10-K 1 uvsp-10k20171231.htm 10-K Document

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017
Commission File number 0-7617

 UNIVEST CORPORATION OF PENNSYLVANIA
(Exact name of registrant as specified in its charter)
Pennsylvania
 
23-1886144
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
 
 
14 North Main Street, Souderton, Pennsylvania
 
18964
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant’s telephone number, including area code
(215) 721-2400
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of class
 
Name of each exchange on which registered
Common Stock, $5 par value
 
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   x No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨ No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.     Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer
¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The approximate aggregate market value of voting stock held by non-affiliates of the registrant is $772,823,181 as of June 30, 2017 based on the June 30, 2017 closing price of the Registrant's Common Stock of $29.95 per share.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $5 par value
 
29,362,569
(Title of Class)
 
(Number of shares outstanding at January 31, 2018)

DOCUMENTS INCORPORATED BY REFERENCE
Part I and Part III incorporate information by reference from the proxy statement for the annual meeting of shareholders on April 17, 2018.




UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE OF CONTENTS
 
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
 

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PART I

The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words “believe,” “anticipate,” “estimate,” “expect,” “project,” “target,” “goal” and similar expressions are intended to identify forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including but not limited to those set forth below as well as the risk factors described in Item 1A. “Risk Factors”:

Operating, legal and regulatory risks;
Economic, political and competitive forces impacting various lines of business;
Legislative, regulatory and accounting changes;
Demand for our financial products and services in our market area;
Volatility in interest rates;
The quality and composition of our loan and investment portfolios;
Timing of revenue and expenditures;
Returns on investment decisions;
Other risks and uncertainties, including those occurring in the U.S. and world financial systems; and
The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These forward-looking statements speak only as of the date of the report. The Corporation expressly disclaims any obligation to publicly release any updates or revisions to reflect any change in the Corporation’s expectations with regard to any change in events, conditions or circumstances on which any such statement is based.

 
Item 1.
Business

General

Univest Corporation of Pennsylvania (the Corporation) is a Pennsylvania corporation organized in 1973 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956. The Corporation owns all of the capital stock of Univest Bank and Trust Co. (the Bank). The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiary, the Bank. The Corporation’s and the Bank’s legal headquarters are located at 14 North Main Street, Souderton, PA 18964.

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

The Bank is engaged in the commercial and consumer banking business and provides a full range of banking and trust services to its customers. The Bank is the parent company of Delview, Inc., which is the parent company of Univest Insurance, Inc., an independent insurance agency, Univest Investments, Inc., a full-service broker-dealer and investment advisory firm, and Girard Partners Ltd. (Girard Partners), a registered investment advisory firm acquired in January 2014. Univest Insurance has three offices in Pennsylvania and one in Maryland. Univest Investments has two offices in Pennsylvania. Girard Partners is headquartered in King of Prussia, Pennsylvania with a satellite office in Florida. The Bank is also the parent company of Univest Capital, Inc., an equipment financing business, and TCG Investment Advisory, a registered investment advisor, which provides discretionary investment consulting and management services. Through its wholly-owned subsidiaries, the Bank provides a variety of financial services to individuals, municipalities and businesses throughout its markets of operation. Univest Investments, Inc., Univest Insurance, Inc. and Univest Capital, Inc. were formed to enhance the traditional banking and trust services provided by the Bank, as was the acquisition of Girard Partners.

At December 31, 2017, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines its segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. For more detailed discussion and financial information on the business segments, see Note 23 “Segment Reporting” included in the Notes to the Consolidated Financial Statements included herein under Item 8.

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At December 31, 2017, the Corporation had total assets of $4.6 billion, net loans and leases of $3.6 billion, total deposits of $3.6 billion and total shareholders’ equity of $603.4 million.

Employees

At December 31, 2017, the Corporation and its subsidiaries employed eight hundred and fifty-five (855) persons. None of these employees are covered by collective bargaining agreements, and the Corporation believes it enjoys good relations with its personnel.

Market Area

The Corporation is headquartered in Souderton, Pennsylvania, which is located in Southeastern Pennsylvania, approximately thirty-five miles north of Philadelphia. The highest concentration of our deposits and loans are in Montgomery and Bucks counties where twenty-seven out of our forty-one financial centers are located. The acquisition of Fox Chase Bancorp (Fox Chase) on July 1, 2016 expanded the Corporation's presence in Montgomery, Bucks, Philadelphia, and Chester counties in Pennsylvania and into Cape May County in New Jersey. During 2017, the Corporation opened a financial center in Northampton County and three financial centers in Lancaster County Pennsylvania.

Montgomery and Bucks counties are two of the wealthiest counties in Pennsylvania. Significant types of employment industries include pharmaceuticals, health care, electronics, computer services, insurance, industrial machinery, retailing, schools and meat processing. Major companies throughout the two counties include Merck and Company, Abington Hospital-Jefferson Health, GlaxoSmithKline, Hatfield Quality Meats, Aetna/U.S. Healthcare, St. Mary Medical Center, Giant Food Stores LLC, Doylestown Hospital, Grand View Hospital, Central Bucks School District, Pennsbury School District and Northtec LLC. Unemployment rates at December 2017 were 3.4% in Montgomery County and 3.7% in Bucks County, lower than Pennsylvania’s state unemployment rate of 4.4% and the federal unemployment rate of 4.1%, according to the Bureau of Labor Statistics.

The Corporation ranks fifth in market share in Montgomery County with fifteen financial centers and eighth in Bucks County with twelve financial centers, with 5.9% of total combined market share in the two counties according to data provided by SNL Financial. Montgomery County’s population has grown 3% to 826,000 from the year 2010 to 2017, and is expected to grow another 1.7% through 2023, while Bucks County’s population has increased .2% to 626,000 during the same period, and is expected to grow .3% through 2023, according to SNL Financial. The median age is 41 years and 44 years in Montgomery and Bucks counties, respectively, consistent with the median age of 41 years in Pennsylvania and slightly higher than the median age in the United States of 38 years. County estimates project the median age to increase over the next two decades. The median yearly household income was $89,000 for Montgomery County and $88,000 for Bucks County during 2017 and is expected to increase 8% for Montgomery County and 10% for Bucks County through 2023, according to SNL Financial. The yearly median income for both counties is well above that of the Commonwealth of Pennsylvania of $61,000 and the United States at $61,000 during 2017.

Competition

The Corporation’s service areas are characterized by intense competition for banking business among commercial banks, savings institutions and other financial institutions. The Corporation’s subsidiary bank actively competes with such banks and financial institutions for local retail, commercial, municipality and non-profit accounts in Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia counties of Pennsylvania and Atlantic and Cape May counties in New Jersey, as well as other financial institutions outside its primary service area.

In competing with other banks, savings institutions and other financial institutions, the Bank seeks to provide personalized services and local decision making through management’s knowledge and awareness of its service area, customers and borrowers.

Other competitors, including credit unions, consumer finance companies, insurance companies, wealth management providers, leasing companies and mutual funds, compete with certain lending and deposit gathering services and insurance and wealth management services offered by the Bank and its operating segments.


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Supervision and Regulation

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

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

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

The Corporation is subject to the Sarbanes-Oxley Act of 2002 (SOX). SOX adopted new standards of corporate governance and imposed additional requirements on the board of directors and management of public companies. SOX also requires that the chief executive officer and chief financial officer certify the accuracy of periodic reports filed with the Securities and Exchange Commission (SEC). Pursuant to Section 404 of SOX (SOX 404), the Corporation is required to furnish a report by its management 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 2017. The Corporation must maintain effective internal controls, which requires an on-going commitment by management and the Corporation’s Audit Committee. The process has and will continue to require substantial resources in both financial costs and human capital.

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

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

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

Increased the FDIC assessment for depository institutions with assets of $10 billion or more, changed the basis for determining FDIC premiums from insured deposits to consolidated assets less tangible capital; and increased the minimum reserve ratio for the deposit insurance fund to 1.35% by September 30, 2020;

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

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

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

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


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Basel III
In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. Basel III generally implements higher minimum capital requirements, adds a common equity Tier 1 capital requirement, and establishes criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. The minimum capital to risk-adjusted assets requirements include a common equity Tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and a Tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total capital ratio remains at 8.0% under the rules (10.0% to be considered “well capitalized”). Under BASEL III, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. BASEL III permits institutions, other than certain large institutions, to elect to continue to treat most components of accumulated other comprehensive income as permitted under the current general risk-based capital rules, and not reflect these items in common equity Tier 1 calculations (such as unrealized gains and losses on available-for-sale securities, amounts recorded in accumulated other comprehensive income attributed to defined benefit retirement plans resulting from the initial and subsequent application of the relevant U.S. generally accepted accounting principles and accumulated net gains and losses on cash flow hedges related to items that are reported on the balance sheet at fair value). The minimum capital requirements were effective on January 1, 2015. The capital conservation buffer requirements phase in over a four-year period beginning January 1, 2016. See Note 21, "Regulatory Matters" included in the Notes to the Consolidated Financial Statements included herein under Item 8 for further discussion.
Tax Cuts and Jobs Act
On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA includes many provisions that will affect the Corporation's income tax expense, including reducing the Corporation's federal tax rate from 35% to 21% effective January 1, 2018. As a result of the rate reduction, the Corporation is required to re-measure, through income tax expense in the period of enactment, the deferred tax assets and liabilities using the enacted rate at which they are expected to be recovered or settled. The re-measurement of the Corporation's net deferred tax asset resulted in additional 2017 income tax expense of $1.1 million.

Wealth Management and Insurance Businesses

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

Credit and Monetary Policies

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

The Bank is a member of the Federal Home Loan Bank System (FHLBanks), which consists of 11 regional Federal Home Loan Banks, and is subject to supervision and regulation by the Federal Housing Finance Agency. The FHLBanks provide a central credit facility primarily for member institutions. The Bank, as a member of the Federal Home Loan Bank of Pittsburgh (FHLB), is required to acquire and hold shares of capital stock in the FHLB. At December 31, 2017, the Bank owned $12.5 million in FHLB capital stock.

The deposits of the Bank are insured by the FDIC up to applicable limits. Effective April 1, 2011, in accordance with the provisions of the Dodd-Frank Act, the FDIC implemented a final rule regarding deposit insurance assessments. The rule revised the assessment base to average consolidated total assets minus average tangible equity and set a target size for the Deposit Insurance

5


Fund (DIF) at 2% of insured deposits. The rule adopted a new assessment rate schedule and, in lieu of dividends, other rate schedules when the reserve ratio reaches certain levels. Effective June 30, 2016, based on DIF ratios, the FDIC made changes to regulations to provide for three major changes to deposit insurance assessments including a reduction to the range of initial assessment rates for all institutions, surcharges on large banks and a revised method to calculate risk-based assessment rates for established small banks.

Acquisitions

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

The acquisitions included:

Fox Chase Bancorp on July 1, 2016;
Valley Green Bank on January 1, 2015;
Sterner Insurance Associates on July 1, 2014;
Girard Partners on January 1, 2014;
John T. Fretz Insurance Agency, Inc. on May 1, 2013.

Securities and Exchange Commission Reports

The Corporation makes available free-of-charge its reports that are electronically filed with the SEC including its Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports on its website as a hyperlink to EDGAR. These reports are available as soon as reasonably practicable after the material is electronically filed. The Corporation’s website address is www.univest.net. Information included on the Corporation’s website is not part of this Annual Report on Form 10-K. The Corporation will provide at no charge a copy of the SEC Form 10-K annual report for the year 2017 to each shareholder who requests one in writing after March 31, 2018. Requests should be directed to: Megan Duryea Santana, Corporate Secretary, Univest Corporation of Pennsylvania, P.O. Box 197, Souderton, PA 18964.

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

Item 1A. Risk Factors

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

Risks Relating to Recent Economic Conditions and Governmental Response Efforts

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

The Corporation’s operations and profitability are impacted by general business and economic conditions; these conditions include long-term and short-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, values of real estate and other collateral and the strength of the U.S. economy and the local economies in which we operate, all of which are beyond our control. Negative changes in these general business and economic conditions could have a material adverse effect on the Corporation's business, financial condition and results of operations.


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

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

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

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

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

We may be required to record future impairment charges on our investment securities, including our investment in the FHLB, if they suffer declines in value that we consider other-than-temporary. Numerous factors, including the lack of liquidity for re-sales of certain investment securities, the absence of reliable pricing information for investment securities, adverse changes in the business climate, adverse regulatory actions or unanticipated changes in the competitive environment, could have a negative effect on our investment portfolio in future periods. If an impairment charge is significant enough, it could affect the ability of the Bank to pay dividends to us, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders. Significant impairment charges could also negatively impact our regulatory capital ratios and result in the Bank not being classified as “well-capitalized” for regulatory purposes.

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

Federal regulatory agencies have the authority to change the Corporation's and Bank's capital requirements. In addition, BASEL III and new accounting rules, such as Lease Accounting (ASU No. 2016-02) and CECL (ASU No. 2016-13) will have a negative impact of reducing regulatory capital ratios. Accordingly, we may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.

Our customary sources of liquidity include, but are not limited to, inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve. Such sources of liquidity may not be available to us on acceptable terms or not available at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of our bank or counterparties participating in the capital markets may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Market and Business

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

Unlike larger regional banks that operate in large geographies, the Corporation provides banking and financial services to customers primarily in Bucks, Berks, Chester, Delaware, Lancaster, Lehigh, Montgomery, Northampton and Philadelphia counties in Pennsylvania and Atlantic and Cape May counties in New Jersey. Because of our geographic concentration, a downturn in the

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local economy could make it more difficult to attract deposits and could cause higher rates of loss and delinquency on our loans than if the loans were more geographically diversified. Adverse economic conditions in the region, including, without limitation, declining real estate values, could cause our levels of nonperforming assets and loan losses to increase. Regional economic conditions have a significant impact on the ability of borrowers to repay their loans as scheduled. A sluggish economy could, therefore, result in losses that materially and adversely affect our financial condition and results of operations.

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

We face substantial competition in all phases of our businesses from a variety of different competitors. Our competitors, including commercial banks, community banks, savings institutions, credit unions, consumer finance companies, insurance companies, securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and other financial institutions, compete with lending and deposit-gathering services and insurance and wealth management services offered by us. Increased competition in our markets may result in reduced loans and deposits.

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

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

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

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

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

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

Our acquisition activities could involve a number of additional risks, including the risks of:
incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions;
using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or its assets;
the time and expense required to integrate the operations and personnel of the combined businesses;
creating an adverse short-term effect on our results of operations; and
losing key employees and customers as a result of an acquisition that is poorly received.

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



8


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

We are dependent on the ability and experience of a number of key management personnel who have substantial experience with our operations, the financial services industry, and the markets in which we offer products and services. The loss of one or more senior executives or key managers may have an adverse effect on our businesses. In 2016, the Corporation entered into change in control agreements with certain executive officers. As we continue to grow businesses, our success depends on our ability to continue to attract, manage, and retain other qualified management personnel.

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

Our profitability depends in part on our success in attracting and retaining a stable base of low-cost deposits. At December 31, 2017, 29% of our deposit base was comprised of noninterest-bearing deposits, of which 20% consisted of business deposits, which are primarily operating accounts for businesses, and 9% consisted of consumer deposits. The competition for these deposits in our markets is strong and customers are increasingly seeking investments with higher interest rates that are safe, including the purchase of U.S. Treasury securities and other government-guaranteed obligations, as well as the establishment of accounts at the largest, most-well capitalized banks. If we were to lose a significant portion of our low-cost deposits, it would negatively impact our liquidity and profitability.

The Corporation’s information systems may experience an interruption or breach in security.

The Corporation relies heavily on information systems to conduct its business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in the Corporation’s customer relationship management and general ledger, deposit, loan, and other systems. The Corporation has policies and procedures designed with the intention to prevent or limit the effect of any failure, interruption, or breach in our security systems. The occurrence of any such failures, interruptions, or breaches in security could expose the Corporation to reputation risk, civil litigation, regulatory scrutiny and possible financial liability that could have a material adverse effect on our financial condition and results of operations.

The Corporation continually encounters technological change.

Our future success depends, in part, on our ability to effectively embrace technology efficiencies to better serve customers and reduce costs. Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations.

The Corporation is subject to claims and litigation.

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

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

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

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

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a customer’s audited financial statements conform to U.S. generally accepted accounting principles (U.S. GAAP) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. Our financial

9


condition, results of operations and capital could be negatively impacted to the extent we incorrectly assess the creditworthiness of our borrowers, fail to detect or respond to deterioration in asset quality in a timely manner, or rely on financial statements that do not comply with U.S. GAAP or are materially misleading.

Risks Related to the Banking Industry

The Corporation is subject to interest rate risk.

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

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

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

The Corporation is subject to lending risk.

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

At December 31, 2017, approximately 85.2% 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 and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers. An increase in nonperforming loans and leases could result in a net loss of earnings from these loans and leases, an increase in the provision for possible loan and lease losses, and an increase in loan and lease charge-offs. The risk of loan and lease losses increases if the economy worsens.

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

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

10


for projects to be higher than the builder projected, negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.

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

Commercial business, commercial real estate, and construction loans are more susceptible to a risk of loss during a downturn in the business cycle. Our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans.

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

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

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

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

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

Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The FASB's amendment replaces the current incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the allowance will increase upon the adoption of CECL and that the increased allowance level will have the effect of decreasing shareholders' equity and the Corporation's and Bank's regulatory capital ratios.
    
Changes in economic conditions and the composition of our loan portfolio could lead to higher loan charge-offs or an increase in our provision for loan losses and may reduce our net income.

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

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

In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. The Corporation may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may

11


be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. Our policies and procedures require environmental factors to be considered during the loan application process. An environmental review is performed before initiating any commercial foreclosure action; however, these reviews may not be sufficient to detect all potential environmental hazards. Possible remediation costs and liabilities could have a material adverse effect on our financial condition.

The Corporation is subject to extensive government regulation and supervision.

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

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

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

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

Risks Related to the Wealth Management and Insurance Industries

Revenues and profitability from our wealth management business may be adversely affected by any reduction in assets under management and supervision as a result of either a decline in market value of such assets or net outflows, which could reduce trust, investment advisory and brokerage and other servicing fees earned.

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

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

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




12


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

The revenues of our fee based insurance business are derived primarily from commissions from the sale of insurance policies, which commissions are generally calculated as a percentage of the policy premium. These insurance policy commissions can fluctuate as insurance carriers from time to time increase or decrease the premiums on the insurance products we sell. Due to the cyclical nature of the insurance market and the impact of other market and macro economic 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.

Risks Related to Our Common Stock

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

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

The Corporation’s stock price can be volatile.

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

our past and future dividend practice;
our financial condition, performance, creditworthiness and prospects;
quarterly 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;
the operating and securities price performance of other companies that investors believe are comparable to us;
future sales of our equity or equity-related securities;
the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; and
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events.

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

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

Anti-takeover provisions could negatively impact our shareholders.

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

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

The Corporation is generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of any additional shares of common

13


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

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

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

14


Item 1B.
Unresolved Staff Comments

None.

Item 2.
Properties

The Corporation and its subsidiaries occupy fifty-five properties in Montgomery, Bucks, Philadelphia, Chester, Lehigh, Northampton, and Lancaster Counties in Pennsylvania, Cape May County in New Jersey, Calvert County in Maryland and Lee County in Florida, most of which are used principally as banking offices. Business locations and hours are available on the Corporation’s website at www.univest.net.

The Corporation owns its corporate headquarters buildings, which are shared with the Bank and Univest Investments, Inc., in Souderton, Montgomery County. The Bank has a leased office used by Univest Investments, Inc., Univest Capital Inc. and for loan production located in Allentown, Lehigh County. The Bank owns an office used by Univest Capital, Inc. and Univest Insurance, Inc. located in West Chester, Chester County. Univest Insurance, Inc. occupies three additional locations, of which one is owned by Univest Insurance, Inc. in Coopersburg, Lehigh County, and one is owned by the Bank, in Lansdale, Montgomery County and one is leased in North Beach, Calvert County in Maryland. Univest Capital, Inc. occupies one additional leased location in Bensalem, Bucks County. Girard Partners occupies two leased offices, one located in King of Prussia, Montgomery County, and one located in Fort Meyers, Lee County in Florida. The Bank serves the area through forty traditional offices and one supermarket branch that offer traditional community banking and trust services. In Pennsylvania, fifteen banking offices are located in Montgomery County, of which nine are owned, four are leased and two are buildings owned on leased land; twelve banking offices are located in Bucks County, of which six are owned, two are leased and four are buildings owned on leased land; six banking offices are located in Philadelphia County, of which one is owned and five are leased; one leased banking office is located in Chester County; one leased banking office is located in Lehigh County; one leased banking office is located in Northampton County; and four leased banking offices are located in Lancaster County. In New Jersey, one owned banking office is located in Cape May County. The Bank has three additional regional leased offices, one primarily used for corporate banking and mortgage banking located in Doylestown, Bucks County, one used for administrative offices for loan production located in Philadelphia, Philadelphia County, and one used for corporate lending in Lancaster, Lancaster County. The traditional office located in West Chester, Chester County, is also used for commercial banking and wealth management. The traditional office located in Hatboro, Montgomery County, is also used for corporate lending.

Additionally, the Bank provides banking and trust services for the residents and employees of fourteen retirement home communities. The Bank has eight off-premise automated teller machines, four of which are located in Montgomery County, three in Bucks County and one in Lehigh County. The Bank provides banking services nationwide through the internet via its website www.univest.net.

Item 3.
Legal Proceedings

The Corporation is periodically subject to various pending and threatened legal actions, which involve claims for monetary relief. Based upon information presently available to the Corporation, it is the Corporation's opinion that any legal and financial responsibility arising from such claims will not have a material adverse effect on the Corporation's results of operations, financial position or cash flows.
As discussed in Note 6, "Loans and Leases" and Note 16, "Commitments and Contingencies" to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, on September 25, 2017, Univest Capital, Inc. entered into a Release and Settlement Agreement whereby Univest Capital, Inc. received $1.0 million based upon court approval of the Agreement and is eligible to receive up to an additional $1.3 million. Payment of the $1.3 million is subject to the individual guarantor's election of whether or not they will be subject to the Release and Settlement Agreement.

Item 4.
Mine Safety Disclosures
Not Applicable.

15


PART II
 
Item 5.
Market for the Registrant's Common Stock, 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 December 31, 2017, the Corporation had 2,673 stockholders of record.

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

Range of Market Prices of Common Stock and Cash Dividends

The following table shows the high and low sale prices of the Corporation’s common stock during the periods indicated. The table also presents the cash dividends declared per share for each quarter.
 
 
Market Price
 
Cash Dividends Declared per Share
2017
 
High
 
Low
 
January–March
 
$
31.15

 
$
25.75

 
$
0.20

April–June
 
30.75

 
25.65

 
0.20

July–September
 
32.35

 
27.60

 
0.20

October–December
 
32.25

 
27.60

 
0.20

 
 
 
 
 
 
 
2016
 
 
 
 
 
 
January–March
 
$
20.98

 
$
18.43

 
$
0.20

April–June
 
21.28

 
18.81

 
0.20

July–September
 
23.79

 
19.97

 
0.20

October–December
 
31.50

 
22.76

 
0.20


For a description of regulatory restrictions on the ability of the Corporation and the Bank to pay dividends, see Note 21 “Regulatory Matters” included in the Notes to the Consolidated Financial Statements included herein under Item 8.


16


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, 2017, with (1) the Total Return Index for the NASDAQ Stock Market (U.S. Companies) and (2) the Total Return Index for NASDAQ Bank Stocks. This comparison assumes $100.00 was invested on December 31, 2012, 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.

chart-f971dcbdd028a6034e1.jpg


Five Year Cumulative Total Return Summary
 
2012
2013
2014
2015
2016
2017
Univest Corporation of Pennsylvania
100.00

126.13

128.45

137.75

211.24

197.14

NASDAQ Stock Market (US)
100.00

140.12

160.86

172.32

187.70

243.44

NASDAQ Banks
100.00

141.64

148.54

161.65

222.83

234.90




17


ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information on repurchases by the Corporation of its common stock during the fourth quarter of 2017, under the Corporation's Board approved program:
Period
Total Number
of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
October 1 - 31, 2017

 
$

 

 
1,014,246

November 1 - 30, 2017

 

 

 
1,014,246

December 1 – 31, 2017

 

 

 
1,014,246

Total

 
$

 

 
 
 
1.
Transactions are reported as of trade dates.
2.
On October 23, 2013, the Corporation’s Board of Directors approved a new stock repurchase plan for the repurchase of up to 800,000 shares, or approximately 5% of the shares outstanding. On May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares available for repurchase under the Corporation's share repurchase program, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. The repurchased shares limit does not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.


18


Item 6.
Selected Financial Data

 
For the Years Ended December 31,
(Dollars in thousands, except per share data)
2017
 
2016
 
2015
 
2014
 
2013
Earnings
 
 
 
 
 
 
 
 
 
Interest income
$
163,015

 
$
126,607

 
$
101,983

 
$
76,192

 
$
77,804

Interest expense
19,839

 
12,382

 
8,065

 
3,996

 
5,117

Net interest income
143,176

 
114,225

 
93,918

 
72,196

 
72,687

Provision for loan and lease losses
9,892

 
4,821

 
3,802

 
3,607

 
11,228

Net interest income after provision for loan and lease losses
133,284

 
109,404

 
90,116

 
68,589

 
61,459

Noninterest income
59,240

 
55,963

 
52,425

 
48,344

 
46,559

Noninterest expense
130,713

 
141,981

 
105,515

 
87,254

 
81,133

Net income before income taxes
61,811

 
23,386

 
37,026

 
29,679

 
26,885

Income taxes
17,717

 
3,881

 
9,758

 
7,448

 
5,696

Net income
$
44,094

 
$
19,505

 
$
27,268

 
$
22,231

 
$
21,189

Financial Condition at Year End
 
 
 
 
 
 
 
 
 
Cash and interest-earning deposits
$
75,409

 
$
57,825

 
$
60,799

 
$
38,565

 
$
69,169

Investment securities
454,082

 
468,518

 
370,760

 
368,630

 
402,284

Net loans and leases held for investment
3,598,512

 
3,268,387

 
2,161,385

 
1,605,963

 
1,516,990

Assets
4,554,862

 
4,230,528

 
2,879,451

 
2,235,321

 
2,191,559

Deposits
3,554,919

 
3,257,567

 
2,394,360

 
1,861,341

 
1,844,498

Borrowings
355,590

 
417,780

 
73,588

 
41,974

 
37,256

Shareholders' equity
603,374

 
505,209

 
361,574

 
284,554

 
280,506

Per Common Share Data
 
 
 
 
 
 
 
 
 
Average shares outstanding (in thousands)
26,862

 
23,098

 
19,663

 
16,235

 
16,605

Earnings per share – basic
$
1.64

 
$
0.85

 
$
1.39

 
$
1.37

 
$
1.28

Earnings per share – diluted
1.64

 
0.84

 
1.39

 
1.37

 
1.28

Dividends declared per share
0.80

 
0.80

 
0.80

 
0.80

 
0.80

Book value (at year-end)
20.57

 
19.00

 
18.51

 
17.54

 
17.22

Dividends declared to net income
49.6
%
 
94.5
%
 
57.4
%
 
58.4
%
 
62.7
%
Profitability Ratios
 
 
 
 
 
 
 
 
 
Return on average assets
1.01
%
 
0.56
%
 
0.98
%
 
1.01
%
 
0.95
%
Return on average equity
8.37

 
4.46

 
7.58

 
7.74

 
7.53

Average equity to average assets
12.10

 
12.50

 
12.96

 
13.03

 
12.62

Asset Quality Ratios
 
 
 
 
 
 
 
 
 
Nonaccrual loans and leases (including nonaccrual, troubled debt restructured loans and lease modifications) to loans and leases held for investment
0.40
%
 
0.55
%
 
0.65
%
 
1.07
%
 
1.51
%
Nonperforming loans and leases to loans and leases held for investment
0.74

 
0.67

 
0.91

 
1.43

 
2.05

Net charge-offs to average loans and leases outstanding
0.17

 
0.18

 
0.33

 
0.47

 
0.77

Allowance for loan and lease losses to total loans and leases held for investment
0.60

 
0.53

 
0.81

 
1.27

 
1.59

Allowance for loan and lease losses to total loans and leases held for investment (excluding acquired loans at period-end)
0.70

 
0.73

 
0.94

 
1.27

 
1.59

Allowance for loan and lease losses to nonaccrual loans and leases
148.48

 
97.67

 
124.29

 
119.18

 
105.42

Allowance for loan and leases losses to nonperforming loans and leases
80.69

 
78.98

 
89.00

 
88.84

 
77.53



19


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 amounts have been reclassified to conform to the current-year presentation.)

The information contained in this report may contain forward-looking statements, including statements relating to Univest Corporation of Pennsylvania (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 Item 1. “Business,” Item 1A. “Risk Factors,” as well as those within this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report.
Critical Accounting Policies

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

Management, in order to prepare the Corporation’s financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation’s financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies, discussed below, could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale, reserve for loan and lease losses and purchase accounting as areas with critical accounting policies.

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

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

Reserve for Loan and Lease Losses: Reserves for loan and lease losses are provided using techniques that specifically identify losses on impaired loans and leases, estimate losses on pools of homogeneous loans and leases, and estimate the amount of unallocated reserve necessary to account for losses that are present in the loan and lease portfolio but not yet currently identifiable. The adequacies of these reserves are sensitive to changes in current economic conditions that may affect the ability of borrowers to make contractual payments as well as the value of the collateral committed to secure such payments. Rapid or sustained downturns in the economy may require increases in the allowance that may negatively impact the Corporation’s results of operations and statements of financial condition in the periods requiring additional reserves.
Purchase Accounting: The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. The Corporation completed the acquisitions of Fox Chase in July 2016 and Valley Green in January 2015, which generated significant amounts of fair value adjustments to assets and liabilities. The fair value adjustments assigned to assets and liabilities, as well as their related useful lives, are subject to judgment and estimation by

20


management. In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Corporation to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest, which requires the utilization of significant estimates and judgment in accounting for the acquisition.

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

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

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

General
The Corporation earns revenues primarily from the margins and fees generated from the lending and depository services to customers as well as fee-based income from trust, insurance, mortgage banking and investment services to customers. The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting its exposure to credit and interest rate risk to Board of Directors approved levels. Growth is pursued through expansion of current customer relationships and development of additional relationships with new offices and strategic acquisitions. The Corporation has also taken steps in recent years to reduce its dependence on net interest income by intensifying its focus on fee-based income from trust, insurance, mortgage banking and investment services to customers.
    
The principal component of earnings for the Corporation is net interest income, the income earned on loans and investments less the cost of interest-bearing liabilities. The net interest margin, the ratio of net interest income to average earning assets, is impacted by several factors including market interest rates, economic conditions, loan and lease demand, and deposit activity. As interest rates increase, fixed-rate assets that banks hold will tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold will tend to increase in value. The Corporation is in a slightly asset sensitive position and net interest income is projected to increase in a rising rate environment, however, actual results could be materially different than model, due to numerous factors influencing interest rates earned on new loans and investments as well as rates paid on new and existing deposits and new borrowings.

21


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)
2017
 
2016
 
2015
 
2017 to 2016
 
2016 to 2015
 
2017 to 2016
 
2016 to 2015
Net income
$
44,094

 
$
19,505

 
$
27,268

 
$
24,589

 
$
(7,763
)
 
126.1
%
 
(28.5
)%
Net income per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.64

 
$
0.85

 
$
1.39

 
$
0.79

 
$
(0.54
)
 
92.9

 
(38.8
)
Diluted
1.64

 
0.84

 
1.39

 
0.80

 
(0.55
)
 
95.2

 
(39.6
)
Return on average assets
1.01
%
 
0.56
%
 
0.98
%
 
45 BP

 
(42) BP

 
80.4

 
(42.9
)
Return on average equity
8.37

 
4.46

 
7.58

 
391 BP

 
(312) BP

 
87.7

 
(41.2
)

2017 versus 2016

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

The financial results for the year ended December 31, 2016 included acquisition and integration costs related to the acquisition of Fox Chase plus restructuring costs related to facility closures and staffing rationalization of $11.8 million, net of tax, or $0.51 of diluted earnings per share. There were no acquisition, integration costs or restructuring costs during the year ended December 31, 2017. The results for the year ended December 31, 2016 also included $1.2 million, net of tax, or $0.05 of diluted earnings per share related to the Corporation’s agreement to settle its future obligations related to the acquisition of Girard Partners.
 
Additionally, in December 2017, the Corporation completed its public offering of 2,645,000 shares of common stock at a price of $28.25 per share which resulted in an increase in shareholders' equity of $70.5 million.

2016 versus 2015

The Corporation reported net income of $19.5 million or $0.84 diluted earnings per share for 2016 compared to net income of $27.3 million or $1.39 diluted earnings per share for 2015. The financial results for 2016 include the Fox Chase acquisition, which the Corporation completed on July 1, 2016. The financial results for the year ended December 31, 2016 included acquisition and integration costs related to the Fox Chase acquisition plus restructuring costs related to facility closures and staffing rationalization of $11.8 million, net of tax, or $0.51 of diluted earnings per share. The results for the year ended December 31, 2016 also included $1.2 million, net of tax, or $0.05 of diluted earnings per share, related to the Corporation’s agreement to settle its future obligations related to the acquisition of Girard Partners during the fourth quarter of 2016. The financial results for the year ended December 31, 2015 included acquisition, integration and restructuring costs related to the Fox Chase acquisition, the Valley Green acquisition and its new financial center model of $2.9 million, net of tax, or $0.15 of diluted earnings per share. The fair value of assets acquired as a result of the Fox Chase acquisition totaled $1.1 billion, loans totaled $776.2 million and deposits totaled $738.3 million.

Results of Operations
On July 1, 2016, the Corporation acquired Fox Chase. The comparative results of operations include a full year of operations for the combined entities for the year ended December 31, 2017 and for the six months ended December 31, 2016.
Net Interest Income
Table 1 presents a summary of the Corporation’s average balances, tax-equivalent interest income and interest expense and the tax-equivalent yields earned on average assets, and the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the year ended December 31, 2017 compared to 2016 and for the year ended December 31, 2016 compared to 2015. 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

22


margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.
Table 1, Table 2, and the interest income and net interest income analysis contains tax-equivalent financial information and measures determined by methods other than in accordance with U.S. GAAP. The management of the Corporation uses this non-GAAP financial information and measures in its analysis of the Corporation's performance. This financial information and measures should not be considered a substitute for GAAP basis financial information or measures nor should they be viewed as a substitute for operating results determined in accordance with GAAP. Management believes the presentation of the non-GAAP financial information and measures provide useful information that is essential to a proper understanding of the financial results of the Corporation.

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

2016 versus 2015
Net interest income on a tax-equivalent basis for the year ended December 31, 2016 was $119.7 million, an increase of $20.5 million, or 20.6%, compared to the same period in 2015. The tax-equivalent net interest margin for the year ended December 31, 2016 was 3.82% compared to 3.96% for 2015. The increase in net interest income and decrease in net interest margin was mainly due to the impact of the Fox Chase acquisition, which occurred on July 1, 2016. The favorable impact of acquisition accounting fair value adjustments was nine basis points for both years ended December 31, 2016 and 2015. The incremental subordinated debt issuance in July 2016 increased funding costs by four basis points for the year ended December 31, 2016 compared to 2015.

23


Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
 
For the Years Ended December 31,
 
2017
 
2016
 
2015
(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
$
26,128

 
$
280

 
1.07
%
 
$
13,438

 
$
61

 
0.45
%
 
$
38,515

 
$
95

 
0.25
%
U.S. government obligations
30,638

 
423

 
1.38

 
54,220

 
649

 
1.20

 
123,593

 
1,375

 
1.11

Obligations of states and political
subdivisions
82,487

 
3,498

 
4.24

 
97,325

 
4,172

 
4.29

 
107,204

 
5,303

 
4.95

Other debt and equity securities
350,527

 
6,920

 
1.97

 
254,508

 
4,731

 
1.86

 
143,133

 
3,296

 
2.30

Federal funds sold and other earning assets
27,893

 
1,500

 
5.38

 
16,370

 
790

 
4.83

 
9,936

 
525

 
5.28

Total interest-earning deposits, investments, federal funds sold and other earning assets
517,673

 
12,621

 
2.44

 
435,861

 
10,403

 
2.39

 
422,381

 
10,594

 
2.51

Commercial, financial and agricultural loans
749,563

 
33,278

 
4.44

 
552,322

 
21,964

 
3.98

 
422,507

 
16,901

 
4.00

Real estate—commercial and construction loans
1,519,883

 
68,166

 
4.48

 
1,146,293

 
52,232

 
4.56

 
849,161

 
39,275

 
4.63

Real estate—residential loans
765,493

 
34,563

 
4.52

 
633,886

 
28,101

 
4.43

 
499,208

 
22,789

 
4.57

Loans to individuals
28,050

 
1,636

 
5.83

 
30,501

 
1,654

 
5.42

 
29,653

 
1,587

 
5.35

Municipal loans and leases
282,475

 
12,856

 
4.55

 
261,057

 
11,556

 
4.43

 
208,236

 
9,890

 
4.75

Lease financings
75,383

 
5,533

 
7.34

 
75,914

 
6,168

 
8.12

 
72,052

 
6,240

 
8.66

Gross loans and leases
3,420,847

 
156,032

 
4.56

 
2,699,973

 
121,675

 
4.51

 
2,080,817

 
96,682

 
4.65

Total interest-earning assets
3,938,520

 
168,653

 
4.28

 
3,135,834

 
132,078

 
4.21

 
2,503,198

 
107,276

 
4.29

Cash and due from banks
44,424

 
 
 
 
 
37,050

 
 
 
 
 
33,025

 
 
 
 
Reserve for loan and lease losses
(20,219
)
 
 
 
 
 
(17,147
)
 
 
 
 
 
(20,447
)
 
 
 
 
Premises and equipment, net
64,583

 
 
 
 
 
53,036

 
 
 
 
 
40,891

 
 
 
 
Other assets
329,232

 
 
 
 
 
287,239

 
 
 
 
 
219,616

 
 
 
 
Total assets
$
4,356,540

 
 
 
 
 
$
3,496,012

 
 
 
 
 
$
2,776,283

 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking deposits
$
437,678

 
527

 
0.12

 
$
386,176

 
362

 
0.09

 
$
369,611

 
269

 
0.07

Money market savings
582,703

 
3,390

 
0.58

 
414,121

 
1,540

 
0.37

 
368,392

 
1,205

 
0.33

Regular savings
847,510

 
2,089

 
0.25

 
714,809

 
1,052

 
0.15

 
582,647

 
533

 
0.09

Time deposits
566,079

 
5,271

 
0.93

 
512,557

 
4,261

 
0.83

 
461,968

 
4,000

 
0.87

Total time and interest-bearing deposits
2,433,970

 
11,277

 
0.46

 
2,027,663

 
7,215

 
0.36

 
1,782,618

 
6,007

 
0.34

Short-term borrowings
105,552

 
904

 
0.86

 
103,238

 
748

 
0.72

 
35,932

 
35

 
0.10

Long-term debt
186,109

 
2,621

 
1.41

 
60,965

 
549

 
0.90

 

 

 

Subordinated notes
94,208

 
5,037

 
5.35

 
71,851

 
3,870

 
5.39

 
37,431

 
2,023

 
5.40

Total borrowings
385,869

 
8,562

 
2.22

 
236,054

 
5,167

 
2.19

 
73,363

 
2,058

 
2.81

Total interest-bearing liabilities
2,819,839

 
19,839

 
0.70

 
2,263,717

 
12,382

 
0.55

 
1,855,981

 
8,065

 
0.43

Noninterest-bearing deposits
973,253

 
 
 
 
 
751,592

 
 
 
 
 
517,566

 
 
 
 
Accrued expenses and other liabilities
36,361

 
 
 
 
 
43,605

 
 
 
 
 
43,011

 
 
 
 
Total liabilities
3,829,453

 
 
 
 
 
3,058,914

 
 
 
 
 
2,416,558

 
 
 
 
Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
145,564

 
 
 
 
 
127,509

 
 
 
 
 
110,271

 
 
 
 
Additional paid-in capital
235,578

 
 
 
 
 
175,609

 
 
 
 
 
120,565

 
 
 
 
Retained earnings and other equity
145,945

 
 
 
 
 
133,980

 
 
 
 
 
128,889

 
 
 
 
Total shareholders’ equity
527,087

 
 
 
 
 
437,098

 
 
 
 
 
359,725

 
 
 
 
Total liabilities and shareholders’ equity
$
4,356,540

 
 
 
 
 
$
3,496,012

 
 
 
 
 
$
2,776,283

 
 
 
 
Net interest income
 
 
$
148,814

 
 
 
 
 
$
119,696

 
 
 
 
 
$
99,211

 
 
Net interest spread
 
 
 
 
3.58

 
 
 
 
 
3.66

 
 
 
 
 
3.86

Effect of net interest-free funding sources
 
 
 
 
0.20

 
 
 
 
 
0.16

 
 
 
 
 
0.10

Net interest margin
 
 
 
 
3.78
%
 
 
 
 
 
3.82
%
 
 
 
 
 
3.96
%
Ratio of average interest-earning assets to average interest-bearing liabilities
139.67
%
 
 
 
 
 
138.53
%
 
 
 
 
 
134.87
%
 
 
 
 
Notes:     For rate calculation purposes, average loan and lease categories include deferred fees and costs, purchase accounting adjustments, and unearned discount.
Nonaccrual loans and leases have been included in the average loan and lease balances.
Loans held for sale have been included in the average loan balances.
Tax-equivalent amounts for the years ended December 31, 2017, 2016 and 2015 have been calculated using the Corporation’s federal applicable rate of 35%.

24


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, 2017 compared to 2016 and for the year ended December 31, 2016 compared to 2015, indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.
 
For the Years Ended December 31, 2017 Versus 2016
 
For the Years Ended December 31, 2016 Versus 2015
(Dollars in thousands)
Volume
Change
 
Rate
Change
 
Total
 
Volume
Change
 
Rate
Change
 
Total
Interest income:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits with other banks
$
89

 
$
130

 
$
219

 
$
(85
)
 
$
51

 
$
(34
)
U.S. government obligations
(313
)
 
87

 
(226
)
 
(829
)
 
103

 
(726
)
Obligations of states and political subdivisions
(626
)
 
(48
)
 
(674
)
 
(462
)
 
(669
)
 
(1,131
)
Other debt and equity securities
1,892

 
297

 
2,189

 
2,163

 
(728
)
 
1,435

Federal funds sold and other earning assets
611

 
99

 
710

 
314

 
(49
)
 
265

Interest on deposits, investments, federal funds sold and other earning assets
1,653

 
565

 
2,218

 
1,101

 
(1,292
)
 
(191
)
Commercial, financial and agricultural loans
8,547

 
2,767

 
11,314

 
5,149

 
(86
)
 
5,063

Real estate—commercial and construction loans
16,860

 
(926
)
 
15,934

 
13,560

 
(603
)
 
12,957

Real estate—residential loans
5,886

 
576

 
6,462

 
6,026

 
(714
)
 
5,312

Loans to individuals
(138
)
 
120

 
(18
)
 
46

 
21

 
67

Municipal loans and leases
978

 
322

 
1,300

 
2,369

 
(703
)
 
1,666

Lease financings
(43
)
 
(592
)
 
(635
)
 
326

 
(398
)
 
(72
)
Interest and fees on loans and leases
32,090

 
2,267

 
34,357

 
27,476

 
(2,483
)
 
24,993

Total interest income
33,743

 
2,832

 
36,575

 
28,577

 
(3,775
)
 
24,802

Interest expense:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking deposits
47

 
118

 
165

 
13

 
80

 
93

Money market savings
773

 
1,077

 
1,850

 
170

 
165

 
335

Regular savings
226

 
811

 
1,037

 
132

 
387

 
519

Time deposits
469

 
541

 
1,010

 
444

 
(183
)
 
261

Interest on time and interest-bearing deposits
1,515

 
2,547

 
4,062

 
759

 
449

 
1,208

Short-term borrowings
16

 
140

 
156

 
165

 
548

 
713

Long-term debt
1,624

 
448

 
2,072

 
549

 

 
549

Subordinated notes
1,196

 
(29
)
 
1,167

 
1,851

 
(4
)
 
1,847

Interest on borrowings
2,836

 
559

 
3,395

 
2,565

 
544

 
3,109

Total interest expense
4,351

 
3,106

 
7,457

 
3,324

 
993

 
4,317

Net interest income
$
29,392

 
$
(274
)
 
$
29,118

 
$
25,253

 
$
(4,768
)
 
$
20,485






25


Interest Income

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

2016 versus 2015
Interest income on a tax-equivalent basis for the year ended December 31, 2016 was $132.1 million, an increase of $24.8 million from 2015. The increase was mainly due to the impact of the Fox Chase acquisition. The favorable impact of acquisition accounting fair value adjustments on interest-earning assets was five basis points for 2016. In addition, the positive benefit of interest income due to loan growth in commercial business, commercial real estate and residential real estate loans was partially offset by decreases in loan interest rates due to re-pricing and the competitive environment.

Interest Expense

2017 versus 2016
Interest expense for the year ended December 31, 2017 was $19.8 million, an increase of $7.5 million, or 60.2%, from 2016 compared to $12.4 million for 2016. The increase was primarily due to the impact of the Fox Chase acquisition, organic deposit growth and higher deposit costs. Deposits costs were impacted by the Federal Reserve interest rate increases in the fourth quarter of 2016 and 2017. The favorable impact of acquisition accounting fair value adjustments on interest-bearing liabilities was eight basis points for 2017 ($2.1 million) compared to a favorable impact of six basis points ($1.4 million) for 2016.

2016 versus 2015
Interest expense for the year ended December 31, 2016 was $12.4 million, an increase of $4.3 million, compared to $8.1 million for 2015. The increase was primarily due to the impact of the Fox Chase acquisition and increased borrowings during the year. The favorable impact of acquisition accounting fair value adjustments on interest-bearing liabilities was six basis points for 2016. The increase in interest expense was also due to the subordinated debt issuance in July 2016 which increased funding costs by four basis points for 2016 compared to 2015.
Provision for Loan and Lease Losses
The provision for loan and leases losses for the years ended December 31, 2017, 2016, and 2015 was $9.9 million, $4.8 million, and $3.8 million, respectively. Net loan and lease charge-offs for the years ended December 31, 2017, 2016, and 2015 were $5.8 million, $5.0 million and $6.8 million, respectively. The provision for loan and lease losses increased in 2017 due to the increased charge-offs and an increase in originated loans in the amount of $690.5 million at December 31, 2017 from December 31, 2016. During 2017, the Corporation charged-off $2.8 million and recognized $2.8 million in provision for loan and lease losses related to $5.0 million of software leases under a vendor referral program.










26


Noninterest Income
The following table presents noninterest income for the years ended December 31, 2017, 2016 and 2015:
 
For the Years Ended December 31,
 
$ Change
 
% Change
(Dollars in thousands)
2017
 
2016
 
2015
 
2017 to 2016
 
2016 to 2015
 
2017 to 2016
 
2016 to 2015
Trust fee income
$
8,055

 
$
7,741

 
$
7,908

 
$
314

 
$
(167
)
 
4.1
 %
 
(2.1
)%
Service charges on deposit accounts
5,482

 
4,691

 
4,230

 
791

 
461

 
16.9

 
10.9

Investment advisory commission and fee income
13,454

 
11,424

 
10,817

 
2,030

 
607

 
17.8

 
5.6

Insurance commission and fee income
14,788

 
14,603

 
13,885

 
185

 
718

 
1.3

 
5.2

Other service fee income
8,656

 
7,836

 
7,335

 
820

 
501

 
10.5

 
6.8

Bank owned life insurance income
3,988

 
2,931

 
1,295

 
1,057

 
1,636

 
36.1

 
N/M

Net gain on sales of investment securities
48

 
518

 
1,265

 
(470
)
 
(747
)
 
(90.7
)
 
(59.1
)
Net gain on mortgage banking activities
4,023

 
6,027

 
4,838

 
(2,004
)
 
1,189

 
(33.3
)
 
24.6

Other income
746

 
192

 
852

 
554

 
(660
)
 
N/M

 
(77.5
)
Total noninterest income
$
59,240

 
$
55,963

 
$
52,425

 
$
3,277

 
$
3,538

 
5.9
 %
 
6.7
 %

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

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

2016 versus 2015     
Noninterest income for the year ended December 31, 2016 was $56.0 million, an increase of $3.5 million, or 6.7%, compared to 2015. Service charges on deposits increased $461 thousand, or 10.9%, for the year ended December 31, 2016 mostly due to fees on deposit accounts acquired from Fox Chase. Investment advisory commission and fee income increased $607 thousand, or 5.6%, for the year ended December 31, 2016 due to an increase in assets under management during 2016. This increase was primarily due to a combination of both increased new customer relationships and improvement in market performance during the second half of 2016. Insurance commission and fee income increased $718 thousand, or 5.2%, for the year ended December 31, 2016, primarily due to an increase in contingent commission income and growth in the group life and health and commercial product lines premiums. BOLI income increased $1.6 million for the year ended December 31, 2016 primarily due to proceeds from bank owned life insurance death benefits of $450 thousand recognized in the fourth quarter of 2016, acquired policies from Fox Chase of $26.1 million, and the 2015 purchase of $8.0 million and transfer of $9.8 million of policies to a higher yielding account structure. The net gain on mortgage banking increased $1.2 million, or 24.6%, for the year ended December 31, 2016, mainly due to an increase in mortgage origination volume during 2016. Mortgage loan closings increased $48.7 million, or 23.3%, for the year ended December 31, 2016 compared to the same period in 2015. These favorable increases were partially offset by a decline in the net gain on sales of investment securities for the year ended December 31, 2016 of $747 thousand compared to 2015.


27


Noninterest Expense
The following table presents noninterest expense for the years ended December 31, 2017, 2016 and 2015:
 
For the Years Ended December 31,
 
$ Change
 
% Change
(Dollars in thousands)
2017
 
2016
 
2015
 
2017 to 2016
 
2016 to 2015
 
2017 to 2016
 
2016 to 2015
Salaries, benefits and commissions
$
75,908

 
$
70,879

 
$
58,106

 
$
5,029

 
$
12,773

 
7.1
 %
 
22.0
 %
Net occupancy
10,433

 
9,638

 
8,430

 
795

 
1,208

 
8.2

 
14.3

Equipment
4,118

 
3,489

 
3,159

 
629

 
330

 
18.0

 
10.4

Data processing
8,500

 
6,981

 
4,660

 
1,519

 
2,321

 
21.8

 
49.8

Professional fees
5,325

 
4,547

 
3,839

 
778

 
708

 
17.1

 
18.4

Marketing and advertising
1,485

 
2,015

 
2,253

 
(530
)
 
(238
)
 
(26.3
)
 
(10.6
)
Deposit insurance premiums
1,636

 
1,713

 
1,730

 
(77
)
 
(17
)
 
(4.5
)
 
(1.0
)
Intangible expenses
2,582

 
5,528

 
2,567

 
(2,946
)
 
2,961

 
(53.3
)
 
N/M

Acquisition-related costs

 
10,257

 
1,047

 
(10,257
)
 
9,210

 
N/M

 
N/M

Integration costs

 
5,667

 
1,490

 
(5,667
)
 
4,177

 
N/M

 
N/M

Restructuring charges

 
1,731

 
1,642

 
(1,731
)
 
89

 
N/M

 
5.4

Other expense
20,726

 
19,536

 
16,592

 
1,190

 
2,944

 
6.1

 
17.7

Total noninterest expense
$
130,713

 
$
141,981

 
$
105,515

 
$
(11,268
)
 
$
36,466

 
(7.9
)%
 
34.6
 %
2017 versus 2016

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

These decreases were partially offset by the following increases in non-interest expense for the year ended December 31, 2017. Salaries, benefits and commissions increased $5.0 million for the year ended December 31, 2017, primarily attributable to higher staffing levels resulting from the Fox Chase acquisition, additional staff hired to support revenue generation across all business lines and the expansion into Lancaster County. Premises and equipment expenses increased $1.4 million for the year ended December 31, 2017, primarily due to higher premises expense related to Fox Chase locations and continued expansion into Philadelphia, Lancaster County and the Lehigh Valley. Data processing expense increased $1.5 million for the year ended December 31, 2017 due to increased investments in customer relationship management software and outsourced data processing solutions as well as the addition of Fox Chase processing expense. Other expense increased $1.2 million for the year ended December 31, 2017 primarily due to an increase of $1.1 million related to Bank shares tax as a result of a statutory rate increase in 2017 and the Bank’s growth following the Fox Chase acquisition.

2016 versus 2015

Noninterest expense for the year ended December 31, 2016 was $142.0 million, an increase of $36.5 million, or 34.6%, compared to 2015. Acquisition and integration costs related to the Fox Chase acquisition and restructuring costs related to facility closures and staffing rationalization totaled $17.7 million for the year ended December 31, 2016. Acquisition, integration and restructuring costs related to the Fox Chase acquisition, the Valley Green acquisition and new financial center model were $4.2 million for the year ended December 31, 2015.

Salaries, benefits and commissions expense increased $12.8 million for the year ended December 31, 2016, primarily attributable to higher staffing levels resulting from the Fox Chase acquisition, additional staff hired to support revenue generation across all business lines and the expansion into Lancaster County. Included in salaries and benefits expense for the fourth quarter of 2016 is the cost of a pension settlement of $1.4 million as the Corporation offered lump sum payouts to former employees in its noncontributory retirement plan. This amount was recorded as a reclassification with the accumulated other comprehensive income component of equity and had no impact on the Corporation’s reported equity. This pension distribution was partially offset by the Corporation’s modification of its paid time off policy which resulted in a non-cash reduction in expense of $1.3 million during the fourth quarter of 2016. Commission expense increased $1.3 million primarily due to commissions paid on increased mortgage banking activities, investment advisory fees and insurance revenues. Premises and equipment expenses increased $1.5 million for

28


the year ended December 31, 2016, primarily due to higher premises expense related to Fox Chase locations and expansion into Philadelphia, Lancaster County and the Lehigh Valley. Data processing expense increased $2.3 million for the year ended December 31, 2016 due to increased investments in computer software as well as six months of Fox Chase processing expense. Intangible expenses increased $3.0 million for the year ended December 31, 2016 as the Corporation reached an agreement to settle its future obligation related to its acquisition of Girard Partners during the fourth quarter of 2016.

Tax Provision
The provision for income taxes was $17.7 million, $3.9 million and $9.8 million for the years ended December 31, 2017, 2016, and 2015, respectively, at effective rates of 28.7%, 16.6%, and 26.4%, respectively. The effective tax rates reflect the excess tax benefits from equity compensation activity and the benefits of tax-exempt income from investments in municipal securities, loans and leases and bank-owned life insurance partially offset by non-deductible merger expenses.
The effective tax rate for 2017 was impacted by the Tax Cuts and Jobs Act due to the re-measurement of the Corporation's net deferred tax asset. The re-measurement adjustment of the net deferred tax asset was recorded as additional income tax expense of $1.1 million in the fourth quarter of 2017. In addition, the Corporation recognized a BOLI death benefit of $889 thousand in the second quarter of 2017 and a discrete tax benefit related to the vesting of restricted stock and exercise of stock options of $684 thousand for 2017 which provided a tax deduction greater than previously recorded. This change was in accordance with ASU No. 2016-09, which was implemented by the Corporation in the fourth quarter of 2016 and requires the impact of such equity-based compensation activities to be recorded as an adjustment to the income tax provision in the period incurred, rather than an adjustment to equity. Excluding these items, the effective tax rate was 28.5% for the year ended December 31, 2017.
The decrease in the effective tax rate in 2016 from the prior year is mainly due to reduction in taxable income (primarily due to taxable acquisition-related, integration and restructuring expenses of $16.9 million).
Financial Condition
ASSETS
The following table presents assets at the dates indicated:
 
At December 31,
(Dollars in thousands)
2017
 
2016
 
$ Change
 
% Change
Cash and interest-earning deposits
$
75,409

 
$
57,825

 
$
17,584

 
30.4
 %
Investment securities
454,082

 
468,518

 
(14,436
)
 
(3.1
)
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost
27,204

 
24,869

 
2,335

 
9.4

Loans held for sale
1,642

 
5,890

 
(4,248
)
 
(72.1
)
Loans and leases held for investment
3,620,067

 
3,285,886

 
334,181

 
10.2

Reserve for loan and lease losses
(21,555
)
 
(17,499
)
 
(4,056
)
 
23.2

Premises and equipment, net
61,797

 
63,638

 
(1,841
)
 
(2.9
)
Goodwill and other intangibles, net
186,468

 
189,210

 
(2,742
)
 
(1.4
)
Bank owned life insurance
108,246

 
99,948

 
8,298

 
8.3

Accrued interest receivable and other assets
41,502

 
52,243

 
(10,741
)
 
(20.6
)
Total assets
$
4,554,862

 
$
4,230,528

 
$
324,334

 
7.7
 %


Investment Securities

Total investment securities at December 31, 2017 decreased $14.4 million from December 31, 2016. Maturities and pay-downs of $103.4 million, calls of $14.8 million and sales of $7.1 million were partially offset by purchases of $112.6 million, and increases in the fair value of available-for-sale investment securities of $1.4 million.

29


Table 3—Investment Securities
The following table shows the carrying amount of investment securities at the dates indicated. Held-to-maturity and available-for-sale portfolios are combined.
 
At December 31,
(Dollars in thousands)
2017
 
2016
 
2015
U.S. treasuries
$

 
$

 
$
4,887

U.S. government corporations and agencies
23,956

 
32,266

 
102,156

State and political subdivisions
78,297

 
88,350

 
102,032

Residential mortgage-backed securities
233,990

 
203,641

 
13,354

Collateralized mortgage obligations
3,602

 
4,554

 
3,133

Corporate bonds
107,176

 
128,008

 
127,665

Money market mutual funds
5,985

 
10,784

 
16,726

Equity securities
1,076

 
915

 
807

Total investment securities
$
454,082

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