# UNIVEST FINANCIAL Corp (UVSP) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from UNIVEST FINANCIAL Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/102212/000010221224000010/uvsp-20231231.htm
Accession: 0000102212-24-000010
Filing date: 2024-02-26
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/UVSP/
All MD&A years: /company/UVSP/mda/
Previous year: /company/UVSP/mda/fy2022/ (FY 2022)
Next year: /company/UVSP/mda/fy2024/ (FY 2024)

Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations

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

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

Critical Accounting Policies

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

Management, in order to prepare the Corporation's financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation's financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies 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.

Fair Value Measurement of Investment Securities Available-for-Sale: The Corporation designates its investment securities as held-to-maturity, available-for-sale or trading. Each of these designations affords different treatment on the balance sheet and statement of income for market value changes affecting securities. Should evidence emerge that indicates that management's intent or ability to manage the securities as originally asserted is not supportable, securities 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. The independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flows and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing service's evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does not have sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third-party service's valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.

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. 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. Management utilizes a discounted cash flow ("DCF") model to calculate the present value of the expected cash flows for pools of loans and leases that share similar risk characteristics and compares the results of this calculation to the amortized cost basis to determine its allowance for credit loss balance. The key assumptions used in the model are (1) probability of default, (2) loss given default, (3) prepayment and curtailment rates, (4) recovery delay (5) reasonable and supportable economic forecasts, (6) forecast reversion period, (7) expected recoveries on charged-off loans, and (8) discount rate. Although management believes it uses the best information available to establish the ACL, future adjustments to the ACL may be necessary and the Corporation’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. While management believes it has established the ACL in conformity with GAAP, our regulators, in reviewing the loan portfolio, may request us to increase our ACL based on judgments different from ours. In addition, because future events affecting borrowers

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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. Any material increase in the ACL would adversely affect the Corporation’s financial condition and results of operations.

Economic Factors

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","","","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"]]
[[/GREPCENT_TABLE]]

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

General

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

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Selected Financial Data

[[GREPCENT_TABLE]]
[["","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","","","$","125,128"],["Investment securities, net of allowance for credit losses (2)","500,623","","","507,562","","","496,989","","","373,176","","","441,599"],["Net loans and leases held for investment","6,481,827","","","6,044,226","","","5,238,093","","","5,223,797","","","4,351,505"],["Assets","7,780,628","","","7,222,016","","","7,122,421","","","6,336,496","","","5,380,924"],["Deposits","6,375,781","","","5,913,526","","","6,055,124","","","5,242,715","","","4,360,075"],["Borrowings","465,067","","","440,401","","","213,980","","","311,421","","","263,596"],["Shareholders' equity","839,208","","","776,500","","","773,794","","","692,472","","","675,122"],["Per Common Share Data"],["Average shares outstanding (in thousands)","29,433","","","29,393","","","29,403","","","29,244","","","29,300"],["Earnings per share \u2013 basic","$","2.42","","","$","2.66","","","$","3.12","","","$","1.60","","","$","2.24"],["Earnings per share \u2013 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","","","\u2014","","","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. 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."],["(3) The Corporation adopted ASU 2022-02 \"Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures\" effective January 1, 2023, which eliminated the category of troubled debt restructurings. Ratios at December 31, 2022, 2021, 2020, and 2019 were restated to exclude troubled debt restructured loans from nonperforming loans and nonperforming assets."]]
[[/GREPCENT_TABLE]]

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Executive Overview

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

[[GREPCENT_TABLE]]
[["","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)"]]
[[/GREPCENT_TABLE]]

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.

The financial results for the year ended December 31, 2023 included $1.5 million in restructuring charges, or $0.04 diluted earnings per share, associated with the Corporation's financial service center optimization and expense management strategies deployed in response to macroeconomic headwinds.

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.

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.

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.

Results of Operations

Net Interest Income

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

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. 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. An increase in interest income of $118.8 million, which was driven by increases in asset yields, including loans and investments, due to the rising interest rate environment and increases in average interest-earning assets, was offset by an increase of $117.8 million in the cost of interest-bearing liabilities, due to the

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rising interest rate environment and increases in the average balance of higher-costing time deposits and money market savings accounts. 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. 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. Net interest income, on a tax-equivalent basis, for the year ended December 31, 2022 was $220.2 million, an increase of $29.7 million, or 15.6%, from the prior year. The increase in tax-equivalent net interest income was due to an increase in interest income of $42.2 million, primarily driven by increases in asset yields, including loans and investments, due to the rising interest rate environment, coupled with significant loan growth in commercial, commercial real estate and construction loans, offset by a decrease in PPP loan income of $14.2 million. These increases were offset by an increase of $12.5 million in the cost of interest-bearing deposits, due to the rising interest rate environment. The net interest margin on a tax-equivalent basis for the year ended December 31, 2022 was 3.38% compared to 3.06% for 2021. 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.

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

[[GREPCENT_TABLE]]
[["","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","\u2014","","","\u2014","","","\u2014","","","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\u2014commercial 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\u2014residential 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","%"]]
[[/GREPCENT_TABLE]]

*Obligations of states and political subdivisions and municipal loans and leases are tax-exempt earning assets.

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

Net interest income includes net deferred (costs)/fees (amortization)/accretion of $(2.1) million, $(1.8) million and $8.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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Nonaccrual loans and leases have been included in the average loan and lease balances. Loans held for sale have been included in the average loan balances.

Tax-equivalent amounts for the years ended December 31, 2023, 2022 and 2021 have been calculated using the Corporation's federal applicable rate of 21%.

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Table 2—Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the 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. The change in interest income/expense due to both volume and rate has been allocated proportionately.

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31, 2023 Versus 2022","","For the Years Ended December 31, 2022 Versus 2021"],["(Dollars in thousands)","Volume Change","","Rate Change","","Total","","Volume Change","","Rate Change","","Total"],["Interest income:"],["Interest-earning deposits with other banks","$","(1,796)","","","$","6,536","","","$","4,740","","","$","(271)","","","$","1,530","","","$","1,259"],["U.S. government obligations","(40)","","","\u2014","","","(40)","","","(105)","","","1","","","(104)"],["Obligations of states and political subdivisions","(1)","","","(8)","","","(9)","","","(109)","","","(26)","","","(135)"],["Other debt and equity securities","(125)","","","2,958","","","2,833","","","2,101","","","3,299","","","5,400"],["Federal Home Loan Bank, Federal Reserve Bank and other stock","828","","","414","","","1,242","","","51","","","159","","","210"],["Interest on deposits, investments and other interest-earning assets","(1,134)","","","9,900","","","8,766","","","1,667","","","4,963","","","6,630"],["Commercial, financial and agricultural loans","1,295","","","22,331","","","23,626","","","(6,552)","","","7,239","","","687"],["Real estate\u2014commercial and construction loans","19,300","","","41,438","","","60,738","","","12,876","","","13,338","","","26,214"],["Real estate\u2014residential loans","12,344","","","10,533","","","22,877","","","5,421","","","2,006","","","7,427"],["Loans to individuals","21","","","665","","","686","","","24","","","283","","","307"],["Municipal loans and leases","(178)","","","72","","","(106)","","","(444)","","","\u2014","","","(444)"],["Lease financings","2,103","","","131","","","2,234","","","1,775","","","(347)","","","1,428"],["Interest and fees on loans and leases","34,885","","","75,170","","","110,055","","","13,100","","","22,519","","","35,619"],["Total interest income","33,751","","","85,070","","","118,821","","","14,767","","","27,482","","","42,249"],["Interest expense:"],["Interest-bearing checking deposits","990","","","17,668","","","18,658","","","84","","","2,919","","","3,003"],["Money market savings","2,560","","","47,758","","","50,318","","","59","","","10,202","","","10,261"],["Regular savings","(256)","","","2,236","","","1,980","","","69","","","86","","","155"],["Time deposits","10,118","","","19,553","","","29,671","","","(673)","","","(197)","","","(870)"],["Total time and interest-bearing deposits","13,412","","","87,215","","","100,627","","","(461)","","","13,010","","","12,549"],["Short-term borrowings","3,288","","","2,418","","","5,706","","","77","","","1,304","","","1,381"],["Long-term debt","4,229","","","3,948","","","8,177","","","(21)","","","(10)","","","(31)"],["Subordinated notes","2,591","","","736","","","3,327","","","(1,770)","","","419","","","(1,351)"],["Interest on borrowings","10,108","","","7,102","","","17,210","","","(1,714)","","","1,713","","","(1)"],["Total interest expense","23,520","","","94,317","","","117,837","","","(2,175)","","","14,723","","","12,548"],["Net interest income","$","10,231","","","$","(9,247)","","","$","984","","","$","16,942","","","$","12,759","","","$","29,701"]]
[[/GREPCENT_TABLE]]

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Provision for Credit Losses

The provision for credit losses for the years ended December 31, 2023 and 2022 was $10.8 million and $12.2 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. 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.

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

Noninterest Income

The following table presents noninterest income for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","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)","","","$","(660)","","","(0.1)","%","","(7.9)","%"],["Service charges on deposit accounts","7,048","","","6,175","","","5,504","","","873","","","671","","","14.1","","","12.2"],["Investment advisory commission and fee income","18,864","","","19,748","","","18,936","","","(884)","","","812","","","(4.5)","","","4.3"],["Insurance commission and fee income","21,043","","","19,065","","","16,357","","","1,978","","","2,708","","","10.4","","","16.6"],["Other service fee income","12,381","","","12,425","","","10,275","","","(44)","","","2,150","","","(0.4)","","","20.9"],["Bank owned life insurance income","3,185","","","3,787","","","3,981","","","(602)","","","(194)","","","(15.9)","","","(4.9)"],["Net gain on sales of investment securities","\u2014","","","30","","","145","","","(30)","","","(115)","","","N/M","","(79.3)"],["Net gain on mortgage banking activities","3,689","","","4,412","","","15,141","","","(723)","","","(10,729)","","","(16.4)","","","(70.9)"],["Other income","2,882","","","4,500","","","4,482","","","(1,618)","","","18","","","(36.0)","","","0.4"],["Total noninterest income","$","76,824","","","$","77,885","","","$","83,224","","","$","(1,061)","","","$","(5,339)","","","(1.4)","%","","(6.4)","%"]]
[[/GREPCENT_TABLE]]

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.

Investment advisory commission and fee income decreased $884 thousand, or 4.5%, for the year ended December 31, 2023 primarily due a $1.2 million adjustment recorded in the fourth quarter of 2022 for previously unrecorded revenue. Net gain on mortgage banking activities decreased $723 thousand, or 16.4%, for the year ended December 31, 2023, primarily due to a contraction of gain on sale margins. Bank owned life insurance income decreased $602 thousand, or 15.9%, for the year ended December 31, 2023, primarily due to death benefit claims of $965 thousand recorded during 2022. Other income decreased $1.6 million, or 36.0%, for the year ended December 31, 2023, primarily due to a $1.7 million decrease in interest rate swap income.

Insurance commission and fee income increased $2.0 million, or 10.4%, for the year ended December 31, 2023, primarily due to increases of $1.4 million in premiums for group life and health and commercial lines and $595 thousand in contingent commission income. 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.

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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.

Insurance commission and fee income increased $2.7 million, or 16.6%, for the year ended December 31, 2022, primarily due to incremental revenue attributable to the acquisition of the Paul I. Sheaffer insurance agency in the fourth quarter of 2021.

Other service fee income increased $2.2 million, or 20.9%, for the year ended December 31, 2022, from the prior 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. Additionally, interchange income increased $381 thousand for the year ended December 31, 2022, due to increased customer activity.

Noninterest Expense

The following table presents noninterest expense for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","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","","","$","11,615","","","3.8","%","","11.1","%"],["Net occupancy","10,686","","","10,193","","","10,397","","","493","","","(204)","","","4.8","","","(2.0)"],["Equipment","4,132","","","3,904","","","3,899","","","228","","","5","","","5.8","","","0.1"],["Data processing","16,799","","","15,215","","","12,743","","","1,584","","","2,472","","","10.4","","","19.4"],["Professional fees","7,141","","","9,332","","","7,687","","","(2,191)","","","1,645","","","(23.5)","","","21.4"],["Marketing and advertising","2,180","","","2,462","","","2,063","","","(282)","","","399","","","(11.5)","","","19.3"],["Deposit insurance premiums","4,825","","","3,075","","","2,712","","","1,750","","","363","","","56.9","","","13.4"],["Intangible expenses","938","","","1,293","","","979","","","(355)","","","314","","","(27.5)","","","32.1"],["Restructuring charges","1,519","","","184","","","\u2014","","","1,335","","","184","","","725.5","","N/M"],["Other expense","28,954","","","25,310","","","22,738","","","3,644","","","2,572","","","14.4","","","11.3"],["Total noninterest expense","$","197,362","","","$","186,774","","","$","167,409","","","$","10,588","","","$","19,365","","","5.7","%","","11.6","%"]]
[[/GREPCENT_TABLE]]

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.

Salaries, benefits and commissions increased $4.4 million, or 3.8%, for the year ended December 31, 2023. This increase reflects our expansion into Maryland and Western Pennsylvania, increased medical claims expense and reduced capitalized compensation, driven by lower loan production. These increases were partially offset by decreases due to the staff reduction that was announced during the second quarter of 2023 and a reduction in incentive compensation due to decreased profitability in the current year.

Deposit insurance premiums increased $1.8 million, or 56.9%, for the year ended December 31, 2023, primarily driven by an increased industry-wide assessment rate and an increase in our assessment base. Data processing expense increased $1.6 million, or 10.4%, for the year ended December 31, 2023, primarily due to continued investments in technology and general price increases. Restructuring charges increased $1.3 million, or 725.5%, for the year ended December 31, 2023, associated with the Corporation's financial service center optimization and expense management strategies deployed in response to macroeconomic headwinds.

Other expense increased $3.6 million, or 14.4%, primarily driven by increases in retirement plan costs of $1.6 million as a result of the current interest rate environment. Other increases included $604 thousand of loan processing and workout fees, $286 thousand in insurance expense and $193 thousand in interchange expense. Federal Home Loan Bank letter of credit fees increased $389 thousand due to increased public funds deposits and related collateral costs. Bank Shares tax expense increased $206 thousand driven by year over year growth of the Bank's Shareholders' Equity.

Professional fees decreased $2.2 million, or 23.5%, for the year ended December 31, 2023. In 2022, the Corporation incurred $3.0 million of consulting fees in support of our digital transformation initiative.

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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.

Salaries, benefits and commissions increased $11.6 million, or 11.1%, for the year ended December 31, 2022. This increase reflects the insurance acquisition in the fourth quarter of 2021, our expansion into Maryland and Western Pennsylvania and annual merit increases.

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.

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.

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. 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.

Financial Condition

ASSETS

The following table presents assets at the dates indicated:

[[GREPCENT_TABLE]]
[["","At December 31,"],["(Dollars in thousands)","2023","","2022","","$ Change","","% Change"],["Cash and cash equivalents","$","249,799","","","$","152,799","","","$","97,000","","","63.5","%"],["Investment securities, net of allowance for credit losses","500,623","","","507,562","","","(6,939)","","","(1.4)"],["Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost","40,499","","","33,841","","","6,658","","","19.7"],["Loans held for sale","11,637","","","5,037","","","6,600","","","131.0"],["Loans and leases held for investment","6,567,214","","","6,123,230","","","443,984","","","7.3"],["Allowance for credit losses, loans and leases","(85,387)","","","(79,004)","","","(6,383)","","","8.1"],["Premises and equipment, net","51,441","","","50,939","","","502","","","1.0"],["Operating lease right-of-use asset","31,795","","","30,059","","","1,736","","","5.8"],["Goodwill and other intangibles, net","186,460","","","186,894","","","(434)","","","(0.2)"],["Bank owned life insurance","131,344","","","120,297","","","11,047","","","9.2"],["Accrued interest receivable and other assets","95,203","","","90,362","","","4,841","","","5.4"],["Total assets","$","7,780,628","","","$","7,222,016","","","$","558,612","","","7.7","%"]]
[[/GREPCENT_TABLE]]

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Cash and Interest-Earning Deposits

Cash and interest-earning deposits increased $97.0 million, or 63.5%, from December 31, 2022, primarily due to increased interest earning deposits at the Federal Reserve Bank of $112.4 million due to increases in deposits and borrowings outpacing loan fundings.

Investment Securities

Total investment securities at December 31, 2023 decreased $6.9 million, or 1.4%, from December 31, 2022. 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.

Table 3—Investment Securities

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

[[GREPCENT_TABLE]]
[["","At December 31,"],["(Dollars in thousands)","2023","","2022","","2021"],["U.S. government corporations and agencies","$","\u2014","","","$","\u2014","","","$","6,999"],["State and political subdivisions","2,301","","","2,285","","","2,333"],["Residential mortgage-backed securities","410,329","","","418,115","","","391,089"],["Collateralized mortgage obligations","2,001","","","2,322","","","3,278"],["Corporate bonds","82,699","","","82,261","","","90,291"],["Equity securities","3,293","","","2,579","","","2,999"],["Total investment securities","$","500,623","","","$","507,562","","","$","496,989"]]
[[/GREPCENT_TABLE]]

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. Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties. Therefore, the stated yield may not be recognized in future periods. Additionally, residential mortgage-backed securities, which are collateralized by residential mortgage loans, typically prepay at a rate faster than the stated maturity. The weighted average yield is calculated by dividing income, which has not been tax effected on tax-exempt obligations, within each contractual maturity range by the outstanding amount of the related investment. Held-to-maturity and available-for-sale portfolios are combined, net of allowance for credit losses.

[[GREPCENT_TABLE]]
[["","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","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%"],["Residential mortgage-backed securities","\u2014","","","\u2014","","","2,438","","","2.47","","","25,700","","","2.70","","","417,487","","","2.46"],["Collateralized mortgage obligations","\u2014","","","\u2014","","","\u2014","","","\u2014","","","241","","","2.67","","","1,960","","","1.63"],["Corporate bonds","18,011","","","3.60","","","13,339","","","2.08","","","60,000","","","4.17","","","\u2014","","","\u2014"],["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","%"]]
[[/GREPCENT_TABLE]]

At December 31, 2023, the Corporation had no reportable investments in any single issuer representing more than 10% of shareholders' equity.

Loans and Leases

Gross loans and leases held for investment at December 31, 2023 increased $444.0 million, or 7.3%, from 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.

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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. Loans with variable rates or floating interest rates include adjustable rate instruments that may have longer than one month, and in some instances, multiple years of a fixed rate interest period.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","Total","","Due in One Year or Less","","Due after One Year to Five Years","","Due After Five Years to Fifteen Years","","Due After Fifteen Years"],["Loans and leases with fixed predetermined interest rates:"],["Commercial, financial and agricultural","$","222,927","","","$","10,213","","","$","162,752","","","$","43,426","","","$","6,536"],["Real estate-commercial","1,403,667","","","163,265","","","1,066,967","","","163,688","","","9,747"],["Real estate-construction","88,280","","","2,349","","","28,837","","","56,691","","","403"],["Real estate-residential secured for business purpose","223,703","","","31,769","","","177,844","","","14,090","","","\u2014"],["Real estate-residential secured for personal purpose","61,917","","","2,218","","","10,757","","","12,386","","","36,556"],["Real estate-home equity secured for personal purpose","8,986","","","923","","","688","","","7,375","","","\u2014"],["Loans to individuals","9,456","","","5,417","","","3,417","","","353","","","269"],["Lease financings","247,183","","","7,299","","","220,413","","","19,471","","","\u2014"],["Loans and leases with fixed predetermined interest rates","$","2,266,119","","","$","223,453","","","$","1,671,675","","","$","317,480","","","$","53,511"],["Loans and leases with variable or floating interest rates:"],["Commercial, financial and agricultural","$","766,796","","","$","658,780","","","$","73,449","","","$","34,567","","","$","\u2014"],["Real estate-commercial","1,899,131","","","1,060,907","","","783,801","","","54,423","","","\u2014"],["Real estate-construction","306,182","","","143,087","","","30,469","","","128,420","","","4,206"],["Real estate-residential secured for business purpose","293,299","","","59,901","","","223,461","","","9,937","","","\u2014"],["Real estate-residential secured for personal purpose","847,098","","","22,523","","","86,151","","","738,424","","","\u2014"],["Real estate-home equity secured for personal purpose","170,296","","","169,376","","","920","","","\u2014","","","\u2014"],["Loans to individuals","18,293","","","18,046","","","113","","","65","","","69"],["Loans with variable or floating interest rates","$","4,301,095","","","$","2,132,620","","","$","1,198,364","","","$","965,836","","","$","4,275"],["Total gross loans and leases held for investment","$","6,567,214","","","$","2,356,073","","","$","2,870,039","","","$","1,283,316","","","$","57,786"]]
[[/GREPCENT_TABLE]]

Asset Quality

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

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

At 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. At December 31, 2022, nonaccrual loans and leases were $13.4 million and had a related allowance for credit losses on loans and leases of $2.8 million. During the fourth quarter of 2023, a $6.1 million construction loan relationship was placed on nonaccrual status with an individual reserve of $1.1 million. Individual reserves have been established based on current facts and management's judgments about the ultimate outcome of these credits, including the most recent known data available on any related underlying collateral and the borrower's cash flows. The amount of 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 increase in charge-offs for the year ended December 31, 2023 was primarily due to $2.4 million charge-offs recorded against two existing nonaccrual commercial loans to one borrower in the first quarter of 2023. As of December 31, 2022, the allowance for credit losses included a $2.1 million individual reserve for this relationship.

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Other real estate owned was $19.0 million at December 31, 2023, compared to $19.3 million at December 31, 2022.

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.

[[GREPCENT_TABLE]]
[["","At December 31,"],["(Dollars in thousands)","2023","","2022","","2021"],["Nonaccrual loans held for sale","$","8","","","$","\u2014","","","$","\u2014"],["Nonaccrual loans and leases held for investment","20,519","","","13,353","","","33,210"],["Accruing loans and leases, 90 days or more past due","534","","","875","","","498"],["Total nonperforming loans and leases","$","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","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

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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:

[[GREPCENT_TABLE]]
[["(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 $50 million in outstandings","$","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"]]
[[/GREPCENT_TABLE]]

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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.

[[GREPCENT_TABLE]]
[["","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","","","\u2014","%"],["Real estate-commercial","3,182,965","","","37","","","\u2014","","","2,863,580","","","3,276","","","0.11","","","2,589,585","","","(204)","","","(0.01)"],["Real estate-construction","414,567","","","206","","","0.05","","","312,024","","","\u2014","","","\u2014","","","264,951","","","\u2014","","","\u2014"],["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","","","\u2014","","","\u2014","","","626,102","","","\u2014","","","\u2014","","","521,240","","","\u2014","","","\u2014"],["Real estate-home equity secured for personal purpose","175,395","","","2","","","\u2014","","","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","","","\u2014","%"]]
[[/GREPCENT_TABLE]]

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. 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.

Table 9—Allowance for Credit Losses On Loans and Leases

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

[[GREPCENT_TABLE]]
[["","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","\u2014","","","\u2014","","","N/A","","\u2014","","","\u2014","","","N/A"],["Total","$","85,387","","","100.0","%","","100.0","%","","$","79,004","","","100.0","%","","100.0","%"]]
[[/GREPCENT_TABLE]]

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. 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. There was no impairment of goodwill or identifiable intangibles recorded during 2021 through 2023. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

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Bank Owned Life Insurance

The Bank currently purchases bank owned life insurance to protect itself against the loss of key employees due to death and to offset or finance the Corporation's future costs and obligations to employees under its benefits plans. Bank owned life insurance increased $11.0 million, or 9.2%, from December 31, 2023, primarily due to $7.9 million of policies purchased during the first quarter of 2023.

LIABILITIES

The following table presents liabilities at the dates indicated:

[[GREPCENT_TABLE]]
[["","At December 31,"],["(Dollars in thousands)","2023","","2022","","$ Change","","% Change"],["Deposits","$","6,375,781","","","$","5,913,526","","","$","462,255","","","7.8","%"],["Short-term borrowings","6,306","","","197,141","","","(190,835)","","","(96.8)"],["Long-term debt","310,000","","","95,000","","","215,000","","","226.3"],["Subordinated notes","148,761","","","148,260","","","501","","","0.3"],["Operating lease liabilities","34,851","","","33,153","","","1,698","","","5.1"],["Accrued interest payable and other liabilities","65,721","","","58,436","","","7,285","","","12.5"],["Total liabilities","$","6,941,420","","","$","6,445,516","","","$","495,904","","","7.7","%"]]
[[/GREPCENT_TABLE]]

Deposits

Total deposits increased $462.3 million, or 7.8%, from December 31, 2022, primarily due to increases in public fund and brokered deposits, partially offset by decreases in commercial and consumer deposits. At December 31, 2023, noninterest bearing deposits represented 23.0% of total deposits, down from 34.6% at December 31, 2022. At December 31, 2023, unprotected deposits, which excludes insured, internal, and collateralized deposit accounts, represented 23.3% of total deposits, down from 31.0% at December 31, 2022.

Table 10—Deposits

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

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

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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. 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.

[[GREPCENT_TABLE]]
[["(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"]]
[[/GREPCENT_TABLE]]

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.

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. 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.

Other Liabilities

Other liabilities increased $7.3 million, or 12.5%, from December 31, 2022, primarily due to increased accrued interest payable on certificates of deposits of $10.2 million. This increase was partially offset by a change in fair value of derivatives of $2.9 million. In May 2022, the Corporation entered into an interest rate swap classified as a cash flow hedge. 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.

SHAREHOLDERS' EQUITY

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

[[GREPCENT_TABLE]]
[["","At December 31,"],["(Dollars in thousands)","2023","","2022","","$ Change","","% Change"],["Common stock","$","157,784","","","$","157,784","","","$","\u2014","","","\u2014","%"],["Additional paid-in capital","301,066","","","300,808","","","258","","","0.1"],["Retained earnings","474,691","","","428,637","","","46,054","","","10.7"],["Accumulated other comprehensive loss","(50,646)","","","(62,104)","","","11,458","","","(18.4)"],["Treasury stock","(43,687)","","","(48,625)","","","4,938","","","(10.2)"],["Total shareholders' equity","$","839,208","","","$","776,500","","","$","62,708","","","8.1","%"]]
[[/GREPCENT_TABLE]]

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. Retained earnings was impacted by net income of $71.1 million, partially offset by $24.7 million of cash dividends paid during the year. 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. 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.

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Discussion of Segments

The Corporation has three operating segments: Banking, Wealth Management and Insurance. 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. 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. The pre-tax income decrease from 2022 was due to a $1.2 million adjustment recorded in 2022 for previously unrecorded revenue, an increase in employee salary expense as we continue to invest in revenue producing positions, and increases in data processing expense and consulting fees. Pre-tax income was relatively flat in 2022 as compared to 2021. Wealth Management assets under management and supervision were $4.7 billion as of December 31, 2023, $4.2 billion as of December 31, 2022 and $4.9 billion as of December 31, 2021.

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. 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. 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. 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%. The Corporation continues to be in the "well-capitalized" category under regulatory standards. Details on the capital ratios can be found in Note 21, "Regulatory Matters," included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K along with a discussion on dividend and other restrictions.

Asset/Liability Management

The primary functions of Asset/Liability Management are to 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. Management's objective with regard to interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.

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

Interest Rate Sensitivity

Interest rate sensitivity is a function of the repricing characteristics of the Corporation's assets and liabilities. Minimizing the balance sheet's maturity and repricing risk is a continual focus in a changing interest rate environment. The Corporation uses a variety of techniques to assist in identifying 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.

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The gap analysis identifies repricing gaps in the Corporation’s balance sheet. 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, while utilizing an all encompassing deposit beta assumption that captures changes in interest expense that may occur as interest rates change or balances shift into other products. These assumptions are based upon historic behavior; however, they are inherently uncertain and thus cannot precisely predict the impact of changes in interest rates. While actual results will differ from simulated results due to customer behavioral change and/or market and regulatory influences, the following models are important tools to guide management.

Table 11—Interest Rate Sensitivity Gap Analysis

The following table presents the Corporation's gap analysis at December 31, 2023:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","Within Three Months","","After Three Months to Twelve Months","","After One Year to Five Years","","Over Five Years","","Non-Rate Sensitive","","Total"],["Assets:"],["Cash and due from banks","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","72,815","","","$","72,815"],["Interest-earning deposits with other banks","176,984","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","176,984"],["Investment securities, net of allowance for credit losses","72,357","","","48,937","","","173,633","","","242,794","","","(37,098)","","","500,623"],["Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost","\u2014","","","\u2014","","","\u2014","","","\u2014","","","40,499","","","40,499"],["Loans held for sale","11,637","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","11,637"],["Loans and leases, net of allowance for credit losses","2,179,369","","","505,105","","","2,748,485","","","1,124,237","","","(75,369)","","","6,481,827"],["Other assets","\u2014","","","\u2014","","","\u2014","","","\u2014","","","496,243","","","496,243"],["Total assets","$","2,440,347","","","$","554,042","","","$","2,922,118","","","$","1,367,031","","","$","497,090","","","$","7,780,628"],["Liabilities and shareholders' equity:"],["Noninterest-bearing deposits","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","1,468,320","","","$","1,468,320"],["Interest-bearing demand deposits","2,973,784","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,973,784"],["Savings deposits","779,885","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","779,885"],["Time deposits","134,574","","","381,355","","","636,274","","","1,589","","","\u2014","","","1,153,792"],["Borrowings","66,306","","","25,000","","","373,761","","","\u2014","","","\u2014","","","465,067"],["Other liabilities","\u2014","","","\u2014","","","\u2014","","","\u2014","","","100,572","","","100,572"],["Shareholders' equity","\u2014","","","\u2014","","","\u2014","","","\u2014","","","839,208","","","839,208"],["Total liabilities and shareholders' equity","$","3,954,549","","","$","406,355","","","$","1,010,035","","","$","1,589","","","$","2,408,100","","","$","7,780,628"],["Interest rate swaps","$","(250,000)","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Incremental gap","$","(1,764,202)","","","$","147,687","","","$","1,912,083","","","$","1,365,442","","","$","(1,911,010)"],["Cumulative gap","$","(1,764,202)","","","$","(1,616,515)","","","$","295,568","","","$","1,661,010"],["Cumulative gap as a percentage of interest-earning assets","(24.8","%)","","(22.7","%)","","4.1","%","","23.3","%"]]
[[/GREPCENT_TABLE]]

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

Table 12—Net Interest Income - Summary of Earnings at Risk Simulation

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

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The changes to net interest income are shown in the below table at December 31, 2023. 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. The changes to net interest income shown below are in compliance with the Corporation's policy guidelines.

[[GREPCENT_TABLE]]
[["","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)"]]
[[/GREPCENT_TABLE]]

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 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. While the Corporation has strict underwriting, review, and monitoring procedures in place, they cannot eliminate all of the risks related to these lending activities.

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

The Corporation focuses on both assessing the borrower's capacity and willingness to repay and obtaining sufficient collateral. 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. Management closely monitors the composition and quality of the total commercial loan portfolio to ensure that any credit concentrations by borrower or industry are identified and managed. See "Risk Factors" included herein under Item 1A for additional information on lending risk related to commercial loans.

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

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

The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review, and monitoring procedures in place to mitigate these risks. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases and equipment finance agreements, in which the entire cost of the leased equipment is included in the contractual

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payments, leaving no residual payment at the end of the lease term for the majority of the lease portfolio.

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

The Corporation and its subsidiaries maintain ample ability to meet the liquidity needs of its customers. Our most liquid asset, unencumbered cash and cash equivalents, were $241.5 million at December 31, 2023. Unencumbered securities classified as available-for-sale, which provide additional sources of liquidity, totaled $23.3 million at December 31, 2023. Further, the Corporation and its subsidiaries had committed borrowing capacity from the Federal Home Loan Bank and Federal Reserve Bank of $3.4 billion at December 31, 2023, of which $1.9 billion was available. The Corporation and its subsidiaries also maintained unused uncommitted funding sources from correspondent banks of $369.0 million at December 31, 2023. Future availability under these uncommitted funding sources is subject to the prerogatives of the granting banks and may be withdrawn at will.

Sources of Funds

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

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

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. The Bank anticipates meeting these obligations by utilizing on-balance sheet liquidity and continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these contractual obligations with similar funding sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.

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

Recent Accounting Pronouncements

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