UNIVEST FINANCIAL CORPORATION (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 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 inherently 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 assumptions with respect to future business strategies and decisions that are subject to change. Such 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 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; •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 and charge-offs and changes in estimates of the adequacy of the allowance for loans losses; •Our ability to access cost-effective funding; •Our ability to continue to implement our business strategies; •Our ability to manage market risk, credit risk and operational risk; •Timing of revenues and expenditures; •Adverse change in the securities markets; •Our ability to enter new markets successfully and capitalize on growth opportunities; •Return on investment decisions; •System failures or cyber-security breaches of our information technology infrastructure and those of our third-party service providers; •Our ability to retain key employees; •Other risks and uncertainties, including those occurring in theU.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. InDecember 2019 , coronavirus (COVID-19) was first reported inChina . OnMarch 11, 2020 , theWorld Health Organization declared a worldwide pandemic. OnMarch 12, 2020 , the President ofthe United States declared the COVID-19 outbreak inthe United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation inthe United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, our forward-looking statements are subject to the following risks, uncertainties and assumptions:
•Demand for our products and services may decline;
44
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•If the economy is unable to substantially reopen, and high levels of
unemployment continue for an extended period of time, loan delinquencies,
problem assets, and foreclosures may increase;
•Collateral for loans, especially real estate, may decline in value;
•Our allowance for credit losses on loans and leases may have to be increased if
borrowers experience financial difficulties;
•The net worth and liquidity of loan guarantors may decline;
•As a result of the decline in the Federal Reserve Board's target federal funds
rate to near 0%, the yield on our assets may decline to a greater extent than
the decline in our cost of interest-bearing liabilities;
•A material decrease in net income or a net loss over several quarters could
result in a decrease in the rate of our quarterly cash dividend;
•Our wealth management revenues may decline with continuing market turmoil;
•Our cyber security risks are increased as a result of an increase in the number
of employees working remotely; and
•FDIC premiums may increase if the agency experience additional resolution
costs.
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, 2019
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.
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 reserve for loan and lease losses as critical accounting policies. For more
information on these critical accounting policies, please refer to the
Corporation's 2019 Annual Report on Form 10-K. See Note 1, "Summary of
Significant Accounting Policies" for additional information on the adoption of
ASC 326, which changes the methodology under which management calculates its
reserve for loans and leases, now referred to as the allowance for credit
losses. Management considers the measurement of the allowance for credit losses
to be a critical accounting policy.
General
The Corporation is aPennsylvania 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 ofUnivest Bank and Trust Co. The consolidated financial statements include the accounts of the Corporation and the Bank. Through its wholly-owned subsidiaries, the Bank provides a variety of financial services for individuals, businesses, municipalities and non-profit organizations. The Bank is the parent company ofGirard Investment Services, LLC , a full-service registered introducing broker-dealer and a licensed insurance agency,Girard Advisory Services, LLC , a registered investment advisory firm andGirard Pension Services, LLC , a registered investment advisor, which provides investment consulting and management services to municipal entities. The Bank is also the parent company ofUnivest Insurance, LLC , an independent insurance agency andUnivest 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. 45 -------------------------------------------------------------------------------- Table of Contents Executive Overview
The Corporation's consolidated net income, earnings per share and return on average assets and average equity were as follows:
Three Months Ended
March 31, Change
(Dollars in thousands, except per share data) 2020 2019 Amount Percent
Net income $ 838 $ 16,079 $ (15,241) (94.8 %)
Net income per share:
Basic $ 0.03 $ 0.55 $ (0.52) (94.5)
Diluted 0.03 0.55 (0.52) (94.5)
Return on average assets 0.06 % 1.30 % (124 BP) (95.4)
Return on average equity 0.50 % 10.32 % (982 BP) (95.2)
The Corporation reported net income of $838 thousand , or $0.03 diluted earnings
per share, for the three months ended March 31, 2020 , compared to net income of
$16.1 million , or $0.55 diluted earnings per share, for the three months ended
March 31, 2019 .
The Corporation adopted CECL effective January 1, 2020 , as discussed in Note 1.
Summary of Significant Accounting Policies. Upon adoption, the allowance for
credit losses on loans and leases increased by $12.9 million , the allowance for
credit losses on investments increased by $300 thousand , and the reserve for
unfunded commitments increased by $1.1 million , which, in the aggregate,
resulted in an after-tax retained earnings adjustment of $11.3 million .
During the three months ended March 31, 2020 , the Corporation recorded a
provision for credit losses on loans and leases of $20.4 million , a provision
for credit losses on investment securities of $597 thousand and a reserve for
unfunded commitments of $794 thousand . Included within the $21.8 million in
provision for credit losses and reserve for unfunded commitments is $20.3
million (after-tax charge of $16.1 million ), or $0.55 diluted earnings per
share, of expense related to COVID-19, which was the result of economic
assumptions within the Corporation's CECL model. This charge included a
provision for credit losses on loans and leases of $19.4 million , a provision
for credit losses on investment securities of $536 thousand and a reserve for
unfunded commitments of $384 thousand . During the three months ended March 31,
2019 , the Corporation recorded a provision for loan and lease losses of $2.7
million . The provision for 2019 included the impact of downgrading one $14.6
million shared national credit loan from pass to substandard.
The results for the three months ended March 31, 2020 , included a $652 thousand
($515 thousand after-tax), or $0.02 diluted earnings per share, gain on the sale
of investment securities and a $656 thousand ($518 thousand after-tax), or $0.02
diluted earnings per share, charge in other expense related to the
extinguishment of long-term debt.
46
--------------------------------------------------------------------------------Table of Contents 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 a summary of the Corporation's average balances, tax-equivalent interest income, interest expense, the tax-equivalent yields earned on average assets, the cost of average liabilities, and shareholders' equity on a tax-equivalent basis for the three months endedMarch 31, 2020 and 2019. 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 months ended
Net interest income on a tax-equivalent basis for the three months endedMarch 31, 2020 was$43.1 million , an increase of$945 thousand , or 2.2%, compared to the three months endedMarch 31, 2019 . The increase in tax-equivalent net interest income for the three months endedMarch 31, 2020 compared to the same period in 2019 was primarily due to lower deposit and borrowing costs and growth in loans partially offset by a decrease in yield on loans. The net interest margin on a tax-equivalent basis for the three months endedMarch 31, 2020 was 3.48%, compared to 3.75% for the three months endedMarch 31, 2019 . During the three months endedMarch 31, 2020 , excess liquidity reduced net interest margin by approximately six basis points and had no impact on the three months endedMarch 31, 2019 . The excess liquidity was primarily driven by strong deposit growth in the period. Purchase accounting accretion had no impact on the net interest margin for the three months endedMarch 31, 2020 compared to a favorable impact of approximately one basis point for the three months endedMarch 31, 2019 . Excluding purchase accounting accretion and the impact of excess liquidity, the net interest margin, on a tax-equivalent basis, was 3.54% for the three months endedMarch 31, 2020 and 3.74% for the three months endedMarch 31, 2019 . 47 -------------------------------------------------------------------------------- Table of Contents Table 1-Average Balances and Interest Rates-Tax-Equivalent Basis Three Months Ended March 31, 2020 2019 Average Income/ Average Average Income/ Average (Dollars in thousands) Balance Expense Rate Balance Expense Rate Assets:
Interest-earning deposits with other banks
1.11 %$ 42,566 $ 269 2.56 % U.S. government obligations 7,298 37 2.04 20,039 82 1.66 Obligations of states and political subdivisions 33,595 289 3.46 64,167 546
3.45
Other debt and equity securities 401,007 2,668 2.68 385,990 2,631
2.76
Federal Home Loan Bank ,Federal Reserve Bank and other stock 31,450 527 6.74 32,360 586
7.34
Total interest-earning deposits, investments and other interest-earning assets 591,458 3,846 2.62 545,122 4,114
3.06
Commercial, financial and agricultural loans 821,267 8,631 4.23 811,071 10,758
5.38
Real estate-commercial and construction loans 2,139,369 23,917 4.50 1,822,276 21,559 4.80 Real estate-residential loans 991,550 11,052 4.48 938,299 11,412 4.93 Loans to individuals 30,016 407 5.45 32,524 518 6.46 Municipal loans and leases 317,006 3,265 4.14 332,299 3,221 3.93 Lease financings 89,376 1,554 6.99 80,893 1,435 7.19 Gross loans and leases 4,388,584 48,826 4.47 4,017,362 48,903 4.94 Total interest-earning assets 4,980,042 52,672 4.25 4,562,484 53,017 4.71 Cash and due from banks 50,891 44,714 Reserve for credit losses, loans and leases (44,372) (30,111) Premises and equipment, net 56,399 59,179 Operating lease right-of-use assets 34,545 37,129 Other assets 332,056 330,858 Total assets$ 5,409,561 $ 5,004,253 Liabilities: Interest-bearing checking deposits$ 584,391 $ 796 0.55$ 478,927 $ 714 0.60 Money market savings 1,057,336 2,903 1.10 918,487 3,748 1.65 Regular savings 816,760 792 0.39 789,033 814 0.42 Time deposits 602,903 2,915 1.94 655,303 2,927 1.81 Total time and interest-bearing deposits 3,061,390 7,406 0.97 2,841,750 8,203 1.17 Short-term borrowings 40,126 106 1.06 117,664 638 2.20 Long-term debt 169,205 764 1.82 145,299 739 2.06 Subordinated notes 94,847 1,275 5.41 94,603 1,261 5.41 Total borrowings 304,178 2,145 2.84 357,566 2,638 2.99 Total interest-bearing liabilities 3,365,568 9,551 1.14 3,199,316 10,841 1.37 Noninterest-bearing deposits 1,288,594 1,089,449 Operating lease liabilities 37,766 40,090 Accrued expenses and other liabilities 44,173 43,824 Total liabilities 4,736,101 4,372,679 Shareholders' Equity: Common stock 157,784 157,784 Additional paid-in capital 295,318 292,746 Retained earnings and other equity 220,358 181,044 Total shareholders' equity 673,460 631,574 Total liabilities and shareholders' equity$ 5,409,561 $ 5,004,253 Net interest income$ 43,121 $ 42,176 Net interest spread 3.11 3.34 Effect of net interest-free funding sources 0.37 0.41 Net interest margin 3.48 % 3.75 % Ratio of average interest-earning assets to average interest-bearing liabilities 147.97 % 142.61 % Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs and purchase accounting adjustments. 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 endedMarch 31, 2020 and 2019 have been calculated using the Corporation's federal applicable rate of 21%. 48 -------------------------------------------------------------------------------- Table of Contents Table 2-Analysis of Changes in Net Interest Income The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the 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 March 31, 2020 Versus 2019 Volume Rate (Dollars in thousands) Change Change Total Interest income: Interest-earning deposits with other banks$ 274 $ (218) $ 56 U.S. government obligations (61) 16 (45) Obligations of states and political subdivisions (259) 2 (257) Other debt and equity securities 109 (72) 37 Federal Home Loan Bank, Federal Reserve Bank and other stock (15) (44) (59) Interest on deposits, investments and other earning assets 48 (316) (268) Commercial, financial and agricultural loans 138 (2,265) (2,127) Real estate-commercial and construction loans 3,726 (1,368) 2,358 Real estate-residential loans 664 (1,024) (360) Loans to individuals (37) (74) (111) Municipal loans and leases (139) 183 44 Lease financings 158 (39) 119 Interest and fees on loans and leases 4,510 (4,587) (77) Total interest income 4,558 (4,903) (345) Interest expense: Interest-bearing checking deposits 145 (63) 82 Money market savings 517 (1,362) (845) Regular savings 31 (53) (22) Time deposits (229) 217 (12) Interest on time and interest-bearing deposits 464 (1,261) (797) Short-term borrowings (299) (233) (532) Long-term debt 116 (91) 25 Subordinated notes 14 - 14 Interest on borrowings (169) (324) (493) Total interest expense 295 (1,585) (1,290) Net interest income$ 4,263 $ (3,318) $ 945 49
-------------------------------------------------------------------------------- Table of Contents Interest Income
Three months ended
Interest income on a tax-equivalent basis for the three months endedMarch 31, 2020 was$52.7 million , a decrease of$345 thousand , or 0.7%, from the same period in 2019. The slight decrease in interest income for the three months endedMarch 31, 2020 was primarily due to theFederal Reserve interest rate reductions of 75 basis in the third and fourth quarter of 2019 and 150 basis points in the first quarter of 2020, offset by increases of$371.2 million in average gross loans and leases held for investment. Purchase accounting accretion had no impact on the rate on interest-earning assets for the three months endedMarch 31, 2020 , compared to a favorable impact of one basis point for the three months endedMarch 31, 2019 .
Interest Expense
Three months ended
Interest expense for the three months endedMarch 31, 2020 was$9.6 million , a decrease of$1.3 million , or 11.9%, from the same period in 2019. Interest expense on average interest-bearing deposits decreased$797 thousand , or 9.7%, for the three months endedMarch 31, 2020 primarily due to theFederal Reserve interest rate decreases in 2019 and 2020, offset by the growth in average interest-bearing deposits of$219.6 million , or 7.7%. Additionally, interest expense on borrowings decreased$492 thousand , or 18.7%, for the three months endedMarch 31, 2020 from the same period in 2019, due to a decrease of$77.5 million , or 65.9%, in the average balance of short-term borrowings.
Provision for Credit Losses
The provision for credit losses for the three months endedMarch 31, 2020 was$21.0 million compared to$2.7 million for the same period in the prior year. Net loan and lease charge-offs for the three months endedMarch 31, 2020 were$489 thousand compared to$447 thousand for the same period in the prior year. Refer to the Executive Overview for discussion of the drivers of provision expense for the three months endedMarch 31, 2020 and 2019.
Noninterest Income
The following table presents noninterest income for the three months endedMarch 31, 2020 and 2019: Three Months Ended March 31, Change (Dollars in thousands) 2020 2019 Amount Percent Trust fee income$ 1,890 $ 1,887 $ 3 0.2 % Service charges on deposit accounts 1,397 1,435 (38) (2.6) Investment advisory commission and fee income 4,255 3,789 466 12.3 Insurance commission and fee income 4,732 5,144 (412) (8.0) Other service fee income 1,870 2,267 (397) (17.5) Bank owned life insurance income 734 952 (218) (22.9) Net gain on sales of investment securities 695 1 694 N/M Net gain on mortgage banking activities 2,744 483 2,261 N/M Other income 67 339 (272) (80.2) Total noninterest income$ 18,384 $ 16,297 $ 2,087 12.8 %
Three months ended
Noninterest income for the three months endedMarch 31, 2020 was$18.4 million , an increase of$2.1 million , or 12.8%, from the three months endedMarch 31, 2019 . The net gain on mortgage banking activities increased$2.3 million , or 468.1%, for the three months endedMarch 31, 2020 , primarily due to an increase in mortgage volume and an expansion of margins. Net gain on sales of investment securities increased$694 thousand for the quarter primarily due to a$652 thousand gain on the sale of$58.3 million of agency backed mortgage backed securities. Investment advisory commission and fee income increased$466 thousand , or 12.3%, for the three 50 -------------------------------------------------------------------------------- Table of Contents months endedMarch 31, 2020 , primarily due to new customer relationships and appreciation of assets under management, as a majority of investment advisory fees are billed based on the prior quarter-end assets under management balance. Insurance commission and fee income decreased$412 thousand , or 8.0%, for the three months endedMarch 31, 2020 , primarily due to a decrease in contingent commission income of$389 thousand , which was$1.1 million for the three months endedMarch 31, 2020 , compared to$1.5 million for the quarter endedMarch 31, 2019 . Other service fee income decreased$397 thousand , or 17.5%, for the three months endedMarch 31, 2020 , primarily due to an increase of$331 thousand of mortgage servicing rights amortization. The increase in amortization for the three months endedMarch 31, 2020 , was primarily driven by the decline in interest rates and their impact on prepayment activity. BOLI income decreased$218 thousand , or 22.9%, for the three months endedMarch 31, 2020 , primarily due to an increase in value of our non-qualified annuity portfolio of$26 thousand in the three months endedMarch 31, 2020 , compared to an increase of$249 thousand for the three months endedMarch 31, 2019 . During the first quarter of 2019, in order to reduce future volatility, the Corporation transferred the funds invested within the non-qualified annuity portfolio to a stable fund investment strategy. Other income decreased$272 thousand , or 80.2%, for the three months endedMarch 31, 2020 , primarily driven by a loss in the value of equity securities measured at fair value of$268 thousand for the three months endedMarch 31, 2020 compared to a gain of$4 thousand for the quarter endedMarch 31, 2019 . Noninterest Expense The following table presents noninterest expense for the three months endedMarch 31, 2020 and 2019: Three Months Ended March 31, Change (Dollars in thousands) 2020 2019 Amount Percent
Salaries, benefits and commissions
10.6 % Net occupancy 2,574 2,611 (37) (1.4) Equipment 995 990 5 0.5 Data processing 2,760 2,514 246 9.8 Professional fees 1,317 1,264 53 4.2 Marketing and advertising 402 540 (138) (25.6) Deposit insurance premiums 504 452 52 11.5 Intangible expenses 330 426 (96) (22.5) Other expense 6,853 5,214 1,639 31.4 Total noninterest expense$ 39,571 $ 35,557 $ 4,014 11.3 %
Three months ended
Noninterest expense for the three months endedMarch 31, 2020 was$39.6 million , an increase of$4.0 million , or 11.3%, from the three months endedMarch 31, 2019 . Salaries, benefits and commissions increased$2.3 million , or 10.6%, for the three months endedMarch 31, 2020 , primarily attributable to additional staff hired, primarily during 2019, to support revenue generation across all business lines, expansion of our commercial lending groups in the first and second quarter of 2019, annual merit increases and increased variable compensation due to strong mortgage banking activity. Data processing expense increased$246 thousand , or 9.8%, for the three months endedMarch 31, 2020 , primarily due to continued investments in customer relationship management software and internal infrastructure improvements as well as outsourced data processing solutions. Other expense increased$1.6 million , or 31.4%, for the three months endedMarch 31, 2020 , primarily due to a one-time$656 thousand charge related to the extinguishment of long-term debt and an increase of$794 thousand in the reserve for unfunded commitments, which resulted from the adoption of CECL. 51 -------------------------------------------------------------------------------- Table of Contents Tax Provision The provision for income taxes for the three months endedMarch 31, 2020 and 2019 was$(606) thousand and$3.5 million , at an effective rate of (261.2)% and 17.9%, respectively. The negative effective tax rate for the three months endedMarch 31, 2020 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. The calculation of the effective tax rate for income taxes for the three months endedMarch 31, 2020 is based on the actual effective tax rate for the year-to-date period, given the uncertainty of the impact of COVID-19 and its potential impact on the Corporation's estimate of the annual effective tax rate. The Corporation's effective income tax rates for the three months endedMarch 31, 2019 was favorably impacted by discrete tax benefits. Excluding these items, the effective tax rate was 18.2% for the three months endedMarch 31, 2019 . Financial Condition Assets
The following table presents assets at the dates indicated:
At December 31, Change
(Dollars in thousands) At March 31, 2020 2019 Amount Percent
Cash and interest-earning deposits $ 182,902
46.2 %
Investment securities, net of allowance
for credit losses 423,521 441,599 (18,078) (4.1)
Federal Home Loan Bank , Federal Reserve
Bank and other stock, at cost 28,465 28,254 211 0.7
Loans held for sale 11,417 5,504 5,913 N/M
Loans and leases held for investment 4,448,825 4,386,836 61,989 1.4
Reserve for credit losses, loans and
leases (68,216) (35,331) (32,885) (93.1)
Premises and equipment, net 55,789 56,676 (887) (1.6)
Operating lease right-of-use assets 34,679 34,418 261 0.8
Goodwill and other intangibles, net 182,332 182,843 (511) (0.3)
Bank owned life insurance 115,512 114,778 734 0.6
Accrued interest receivable and other
assets 49,542 40,219 9,323 23.2
Total assets $ 5,464,768 $ 5,380,924 $ 83,844 1.6 %
Cash and Interest-Earning Deposits
Cash and interest-earning deposits increased
Total investments securities atMarch 31, 2020 decreased$18.1 million fromDecember 31, 2019 . Sales of$67.0 million , maturities and pay-downs of$18.4 million , calls of$6.9 million , decreases in the fair value of available-for-sale investment securities of$4.8 million , provision for credit losses of$897 thousand and net amortization of purchased premiums and discounts of$446 thousand were partially offset by purchases of$80.0 million . The decrease in the fair value of available-for-sale investment securities was primarily recorded on the variable rate corporate bond portfolio which was negatively impacted by the sudden decrease in interest rates and the yield curve.
Loans and Leases
Gross loans and leases held for investment grew$62.0 million , or 1.4%, fromDecember 31, 2019 . The growth in loans was primarily in commercial real estate and residential real estate loans. 52 -------------------------------------------------------------------------------- Table of Contents 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. AtMarch 31, 2020 , nonaccrual loans and leases and accruing troubled debt restructured loans were$36.7 million . The related allowance for credit losses on loans and leases was$2.5 million . AtDecember 31, 2019 , loans that were considered to be impaired was$38.4 million . The related reserve for loan losses was$2.1 million . Individual reserves have been established based on current facts and management's judgements about the ultimate outcome of these credits. During the first quarter of 2020, three residential real estate loans totaling$710 thousand and two home equity loans totaling$741 thousand were returned to accruing status as these loans have maintained a period of repayment performance in accordance with the Corporation's policy. The amount of the individual reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits.
Other real estate owned was
53
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Table 3-Nonaccrual and Past Due Loans and Leases; Troubled Debt Restructured
Loans and Lease Modifications; Other Real Estate Owned; and Related Ratios
The following table details information pertaining to the Corporation's nonperforming assets at the dates indicated. (Dollars in thousands)
At March
31, 2020 At
Commercial, financial and agricultural $ 3,934 $ 3,442 Real estate-commercial 28,827 27,928 Real estate-construction - 257 Real estate-residential 3,370 6,445 Lease financings 495 506
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*
36,626 38,578
Accruing troubled debt restructured loans and lease modifications not included in the above
54 54
Accruing loans and leases 90 days or more past due: Commercial, financial and agricultural
- 20 Real estate-commercial 722 - Real estate-residential 826 - Loans to individuals 63 74 Lease financings 166 49 Total accruing loans and leases, 90 days or more past due 1,777 143 Total nonperforming loans and leases 38,457 38,775 Other real estate owned 516 516 Total nonperforming assets $ 38,973 $ 39,291
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment
0.82 % 0.88 %
Nonperforming loans and leases / loans and leases held for investment
0.86 % 0.88 %
Nonperforming assets / total assets 0.71 % 0.73 %
Allowance for credit losses, loans and leases $ 68,216 $ 35,331
Allowance for credit losses, loans and leases / loans and leases held for investment
1.53 % 0.81 %
Allowance for credit losses, loans and leases / nonaccrual loans and leases held for investment
186.25 % 91.58 %
Allowance for credit losses, loans and leases / nonperforming loans and leases held for investment
177.38 % 91.12 %
* Nonaccrual troubled debt restructured loans and lease
modifications included in nonaccrual loans and leases in the
above table $ 13,680 $ 13,817
54-------------------------------------------------------------------------------- Table of Contents The following table provides additional information on the Corporation's nonaccrual loans held for investment: (Dollars in thousands) AtMarch 31 ,
2020 At
38,578
Nonaccrual loans and leases with partial charge-offs 2,830 1,966
Life-to-date partial charge-offs on nonaccrual loans and leases
1,532 1,320
Specific reserves on individually analyzed loans 2,535 2,108
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$982 thousand and$725 thousand for the three months endedMarch 31, 2020 and 2019, respectively. See Note 5 to the Condensed Unaudited Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets atMarch 31, 2020 andDecember 31, 2019 . The Corporation also has goodwill with a net carrying value of$172.6 million atMarch 31, 2020 andDecember 31, 2019 , which is deemed to be an indefinite intangible asset and is not amortized. The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the three months endedMarch 31, 2020 and 2019. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.
Liabilities
The following table presents liabilities at the dates indicated:
At December 31, Change
(Dollars in thousands) At March 31, 2020 2019 Amount Percent
Deposits $ 4,407,303 $ 4,360,075 $ 47,228 1.1 %
Short-term borrowings 18,415 18,680 (265) (1.4)
Long-term debt 210,069 150,098 59,971 40.0
Subordinated notes 94,879 94,818 61 0.1
Operating lease liabilities 37,919 37,617 302 0.8
Accrued interest payable and
other liabilities 44,632 44,514 118 0.3
Total liabilities $ 4,813,217 $ 4,705,802 $ 107,415 2.3 %
Deposits
Total deposits increased
Borrowings
Total borrowings increased
Other liabilities The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve for these off-balance sheet credits was$2.4 million and$420 thousand atMarch 31, 2020 andDecember 31, 2019 , respectively. The increase of$1.9 million relates to the implementation of ASU 2016-03. 55
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