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What changed in UNIVEST FINANCIAL Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of UNIVEST FINANCIAL Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+308 added−264 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-24)

Top changes in UNIVEST FINANCIAL Corp's 2023 10-K

308 paragraphs added · 264 removed · 220 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changePennsylvania unemployment rate is not seasonally adjusted (2) Bureau of Labor Statistics - National unemployment rates are as of December 2022, seasonally adjusted (3) S&P Global - Demographic data is provided by Claritas based primarily on US Census data Significant types of employment industries for the aforementioned markets include health care and social assistance, professional, scientific and technical services, manufacturing, retail trade, administrative and waste management and remediation services, accommodation and food services and educational services.
Biggest change(Most recent available statistics) Montgomery Bucks Lancaster Philadelphia Pennsylvania National Unemployment rate (1) (2) 2.4% 2.5% 2.3% 3.7% 2.9% 3.7% Median Household Income (3) $109,000 $106,000 $82,000 $58,000 $74,000 $76,000 Median Age (3) 42 45 40 36 42 40 Population Growth (2020-2024) (3) 1.7% (0.03)% 1.4% (2.5)% (0.1)% 1.4% (1) Pennsylvania Department of Labor and Industry - Montgomery, Bucks, Lancaster, Philadelphia & Pennsylvania unemployment rates are as of December 2023 (2) Bureau of Labor Statistics - National unemployment rates are as of December 2023, seasonally adjusted (3) S&P Global - Demographic data is provided by Claritas based primarily on US Census data Significant types of employment industries for the aforementioned markets include health care and social assistance, professional, scientific and technical services, retail trade, manufacturing, accommodation and food services, educational services, construction, and public administration.
In addition to our internal training efforts, we provide a Tuition Reimbursement Program, in which costs for undergraduate degree, graduate degree, and advanced intensive technical training programs from an accredited college or university are eligible for reimbursement up to $3,500 per year. We offer banking-related classes through the Pennsylvania Bankers Association at no cost to our employees.
In addition to our internal training efforts, we provide a Tuition Reimbursement Program, in which costs for an undergraduate degree, a graduate degree, and advanced intensive technical training programs from an accredited college or university are eligible for reimbursement up to $3,500 per year. We offer banking-related classes through the Pennsylvania Bankers Association at no cost to our employees.
Retention Employee retention helps us operate efficiently and offers continuity to our customers and the community. We believe our commitment to living our core values, actively prioritizing concern for our employees' well-being, supporting our employees' career goals, offering competitive wages and providing valuable benefits aids in retention of our employees.
Retention Employee retention helps us operate efficiently and offers continuity to our customers and the community. We believe our commitment to living our core values, actively prioritizing concern for our employees' well-being, supporting our employees' career goals, offering competitive wages and providing valuable benefits aids in the retention of our employees.
Under the Basel III rules, the minimum capital to risk-adjusted assets requirements include a common equity Tier 1 capital to risk weighted assets ratio of 4.5% (6.5% to be considered "well capitalized") and a Tier 1 capital to risk weighted assets ratio of 6.0%, (8.0% to be considered "well capitalized") and total capital to risk weighted assets ratio of 8.0% (10.0% to be considered "well capitalized").
Under the Basel III rules, the minimum capital to risk-adjusted assets requirements include: a common equity Tier 1 capital to risk weighted assets ratio of 4.5% (6.5% to be considered "well capitalized"); a Tier 1 capital to risk weighted assets ratio of 6.0% (8.0% to be considered "well capitalized"); and total capital to risk weighted assets ratio of 8.0% (10.0% to be considered "well capitalized").
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.
Supervision and Regulation The financial services industry in the United States, particularly for 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 Corporation will provide at no charge a copy of the SEC Form 10-K annual report for the year 2022 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 Corporation will provide at no charge a copy of the SEC Form 10-K annual report for the year 2023 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.
This newsletter, among other things, serves to spotlight employees and their diverse backgrounds through their own personal stories. The Corporation also employs a DEI liaison is responsible for developing and creating content for the newsletter, as well as participating in local and/or national peer DEI networks and staying current on DEI developments.
The newsletter, among other things, serves to spotlight employees and their diverse backgrounds through their own personal stories. The Corporation also employs a DEI liaison who is responsible for developing and creating content for the newsletter, as well as participating in local and/or national peer DEI networks and staying current on DEI developments.
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 2022.
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 controls over financial reporting and assert that such internal controls are effective. The Corporation has continued to be in compliance with SOX 404 during 2023.
All employees are also required to complete annual diversity awareness training to enhance their knowledge to fulfill this responsibility. Our Diversity, Equity and Inclusion (DEI) Committee was established to ensure that our workplace is a supportive environment with equal opportunities for everyone.
All employees are also required to complete annual diversity awareness training to enhance their knowledge in order to fulfill this responsibility. Our Diversity, Equity and Inclusion ("DEI") Committee was established to ensure that our workplace is a supportive environment with equal opportunities for everyone.
Competition The Corporation's service areas are characterized by intense competition for banking business among commercial banks, 3 Table of Contents 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.
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.
Our selection and promotion processes are without bias and include the active recruitment of minorities and women. We currently source candidates using various methods, including social media, third party search firms, internal referral programs and connections with local schools. Whenever possible, we seek to fill positions by promotion and transfer within the organization. During 2022, we promoted 109 employees.
Our selection and promotion processes are without bias and include the active recruitment of minorities and women. We currently source candidates using various methods, including social media, third party search firms, internal referral programs and connections with local schools. Whenever possible, we seek to fill positions by promotion and transfer within the organization. During 2023, we promoted 131 employees.
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. Acquisitions The Corporation, through its business segments, provide financial solutions to individuals, businesses, municipalities and non-profit organizations.
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. 10 Table of Contents Acquisitions The Corporation, through its business segments, provide financial solutions to individuals, businesses, municipalities and non-profit organizations.
As an integrated full-service financial institution, approximately 66% of our employees are employed through our banking segment, 8% through our wealth management business, 11% through our insurance business and the remaining 15% of our employees serve in shared support functions for each of our three segments.
As an integrated full-service financial institution, approximately 66% of our employees are employed through our banking segment, 8% through our wealth management business, 10% through our insurance business and the remaining 16% of our employees serve in shared support functions for each of our three segments.
The Bank is a member of the Federal Home Loan Bank System (FHLBanks), which consists of 11 regional Federal Home 7 Table of Contents 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 is a member of the Federal Home Loan Bank System ("FHLBanks"), which consists of 11 regional FHLBanks, 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 highest concentration of our deposits and loans are in Montgomery, Bucks and Philadelphia counties in Pennsylvania where 25 out of our 37 financial centers are located. The following table details key demographics for our Montgomery, Bucks and Philadelphia markets compared to Pennsylvania and the national average.
The highest concentration of our deposits and loans are in Montgomery, Bucks, Lancaster and Philadelphia counties in Pennsylvania where 28 out of our 39 financial centers are located. The following table details key demographics for our Montgomery, Bucks, Lancaster and Philadelphia markets compared to Pennsylvania and the national average.
Through voluntary payroll deductions, Univest employees contributed more than $61 thousand.
Through voluntary payroll deductions, Univest employees contributed more than $69 thousand.
In addition to these Connecting with Community opportunities, we encourage our employees to volunteer independently so that they truly bring our community core value to life. In 2022, Univest employees volunteered 12,324 hours. In addition to being generous with their time, our employees also supported our annual fundraiser for the United Way.
In addition to these Connecting with Community opportunities, we encourage our employees to volunteer independently so that they truly bring our community core values to life. In 2023, Univest employees volunteered 13,117 hours. In addition to being generous with their time, our employees also supported our annual fundraiser for the United Way.
As of December 31, 2022, 29% of our Senior Leadership Team members were women. Training and Development The training and development of our employees is a priority. In 2022, we invested more than $564 thousand in tools, training programs and continuing education to help our employees build their knowledge, skills and experience.
As of December 31, 2023, 22% of our Senior Leadership Team members were women. Training and Development The training and development of our employees remains a priority. In 2023, we invested more than $736 thousand in tools, training programs and continuing education to help our employees build their knowledge, skills and experience.
The USA Patriot Act also requires the federal banking agencies to take into consideration the effectiveness of controls designed to combat money-laundering activities in determining whether to approve a merger or other acquisition application of a member 6 Table of Contents institution.
The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application.
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.
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. Wealth Management and Insurance Businesses The Corporation's wealth management and insurance businesses are subject to additional regulatory requirements.
Human Capital Resources At December 31, 2022, we employed 973 individuals, nearly all of whom are full-time and of which approximately 58% are women. None of these employees are covered by collective bargaining agreements, and the Corporation believes it enjoys good relations with its personnel.
Human Capital Resources At December 31, 2023, we employed 979 individuals, approximately 94% of whom are full-time and of which approximately 56% are women. None of these employees are covered by collective bargaining agreements, and the Corporation believes it enjoys good relations with its personnel.
During 2022, the Corporation contributed $2.5 million to non-profit organizations to provide financial support to the communities it serves.
During 2023, the Corporation contributed $2.4 million to non-profit organizations to provide financial support to the communities it serves.
The DEI Committee reports progress on our Diversity, Equity and Inclusion Strategic Plan to the Board of Directors quarterly. During 2022, the Corporation hired a DEI Manager to cultivate a supportive and inclusive work environment and implement inclusion programs. Regular employee communications, including a DEI newsletter, Univest United, were shared throughout the year to help drive awareness.
Progress on our Diversity, Equity and Inclusion Strategic Plan is reported to the Board of Directors on a quarterly basis. Our DEI Manager works to cultivate a supportive and inclusive work environment and implement inclusion programs. Regular employee communications, including a DEI newsletter, Univest United, were shared throughout the year to help drive awareness.
At December 31, 2022, the Corporation had total assets of $7.2 billion, net loans and leases of $6.0 billion, total deposits of $5.9 billion and total shareholders' equity of $776.5 million. The Bank is a Pennsylvania state-chartered bank and trust company.
At December 31, 2023, the Corporation had total assets of $7.8 billion, net loans and leases of $6.5 billion, total deposits of $6.4 billion and total shareholders' equity of $839.2 million. The Bank is a Pennsylvania state-chartered bank and trust company.
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 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. In addition, the Board has enforcement authority over the Corporation.
In 2022, the Corporation partnered with two financial education innovators to provide 4,362 students with access to interactive online courses that educate on critical financial topics, as well as post informative articles and videos on social media channels on financial topics, such as budgeting, saving for retirement and tips for first-time homebuyers.
In 2023, the Corporation partnered with a financial education innovator to provide more than 7,100 students with access to interactive online courses that educate on critical financial topics, as well as post informative articles and videos on social media channels on financial topics, such as budgeting, saving for retirement and tips for first-time homebuyers.
The risk-based capital standards applicable to the Corporation and the Bank are based on the current standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III.
Capital Rules The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. The risk-based capital standards applicable to the Corporation and the Bank are based on the current standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III.
As of June 30, 2022 (the latest date for which such information is available), the Corporation ranked fifth out of 34 financial institutions in deposit market share in Montgomery County with 12 financial centers, seventh out of 33 financial institutions in Bucks County with nine financial centers, thirteenth out of 40 financial institutions in Philadelphia County with five financial centers with 3.6% of total combined deposit market share in the three counties according to data provided by Federal Deposit Insurance Corporation (FDIC) Market Share Data.
As of June 30, 2023 (the latest date for which such information is available), the Corporation ranked fourth out of 32 financial institutions in deposit market share in Montgomery County with 12 financial centers, seventh out of 32 financial institutions in Bucks County with nine financial centers, eighth out of 24 financial institutions in Lancaster County with five financial centers, and thirteenth out of 39 financial institutions in Philadelphia County 3 Table of Contents with five financial centers, with 3.9% of total combined deposit market share in the four counties, according to data provided by Federal Deposit Insurance Corporation ("FDIC") Market Share Data.
These programs include courses that address communication skills, customer service, managing conflict, alternative management styles, business ethics and emotional intelligence. During the year ended December 31, 2022, we provided approximately 17,000 training hours to our employees.
These programs include courses that address communication skills, customer service, managing conflict, alternative management styles, business ethics and emotional intelligence. Additionally, the Corporation introduced a Women in Business program, Business Ethics for Leaders training, and piloted a mentorship program. During the year ended December 31, 2023, we provided approximately 28,000 training hours to our employees.
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.
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.
Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. We have established policies, procedures and systems designed to comply with these regulations. Capital Rules The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. We have established policies, procedures and systems designed to comply with the BSA, USA PATRIOT Act, and regulations implemented thereunder.
Our employees are also invited to attend holiday socials at locations across our service area. 5 Table of Contents Community Involvement Our Connecting with Community volunteer initiative is one of the pillars of our philanthropy program. In 2022, we provided our employees with 25 Connecting with Community events to choose from in support of local charitable organizations.
Community Involvement Our Connecting with Community volunteer initiative is one of the pillars of our philanthropy program. In 2023, we provided our employees with 30 Connecting with Community events to choose from in support of local charitable organizations.
Market Area The Corporation's headquarters and main office is located in Souderton, Montgomery County, Pennsylvania, which is located in Southeastern Pennsylvania, approximately thirty-five miles north of Philadelphia.
Market Area The Corporation's headquarters and main office is located in Souderton, Montgomery County, Pennsylvania, which is located in Southeastern Pennsylvania, approximately thirty-five miles north of Philadelphia. The Corporation provides banking and financial services to customers in 19 counties in the Southeastern, Central and Western regions of Pennsylvania, three counties in New Jersey and four counties in Maryland.
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.
An important function of these policies is to curb inflation and control recessions through control of the supply of money and credit.
These emails provide updates on key organizational initiatives, such as DEI matters, financial performance, and other focus areas. Additionally, we hold quarterly employee webcasts, during which senior management presents and employees have the opportunity to ask questions. We continue to recognize employee milestones and acknowledge these achievements with in-person Service Awards that celebrate employees reaching a 5-year milestone.
Additionally, we hold quarterly employee webcasts during which senior management presents financial and strategic information and employees have the opportunity to ask questions. We continue to recognize employee milestones and acknowledge these achievements with in-person Service Awards that celebrate employees reaching a 5-year milestone. Our employees are also invited to attend holiday socials at locations across our service area.
Univest’s annual turnover rate of 19% continues to be well below the industry average of 28% according to the Bureau of Labor Statistics. At December 31, 2022, 17% of our current staff had been with us for 15 years or more. Safety, Health and Welfare The safety, health and wellness of our employees is consistently a top priority.
Univest’s annual turnover rate of 19.6%, adjusted for reduction in force, continues to be below the industry average of 23.5% according to 4 Table of Contents the Bureau of Labor Statistics. At December 31, 2023, 17% of our current staff had been with us for 15 years or more.
Our benefits package includes health care coverage, retirement benefits, life and disability insurance, wellness programs, paid time off and leave policies. A majority of our employees are offered a hybrid work arrangement (e.g. three days in the office and two days remote per week) which provides flexibility and work-life balance. We provide lower-wage earners with higher insurance subsidies.
A majority of our employees are offered a hybrid work arrangement (e.g. three days in the office and two days remote per week) which provides flexibility and work-life balance. We provide lower-wage earners with higher insurance subsidies. We also offer an Employee Assistance Program in which employees and members of their families may utilize counseling services freely and confidentially.
Federal Securities Laws Our common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act). We are also subject to the proxy rules, tender offer rules, insider trading restrictions, annual and periodic reporting (discussion below), and other requirements of the Exchange Act.
We are also subject to the proxy rules, tender offer rules, insider trading restrictions, annual and periodic reporting (discussion below), and other requirements of the Exchange Act. Sarbanes-Oxley Act of 2002 The Corporation is subject to the Sarbanes-Oxley Act of 2002 ("SOX").
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).
SOX created 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 SEC.
We offer our employees financial wellness programs, team health challenges, weight management counseling, and behavioral health webinars to support mental health. We 4 Table of Contents provide our employees with access to the Calm app, which is a highly rated app for sleep, meditation and relaxation, at no cost to our employees.
Safety, Health and Welfare The safety, health and wellness of our employees is consistently a top priority. We offer our employees financial wellness programs, team health challenges, weight management counseling, and behavioral health webinars to support mental health.
We also provide our employees with memberships to Care.com to assist employees with finding suitable care for members of their household. Benefits On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance.
Benefits On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance. Our benefits package includes health care coverage, retirement benefits, life and disability insurance, wellness programs, paid time off and leave policies.
Our DEI Learning & Development Committee created learning sessions that serve as a foundation for increasing awareness on diversity, equity and inclusion topics. During 2022, these sessions were attended by members of the Corporation's Board and all employees and facilitated by team members from throughout our organization.
Our DEI Learning & Development Committee created learning sessions that serve as a foundation for increasing awareness on diversity, equity and inclusion topics. All employees have completed this training and it is included as part of new hire orientation to ensure all future employees receive this important information.
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 and Girard Investment Services, LLC are licensed by the Pennsylvania Insurance Department and are subject to its laws and regulations.
Univest Insurance, LLC and Girard Investment Services, LLC are licensed by the Pennsylvania Insurance Department and are subject to Pennsylvania law and the Pennsylvania Insurance Department's regulations. Credit and Monetary Policies The Bank is affected by the fiscal and monetary policies of the federal government and its agencies, including the Board.
We also offer an Employee Assistance Program in which employees and members of their families may utilize counseling services freely and confidentially. Diversity, Equity and Inclusion Univest is committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion.
Diversity, Equity and Inclusion Univest is committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion.
The SEC maintains an internet site that contains the Corporation's SEC filings electronically at www.sec.gov .
The SEC maintains an internet site that contains the Corporation's SEC filings electronically at www.sec.gov . Information about our Executive Officers Name Age Current Primary Positions Current Position Since Jeffrey M. Schweitzer 50 Chair of the Board, President and Chief Executive Officer of the Corporation and Chair of the Board and Chief Executive Officer of the Bank.
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The Corporation provides banking and financial services to customers in 13 counties in the Southeastern and Central regions of Pennsylvania, three counties in New Jersey and we recently expanded into Western Pennsylvania and Maryland.
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We provide our employees, at no cost, with access to the Calm app, which is a highly rated app for sleep, meditation and relaxation. We also provide our employees with memberships to Care.com to assist employees with finding suitable care for members of their household.
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(Most recent available statistics) Montgomery Bucks Philadelphia Pennsylvania National Unemployment rate (1) (2) 2.6% 2.9% 4.5% 3.5% 3.5% Median Household Income (3) $104,000 $102,000 $51,000 $71,000 $74,000 Median Age (3) 42 45 36 42 39 Population Growth (2010-2023) (3) 8.4% 3.6% 3.7% 2.2% 8.3% (1) S&P Global - U.S.
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In addition, we offer online yoga classes, gym reimbursements, on-demand mindfulness webinars and the ability for our employees to receive a flu shot or a mammogram at our main campus. In 2023, we installed AEDs in all our offices and offered online training and in-person AED classes. Additionally, we provided access to CPR classes for interested employees.
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Department of Labor - Montgomery, Bucks, Philadelphia, & Pennsylvania unemployment rates are as of December 2022.
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In 2023, we introduced an Inclusive Leadership Workshop for supervisors and hiring managers. The Senior Leadership Team and approximately 200 supervisors attended in-person sessions to support our efforts to create a more inclusive and diverse workspace.
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This content has been added to new hire orientation to ensure all future employees receive this important information. During 2022, we invested $123 thousand in these DEI initiatives. Employee Engagement Our President and Chief Executive Officer communicates with our entire organization on a weekly basis via email.
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This workshop will continue to be delivered quarterly. 5 Table of Contents Employee Engagement Our Chairman, President and Chief Executive Officer communicates with our entire organization on a weekly basis via email. These emails provide updates on key organizational initiatives, financial performance, as well as industry insights.
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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.
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Any change in applicable laws or regulations, whether by Congress, the Pennsylvania legislature, the Pennsylvania Department of Banking and Securities, the Board, the FDIC, or the Securities and Exchange Commission ("SEC") could have a material adverse impact on the Corporation and the Bank and their operations.
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Sarbanes-Oxley Act of 2002 The Corporation is subject to the Sarbanes-Oxley Act of 2002 (SOX). SOX created new standards of corporate governance and imposed additional requirements on the board of directors and management of public companies.
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Community Reinvestment Act and Fair Lending Laws All institutions with FDIC deposit insurance have a responsibility under the Community Reinvestment Act ("CRA") and related federal regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers.
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The USA PATRIOT Act The USA Patriot Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements.
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In connection with its examination of a state member bank, the Board is required to assess the bank's record of compliance with the CRA. A bank's failure to comply with the provisions of the CRA could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities.
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The CRA requires all FDIC-insured institutions to publicly disclose their rating. The Bank received a "satisfactory" CRA rating in its most recent federal examination. On October 24, 2023, the FDIC, the Board, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations.
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Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a "large bank." The agencies will evaluate large banks under four performance tests: the Retail 6 Table of Contents Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test.
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The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.
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The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Board, as well as other federal regulatory agencies and the Department of Justice.
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The Bank Secrecy Act, USA PATRIOT Act, and Anti-Money Laundering Regulations The Bank must comply with the anti-money laundering provisions of the Bank Secrecy Act (the "BSA") as amended by the USA PATRIOT Act, and implementing regulations issued by the Board and the Financial Crimes Enforcement Network of the U.S. Department of the Treasury.
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Together, the BSA and the USA PATRIOT Act require the Bank to implement a compliance program to detect and prevent money laundering, terrorist financing, and illicit crime, to establish a customer identification program and other internal controls, conduct customer due diligence, administer training, maintain specified records, and report suspicious activity, among other things.
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Insurance of Deposit Accounts The Bank's deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is $250,000 per account ownership category. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Under the FDIC's risk-based assessment system, institutions deemed less risky pay lower assessments.
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Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years. The FDIC has authority to increase initial base deposit insurance assessment rates and did so by two basis points beginning in the first quarterly assessment period of 2023.
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As a result, effective January 1, 2023, assessment rates for institutions of the Bank's size range from 2.5 to 32 basis points.
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In addition, in 2023, the FDIC issued a special assessment for banks with total consolidated assets of $5 billion or more in order to recover losses sustained by the Deposit Insurance Fund as a result of the March 2023 failures of Silicon Valley Bank and Signature Bank.
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Any significant future increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank.
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Management cannot predict what insurance assessment rates will be in the future. 7 Table of Contents Transactions with Affiliates and Loans to Insiders A state member bank's authority to engage in transactions with its affiliates is generally limited by Sections 23A and 23B of the Federal Reserve Act and by the Act's implementing regulation, Regulation W.
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An affiliate includes, among other things, a company that controls, or is under common control with, an insured depository institution such as the Bank. In general, "covered transactions" between an insured depository institution and its affiliates, as defined by Section 23A and Regulation W, are subject to certain quantitative limits and collateral requirements.
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"Covered transactions" with affiliates must be consistent with safe and sound banking practices and may not involve the purchase of low-quality assets. Under Section 23B and Regulation W, transactions with affiliates must generally be on terms that are substantially the same, or at least as favorable to, the institution as comparable transactions with or involving non-affiliates.
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The Bank's authority to extend credit to its and its affiliates' directors, executive officers and 10% shareholders (insiders), as well as to entities controlled by such insiders (related interests), is governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and the Act's implementing regulation, Regulation O.
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Among other things, these provisions generally require that extensions of credit to insiders and their related interests: • be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and • not exceed certain limitations on the amount of credit extended to such insiders and their related interests, individually and in the aggregate, which limits are based, in part, on the amount of the Bank's unimpaired capital and unimpaired surplus.
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In addition, extensions of credit to insiders or their related interests in excess of certain limits must be approved in advance by a majority of the Bank's board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of credit extension involved.
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Prohibitions Against Tying Arrangements The Bank is prohibited, subject to some exceptions, from extending credit or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution or its affiliates.
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Other Laws and Regulations The Bank's operations are also subject to federal laws and regulations applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected; • Truth in Savings Act; • Laws and regulations prohibiting unfair or deceptive acts or practices; and • other regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
Added
The operations of the Bank are further subject to the: • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; 8 Table of Contents • Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and consumer customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services; • Check Clearing for the 21st Century Act (also known as "Check 21"), which gives "substitute checks," such as digital check images and copies made from that image, the same legal standing as the original paper checks; • Regulations of the Office of Foreign Assets Control that enforce economic and trade sanctions programs based on United States foreign policy and national security goals; and • Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties.
Added
Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution's privacy policy and provide such customers the opportunity to "opt out" of the sharing of certain personal financial information with unaffiliated third parties.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure to follow or circumvention of these controls, policies and procedures could have a material adverse impact on our financial condition and results of operations.
Biggest changeOur management and board review and update the Corporation's internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
Information security and cyber-security risks have increased significantly in recent years because of new technologies and the increased number of employees working remotely, the use of the Internet and other electronic delivery channels (including mobile devices) to conduct financial transactions.
Information security and cyber security risks have increased significantly in recent years because of new technologies and the increased number of employees working remotely and the increased use of the Internet and other electronic delivery channels (including mobile devices) to conduct financial transactions.
Our ability to successfully attract and retain wealth management clients is dependent upon our ability to compete with competitors' investment products, our level of investment performance, our client services and marketing and distribution capabilities. If we are not successful, our results of operations and financial condition may be negatively impacted.
Our ability to successfully attract and retain wealth management clients is dependent upon our ability to compete with competitors' investment products, our level of investment performance, our client services, our fees and marketing and distribution capabilities. If we are not successful, our results of operations and financial condition may be negatively impacted.
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 current expected credit losses in the portfolio, historical loan and lease loss experience and loan underwriting policies.
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, collateral values, management's assessment of the current expected credit losses in the portfolio, historical loan and lease loss experience and loan underwriting policies.
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.
Accordingly, the Corporation may be required to expend additional resources to enhance its protective measures or to investigate and remediate any information security vulnerabilities or exposures.
Credit loss charges could negatively impact our earnings and regulatory capital ratios. 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.
Credit loss charges would negatively impact our earnings and regulatory capital ratios. 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.
The Corporation's allowance for possible credit losses on loans and leases may be insufficient, and an increase in the allowance would reduce earnings. We maintain an allowance for credit losses on loans and leases.
The Corporation's allowance for credit losses on loans and leases may be insufficient, and an increase in the allowance would reduce earnings. We maintain an allowance for credit losses on loans and leases.
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.
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 would have a negative impact on our results of operations.
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 cyber-attacks), there can be no assurance that such events will not occur or if they do occur, that they will be adequately addressed.
While the Corporation has policies and procedures designed to prevent or limit the impact of any failure, interruption, or breach in its security systems (including cyber-attacks), there can be no assurance that such events will not occur or if they do occur, that they will be adequately addressed.
Although the Corporation has developed, and continues to invest in, systems and processes that are designed to detect and prevent security breaches and cyber-attacks, a breach of its systems and global payments infrastructure or those of our fintech partners and processors could result in: losses to the Corporation and its customers; loss of business and/or customers; damage to its reputation; the incurrence of additional expenses (including the cost of notification to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks); disruption to its business; an inability to grow its online services or other businesses; additional regulatory scrutiny or penalties; and/or exposure to civil litigation and possible financial liability - any of which could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
Although the Corporation has developed, and continues to invest in, 15 Table of Contents systems and processes that are designed to detect and prevent security breaches and cyber-attacks, a breach of its systems and global payments infrastructure or those of our fintech partners and processors could result in: losses to the Corporation and its customers; loss of business and/or customers; damage to its reputation; the incurrence of additional expenses (including the cost of investigation and remediation and the cost of notification to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks); disruption to its business; an inability to grow its online services or other businesses; additional regulatory scrutiny or penalties; and/or exposure to civil litigation and possible financial liability - any of which could have a material adverse effect on the Corporation’s reputation, business, financial condition and results of operations.
Changes in economic conditions and the composition of our loan and lease portfolio could lead to higher loan charge-offs and/or an increase in our provision for credit losses, loans and leases, which may reduce our net income. Changes in national and regional economic conditions could impact our loan and lease portfolios.
Changes in economic conditions and the composition of our loan and lease portfolio could lead to higher loan charge-offs and/or an increase in our provision for credit losses, which may reduce our net income. Changes in national and regional economic conditions could impact our loan and lease portfolios.
The Corporation's operations and profitability are impacted by general business and economic conditions, including long-term and short-term interest rates, inflation, money supply, political issues, legislative, tax, accounting and regulatory changes, 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.
The Corporation's operations and profitability are impacted by general business and economic conditions, including long-term and short-term interest rates, the shape of the interest rate curve, inflation, money supply, supply chain issues, political issues, legislative, tax, accounting and regulatory changes, 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.
If we were to lose a significant portion of our low-cost deposits, it would negatively impact our liquidity and profitability. 11 Table of Contents 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.
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.
For example, we could issue additional shares of common stock in a merger transaction, 16 Table of Contents which could dilute current shareholders' ownership interest and the per share book value of our common stock. Further, an acquisition could require us to use a substantial amount of cash, other liquid assets, and/or incur debt.
For example, we could issue additional shares of common stock in a merger transaction, which could dilute current shareholders' ownership interest and the per share book value of our common stock. Further, an acquisition could require us to use a substantial amount of cash, other liquid assets, and/or incur debt.
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 the successful operation of the borrower's business, as well as the factors affecting residential real estate borrowers.
Commercial real estate loans may be affected to a greater extent than residential 12 Table of Contents 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 the successful operation of the borrower's business, as well as the factors affecting residential real estate borrowers.
Adverse economic conditions in the region, including, without limitation, declining real estate values or higher unemployment, 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.
Adverse economic conditions in the region, including, without limitation, declining real estate values or higher unemployment, could cause our levels of nonperforming assets and loan losses to increase. Regional economic 17 Table of Contents conditions have a significant impact on the ability of borrowers to repay their loans as scheduled.
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, inflation, recessionary conditions, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events.
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; • General investor sentiment regarding the banking industry; 20 Table of Contents • 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, inflation, recessionary conditions, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events.
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.
Competition is strong because there are numerous well-established and successful investment management and wealth advisory firms with which we compete, 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.
Weakness in the market areas we serve could depress our earnings as 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/or the quality of our loan portfolio may decline.
Weakness in the market areas 13 Table of Contents we serve could depress our earnings as 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/or the quality of our loan portfolio may decline.
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 15 Table of Contents we are unable to compete effectively in the offerings of our products and services, our business may be negatively affected.
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.
Our business strategy includes significant investment in growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. We are expanding into the Western Pennsylvania and Maryland markets, and may further expand into additional markets as a result of our digital initiatives.
Our business strategy includes significant investment in growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. We expanded into the Western Pennsylvania and northern Maryland markets, and may further expand into additional markets as a result of our digital initiatives.
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.
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.
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 10 Table of Contents loans.
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 growth initiatives require us to recruit experienced personnel. The failure to retain such personnel would place significant limitations on our ability to successfully execute our growth strategy. In addition, as we expand our lending beyond our current market areas, we could incur additional risk related to those new market areas.
Our growth initiatives require us to recruit experienced personnel. The failure to 19 Table of Contents retain such personnel would place significant limitations on our ability to successfully execute our growth strategy. In addition, as we expand our lending beyond our current market areas, we could incur additional risk related to those new market areas.
Negative changes in these general business and economic conditions could have the following consequences, any of which could have a material adverse effect on the business, financial condition, liquidity and results of operations: 13 Table of Contents • demand for the products and services may decline; • we may increase our allowance for credit losses; • loan delinquencies, problem assets, and foreclosures may increase; • collateral for loans, especially real estate, may decline in value, thereby reducing customers' borrowing power, and reducing the value of assets and collateral associated with existing loans; and • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments.
Negative changes in these general business and economic conditions could have the following consequences, any of which could have a material adverse effect on the business, financial condition, liquidity and results of operations: • demand for the products and services may decline; • we may increase our allowance for credit losses; • loan delinquencies, problem assets, and foreclosures may increase; • increase in our funding costs and noninterest expenses; • collateral for loans, especially real estate, may decline in value, thereby reducing customers' borrowing power, and reducing the value of assets and collateral associated with existing loans; and • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments.
Risks Related to the Wealth Management Industry 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.
Risks Related to the Wealth Management Industry 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 majority of the revenue from the wealth management business consists of trust, investment advisory and brokerage and other servicing fees.
Changes in interest rates influence not only the interest we receive on loans and investment securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits and the fair value of our 8 Table of Contents financial assets and liabilities.
Changes in interest rates influence not only the interest we receive on loans and investment securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain and retain deposits and the fair value of our financial assets and liabilities.
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.
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 need to raise additional capital to support our continued growth.
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 credit losses, loans and leases, thereby negatively affecting our earnings, financial condition and capital ratios at that time.
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 credit losses, thereby negatively affecting our earnings, financial condition and capital ratios.
Substantial revenues are generated from investment management 14 Table of Contents contracts with clients. Under these contracts, the investment advisory fees paid to us are typically based on the market value of assets under management.
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.
These lenders could reduce the percentages loaned against various collateral categories, could eliminate certain types of collateral and could otherwise modify or even terminate 12 Table of Contents their loan programs, particularly to the extent they are required to do so, because of capital adequacy or other balance sheet concerns.
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 about us.
The Corporation's profitability is affected by economic conditions in Pennsylvania and New Jersey markets. Unlike larger regional banks that operate in large geographies, the Corporation provides banking and financial services to customers primarily in 13 counties in the Southeastern and Central regions of Pennsylvania, three counties in New Jersey and recently expanded into Western Pennsylvania and Maryland.
The Corporation's profitability is affected by economic conditions in Pennsylvania and New Jersey markets. Unlike larger regional banks that operate in large geographies, the Corporation provides banking and financial services to customers primarily in 19 counties in the Southeastern, Central and Western regions of Pennsylvania, three counties in New Jersey and four counties in Maryland.
Natural disasters, acts of war or terrorism and other external events could negatively impact the Corporation. Natural disasters, acts of war or terrorism, the emergence of widespread health emergencies or pandemics and other adverse external events could have a significant impact on the Corporation's ability to conduct business.
Natural disasters, acts of war or terrorism, outbreaks or escalations of hostilities, the emergence of widespread health emergencies or pandemics and other adverse external events could have a significant impact on the Corporation's ability to conduct business.
Over the past year, in response to a pronounced rise in inflation, the FRB has raised certain benchmark interest rates to combat inflation.
In response to a pronounced rise in inflation, the FRB has raised certain benchmark interest rates to combat inflation.
During the year ended December 31, 2022, we incurred other comprehensive losses of $38.8 million related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio. A decline in the estimated fair value of this portfolio will result in a decline in reported stockholders' equity, as well as book value per common share.
During the year ended December 31, 2023, we incurred other comprehensive gains of $5.7 million related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio. A decline in the estimated fair value of this portfolio will result in a decline in stockholders' equity, as well as book value per common share.
Increased competition in our markets may result in reduced loans and deposits or may negatively impact the pricing of such products. Many of these competing institutions have much greater financial and marketing resources than we have.
Increased competition in our markets may result in reduced loans and deposits, less wealth management fees or insurance revenues or may negatively impact the pricing of such products and services. Many of these competing institutions have much greater financial and marketing resources than we have.
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.
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. Risks Related to Our Operations The Corporation's controls and procedures may fail or be circumvented.
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.
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.
At December 31, 2022, 35% of our deposit base was comprised of noninterest-bearing deposits, of which 26% consisted of business deposits, which are primarily operating accounts for businesses, and 9% consisted of consumer deposits.
At December 31, 2023, 23% of our deposit base was comprised of noninterest-bearing deposits, of which 16% consisted of business deposits, which are primarily operating accounts for businesses, and 7% consisted of consumer deposits.
At December 31, 2022, approximately 81.3% of our loan and lease portfolio, excluding Paycheck Protection Program (PPP) loans, 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 loans.
At December 31, 2023, approximately 79.2% 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 loans.
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.
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.
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. The wealth management business also 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.
The imposition of any such penalties or orders could have a 18 Table of Contents material adverse effect on the wealth management segment's operating results and financial condition. The wealth management business also may be adversely affected as a result of new or revised legislation or regulations.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Sustained higher interest rates by the FRB to tame persistent inflationary price pressures could also push down asset prices and weaken economic activity.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
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. 17 Table of Contents There may be future sales or other dilution of the Corporation's equity, which may adversely affect the market price of our common stock.
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.
Any of these scenarios could require us to charge off loans, which could result in an increase to our provision for credit losses on loans and leases, which would reduce our net income and capital levels. The Corporation depends on the accuracy and completeness of information about customers and counterparties.
Any of these scenarios could require us to charge-off loans, which could result in an increase to our provision for credit losses on loans and leases, which would reduce our net income and capital levels. Concentrations of loans in certain industries could have adverse effects on credit quality.
The reduction of these commission rates, along with general volatility and/or declines in premiums, may adversely impact our profitability. Risks Related to Competition 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.
Risks Related to Competition 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 from a variety of different competitors.
The estimated fair value of the available-for-sale debt securities portfolio may change depending on the credit quality of the underlying issuer, market liquidity, changes in interest rates and other factors.
At December 31, 2023, the Corporation maintained a debt securities portfolio of $497.3 million, of which $351.6 million was classified as available-for-sale. The estimated fair value of the available-for-sale debt securities portfolio may change depending on the credit quality of the underlying issuer, market liquidity, changes in interest rates and other factors.
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.
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.
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.
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 loss of one or more senior executives or key managers may have an adverse effect on our businesses. We maintain change in control agreements and grant equity awards with time-based vesting with certain executive officers to aid in our retention of these individuals.
We maintain change in control agreements and grant equity awards with time-based vesting with certain executive officers to aid in our retention of these individuals.
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.
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.
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 the latest technologies. Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations.
Our future success depends, in part, on our ability to effectively embrace technology to better serve customers and reduce costs. The Corporation has been required, and may be required in the future, to expand additional resources to employ the latest technologies.
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.
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. Commercial business loans and leases are typically affected by the borrowers' ability to repay the loans from the cash flows of their businesses.
Risks Related to the Insurance Industry 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.
Regulatory changes have imposed and may continue to impose additional costs, which could adversely impact our profitability. Risks Related to the Insurance Industry Revenues and profitability from our insurance business may be adversely affected by market conditions, which could reduce insurance commissions and fees earned.
The Corporation maintains an investment portfolio, including available-for-sale and held-to-maturity securities. We may be required to record future charges to earnings if we determine a decline in fair value of these investments has resulted from credit losses or other factors.
We are required to record charges to earnings if we determine a decline in fair value of these investments has resulted from credit losses.
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 continue to shrink or disappears, the difference between rates paid on deposits and received on loans could narrow significantly resulting in a decrease in net interest income and our profitability.
If the yield curve inversion continues or worsens, the difference between rates paid on deposits and received on loans could narrow significantly resulting in a decrease in net interest income and our profitability. Changes in the estimated fair value of debt securities may reduce stockholders' equity and net income .
Included in real estate-construction is track development financing, which has greater risk because of the potential for diminished demand for residential housing and decreases in real estate valuations. 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.
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.
If interest rates rise, the borrower's debt service requirement may increase, negatively impacting the borrower's ability to service their debt. 9 Table of Contents 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).
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.
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.
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.
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.
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. Included in real estate-construction is track development financing, which has greater risk because of the potential for diminished demand for residential housing and decreases in real estate valuations.
In addition, many commercial business loans have a variable rate that is indexed off of a floating rate such as the Prime Rate, London Interbank Offer Rate (LIBOR), Secured Overnight Financing Rate (SOFR) and Bloomberg Short Term Bank Yield Index (BSBY).
In addition, many commercial business loans have a variable rate that is indexed off of a floating rate such as the Prime Rate or the Secured Overnight Financing Rate ("SOFR"). If interest rates rise, the borrower's debt service requirement may increase, negatively impacting the borrower's ability to service their debt.
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. Other Risks Related to Our Business Uncertainty surrounding the future of LIBOR may affect the fair value and return on the Corporation's financial instruments that use LIBOR as a reference rate.
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. 16 Table of Contents Other Risks Related to Our Business Natural disasters, acts of war or terrorism, outbreaks or escalations of hostilities and other external events could negatively impact the Corporation.
Removed
Risks Related to Market Interest Rates The reversal of the historically low interest rate environment may adversely affect our net interest income and profitability. The FRB decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic. The FRB has reversed its policy of near zero interest rates given its concerns over inflation.
Added
This report is qualified in its entirety by these risk factors. 11 Table of Contents Risks Related to Market Interest Rates Our results of operations may be adversely affected by credit losses relating to our investment portfolio. The Corporation maintains an investment portfolio, including available-for-sale and held-to-maturity securities.
Removed
Market interest rates have risen in response to the FRB's rate increases. These policies can thus affect the activities and results of operations of financial institutions. The actions of the FRB influence the rates of interest that we charge on loans and that we pay on borrowings and interest-bearing deposits.
Added
Our net interest income may decline based on our exposure to a difference in short-term and long-term interest rates. When short-term rates are higher than long-term rates, that is referred to as an inverted yield curve.
Removed
Rates of interest can also affect the value of our on-balance sheet and off-balance sheet financial instruments. Thus, the increase in market interest rates may have an adverse effect on our net interest income and profitability. Our results of operations may be adversely affected by credit losses relating to our investment portfolio.
Added
The concentration and mix of our assets could increase the potential for significant credit losses. In the ordinary course of business, we may have heightened credit exposure to a particular industry, geography, asset class or financial market.
Removed
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.
Added
Although there are limitations on the extent of total exposure to an individual consumer or business borrower, events adversely affecting specific customers or counterparties, industries, geographies, asset classes or financial markets, including a decline in their creditworthiness or a worsening overall risk profile, could materially affect us.
Removed
This lagging effect may also negatively impact our net interest income when general interest rates continue to rise periodically. Changes in the estimated fair value of debt securities may reduce stockholders' equity and net income . At December 31, 2022, the Corporation maintained a debt securities portfolio of $505.0 million, of which $350.3 million was classified as available-for-sale.
Added
The schedule on page 39 provides a break-out of our loan portfolio by certain loan and industry types. The Corporation depends on the accuracy and completeness of information about customers and counterparties.
Removed
Commercial business loans and leases are typically affected by 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.
Added
Any failure to follow or circumvention of these controls, policies and procedures could have a material adverse impact on our financial condition and results of operations. The Corporation may not be able to attract and retain skilled people.
Removed
Risks Related to the COVID-19 Pandemic The ongoing COVID-19 pandemic and measures intended to prevent its spread could adversely affect the Corporation's business activities, financial condition, and results of operations.
Added
Our success depends on our ability to continue to attract, manage, and retain these and other qualified management personnel. 14 Table of Contents A lack of liquidity could adversely affect the Corporation's financial condition and results of operations. Liquidity is essential to the Corporation's business.
Removed
Global health concerns relating to the COVID-19 pandemic and related government actions taken to reduce the spread of the virus have affected the macroeconomic environment, both nationally and in the Corporation's market area.
Added
The Corporation relies on its ability to generate deposits and effectively manage the repayment of its liabilities to ensure that there is adequate liquidity to fund operations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity.
Removed
Federal and state agencies may pass measures to address the economic and social consequences of the pandemic that could impact the Corporation's financial results and have a destabilizing effect on financial markets, key market indices, and overall economic activity.
Added
The Corporation's most important source of funds is its deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk adjusted return, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments.

… 23 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBroad St., Philadelphia, PA 19146 Philadelphia, PA Leased 18 Table of Contents 1642 Fairmount Ave., Philadelphia, PA 19130 Philadelphia, PA Leased 3601 Market St., Philadelphia, PA 19104 Philadelphia, PA Leased 7226 Germantown Ave., Philadelphia, PA 19119 (3) Philadelphia, PA Leased 1103 Rocky Dr., Reading, PA 19609 (2) (3) Berks, PA Leased 216 Hartman Bridge Rd., Ronks, PA 17572 Lancaster, PA Leased 200 North High St., West Chester, PA 19380 (3) Chester, PA Leased 90 Willow Valley Lakes Dr., Willow Street, PA 17584 Lancaster, PA Leased 5089 Hamilton Blvd., Allentown, PA 18106 Lehigh, PA Land Lease 2645 Street Rd., Bensalem, PA 19020 Bucks, PA Land Lease 380 Water Loop Dr., Collegeville, PA 19426 Montgomery, PA Land Lease 1 Heritage Dr., Gordonville, PA 17529 Lancaster, PA Land Lease 2870 Shelly Rd., Harleysville, PA 19438 Montgomery, PA Land Lease 120 Forty Foot Rd., Hatfield, PA 19440 Montgomery, PA Land Lease 940 2nd Street Pk., Richboro, PA 18954 Bucks, PA Land Lease Corporate Headquarters: 14 North Main St., Souderton, PA 18964 (1) (3) Montgomery, PA Owned 15 Washington Ave., Souderton, PA 18964 Montgomery, PA Owned 16 Harbor Pl., Souderton, PA 18964 Montgomery, PA Owned 1715 Sumneytown Pk., Lansdale, PA 19446 Montgomery, PA Leased Subsidiary Offices (Wealth Management Segment) 4600 Broadway, Allentown, PA 18104 (1) (3) Lehigh, PA Leased 5237 Summerlin Commons Blvd., Fort Meyers, FL 33907 Lee, FL Leased 555 Croton Rd., King of Prussia, PA 19406 (3) Montgomery, PA Leased 41 West Broad Street, Souderton, PA 18964 Montgomery, PA Owned Subsidiary Offices (Insurance Segment) 6339 Beverly Hills Rd., Coopersburg, PA 18036 Lehigh, PA Owned 3541 Old Philadelphia Pk, Intercourse, PA 17534 Lancaster, PA Owned 521 Main St., Lansdale, PA 19446 Montgomery, PA Owned 9120 Chesapeake Ave., Suite 101, North Beach, MD 20714 Calvert, MD Leased Other Offices: Greenfield Corporate Center, 1869 Charter Ln., Suite 301, Lancaster, PA 17601 (1) (3) Lancaster, PA Leased 312 West Route 38 Ste 105, Moorestown, NJ 08057 (3) Burlington, NJ Leased 2000 Market St., Suite 700, Philadelphia, PA 19103 (3) Philadelphia, PA Leased (1) Banking Segment (2) Wealth Management Segment (3) Corporate banking Additionally, the Bank provides banking services for the residents and employees of 14 retirement home communities and has four off-premise automated teller machines.
Biggest changeBroad St., Philadelphia, PA 19146 Philadelphia, PA Leased 1642 Fairmount Ave., Philadelphia, PA 19130 Philadelphia, PA Leased 3601 Market St., Philadelphia, PA 19104 Philadelphia, PA Leased 7226 Germantown Ave., Philadelphia, PA 19119 Philadelphia, PA Leased 1501 Ardmore Blvd., Pittsburg, PA 15221 (3) Allegheny, PA Leased 1103 Rocky Dr., Reading, PA 19609 (2) (3) Berks, PA Leased 216 Hartman Bridge Rd., Ronks, PA 17572 Lancaster, PA Leased 200 North High St., West Chester, PA 19380 (3) Chester, PA Leased 90 Willow Valley Lakes Dr., Willow Street, PA 17584 Lancaster, PA Leased 5089 Hamilton Blvd., Allentown, PA 18106 Lehigh, PA Land Lease 380 Water Loop Dr., Collegeville, PA 19426 Montgomery, PA Land Lease 1 Heritage Dr., Gordonville, PA 17529 Lancaster, PA Land Lease 2870 Shelly Rd., Harleysville, PA 19438 Montgomery, PA Land Lease 120 Forty Foot Rd., Hatfield, PA 19440 Montgomery, PA Land Lease 940 2nd Street Pk., Richboro, PA 18954 Bucks, PA Land Lease 24 Table of Contents Corporate Headquarters: 14 North Main St., Souderton, PA 18964 (1) (3) Montgomery, PA Owned 15 Washington Ave., Souderton, PA 18964 Montgomery, PA Owned 16 Harbor Pl., Souderton, PA 18964 Montgomery, PA Owned 1715 Sumneytown Pk., Lansdale, PA 19446 Montgomery, PA Leased Subsidiary Offices (Wealth Management Segment) 4600 Broadway, Allentown, PA 18104 (1) (3) Lehigh, PA Leased 5237 Summerlin Commons Blvd., Fort Meyers, FL 33907 Lee, FL Leased 555 Croton Rd., King of Prussia, PA 19406 (3) Montgomery, PA Leased 41 West Broad St., Souderton, PA 18964 Montgomery, PA Owned Subsidiary Offices (Insurance Segment) 6339 Beverly Hills Rd., Coopersburg, PA 18036 Lehigh, PA Owned 3541 Old Philadelphia Pk., Intercourse, PA 17534 Lancaster, PA Owned 521 Main St., Lansdale, PA 19446 Montgomery, PA Owned 9120 Chesapeake Ave., Suite 101, North Beach, MD 20714 Calvert, MD Leased Other Offices: Greenfield Corporate Center, 1869 Charter Ln., Suite 301, Lancaster, PA 17601 (1) (3) Lancaster, PA Leased 312 West Route 38 Ste 105, Moorestown, NJ 08057 (3) Burlington, NJ Leased 2000 Market St., Suite 700, Philadelphia, PA 19103 (3) Philadelphia, PA Leased (1) Banking Segment (2) Wealth Management Segment (3) Corporate banking Additionally, the Bank provides banking services for the residents and employees of 10 retirement home communities and has four off-premise automated teller machines.
The following table details the Corporation's properties as of December 31, 2022: Property Address County, State Owned/Leased Full Service Branches (Banking Segment): 195 East Butler Ave., Chalfont, PA 18914 Bucks, PA Owned 4390 Davisville Rd., Hatboro, PA 19040 (3) Montgomery, PA Owned 5871 Lower York Rd., Lahaska, PA 18931 Bucks, PA Owned Route 309 & Line Lexington Rd., Line Lexington, PA 18932 Montgomery, PA Owned 4601 Carlisle Pk, Mechanicsburg, PA 17050 (2) (3) Cumberland, PA Owned 1950 John Fries Highway, Milford Square, PA 18935 Bucks, PA Owned Route 309 & Stump Rd., Montgomeryville, PA 18936 Montgomery, PA Owned 15 Swamp Rd., Newtown, PA 18940 Bucks, PA Owned 921 West Ave., Ocean City, NJ 08226 (3) Cape May, NJ Owned 401 Rhawn St., Philadelphia, PA 19111 Philadelphia, PA Owned Township Line Rd. and Route 113, Schwenksville, PA 19473 Montgomery, PA Owned 10 W.
The following table details the Corporation's properties as of December 31, 2023: Property Address County, State Owned/Leased Full Service Branches (Banking Segment): 195 East Butler Ave., Chalfont, PA 18914 Bucks, PA Owned 5871 Lower York Rd., Lahaska, PA 18931 Bucks, PA Owned Route 309 & Line Lexington Rd., Line Lexington, PA 18932 Montgomery, PA Owned 4601 Carlisle Pk., Mechanicsburg, PA 17050 (2) (3) Cumberland, PA Owned 1950 John Fries Highway, Milford Square, PA 18935 Bucks, PA Owned Route 309 & Stump Rd., Montgomeryville, PA 18936 Montgomery, PA Owned 15 Swamp Rd., Newtown, PA 18940 Bucks, PA Owned 921 West Ave., Ocean City, NJ 08226 (3) Cape May, NJ Owned 401 Rhawn St., Philadelphia, PA 19111 Philadelphia, PA Owned Township Line Rd. and Route 113, Schwenksville, PA 19473 Montgomery, PA Owned 10 W.
Broad St., Souderton, PA 18964 Montgomery, PA Owned 500 Harleysville Pk., Souderton, PA 18964 Montgomery, PA Owned Routes 113 and Bethlehem Pk., Souderton, PA 18964 Bucks, PA Owned 1041 York Rd., Warminster, PA 18974 Bucks, PA Owned 2901 Whiteford Rd, York, PA 17402 (3) York, PA Owned 574 Main St., Bethlehem, PA 18018 Northampton, PA Leased 694 DeKalb Pk., Blue Bell, PA 19422 Montgomery, PA Leased 4250 Oregon Pk., Brownstown, PA 17508 Lancaster, PA Leased 1135 Georgetown Rd., Christiana, PA 17509 Lancaster, PA Leased 1980 S.
Broad St., Souderton, PA 18964 Montgomery, PA Owned 500 Harleysville Pk., Souderton, PA 18964 Montgomery, PA Owned Routes 113 and Bethlehem Pk., Souderton, PA 18964 Bucks, PA Owned 1041 York Rd., Warminster, PA 18974 Bucks, PA Owned 2901 Whiteford Rd., York, PA 17402 (3) York, PA Owned 574 Main St., Bethlehem, PA 18018 Northampton, PA Leased 694 DeKalb Pk., Blue Bell, PA 19422 Montgomery, PA Leased 4250 Oregon Pk., Brownstown, PA 17508 Lancaster, PA Leased 1135 Georgetown Rd., Christiana, PA 17509 Lancaster, PA Leased 51 Dutilh Rd., Cranberry, PA 16066 (3) Butler, PA Leased 1980 S.
Item 2. Properties As of December 31, 2022, the Corporation and its subsidiaries occupied 52 properties, most of which are used principally as banking offices.
Item 2. Properties As of December 31, 2023, the Corporation and its subsidiaries occupied 54 properties, most of which are used principally as banking offices.
The Bank provides banking services nationwide through the internet via its website at www.univest.net . The Corporation's website and the information contained therein is not intended to be incorporated into this Annual Report on Form 10-K. On February 13, 2023, the Bank opened an office located at 51 Dutilh Road, Cranberry, Pennsylvania, located in Butler County.
The Bank provides banking services nationwide through the internet via its website at www.univest.net . The Corporation's website and the information contained therein is not intended to be incorporated into this Annual Report on Form 10-K. On January 5, 2024, the Bank closed the office located at 4250 Oregon Pike, Brownstown, Pennsylvania, located in Lancaster County.
Easton Rd, Doylestown, PA 18901 (2) (3) Bucks, PA Leased 321 Main St., East Greenville, PA 18041 Montgomery, PA Leased 1536 S.
Easton Rd., Doylestown, PA 18901 (2) (3) Bucks, PA Leased 321 Main St., East Greenville, PA 18041 Montgomery, PA Leased 10801 Tony Dr., Lutherville, MD 21093 (2) (3) Baltimore, MD Leased 175 West Ostend St., Baltimore, MD 21230 (3) Baltimore City, MD Leased 1536 S.
Added
On January 11, 2024, the Bank opened an office located at 689 West Main Street, New Holland, Pennsylvania, located in Lancaster County.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+0 added−2 removed5 unchanged
Biggest changeFive Year Cumulative Total Return Summary ($) 2017 2018 2019 2020 2021 2022 Univest Financial Corporation 100.00 79.34 101.60 81.13 121.35 109.49 NASDAQ Bank Index 100.00 83.91 104.35 96.65 138.07 115.72 KBW NASDAQ Bank Index 100.00 82.40 112.12 100.74 139.31 109.71 Russell 2000 Index 100.00 89.00 111.66 133.95 157.44 125.31 NASDAQ Stock Market (US) 100.00 126.08 172.34 250.01 305.53 206.30 20 Table of Contents ISSUER PURCHASES OF EQUITY SECURITIES The following table provides information on repurchases by the Corporation of its common stock during the fourth quarter of 2022, under the Corporation's Board approved program: ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased (1) 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, 2022 — $ — — 1,229,174 November 1 - 30, 2022 — — — 1,229,174 December 1 – 31, 2022 — — — 1,229,174 Total — $ — — 1.
Biggest changeFive Year Cumulative Total Return Summary ($) 2018 2019 2020 2021 2022 2023 Univest Financial Corporation 100.00 128.06 102.26 152.96 138.00 121.32 NASDAQ Bank Index 100.00 124.36 115.19 164.55 137.92 133.26 KBW NASDAQ Bank Index 100.00 136.07 122.26 169.06 133.15 132.05 Russell 2000 Index 100.00 125.46 150.51 176.91 140.80 164.52 26 Table of Contents ISSUER PURCHASES OF EQUITY SECURITIES The following table provides information on repurchases by the Corporation of its common stock during the fourth quarter of 2023, under the Corporation's Board approved program: ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased (1) 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, 2023 — $ — — 1,229,174 November 1 - 30, 2023 26,485 17.43 26,485 1,202,689 December 1 – 31, 2023 — — — 1,202,689 Total 26,485 $ 17.43 26,485 1.
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, 2022, with the following indices: (1) NASDAQ Bank Index, (2) KBW NASDAQ Bank Index, and (3) Russell 2000 Index.
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, 2023, with the following indices: (1) NASDAQ Bank Index, (2) KBW NASDAQ Bank Index, and (3) Russell 2000 Index.
Shares repurchased pursuant to these plans during the three months ended December 31, 2022 were as follows: Period Total Number of Shares Purchased Average Price Paid per Share October 1 - 31, 2022 — $ — November 1 - 30, 2022 — — December 1 – 31, 2022 — — Total — $ — Dividend Reinvestment and Employee Stock Purchase Plans The Univest Dividend Reinvestment Plan allows for the issuance of 2,718,750 shares of common stock.
Shares repurchased pursuant to these plans during the three months ended December 31, 2023 were as follows: Period Total Number of Shares Purchased Average Price Paid per Share October 1 - 31, 2023 — $ — November 1 - 30, 2023 — — December 1 – 31, 2023 — — Total — $ — Dividend Reinvestment and Employee Stock Purchase Plans The Univest Dividend Reinvestment Plan allows the issuance of 2,718,750 shares of common stock.
This comparison assumes $100.00 was invested on December 31, 2017, 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.
This comparison assumes $100.00 was invested on December 31, 2018, 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.
The stock repurchase plan does not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.
The stock repurchase plans do not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The plans have no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the plans at any time.
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 10, 2023, the Corporation had 2,406 stockholders of record.
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 9, 2024, the Corporation had 2,362 stockholders of record.
During 2022 and 2021, 56,900 and 53,549 shares, respectively, were issued under the dividend reinvestment plan, with 749,355 shares available for future purchase at December 31, 2022. The 1996 Employee Stock Purchase Plan allows for the issuance of 984,375 shares of common stock.
During 2023 and 2022, 75,998 and 56,900 shares, respectively, were issued under the dividend reinvestment plan, with 673,357 shares available for future purchase at December 31, 2023. The 1996 Employee Stock Purchase Plan allows the issuance of 984,375 shares of common stock.
During 2022 and 2021, 39,466 and 32,638 shares, respectively, were issued under the employee stock purchase plan, with 474,692 shares available for future issuance at December 31, 2022.
During 2023 and 2022, 52,482 and 39,466 shares, respectively, were issued under the employee stock purchase plan, with 422,207 shares available for future issuance at December 31, 2023.
Removed
As of December 31, 2022, the Corporation replaced the NASDAQ Stock Market Index with the Russell 2000 Index and the KBW Nasdaq Bank Index as we concluded they more closely align with the size and industry of the Corporation.
Removed
In accordance with SEC requirements, the NASDAQ Stock Market Index is also included in the table below as it was used as a comparative index in the prior year.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

97 edited+21 added−16 removed43 unchanged
Biggest changeAt December 31, (Dollars in thousands) 2022 2021 2020 Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications* $ 13,353 $ 33,210 $ 31,692 Accruing troubled debt restructured loans and lease modifications not included in the above 49 51 53 Accruing loans and leases, 90 days or more past due 875 498 1,392 Total nonperforming loans and leases $ 14,277 $ 33,759 $ 33,137 Other real estate owned 19,258 279 7,355 Total nonperforming assets $ 33,535 $ 34,038 $ 40,492 * Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table $ 767 $ 758 $ 14,069 Loans and leases held for investment $ 6,123,230 $ 5,310,017 $ 5,306,841 Allowance for credit losses, loans and leases 79,004 71,924 83,044 Allowance for credit losses, loans and leases / loans and leases held for investment 1.29 % 1.35 % 1.56 % Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment 0.22 % 0.63 % 0.60 % Allowance for credit losses, loans and leases / nonaccrual loans and leases 591.66 % 216.57 % 262.03 % The following table provides additional information on the Corporation's nonaccrual loans held for investment: At December 31, (Dollars in thousands) 2022 2021 2020 2019 Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications $ 13,353 $ 33,210 $ 31,692 $ 38,578 Nonaccrual loans and leases with partial charge-offs 928 1,429 4,227 1,966 Life-to-date partial charge-offs on nonaccrual loans and leases 448 536 2,377 1,320 Specific reserves on individually analyzed loans 2,765 11 585 2,108 34 Table of Contents Table 7—Loan Concentration The following table provides summarized detail related to outstanding commercial loan balances, excluding PPP loans, segmented by industry description as of December 31, 2022: (Dollars in thousands) December 31, 2022 Industry Description Total Outstanding Balance (excl PPP) % of Commercial Loan Portfolio CRE - Retail $ 440,112 8.8 % Animal Production 340,877 6.9 CRE - Office 292,740 5.9 CRE - Multi-family 277,157 5.6 CRE - 1-4 Family Residential Investment 266,423 5.3 Hotels & Motels (Accommodation) 191,735 3.9 CRE - Industrial / Warehouse 174,357 3.5 Nursing and Residential Care Facilities 169,443 3.4 Education 163,310 3.3 Specialty Trade Contractors 153,422 3.1 Homebuilding (tract developers, remodelers) 149,935 3.0 Merchant Wholesalers, Durable Goods 136,707 2.7 Motor Vehicle and Parts Dealers 122,291 2.5 Credit Intermediation and Other Related Activities 114,124 2.3 CRE - Mixed-Use - Residential 109,812 2.2 Crop Production 91,597 1.8 Administrative and Support Services 79,600 1.6 CRE - Mixed-Use - Commercial 77,790 1.6 Religious Organizations, Advocacy Groups 74,980 1.5 Wood Product Manufacturing 74,913 1.5 Rental and Leasing Services 74,158 1.5 Food Manufacturing 73,755 1.5 Food Services and Drinking Places 68,056 1.4 Merchant Wholesalers, Nondurable Goods 63,539 1.3 Personal and Laundry Services 59,796 1.2 Repair and Maintenance 56,870 1.1 Fabricated Metal Product Manufacturing 55,546 1.1 Miniwarehouse / Self-Storage 55,543 1.1 Amusement, Gambling, and Recreation Industries 55,248 1.1 Private Equity & Special Purpose Entities 53,818 1.1 Truck Transportation 50,182 1.0 Industries with >$50 million in outstandings $ 4,167,836 83.8 % Industries with $ 806,965 16.2 % Total Commercial Loans $ 4,974,801 100.0 % Consumer Loans and Lease Financings Total Outstanding Balance Real Estate-Residential Secured for Personal Purpose $ 730,395 Real Estate-Home Equity Secured for Personal Purpose 176,699 Loans to Individuals 27,873 Lease Financings 211,315 Total Consumer Loans and Lease Financings $ 1,146,282 Total $ 6,121,083 35 Table of Contents Table 8—Summary of Loan and Lease Loss Experience The following table presents average loans and leases and loan and lease loss experience for the periods indicated.
Biggest changeAt December 31, (Dollars in thousands) 2023 2022 2021 Nonaccrual loans held for sale $ 8 $ — $ — Nonaccrual loans and leases held for investment 20,519 13,353 33,210 Accruing loans and leases, 90 days or more past due 534 875 498 Total nonperforming loans and leases $ 21,061 $ 14,228 $ 33,708 Other real estate owned 19,032 19,258 279 Total nonperforming assets $ 40,093 $ 33,486 $ 33,987 Loans and leases held for investment $ 6,567,214 $ 6,123,230 $ 5,310,017 Allowance for credit losses, loans and leases 85,387 79,004 71,924 Allowance for credit losses, loans and leases / loans and leases held for investment 1.30 % 1.29 % 1.35 % Nonaccrual loans and leases / loans and leases held for investment 0.31 % 0.22 % 0.63 % Allowance for credit losses, loans and leases / nonaccrual loans and leases 415.97 % 591.66 % 216.57 % The following table provides additional information on the Corporation's nonaccrual loans held for investment: At December 31, (Dollars in thousands) 2023 2022 2021 2020 Nonaccrual loans and leases $ 20,519 $ 13,353 $ 33,210 $ 31,692 Nonaccrual loans and leases with partial charge-offs 814 928 1,429 4,227 Life-to-date partial charge-offs on nonaccrual loans and leases 885 448 536 2,377 Reserves on individually analyzed loans 1,787 2,765 11 585 41 Table of Contents Table 7—Loan Portfolio Overview The following table provides summarized detail related to outstanding commercial loan balances segmented by industry description as of December 31, 2023: (Dollars in thousands) December 31, 2023 Industry Description Total Outstanding Balance % of Commercial Loan Portfolio CRE - Retail $ 469,890 9.0 % Animal Production 361,597 6.9 CRE - Multi-family 320,176 6.2 CRE - Office 299,718 5.8 CRE - 1-4 Family Residential Investment 285,559 5.5 CRE - Industrial / Warehouse 248,611 4.8 Hotels & Motels (Accommodation) 190,639 3.7 Specialty Trade Contractors 164,798 3.2 Education 161,325 3.1 Homebuilding (tract developers, remodelers) 153,239 2.9 Nursing and Residential Care Facilities 150,666 2.9 Motor Vehicle and Parts Dealers 138,581 2.7 Merchant Wholesalers, Durable Goods 118,351 2.3 CRE - Mixed-Use - Residential 110,458 2.1 Crop Production 103,285 2.0 Repair and Maintenance 97,682 1.9 Wood Product Manufacturing 85,292 1.6 Real Estate Lenders, Secondary Market Financing 80,755 1.6 Rental and Leasing Services 79,767 1.5 Fabricated Metal Product Manufacturing 73,545 1.4 CRE - Mixed-Use - Commercial 72,685 1.4 Religious Organizations, Advocacy Groups 72,685 1.4 Personal and Laundry Services 72,117 1.4 Administrative and Support Services 70,754 1.4 Amusement, Gambling, and Recreation Industries 70,686 1.4 Merchant Wholesalers, Nondurable Goods 65,491 1.3 Food Services and Drinking Places 65,143 1.3 Private Equity & Special Purpose Entities (except 52592) 63,447 1.2 Miniwarehouse / Self-Storage 61,964 1.2 Food Manufacturing 59,662 1.1 Truck Transportation 53,306 1.0 Industries with >$50 million in outstandings $ 4,421,874 85.0 % Industries with $ 782,111 15.0 % Total Commercial Loans $ 5,203,985 100.0 % Consumer Loans and Lease Financings Total Outstanding Balance Real Estate-Residential Secured for Personal Purpose $ 909,015 Real Estate-Home Equity Secured for Personal Purpose 179,282 Loans to Individuals 27,749 Lease Financings 247,183 Total Consumer Loans and Lease Financings $ 1,363,229 Total $ 6,567,214 42 Table of Contents Table 8—Summary of Loan and Lease Loss Experience The following table presents average loans and leases and loan and lease loss experience for the periods indicated.
General The Corporation earns revenues primarily from the margins and fees generated from the lending and depository services as well as fee-based income from trust, insurance, mortgage banking, treasury management and investment services.
General The Corporation earns revenues primarily from the margins and fees generated from lending and depository services as well as fee-based income from trust, insurance, mortgage banking, treasury management and investment services.
Results of Operations Net Interest Income Net interest income is the difference between interest earned primarily on loans and leases and investment securities and interest paid on deposits, borrowings, long-term debt and subordinated notes. Net interest income is the principal source of the Corporation's revenue.
Results of Operations Net Interest Income Net interest income is the difference between interest earned primarily on loans, leases and investment securities and interest paid on deposits, borrowings, long-term debt and subordinated notes. Net interest income is the principal source of the Corporation's revenue.
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.
While liquidation and recovery efforts continue, officers continue to work with the borrowers, if appropriate, to recover monies owed to the Corporation. Liquidity The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks.
The Bank anticipates meeting these obligations by utilizing on-balance sheet liquidity and continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.
The Bank anticipates meeting these obligations by utilizing on-balance sheet liquidity and continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these contractual obligations with similar funding sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.
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.
While the Corporation has strict underwriting, review, and monitoring procedures in place, they cannot eliminate all of the risks related to these lending activities.
Certain critical accounting policies could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses on loans and leases as critical accounting policies.
Certain critical accounting policies could materially affect the results of operations and financial condition of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the allowance for credit losses on loans and leases as critical accounting policies.
In addition, because future events affecting borrowers 22 Table of Contents and collateral cannot be predicted without uncertainty, the existing ACL may not be adequate or increases may be necessary should the quality of any loans or leases deteriorate or if there are changes to the assumptions noted above.
In addition, because future events affecting borrowers 28 Table of Contents and collateral cannot be predicted without uncertainty, the existing ACL may not be adequate or increases may be necessary should the quality of any loans or leases deteriorate or if there are changes to the assumptions noted above.
Table 1 presents the Corporation's average balances, tax-equivalent interest income, interest expense, tax-equivalent yields earned on average assets, cost of average liabilities, and shareholders' equity on a tax-equivalent basis for the years ended December 31, 2022, 2021 and 2020. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets.
Table 1 presents the Corporation's average balances, tax-equivalent interest income, interest expense, tax-equivalent yields earned on average assets, cost of average liabilities, and shareholders' equity on a tax-equivalent basis for the years ended December 31, 2023, 2022 and 2021. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets.
The adequacy of these allowances are sensitive to changes in current and forecasted economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral securing such payments.
The adequacy of these allowances is sensitive to changes in current and forecasted economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral securing such payments.
Tax-equivalent amounts for the years ended December 31, 2022, 2021 and 2020 have been calculated using the Corporation's federal applicable rate of 21%. 27 Table of Contents 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, 2022 compared to 2021 and for the year ended December 31, 2021 compared to 2020, indicated by their rate and volume components.
Tax-equivalent amounts for the years ended December 31, 2023, 2022 and 2021 have been calculated using the Corporation's federal applicable rate of 21%. 34 Table of Contents 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, 2023 compared to 2022 and for the year ended December 31, 2022 compared to 2021, indicated by their rate and volume components.
Performance of the loan and lease portfolio is monitored on a regular basis by Bank management and lending officers. Nonaccrual loans and leases and accruing troubled debt restructured loans are loans or leases for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms.
Performance of the loan and lease portfolio is monitored on a regular basis by Bank management and lending officers. Nonaccrual loans and leases are loans or leases for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms.
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. 40 Table of Contents The changes to net interest income are shown in the below table at December 31, 2022.
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. 47 Table of Contents The changes to net interest income are shown in the below table at December 31, 2023.
Should evidence emerge that indicates that management's intent or ability to manage the securities as originally asserted is not supportable, securities with the held-to-maturity or available-for-sale designations may be re-categorized so that adjustments to either the balance sheet or statement of income may be required. Fair values for securities are determined using independent pricing services and market-participating brokers.
Should evidence emerge that indicates that management's intent or ability to manage the securities as originally asserted is not supportable, securities with the held-to-maturity or available-for-sale designations may be re-categorized, which may result in adjustments to either the balance sheet or statement of income. Fair values for securities are determined using independent pricing services and market-participating brokers.
Commercial, financial and agricultural loans are generally secured by the borrower's assets and by personal guarantees. Commercial real estate, construction and residential real estate secured for business purposes loans are originated primarily within the Pennsylvania, Maryland, Delaware and New Jersey market areas at prudent loan-to-value ratios and are often supported by a guarantee of the borrowers.
Commercial, financial and agricultural loans are generally secured by the borrower's assets and by personal guarantees. Commercial real estate, construction and residential real estate secured for business purposes loans are originated primarily within the Pennsylvania, Maryland, Delaware and New Jersey market areas at prudent loan-to-value ratios and are often supported by guaranties.
Allowance for Credit Losses on Loan and Leases: The Allowance for Credit Losses (ACL) on loans and leases are provided using techniques that estimate losses on pools of loans and leases that share similar risk characteristics and specifically identify losses on individual loans and leases that do not share similar risk characteristics with others.
Allowance for Credit Losses on Loan and Leases: The Allowance for Credit Losses ("ACL") on loans and leases uses techniques that estimate losses on pools of loans and leases that share similar risk characteristics and specifically identify losses on individual loans and leases that do not share similar risk characteristics with others.
Increase (Decrease) ($) Adjustment Factor Prepayment rates +/- 1,900 If rates were adjusted across all pools by +/-100 basis points Curtailment rates +/- 450 If rates were adjusted across all pools by +/- 100 basis points Recovery delay +/- 2,900 If recovery delays were adjusted by +/- 3 months across all pools Economic forecast (12,600) If Baseline forecasts were used instead of the weighted Downside/Baseline scenarios Economic forecast 11,100 If S2 Downside forecasts were used instead of the weighted Downside/Baseline scenarios Economic forecast 26,500 If S3 Downside forecasts were used instead of the weighted Downside/Baseline scenarios Unemployment rates 11,900 If rates were increased across all pools by 100 basis points Unemployment rates (11,000) If rates were decreased across all pools by 100 basis points GDP rates +/- 800 If the GDP forecast inputs were adjusted by +/- 100 basis points House price index +/- 140 If the HPI forecast inputs were adjusted by +/- 100 basis points Reversion period (600) If the reversion period was increased by 2 quarters across all pools Reversion period 350 If the reversion period was decreased by 2 quarters across all pools Readers of the Corporation’s financial statements should be aware that the estimates and assumptions used in the Corporation’s current financial statements may need to be updated in future financial presentations for changes in circumstances, business or economic conditions in order to fairly represent the condition of the Corporation at that time.
Increase (Decrease) ($) Adjustment Factor Prepayment rates +/- 1,900 If rates were adjusted across all pools by +/-100 basis points Curtailment rates +/- 450 If rates were adjusted across all pools by +/- 100 basis points Recovery delay +/- 3,500 If recovery delays were adjusted by +/- 3 months across all pools Economic forecast (18,800) If Baseline forecasts were used instead of the weighted Downside/Baseline scenarios Economic forecast 8,700 If S2 Downside forecasts were used instead of the weighted Downside/Baseline scenarios Economic forecast 26,500 If S3 Downside forecasts were used instead of the weighted Downside/Baseline scenarios Unemployment rates 14,200 If rates were increased across all pools by 100 basis points Unemployment rates (13,000) If rates were decreased across all pools by 100 basis points GDP rates +/- 830 If the GDP forecast inputs were adjusted by +/- 100 basis points House price index +/- 170 If the HPI forecast inputs were adjusted by +/- 100 basis points Reversion period 30 If the reversion period was increased by 2 quarters across all pools Reversion period (440) If the reversion period was decreased by 2 quarters across all pools 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.
The growth in gross loans and leases held for investment, excluding PPP loans, was primarily due to increases in commercial, commercial real estate, construction, residential mortgage loans and lease financings. 32 Table of Contents Table 5—Loan and Lease Maturities and Sensitivity to Changes in Interest Rates The following table presents the maturity schedule of the loan and lease portfolio at December 31, 2022.
The growth in gross loans and leases held for investment was primarily due to increases in commercial real estate, residential mortgage loans and lease financings. 39 Table of Contents Table 5—Loan and Lease Maturities and Sensitivity to Changes in Interest Rates The following table presents the maturity schedule of the loan and lease portfolio at December 31, 2023.
The Corporation uses a variety of techniques to assist in identifying the potential range of risk, including 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 repricing gaps in the Corporation’s balance sheet.
The Corporation uses a variety of techniques to assist in identifying and evaluating the potential range of risk, including a maturity/repricing gap analysis as well as an Earnings at Risk analysis under various interest rate scenarios. 46 Table of Contents The gap analysis identifies repricing gaps in the Corporation’s balance sheet.
Table 6—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.
Table 6—Nonaccrual and Past Due Loans and Leases; Other Real Estate Owned; and Related Ratios The following table details information pertaining to the Corporation's nonperforming assets at the dates indicated.
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.
The Corporation manages credit risk in the loan portfolio through the adherence to consistent and conservative standards and policies established by the senior credit leadership and approved by the Board of Directors. Written loan policies establish underwriting standards, lending limits and other standards or limits as deemed necessary and prudent.
Retained earnings was impacted by net income of $78.1 million, partially offset by $24.4 million of cash dividends paid during the year.
Retained earnings was impacted by net income of $71.1 million, partially offset by $24.7 million of cash dividends paid during the year.
Servicing fees increased $1.3 million for the year ended December 31, 2022, driven by reduced amortization as a result of a decrease in prepayment speeds due to the higher interest rate environment.
Servicing fees increased $1.3 million for the year ended December 31, 2022, driven by reduced amortization as a result of a decrease in prepayment speeds due to the higher interest rate environment. Additionally, interchange income increased $381 thousand for the year ended December 31, 2022, due to increased customer activity.
The Insurance segment reported pre-tax income of $3.3 million in 2022, $3.4 million in 2021 and $4.1 million in 2020, which included noninterest income of $19.9 million in 2022, $17.0 million in 2021 and $16.7 million in 2020.
The Insurance segment reported pre-tax income of $5.1 million in 2023, $3.3 million in 2022 and $3.4 million in 2021, which included noninterest income of $21.5 million in 2023, $19.9 million in 2022 and $17.0 million in 2021.
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.
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.
Economic Factors At December 31, 2022 At December 31, 2021 Description of Economic Factors Prepayment rates 13.41 % 12.45 % Average total portfolio rate Curtailment rates 28.71 % 27.77 % Average total portfolio rate Recovery delay 30 months 29 months Average across all pools Economic forecast Moody's downside S2 weighted 55%, Baseline weighted 45% Moody's downside weighted 80% S2, 20% S3 Moody's US Macro Forecast Narratives for December 2022 & 2021 Unemployment rates 4.96 % 6.29 % Average of 4 quarter forecast period GDP rates 0.12 % 2.13 % Average of 4 quarter forecast period House price index (3.35) % 3.04 % Average of 4 quarter forecast period Sensitivity Analysis The below table indicates the impact to the allowance for credit losses on loans and leases if the factors described below were adjusted in the Corporation's CECL model.
Economic Factors At December 31, 2023 At December 31, 2022 Description of Economic Factors Prepayment rates 12.62 % 13.41 % Average total portfolio rate Curtailment rates 28.97 % 28.71 % Average total portfolio rate Recovery delay 32 months 30 months Average across all pools Economic forecast Moody's downside S2 weighted 70%, Baseline weighted 30% Moody's downside S2 weighted 55%, Baseline weighted 45% Moody's US Macro Forecast Narratives for December 2023 & 2022 Unemployment rates 5.18 % 4.96 % Average of 4 quarter forecast period GDP rates 0.76 % 0.12 % Average of 4 quarter forecast period House price index (1.72) % (3.35) % Average of 4 quarter forecast period Sensitivity Analysis The below table indicates the impact to the allowance for credit losses on loans and leases if the factors described below were adjusted in the Corporation's CECL model.
The Corporation greatly reduces this risk primarily by using $1.00 buyout leases and equipment finance agreements, 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 for the majority of the lease portfolio. 41 Table of Contents The Corporation closely monitors delinquencies as another means of maintaining asset quality.
The Corporation greatly reduces this risk primarily by using $1.00 buyout leases and equipment finance agreements, in which the entire cost of the leased equipment is included in the contractual 48 Table of Contents payments, leaving no residual payment at the end of the lease term for the majority of the lease portfolio.
Factors considered by management in determining accrual status include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due. At December 31, 2022, nonaccrual loans and leases and accruing troubled debt restructured loans were $13.4 million and had a related allowance for credit losses on loans and leases of $2.8 million.
Factors considered by management in determining accrual status include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due. At December 31, 2023, nonaccrual loans and leases were $20.5 million and had a related allowance for credit losses on loans and leases of $1.8 million.
During the year ended December 31, 2022, the Corporation recorded $3.8 million in expenses, or $0.10 diluted earnings per share, related to the development of a comprehensive digital platform, which will blend our core operating systems together and allow Univest to seamlessly deliver existing products and services, digitally, across an expanded footprint. 2021 Overview The Corporation reported net income of $91.8 million, or $3.11 diluted earnings per share, for 2021 compared to net income of $46.9 million, or $1.60 diluted earnings per share, for 2020.
During the year ended December 31, 2022, the Corporation recorded $3.8 million in expenses, or $0.10 diluted earnings per share, related to the development of a comprehensive digital platform, which will blend our core operating systems together and allow Univest to seamlessly deliver existing products and services, digitally, across an expanded footprint.
The components of risk-based capital for the Corporation are Tier 1 and Tier 2. At December 31, 2022, the Corporation had a Tier 1 risk-based capital ratio of 10.37% and total risk-based capital ratio of 13.67%. At December 31, 2021, the Corporation had a Tier 1 capital ratio of 11.08% and total risk-based capital ratio of 13.77%.
The components of risk-based capital for the Corporation are Tier 1 and Tier 2. At December 31, 2023, the Corporation had a Tier 1 risk-based capital ratio of 10.58% and total risk-based capital ratio of 13.90%. At December 31, 2022, the Corporation had a Tier 1 capital ratio of 10.37% and total risk-based capital ratio of 13.67%.
Detailed segment information appears in Note 23, "Segment Reporting" included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K. The Banking segment reported pre-tax income of $93.4 million in 2022, $112.3 million in 2021 and $53.3 million in 2020.
Detailed segment information appears in Note 23, "Segment Reporting" included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K. The Banking segment reported pre-tax income of $89.1 million in 2023, $92.2 million in 2022 and $112.2 million in 2021.
At December 31, 2022 and 2021, the Corporation had $95.0 million and $119.9 million, respectively, in time deposits in excess of $250,000 maturing disclosed in the table below. Brokered deposits in the amount of $35.3 million at December 31, 2022 are not included in time deposits more than $250,000. There were no brokered time deposits at December 31, 2021.
At December 31, 2023 and 2022, the Corporation had $187.0 million and $95.0 million, respectively, in time deposits in excess of $250,000 maturing disclosed in the table below. Brokered deposits in the amount of $305.4 million and $35.3 million at December 31, 2023 and December 31, 2022, respectively, are not included in time deposits more than $250,000.
The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting exposure to credit and interest rate risk. 23 Table of Contents Selected Financial Data For the Years Ended December 31, (Dollars in thousands, except per share data) 2022 2021 2020 2019 2018 Earnings Interest income $ 252,193 $ 209,731 $ 203,945 $ 214,093 $ 190,488 Interest expense 33,896 21,348 29,584 44,861 32,426 Net interest income 218,297 188,383 174,361 169,232 158,062 Provision (reversal of provision) for credit losses (1) 12,198 (10,132) 40,794 8,511 20,310 Net interest income after provision for credit losses 206,099 198,515 133,567 160,721 137,752 Noninterest income 77,885 83,224 78,328 65,422 60,173 Noninterest expense 186,774 167,409 154,998 146,090 137,239 Net income before income taxes 97,210 114,330 56,897 80,053 60,686 Income taxes 19,090 22,529 9,981 14,334 10,143 Net income $ 78,120 $ 91,801 $ 46,916 $ 65,719 $ 50,543 Financial Condition at Year End Cash and cash equivalents $ 152,799 $ 890,150 $ 219,858 $ 125,128 $ 109,420 Investment securities, net of allowance for credit losses (2) 507,562 496,989 373,176 441,599 473,306 Net loans and leases held for investment 6,044,226 5,238,093 5,223,797 4,351,505 3,977,210 Assets 7,222,016 7,122,421 6,336,496 5,380,924 4,984,347 Deposits 5,913,526 6,055,124 5,242,715 4,360,075 3,885,933 Borrowings 440,401 213,980 311,421 263,596 429,672 Shareholders' equity 776,500 773,794 692,472 675,122 624,133 Per Common Share Data Average shares outstanding (in thousands) 29,393 29,403 29,244 29,300 29,370 Earnings per share – basic $ 2.66 $ 3.12 $ 1.60 $ 2.24 $ 1.72 Earnings per share – diluted 2.64 3.11 1.60 2.24 1.72 Dividends declared per share 0.83 0.80 0.60 0.80 0.80 Book value (at year-end) 26.53 26.23 23.64 23.01 21.32 Dividends declared to net income 31.2 % 25.6 % 37.4 % 35.7 % 46.5 % Profitability Ratios Return on average assets 1.12 % 1.38 % 0.78 % 1.26 % 1.07 % Return on average equity 10.13 12.50 7.02 10.07 8.26 Average equity to average assets 11.09 11.04 11.12 12.49 12.92 Efficiency ratio 62.4 60.9 60.6 61.4 61.9 Asset Quality Ratios Nonaccrual loans and leases (including nonaccrual, troubled debt restructured loans and lease modifications) to loans and leases held for investment 0.22 % 0.63 % 0.60 % 0.88 % 0.65 % Nonperforming loans and leases to loans and leases held for investment 0.23 0.64 0.62 0.88 0.67 Nonperforming assets to total assets 0.46 0.48 0.64 0.73 0.56 Net charge-offs to average loans and leases outstanding 0.07 — 0.10 0.06 0.33 Allowance for credit losses, loans and leases to total loans and leases held for investment 1.29 1.35 1.56 0.81 0.73 Allowance for credit losses, loans and leases to nonaccrual loans and leases 591.66 216.57 262.03 91.58 112.04 Allowance for credit losses, loans and leases to nonperforming loans and leases 553.37 213.05 250.61 91.12 108.99 (1) The Corporation adopted CECL effective January 1, 2020.
The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting exposure to credit and interest rate risk. 29 Table of Contents Selected Financial Data As of or For the Years Ended December 31, (Dollars in thousands, except per share data) 2023 2022 2021 2020 2019 Earnings Interest income $ 371,730 $ 252,193 $ 209,731 $ 203,945 $ 214,093 Interest expense 151,733 33,896 21,348 29,584 44,861 Net interest income 219,997 218,297 188,383 174,361 169,232 Provision (reversal of provision) for credit losses (1) 10,770 12,198 (10,132) 40,794 8,511 Net interest income after provision for credit losses 209,227 206,099 198,515 133,567 160,721 Noninterest income 76,824 77,885 83,224 78,328 65,422 Noninterest expense 197,362 186,774 167,409 154,998 146,090 Net income before income taxes 88,689 97,210 114,330 56,897 80,053 Income taxes 17,585 19,090 22,529 9,981 14,334 Net income $ 71,104 $ 78,120 $ 91,801 $ 46,916 $ 65,719 Financial Condition at Year End Cash and cash equivalents $ 249,799 $ 152,799 $ 890,150 $ 219,858 $ 125,128 Investment securities, net of allowance for credit losses (2) 500,623 507,562 496,989 373,176 441,599 Net loans and leases held for investment 6,481,827 6,044,226 5,238,093 5,223,797 4,351,505 Assets 7,780,628 7,222,016 7,122,421 6,336,496 5,380,924 Deposits 6,375,781 5,913,526 6,055,124 5,242,715 4,360,075 Borrowings 465,067 440,401 213,980 311,421 263,596 Shareholders' equity 839,208 776,500 773,794 692,472 675,122 Per Common Share Data Average shares outstanding (in thousands) 29,433 29,393 29,403 29,244 29,300 Earnings per share – basic $ 2.42 $ 2.66 $ 3.12 $ 1.60 $ 2.24 Earnings per share – diluted 2.41 2.64 3.11 1.60 2.24 Dividends declared per share 0.84 0.83 0.80 0.60 0.80 Book value (at year-end) 28.44 26.53 26.23 23.64 23.01 Dividends declared to net income 34.8 % 31.2 % 25.6 % 37.4 % 35.7 % Profitability Ratios Return on average assets 0.94 % 1.12 % 1.38 % 0.78 % 1.26 % Return on average equity 8.83 10.13 12.50 7.02 10.07 Average equity to average assets 10.66 11.09 11.04 11.12 12.49 Efficiency ratio 66.0 62.4 60.9 60.6 61.4 Asset Quality Ratios Nonaccrual loans and leases to loans and leases held for investment 0.31 % 0.22 % 0.63 % 0.60 % 0.88 % Nonperforming loans and leases to loans and leases held for investment (3) 0.32 0.23 0.63 0.62 0.88 Nonperforming assets to total assets (3) 0.52 0.46 0.48 0.64 0.73 Net charge-offs to average loans and leases outstanding 0.08 0.07 — 0.10 0.06 Allowance for credit losses, loans and leases to total loans and leases held for investment 1.30 1.29 1.35 1.56 0.81 Allowance for credit losses, loans and leases to nonaccrual loans and leases 415.97 591.66 216.57 262.03 91.58 Allowance for credit losses, loans and leases to nonperforming loans and leases (3) 405.43 555.27 213.37 251.01 91.25 (1) The Corporation adopted CECL effective January 1, 2020.
There was no impairment of goodwill or identifiable intangibles recorded during 2020 through 2022.
There was no impairment of goodwill or identifiable intangibles recorded during 2021 through 2023.
At December 31, (Dollars in thousands) 2022 2021 2020 U.S. government corporations and agencies $ — $ 6,999 $ 6,998 State and political subdivisions 2,285 2,333 13,537 Residential mortgage-backed securities 418,115 391,089 258,422 Collateralized mortgage obligations 2,322 3,278 5,321 Corporate bonds 82,261 90,291 85,619 Equity securities 2,579 2,999 3,279 Total investment securities $ 507,562 $ 496,989 $ 373,176 Table 4—Investment Securities (Yields) The following table shows the maturity distribution and weighted average yields of investment securities at amortized cost at December 31, 2022.
At December 31, (Dollars in thousands) 2023 2022 2021 U.S. government corporations and agencies $ — $ — $ 6,999 State and political subdivisions 2,301 2,285 2,333 Residential mortgage-backed securities 410,329 418,115 391,089 Collateralized mortgage obligations 2,001 2,322 3,278 Corporate bonds 82,699 82,261 90,291 Equity securities 3,293 2,579 2,999 Total investment securities $ 500,623 $ 507,562 $ 496,989 Table 4—Investment Securities (Yields) The following table shows the maturity distribution and weighted average yields of investment securities at amortized cost at December 31, 2023.
During the year ended December 31, 2022, the Corporation recorded CECL related charges of $12.2 million. The financial results for the year ended December 31, 2022 also included bank owned life insurance ("BOLI") death benefit claims of $977 thousand, or $0.03 diluted earnings per share.
The financial results for the year ended December 31, 2022 included bank owned life insurance ("BOLI") death benefit claims of $977 thousand, or $0.03 diluted earnings per share.
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 all collateral in a timely manner in order to minimize losses.
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 borrowers. If collection attempts fail, the Corporation will proceed to gain control of collateral in a timely manner to minimize losses.
The decrease in pre-tax income in 2021 compared to 2020 was primarily due to increases in salary expense as we continue to invest in revenue producing positions. 38 Table of Contents Capital Adequacy Capital guidelines assign minimum capital requirements for categories of assets depending on their assigned risks.
The decrease in pre-tax income in 2022 compared to 2021 was primarily due to increases in salary expense as we continue to invest in revenue producing positions and increases in intangible expense amortization related to the previously referenced insurance agency acquisition. Capital Adequacy Capital guidelines assign minimum capital requirements for categories of assets depending on their assigned risks.
Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components. 25 Table of Contents 2022 versus 2021 Reported net interest income for the year ended December 31, 2022 was $218.3 million, an increase of $29.9 million, or 15.9%, from the prior year.
Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components. 2023 versus 2022 Reported net interest income for the year ended December 31, 2023 was $220.0 million, an increase of $1.7 million, or 0.8%, from the prior year.
Data processing expense increased $2.5 million, or 19.4%, primarily due to continued investments in technology, general price increases, and $653 thousand in support of our digital transformation initiative, a comprehensive digital platform which will blend our core operating systems together and allow Univest to personalize experiences and seamlessly deliver existing products and services, digitally, across an expanded footprint. 30 Table of Contents Professional fees increased $1.6 million, or 21.4%, for the year ended December 31, 2022, primarily attributable to consulting fees totaling $3.0 million during 2022 in support of our digital transformation initiative.
Data processing expense increased $2.5 million, or 19.4%, primarily due to continued investments in technology, general price increases, and $653 thousand in support of our digital transformation initiative, a comprehensive digital platform which will blend our core operating systems together and allow Univest to personalize experiences and seamlessly deliver existing products and services, digitally, across an expanded footprint.
Table 10—Deposits The following table summarizes the average amount of deposits for the periods indicated: For the Years Ended December 31, (Dollars in thousands) 2022 2021 2020 Noninterest-bearing deposits $ 2,068,086 $ 1,891,330 $ 1,599,333 Interest-bearing checking deposits 884,656 850,713 692,049 Money market savings 1,389,226 1,366,762 1,113,039 Regular savings 1,056,019 983,752 874,366 Time deposits 443,845 498,638 572,103 Total average deposits $ 5,841,832 $ 5,591,195 $ 4,850,890 At December 31, 2022 and 2021, the Corporation had $3.3 billion and $3.4 billion, respectively, in uninsured deposits in excess of the FDIC insurance limit of $250,000.
Table 10—Deposits The following table summarizes the average amount of deposits for the periods indicated: For the Years Ended December 31, (Dollars in thousands) 2023 2022 2021 Noninterest-bearing deposits $ 1,646,286 $ 2,068,086 $ 1,891,330 Interest-bearing checking deposits 1,034,327 884,656 850,713 Money market savings 1,611,169 1,389,226 1,366,762 Regular savings 871,332 1,056,019 983,752 Time deposits 931,944 443,845 498,638 Total average deposits $ 6,095,058 $ 5,841,832 $ 5,591,195 44 Table of Contents At December 31, 2023 and 2022, the Corporation had $3.0 billion and $3.3 billion, respectively, in uninsured deposits in excess of the FDIC insurance limit of $250,000.
Treasury stock increased by $6.7 million, primarily related to purchases of $11.4 million under the Corporation's share repurchase program, offset by $4.7 million of stock issued under the dividend reinvestment and employee stock purchase plans and stock-based incentive plan activity. Discussion of Segments The Corporation has three operating segments: Banking, Wealth Management and Insurance.
Treasury stock decreased by $4.9 million, primarily related to $5.4 million of stock issued under the dividend reinvestment and employee stock purchase plans and stock-based incentive plan activity, partially offset by repurchases of $462 thousand under the Corporation's share repurchase program. 45 Table of Contents Discussion of Segments The Corporation has three operating segments: Banking, Wealth Management and Insurance.
As interest rates increase, fixed-rate assets tend to decrease in value; conversely, as interest rates decline, fixed-rate assets tend to increase in value. 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.
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.
Amounts reported for 2018 and 2019 were previously referred to as provision for loan and lease losses in prior filings and accounted for under legacy accounting standards. (2) The Corporation adopted CECL effective January 1, 2020.
Amounts reported for 2019 were previously referred to as provision for loan and lease losses in prior filings and accounted for under legacy accounting standards. (2) The Corporation adopted CECL effective January 1, 2020. Investment securities at December 31, 2019 did not include an allowance for credit loss.
The net interest margin on a tax-equivalent basis for the year ended December 31, 2021 was 3.06% compared to 3.16% for 2020.
The net interest margin on a tax-equivalent basis for the year ended December 31, 2023 was 3.12% compared to 3.38% for 2022.
At December 31, 2021, the allowance for credit losses on individually analyzed loans was $11 thousand, or 0.03% of the balance of individually analyzed loans of $33.1 million. Goodwill and Other Intangible Assets Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions.
At December 31, 2022, the allowance for credit losses on individually analyzed loans was $2.8 million, or 20.7% of the balance of individually analyzed loans of $13.4 million. Goodwill and Other Intangible Assets Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions.
At December 31, 2022 2021 (Dollars in thousands) ACL % of ACL to Total ACL % of Loans to Total Loans ACL % of ACL to Total ACL % of Loans to Total Loans Commercial, financial and agricultural $ 16,916 21.4 % 17.7 % $ 13,536 18.8 % 18.0 % Paycheck Protection Program 4 — — 2 — 0.6 Real estate-commercial 41,673 52.7 49.5 41,095 57.1 51.2 Real estate-construction 4,952 6.3 6.2 4,575 6.4 5.3 Real estate-residential secured for business purpose 7,054 8.9 7.8 6,482 9.0 7.7 Real estate-residential secured for personal purpose 3,685 4.7 11.9 2,403 3.3 10.2 Real estate-home equity secured for personal purpose 1,287 1.6 2.9 1,028 1.4 3.0 Loans to individuals 351 0.4 0.5 363 0.5 0.5 Lease financings 3,082 3.9 3.5 2,290 3.2 3.5 Unallocated — — N/A 150 0.2 N/A Total $ 79,004 100.0 % 100.0 % $ 71,924 100.0 % 100.0 % At December 31, 2022, the allowance for credit losses on individually analyzed loans was $2.8 million, or 20.7% of the balance of individually analyzed loans of $13.4 million.
At December 31, 2023 2022 (Dollars in thousands) ACL % of ACL to Total ACL % of Loans to Total Loans ACL % of ACL to Total ACL % of Loans to Total Loans Commercial, financial and agricultural $ 13,699 16.0 % 15.1 % $ 16,920 21.4 % 17.7 % Real estate-commercial 45,849 53.7 50.3 41,673 52.7 49.5 Real estate-construction 6,543 7.7 6.0 4,952 6.3 6.2 Real estate-residential secured for business purpose 8,692 10.2 7.9 7,054 8.9 7.8 Real estate-residential secured for personal purpose 6,349 7.4 13.8 3,685 4.7 11.9 Real estate-home equity secured for personal purpose 1,289 1.5 2.7 1,287 1.6 2.9 Loans to individuals 392 0.5 0.4 351 0.4 0.5 Lease financings 2,574 3.0 3.8 3,082 3.9 3.5 Unallocated — — N/A — — N/A Total $ 85,387 100.0 % 100.0 % $ 79,004 100.0 % 100.0 % At December 31, 2023, the allowance for credit losses on individually analyzed loans was $1.8 million, or 8.6% of the balance of individually analyzed loans of $20.7 million.
December 31, (Dollars in thousands) 2022 2021 2020 Allowance for credit losses, loans and leases $ 79,004 $ 71,924 $ 83,044 Loans and leases held for investment 6,123,230 5,310,017 5,306,841 Allowance for credit losses, loans and leases / loans and leases held for investment 1.29 % 1.35 % 1.56 % Noninterest Income The following table presents noninterest income for the years ended December 31, 2022, 2021 and 2020: For the Years Ended December 31, $ Change % Change (Dollars in thousands) 2022 2021 2020 2022 to 2021 2021 to 2020 2022 to 2021 2021 to 2020 Trust fee income $ 7,743 $ 8,403 $ 7,703 $ (660) $ 700 (7.9) % 9.1 % Service charges on deposit accounts 6,175 5,504 4,845 671 659 12.2 13.6 Investment advisory commission and fee income 19,748 18,936 15,944 812 2,992 4.3 18.8 Insurance commission and fee income 19,065 16,357 16,087 2,708 270 16.6 1.7 Other service fee income 12,425 10,275 7,543 2,150 2,732 20.9 36.2 Bank owned life insurance income 3,787 3,981 2,940 (194) 1,041 (4.9) 35.4 Net gain on sales of investment securities 30 145 871 (115) (726) (79.3) (83.4) Net gain on mortgage banking activities 4,412 15,141 16,442 (10,729) (1,301) (70.9) (7.9) Other income 4,500 4,482 5,953 18 (1,471) 0.4 (24.7) Total noninterest income $ 77,885 $ 83,224 $ 78,328 $ (5,339) $ 4,896 (6.4) % 6.3 % 2022 versus 2021 Noninterest income for the year ended December 31, 2022 was $77.9 million, a decrease of $5.3 millions, or 6.4%, compared to 2021.
At December 31, (Dollars in thousands) 2023 2022 2021 Allowance for credit losses, loans and leases $ 85,387 $ 79,004 $ 71,924 Loans and leases held for investment 6,567,214 6,123,230 5,310,017 Allowance for credit losses, loans and leases / loans and leases held for investment 1.30 % 1.29 % 1.35 % Noninterest Income The following table presents noninterest income for the years ended December 31, 2023, 2022 and 2021: For the Years Ended December 31, $ Change % Change (Dollars in thousands) 2023 2022 2021 2023 to 2022 2022 to 2021 2023 to 2022 2022 to 2021 Trust fee income $ 7,732 $ 7,743 $ 8,403 $ (11) $ (660) (0.1) % (7.9) % Service charges on deposit accounts 7,048 6,175 5,504 873 671 14.1 12.2 Investment advisory commission and fee income 18,864 19,748 18,936 (884) 812 (4.5) 4.3 Insurance commission and fee income 21,043 19,065 16,357 1,978 2,708 10.4 16.6 Other service fee income 12,381 12,425 10,275 (44) 2,150 (0.4) 20.9 Bank owned life insurance income 3,185 3,787 3,981 (602) (194) (15.9) (4.9) Net gain on sales of investment securities — 30 145 (30) (115) N/M (79.3) Net gain on mortgage banking activities 3,689 4,412 15,141 (723) (10,729) (16.4) (70.9) Other income 2,882 4,500 4,482 (1,618) 18 (36.0) 0.4 Total noninterest income $ 76,824 $ 77,885 $ 83,224 $ (1,061) $ (5,339) (1.4) % (6.4) % 2023 versus 2022 Noninterest income for the year ended December 31, 2023 was $76.8 million, a decrease of $1.1 million, or 1.4%, compared to 2022.
The most significant contractual obligations, in both the under and over one-year time period, are for the Bank to repay certificates of deposit and long-term borrowings.
Cash Requirements The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The most significant contractual obligations, in both the under and over one-year time period, are for the Bank to repay certificates of deposit and short- and long-term borrowings.
Net interest income, on a tax-equivalent basis, for the year ended December 31, 2021 was $190.5 million, an increase of $13.7 million, or 7.7%, from the prior year.
Net interest income, on a tax-equivalent basis, for the year ended December 31, 2023 was $221.2 million, an increase of $1.0 million, or 0.4%, from the prior year.
Purchases of $130.8 million, primarily residential mortgage-backed securities, were partially offset by maturities and pay-downs of $63.6 million, decreases in the fair value of available-for-sale investment securities of $49.2 million, sales of $5.5 million, net amortization of purchased premiums and discounts of $1.5 million and a provision for credit losses of $211 thousand.
Maturities and pay-downs of $45.0 million, sales of $1.2 million, net amortization of purchased premiums and discounts of $1.2 million and calls of $500 thousand were partially offset by purchases of $33.3 million, which were primarily residential mortgage-backed securities, increases in the fair value of available-for-sale investment securities of $7.3 million, and a reversal of provision for credit losses of $409 thousand.
Noninterest Expense The following table presents noninterest expense for the years ended December 31, 2022, 2021 and 2020: For the Years Ended December 31, $ Change % Change (Dollars in thousands) 2022 2021 2020 2022 to 2021 2021 to 2020 2022 to 2021 2021 to 2020 Salaries, benefits and commissions $ 115,806 $ 104,191 $ 93,208 $ 11,615 $ 10,983 11.1 % 11.8 % Net occupancy 10,193 10,397 10,358 (204) 39 (2.0) 0.4 Equipment 3,904 3,899 3,841 5 58 0.1 1.5 Data processing 15,215 12,743 11,333 2,472 1,410 19.4 12.4 Professional fees 9,332 7,687 5,338 1,645 2,349 21.4 44.0 Marketing and advertising 2,462 2,063 1,975 399 88 19.3 4.5 Deposit insurance premiums 3,075 2,712 2,591 363 121 13.4 4.7 Intangible expenses 1,293 979 1,216 314 (237) 32.1 (19.5) Restructuring charges 184 — 1,439 184 (1,439) N/M N/M Other expense 25,310 22,738 23,699 2,572 (961) 11.3 (4.1) Total noninterest expense $ 186,774 $ 167,409 $ 154,998 $ 19,365 $ 12,411 11.6 % 8.0 % 2022 versus 2021 Noninterest expense for the year ended December 31, 2022 was $186.8 million, an increase of $19.4 million, or 11.6%, compared to 2021.
Noninterest Expense The following table presents noninterest expense for the years ended December 31, 2023, 2022 and 2021: For the Years Ended December 31, $ Change % Change (Dollars in thousands) 2023 2022 2021 2023 to 2022 2022 to 2021 2023 to 2022 2022 to 2021 Salaries, benefits and commissions $ 120,188 $ 115,806 $ 104,191 $ 4,382 $ 11,615 3.8 % 11.1 % Net occupancy 10,686 10,193 10,397 493 (204) 4.8 (2.0) Equipment 4,132 3,904 3,899 228 5 5.8 0.1 Data processing 16,799 15,215 12,743 1,584 2,472 10.4 19.4 Professional fees 7,141 9,332 7,687 (2,191) 1,645 (23.5) 21.4 Marketing and advertising 2,180 2,462 2,063 (282) 399 (11.5) 19.3 Deposit insurance premiums 4,825 3,075 2,712 1,750 363 56.9 13.4 Intangible expenses 938 1,293 979 (355) 314 (27.5) 32.1 Restructuring charges 1,519 184 — 1,335 184 725.5 N/M Other expense 28,954 25,310 22,738 3,644 2,572 14.4 11.3 Total noninterest expense $ 197,362 $ 186,774 $ 167,409 $ 10,588 $ 19,365 5.7 % 11.6 % 2023 versus 2022 Noninterest expense for the year ended December 31, 2023 was $197.4 million, an increase of $10.6 million, or 5.7%, compared to 2022.
Investment securities at December 31, 2018 and 2019 did not include an allowance for credit loss. 24 Table of Contents 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) 2022 2021 2020 2022 to 2021 2021 to 2020 2022 to 2021 2021 to 2020 Net income $ 78,120 $ 91,801 $ 46,916 $ (13,681) $ 44,885 (14.9) % 95.7 % Net income per share: Basic $ 2.66 $ 3.12 $ 1.60 $ (0.46) $ 1.52 (14.7) 95.0 Diluted 2.64 3.11 1.60 (0.47) 1.51 (15.1) 94.4 Return on average assets 1.12 % 1.38 % 0.78 % (26) BP 60 BP (18.8) 76.9 Return on average equity 10.13 % 12.50 % 7.02 % (237) BP 548 BP (19.0) 78.1 2022 Overview The Corporation reported net income of $78.1 million, or $2.64 diluted earnings per share, for 2022 compared to net income of $91.8 million, or $3.11 diluted earnings per share, for 2021.
Ratios at December 31, 2022, 2021, 2020, and 2019 were restated to exclude troubled debt restructured loans from nonperforming loans and nonperforming assets. 30 Table of Contents 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) 2023 2022 2021 2023 to 2022 2022 to 2021 2023 to 2022 2022 to 2021 Net income $ 71,104 $ 78,120 $ 91,801 $ (7,016) $ (13,681) (9.0) % (14.9) % Net income per share: Basic $ 2.42 $ 2.66 $ 3.12 $ (0.24) $ (0.46) (9.0) (14.7) Diluted 2.41 2.64 3.11 (0.23) (0.47) (8.7) (15.1) Return on average assets 0.94 % 1.12 % 1.38 % (18) BP (26) BP (16.1) (18.8) Return on average equity 8.83 % 10.13 % 12.50 % (130) BP (237) BP (12.8) (19.0) 2023 Overview The Corporation reported net income of $71.1 million, or $2.41 diluted earnings per share, for 2023 compared to net income of $78.1 million, or $2.64 diluted earnings per share, for 2022.
Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs and purchase accounting adjustments. Net interest income includes net deferred (costs)/fees (amortization)/accretion of $(1.8) million, $8.7 million and $893 thousand for the years ended December 31, 2022, 2021 and 2020, respectively. Nonaccrual loans and leases have been included in the average loan and lease balances.
Net interest income includes net deferred (costs)/fees (amortization)/accretion of $(2.1) million, $(1.8) million and $8.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. 33 Table of Contents 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.
Estimated Change in Net Interest Income Over Next 12 Months (Dollars in thousands) Amount Percent Rate shock - Change in interest rates +200 basis points $ 7,930 3.16 % +100 basis points 1,309 0.52 -100 basis points (13,560) (5.40) -200 basis points (24,347) (9.70) Credit Risk Originating loans 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.
Estimated Change in Net Interest Income Over Next 12 Months (Dollars in thousands) Amount Percent Rate shock - Change in interest rates +300 basis points $ (2,680) (1.25 %) +200 basis points (2,769) (1.29) +100 basis points (197) (0.09) -100 basis points (1,802) (0.84) -200 basis points (5,195) (2.43) -300 basis points (11,389) (5.32) Credit Risk Originating loans 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 net interest margin decrease was attributable to increased levels of excess liquidity in 2021 driven by strong deposit growth, primarily due to the various pandemic-related stimulus initiatives offset by the favorable impact of fully forgiven PPP loans. 26 Table of Contents Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis For the Years Ended December 31, 2022 2021 2020 (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 $ 325,875 $ 1,920 0.59 % $ 476,351 $ 661 0.14 % $ 274,372 $ 574 0.21 % U.S. government obligations 1,929 40 2.07 6,999 144 2.06 7,132 145 2.03 Obligations of states and political subdivisions* 2,302 71 3.08 5,702 206 3.61 23,065 825 3.58 Other debt and equity securities 510,961 11,392 2.23 393,762 5,992 1.52 371,814 7,697 2.07 Federal Home Loan Bank, Federal Reserve Bank and other stock 27,784 1,627 5.86 26,844 1,417 5.28 29,726 1,746 5.87 Total interest-earning deposits, investments and other interest-earning assets 868,851 15,050 1.73 909,658 8,420 0.93 706,109 10,987 1.56 Commercial, financial and agricultural loans 955,816 43,064 4.51 840,133 28,142 3.35 817,489 30,657 3.75 Paycheck Protection Program loans 7,939 797 10.04 281,484 15,032 5.34 342,920 8,072 2.35 Real estate—commercial and construction loans 3,060,689 127,906 4.18 2,734,259 101,692 3.72 2,312,996 94,962 4.11 Real estate—residential loans 1,219,275 47,472 3.89 1,077,952 40,045 3.71 1,007,915 42,047 4.17 Loans to individuals 26,642 1,325 4.97 26,062 1,018 3.91 28,792 1,332 4.63 Municipal loans and leases* 236,858 9,703 4.10 247,396 10,147 4.10 283,495 11,857 4.18 Lease financings 144,046 8,791 6.10 115,189 7,363 6.39 95,194 6,498 6.83 Gross loans and leases 5,651,265 239,058 4.23 5,322,475 203,439 3.82 4,888,801 195,425 4.00 Total interest-earning assets 6,520,116 254,108 3.90 6,232,133 211,859 3.40 5,594,910 206,412 3.69 Cash and due from banks 57,196 55,724 52,000 Allowance for credit losses, loans and leases (72,069) (74,943) (73,459) Premises and equipment, net 51,362 55,875 55,888 Operating lease right-of-use asset 30,443 32,758 34,277 Other assets 369,244 353,896 343,261 Total assets $ 6,956,292 $ 6,655,443 $ 6,006,877 Liabilities: Interest-bearing checking deposits $ 884,656 $ 5,010 0.57 % $ 850,713 $ 2,007 0.24 % $ 692,049 $ 2,173 0.31 % Money market savings 1,389,226 13,835 1.00 1,366,762 3,574 0.26 1,113,039 5,551 0.50 Regular savings 1,056,019 1,269 0.12 983,752 1,114 0.11 874,366 2,057 0.24 Time deposits 443,845 5,308 1.20 498,638 6,178 1.24 572,103 9,835 1.72 Total time and interest-bearing deposits 3,773,746 25,422 0.67 3,699,865 12,873 0.35 3,251,557 19,616 0.60 Short-term borrowings 60,468 1,389 2.30 16,552 8 0.05 86,658 327 0.38 Long-term debt 95,000 1,287 1.35 96,562 1,318 1.36 189,410 2,879 1.52 Subordinated notes 105,356 5,798 5.50 137,896 7,149 5.18 134,949 6,762 5.01 Total borrowings 260,824 8,474 3.25 251,010 8,475 3.38 411,017 9,968 2.43 Total interest-bearing liabilities 4,034,570 33,896 0.84 3,950,875 21,348 0.54 3,662,574 29,584 0.81 Noninterest-bearing deposits 2,068,086 1,891,330 1,599,333 Operating lease liabilities 33,508 36,001 37,557 Accrued expenses and other liabilities 48,629 42,781 39,212 Total liabilities 6,184,793 5,920,987 5,338,676 Shareholders' Equity: Common stock 157,784 157,784 157,784 Additional paid-in capital 299,121 297,189 296,023 Retained earnings and other equity 314,594 279,483 214,394 Total shareholders' equity 771,499 734,456 668,201 Total liabilities and shareholders' equity $ 6,956,292 $ 6,655,443 $ 6,006,877 Net interest income $ 220,212 $ 190,511 $ 176,828 Net interest spread 3.06 2.86 2.88 Effect of net interest-free funding sources 0.32 0.20 0.28 Net interest margin 3.38 % 3.06 % 3.16 % Ratio of average interest-earning assets to average interest-bearing liabilities 161.61 % 157.74 % 152.76 % *Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.
The net interest margin increase was attributable to loan growth, the rapid increase in interest rates and the asset sensitivity of the Corporation's balance sheet, offset by an increase in cost of funds. 32 Table of Contents Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis For the Years Ended December 31, 2023 2022 2021 (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 $ 130,309 $ 6,660 5.11 % $ 325,875 $ 1,920 0.59 % $ 476,351 $ 661 0.14 % U.S. government obligations — — — 1,929 40 2.07 6,999 144 2.06 Obligations of states and political subdivisions* 2,282 62 2.72 2,302 71 3.08 5,702 206 3.61 Other debt and equity securities 505,343 14,225 2.81 510,961 11,392 2.23 393,762 5,992 1.52 Federal Home Loan Bank, Federal Reserve Bank and other stock 40,092 2,869 7.16 27,784 1,627 5.86 26,844 1,417 5.28 Total interest-earning deposits, investments and other interest-earning assets 678,026 23,816 3.51 868,851 15,050 1.73 909,658 8,420 0.93 Commercial, financial and agricultural loans 991,505 67,487 6.81 963,755 43,861 4.55 1,121,617 43,174 3.85 Real estate—commercial and construction loans 3,483,576 188,644 5.42 3,060,689 127,906 4.18 2,734,259 101,692 3.72 Real estate—residential loans 1,505,799 70,349 4.67 1,219,275 47,472 3.89 1,077,952 40,045 3.71 Loans to individuals 27,063 2,011 7.43 26,642 1,325 4.97 26,062 1,018 3.91 Municipal loans and leases* 232,501 9,597 4.13 236,858 9,703 4.10 247,396 10,147 4.10 Lease financings 178,220 11,025 6.19 144,046 8,791 6.10 115,189 7,363 6.39 Gross loans and leases 6,418,664 349,113 5.44 5,651,265 239,058 4.23 5,322,475 203,439 3.82 Total interest-earning assets 7,096,690 372,929 5.25 6,520,116 254,108 3.90 6,232,133 211,859 3.40 Cash and due from banks 58,593 57,196 55,724 Allowance for credit losses, loans and leases (82,474) (72,069) (74,943) Premises and equipment, net 51,921 51,362 55,875 Operating lease right-of-use asset 31,351 30,443 32,758 Other assets 400,977 369,244 353,896 Total assets $ 7,557,058 $ 6,956,292 $ 6,655,443 Liabilities: Interest-bearing checking deposits $ 1,034,327 $ 23,668 2.29 % $ 884,656 $ 5,010 0.57 % $ 850,713 $ 2,007 0.24 % Money market savings 1,611,169 64,153 3.98 1,389,226 13,835 1.00 1,366,762 3,574 0.26 Regular savings 871,332 3,249 0.37 1,056,019 1,269 0.12 983,752 1,114 0.11 Time deposits 931,944 34,979 3.75 443,845 5,308 1.20 498,638 6,178 1.24 Total time and interest-bearing deposits 4,448,772 126,049 2.83 3,773,746 25,422 0.67 3,699,865 12,873 0.35 Short-term borrowings 148,776 7,095 4.77 60,468 1,389 2.30 16,552 8 0.05 Long-term debt 263,877 9,464 3.59 95,000 1,287 1.35 96,562 1,318 1.36 Subordinated notes 148,507 9,125 6.14 105,356 5,798 5.50 137,896 7,149 5.18 Total borrowings 561,160 25,684 4.58 260,824 8,474 3.25 251,010 8,475 3.38 Total interest-bearing liabilities 5,009,932 151,733 3.03 4,034,570 33,896 0.84 3,950,875 21,348 0.54 Noninterest-bearing deposits 1,646,286 2,068,086 1,891,330 Operating lease liabilities 34,474 33,508 36,001 Accrued expenses and other liabilities 60,699 48,629 42,781 Total liabilities 6,751,391 6,184,793 1,970,112 Total interest-bearing liabilities and noninterest-bearing deposits ("Cost of Funds") 6,656,218 2.28 6,102,656 0.56 5,842,205 0.37 Shareholders' Equity: Common stock 157,784 157,784 157,784 Additional paid-in capital 299,804 299,121 297,189 Retained earnings and other equity 348,079 314,594 279,483 Total shareholders' equity 805,667 771,499 734,456 Total liabilities and shareholders' equity $ 7,557,058 $ 6,956,292 $ 6,655,443 Net interest income $ 221,196 $ 220,212 $ 190,511 Net interest spread 2.22 3.06 2.86 Effect of net interest-free funding sources 0.90 0.32 0.20 Net interest margin 3.12 % 3.38 % 3.06 % Ratio of average interest-earning assets to average interest-bearing liabilities 141.65 % 161.61 % 157.74 % *Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.
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. Actual results will likely be different than modeled due to numerous factors, including interest rates earned on new loans and investments as well as rates paid on new and existing deposits and new borrowings.
The results suggest the Corporation's year-end balance sheet is liability sensitive due to the current levels of deposit customer sensitivity and funding costs. Actual results will likely be different than modeled due to numerous factors, including interest rates earned on new loans and investments as well as rates paid on new and existing deposits and new borrowings.
Professional fees increased $2.3 million, or 44.0%, for the year ended December 31, 2021, primarily attributable to consulting fees totaling $1.5 million during 2021 in support of our Diversity, Equity and Inclusion program, training initiatives and treasury management product enhancements.
Professional fees increased $1.6 million, or 21.4%, for the year ended December 31, 2022, primarily attributable to consulting fees totaling $3.0 million during 2022 in support of our digital transformation initiative. We had a $1.5 million investment in our Diversity, Equity and Inclusion training initiatives for the year ended December 31, 2021.
Asset/Liability Management The primary functions of Asset/Liability Management are to ensure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities. Management's objective with regard to interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.
Asset/Liability Management The primary functions of Asset/Liability Management are to minimize interest rate risk and to ensure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities.
Accumulated other comprehensive loss increased by $45.8 million, primarily attributable to decreases in the fair value of available-for-sale investment securities of $38.8 million, net of tax and a decrease in the fair value of derivatives of $6.8 million, net of tax.
Accumulated other comprehensive loss decreased by $11.5 million, primarily attributable to increases in the fair value of available-for-sale investment securities of $5.7 million, net of tax, and a increase in the fair value of derivatives of $2.3 million, net of tax.
In May 2022, the Corporation entered into an interest rate swap classified as a cash flow hedge. At December 31, 2022, the notional amount of the interest rate swap was $250.0 million and the fair value was a liability of $8.6 million.
At December 31, 2023 and 2022, the notional amount of the interest rate swap was $250.0 million and the fair value was a liability of $5.8 million and $8.6 million, respectively.
The reversal of provision for credit losses for the year ended December 31, 2021 was $10.1 million. Net loan and lease charge-offs for the years ended December 31, 2022, 2021, and 2020 were $3.9 million, $213 thousand and $4.6 million, respectively.
During 2021, there was a reversal of provision for credit losses of $10.1 million. Net loan and lease charge-offs for the years ended December 31, 2023, 2022, and 2021 were $5.4 million, $3.9 million and $213 thousand, respectively. The increase in charge-offs in 2023 was due to $2.4 million in charge-offs related to two nonaccrual commercial loans to one borrower.
Investment Securities Total investment securities at December 31, 2022 increased $10.6 million, or 2.1%, from December 31, 2021.
Investment Securities Total investment securities at December 31, 2023 decreased $6.9 million, or 1.4%, from December 31, 2022.
The increase in noninterest income in 2022 compared to 2021 was driven by incremental revenue attributable to the insurance agency the Corporation acquired in the fourth quarter of 2021.
The increase in noninterest income in 2023 compared to 2022 was primarily due to increases in revenue from commercial lines of $1.0 million and contingent commission income of $600 thousand. The increase in noninterest income in 2022 compared to 2021 was driven by incremental revenue attributable to the insurance agency the Corporation acquired in the fourth quarter of 2021.
At December 31, 2022 and 2021, the Bank had outstanding short-term letters of credit with the FHLB totaling $690.5 million and $831.8 million, respectively, which were utilized to collateralize public fund deposits. Other Liabilities Other liabilities increased $12.4 million, or 26.8%, from December 31, 2021, primarily due to change in fair value of derivatives of $8.4 million.
At December 31, 2023 and 2022, the Bank had outstanding short-term letters of credit with the FHLB totaling $1.1 billion and $690.5 million, respectively, which were utilized to collateralize public fund deposits and other secured deposits.
For the Years Ended December 31, 2022 2021 2020 (Dollars in thousands) Average Loans Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) to Average Loans Average Loans Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) to Average Loans Average Loans Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) to Average Loans Commercial, financial and agricultural $ 1,026,167 $ 323 0.03 % $ 909,682 $ 16 — % $ 906,823 $ 1,139 0.13 % Paycheck Protection Program 7,939 — — 281,484 — — 342,920 — — Real estate-commercial 2,863,580 3,276 0.11 2,589,585 (204) (0.01) 2,210,610 2,818 0.13 Real estate-construction 312,024 — — 264,951 — — 230,764 — — Real estate-residential secured for business purpose 427,849 (55) (0.01) 399,926 147 0.04 377,192 113 0.03 Real estate-residential secured for personal purpose 626,102 — — 521,240 — — 464,967 181 0.04 Real estate-home equity secured for personal purpose 168,289 (38) (0.02) 160,176 (64) (0.04) 172,905 (15) (0.01) Loans to individuals 26,642 179 0.67 26,048 135 0.52 28,792 187 0.65 Lease financings 192,673 210 0.11 169,383 183 0.11 153,828 225 0.15 Total $ 5,651,265 $ 3,895 0.07 % $ 5,322,475 $ 213 — % $ 4,888,801 $ 4,648 0.10 % During the year ended December 31, 2022, the Corporation recorded charge-offs of $3.3 million related to two commercial real estate loans totaling $5.8 million.
For the Years Ended December 31, 2023 2022 2021 (Dollars in thousands) Average Loans Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) to Average Loans Average Loans Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) to Average Loans Average Loans Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) to Average Loans Commercial, financial and agricultural $ 1,056,025 $ 4,510 0.43 % $ 1,034,106 $ 323 0.03 % $ 1,191,166 $ 16 — % Real estate-commercial 3,182,965 37 — 2,863,580 3,276 0.11 2,589,585 (204) (0.01) Real estate-construction 414,567 206 0.05 312,024 — — 264,951 — — Real estate-residential secured for business purpose 505,240 (135) (0.03) 427,849 (55) (0.01) 399,926 147 0.04 Real estate-residential secured for personal purpose 826,943 — — 626,102 — — 521,240 — — Real estate-home equity secured for personal purpose 175,395 2 — 168,289 (38) (0.02) 160,176 (64) (0.04) Loans to individuals 27,063 426 1.57 26,642 179 0.67 26,048 135 0.52 Lease financings 230,466 351 0.15 192,673 210 0.11 169,383 183 0.11 Total $ 6,418,664 $ 5,397 0.08 % $ 5,651,265 $ 3,895 0.07 % $ 5,322,475 $ 213 — % During the year ended December 31, 2023, the Corporation recorded charge-offs of $2.4 million related to two nonaccrual commercial loans to one borrower totaling $5.9 million.
The net interest margin increase was attributable to loan growth, the rapid increase in interest rates and the asset sensitivity of the Corporation's balance sheet, offset by an increase in cost of funds. 2021 versus 2020 Reported net interest income for the year ended December 31, 2021 was $188.4 million, an increase of $14.0 million, or 8.0%, from the prior year.
The net interest margin decrease was attributable to the increase in interest rates and the liability sensitivity of the Corporation's balance sheet, offset by an increase in the yield and average balance of interest-earning assets. 2022 versus 2021 Reported net interest income for the year ended December 31, 2022 was $218.3 million, an increase of $29.9 million, or 15.9%, from the prior year.
Held-to-maturity and available-for-sale portfolios are combined, net of allowance for credit losses. 1 Year or less After 1 Year to 5 Years After 5 Years to 10 Years After 10 Years (Dollars in thousands) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield State and political subdivisions $ — — % $ 2,327 2.51 % $ — — % $ — — % Residential mortgage-backed securities — — 2,518 2.30 16,475 2.50 441,258 2.26 Collateralized mortgage obligations — — — — 324 2.70 2,257 1.54 Corporate bonds 1,000 4.67 30,679 2.67 60,000 3.60 — — Total held-to- maturity and available-for-sale investment securities $ 1,000 4.67 % $ 35,524 2.63 % $ 76,799 3.36 % $ 443,515 2.26 % At December 31, 2022, the Corporation had no reportable investments in any single issuer representing more than 10% of shareholders' equity.
Held-to-maturity and available-for-sale portfolios are combined, net of allowance for credit losses. 1 Year or less After 1 Year to 5 Years After 5 Years to 10 Years After 10 Years (Dollars in thousands) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield State and political subdivisions $ 1,030 3.02 % $ 1,298 2.10 % $ — — % $ — — % Residential mortgage-backed securities — — 2,438 2.47 25,700 2.70 417,487 2.46 Collateralized mortgage obligations — — — — 241 2.67 1,960 1.63 Corporate bonds 18,011 3.60 13,339 2.08 60,000 4.17 — — Total held-to- maturity and available-for-sale investment securities $ 19,041 3.57 % $ 17,075 2.14 % $ 85,941 3.73 % $ 419,447 2.45 % At December 31, 2023, the Corporation had no reportable investments in any single issuer representing more than 10% of shareholders' equity.
Net gain on mortgage banking activities decreased $10.7 million, or 70.9%, for the year ended December 31, 2022, primarily due to a decrease in loan sales due to the higher interest rate environment and a contraction of gain on sale margins.
Service charge on deposits accounts increased $873 thousand, or 14.1%, for the year ended December 31, 2023, primarily due to an increase of $962 thousand in treasury management fees. 2022 versus 2021 Noninterest income for the year ended December 31, 2022 was $77.9 million, a decrease of $5.3 million, or 6.4%, compared to 2021. 36 Table of Contents Net gain on mortgage banking activities decreased $10.7 million, or 70.9%, for the year ended December 31, 2022, primarily due to a decrease in loan sales due to the higher interest rate environment and a contraction of gain on sale margins.
Short-term borrowings at December 31, 2022 included $125.0 million in short-term FHLB overnight borrowings, $60.0 million in federal funds purchased and $12.1 million of customer repurchase agreements. Long-term debt at December 31, 2022 37 Table of Contents included $95.0 million of FHLB advances and $148.3 million of subordinated notes.
Short-term borrowings at December 31, 2023 included $6.3 million of customer repurchase agreements. Long-term debt at December 31, 2023 included $310.0 million of FHLB advances and $148.8 million of subordinated notes.
The increase in charge-offs in 2022 was due to $3.3 million in charge-offs related to two commercial real estate loans totaling $5.8 million. See Executive Overview for additional information. The following table details information pertaining to the Corporation's allowance for credit losses on loans and leases as a percentage of loans and leases held for investment at the dates indicated.
The following table details information pertaining to the Corporation's allowance for credit losses on loans and leases as a percentage of loans and leases held for investment at the dates indicated.
SHAREHOLDERS' EQUITY The following table presents total shareholders' equity at the dates indicated: At December 31, (Dollars in thousands) 2022 2021 $ Change % Change Common stock $ 157,784 $ 157,784 $ — — % Additional paid-in capital 300,808 299,181 1,627 0.5 Retained earnings 428,637 375,124 53,513 14.3 Accumulated other comprehensive (loss) income (62,104) (16,353) (45,751) 279.8 Treasury stock (48,625) (41,942) (6,683) 15.9 Total shareholders' equity $ 776,500 $ 773,794 $ 2,706 0.3 % The increase in shareholders' equity at December 31, 2022 of $2.7 million from December 31, 2021 was primarily related to an increase in retained earnings of $53.5 million.
SHAREHOLDERS' EQUITY The following table presents total shareholders' equity at the dates indicated: At December 31, (Dollars in thousands) 2023 2022 $ Change % Change Common stock $ 157,784 $ 157,784 $ — — % Additional paid-in capital 301,066 300,808 258 0.1 Retained earnings 474,691 428,637 46,054 10.7 Accumulated other comprehensive loss (50,646) (62,104) 11,458 (18.4) Treasury stock (43,687) (48,625) 4,938 (10.2) Total shareholders' equity $ 839,208 $ 776,500 $ 62,708 8.1 % The increase in shareholders' equity at December 31, 2023 of $62.7 million from December 31, 2022 was primarily related to an increase in retained earnings of $46.1 million.
The amount of the individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits.
The amount of the individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits. Net loan and lease charge-offs for the year ended December 31, 2023 were $5.4 million compared to net loan and lease charge-offs of $3.9 million for the year ended December 31, 2022.
The Corporation uses gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a simulation model to measure short-term rate exposure.
The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a risk simulation model to measure short-term rate exposure. The Corporation runs various earnings simulation scenarios to quantify the impact of declining or rising interest rates on net interest income over a one-year and two-year horizon.
(Dollars in thousands) For the Years Ended December, 31 Maturity Period 2022 2021 Due Three Months or Less $ 18,689 $ 14,405 Due Over Three Months to Six Months 24,285 34,270 Due Over Six Months to Twelve Months 33,119 36,296 Due Over Twelve Months 18,899 34,924 Total $ 94,992 $ 119,895 Borrowings Total borrowings increased $226.4 million from December 31, 2021 due to an increase of $125.0 million in short-term FHLB overnight borrowings, $60.0 million in federal funds purchased and $50.0 million in fixed-to-floating rate subordinated notes issued by the Corporation in the fourth quarter of 2022.
(Dollars in thousands) For the Years Ended December, 31 Maturity Period 2023 2022 Due Three Months or Less $ 40,475 $ 18,689 Due Over Three Months to Six Months 30,090 24,285 Due Over Six Months to Twelve Months 47,709 33,119 Due Over Twelve Months 68,681 18,899 Total $ 186,955 $ 94,992 Borrowings Total borrowings increased $24.7 million from December 31, 2022 due to increases of $215.0 million in long-term debt, partially offset by decreases of $125.0 million in short-term FHLB overnight borrowings and $60.0 million in federal funds purchased.
See the section of this MD&A under the heading "Results of Operations" and "Financial Condition" for a discussion of the key items impacting the Banking Segment.
See the section of this Management's Discussion and Analysis under the heading "Results of Operations" and "Financial Condition" for a discussion of the key items impacting the Banking Segment. The Wealth Management segment reported pre-tax income of $6.2 million in 2023, $9.2 million in 2022 and $9.3 million in 2021.
Other expense increased $2.6 million, or 11.3%, primarily driven by increases in travel and entertainment expenses of $907 thousand and $773 thousand of fraud losses. 2021 versus 2020 Noninterest expense for the year ended December 31, 2021 was $167.4 million, an increase of $12.4 million, or 8.0%, compared to 2020.
Other expense increased $2.6 million, or 11.3%, primarily driven by increases in travel and entertainment expenses of $907 thousand and $773 thousand of fraud losses. Tax Provision The provision for income taxes was $17.6 million, $19.1 million and $22.5 million for the years ended December 31, 2023, 2022 and 2021, respectively, at effective rates of 19.8%, 19.6% and 19.7%, respectively.
Excluding this impact, the effective tax rate was 21.3% for the years ended December 31, 2022, 2021, and 2020.
The effective tax rates reflected the benefits of tax-exempt income from investments in municipal securities and loans and leases. Excluding this impact, the effective tax rate was 21.7% for the year ended December 31, 2023 and 21.3% for the years ended December 31, 2022 and 2021.
These assumptions are based upon historic behavior; however, they are inherently uncertain and thus cannot precisely predict the impact of changes in interest rates.
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.
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.
The simulations use expected cash flows and repricing characteristics for all financial instruments at a point in time and incorporates company-developed, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets tend to decrease in value; conversely, as interest rates decline, fixed-rate assets tend to increase in value.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIn 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.
Biggest changeIn the normal course of its business activities including lending, investing, receiving deposits and borrowing funds, the Corporation is subject to changes in the 49 Table of Contents economic value and/or earnings potential of the assets and liabilities due to changes in interest rates.
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. 42 Table of Contents
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. 50 Table of Contents

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