UNIVEST FINANCIAL CORP Management’s Report of Financial Condition and Results of Operations (Form 10-Q)

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

Forward-looking statements

The information contained in this report may contain forward-looking statements.
When used or incorporated by reference in disclosure documents, the words
"believe" "anticipate," "estimate," "expect," "project," "target," "goal" and
similar expressions are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements may include
but are not limited to: statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating
strategies; statements regarding the quality of our loan and investment
portfolios; and estimates of our risks and future costs and benefits. These
forward-looking statements are based on current beliefs and expectations of our
management and are subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control. In
addition, these forward-looking statements are subject to certain risks,
uncertainties and assumptions, including but not limited to those set forth
below:

•Operating, legal and regulatory risks;
•Economic, political and competitive forces;
•Legislative, regulatory and accounting changes;
•Demand for our financial products and services in our market area;
•Major catastrophes such as earthquakes, floods or other natural or human
disasters and infectious disease outbreaks, including the current coronavirus
(COVID-19) pandemic, the related disruption to local, regional and global
economic activity and financial markets, and the impact that any of the
foregoing may have on us and our customers and other constituencies;
•Inflation or volatility in interest rates;
•Fluctuations in real estate values in our market area;
•The composition and credit quality of our loan and investment portfolios;
•Changes in the level and direction of loan delinquencies, classified and
criticized loans and charge-offs and changes in estimates of the adequacy of the
allowance for credit losses;
•Changes in the economic assumptions utilized to calculate the allowance for
credit losses;
•Our ability to access cost-effective funding;
•Our ability to implement our business strategies;
•Our ability to manage market risk, credit risk and operational risk;
•Timing and amount of revenue and expenditures;
•Adverse changes in the securities markets;
•The anticipated impact of any military conflict, terrorist act or other
geopolitical acts;
•Our ability to enter new markets successfully and capitalize on growth
opportunities;
•Competition for loans, deposits and employees;
•System failures or cyber-security breaches of our information technology
infrastructure and those of our third-party service providers;
•The failure to maintain current technologies and/or to successfully implement
future information technology enhancements;
•Our ability to retain key employees;
•Other risks and uncertainties, including those occurring in the U.S. and world
financial systems; and
•The risk that our analysis of these risks and forces could be incorrect and/or
that the strategies developed to address them could be unsuccessful.

Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, expected or projected. These and other risk
factors are more fully described in this report and in the Univest Financial
Corporation Annual Report on Form 10-K for the year ended December 31, 2021
under the section entitled "Item 1A - Risk Factors," and from time to time in
other filings made by the Corporation with the SEC.

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

Management, in order to prepare the Corporation's financial statements in
conformity with U.S. generally accepted accounting principles, is required to
make estimates and assumptions that affect the amounts reported in the
Corporation's financial statements. There are uncertainties inherent in making
these estimates and assumptions. Certain critical accounting policies could
materially affect the results of operations and financial position of the
Corporation should changes in circumstances require a change in related
estimates or assumptions. The Corporation has identified the fair value
measurement of investment securities available-for-sale and the calculation of
the allowance for credit losses on loans and leases as critical accounting
policies. For more information on these critical accounting policies, please
refer to the Corporation's 2021 Annual Report on Form 10-K.

General

The Corporation is a Pennsylvania corporation, organized in 1973 and registered
as a bank holding company pursuant to the Bank Holding Company Act of 1956. The
Corporation owns all of the capital stock of Univest Bank and Trust Co. The
consolidated financial statements include the accounts of the Corporation, the
Bank and its subsidiaries.

The Bank is engaged in domestic banking services for individuals, businesses,
municipalities and non-profit organizations. Through its wholly-owned
subsidiaries, the Bank provides a variety of financial services throughout its
markets of operation. The Bank is the parent company of Girard Investment
Services, LLC, a full-service registered introducing broker-dealer and a
licensed insurance agency, Girard Advisory Services, LLC, a registered
investment advisory firm, and Girard Pension Services, LLC, a registered
investment advisor, which provides investment consulting and management services
to municipal entities. The Bank is also the parent company of Univest Insurance,
LLC, an independent insurance agency and Univest Capital, Inc., an equipment
financing business.

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

Executive Overview

The Company’s consolidated net earnings, earnings per share and return on average assets and average shareholders’ equity are as follows:

                                     Three Months Ended                                                         Six Months Ended
                                          June 30,                              Change                              June 30,                               Change
(Dollars in thousands, except
per share data)                    2022              2021             Amount             Percent             2022              2021              Amount             Percent
Net income                      $ 13,166          $ 20,875          $ (7,709)              (36.9) %       $ 33,483          $ 53,478          $ (19,995)              (37.4) %
Net income per share:
Basic                           $   0.45          $   0.71          $  (0.26)              (36.6)         $   1.14          $   1.82          $   (0.68)              (37.4)
Diluted                             0.45              0.71             (0.26)              (36.6)             1.13              1.81              (0.68)              (37.6)
Return on average assets            0.76  %           1.30  %           (54 BP)            (41.5)             0.96  %           1.68  %            (72 BP)            (42.9)
Return on average equity            6.85  %          11.49  %          (464 BP)            (40.4)             8.74  %          15.10  %           (636 BP)            (42.1)



The Corporation reported net income of $13.2 million, or $0.45 diluted earnings
per share, for the three months ended June 30, 2022, compared to net income of
$20.9 million, or $0.71 diluted earnings per share, for the three months ended
June 30, 2021. Net income for the six months ended June 30, 2022 was $33.5
million, or $1.13 diluted earnings per share, compared to net income of $53.5
million, or $1.81 diluted earnings per share, for the six months ended June 30,
2021.

During the three months ended June 30, 2022, the Corporation recorded a
provision for credit losses of $6.7 million primarily driven by a $5.5 million
increase (after-tax charge of $4.3 million), or $0.15 diluted earnings per
share, in reserves due to loan growth, a specific reserve of $1.1 million
related to a commercial real estate loan that was placed on nonaccrual status
during the quarter and an incremental provision of $736 thousand related to an
existing nonaccrual commercial real-estate loan. During the three months ended
June 30, 2021, the Corporation recorded a reversal of provision for credit
losses of $59 thousand driven by a $2.7 million increase (after-tax charge of
$2.1 million), or $0.07 diluted earnings per share, in reserves due to loan
growth outpaced by favorable changes in economic-related assumptions within the
Corporation's CECL model.
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During the six months ended June 30, 2022, the Corporation recorded a provision
for credit losses of $3.2 million primarily driven by a $6.8 million increase
(after-tax charge of $5.4 million), or $0.18 diluted earnings per share, in
reserves due to loan growth and specific reserves of $2.8 million on two
nonaccrual commercial real estate properties. These increases were partially
offset by $7.3 million (after-tax benefit of $5.8 million), or $0.19 diluted
earnings per share, of changes in economic-related assumptions within the
Corporation's CECL model. Additionally, reserves on unfunded commitments and
investment securities increased $990 thousand during the six months ended June
30, 2022. During the six months ended June 30, 2021, the Corporation recorded a
reversal of provision for credit losses of $11.3 million, of which $15.8 million
(after-tax benefit of $12.5 million), or $0.42 diluted earnings per share, was
attributable to favorable changes in economic-related assumptions within the
Corporation's CECL model, partially offset by a reserve increase attributable to
loan growth.

Results of Operations


Net Interest Income

Net interest income is the difference between interest earned on loans and
leases and investment securities and interest paid on deposits and borrowings.
Net interest income is the principal source of the Corporation's revenue. Table
1 presents the Corporation's average balances, tax-equivalent interest income,
interest expense, tax-equivalent yields earned on average assets, cost of
average liabilities, and shareholders' equity on a tax-equivalent basis for the
three and six months ended June 30, 2022 and 2021. The tax-equivalent net
interest margin is tax-equivalent net interest income as a percentage of average
interest-earning assets. The tax-equivalent net interest spread represents the
weighted average tax-equivalent yield on interest-earning assets less the
weighted average cost of interest-bearing liabilities. The effect of net
interest-free funding sources represents the effect on the net interest margin
of net funding provided by noninterest-earning assets, noninterest-bearing
liabilities and shareholders' equity. Table 2 analyzes the changes in the
tax-equivalent net interest income for the periods broken down by their rate and
volume components.

Three and six months ended June 30, 2022 compared to 2021

Net interest income on a tax-equivalent basis for the three months ended June
30, 2022 was $52.0 million, an increase of $4.7 million, or 9.9%, compared to
$47.3 million for the three months ended June 30, 2021. The increase in
tax-equivalent net interest income for the three months ended June 30, 2022
compared to the comparable period in the prior year was due to an increase in
the average balance of loans and investments, increased asset yields and a
decrease in the cost of interest-bearing liabilities, partially offset by an
increase in the average balance of interest-bearing liabilities and a decrease
in PPP loan income.

Net interest income on a tax-equivalent basis for the six months ended June 30,
2022 was $99.1 million, an increase of $5.9 million, or 6.3%, compared to the
same period in 2021. The increase in tax-equivalent net interest income for the
six months ended June 30, 2022 compared to the comparable period in the prior
year was due to loan and investment average balance growth outpacing declines in
asset yields and a decrease in the cost of interest-bearing liabilities, offset
by an increase in the average balance of interest-bearing liabilities and a
decrease in PPP loan income.

The net interest margin, on a tax-equivalent basis, was 3.19% and 3.04% for the
three and six months ended June 30, 2022, respectively, compared to 3.15% and
3.14% for the three and six months ended June 30, 2021, respectively. Excess
liquidity reduced the net interest margin by approximately 23 and 28 basis
points for the three and six months ended June 30, 2022, respectively, compared
to ten basis points for the three and six months ended June 30, 2021. During the
quarter ended June 30, 2022, excess liquidity diminished and we returned to a
pre-pandemic liquidity level at the end of the quarter. PPP loans had a
favorable impact on net interest margin of one and two basis points for the
three and six months ended June 30, 2022, respectively, compared to a favorable
impact on net interest margin of eleven and seven basis points for the three and
six months ended June 30, 2021, respectively.

During the second quarter, the Bank entered into a four-year $250 million
interest rate swap (representing approximately 13% of the Bank's variable rate
loans), whereby the Bank receives a fixed rate of 5.99% and pays a variable rate
equal to the Prime Rate. During the second quarter of 2022, the swap contributed
$707 thousand to net interest income and four basis points to net interest
margin.

Excluding the impact of excess liquidity and PPP loans, the net interest margin,
on a tax-equivalent basis, was 3.41% and 3.30% for the three and six months
ended June 30, 2022, respectively, compared to 3.14% and 3.17% for the three and
six months ended June 30, 2021, respectively.
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Table 1-Average Balances and Interest Rates – Tax Equivalent

                                                                                        Three Months Ended June 30,
                                                                     2022                                                        2021
                                                Average             Income/            Average              Average             Income/            Average
(Dollars in thousands)                          Balance             Expense              Rate               Balance             Expense              Rate
Assets:

Remunerated deposits with other banks $474,260 $824

               0.70  %       $   215,349          $     46                 0.09  %
U.S. government obligations                        2,000                11                 2.21                6,999                35                 2.01
Obligations of states and political
subdivisions*                                      2,302                17                 2.96                6,070                58                 

3.83

Other debt and equity securities                 511,439             2,727                 2.14              372,625             1,364                 

1.47

Federal Home Loan Bank, Federal Reserve Bank
and other stock                                   26,221               344                 5.26               25,872               360                 

5.58

Total interest-earning deposits, investments
and other interest-earning assets              1,016,222             3,923                 1.55              626,915             1,863                 

1.19

Commercial, financial and agricultural loans     937,846             9,037                 3.86              826,464             6,910                 

3.35

Paycheck Protection Program loans                  7,644               155                 8.13              408,928             4,778                 

4.69

Real estate-commercial and construction
loans                                          3,004,509            28,527                 3.81            2,701,137            24,931                 3.70
Real estate-residential loans                  1,166,201            10,758                 3.70            1,065,065             9,836                 3.70
Loans to individuals                              26,782               305                 4.57               25,284               251                 3.98
Municipal loans and leases*                      235,922             2,404                 4.09              251,311             2,598                 4.15
Lease financings                                 141,676             2,105                 5.96              110,921             1,819                 6.58
Gross loans and leases                         5,520,580            53,291                 3.87            5,389,110            51,123                 3.80
Total interest-earning assets                  6,536,802            57,214                 3.51            6,016,025            52,986                 3.53
Cash and due from banks                           55,634                                                      52,948
Allowance for credit losses, loans and
leases                                           (68,426)                                                    (73,052)
Premises and equipment, net                       50,266                                                      55,903
Operating lease right-of-use assets               30,222                                                      33,992
Other assets                                     357,903                                                     357,813
Total assets                                 $ 6,962,401                                                 $ 6,443,629
Liabilities:
Interest-bearing checking deposits           $   851,324               570                 0.27          $   786,931          $    487                 0.25
Money market savings                           1,405,536             1,552                 0.44            1,219,375               831                 0.27
Regular savings                                1,070,480               237                 0.09              978,807               282                 0.12
Time deposits                                    452,989             1,227                 1.09              485,060             1,559                 1.29
   Total time and interest-bearing deposits    3,780,329             3,586                 0.38            3,470,173             3,159                 0.37
Short-term borrowings                             17,253                11                 0.26               19,109                 3                 0.06
Long-term debt                                    95,000               321                 1.36               95,000               321                 1.36
Subordinated notes                                98,988             1,328                 5.38              172,016             2,201                 5.13
Total borrowings                                 211,241             1,660                 3.15              286,125             2,525                 3.54
Total interest-bearing liabilities             3,991,570             5,246                 0.53            3,756,298             5,684                 0.61
Noninterest-bearing deposits                   2,122,844                                                   1,880,916
Operating lease liabilities                       33,300                                                      37,426
Accrued expenses and other liabilities            43,277                                                      40,239
Total liabilities                              6,190,991                                                   5,714,879
Shareholders' Equity:
Common stock                                     157,784                                                     157,784
Additional paid-in capital                       298,241                                                     296,599
Retained earnings and other equity               315,385                                                     274,367
Total shareholders' equity                       771,410                                                     728,750
Total liabilities and shareholders' equity   $ 6,962,401                                                 $ 6,443,629
Net interest income                                               $ 51,968                                                    $ 47,302
Net interest spread                                                                        2.98                                                        2.92
Effect of net interest-free funding sources                                                0.21                                                        0.23
Net interest margin                                                                        3.19  %                                                     3.15  %
Ratio of average interest-earning assets to
average interest-bearing liabilities              163.77  %                                                   160.16  %


*Obligations of states and political subdivisions and municipal loans and leases
are tax-exempt earning assets.
Notes: For rate calculation purposes, average loan and lease categories include
deferred fees and costs and purchase accounting adjustments.
Net interest income includes net deferred (costs) fees of $(618) thousand and
$2.7 million for the three months ended June 30, 2022 and 2021, respectively.
Nonaccrual loans and leases have been included in the average loan and lease
balances. Loans held for sale have been included in the average loan balances.
Tax-equivalent amounts for the three months ended June 30, 2022 and 2021 have
been calculated using the Corporation's federal applicable rate of 21%.
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                                                                                         Six Months Ended June 30,
                                                                     2022                                                        2021
                                                Average             Income/            Average              Average             Income/            Average
(Dollars in thousands)                          Balance             Expense              Rate               Balance             Expense              Rate
Assets:

Remunerated deposits with other banks $603,002 $1,181

               0.39  %       $   226,387          $    102                 0.09  %
U.S. government obligations                        3,602                37                 2.07                6,999                71                 2.05
Obligations of states and political
subdivisions*                                      2,317                36                 3.13                8,792               163                 

3.74

Other debt and equity securities                 512,998             5,066                 1.99              364,272             2,631                 

1.46

Federal Home Loan Bank, Federal Reserve Bank
and other stock                                   26,665               699                 5.29               26,119               708                 

5.47

Total interest-earning deposits, investments
and other interest-earning assets              1,148,584             7,019                 1.23              632,569             3,675                 

1.17

Commercial, financial and agricultural loans     919,801            16,608                 3.64              804,458            13,708                 

3.44

Paycheck Protection Program loans                 12,994               746                11.58              457,663             9,302                 

4.10

Real estate-commercial and construction
loans                                          2,954,831            54,347                 3.71            2,661,778            49,389                 3.74
Real estate-residential loans                  1,141,416            20,640                 3.65            1,051,110            19,709                 3.78
Loans to individuals                              26,293               543                 4.16               25,862               516                 4.02
Municipal loans and leases*                      239,197             4,838                 4.08              248,490             5,128                 4.16
Lease financings                                 138,593             4,180                 6.08              108,317             3,556                 6.62
Gross loans and leases                         5,433,125           101,902                 3.78            5,357,678           101,308                 3.81
Total interest-earning assets                  6,581,709           108,921                 3.34            5,990,247           104,983                 3.53
Cash and due from banks                           54,671                                                      54,123
Allowance for credit losses, loans and
leases                                           (70,237)                                                    (78,125)
Premises and equipment, net                       52,097                                                      55,865
Operating lease right-of-use assets               30,308                                                      34,013
Other assets                                     356,406                                                     357,589
Total assets                                 $ 7,004,954                                                 $ 6,413,712
Liabilities:
Interest-bearing checking deposits               866,310             1,013                 0.24          $   802,350          $    977                 0.25
Money market savings                           1,473,680             2,456                 0.34            1,231,457             1,684                 0.28
Regular savings                                1,046,150               475                 0.09              969,073               580                 0.12
Time deposits                                    463,232             2,533                 1.10              505,318             3,318                 1.32
   Total time and interest-bearing deposits    3,849,372             6,477                 0.34            3,508,198             6,559                 0.38
Short-term borrowings                             17,443                13                 0.15               18,506                 5                 0.05
Long-term debt                                    95,000               638                 1.35               98,149               669                 1.37
Subordinated notes                                98,950             2,656                 5.41              177,647             4,494                 5.10
Total borrowings                                 211,393             3,307                 3.15              294,302             5,168                 3.54
Total interest-bearing liabilities             4,060,765             9,784                 0.49            3,802,500            11,727                 0.62
Noninterest-bearing deposits                   2,094,397                                                   1,815,572
Operating lease liabilities                       33,375                                                      37,419
Accrued expenses and other liabilities            43,541                                                      43,897
Total liabilities                              6,232,078                                                   5,699,388
Shareholders' Equity:
Common stock                                     157,784                                                     157,784
Additional paid-in capital                       298,606                                                     296,369
Retained earnings and other equity               316,486                                                     260,171
Total shareholders' equity                       772,876                                                     714,324
Total liabilities and shareholders' equity   $ 7,004,954                                                 $ 6,413,712
Net interest income                                               $ 99,137                                                    $ 93,256
Net interest spread                                                                        2.85                                                        2.91
Effect of net interest-free funding sources                                                0.19                                                        0.23
Net interest margin                                                                        3.04  %                                                     3.14  %
Ratio of average interest-earning assets to
average interest-bearing liabilities              162.08  %                                                   157.53  %


*Obligations of states and political subdivisions and municipal loans and leases
are tax-exempt earning assets.
Notes: For rate calculation purposes, average loan and lease categories include
deferred fees and costs and purchase accounting adjustments.
Net interest income includes net deferred (costs) fees of $(754) thousand and
$5.0 million for the six months ended June 30, 2022 and 2021, respectively.
Nonaccrual loans and leases have been included in the average loan and lease
balances. Loans held for sale have been included in the average loan balances.
Tax-equivalent amounts for the six months ended June 30, 2022 and 2021 have been
calculated using the Corporation's federal applicable rate of 21%.
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Table 2-Analysis of changes in net interest income

The rate-volume variance analysis set forth in the table below compares changes
in tax-equivalent net interest income for the periods indicated by their rate
and volume components. The change in interest income/expense due to both volume
and rate has been allocated proportionately.
                                                                 Three Months Ended                                        Six Months Ended
                                                              June 30, 2022 Versus 2021                                June 30, 2022 Versus 2021
                                                      Volume                Rate                               Volume               Rate
(Dollars in thousands)                                Change               Change           Total              Change              Change           Total
Interest income:
Interest-earning deposits with other banks             117                   661          $   778                 359                720          $ 1,079
U.S. government obligations                            (27)                    3              (24)                (35)                 1              (34)
Obligations of states and political subdivisions       (30)                  (11)             (41)               (104)               (23)            

(127)

Other debt and equity securities                       613                   750            1,363               1,289              1,146            

2,435

Federal Home Loan Bank, Federal Reserve Bank and
other stock                                              5                   (21)             (16)                 15                (24)              

(9)

Interest on deposits, investments and other
earning assets                                         678                 1,382            2,060               1,524              1,820            

3,344

Commercial, financial and agricultural loans           999                 1,128            2,127               2,063                837            

2,900

Paycheck Protection Program loans                   (6,659)                2,036           (4,623)            (14,772)             6,216           

(8,556)

Real estate-commercial and construction loans        2,843                   753            3,596               5,360               (402)           

4,958

Real estate-residential loans                          922                     -              922               1,633               (702)             931
Loans to individuals                                    16                    38               54                   9                 18               27
Municipal loans and leases                            (157)                  (37)            (194)               (191)               (99)            (290)
Lease financings                                       469                  (183)             286                 932               (308)             624
Interest and fees on loans and leases               (1,567)                3,735            2,168              (4,966)             5,560              594
Total interest income                                 (889)                5,117            4,228              (3,442)             7,380            3,938
Interest expense:
Interest-bearing checking deposits                      42                    41               83                  77                (41)              36
Money market savings                                   140                   581              721                 370                402              772
Regular savings                                         27                   (72)             (45)                 44               (149)            (105)
Time deposits                                          (99)                 (233)            (332)               (261)              (524)            (785)
   Total time and interest-bearing deposits            110                   317              427                 230               (312)             (82)
Short-term borrowings                                    -                     8                8                   -                  8                8
Long-term debt                                           -                     -                -                 (21)               (10)             (31)
Subordinated notes                                    (975)                  102             (873)             (2,096)               258           (1,838)
Interest on borrowings                                (975)                  110             (865)             (2,117)               256           (1,861)
Total interest expense                                (865)                  427             (438)             (1,887)               (56)          (1,943)
Net interest income                              $     (24)              $ 4,690          $ 4,666          $   (1,555)           $ 7,436          $ 5,881



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Provision for credit losses

The provision for credit losses for the three months ended June 30, 2022 was
$6.7 million, primarily driven by a $5.5 million increase (after-tax charge of
$4.3 million) in reserves due to loan growth, a specific reserve of $1.1 million
related to a commercial real estate loan that was placed on nonaccrual status
during the quarter and an incremental provision of $736 thousand related to an
existing nonaccrual commercial real estate loan. The reversal of provision for
credit losses for the three months ended June 30, 2021 was $59 thousand driven
by a $2.7 million increase (after-tax charge of $2.1 million) in reserves due to
loan growth outpaced by favorable changes in economic-related assumptions within
the Corporation's CECL model.

The provision for credit losses for the six months ended June 30, 2022 was $3.2
million primarily driven by a $6.8 million increase (after-tax charge of $5.4
million) in reserves due to loan growth and specific reserves of $2.8 million on
two nonaccrual commercial real estate properties. These increases were partially
offset by $7.3 million (after-tax benefit of $5.8 million) of changes in
economic-related assumptions within the Corporation's CECL model. Additionally,
reserves on unfunded commitments and investment securities increased $990
thousand during the six months ended June 30, 2022. The reversal of the
provision for credit losses for the six months ended June 30, 2021 was $11.3
million, of which $15.8 million (after-tax benefit of $12.5 million) was
attributable to favorable changes in economic-related assumptions within the
Corporation's CECL model, partially offset by a reserve increase attributable to
loan growth.

Noninterest Income

The following table shows non-interest income for the quarters and six months ended June 30, 2022 and 2021:

                                      Three Months Ended                                                           Six Months Ended
                                           June 30,                                Change                              June 30,                               Change
(Dollars in thousands)              2022               2021             Amount             Percent              2022              2021             Amount             Percent
Trust fee income                $    1,998          $  2,157          $   (159)               (7.4  %)       $  4,100          $  4,191          $    (91)               (2.2  %)
Service charges on deposit
accounts                             1,574             1,314               260                19.8              3,078             2,596               482                18.6
Investment advisory commission
and fee income                       4,812             4,558               254                 5.6              9,964             9,255               709                 7.7
Insurance commission and fee
income                               4,629             3,839               790                20.6             10,199             8,794             1,405                16.0
Other service fee income             3,309             2,748               561                20.4              6,065             4,940             1,125                22.8
Bank owned life insurance
income                                 705             1,620              (915)              (56.5)             1,404             2,337              (933)              (39.9)
Net gain on sales of investment
securities                               -                54               (54)                    N/M             30               119               (89)              (74.8)
Net gain on mortgage banking
activities                           1,230             3,461            (2,231)              (64.5)             3,159             9,399            (6,240)              (66.4)

Other income                           741               479               262                54.7              1,469             1,849              (380)              (20.6)
Total noninterest income        $   18,998          $ 20,230          $ (1,232)               (6.1  %)       $ 39,468          $ 43,480          $ (4,012)               (9.2  %)


Three and six months ended June 30, 2022 compared to 2021

Noninterest income for the three months ended June 30, 2022 was $19.0 million, a
decrease of $1.2 million, or 6.1%, from the three months ended June 30, 2021.
Noninterest income for the six months ended June 30, 2022 was $39.5 million, a
decrease of $4.0 million, or 9.2%, from the six months ended June 30, 2021.

The net gain on mortgage banking activities decreased $2.2 million, or 64.5%,
for the three months ended June 30, 2022 and $6.2 million, or 66.4%, for the six
months ended June 30, 2022 from the comparable periods in the prior year,
primarily due to a decrease in loan sales and a contraction of margins. Bank
owned life insurance decreased $915 thousand, or 56.5%, for the three months
ended June 30, 2022 and $933 thousand, or 39.9%, for the six months ended June
30, 2022 from the comparable periods in the prior year, primarily due to a death
benefit claim of $893 thousand in the second quarter of 2021.

Insurance commission and fee income increased $790 thousand, or 20.6%, for the
three months ended June 30, 2022 and $1.4 million, or 16.0%, for the six months
ended June 30, 2022 from the comparable periods in the prior year, primarily due
to incremental revenue attributable to the insurance agency the Corporation
acquired in the fourth quarter of 2021. Investment advisory commission and fee
income increased $254 thousand, or 5.6%, for the three months ended June 30,
2022 and $709 thousand, or 7.7%, from the comparable periods in the prior year,
primarily due to new customer relationships and appreciation
                                       51
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assets under management, as the majority of investment advisory fees are charged based on the balance of assets under management at the end of the previous quarter.

Other service fee income increased $561 thousand, or 20.4%, for the three months
ended June 30, 2022 and $1.1 million, or 22.8%, for the six months ended June
30, 2022 from the comparable periods in the prior year. Mortgage servicing fees
increased $357 thousand for the three months ended June 30, 2022 and $619
thousand for the six months ended June 30, 2022 from the comparable periods in
the prior year driven by reduced amortization as a result of a decrease in
prepayment speeds. Interchange fee income increased $115 thousand for the three
months ended June 30, 2022 and $291 thousand for the six months ended June 30,
2022 from the comparable period in the prior year due to increased customer
activity.

Non-interest expenses

The following table shows non-interest expense for the quarters and six months ended June 30, 2022 and 2021:

                                    Three Months Ended                                                          Six Months Ended
                                         June 30,                               Change                              June 30,                               Change
(Dollars in thousands)            2022               2021             Amount            Percent              2022              2021             Amount             Percent
Salaries, benefits and
commissions                   $   29,133          $ 25,396          $ 3,737                 14.7  %       $ 57,378          $ 50,176          $  7,202                 14.4  %
Net occupancy                      2,422             2,656             (234)                (8.8)            5,138             5,395              (257)                (4.8)
Equipment                            977               968                9                  0.9             1,959             1,914                45                  2.4
Data processing                    3,708             3,064              644                 21.0             7,275             6,114             1,161                 19.0
Professional fees                  2,844             2,015              829                 41.1             4,982             3,763             1,219                 32.4
Marketing and advertising            693               561              132                 23.5             1,118               841               277                 32.9
Deposit insurance premiums           812               613              199                 32.5             1,705             1,249               456                    36.5
Intangible expenses                  342               249               93                 37.3               683               498               185                 37.1

Other expense                      6,440             5,764              676                 11.7            12,545            10,876             1,669                 15.3
Total noninterest expense     $   47,371          $ 41,286          $ 6,085                 14.7  %       $ 92,783          $ 80,826          $ 11,957                 14.8  %

Three and six months ended June 30, 2022 compared to 2021

Noninterest expense for the three months ended June 30, 2022 was $47.4 million,
an increase of $6.1 million, or 14.7%, from the three months ended June 30,
2021. Noninterest expense for the six months ended June 30, 2022 was $92.8
million, an increase of $12.0 million, or 14.8%, from the six months ended June
30, 2021. The results for the three and six months ended June 30, 2022 include
approximately $1.4 million and $2.1 million, respectively, in expenses related
to our digital transformation initiative, a comprehensive digital platform which
will blend our core operating systems together and allow Univest to seamlessly
sell existing products and services, digitally, across an expanded footprint.

Salaries, benefits and commissions increased $3.7 million, or 14.7%, for the
three months ended June 30, 2022 and $7.2 million, or 14.4%, for the six months
ended June 30, 2022 from the comparable periods in the prior year. These
increases reflect our continued investment in revenue producing staff across all
business lines, including the acquisition of the Paul I. Sheaffer insurance
agency, and annual merit increases. Additionally, during the three and six
months ended June 30, 2022, we incurred $353 thousand and $740 thousand,
respectively, of short-term incremental guaranties related to the hiring of new
producers in our mortgage banking line of business. Finally, during the six
months ended June 30, 2021, salaries, benefits and commissions expense was
benefited by $616 thousand of incremental capitalized compensation related to
the origination of PPP loans.

Professional fees increased $829 thousand, or 41.1%, for the three months ended
June 30, 2022 and $1.2 million, or 32.4%, for the six months ended June 30, 2022
from the comparable periods in the prior year. The increase for the three months
ended June 30, 2022 was primarily attributable to $1.2 million of consultant
fees spent related to the previously discussed digital transformation
initiative, as compared to our $230 thousand investment in our Diversity, Equity
and Inclusion training initiatives for the three months ended June 30, 2021. The
increase for the six months ended June 30, 2022 was primarily attributable to
$1.9 million of consultant fees spent related to the digital transformation
initiative, as compared to our $506 thousand investment in our Diversity, Equity
and Inclusion training initiatives for the six months ended June 30, 2021.
Deposit insurance premiums increased $199 thousand, or 32.5%, for the three
months ended June 30, 2022 and $456 thousand, or 36.5%, for the six months ended
June 30, 2022 from the comparable periods in the prior year driven by an
increased assessment base.

                                       52
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Data processing expenses increased $644 thousand, or 21.0%, for the three months
ended June 30, 2022 and $1.2 million, or 19.0%, for the six months ended June
30, 2022 from the comparable periods in the prior year, primarily due to
continued investments in our end-to-end loan origination solution for loans
below $1.0 million, customer relationship management software, internal
infrastructure improvements, outsourced data processing solutions, and $155
thousand and $258 thousand in support of the digital transformation initiative
for the respective periods.

Other expense increased $676 thousand, or 11.7%, for the three months ended June
30, 2022 and $1.7 million, or 15.3%, for the six months ended June 30, 2022 from
the comparable periods in the prior year. Recruiting costs increased $138
thousand and $420 thousand for the three and six months ended June 30, 2022,
respectively, due to increased hiring activity, including the entry into our two
new expansion markets. Travel and entertainment expenses increased $309 thousand
and $574 thousand for the three and six months ended June 30, 2022,
respectively, as related activities have largely returned to pre-pandemic
levels. Additionally, the six months ended June 30, 2022 included incurred costs
of $330 thousand as a result of a customer who was defrauded.

Tax provision

The Corporation recognized a tax expense of $3.3 million and $4.9 million for
the three months ended June 30, 2022 and 2021, respectively, resulting in an
effective rate of 19.8% and 19.0%, respectively. The Corporation recognized a
tax expense of $8.1 million and $12.7 million for the six months ended June 30,
2022 and 2021, respectively, resulting in an effective rate of 19.5% and 19.2%,
respectively. The effective tax rates for the three and six months ended June
30, 2022 and 2021 reflects the benefits of tax-exempt income from investments in
municipal securities and loans and leases.

Financial condition

Assets

The following table presents the assets on the dates indicated:

                                                                       At December 31,                       Change
(Dollars in thousands)                       At June 30, 2022               2021                 Amount               Percent
Cash and cash equivalents                  $          94,777          $      890,150          $ (795,373)                (89.4  %)
Investment securities, net of allowance
for credit losses                                    514,124                 496,989              17,135                   3.4
Federal Home Loan Bank, Federal Reserve
Bank and other stock, at cost                         29,116                  28,186                 930                   3.3
Loans held for sale                                    8,352                  21,600             (13,248)                (61.3)
Loans and leases held for investment               5,661,777               5,310,017             351,760                   6.6
Allowance for credit losses, loans and
leases                                               (72,011)                (71,924)                (87)                  0.1
Premises and equipment, net                           50,080                  56,882              (6,802)                (12.0)
Operating lease right-of-use assets                   30,929                  30,407                 522                   1.7
Goodwill and other intangibles, net                  187,238                 187,358                (120)                 (0.1)
Bank owned life insurance                            120,103                 118,699               1,404                   1.2
Accrued interest receivable and other
assets                                                76,328                  54,057              22,271                  41.2
Total assets                               $       6,700,813          $    7,122,421          $ (421,608)                 (5.9  %)

Cash and interest-bearing deposits

Cash and interest-earning deposits decreased $795.4 million, or 89.4%, from
December 31, 2021, primarily due to decreased interest earning deposits at the
Federal Reserve Bank of $805.9 million as the Corporation used excess liquidity
to fund loan growth and purchase investment securities. Additionally, cash
decreased due to a seasonal decrease in public funds deposits as well as
decreases in commercial and consumer deposits.

Investment security

Total investment securities at June 30, 2022 increased $17.1 million, or 3.4%,
from December 31, 2021. Purchases of $97.1 million, primarily residential
mortgage-backed securities, were partially offset by maturities and pay-downs of
$38.1
                                       53
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million, decreases in the fair value of available-for-sale investment securities
of $35.0 million, sales of $5.0 million, net amortization of purchased premiums
and discounts of $872 thousand and a provision for credit losses of
$763 thousand.

Loans and leases

Gross loans and leases held for investment increased $351.8 million, or 6.6%,
from December 31, 2021. Gross loans and leases held for investment, excluding
PPP loans, at June 30, 2022 increased $378.2 million or 7.2% from December 31,
2021. The growth in gross loans and leases held for investment, excluding PPP
loans, was primarily due to increases in commercial, commercial real estate,
construction, residential mortgage loans, and lease financings. As of June 30,
2022, $5.4 million in PPP loan originations remained outstanding.

Asset quality

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

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

At June 30, 2022, nonaccrual loans and leases and accruing troubled debt
restructured loans were $13.4 million and had a related allowance for credit
losses on loans and leases of $1.1 million. At December 31, 2021, nonaccrual
loans and leases and accruing troubled debt restructured loans were $33.3
million and had a related allowance for credit losses on loans and leases of $11
thousand. During the quarter, a nonaccrual commercial real estate loan was
transferred to other real estate owned with a carrying value of $18.3 million.
Individual reserves have been established based on current facts and
management's judgements about the ultimate outcome of these credits, including
the most recent known data available on any related underlying collateral and
the borrower's cash flows. The amount of individual reserve needed for these
credits could change in future periods subject to changes in facts and
judgements related to these credits.

Net loan and lease charge-offs for the three months ended June 30, 2022 were
$1.7 million compared to $243 thousand for the same period in the prior year.
Net loan and lease charge-offs for the six months ended June 30, 2022 were $1.8
million compared to $531 thousand for the same period in the prior year. During
the second quarter of 2022, a $1.7 million charge-off was recorded against an
existing nonaccrual commercial real estate loan.

Other real estate owned was $18.6 million at June 30, 2022 and $279 thousand at
December 31, 2021 due to the transfer of a nonaccrual commercial real estate
loan to other real estate owned noted above.

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Table 3-Unaccumulated and Delinquent Loans and Leases; Restructured loans for distressed debt and lease modifications; other real estate owned; and associated ratios

The following table details information relating to the Company’s non-performing assets as of the dates indicated.

(Dollars in thousands)                                        At June 30, 

2022 To December 31, 2021
Unrecognized Loans and Leases, including Unrecognized Distressed Debt Restructured Loans and Lease Amendments*

             $         13,355          $            33,210

Distressed debts, restructured loans and lease modifications not included in the above

                                    50                           51
Accruing loans and leases, 90 days or more past due                     2,784                          498
Total nonperforming loans and leases                         $         16,189          $            33,759
Other real estate owned                                                18,604                          279
Total nonperforming assets                                   $         34,793          $            34,038

*Non-Accumulated Distressed Debt Restructured Loans and Lease Amendments in Non-Accumulated Loans and Leases in Table Above

                                                        $            808          $               758

Loans and leases held for investment                         $      5,661,777          $         5,310,017
Allowance for credit losses, loans and leases                          72,011                       71,924

Allowance for losses on receivables, loans and leases / loans and leases held for investment purposes

                                               1.27  %                      1.35  %

Non-accumulated loans and leases (including non-accumulated distressed debt restructured loans and lease amendments) / loans and leases held for investment purposes

                                               0.24  %                      0.63  %
Allowance for credit losses, loans and leases / nonaccrual
loans and leases                                                       539.21  %                    216.57  %


The following table provides additional information on the Company’s outstanding loans held for investment purposes:

                                                                                       At December 31,
(Dollars in thousands)                                       At June 30, 2022                2021

Total outstanding loans and leases, including outstanding distressed debt restructured loans and lease amendments $13,355 $33,210
Unaccrued loans and leases with partial charges

                   4,512                    1,429

Cumulative partial write-offs on outstanding loans and leases

                                                                 2,224                      536
Specific reserves on individually analyzed loans                       1,089                       11



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Table 4-Concentration of loans

The following table provides summarized detail related to outstanding commercial
loan balances, excluding PPP loans, segmented by industry description as of June
30, 2022:

(Dollars in thousands)                                                          As of June 30, 2022
                                                                   Total Outstanding
                                                                     Balance (excl         % of Commercial Loan
Industry Description                                                     PPP)                    Portfolio
CRE - Retail                                                       $      379,935                         8.2  %
Animal Production                                                         315,801                         6.8
CRE - Multi-family                                                        262,182                         5.7
CRE - 1-4 Family Residential Investment                                   240,887                         5.2
CRE - Office                                                              215,847                         4.7
Hotels & Motels (Accommodation)                                           188,811                         4.1
CRE - Industrial / Warehouse                                              185,241                         4.0
Education                                                                 161,151                         3.5
Nursing and Residential Care Facilities                                   154,034                         3.3
Specialty Trade Contractors                                               143,724                         3.1
Homebuilding (tract developers, remodelers)                               118,877                         2.6
Motor Vehicle and Parts Dealers                                           112,372                         2.4
CRE - Medical Office                                                      108,978                         2.3
CRE - Mixed-Use - Residential                                             106,228                         2.3
Merchant Wholesalers, Durable Goods                                       100,825                         2.2
Crop Production                                                            88,786                         1.9
Food Manufacturing                                                         85,953                         1.9
Administrative and Support Services                                        75,587                         1.6
Rental and Leasing Services                                                72,560                         1.6
Wood Product Manufacturing                                                 71,961                         1.6
Food Services and Drinking Places                                          69,209                         1.5
Merchant Wholesalers, Nondurable Goods                                     66,568                         1.4
Fabricated Metal Product Manufacturing                                     63,016                         1.4
Personal and Laundry Services                                              60,774                         1.3
Religious Organizations, Advocacy Groups                                   58,409                         1.3
Miniwarehouse / Self-Storage                                               54,761                         1.2
Repair and Maintenance                                                     53,472                         1.2
CRE - Mixed-Use - Commercial                                               52,080                         1.1
Private Equity & Special Purpose Entities                                  51,853                         1.1
Truck Transportation                                                       51,191                         1.1
Industries with >$50 million in outstandings                       $    3,771,073                        81.3  %
Industries with <$50 million in outstandings                       $      866,668                        18.7  %
Total Commercial Loans                                             $    4,637,741                       100.0  %

                                                                   Total Outstanding
Consumer Loans and Lease Financings                                     

Balance

Real Estate-Residential Secured for Personal Purpose               $      

629 144

Real Estate-Home Equity Secured for Personal Purpose                      168,536
Loans to Individuals                                                       27,061
Lease Financings                                                          193,937
Total Consumer Loans and Lease Financings                          $    1,018,678

Total                                                              $    5,656,419


Good will and other intangible assets

Goodwill and other intangible assets have been recorded on the books of the
Corporation in connection with acquisitions. The Corporation has core deposit
and customer-related intangibles and servicing rights, which are not deemed to
have an indefinite life and therefore will continue to be amortized over their
useful life using the present value of projected cash flows. The amortization of
intangible assets was $738 thousand and $969 thousand for the three months ended
June 30, 2022 and 2021, respectively. The amortization of intangible assets was
$1.6 million and $2.0 million for the six months ended June 30, 2022 and 2021,
respectively. See Note 5 to the Condensed Unaudited Consolidated Financial
Statements, "Goodwill and Other Intangible Assets," for a summary of intangible
assets at June 30, 2022 and December 31, 2021.

                                       56
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The Corporation also has goodwill with a net carrying value of $175.5 million at
June 30, 2022 and December 31, 2021, which is deemed to be an indefinite
intangible asset and is not amortized. The Corporation completes a goodwill
impairment analysis on an annual basis, or more often if events and
circumstances indicate that there may be impairment. The Corporation also
completes an impairment test for other identifiable intangible assets on an
annual basis or more often if events and circumstances indicate there may be
impairment. There was no impairment of goodwill or identifiable intangibles
during the six months ended June 30, 2022 and 2021. There can be no assurance
that future impairment assessments or tests will not result in a charge to
earnings.


Liabilities

The following table shows the liabilities as of the dates indicated:

                                                                 At December 31,                       Change
(Dollars in thousands)                 At June 30, 2022               2021                 Amount               Percent
Deposits                             $       5,563,048          $    6,055,124          $ (492,076)                 (8.1  %)
Short-term borrowings                           97,606                  20,106              77,500                 385.5
Long-term debt                                  95,000                  95,000                   -                     -
Subordinated notes                              99,030                  98,874                 156                   0.2
Operating lease liabilities                     33,951                  33,453                 498                   1.5
Accrued interest payable and other
liabilities                                     48,253                  46,070               2,183                   4.7
Total liabilities                    $       5,936,888          $    6,348,627          $ (411,739)                 (6.5  %)



Deposits

Total deposits decreased $492.1 millioni.e. 8.1%, of December 31, 2021mainly due to a seasonal decline in deposits from public funds as well as declines in business and consumer deposits.

Loans

Total borrowings increased $77.7 million, or 36.3%, from December 31, 2021, due
to an increase of $93.6 million in short-term FHLB overnight borrowings as
excess liquidity diminished and we returned to a pre-pandemic liquidity level,
partially offset by a decrease of $16.1 million in short-term customer
repurchase agreements.

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