhibit 4.2 of Form 8-K, filed with the SEC on March 30, 2015.
(10.1)*	Amended and Restated Univest 2013 Long-Term Incentive Plan .
(10.2)*	Form of Change in Control Agreement, dated February 22, 2017, entered into between Univest Corporation of Pennsylvania and Roger S. Deacon, is incorporated by reference to Exhibit 10.1 of Form 8-K, filed with the SEC on February 23, 2017.
(10.3)*	Form of Change in Control Agreement, dated February 26, 2016, entered into between Univest Corporation of Pennsylvania and each of Jeffrey M. Schweitzer, Michael S. Keim, Duane J. Brobst, and Eric W. Conner, is incorporated by reference to Exhibit 10.1 of Form 8-K, filed with the SEC on March 2, 2016.
(10.4)*	Form of Change in Control Agreement, dated February 26, 2016, entered into between Univest Corporation of Pennsylvania and Megan Duryea Santanta.
(10.5)*	Univest Corporation of Pennsylvania 2003 Long-term Incentive Plan is incorporated by reference to Exhibit 4 of the Registration Statement on Form S-8, filed with the SEC in March 8, 2005.
(21)	Subsidiaries of the Registrant.
(23.1)	Consent of independent registered public accounting firm, KPMG LLP.
(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.
(31.2)	Certification of Roger S. Deacon, Senior Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
(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.
(32.2)**	Certification of Roger S. Deacon, 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.INS	XBRL Instance Document
	Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
	Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document
	Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
	Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* Denotes a compensatory plan or agreement.

** A certification furnished pursuant to this item will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.


Item 16.	Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.



	UNIVEST FINANCIAL CORPORATION
	Registrant

	By: /s/ Roger S. Deacon

	Roger S. Deacon Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
	February 28, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



Signature	Title	Date
/s/ WILLIAM S. AICHELE William S. Aichele	Chairman and Director	February 28, 2019

/s/ JEFFREY M. SCHWEITZER Jeffrey M. Schweitzer	President, Chief Executive Officer and Director (Principal Executive Officer)	February 28, 2019

/s/ ROGER H. BALLOU Roger H. Ballou	Director	February 28, 2019

/s/ TODD S. BENNING Todd S. Benning	Director	February 28, 2019

/s/ GLENN E. MOYER Glenn E. Moyer	Director	February 28, 2019

/s/ K. LEON MOYER K. Leon Moyer	Director	February 28, 2019

/s/ NATALYE PAQUIN Natalye Paquin	Director	February 28, 2019

/s/ THOMAS M. PETRO Thomas M. Petro	Director	February 28, 2019

/s/ MICHAEL L. TURNER Michael L. Turner	Director	February 28, 2019

/s/ ROBERT C. WONDERLING Robert C. Wonderling	Director	February 28, 2019

/s/ CHARLES H. ZIMMERMAN III Charles H. Zimmerman III	Director	February 28, 2019

117

Exhibit No. 3.1

UNIVEST FINANCIAL CORPORATION

Amended and Restated Articles of Incorporation

(effective as of January 1, 2019)


1.	The name of the corporation is: Univest Financial Corporation.


2.	The location and post office address of its initial registered office in this commonwealth is: 14 North Main Street, P.O. Box 197, Souderton, PA 18964, Montgomery County.


3.	The corporation is incorporated under the provisions of the Pennsylvania Business Corporation Law of 1988 (15 Pa. C.S. § 1101 et seq .), as the same may be amended.


4.	The purpose or purposes of the Corporation are to have unlimited power to engage in and to do any lawful act concerning any and all business for which corporations may be incorporated under the provisions of the Pennsylvania Business Corporation Law of 1988, as the same may be amended.


5.	The term of its existence is: Perpetual

The aggregate number of shares which the Corporation shall have authority to issue is forty eight million (48,000,000) shares of Common Stock of the par value of Five Dollars ($5.00) per share (the "Common Stock"), and the total number of shares of preferred stock that the Corporation shall have authority to issue is ten million (10,000,000) shares of the par value of Five Dollars ($5.00) per share (the “Preferred Stock”). The Preferred Stock may be issued from time to time as a class without series, or if so determined by the Board of Directors of the Corporation, either in whole or in part in one or more series. There is hereby expressly granted to and vested in the Board of Directors of the Corporation authority to fix and determine (except as fixed and determined herein), by resolution, the voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, including specifically, but not limited to, the dividend rights, conversion rights, redemption rights and liquidation preferences, if any, of any wholly unissued series of Preferred Stock (or the entire class of Preferred Stock if none of such shares have been issued), the number of shares constituting any such series and the terms and conditions of the issue thereof. Prior to the issuance of any shares of Preferred Stock, a statement setting forth a copy of each such resolution or resolutions and the number of shares of Preferred Stock of each such class or series shall be executed and filed in accordance with the Pennsylvania Business Corporation Law. Unless otherwise provided in any such resolution or resolutions, the number of shares of capital stock of any such class or series so set forth in such resolution or resolutions may thereafter be increased or decreased (but not below the number of shares then outstanding), by a statement likewise executed and filed setting forth a statement that a specified increase or decrease therein had been authorized and directed by a resolution or resolutions likewise adopted by the Board of Directors of the Corporation. In case the number of such shares shall be decreased, the number of shares so specified in the statement shall resume the status they had prior to the adoption of the first resolution or resolutions.

No holder of any shares of the stock of this Corporation shall have any pre-emptive right to purchase, subscribe for or otherwise acquire any shares of stock of this Corporation of any class now or hereafter authorized or any securities exchangeable for or convertible into such shares of any warrants or other instruments evidencing rights or options to subscribe for, purchase or otherwise acquire such shares; further, cumulative voting shall not be allowed but each shareholder shall be entitled at all elections of directors to cast a number of votes equal to the number of shares owned by him for as many directors as there are to be elected.

The presence in person or by proxy of Shareholders entitled to cast at least a majority of the votes which all Shareholders are entitled to cast shall constitute a quorum at a meeting of the Shareholders. If a quorum is present, the affirmative vote of the majority of the Shareholders represented at the meeting shall be the act of the Shareholders unless the vote of a greater number is required by these Articles or the Bylaws of this Corporation.


9.	The affirmative vote of the holders of a majority of the shares of this Corporation’s stock, issued, outstanding, and entitled to vote, shall be required to approve any of the following:



a.	Any merger or consolidation of this Corporation with or into any other corporations;
b.	Any share exchange in which a corporation, person, or entity acquires the issued or outstanding
	shares of stock of this Corporation, pursuant to a vote of the Shareholders;
c.	Any sale, lease, exchange, or other transfer of all, or substantially all of the assets of this
	Corporation to any other corporation, person or entity; or
d.	Any transaction similar to or having similar effect as the foregoing transactions.

In the event any corporation, person, or entity owns, as a beneficial owner, directly or indirectly, more than five percent (5%) of the shares of this Corporation, issued, outstanding, and entitled to vote, on the record date for the determination of Shareholders entitled to notice and to vote at any special or annual meeting of the Shareholders, then, and in that event, the affirmative vote of at least seventy-five percent (75%) of the shares of this Corporation, issued, outstanding, and entitled to vote, shall be required to approve any of the transactions identified above in paragraphs (a) through (d), inclusive. The affirmative vote of at least seventy-five percent (75%) of the shares outstanding as set forth herein above shall be in lieu of the vote of the Shareholders otherwise required by law.

The Board of Directors of this Corporation shall have the sole power and duty to determine from the corporate stock records or from any other source or from information known to the Board, if and when such other corporation, person, or entity is a beneficial owner, directly or indirectly, of more than five percent (5%) of the shares of this Corporation, issued, outstanding, and entitled to vote. In addition thereto, the Board of Directors shall have the sole power to determine if any transaction is similar to, or has a similar effect as any of the transactions identified above in paragraphs (a) through (d), inclusive. Such

determination as made by the Board of Directors shall be conclusive and binding for all purposes hereof.

The provisions hereof shall not apply to any transaction which is approved in advance by the majority vote of the members of the Board of Directors of this Corporation at a meeting duly called and held in accordance with the Bylaws of this Corporation.

This Corporation may voluntarily completely liquidate and/or dissolve only if the proposed liquidation and/or dissolution is approved by the affirmative vote of the holders of at least seventy-five percent (75%) of the shares of this Corporation, issued, outstanding, and entitled to vote at any duly-convened annual or special meeting of the Shareholders of this Corporation.

10.

Any director, any class of directors, or the entire Board of Directors of this Corporation, may be removed from office at any time only for cause, and only by either the affirmative vote of a majority vote of the Board of Directors in office, or the affirmative vote of the holders of at least seventy-five percent (75%) of the shares of this Corporation, issued, outstanding, and entitled to vote for the election of directors. Cause shall include, but not be limited to, the following:



a.	Mismanagement, collusion, or fraud;
b.	Improper conduct relating to the funds of this Corporation;
c.	Violation of the fiduciary duty of the directors;
d.	All acts, omissions, and concealments which involve a breach of the legal or
	equitable duty, trust, or confidence justly reposed in a Director;
e.	Wasting corporate assets;
f.	Judicially declared of unsound mind; or
g.	Conviction of an offense punishable by imprisonment for a term of more than one
	(1) year.

11.

The authority to make, amend, alter, change, or repeal the Bylaws of the Corporation is hereby specifically granted to and vested in the Board of Directors of the Corporation which must be approved by a vote of the majority of the Board of Directors in office at any regular or special meeting, duly convened after notice for that purpose. This authority is subject to the power of the Shareholders to make, amend, alter, change, or repeal the Bylaws of the Corporation by the affirmative vote of seventy-five percent (75%) of the shares of the Corporation’s capital stock, issued, outstanding and entitled to vote, at any regular or special meeting duly convened after notice for that purpose. Notwithstanding the foregoing, the Board does not have the power to amend any Bylaw provision that is required by law to be amended by the Shareholders of the Corporation.


12.	This Corporation reserves the right to amend, alter, change, or repeal any provision contained in these Articles of Incorporation upon:



a.	The affirmative vote of the holders of at least seventy-five percent (75%) of the shares of this Corporation, issued, outstanding, and entitled to vote at any regular or special meeting duly convened; or
b.	The affirmative vote of a majority of the members of the Board of Directors of this Corporation and the Affirmative vote of the holders of a majority of the shares of this Corporation, issued, outstanding, and entitled to vote at any regular or special meeting duly convened.

13.

Nominations for the election of members of the Board of Directors may be made by the Board of Directors or by any Shareholder entitled to vote for the election of Directors. Nominations made by Shareholders entitled to vote for the election of Directors shall be made by notice, in writing, delivered to or mailed by registered return receipt mail, postage prepaid, to the Secretary of this Corporation, not less than fifty days prior to any meeting of the Shareholders called for the election of Directors; provided, however, that if less than twenty-one days notice of the meeting is given to the Shareholders, such a nomination shall be delivered or mailed to the Secretary of this Corporation not later than the close of the seventh day following the date on which the notice of the meeting was mailed to the Shareholders. Such notification shall contain the following information to the extent known to the Shareholder intending to nominate any candidate for election to the Board of Directors:



a.	The names, ages, and resident addresses of each of the proposed nominees;
b.	The principal occupation or employment and business address of each proposed nominee;
c.	The total number of shares of this Corporation that, to the knowledge of the notifying Shareholder, will be voted for each of the proposed nominees;
d.	The name and resident address of the notifying Shareholder; and
e.	The number of shares owned by the notifying Shareholder.

The nomination for a Director who has not previously served as a Director shall be made from among the then serving Alternate Directors as defined in the Bylaws of the Corporation. Nominations for Alternate Directors shall be made in the same manner as Directors and in accordance to the then applicable provision of these Articles for such nominations. Any nomination for Director made by a Shareholder that is not made in accordance herewith may be disregarded by the Nominating Committee of the Board, if there be one, or, if not, by the Secretary of the meeting, and the votes cast for such nominee may be disregarded by the judges of election.


14.	Any or all classes and series of shares of the Corporation, or any part thereof, may be uncertificated shares to the extent determined by the Board of Directors from time to time; provided, however, that in no event shall any shares represented by a certificate be deemed uncertificated until the certificate is surrendered to the Corporation.

Exhibit No. 3.2

UNIVEST FINANCIAL CORPORATION

BYLAWS

Adopted - May 25, 1983

Amended - March 20, 1984

Amended - December 28, 1988

Amended - December 27, 1989

Amended - July 25, 1990

Amended - September 28, 1994

Amended - October 23, 1996

Amended - April 14, 1997

Amended – November 26, 2003

Amended – January 26, 2005

Amended – November 23, 2005

Amended – September 26, 2007

Amended – November 26, 2014 (effective January 1, 2015)

Amended – November 23, 2016

Amended - December 5, 2018 (effective January 1, 2019)



	TABLE OF CONTENTS

	ARTICLE I - General

		Page
Sec. 1	Office	1
Sec. 2	Seal	1
Sec. 3	Fiscal Year	1
Sec. 4	Construction	1

	ARTICLE II - Shareholders

Sec. 1	Place of Meetings	1
Sec. 2	Annual Meeting	2
Sec. 3	Special Meetings	2
Sec. 4	Adjournment of Meetings	2
Sec. 5	Notice of Meetings	2
Sec. 6	Waiver of Notice	3
Sec. 7	Quorum at Shareholders Meeting and Shareholder Consent	3
Sec. 8	Shareholders' Proposals	3
Sec. 9	Voting of Shares	4
Sec. 10	Voting Power	4
Sec. 11	Proxies	5
Sec. 12	Judge or Judges of Election	5
Sec. 13	Determination of Shareholders of Record	6
Sec. 14	Voting Lists	7
Sec. 15	Examination of Records	7
Sec. 16	Presiding Officer	7
Sec. 17	Nominations for Directors	7

	ARTICLE III - Directors

Sec. 1	Number and Classification	8
Sec. 2	Election	9
Sec. 3	Vacancies	10
Sec. 4	Resignation of Directors	10
Sec. 5	Removal of Directors	10
Sec. 6	Regular Meetings of the Board of Directors	11
Sec. 7	Special Meetings	11
Sec. 8	Notice of Meetings	11
Sec. 9	Presiding Officer and Order of Business	11
Sec. 10	Quorum	12
Sec. 11	Powers of Board of Directors	12
Sec. 12	Financial Report to Shareholders	13
Sec. 13	Committees	13
Sec. 14	Standard of Care and Justifiable Reliance	13
Sec. 15	Limitation of Directors' Liability	14



	ARTICLE IV - Indemnification

Sec. 1	Indemnification	15
Sec. 2	Expenses	16

	ARTICLE V - Officers

Sec. 1	Election of Officers and Agents	16
Sec. 2	Terms and Compensation	16
Sec. 3	Chairman	17
Sec. 4	President	17
Sec. 5	Chief Executive Officer	17
Sec. 6	Vice Presidents	17
Sec. 7	Secretary	18
Sec. 8	Treasurer	18
Sec. 9	Assistant Secretaries	18
Sec. 10	Assistant Treasurers	18

	ARTICLE VI - Share Certificates and Transfers

Sec. 1	Share Certificates	19
Sec. 2	Transfer of Shares	19
Sec. 3	Loss or Destruction of Share Certificates	19
Sec. 4	Transfer Agents and Registrars	19

	ARTICLE VII - Amendments

Sec. 1	Amendments to Bylaws	20

	ARTICLE VIII - Miscellaneous

Sec. 1	Statement Relating to Act 92 of 1983	20
Sec. 2	Statement Relating to Act 36 of 1990	20

BYLAWS

UNIVEST FINANCIAL CORPORATION

ARTICLE I

General

SECTION 1 - Office:

The principal office of the Corporation shall be in Souderton, Pennsylvania.

SECTION 2 - Seal:

The Corporation shall have a corporate seal which shall contain the words "Univest Financial Corporation" in a circle within which the word "SEAL" shall be embossed. It shall not be necessary to affix an impression of the corporate seal to any instrument or other document for the valid execution, assignment, or endorsement by the Corporation.

SECTION 3 - Fiscal Year:

The fiscal year of the Corporation shall end on the 31st day of December.

SECTION 4 - Construction:

As required by the context herein, when the singular is referred to in these Bylaws, it shall be construed to include the plural or vice versa, and when the use of any gender is made in these Bylaws, it shall be construed to include all genders.

ARTICLE II

Shareholders

SECTION 1 - Place of Meetings:

The Shareholders' Meeting shall be held at the principal office of the Corporation or at such other place, within or without the Commonwealth of Pennsylvania, as designated in a notice of the meeting each Shareholder shall receive.

SECTION 2 - Annual Meeting:

The Annual Meeting of Shareholders shall be held on the third Tuesday of April each year or on such other date as determined by the Board of Directors.

SECTION 3 - Special Meetings:

Special meetings of the Shareholders may be called at any time by the Chairman or by the majority vote of all of the members of the Board of Directors entitled to vote.


A.	Upon written request to the Secretary, sent by registered mail or delivered to the

Secretary in person, by any persons entitled to call a special meeting of the Shareholders as set forth in Section 3 above, the Secretary shall call a special meeting as follows:


1.	The time of the special meeting shall be scheduled by the Secretary in accordance with the written request, provided:


a.	That the meeting may not be scheduled less than fifteen (15) days or more than sixty (60) days after the receipt of the written request to hold a special meeting.


b.	If the Secretary shall neglect or refuse to fix the date of the meeting and give notice thereof, the person or persons calling the meeting may do so, subject, however, to the requirements of notice as set forth in Article II, Section 5.

SECTION 4 - Adjournment of Meetings:

Any regular or special meeting of the Shareholders, including one at which Directors are to be elected, may be adjourned for such period as the Shareholders present and entitled to vote shall direct.

SECTION 5 - Notice of Meeting:


A.	Notice shall be sent to each Shareholder by the Secretary. If the Secretary fails to send notice as required, then and in that event, the person who is authorized to call the meeting shall do so.


B.	Notice shall be sent to Shareholders of record entitled to vote at the meeting, not less than ten (10) days prior to the date of the meeting.

Whenever written notice is required to be given to any person under the provisions of these Bylaws, it may be given to the person either personally or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answer-back received) or courier service, charges prepaid, or by telecopier, to his address (or to his telex, TWX, telecopier or telephone number) appearing on the books of the Corporation or, in the case of Directors, supplied by the Director to the Corporation for the purpose of notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled

thereto when deposited in the United States mail or with a telegraph office, or courier service for delivery to that person or, in the case of telex or TWX, when dispatched.


D.	Notice shall specify the place, the day, and the hour of the meeting. In the case of special meetings, it shall include all the above and it shall also include a description of the general nature of the business to be transacted at the meeting.


E.	Notice of an adjourned meeting or of the business to be transacted at an adjourned meeting need not be given other than by announcement at the same meeting at which the adjournment action is taken, unless the Board of Directors fixes a new record date for the adjourned meeting.

SECTION 6 - Waiver of Notice:

A waiver of notice shall be deemed equivalent to the receipt of notice if it is signed by the person or persons entitled to receive such notice.


A.	With the exception of a special meeting, neither the business to be transacted nor the purpose of the meeting need be specified in the waiver of notice of such meeting.


B.	Attendance of a person either in person or by a proxy at any meeting shall constitute a waiver of notice of that meeting.


1.	A waiver of notice shall not be applied to the person who attends a meeting for the express purpose of objecting to the transaction of any business because a meeting was not lawfully called.

SECTION 7 - Quorum at Shareholders' Meetings and Shareholder Consent:


B.	No action required to be taken or which may be taken at any annual or special meeting of the Shareholders of the Corporation may be taken without a meeting, and the power of the Shareholders of the Corporation to consent in writing to action without a meeting is specifically denied.

SECTION 8 - Shareholders' Proposals :

A proposal for action to be presented by any shareholder at an annual or special meeting of shareholders shall be out of order unless specifically described in the Company's notice to all shareholders of the meeting and the matters to be acted upon thereat or unless the proposal shall have been submitted in writing to the Chairman and received at the principal executive offices of the Company at least 120 days prior to the date of such meeting, and such proposal is, under law, an appropriate subject for shareholder action.

SECTION 9 - Voting of Shares:

Unless otherwise provided in the Articles of Incorporation, every Shareholder of record shall have the right to one vote for every share standing in the Shareholder's name on the books of the Corporation.

SECTION 10 - Voting Power:

The affirmative vote of the holders of a majority of the shares of the Corporation's capital stock, issued, outstanding, and entitled to vote, shall be required to approve any of the following:


A.	Any merger or consolidation of the Corporation with or into any other corporations; or


B.	Any share exchange in which a corporation, person, or entity acquires the issued or outstanding shares of capital stock of the Corporation, pursuant to a vote of the Shareholders;


C.	Any sale, lease, exchange, or other transfer of all, or substantially all of the assets of the Corporation to any other corporation, person, or entity; or


D.	Any transaction similar to, or having similar effect, as the foregoing transactions.

In the event any corporation, person, or entity owns, as a beneficial owner, directly or indirectly, more than 5% of the shares of capital stock of the Corporation, issued, outstanding, and entitled to vote, on the record date for determination of Shareholders entitled to notice thereof and to vote thereon, then and in that event, 75% of the shares of the Corporation's capital stock, issued, outstanding, and entitled to vote, shall be required to approve any of the transactions identified above in Paragraphs A. through D., inclusive. The affirmative vote of 75% of the shares outstanding as set forth herein above shall be in lieu of the vote of the Shareholders otherwise required by law.

The Board of Directors of the Corporation shall have the sole power and duty to determine from the corporate stock records or from any other source or from information known to the Board, if and when such other corporation, person, or entity is the beneficial owner, directly or indirectly, of more than 5% of the shares of capital stock of the Corporation, issued, outstanding, and entitled to vote; and in addition thereto, the Board of Directors shall have the sole power to determine if any transaction is similar to, or has a similar effect as, any of the transactions identified above in Paragraphs A. through D., inclusive. Such determination as made by the Board of Directors shall be conclusive and binding for all purposes of this section.

The provisions of the foregoing two paragraphs shall not apply to any transaction which is approved in advance by a majority of the members of the Board of Directors of the Corporation at a meeting duly called and held in accordance with these Bylaws.

The Corporation may voluntarily completely liquidate and/or dissolve only if the proposed liquidation and/or dissolution is approved by the affirmative vote of the holders of 75% of the shares of the Corporation's capital stock, issued, outstanding, and entitled to vote.

SECTION 11 - Proxies:

Every share may be voted either in person or by proxy. If a proxy, the following are the proxy requirements:


A.	Every proxy shall be executed in writing by the Shareholder or by his duly-authorized attorney in fact (who shall file a written Power of Attorney with the Secretary of Univest Financial Corporation).


B.	A proxy, unless coupled with an interest, shall be revocable at will.


C.	The revocation of a proxy shall not be effective until such notice has been given to the Secretary of Univest Financial Corporation, or a shareholder appears in person at the meeting and revokes the proxy by a written designation to the Corporation.


D.	An unrevoked proxy shall not be valid for more than three (3) years from the date of its execution.


E.	Unless the Secretary of Univest Financial Corporation receives a certificate of death or a notice of incapacity before the vote is counted, a proxy shall not be revoked by the death or incapacity of a Shareholder.

SECTION 12 - Judge or Judges of Election:

The elections for Directors do not have to be by written ballot. However, a Shareholder, before the voting begins, may request that the election be held by written ballot.

The Board of Directors may appoint in advance of any meeting of Shareholders, a judge or judges to act as judge or judges of election at such meeting. The judge or judges of election need not be Shareholders.


A.	Should the judge or judges of election not be appointed, the chairman of the meeting may appoint the judge or judges of election for that meeting at or before the meeting.


B.	The number of judge or judges appointed shall be either one (1) or three (3).


C.	No person who is a candidate for office shall be appointed and act as a judge of election.


D.	Should a judge fail to appear, refuse or be unable to act, that vacancy shall be filled by appointment made by the chairman or presiding officer at the meeting.


E.	The duties of the judge or judges of election shall be as follows:


1.	To determine the number of shares outstanding and the voting power of each Shareholder.


2.	To determine the shares represented at the meeting.


3.	To determine the existence of a quorum pursuant to these Bylaws.


4.	To determine the authenticity, validity, and effect of proxies.


5.	To hear and determine all challenges and questions in any way arising in connection with the right to vote at the election.


6.	To count and tabulate all votes and determine the result of the election.


7.	And to do such acts as may be proper to conduct the election or vote with fairness to all Shareholders.


F.	If there are three judges, the decision of the majority of the judges shall be effective in all respects as if the decision had been made by all unanimously. If there is a single judge, the decision of that judge shall govern.


G.	On request of the chairman or the presiding officer or any Shareholder or a Shareholder's proxy, the judge or judges may make a report in writing of any challenge or question or matter determined by him.


1.	Any report made by the judge or judges shall be prima facie evidence of the facts stated in the report.

SECTION 13 - Determination of Shareholders' of Record:

The Board of Directors may fix a Record Date, not more than ninety (90) days prior to:


A.	The date of any meeting of the Shareholders, or


B.	The date fixed for the payment of any dividend, or


C.	The date when any change or conversion or exchange of shares shall take effect.

The Record Date shall determine the Shareholders' of Record entitled to the following:


A.	To receive notice of the meeting;


B.	To be entitled to vote at such meeting; and/or


C.	To receive payment of such dividend; and/or


D.	To receive any allotment of rights; and/or


E.	To exercise any rights, notwithstanding any transfer of any shares on the books of the Corporation after the Record Date.


F.	When a determination of Shareholders of Record has been made for purposes of a meeting, the determination shall apply to any adjournment thereof unless the Board fixes a new Record Date for the adjourned meeting.

SECTION 14 - Voting Lists :

The officer or agent having charge of the transfer books for shares of the Corporation shall make a complete list of the Shareholders as of the record date entitled to vote at the meeting.


A.	The list will be arranged in alphabetical order with the address and the number of shares of each Shareholder.


B.	The list shall be kept on file at the registered office of the Corporation and shall be subject to an inspection by any Shareholder at any time during usual business hours.


C.	The list shall also be produced and kept open at the time and place of the Shareholders' meeting and shall be subject to the inspection by any Shareholder during the time of the meeting.


D.	The list of Shareholders shall be evidence as to who are the Shareholders entitled to examine the lists, or to vote in person or by proxy, at any Shareholders' meeting.

SECTION 15 - Examination of Records :

Upon reasonable advance notice in writing, every Shareholder shall have the right to examine in person or by agent or by attorney at any reasonable time or times and for any reasonable purpose the share register, the books of records of account, and records of the proceedings of the Shareholders and Directors.

SECTION 16 - Presiding Officer :

All meetings of the Shareholders shall be called to order and presided over by the Chairman, or, by a temporary Chairman elected by the Shareholders present at the meeting.

SECTION 17 - Nominations for Directors :

Nominations for the election of Directors may be made by the Board of Directors or by any Shareholder entitled to vote for the election of Directors. Nominations made by Shareholders entitled to vote for the election of Directors shall be made by notice, in writing, delivered or mailed by registered return receipt mail, postage prepaid, to the Secretary of the Corporation, not less than fifty (50) days prior to any meeting to the Shareholders called for the election of Directors; provided, however, that if less than twenty-one (21) days notice of the meeting is given to the Shareholders, such a nomination shall be delivered or mailed to the Secretary of the Corporation not later than the close of the seventh (7th) day following the date on which the notice of the meeting was mailed to the Shareholders. Such notification shall contain the following information to the extent known to the Shareholder intending to nominate any candidate for election to the Board of Directors:


A.	The names, ages, and resident addresses of each of the proposed nominees;


B.	The principal occupation or employment and business address of each proposed nominee; and


C.	The total number of shares of the Corporation that, to the knowledge of the notifying Shareholders, will be voted for each of the proposed nominees;


D.	The name and resident address of the notifying Shareholder;


E.	The number of shares owned by the notifying Shareholder.

The nomination for a Director who has not previously served as a Director shall be made from among the then serving Alternate Directors. Nominations for Alternate Directors shall be made in the same manner as Directors and in accordance to the then applicable provisions of these By-Laws for such nominations. Any nomination for Director made by a Shareholder that is not made in accordance herewith may be disregarded by the Nominating Committee of the Board, if there be one, or, if not, by the Secretary of the meeting, and the votes cast for such nominee may be disregarded by the judges of election.

ARTICLE III

Directors

SECTION 1 - Number and Classification:

The business and affairs of the Corporation shall be managed by a Board of Directors.

The Board of Directors shall be individuals who need not be residents of the Commonwealth of Pennsylvania. All Directors must be Shareholders of the Corporation. An individual shall be eligible to be a Director of the Corporation only if he or she previously has been a Director or an Alternate Director of the Corporation, except as may be agreed upon by the Board of Directors in connection with the execution by the Corporation of a definitive acquisition agreement or agreement and plan of merger. Individuals shall retire from the Board of Directors on the first day of the month following their seventy-second (72nd) birthday. Notwithstanding this mandatory retirement provision, no later than the date on which an individual director must retire pursuant to this Section 1.A.; the Board of Directors, by the affirmative vote of a majority of directors at a duly called and convened meeting of the Board, may extend the retiring Director’s service eligibility for up to an additional three years from the date on which such Director would be required to retire and thereby permit him or her to be eligible to serve as a director for up to three additional years.

The Board of Directors shall have the power to fix the number of Directors and to determine, from time to time, in which category a Director shall be placed. The categories of Directors shall be Class I, Class II, and Class III. Action may be taken by the Board from time to time, by proper resolution, to increase or decrease the number of Directors without a vote of the Shareholders, provided that the number of Directors is not less than five (5) or more than twenty-five (25).


1.	In the event that the Board of Directors shall decide by resolution to reduce the size of the Board, they must include within the resolution a statement as to the term of a Director or Directors who will be removed from office or terminate at the end of their then-existing term.

The Board of Directors shall be divided into three classes to be known as Class I, Class II, and Class III. Each class shall be as nearly equal in number as possible, with the term of office of one class expiring each year. Of the initial classified Board of Directors first chosen, after adoption of these Bylaws, Class I shall consist of three (3) Directors who shall be elected to hold office for the term of one (1) year or until the next annual election; Class II shall consist of four (4) Directors each to hold office for two (2) years, or until the second annual election. Class III shall consist of four (4) directors each to hold office for three (3) years, or until the third annual election. At each annual election, the successors to each class of Directors, whose terms shall expire in that year, shall be elected to hold office for the term of three (3) years, so that the term of office of one class of Directors shall expire each year when their respective successors have been duly elected by the Shareholders and qualified. At each annual election of Directors by the Shareholders of the Corporation held during and after the third year or until the third annual election, the Directors chosen to succeed those whose terms then expired shall be identified as being of the same class of Directors they succeed. When the number of Directors has changed, then the newly-created directorship or any decrease in directorships shall be apportioned among the classes of Directors as to make all classes as nearly equal in number as possible.

In addition to the Directors elected in accordance with Article III, Section 1, B., 2. herein above, there may be elected by the Shareholders at the annual meeting of the Shareholders alternate directors who shall be called "Alternate Directors." The Board of Directors shall have the power to fix the number of Alternate Directors. Action may be taken by the Board of Directors to increase or decrease the number of Alternate Directors without a vote of Shareholders, provided that the number of Alternate Directors is not more than four (4). There shall be no minimum number of Alternate Directors. An Alternate Director shall serve in such office for a term of one (1) year.

Alternate Directors shall attend all meetings of the Board of Directors and shall have the right to participate in the discussions held. However, Alternate Directors shall have no voting power, and shall not be included in determining whether a quorum of the Board is present. Alternate Directors may be appointed to any committee of the Board except Executive Committee, upon the discretion of the Board of Directors. They shall be paid for their attendance at the meetings of the Board of Directors in accordance with the resolutions adopted by the Board.


E.	Under applicable law, rules and regulations, and the requirements of the Self-Regulatory Organization upon which the Corporation’s shares are quoted or listed, a majority of the Directors must be independent. Consideration thereof must be given during the Director nomination process to assure these standards are satisfied.

SECTION 2 - Election :

The Directors shall be elected at the Annual Meeting of the Shareholders.


A.	If not elected at an annual meeting, they may be elected at a special meeting called for that purpose.


B.	Each Director shall hold office until his successor is elected or until his resignation, removal from office, or death.

SECTION 3 - Vacancies :

The Board of Directors shall appoint a Director from the pool of Alternate Directors to fill any vacancy of the Board of Directors created by the resignation, death, incapacity, or removal from office of any Director. An Alternate Director appointed to fill such vacancy shall serve the unexpired term of the Director he replaces. Any such appointment by the Board of Directors shall be approved by a majority vote of the remaining members of the Board of Directors, even though it may be less than a quorum.


A.	Within the meaning of this section, a vacancy or vacancies shall be deemed to exist in case the Board of Directors shall increase the authorized number of Directors but shall fail at the meeting at which such increase is authorized and approved to elect the additional Directors provided for, or in case the Shareholders shall fail at any time to elect a full Board of Directors.

In the event of a vacancy in the pool of Alternate Directors, the Board of Directors during the year prior to the Shareholders' meeting shall have the right to appoint a successor Alternate Director who shall serve in that capacity until the next annual Shareholders' meeting. Said appointment shall be approved by a majority vote of the remaining members of the Board, even though it may be less than a quorum.

SECTION 4 - Resignation of Directors :

A Director or an Alternate Director may resign at any time by written resignation delivered to the Secretary. Unless otherwise specified in the resignation, it shall take effect upon receipt by the Secretary. Failure of a member of the Board of Directors or an Alternate Director to attend regular meetings of the Board for six months, unless excused by resolution of the Board of Directors, shall automatically constitute a resignation, effective upon acceptance by the Board of Directors.

SECTION 5 - Removal of Directors :

Any Director or Alternate Director, any class of Directors, or the entire Board of Directors of the Corporation, may be removed from office at any time only for cause, by the affirmative vote of a majority of the Board of Directors in office, or by the affirmative vote of the holders of at least 75% of the shares of the Corporation, issued, outstanding, and entitled to vote for the election of Directors. Cause shall include, but not be limited to, the following:


A.	Mismanagement, collusion, or fraud;


B.	Improper conduct relating to the funds of the Corporation;


C.	Violation of the fiduciary duty of the Directors or Alternate Directors;


D.	All acts, omission, and concealments which involve a breach of the legal or equitable duty, trust, or confidence justly reposed in a Director or Alternate Director;


E.	Wasting of corporate assets;


F.	Judicially declared of unsound mind; or


G.	Conviction of an offense punishable by imprisonment for a term of more than one (1) year.

SECTION 6 - Regular Meetings of the Board of Directors :

The Board of Directors shall, without notice, hold an annual meeting immediately after the Annual Meeting of the Shareholders, or after the last adjournment thereof, and shall hold other regular meetings at such times and places as it may determine.

SECTION 7 - Special Meetings :

The Board of Directors shall hold such special meetings as shall be called by the Chairman, or President, or the Vice President, or the majority of the Directors in office, as defined in Article V of Section 6.


A.	Each meeting shall be held at such time and place as shall be designated in the notice of the meeting sent by the Secretary.

SECTION 8 - Notice of Meetings :

Written notice of all meetings except the annual meeting of the Board of Directors shall be given by, or at the direction of, the person or persons calling the meeting at least one (1) day prior to the day named for the meeting.

SECTION 9 - Presiding Officer and Order of Business :

All meetings of the Directors shall be called to order and presided over by the Chairman, or in his absence, by the President. If the Chairman or the President is not present, the Board of Directors shall elect a temporary Chairman. At the annual meeting the Chairman shall preside and have a temporary Chairman elected for the purpose of conducting the election of Directors.


A.	As far as consistent with the purpose of the meeting, the order of business at all meetings shall be as follows:


1.	Roll call.


2.	Reading of the minutes of the preceding meeting and action on the minutes.


3.	Reports of officers and committees as called for by the presiding officer.


4.	Unfinished business.


5.	New business.


6.	Adjournment.

SECTION 10 - Quorum :

A majority of the Directors in office shall be necessary to constitute a quorum for the transaction of business.


A.	The acts of the majority of the Directors present at a meeting at which a quorum is present shall be the acts of the entire Board of Directors.


B.	If the Directors shall unanimously consent in writing to any action to be taken by the Corporation, that action shall be a valid corporate action as though it had been authorized at a meeting of the Board of Directors.

SECTION 11 - Powers of Board of Directors :

All general and special powers of the Corporation shall be exercised by the Board of Directors.


A.	The Board of Directors may, by resolution adopted by a majority of the Board of Directors, delegate two (2) or more of its members to act as an Executive Committee.


1.	To the extent permitted by law and except as to matters reserved to the Board of Directors in these By-Laws, the Executive Committee shall have and exercise the authority of the Board of Directors in the management of the business and affairs of the Corporation during the intervals between meetings of the Board of Directors.


B.	The Board of Directors shall have power, in general, to do all things in and about the control and management of the business, the property, and affairs of the Corporation, consistent with the law and the Articles and Bylaws of the Corporation.


1.	The Board of Directors may from time to time adopt such regulations with respect to the powers and duties of the officers of the Corporation and the conduct of the Corporation's business as the Board may deem proper and expedient.


C.	The Board of Directors of the Corporation, when evaluating any offer of another party to:


1.	Make a tender or exchange offer for any equity security of the Corporation;


2.	Merge or consolidate the Corporation with another corporation;


3.	Purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation; or


4.	Engage in any transaction similar to, or having similar effects as, any of the foregoing transactions;

shall, in connection with the exercise of its judgment in determining what is the best interest of the Corporation and its Shareholders, give due consideration to all relevant factors, including, without limitation, the social and economic effects of the proposed transaction on the depositors, employees, suppliers, customers, and other constituents of the Corporation and its subsidiaries,

and on the communities in which the Corporation and its subsidiaries operate or are located, the business reputation of the other party, and the Board of Directors' evaluation of the then value of the Corporation in a freely negotiated sale and of the future prospects of the Corporation as an independent entity.

SECTION 12 - Financial Report to Shareholders :

The Board of Directors shall send to the Shareholders copies of an annual report containing audited financial statements of the Corporation and its subsidiaries within such time period prior to the Corporation’s annual meeting of Shareholders as required by applicable law.

SECTION 13 - Committees :

The Board of Directors, by resolution adopted by a majority of all of the Directors may, from time to time, appoint or eliminate such standing or special committees that consist of one or more Directors of the Corporation. A committee charter shall spell out the responsibilities of each committee, including any applicable regulatory requirements governing size, functions and independence standards of Director membership. Any committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all of the powers and authority of the Board, except that a Committee shall not have any power or authority as to the following:


A.	Submission to Shareholders of any action requiring approval of Shareholders;


B.	Creation of/or filling of vacancies in the Board of Directors;


C.	Adoption, amendment, or repeal of the Bylaws;


D.	Amendment or repeal of any resolution of the Board that by its terms is amendable or repealable only by the Board; or


E.	Action on matters committed by the Bylaws or resolution of the Board of Directors to another committee of the Board.

SECTION 14 - Standard of Care and Justifiable Reliance :


A.	A Director or Alternate Director shall stand in a fiduciary relation to the Corporation and shall perform his duties as a Director or Alternate Director, including his duties as a member of any committee of the Board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation and with such

care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence

would use under similar circumstances. In performing his duties, a Director or Alternate Director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:


1.	One or more officers or employees of the Corporation whom the Director or Alternate Director reasonably believes to be reliable and competent in the matters presented.


2.	Counsel, public accountants or other persons as to matters which the Director or Alternate Director reasonably believes to be within the professional or expert competence of such person.


3.	A committee of the Board upon which he does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the Director or Alternate Director reasonably believes to merit confidence.

A Director or Alternate Director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted.

In discharging the duties of their respective positions, the Board of Directors, committees of the Board, individual Directors and individual Alternate Directors may, in considering the best interests of the Corporation, consider the effects of any action upon employees, upon suppliers and customers of the Corporation and upon communities in which offices or other establishments of the Corporation are located, and all other pertinent factors. The consideration of those factors shall not constitute a violation of Section 14A of this Article.


C.	Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a Director or Alternate Director or any failure to take any action shall be presumed to be in the best interests of the Corporation.

SECTION 15 - Limitation of Directors' Liability :

A Director or Alternate Director of the Corporation shall not be personally liable, as such, for monetary damages for any action taken, or any failure to take any action unless the Director or Alternate Director has breached or failed to perform his duties of his office as provided under Section 14 of this Article, and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. This provision shall not apply to the responsibility or liability of a Director or Alternate Director pursuant to any criminal statute or for the liability of a Director or Alternate Director for the payment of taxes pursuant to local, state, or federal law, nor shall this provision apply to any actions filed prior to the date of the adoption of this provision, nor to any breach of performance of duty or any failure of performance of duty by a Director or Alternate Director prior to the date of adoption of this provision. If the Pennsylvania Consolidated Statutes are hereafter amended to authorize the further elimination or limitation of the liability of directors, then the liability of a Director or Alternate Director, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Pennsylvania Consolidated Statutes. Any repeal or modification of this section shall be prospective only, and shall not adversely affect any limitation on the personal liability of a Director or Alternate Director existing at the time of such repeal or modification.

ARTICLE IV

Indemnification

SECTION 1 - Indemnification :

The Corporation shall indemnify, to the fullest extent and manner authorized or permitted by the laws of the Commonwealth of Pennsylvania, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), any person who is or was or shall be a Director, Alternate Director, Officer, employee or agent of the Corporation, or who is, was, or shall be serving at the request of the Corporation as a Director, Alternate Director, officer, employee or agent of another Corporation, partnership, joint venture, trust, charitable, religious or educational organization or other enterprise, and the respective heirs, executors, administrators and assigns of each of the foregoing, against all reasonable expenses and liabilities (including, without limitation, attorneys' fees, court costs, fines, ERISA excise taxes or penalties and amounts paid in satisfaction of judgments or in reasonable settlement), actually and reasonably incurred by, or imposed upon him in connection with, or resulting from the defense of any civil or criminal action, suit or proceeding whether civil, criminal, administrative or investigative (or any appeal therein), including without limitation an action, suit or proceeding by or in the right of the Corporation, in which they, or any of them, are made parties or a party or are otherwise involved by reason of being or having been a Director, Alternate Director, officer, employee or agent of the Corporation or of such other Corporation, whether or not he is or continues to be a Director, Alternate Director, officer, employee or agent at the time such expenses or liabilities are paid or incurred. Notwithstanding the foregoing, the Corporation need not indemnify such Director, Alternate Director, Officer, employee or agent with respect to any matter as to which he shall be finally adjudged in such action, suit or proceeding to have been liable for willful misconduct or recklessness in the performance of his duties as such Director, Alternate Director, officer, employee or Agent. In the case of a criminal action, suit or proceeding, a conviction (whether based on a plea of guilty or nolo contenders or its equivalent, or after trial) shall not of itself be deemed an adjudication that such Director, alternate Director, officer, employee or agent or former Director, Alternate Director, officer, employee or agent is liable for willful misconduct or recklessness in the performance of his duties as such Director, Alternate Director, officer, employee or agent. With respect to payment of amounts in settlement or compromise, the Corporation shall be obliged to indemnify hereunder only if the Board of Directors shall adopt a resolution determining that such settlement or compromise is reasonable, and approving the same.

The indemnification provided hereunder shall be in addition to and not exclusive of any other right to which those seeking indemnification may be entitled under any agreement, vote of Shareholders, or disinterested Directors, other By-Law, or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding such office; and shall continue as to a person who has ceased to be a Director, Alternate Director, or officer, and shall inure to the benefit of their heirs, executors, and administrators of such person.


B.	The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, Alternate Director, officer, employee or agent, is now or was serving at the request of the Corporation as a Director, Alternate Director, officer, employee or

agent of a subsidiary of the Corporation, another company, partnership, joint venture, trust, charitable, religious, or educational organization, or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions above mentioned.

SECTION 2 - Expenses :

Expenses incurred by a Director, Alternate Director, officer, employee or agent in defending a civil or criminal action, suit or proceeding, may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of any undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation.

ARTICLE V

Officers

SECTION 1 - Election of Officers and Agents :

At the Annual Meeting, the Board of Directors shall elect:


A.	A Chairman;


B.	A President;


C.	Any number of Vice Presidents they deem desirable as is fixed by a resolution of the Board of Directors;


D.	A Secretary;


E.	A Treasurer;


F.	One or more Assistant Secretaries and Assistant Treasurers;


G.	And any other officers, assistant officers, and agents as the Board deems advisable. Any two (2) or more offices may be held by the same person.

SECTION 2 - Terms and Compensation :

The Board of Directors shall determine the terms and compensation for all officers.


A.	All officers elected by the Board shall be elected for a term of one (1) year and until their reelection at the Annual Meeting of the Board of Directors, unless prior thereto an officer shall resign, become disqualified, or be removed. Vacancies occurring in any office shall be filled by the Board of Directors.


B.	Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served by removing that officer.


C.	Any removal of an officer shall be without prejudice to the contract rights, if any, of the officer removed.

SECTION 3 - Chairman :

The Chairman's duties shall be as follows:


A.	The Chairman shall preside at the Annual Meeting of the Shareholders and shall act as the presiding officer unless a temporary Chairman is elected by the Shareholders present at the meeting.


B.	The Chairman shall act as the presiding officer at all Directors' meetings and in the event of the Chairman's absence, the President shall act in his place and stead.


C.	The Chairman, along with the President, shall submit a written annual report to the Board of Directors and Shareholders.

SECTION 4 - President:

The President's duties shall be as follows:


A.	He shall preside at all meetings of the Directors in the event that the Chairman is absent. He shall preside at the Annual Meeting of Shareholders in the event of the absence of the Chairman.


B.	He shall be ex-officio a member of all standing committees.


C.	He shall have the custody of the corporate seal, although he may entrust the corporate seal to his Secretary.


D.	He shall make reports of the Corporation's business to the Board of Directors at such times as the Board shall require.


E.	He shall perform all the usual duties incident to the office of President.

SECTION 5 - Chief Executive Officer

The Board of Directors shall designate whether the President or the Chairman shall be the Chief Executive Officer of the Corporation, and may change this designation as appropriate from time to time. The Chief Executive Officer shall have general executive powers concerning all business of the Corporation subject only to the control of the Board of Directors. General business and operations powers may be delegated to any other executive management team member that the Chief Executive Officer deems advisable.

SECTION 6 - Vice Presidents :

The Board of Directors may designate one or more Vice Presidents of the Corporation, with appropriate authority to act on behalf of the Corporation; that order of authority for shall be as follows:

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

These Vice Presidents shall have such responsibilities as determined by the Board of Directors or the Chief Executive Officer. In the absence or disability of the President, those duties shall be performed by the most senior Vice President listed above, unless otherwise provided by the Board of Directors.

SECTION 7 - Secretary :

The Secretary shall attend the meeting of the Shareholders and the Directors and keep minutes of those meetings in the Corporate Minute Book.


A.	The Secretary shall send out all notices for Shareholder meetings and Directors meetings, unless some other person is delegated to give that notice.


B.	The Secretary shall perform all the usual duties incident to the office of Secretary.

SECTION 8 - Treasurer :

The Treasurer shall receive all money paid to the Corporation and keep, or cause to be kept, accurate accounts of all monies received or payments made and books kept for that purpose.


A.	He shall deposit all monies received by him in the name and to the credit of the Corporation in a bank or other place of deposit as the Board of Directors shall determine.


B.	As directed by the president or the Board of Directors, he shall disburse the money of the Corporation by checks or vouchers.


C.	He shall give bond for the faithful discharge of his duties.


D.	He shall perform all the usual duties incident to the office of the Treasurer.

SECTION 9 - Assistant Secretaries :

In the absence or disability of the Secretary, his duties shall be performed by the Assistant Secretaries. They shall perform such other duties as may be assigned to them by the President or the Board of Directors.

SECTION 10 - Assistant Treasurers :

In the absence or disability of the Treasurer, his duties shall be performed by the Assistant Treasurers. They shall perform such other duties as may be assigned to them by the President or the Board of Directors.

ARTICLE VI

Share Certificates and Transfers

SECTION 1 - Share Certificates :

Shares of the Corporation’s stock may be certificated or uncertificated, as may be determined by resolution of the Board of Directors with respect to some or all of any or all classes of the Corporation’s capital stock, provided that a resolution that shares shall be uncertificated shall not apply to shares represented by a Certificate until such Certificate is surrendered to the Corporation. Share Certificates of the Corporation shall be in such form as the Board of Directors shall determine, subject to any applicable legal requirements.


A.	Every Share Certificate shall be signed by the Chairman and Secretary, or by any other officer designated by the Board of Directors, and sealed with the corporate seal.


B.	The corporate seal may be affixed by a facsimile, engraved or printed, and where the Share Certificate is signed by a transfer agent, the signature of any corporate officer upon such Certificate may be a facsimile, engraved or printed.


C.	Within a reasonable period of time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written notice (“Share Notice”) containing the information required by applicable law to be set forth on Share Certificates.

SECTION 2 - Transfer of Shares :

Certificated shares of the capital stock of the Corporation shall be transferable upon the books of the Corporation only upon the surrender and cancellation of the Share Certificate.: The transfer shall be at the request of the holder named in the surrendered Certificate or by his legal representative or by his attorney-in-fact duly authorized by a written power of attorney filed with the Corporation's transfer agent.


B.	Uncertificated shares of the capital stock of the Corporation shall be transferable upon the books of the Corporation upon receipt of proper transfer instructions from the holder named in the Stock Notice or by his legal representative or by his attorney-in-fact duly authorized by a written power of attorney filed with the Corporation's transfer agent.

SECTION 3 - Loss or Destruction of Share Certificates :

In case of loss or destruction of a Share Certificate, another may be issued in lieu thereof in such manner and upon such terms as the Board of Directors shall authorize in each particular case.

SECTION 4 - Transfer Agents and Registrars :

The Board may appoint from time to time a qualified outside third party as recommended by management to act as registrar of transfer and transfer agent with other related services provided as needed. No Share Certificate or Share Notice shall be valid or binding upon the Corporation unless registered by the Corporation’s registrar of transfer and transfer agent. The

Board of Directors may set forth additional rules and regulations as it may deem prudent concerning the issue, transfer, and registration of share certificates.

ARTICLE VII

Amendments

SECTION 1 - Amendments To Bylaws :

The authority to make, amend, alter, change, or repeal the Bylaws of the Corporation is hereby specifically granted to and vested in the Board of Directors of the Corporation which must be approved by a vote of the majority of the Board of Directors in office at any regular or special meeting, duly convened after notice for that purpose. This authority is subject to the power of the Shareholders to make, amend, alter, change, or repeal the Bylaws of the Corporation by the affirmative vote of seventy-five percent (75%) of the shares of the Corporation's capital stock issued, outstanding and entitled to vote, at any regular or special meeting duly convened after notice of that purpose. Notwithstanding the foregoing, the Board does not have the power to amend any Bylaw provision that is required by law to be amended by the Shareholders of the Corporation.

ARTICLE VIII

Miscellaneous

SECTION 1 - Statement Relating To Act 92 of 1983 :

Until otherwise authorized by amendment to these Bylaws adopted in accordance with the provisions of Article VIII, Section 1., of these Bylaws, the provisions of Section 910 of the Pennsylvania Business Corporation Law (15 P.S. 1910) as amended by Act 92 enacted December 23, 1983, shall not be applicable to the Corporation.

SECTION 2 - Statement Relating To Act 36 of 1990 :

Until otherwise authorized by amendment to these Bylaws adopted in accordance with the provisions of Article VIII, Section 1., of these Bylaws, the provisions of Subchapter G and Subchapter H of the Business Corporation Act of 1988 (the "BCL") as amended by Act 36 of 1990 enacted April 27, 1990, shall not be applicable to the Corporation, and that Subchapter I and Subchapter J of the BCL as amended by Act 36 of 1990 shall not control nor have any affect on the Corporation.

Exhibit No. 10.1

UNIVEST CORPORATION OF PENNSYLVANIA

AMENDED AND RESTATED

UNIVEST 2013 LONG-TERM INCENTIVE PLAN

SECTION 1. Purpose; Definitions .

The name of this plan is the Amended and Restated Univest 2013 Long‑Term Incentive Plan (the “Plan”). The purpose of the Plan is to enable certain Employees and Non-Employee Directors of Univest Corporation of Pennsylvania (the “Corporation”) and its Subsidiaries to (i) own shares of stock, or stock-based rights, in the Corporation, (ii) participate in the shareholder value which has been created, (iii) have a mutuality of interest with other shareholders and (iv) enable the Corporation to attract, retain, and motivate key Employees of particular merit.

For the purposes of the Plan, the following terms shall be defined as set forth below:

(a) " Award” means the grant under the Plan of Stock Option, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Long-Term Performance Awards.

(b) “Board” means the Board of Directors of the Corporation.

(c) “Cause” means a felony conviction of a Participant or the failure of a Participant to contest prosecution for a felony, or a Participant’s willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Corporation.

(d) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.

(e) “Committee” means the Committee referred to in Section 2 of the Plan. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Compensation Committee of the Board.

(f) “Corporation” means Univest Corporation of Pennsylvania, a corporation organized under the laws of the Commonwealth of Pennsylvania, or any successor organization.

(g) “Disability” means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months.

(h) “Employee” means any common law employee of the Corporation or a Subsidiary. An Employee does not include any individual who: (i) does not receive payment for services directly from the Corporation’s or a Subsidiary’s payroll; (ii) is employed by an employment agency that is not a Subsidiary; or (iii) who renders services pursuant to a written arrangement that expressly provides that the service provider is not eligible for participation in

the Plan, regardless if such person is later determined by the Internal Revenue Service or a court of competent jurisdiction to be a common law employee.

(i) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(j) “Fair Market Value” means, for all purposes under the Plan, the last reported sale price of the Stock on the relevant national securities exchange for the applicable date.

(k) “Incentive Stock Option” means any Stock Option intended to be and designated as an “Incentive Stock Option” within the meaning of Code Section 422.

(l) “Long-Term Performance Award” or “Long Term Award” means an Award made pursuant to Section 8 below that is payable in cash and/or Stock (including Restricted Stock) in accordance with the terms of the grant, based on Corporation, business unit and/or individual performance.

(m) “Non-Employee Director” means a member of the Board, or of the board of directors of a Subsidiary or any other body performing the function of a board of directors, who is not an Employee.

(n) “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

(o) “Participant” means an Employee or Non-Employee Director to whom an Award is granted pursuant to the Plan and which Award remains outstanding.

(p) “Plan” means this Amended and Restated Univest 2013 Long-Term Incentive Plan, as hereinafter amended from time to time.

(q) “Restricted Stock” means an Award of shares of Stock that is subject to restrictions pursuant to Section 7 below.

(r) “Restricted Stock Unit” means an Award that is subject to the provisions Section 7A below.

(s) “Restriction Period” means the period set forth by the Committee commencing with the date of an Award as provided in Section 7(c) or Section 7A(c) as applicable.

(t) “Rules” means Section 16 of the Exchange Act, and the regulations promulgated thereunder.

(u) “Securities Broker” means the registered securities broker acceptable to the Corporation who agrees to effect the cashless exercise of an Option pursuant to Section 5(1) hereof.

(v) “Stock” means the Common Stock of the Corporation, par value $5.00 per share.

(w) “Stock Appreciation Right” means the right, pursuant to an Award granted under Section 6 below, to surrender to the Corporation all (or a portion) of a Stock Option in exchange for an amount equal to the difference between (i) the Fair Market Value, as of the date such Stock option (or such portion thereof) is surrendered, of the shares of Stock covered by such Stock Option (or such portion thereof), and (ii) the aggregate exercise price of such Stock Option (or such portion thereof).

(x) “Stock Option” or “Option” means any option to purchase shares of Stock (including Restricted Stock, if the Committee so determines) granted pursuant to Section 5 below.

(y) “Subsidiary” means a subsidiary corporation, as defined in Code Section 424(f), of the Corporation.

SECTION 2. Administration .

The Plan shall be administered by a Committee of not less than two Non-Employee Directors, who shall be appointed by the Board of Directors of the Corporation and who shall serve at the pleasure of the Board; provided, however, that at any time no such Committee is emplaced, the Compensation Committee of the Board shall exercise the Committee’s functions as described herein and any reference to the Committee shall in such circumstances be deemed a reference to such Compensation Committee. Each member of the Committee shall meet the requirements of a non-employee director as defined in Rule 16b-3(b)(3)(i) as promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission.

The Committee shall have the authority to grant to eligible Employees and Non- Employee Directors, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Restricted Stock Units, and/or (v) Long‑Term Performance Awards.

In particular, the Committee shall have the authority:

(a) to select the Employees and Non-Employee Directors to whom Awards may from time to time be granted hereunder;

(b) to determine whether and to what extent Awards, are to be granted hereunder;

(d) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder: including, but not limited to, the share price and any restriction or limitation, or any vesting acceleration or forfeiture waiver regarding any Award and/or the shares of Stock relating thereto, based on such factors as the Committee shall determine, in its sole discretion;

(e) to determine whether and under what circumstances a Stock Option may be settled in cash or stock;

(f) to determine whether and under what circumstances a Stock Option may be exercised without a payment of cash under Section 5( l ); and

(g) to determine whether, to what extent and under what circumstances, consistent with the requirements of Code Section 409A, Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant.

The Committee shall have the authority to adopt, alter, and repeal such administrative rules, guidelines, and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any Award (and any agreements relating thereto); and to otherwise supervise the administration of the Plan.

All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Corporation and Participants.

SECTION 3. Stock Subject to the Plan .

(a) Stock Subject to Plan . The initial total aggregate number of shares of Common Stock for which Awards may be made under the Plan shall not exceed 2,000,000 shares. Notwithstanding the foregoing, the number of shares of Common Stock available for issuance under the Plan, including shares subject to then outstanding Awards, shall automatically increase on the first trading day of January of each calendar year during the term of the Plan, beginning with calendar year 2014, by an amount equal to the lesser of (i) 12½% of the positive difference, if any, between the number of outstanding shares of Common Stock, including shares subject to outstanding Awards, on the last trading day of the immediately preceding calendar year and the number of outstanding shares of Common Stock, including shares subject to outstanding Awards, on the first trading day of such immediately preceding calendar year; or (ii) an amount determined by the Board. No Incentive Stock Options may be granted on the basis of the additional shares of Common Stock resulting from such annual increases. The limitation established by this Section shall be subject to adjustment as set forth in Paragraph 3(d) below.

Notwithstanding the foregoing, (i) no individual shall receive, over the term of the Plan, Awards covering in the aggregate more than 30% of the shares of Stock authorized for grant under the Plan and (ii) in any calendar year, the total number of shares of Stock with respect to which Awards may be granted to any individual under this Plan shall not exceed, subject to adjustment in accordance with paragraph 3(d) below, 250,000 shares.

(b) Unused, Forfeited, and Reacquired Shares . Shares of Stock not distributed as a result of unexercised or partially unexercised and terminated Awards, or shares of Stock under Awards in which the rights to receive or retain Stock have otherwise been terminated, expired or forfeited, and with respect to which Stock no material benefit was received by a Participant (e.g., dividends), shall again be made available for distribution in connection with future Awards under the Plan to the extent not inconsistent with available exemptions under the Rules. Any shares made available for distribution in connection with future Awards pursuant to this

paragraph (b) shall be added to the shares then otherwise remaining available pursuant to paragraph (a) of this Section 3.

(c) Other Adjustment . In the event of any merger, reorganization, consolidation, recapitalization, Stock dividend, or other change in corporate structure affecting the Stock, such substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the Plan, in the number and option price of shares subject to outstanding Options granted under the Plan and in the number and price of shares subject to other Awards, as may be determined to be appropriate by the Committee in its sole discretion; provided, however, that any such adjustments shall be made in a manner consistent with the regulations under Code Section 409A so as not to cause the Plan or any Award to become subject to the application of Code Section 409A, and provided further, to the extent consistent with the foregoing, the number of shares subject to any Award shall always be a whole number. Such adjusted option price shall also be used to determine the amount payable by the Corporation upon the exercise of any Stock Appreciation Right associated with any Stock Option.

SECTION 4. Eligibility .

Employees and Non-Employee Directors are eligible to be granted Awards under the Plan.

SECTION 5. Stock Options .

Stock Options may be granted alone, in addition to or in tandem with other Awards granted under the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options.

The Committee shall have the authority to grant any Participant Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights), provided that Incentive Stock Options may only be granted to Employees. To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option.

Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Code Section 422, or, without the consent of the Participant(s) affected, to disqualify any Incentive Stock Option under Code Section 422. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate:

(a) Option Price . The option price per share of Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. However, any Incentive Stock Option granted to any Participant who, at the time the option is granted, owns more than 10% of the voting power of all classes of stock of the Corporation or of a parent or subsidiary of the

Corporation, shall have an exercise price no less than 110% of Fair Market Value per share on the date of grant.

(b) Option Term . The term of each Stock Option shall be fixed by the Committee, but no Incentive Stock Option shall he exercisable more than ten years after the date the Option is granted and no Non-Qualified Stock Option shall be exercisable more than ten years and one day after the date the Option is granted. However, any Incentive Stock Option granted to any Participant who, at the time the option is granted owns more than 10% of the voting power of all classes of Stock of the Corporation or of a parent or subsidiary of the Corporation may not have a term of more than five years. No Stock Option may be exercised by any person after expiration of the term of such Option.

(c) Exercisability . Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant; provided, however, that, except as provided in Section 5(f) and Section 9, unless otherwise determined by the Committee at the time of grant, no Stock Option shall be exercisable during the six months following the date of the granting of the Option. If the Committee provides, in its discretion, that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time at or after grant in whole or in part, based on such factors as the Committee shall determine, in its sole discretion.

(d) Method of Exercise . Subject to any applicable vesting period or installment exercise provisions that may apply under Section 5(c), Stock Options may be exercised in whole or in part at any time and from time to time during the Option term, by giving written notice of exercise to the Corporation specifying the number of shares to be purchased.

Such notice shall be accompanied by payment in full of the purchase price, either by certified or bank check or such other instrument as the Committee may accept. As determined by the Committee, in its sole discretion, at or after grant, payment in full or in part may also be made in the form of unrestricted Stock already owned by the Participant or, in the case of the exercise of a Non-Qualified Stock Option, by the withholding of whole shares of Stock (based, in each case, on the Fair Market Value of the Stock on the date the option is exercised); provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares may be authorized only at the time the option is granted.

No shares of Stock shall be issued until full payment therefore has been made. An Participant shall generally have the rights to dividends or other rights of a shareholder with respect to shares subject to the Option only after the Participant has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in Section 12(a).

(e) Non-Transferability of Options . No Stock Option shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the Participant’s lifetime, only by the Participant.

(f) Termination by Reason of Death . Subject to Section 5(j), if a Participant’s employment or service with the Corporation and any Subsidiary terminates by reason of death,

any Stock Option held by such Participant may thereafter be exercised, to the extent then exercisable or on such accelerated basis as the Committee may determine at or after grant, by the legal representative of the estate or by the legatee of the Participant under the will of the Participant, for a period of one year (or such shorter period as the Committee may specify at the time of grant) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter.

(g) Termination by Reason of Disability . Subject to Section 5(j), if a Participant’s employment or service with the Corporation and any Subsidiary terminates by reason of Disability, any Stock Option held by such Participant may thereafter be exercised by the Participant, to the extent it was exercisable at the time of termination, or on such accelerated basis as the Committee may determine at the time of or after grant, for a period of two years (or such shorter period as the Committee may specify at the time of grant) from the date of such termination of employment or service or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that if the Participant dies within such two-year period (or such shorter period as the Committee shall specify at the time of grant), any unexercised Stock Option held by such Participant shall, at the sole discretion of the Committee, thereafter be exercisable to the extent to which it was exercisable at the time of death for a period of twelve months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. In the event of termination of employment or service by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Code Section 422, such Stock Option will thereafter be treated as a Non-Qualified stock Option.

(h) Voluntary Termination . Subject to Section 5(j), if a Participant voluntarily terminates employment or service with the Corporation and any Subsidiary, any Stock Option held by such Participant may thereafter be exercised by the Participant, to the extent it was exercisable at the time of such termination or on such accelerated basis as the Committee may determine at or after grant, for a period of two years (or such shorter period as the Committee may specify at the time of grant) from the date of such termination of employment or service or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that, if the Participant dies within such two-year period, any unexercised Stock Option held by such Participant shall, at the sole discretion of the Committee, thereafter be exercisable, to the extent to which it was exercisable at the time of death, for a period of twelve months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. In the event of a voluntary termination of employment, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Code Section 422, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.

(i) Other Termination . Unless otherwise determined by the Committee at the time of grant, if a Participant’s employment or service with the Corporation and any Subsidiary terminates for any reason other than death, Disability, or voluntary termination, the Stock Option shall thereupon terminate, except that such Stock Option may be exercised for the lesser of three months or the balance of such Stock Option’s term if the Participant is involuntarily terminated by the Corporation without without Cause.

(j) Incentive Stock Option Limitations . To the extent that the aggregate Fair Market Value of stock (determined as of the date of grant) with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Corporation and its parent and subsidiary corporations) exceeds $100,000, such Options shall be treated as Options which are not Incentive Stock Options.

To the extent (if any) permitted under Code Section 422, if (i) a participant’s employment with the Corporation and any Subsidiary is terminated by reason of death, Disability, or voluntary termination and (ii) the portion of any Incentive Stock Option that is otherwise exercisable during the post-termination period specified under Section 5(f), (g), or (h), applied without regard to this Section 5(j), is greater than the portion of such Option that is exercisable as an “incentive stock option” during such post-termination period under Code Section 422, such post-termination period shall automatically be extended (but not beyond the original option term) to the extent necessary to permit the Participant to exercise such Incentive Stock Option. The Committee is also authorized to provide at the time of grant for a similar extension of the post-termination exercise period in the event of a Change in Control.

(k) Cash-Out of Option . On receipt of written notice to exercise, the Corporation may, in the Committee’s sole discretion, elect to cash out all or part of the portion of the Option(s) to be exercised by paying the Participant an amount, in cash or Stock, equal to the excess of the Fair Market Value of the Stock over the Option price on the effective date of such exercise.

(l) Cashless Exercise . To the extent permitted under the applicable laws and regulations under Section 16 of the Securities Act, and the Rules, and with the consent of the Committee, the Corporation agrees to cooperate in a “cashless exercise” of an Option. The cashless exercise shall be effected by the Participant delivering to the Securities Broker instructions to sell or withhold a sufficient number of shares of Common Stock to cover the costs and expenses associated therewith.

SECTION 6. Stock Appreciation Rights .

(a) Grant and Exercise . Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan; such rights may be granted only at the time of the grant of such Stock Option.

A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, at the time of grant, a Stock Appreciation Right granted with respect to less than the full number of shares covered by a related Stock Option shall not be reduced until the number of shares covered by an exercise or termination of the related Stock Option exceeds the number of shares not covered by the Stock Appreciation Right.

A Stock Appreciation Right may be exercised by a Participant, in accordance with Section 6(b), by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the Participant shall be entitled to receive an amount determined in the

manner prescribed in Section 6(b). Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.

(b) Terms and Conditions . Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following:

(i) Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate, if any, shall be exercisable in accordance with the provisions of Section 5 and this Section 6 of the Plan.

(ii) Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive an amount in cash and/or shares of Stock equal in value to the excess of the Fair Market Value on the exercise date of one share of Stock over the Option price per share specified in the related Stock Option, multiplied by the number of shares in respect of which the Stock Appreciation Rights have been exercised, with the form of payment to be determined by the Committee.

(iii) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 of the Plan on the number of shares of Stock to be issued under the Plan, but only to the extent of the number of shares issued under the Stock Appreciation Right at the time of exercise based on the value of the Stock Appreciation Right at such time.

(iv) A Stock Appreciation Right granted in connection with a Stock Option may be exercised only if and when the Fair Market Value of the Stock subject to the Stock Option exceeds the exercise price under such Stock Option.

(v) In its sole discretion, the Committee may provide, at the time of grant of a Stock Appreciation Right under this Section 6, that such Stock Appreciation Right can be exercised only in the event of a Change in Control, subject to such terms and conditions as the Committee may specify at the time of grant.

SECTION 7. Restricted Stock .

(a) Administration . Shares of Restricted Stock may be issued either alone or in addition to other Awards. The Committee shall determine the Participants to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the price (if any) to be paid by the recipient of Restricted Stock (subject to Section 7(b)), the time or times within which such Awards may be subject to forfeiture, and all other conditions of the Awards.

The Committee may condition the grant of Restricted Stock upon the attainment of specified performance goals or such other factors as the Committee may determine, in its sole discretion.

The provisions of Awards of Restricted Stock need not be the same with respect to each Participant.

(b) Awards and Certificates . The prospective recipient of an Award of Restricted Stock shall not have any rights with respect to such Award, unless and until such recipient has executed an agreement evidencing the Award and has delivered a fully executed copy thereof to the Corporation, and has otherwise complied with the applicable terms and conditions of such Award.

(i) The purchase price for shares of Restricted Stock, if any, shall be determined by the Committee at the time of grant.

(ii) Awards of Restricted Stock must be accepted within a period of 60 days (or such shorter period as the Committee may specify at the time of grant) after the Award date, by executing a Restricted Stock Award Agreement and paying whatever price (if any) is required under Section 7(b)(i).

(iii) Each Participant receiving an Award of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, or, in the Committee’s discretion, such Award and the shares of Restricted Stock granted thereunder may be recorded electronically. Any certificate issued shall be registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Univest 2013 Long-Term Incentive Plan and an Agreement entered into between the registered owner and Univest Corporation of Pennsylvania. Copies of such Plan and Agreement are on file in the offices of Univest Corporation of Pennsylvania, 14 North Main Street, Souderton, Pennsylvania 18964, Attention: Human Resources ‒ Executive Compensation.”

(iv) The Committee shall require that any stock certificates evidencing such shares be held in custody by the Corporation until the restrictions thereon shall have lapsed, and that, as a condition of any Award of Restricted Stock, the Participant shall have delivered a stock power, endorsed in blank, relating to the Stock covered by such Award.

(c) Restrictions and Conditions . The shares of Restricted Stock awarded pursuant to this Section 7 shall be subject to the following restrictions and conditions.

(i) Subject to the provisions of this Plan and the Award agreement, during the Restriction Period, the Participant shall not be permitted to sell, transfer, pledge, assign, or otherwise encumber shares of Restricted Stock awarded under the Plan. Within these limits, the Committee, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, based on service, performance, or such other factors or criteria as the Committee may determine, in its sole discretion.

(ii) Except as provided in this paragraph (ii) and Section 7(c)(i), the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Corporation, including the right to vote the shares, and the right to receive any cash dividends. The Committee, in its sole discretion, as determined at the time of award, may require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional Restricted Stock to the extent shares are available under Section 3; provided, however, that any such provision for the deferral of cash dividends shall comply with the requirements for establishment of a permissible time and form of payment of such dividends, and shall otherwise comply with the applicable regulations, under Code Section 409A.

(iii) Except as provided in Section 7(c)(iv), upon termination of a Participant’s employment or service with the Corporation and any Subsidiary for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the Participant.

(iv) In the event of hardship or other special circumstances of a Participant whose employment or service with the Corporation and any Subsidiary is involuntarily terminated (other than for Cause), the Committee may, in its sole discretion, waive in whole or in part any or all remaining restrictions with respect to such Participant’s shares of Restricted Stock, based on such factors as the Committee may deem appropriate.

(v) If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, the certificates for such shares, if any, shall be promptly delivered to the Participant.

SECTION 7A. Restricted Stock Units .

(a) Administration . Awards of Restricted Stock Units may be issued either alone or in addition to other Awards. The Committee shall determine the Participants to whom, and the time or times at which, grants of Restricted Stock Units will be made, the number of units to be awarded, the price (if any) to be paid by the recipient of Restricted Stock Units (subject to Section 7A(b)), the time or times within which such Awards may be subject to forfeiture, and all other conditions of the Awards.

The Committee may condition the grant of Restricted Stock Units upon the attainment of specified performance goals or such other factors as the Committee may determine, in its sole discretion.

The provisions of Awards of Restricted Stock Units need not be the same with respect to each Participant.

(b) Awards . The prospective recipient of an Award of Restricted Stock Units shall not have any rights with respect to such Award, unless and until such recipient has executed an agreement evidencing the Award and has delivered a fully executed copy thereof to the Corporation, and has otherwise complied with the applicable terms and conditions of such Award.

(i) The purchase price for awards of Restricted Stock Units, if any, shall be determined by the Committee at the time of grant.

(ii) Awards of Restricted Stock Units must be accepted within a period of 60 days (or such shorter period as the Committee may specify at the time of grant) after the Award date, by executing a Restricted Stock Unit Award Agreement and paying whatever price (if any) is required under Section 7A(b)(i).

(iii) An Award of a Restricted Stock Unit is an Award that is valued by reference to a share of Stock, which value may be paid to the Participant in Stock or cash as determined by the Committee in its sole discretion upon the satisfaction of such restrictions as the Committee may establish as described in Section 7A(c) below. If a cash payment is made in lieu of delivering shares of Stock, the amount of such payment shall be equal to the Fair Market Value of the Stock as of the date immediately preceding the date of payment.

(c) Restrictions and Conditions . The Award of Restricted Stock Units pursuant to this Section 7A shall be subject to the following restrictions and conditions:

(i) Subject to the provisions of this Plan and the Award agreement, during the Restriction Period, the Participant shall not be permitted to sell, transfer, pledge, assign, or otherwise encumber Restricted Stock Units awarded under the Plan. Within these limits, the Committee, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, based on service, performance, or such other factors or criteria as the Committee may determine, in its sole discretion.

(ii) A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.

(iii) At the discretion of the Committee, each Restricted Stock Unit (representing one share of Stock) may be credited with cash and stock dividends paid by the Corporation in respect of one share of Stock (“Dividend Equivalents”). Dividend Equivalents shall be withheld by the Corporation for the Participant’s account, and interest may be credited on the amount of cash Dividend Equivalents withheld at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a Participant’s account and attributable to any particular Restricted Stock Unit (and earnings thereon, if applicable) shall be distributed in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such Dividend Equivalents and earnings, if applicable, to the Participant upon settlement of such Restricted Stock Unit and, if such Restricted Stock Unit is forfeited, the Participant shall have no right to such Dividend Equivalents.

(iv) Except as provided in Section 7A(c)(v) or as specifically provided in an Award Agreement, upon termination of a Participant’s employment or service with the Corporation and any Subsidiary for any reason during the Restriction Period, all Restricted Stock Units subject to restriction shall be forfeited by the Participant.

(v) In the event of hardship or other special circumstances of a Participant whose employment or service with the Corporation and any Subsidiary is involuntarily

terminated (other than for Cause), the Committee may, in its sole discretion, waive in whole or in part any or all remaining restrictions with respect to such Participant’s Restricted Stock Units, based on such factors as the Committee may deem appropriate.

(vi) The Committee may permit a Participant to elect to defer receipt of payment of all or part of any Award of Restricted Stock Units pursuant to rules and regulations adopted by the Committee.

SECTION 8. Long Term Performance Awards .

(a) Awards and Administration . Long Term Performance Awards may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the nature, length, and starting date of the performance period (the “Performance Period”) for each Long Term Performance Award, and shall determine the performance objectives to be used in valuing Long Term Performance Awards and determining the extent to which such Long Term Performance Awards have been earned. Performance objectives may vary from Participant to Participant and between groups of Participants and shall be based upon such Corporation, business unit, and/or individual performance factors and criteria as the Committee may deem appropriate, including, but not limited to, earnings per share or return on equity. Performance Periods may overlap and Participants may participate simultaneously with respect to Long Term Performance Awards that are subject to different Performance Periods and/or different performance factors and criteria.

At the beginning of each Performance Period, the Committee shall determine for each Long Term Performance Award subject to such Performance Period the range of dollar values or number of shares of Stock to be awarded to the Participant at the end of the Performance Period if and to the extent that the relevant measure(s) of performance for such Long Term Performance Award is (are) met. Such dollar values or number of shares of Stock may be fixed or may vary in accordance with such performance and/or other criteria as may be specified by the Committee, in its sole discretion.

(b) Adjustments of Awards . In the event of special or unusual events or circumstances affecting the application of one or more performance objectives to a Long Term Performance Award, the Committee may revise the performance objectives and/or underlying factors and criteria applicable to the Long Term Performance Awards affected, to the extent deemed appropriate by the Committee, in its sole discretion, to avoid unintended windfalls or hardship.

(c) Termination of Employment or Service . Unless the Committee otherwise determines at the time of grant, if a Participant terminates employment or service with the Corporation during a Performance Period, then such Participant shall not be entitled to any payment with respect to any Long Term Performance Award subject to such Performance Period.

(d) Form of Payment . The earned portion of a Long Term Performance Award shall be paid on a date specified by the Committee, which date shall be not later than March 15 of the year following the year in which the relevant Performance Period ends. Payment shall be

made in the form of cash or whole shares of Stock, including Restricted Stock, as the Committee shall determine at the time of grant. If and to the extent a Long Term Performance Award is payable in Stock and the full amount of such value is not paid in Stock, then the shares of Stock representing the portion of the value of the Long Term Performance Award not paid in Stock shall again become available for award under the Plan.

SECTION 9. Change in Control Provisions .

(a) Impact of Event .

In the event of a “Change in Control” as defined in Section 9(b), unless otherwise determined by the Committee or the Board at the time of grant,

(i) Any Stock Appreciation Rights outstanding for at least six months and any Stock Options awarded under the Plan not previously exercisable and vested which have been held for at least six months from the date of grant, shall become fully vested and exercisable.

(ii) The restrictions applicable to any Award of Restricted Stock or Restricted Stock Units under the Plan shall lapse and such shares and Awards shall be deemed fully vested.

(iii) The value of all outstanding Stock Options, Stock Appreciation Rights, Restricted Stock, and Restricted Stock Units shall, unless otherwise determined by the Committee at the time of grant, be cashed out on the basis of Fair Market Value as of the date such Change in Control occurs.

(b) Definition of “Change in Control .” For purposes of Section 9(a), a “Change in Control” means the happening of any of the following:

(i) When any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Corporation or a Subsidiary or any Corporation employee benefit plan (including any trustee of such plan acting as trustee)), is or becomes the “beneficial owner” (as defined in Rule 13d‑3 under the Exchange Act), directly or indirectly of securities of the Corporation representing 30 percent or more of the combined voting power of the Corporation’s then outstanding securities without the consent of a majority of the Board;

(ii) When, during any period of twelve consecutive months during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board of Directors of the Corporation cease for any reason other than death to constitute at least a majority thereof, provided, however, that a director who was not a director at the beginning of such period shall be deemed to have satisfied the twelve-month requirement if such director was elected by, or on the recommendation of, at least two-thirds of the directors who were directors at the beginning of such period (either actually or by prior operation of this Section 9(b)(ii);

(iii) a merger, consolidation, or similar transaction involving the Corporation with another corporation or entity in which shareholders of the Corporation, immediately prior to the merger, consolidation, or similar transaction, will not beneficially own, immediately after the merger, consolidation, or similar transaction, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled to cast

in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote); or

(iv) a sale or other disposition of all or substantially all of the assets of the Corporation.

SECTION 10. Amendments and Termination .

The Board may amend, alter, or discontinue the Plan at any time and from time to time, but no amendment, alteration, or discontinuation shall be made which would impair the rights of a Participant with respect to an Award, without the Participant’s consent, or which, without the approval of the Corporation’s shareholders, would:

(a) except as expressly provided in this Plan, increase the total number of shares reserved for the purpose of the Plan; or

(b) change the classes of individuals eligible to participate in the Plan.

Subject to the above provisions, the Board shall have broad authority to amend the Plan to take into account changes in applicable tax laws and accounting rules, as well as other relevant regulatory developments.

SECTION 11. Unfunded Status of Plan .

The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant by the Corporation, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Corporation. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to Awards hereunder, provided, however, that the assets of any such trust or arrangement may not be transferred, assigned, pledged, attached, encumbered, or otherwise subject to the claims of any creditor of a Participant, and any such assets shall remain subject to the claims of the Corporation’s creditors.

SECTION 12. General Provisions .

(a) The Committee may require each person purchasing shares pursuant to a Stock Option under the Plan to represent to and agree with the Corporation in writing that the Participant is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Exchange Act, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(b) Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases.

(c) The adoption of the Plan shall not confer upon any Employee or Non-Employee Director of the Corporation or any Subsidiary any right to continued employment or service with the Corporation or any Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Corporation or any of its Subsidiaries to terminate the employment or service of any of its Employees or Non-Employee Directors at any time.

(d) No later than the date as of which an amount first becomes includible in the gross income of the Participant for Federal or state income tax purposes with respect to any Award, the Participant shall pay to the Corporation, or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state, or local taxes of any kind required by law to be withheld, if any, with respect to such amount. Unless otherwise determined by the Committee, the minimum required withholding obligations may be settled with Stock, including Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Corporation under the Plan shall be conditional on such payment or arrangements and the Corporation shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant.

(e) At the time of grant, the Committee may provide in connection with any grant made under this Plan that the shares of Stock received as a result of such grant shall be subject to a right of first refusal, pursuant to which the Participant shall be required to offer to the Corporation any shares that the participant wishes to sell, with the price being the then Fair Market Value of the Stock, subject to such other terms and conditions as the Committee specify at the time of grant.

(f) The reinvestment of dividends in additional Restricted Stock (or in other types of Awards) at the time of any dividend payment shall only be permissible if sufficient shares of Stock are available under Section 3 for such reinvestment (taking into account then outstanding Stock Options and other Awards).

(g) The Committee shall establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable in the event of the Participant’s death are to be paid.

(h) The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Further, the Plan and all Awards shall be construed consistent with Code Section 409A and all applicable guidance thereunder so as not to result in the inclusion in any Participant’s income of any benefit under this Plan or under any Award by reason of the application of such section.

SECTION 13. Effective Date of Plan .

The Plan originally became effective on April 16, 2013, subject to the approval of the Plan by the shareholders of the Corporation within 12 months of adoption by the Board. If the Plan is not approved within such 12-month period, then the Plan shall terminate and any Awards granted hereunder shall be void and of no further force or effect. The Plan was amended and restated, effective December 5, 2018, to permit the award of Restricted Stock Units under the Plan.

SECTION 14. Term of Plan ,

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the date the Univest 2013 Long-Term Incentive Plan received shareholder approval, but Awards granted prior to such tenth anniversary may extend beyond that date.

Exhibit 10.4

CHANGE IN CONTROL AGREEMENT

THIS AGREEMENT, made the 26th day of February 2016, between UNIVEST CORPORATION OF PENNSYLVANIA ("Univest"), a Pennsylvania business corporation, UNIVEST BANK AND TRUST CO. ("Bank"), a Pennsylvania banking and trust company and wholly owned subsidiary of Univest (Univest and Bank are sometimes referred to herein collectively as the "Employer"), and MEGAN DURYEA-SANTANA, an adult individual ("Employee").

WITNESSETH :

WHEREAS, Employee is currently employed as the EVP and General Counsel of Employer or an affiliate of Employer;

WHEREAS, Employer desires to induce Employee to remain in its employ on an impartial and objective basis in the event of a transaction pursuant to which a Change in Control of Employer occurs, and is willing to provide Employee the additional benefits provided herein in consideration of Employee’s continued employment and the additional non-competition, non-disclosure and non-solicitation covenants provided herein;

NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows:

AGREEMENT :

1. Term of Agreement .

(a) General . This Agreement shall be for a period (the "Tern") commencing on the date of this Agreement and ending on December 31, 2016; provided, however, that, commencing on January 1, 2017 and on January 1 of each succeeding year (each an "Annual Renewal Date"), the Term shall be automatically extended for one (1) additional year from the applicable Annual Renewal Date ( each, an "Extension"), unless Employer or Employee shall give written notice of nonrenewal to the other party at least sixty (60) days prior to an Annual Renewal Date, in which event this Agreement shall terminate at the end of the then existing Term. Notwithstanding the foregoing, in the event of a Change in Control, the Term shall be no shorter than one (1) year after the date of the Change in Control. References in this Agreement to the "Term" shall refer to the initial two-year term and the terms of any Extensions as may become effective.

(b) Termination for Cause . Notwithstanding the provisions of Section l(a) of this Agreement, this Agreement shall terminate automatically upon termination by Employer of Employee’s employment for Cause. As used in this Agreement, “Cause” shall mean the following:

(i) Employee’s material breach of this Agreement or any other agreement with Employer to which he is a party;

(ii) Employee’s material failure to adhere to any written policy of Employer generally applicable to officers of Employer if Employee has been given thirty (30) days written notice of the failure to adhere and a reasonable opportunity to comply with such policy or cure Employee’s failure to comply;

(iii) Employee’s appropriation or attempted appropriation of a business opportunity of Employer, including attempting to secure or securing any business or personal profit in connection with any transaction entered into on behalf of Employer;

(iv) Employee’s misappropriation or attempted misappropriation of any of Employer’s funds or property (including any intellectual property of the Employer);

(v) Employee’s conviction of, or the entering of a guilty plea or plea of no contest with respect to, a felony or the equivalent thereof involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year;

(vi) Employee’s conviction of an offense involving moral turpitude under the provisions of any federal, state or local laws or ordinances, or Employee’s use of alcohol, narcotics or illegal drugs to such an extent that will cause a material detrimental effect on Employer; or

(vii) Employee’s removal or prohibition from being an institution‑affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or by the Pennsylvania Department of Banking and Securities pursuant to state law.

If Employee’s employment is terminated for Cause, Employee’s rights under this Agreement shall cease as of the effective date of such termination.

(c) Voluntary Termination, Retirement, or Death . Notwithstanding the provisions of Section l(a) of this Agreement, this Agreement shall terminate automatically upon termination of Employee's employment as a result of voluntary termination by Employee (other than in accordance with Section 2 of this Agreement), retirement at Employee's election, or death. In any such event, Employee's rights under this Agreement shall cease as of the date of such event; provided, however, that if Employee dies after a Notice of Termination (as defined in Section 2(a) of this Agreement) is delivered by Employee, the payments and benefits described in Section 3 will nonetheless be made to the person or persons determined pursuant to Section 11 (b) of this Agreement.

(d) Disability . Notwithstanding the provisions of Section l(a) of this Agreement, this Agreement shall terminate automatically upon termination of Employee's employment as a result of Employee's disability and employee's rights under this Agreement shall cease as of the date of such termination; provided, however, that, if Employee becomes disabled after a Notice of Termination (as defined in Section 2(a) of this Agreement) is delivered by Employee, Employee shall nevertheless be absolutely entitled to receive all of the payments and benefits provided for in, and for the term set forth in, Section 3 of this Agreement. As used in this Agreement, the term "Disability" means incapacitation, by accident, sickness or otherwise, such that Employee is rendered unable to perform the essential duties required of Employee by Employee's position with Employer at that time, notwithstanding reasonable accommodation, for a period of six (6) consecutive months.

2. Termination Following Change in Control .

(a) Good Reason . If a Change in Control (as defined in Section 2(b) of this Agreement) shall occur at any time during the term of this Agreement, and if (A) within nine (9) months prior to or one year after such Change in Control, Employer terminates the employment of Employee (other than for Cause), or (B) within one year after such Change in Control any of the following occur, if taken without Employee’s express written consent:

(i) a material diminution in Employee’s authority, duties or other terms or conditions of employment as the same exist on the date of the Change in Control;

(ii) any reassignment of Employee to a location greater than 25 miles from the location of Employee’s office on the date of the Change in Control, unless such new location is closer to Employee’s primary residence than the location on the date of the Change in Control;

(iii) any material diminution in Employee’s base salary;

(iv) any failure to provide Employee with any benefits enjoyed by Employee under any of Univest’s or Bank’s retirement or pension, life insurance, medical, health and accident, disability or other material employee plans in which Employee participated at the time of the Change in Control or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control, except for any reductions in benefits or other actions resulting from changes to or reductions in benefits applicable to employees generally; or

(v) any other material breach of this Agreement;

then, at the option of Employee, exercisable by Employee during the ninety (90) day period after the occurrence of each and every of the foregoing events ("Good Reason"), Employee may give notice of intent to terminate employment under this Agreement (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering a notice in writing (the "Notice of Termination") to Employer. If Employer fails to cure such situation within thirty (30) days after said notice, Employee will become entitled to the payments and benefits described in Section 3 of this Agreement. After the expiration of the ninety (90) day period described above, Employee cannot exercise such right with respect to that Good Reason event.

(b) Change in Control Defined . As used in this Agreement, “Change in Control” shall mean the occurrence of any of the following:

(i) (A) a merger, consolidation, or division involving Univest, (B) a sale, exchange, transfer, or other disposition of substantially all of the assets of Univest, or (C) a purchase by Univest of substantially all of the assets of another entity, unless (x) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by at least a majority of the members of the Board of Directors of Univest who are not interested in the transaction and (y) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and of the Board of Directors of such entity’s parent corporation, if any, are former members of the Board of Directors of Univest;

(ii) a “person” or “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) of 50% or more of the outstanding shares of common stock of Univest;

(iii) at any time during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Univest cease to constitute a majority of such Board (unless the election or nomination of each new director was approved by a vote of at least 51% of the directors who were directors at the beginning of such period); or

(iv) any other change in control similar in effect to any of the foregoing and specifically designated in writing as a change in control by the Board of Directors of Univest.

3. Rights in Event of Termination Following Change in Control . In the event that Employee validly and timely delivers a Notice of Termination to Employer, Employee shall be absolutely entitled to receive the following benefits:

(a) The Employer shall pay, within thirty-five (35) days from the later of the date of termination of employment or the delivery of a Notice of Termination, notwithstanding any termination of this Agreement during such period, a lump sum cash payment equal to (i) one (1) times Employee's base salary at the highest annual amount in effect during the current and two (2) calendar years preceding the year in which the Notice of Termination is delivered plus (ii) one (1) times Employee's average cash bonus paid within the current and two (2) calendar years preceding the year in which the Notice of Termination is delivered.

(b) In addition, during the period commencing from date of termination of employment until the end of the twelfth (12th) month after such date, Employee shall be permitted to continue participation in, and the Employer shall maintain the same level of contribution for, Employee's participation in the Employer's medical/health insurance in effect with respect to Employee during the one (1) year period prior to his termination of employment, or, if the Employer is not permitted to provide such benefits because Employee is no longer an employee or as a result of any applicable legal requirement, Employee shall receive a dollar amount, on or within thirty-five (35) days following the date of termination, equal to the cost to Employee of obtaining such benefits ( or substantially similar benefits).

4. Noncompetition and Nonsolicitation .

(a) Employee hereby acknowledges and recognizes the highly competitive nature of the business of Univest and Bank and accordingly agrees that, during and for the applicable period set forth in Section 4(c), Employee shall not:

(i) be engaged ( other than by Univest or Bank), directly or indirectly, consultant, employee, partner, officer, director, proprietor, investor ( except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in banking, insurance, mortgage banking, wealth management or trust services in any county in which a branch location, office, loan production office, or trust or asset and wealth management office of Univest, Bank, or any of their subsidiaries are located ("Non-Competition Area");

(ii) for or on behalf of Employee or a same, similar or competitive business as Univest, Bank or any of their affiliates, solicit, provide services to, contract with, or accept business from any person or entity which (A) was or has been a client of Univest, Bank or any of their affiliates within one (1) year prior to the cessation of Employee's employment and with whom Employee had business dealings during that period, or (B) received a new business proposal from Univest, Bank or any of their affiliates within one (1) year prior to the cessation of Employee's employment;

(iii) solicit, encourage or induce any person or entity with the effect or for the purpose of: (A) knowingly causing any material loans or deposits or other funds with respect to which Univest, Bank or any of their affiliates provides services to be withdrawn, (B) causing any client of Univest, Bank to refrain from engaging Univest, Bank or any of their affiliates, or (C) causing any client to terminate or materially diminish its relationship with Univest, Bank or any of their affiliates; and/or

(iv) (A) affirmatively induce, offer, assist, solicit, encourage or suggest, in any manner whatsoever, (1) that Employee or another business or enterprise offer employment to or enter into a business affiliation with any employee of Univest, Bank or any of their affiliates, or (2) that any employee, agent or representative of Univest, Bank or any of their affiliates terminate his or her employment or business affiliation with Univest, Bank or any of their affiliates; or (B) hire, employ or contract with any employee of Univest, Bank or any of their affiliates.

Notwithstanding any of the foregoing, Employee shall not be prohibited from making personal investments, loans or real estate transactions comparable to such transactions which would have been permitted during Employee’s employment with Univest or Bank.

(b) It is expressly understood and agreed that, although Employee, Univest and Bank consider the restrictions contained in Section 4(a) reasonable for the purpose of preserving for Univest and Bank their goodwill and other proprietary rights, if a final judicial determination is made by a court or arbitrator having jurisdiction that the time or territory or any other restriction contained in Section 4(a) is an unreasonable or otherwise unenforceable restriction against Employee, the provisions of Section 4(a) shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable.

(c) The provisions of this Section 4 shall be applicable commencing on the date of this Agreement and ending twelve (12) months following the effective date of termination of employment, provided Employee receives the payments and benefits described in Section 3. In addition, in the event the Employee voluntarily terminates employment during the Term (other than a voluntary termination for Good Reason following a Change in Control), the provisions of this Section 4 shall be applicable commencing on the date of this Agreement and ending six (6) months following the effective date of termination of employment.

5. Unauthorized Disclosure . During the Employment Period and at any time thereafter, Employee shall not, without the written consent of the Boards of Directors of Univest and Bank, or a person authorized thereby, knowingly disclose to any person, other than an employee of Univest or Bank, or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Employee of Employee's duties hereunder, any material confidential information obtained by him while in the employ of Employer with respect to Univest's, Bank's or any of their majority-owned subsidiaries' services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or would be damaging to Univest, Bank or any such subsidiary; provided, however, that confidential information shall not include any information known generally to the public ( other than as a result of unauthorized disclosure by Employee or any person with the assistance, consent, or direction of Employee), or any information that must be disclosed as required by law.

6. Remedies . Employee acknowledges and agrees that the remedy at law of Employer for a breach or threatened breach of any of the provisions of Sections 4 or 5 would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by Employee of any of the provisions of Sections 4 or 5, it is agreed that Employer shall be entitled to, without posting any bond, and Employee agrees not to oppose any request of Employer for, equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction, or any other equitable remedy which may then be available. Nothing contained in this section shall be construed as prohibiting Employer from pursuing any other remedies available to them, at law or in equity, for such breach or threatened breach.

7. Notices . Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Employee’s residence, in the case of notices to Employee, and to the principal office of Employer, in the case of notices to Employer.

8. Waiver . No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Employee and an executive officer specifically designated by the Board of Directors of Employer. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

9. Assignment . This Agreement shall not be assignable by either party, except by Employer to any successor in interest to Employer’s business.

10. Entire Agreement . This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement and, in accordance with the provisions of Section 21, supersedes any prior understanding of the parties.

11. Successors; Binding Agreement .

(a) Employer . Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of Employer to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. Failure by Employer to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement. As used in this Agreement, "Employer" shall mean Employer as defined previously and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

(b) Employee . This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, heirs, distributees, devisees, and legatees. If Employee should die after a Notice of Termination is delivered by Employee and any amounts would be payable to Employee under this Agreement if Employee had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee, or other designee, or, if there is no such designee, to Employee's estate.

12. Continuation of Certain Provisions . Any termination of Employee’s employment under this Agreement or of this Agreement after a Change in Control will not affect the payment and benefit provisions of Section 3, which will, if relevant, survive any such termination and remain in full force and effect in accordance with its terms.

13. Other Rights; Severance . Except as provided in Sections 25 and 26, nothing herein will be construed as limiting, restricting or eliminating any rights Employee may have under any plan, contract or arrangement to which Employee is a party or in which Employee is a vested participant; provided, however, that any termination payments required hereunder will be in lieu of any severance benefits to which Employee may be entitled under a severance plan or arrangement of Employer; and provided further, that if the benefits under any such plan or arrangement may not legally be eliminated, then the payments hereunder will be reduced (but not below zero) by the amount payable under such plan or arrangement.

14. No Employment Agreement; At-Will Employment . This Agreement does not constitute an employment agreement or an agreement to maintain employment for any period of time. Employee’s employment with Employer constitutes “at-will” employment and either Employee or Employer may terminate Employee’s employment at any time, subject to the procedures and consequences in the event of a termination of employment after a Change in Control set forth in this Agreement.

15. Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

16. Applicable Law . This Agreement shall be governed by and construed in accordance with the domestic laws (but not the law of conflicts of law) of the Commonwealth of Pennsylvania.

17. Headings . The headings of the Sections of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.

18. Number . Words used herein in the singular will be construed as being used in the plural, as the context requires, and vice versa .

19. Regulatory Matters . The obligations of Employer under this Agreement shall in all events be subject to any required limitations or restrictions imposed by or pursuant to the Federal Deposit Insurance Act or the Pennsylvania Banking Code of 1965 as the same may be amended from time to time.

20. References to Employer . All references to Employer shall be deemed to include references to companies affiliated with Employer, as appropriate in the relevant context.

21. Effective Date; Termination of Prior Understandings . This Agreement will become effective immediately upon the execution and delivery of this Agreement by the parties hereto. Upon the execution and delivery of this Agreement, any prior understanding relating to the subject matter hereof will be deemed automatically terminated and be of no further force or effect.

22. Withholding For Taxes . All amounts and benefits paid or provided hereunder will be subject to withholding for taxes as required by law.

23. Individual Agreement . This Agreement is an agreement solely between and among the parties hereto. It is intended to constitute a nonqualified unfunded arrangement for the benefit of a key management employee and will be construed and interpreted in a manner consistent with such intention.

24. Application of Code Section 409A .

(a) Notwithstanding anything in this Agreement to the contrary, the receipt of any benefits under this Agreement as a result of a termination of employment shall be subject to satisfaction of the condition precedent that Employee undergo a "separation from service" within the meaning of Treas. Reg.§ l.409A-l(h) or any successor thereto. In addition, if Employee is deemed to be a "specified employee" within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provisions of any benefit that is required to be delayed pursuant to Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six ( 6) month period measured from the date of Employee's "separation from service" (as such term is defined in Treas. Reg.§ l.409A-l(h)), or (ii) the date of Employee's death (the "Delay Period"). Within ten (10) days following the expiration of the Delay Period, all payments and benefits delayed pursuant to this section (whether they would have otherwise been payable in a single sum or in installments in the

absence of such delay) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. To the extent that the foregoing applies to the provision of any ongoing welfare benefits to Employee that would not be required to be delayed if the premiums therefore were paid by Employee, Employee shall pay the full costs of premiums for such welfare benefits during the Delay Period and Univest or Bank shall pay Employee an amount equal to the amount of such premiums paid by Employee during the Delay Period within ten (10) days after the conclusion of such Delay Period.

(b) Except as otherwise expressly provided herein, to the extent any expense reimbursement or other in-kind benefit is determined to be subject to Code Section 409A, the amount of any such expenses eligible for reimbursement or in-kind benefits in one calendar year shall not affect the expenses eligible for reimbursement or in-kind benefits in any other taxable year (except under any lifetime limit applicable to expenses for medical care), in no event shall any expenses be reimbursed or in-kind benefits be provided after the last day of the calendar year following the calendar year in which Employee incurred such expenses or received such benefits, and in no event shall any right to reimbursement or in-kind benefits be subject to liquidation or exchange for another benefit.

(c) Any payments made pursuant to Section 3, to the extent of payments made from the date of termination through March 15th of the calendar year following such date, are intended to constitute separate payments for purposes of Treas. Reg. § l.409A-2(b)(2) and thus payable pursuant to the "short-term deferral" rule set forth in Treas. Reg.§ l.409A-l(b)(4); to the extent such payments are made following said March 15th, they are intended to constitute separate payments for purposes of Treas. Reg.§ l.409A-2(b)(2) made upon an involuntary termination from service and payable pursuant to Treas. Reg. § l.409A-l(b)(9)(iii), to the maximum extent permitted by said provision. Notwithstanding the foregoing, if Employer determines that any other payments hereunder fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), the payment of such benefit shall be delayed to the minimum extent necessary so that such payments are not subject to the provisions of Code Section 409A(a)(l).

25. Limitation on Benefits . Anything contained in this Agreement to the contrary notwithstanding, if any of the payments or benefits received or to be received by Employee pursuant to this Agreement (which the parties agree will not include any portion of payments allocated to the non-solicitation and non-compete provisions of Section 5 which are classified as payments of reasonable compensation for purposes of Code Section 2800), when taken together with payments and benefits provided to Employee under any other plans, contracts, or arrangements with Employer (all such payments and benefits being hereinafter referred to as the "Total Payments"), will be subject to any excise tax imposed under Code Section 4999 (together with any interest or penalties, the "Excise Tax"), then such Total Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the Excise Tax. To effectuate the reduction described above, if applicable, Employer shall first reduce or eliminate the payments and benefits provided under this Agreement. All calculations required to be made under this Section, including the portion of the payments hereunder to be allocated to the restrictive covenants set forth in Section 5, will be made by Employer's independent public accountants, subject to the right of Employee's representative to review the same. The parties recognize that the actual implementation of the provisions of this Section are complex and agree to deal with each other in good faith to resolve any questions or disagreements arising hereunder.

26. Limitation on Payments . All payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with applicable laws and any regulations promulgated thereunder, including, without limitation, 12 C.F.R. Part 359.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.



		UNIVEST CORPORATION OF PENNSYLVANIA

		By:_________________________________________

		Attest:_______________________________________

		UNIVEST BANK AND TRUST CO.

		By:_________________________________________

		Attest:_______________________________________

Witness:

		("Employee")

Exhibit 21

EXHIBIT 21

[Item 15(c)]

Subsidiaries of the Registrant

As of December 31, 2018

100% Voting Securities Owned by Registrant


1)	Univest Bank and Trust Co. - chartered in the Commonwealth of Pennsylvania - and its wholly-owned subsidiary as follows:


a.	Delview, Inc. - chartered in the State of Delaware and its wholly-owned subsidiaries:


i.	Univest Investments, Inc. - chartered in the Commonwealth of Pennsylvania


ii.	Univest Insurance, Inc. - chartered in the Commonwealth of Pennsylvania


iii.	Allied Benefits Group, LLC - chartered in the Commonwealth of Pennsylvania


iv.	Girard Partners Ltd. (Girard Partners) - chartered in the Commonwealth of Pennsylvania

b. TCG Investment Advisory, Inc. - chartered in the Commonwealth of Pennsylvania

c. Univest Capital, Inc. - chartered in the Commonwealth of Pennsylvania

d. 104 S. Oakland Ave., LLC - chartered in the State of New Jersey

e. Davisville Associates, LLC - chartered in the Commonwealth of Pennsylvania

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Univest Financial Corporation:

We consent to the incorporation by reference in the registration statements (Nos. 333-123189, 333-02513, 333-152542, and 333-187987) on Form S-8 and in the registration statements (Nos. 333-02509, and 333-221508) on Form S-3 of Univest Financial Corporation of our reports dated February 28, 2019, with respect to the consolidated balance sheets of Univest Financial Corporation and subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2018, which reports appear in the December 31, 2018 annual report on Form 10‑K of Univest Financial Corporation.

Philadelphia, Pennsylvania

February 28, 2019

Exhibit 31.1

CERTIFICATION

I, Jeffrey M. Schweitzer, certify that:


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


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


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


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


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


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


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


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


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


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


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

Date: February 28, 2019



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

Exhibit 31.2

CERTIFICATION

I, Roger S. Deacon, certify that:


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


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


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


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


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


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


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


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


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


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


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

Date: February 28, 2019



/s/ Roger S. Deacon
Roger S. Deacon
Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Univest Financial Corporation on Form 10-K for the period ended December 31, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

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

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

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



/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer (Principal Executive Officer)
February 28, 2019

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

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



/s/ Roger S. Deacon
Roger S. Deacon
Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
February 28, 2019