Univest Financial Corporation Reports Third Quarter Results

Univest Financial Corporation

SOUDERTON, Pa., Oct. 26, 2022 (GLOBE NEWSWIRE) -- Univest Financial Corporation (“Univest” or the "Corporation") (NASDAQ: UVSP), parent company of Univest Bank and Trust Co. and its insurance, investments and equipment financing subsidiaries, announced net income for the quarter ended September 30, 2022 was $20.8 million, or $0.71 diluted earnings per share, compared to net income of $20.9 million, or $0.71 diluted earnings per share, for the quarter ended September 30, 2021.

One-Time Items
The financial results for the three and nine months ended September 30, 2022 included tax-free bank owned life insurance ("BOLI") death benefit claims of $446 thousand, which represented $0.02 diluted earnings per share for both periods.

Loans
Gross loans and leases, excluding Paycheck Protection Program ("PPP") loans¹, increased $190.6 million, or 13.5% (annualized), from June 30, 2022, $568.8 million, or 14.4% (annualized), from December 31, 2021 and $680.6 million, or 13.2%, from September 30, 2021 primarily due to increases in commercial, commercial real estate, construction, residential mortgage loans, and lease financings.

Deposits
Total deposits increased $223.9 million, or 16.1% (annualized), from June 30, 2022, primarily due to increases in public funds deposits partially offset by decreases in commercial deposits. Total deposits decreased $268.1 million, or 5.9% (annualized), from December 31, 2021, primarily due to decreases in commercial and consumer deposits. Total deposits decreased $151.2 million, or 2.5%, from September 30, 2021, primarily due to a decrease in public funds deposits.

Net Interest Income and Margin
Net interest income of $58.3 million for the three months ended September 30, 2022 increased $6.8 million, or 13.2%, from the three months ended June 30, 2022, and $9.6 million, or 19.6%, from the three months ended September 30, 2021. The increase in net interest income for the three months ended September 30, 2022 compared to the same period of 2021 and the prior quarter was largely due to significant loan growth, the rapid increase in interest rates and the asset sensitivity position of the Corporation's balance sheet.

Net interest margin, on a tax-equivalent basis, was 3.67% for the third quarter of 2022, compared to 3.19% for the second quarter of 2022 and 3.11% for the third quarter of 2021. Excess liquidity reduced net interest margin by approximately one basis point for the quarter ended September 30, 2022 compared to 23 basis points for the quarter ended June 30, 2022 and 27 basis points for the quarter ended September 30, 2021. PPP loans had no impact on net interest margin for the quarter ended September 30, 2022 compared to one basis point for the quarter ended June 30, 2022 and 20 basis points for the quarter ended September 30, 2021. Excluding the impact of excess liquidity and PPP loans, the net interest margin, on a tax-equivalent basis, was 3.68% for the quarter ended September 30, 2022 compared to 3.41% for the quarter ended June 30, 2022 and 3.18% for the quarter ended September 30, 2021.

Noninterest Income
Noninterest income for the quarter ended September 30, 2022 was $18.0 million, a decrease of $2.6 million, or 12.6%, compared to the third quarter of 2021.

Net gain on mortgage banking activities decreased $2.4 million, or 74.7%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year, primarily due to a decrease in loan sales and a contraction of margins. BOLI increased $228 thousand, or 24.6%, for the quarter compared to the comparable period in the prior year, primarily due to death benefit claims of $446 thousand in the third quarter of 2022. Investment advisory commission and fee income decreased $597 thousand, or 12.4%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year, primarily due to reduced assets under management, which was driven by market performance.

Other income decreased $758 thousand, or 46.6%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year. Gains on the sale of Small Business Administration loans decreased $520 thousand for the quarter due to decreased sale activity. Fees on risk participation agreements for interest rate swaps decreased $171 thousand for the quarter driven by a decrease in customer demand due to the current interest rate environment.

Insurance commission and fee income increased $605 thousand, or 15.8%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year, primarily due to incremental revenue attributable to the acquisition of the Paul I. Sheaffer insurance agency in the fourth quarter of 2021.

Other service fee income increased $548 thousand, or 21.3%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year. Mortgage servicing fees increased $336 thousand for the quarter driven by reduced amortization as a result of a decrease in prepayment speeds.

Noninterest Expense
Noninterest expense for the quarter ended September 30, 2022 was $46.7 million, an increase of $3.4 million, or 7.9%, compared to the third quarter of 2021. The results for the three months ended September 30, 2022 included approximately $1.2 million 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 $2.8 million, or 10.4%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year. This increase reflects the insurance acquisition in the fourth quarter of 2021, our expansion into Maryland and Western PA, and annual merit increases.

Professional fees increased $347 thousand, or 16.0%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year. The increase for the three months ended September 30, 2022 was primarily due to $1.0 million in consultant fees attributable to the previously discussed digital transformation initiative, as compared to our $585 thousand investment in our Diversity, Equity and Inclusion program, training initiatives and treasury management product enhancements for the three months ended September 30, 2021.

Data processing expenses increased $627 thousand, or 19.2%, for the quarter ended September 30, 2022 compared to the comparable period in the prior year, primarily due to continued investments in technology including $180 thousand in support of the previously discussed digital transformation initiative for the respective period.

Tax Provision
The effective income tax rate was 19.7% for the nine months ended September 30, 2022, compared to an effective income tax rate of 19.4% for the nine months ended September 30, 2021. The effective tax rate for the nine months ended September 30, 2022 and 2021 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases. Additionally, the effective tax rate for the nine months ended September 30, 2022 was favorably impacted by discrete tax benefits and proceeds from BOLI death benefits. Excluding these items, the effective tax rate was 20.1% for the nine months ended September 30, 2022.

Asset Quality and Provision for Credit Losses
Nonperforming assets were $33.0 million at September 30, 2022, compared to $34.8 million at June 30, 2022 and $37.1 million at September 30, 2021.

Net loan and lease charge-offs were $1.2 million and $1.7 million for the three months ended September 30, 2022 and June 30, 2022, respectively, compared to net loan and lease recoveries of $75 thousand for the three months ended September 30, 2021. Net loan and lease charge-offs were $3.0 million and $456 thousand for the nine months ended September 30, 2022 and September 30, 2021, respectively.

The provision for credit losses was $3.6 million for the third quarter of 2022 compared to a provision for credit losses of $6.7 million for the second quarter of 2022 and a reversal of provision of $182 thousand for the third quarter of 2021. The provision for credit losses was $6.8 million for the nine months ended September 30, 2022 compared to a reversal of provision for credit losses of $11.5 million for the comparable period in the prior year. The allowance for credit losses on loans and leases as a percentage of loans and leases held for investment was 1.28% at September 30, 2022 compared to 1.27% at June 30, 2022 and 1.34% at September 30, 2021.

Share Repurchases
During the three months ended September 30, 2022, the Corporation repurchased 150,000 shares at an average price of $25.41, for an aggregate cost of $3.8 million. During the nine months ended September 30, 2022, the Corporation repurchased 450,000 shares at an average price of $25.29, for an aggregate cost of $11.4 million. As of September 30, 2022, the Corporation has 229,174 shares remaining to repurchase under the program that was approved on May 27, 2015. On October 26, 2022, the Corporation’s Board of Directors approved an increase of 1,000,000 in the shares available for repurchase under the Corporation’s share repurchase program.

Dividend
On October 26, 2022, Univest declared a quarterly cash dividend of $0.21 per share to be paid on November 23, 2022 to shareholders of record as of November 9, 2022.

Conference Call
Univest will host a conference call to discuss third quarter 2022 results on Thursday, October 27, 2022 at 9:00 a.m. EDT. Participants may preregister at https://www.netroadshow.com/events/login?show=7205620b&confId=42951. The general public can access the call by dialing 1-844-200-6205; using Access Code 478630. A replay of the conference call will be available through November 24, 2022 by dialing 1-866-813-9403; using Access Code: 211821.

¹Non-GAAP metric. A reconciliation of this and other non-GAAP financial measures is included within this document.

About Univest Financial Corporation
Univest Financial Corporation (UVSP), including its wholly-owned subsidiary Univest Bank and Trust Co., Member FDIC, has approximately $6.9 billion in assets and $4.0 billion in assets under management and supervision through its Wealth Management lines of business at September 30, 2022. Headquartered in Souderton, Pa. and founded in 1876, the Corporation and its subsidiaries provide a full range of financial solutions for individuals, businesses, municipalities and nonprofit organizations primarily in the Mid-Atlantic Region. Univest delivers these services through a network of more than 50 offices and online at www.univest.net.

This press release and the reports Univest files with the Securities and Exchange Commission often contain "forward-looking statements" relating to trends or factors affecting the financial services industry and, specifically, the financial condition and results of operations, business and strategies of Univest. These forward-looking statements involve certain risks and uncertainties in that there are a number of important factors that could cause Univest's future results, business or strategies to differ materially from those expressed or implied by the forward-looking statements. These factors include, but are not limited to: (1) competition; (2) inflation and/or changes in interest rates, which may adversely impact our margins and yields, reduce the fair value of our financial instruments, reduce our loan originations or lead to higher operating costs; (3) changes in asset quality, prepayment speeds, loan sale volumes, charge-offs and/or credit loss provisions; (4) changes in economic conditions nationally and in our market; (5) economic assumptions that may impact our allowance for credit losses calculation; (6) legislative, regulatory or tax changes; (7) technological issues that may adversely affect our operations or those of our customers; (8) changes in the securities markets; (9) the continuing effects resulting from the COVID-19 pandemic on our business and results of operation; (10) the current or anticipated impact of military conflict, terrorism or other geopolitical events; and/or (11) risk factors mentioned in the reports and registration statements Univest files with the Securities and Exchange Commission.

(UVSP - ER)

Univest Financial Corporation
Consolidated Selected Financial Data (Unaudited)
September 30, 2022
(Dollars in thousands)
Balance Sheet (Period End)		09/30/22				06/30/22				03/31/22				12/31/21				09/30/21
ASSETS
Cash and due from banks		$	65,859			$	59,590			$	57,307			$	49,202			$	67,517
Interest-earning deposits with other banks			47,451				35,187				716,474				840,948				834,840
Cash and cash equivalents			113,310				94,777				773,781				890,150				902,357
Investment securities held-to-maturity			159,170				159,808				166,339				176,983				112,643
Investment securities available for sale, net of allowance for credit losses			347,479				351,382				349,994				317,007				277,773
Investments in equity securities			2,994				2,934				2,569				2,999				2,961
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost			29,475				29,116				26,330				28,186				28,679
Loans held for sale			9,087				8,352				14,521				21,600				29,093
Loans and leases held for investment			5,849,259				5,661,777				5,400,786				5,310,017				5,252,045
Less: Allowance for credit losses, loans and leases			(74,929	)			(72,011	)			(68,286	)			(71,924	)			(70,146	)
Net loans and leases held for investment			5,774,330				5,589,766				5,332,500				5,238,093				5,181,899
Premises and equipment, net			50,533				50,080				50,429				56,882				55,354
Operating lease right-of-use assets			30,654				30,929				30,498				30,407				31,570
Goodwill			175,510				175,510				175,510				175,510				172,559
Other intangibles, net of accumulated amortization			11,650				11,728				11,784				11,848				9,359
Bank owned life insurance			120,035				120,103				119,398				118,699				117,981
Accrued interest and other assets			83,170				76,328				54,087				54,057				57,624
Total assets		$	6,907,397			$	6,700,813			$	7,107,740			$	7,122,421			$	6,979,852
LIABILITIES
Noninterest-bearing deposits		$	1,968,422			$	2,062,538			$	2,136,467			$	2,065,423			$	1,861,007
Interest-bearing deposits:			3,818,554				3,500,510				3,911,465				3,989,701				4,077,147
Total deposits			5,786,976				5,563,048				6,047,932				6,055,124				5,938,154
Short-term borrowings			80,711				97,606				18,976				20,106				14,101
Long-term debt			95,000				95,000				95,000				95,000				95,000
Subordinated notes			99,107				99,030				98,952				98,874				98,797
Operating lease liabilities			33,718				33,951				33,566				33,453				34,641
Accrued expenses and other liabilities			57,698				48,253				39,459				46,070				43,136
Total liabilities			6,153,210				5,936,888				6,333,885				6,348,627				6,223,829
SHAREHOLDER'S EQUITY
Common stock, $5 par value: 48,000,000 shares authorized and 31,556,799 shares issued			157,784				157,784				157,784				157,784				157,784
Additional paid-in capital			299,791				298,800				297,945				299,181				298,033
Retained earnings			410,942				396,295				389,332				375,124				363,607
Accumulated other comprehensive loss, net of tax benefit			(64,985	)			(42,781	)			(31,909	)			(16,353	)			(20,073	)
Treasury stock, at cost			(49,345	)			(46,173	)			(39,297	)			(41,942	)			(43,328	)
Total shareholders’ equity			754,187				763,925				773,855				773,794				756,023
Total liabilities and shareholders’ equity		$	6,907,397			$	6,700,813			$	7,107,740			$	7,122,421			$	6,979,852
		For the three months ended,																				For the nine months ended,
Balance Sheet (Average)		09/30/22				06/30/22				03/31/22				12/31/21				09/30/21				09/30/22			09/30/21
Assets		$	6,797,466			$	6,962,401			$	7,047,980			$	7,088,289			$	6,698,177			$	6,935,031		$	6,509,576
Investment securities, net of allowance for credit losses			517,335				515,741				522,128				469,588				395,280				518,383			385,192
Loans and leases, gross			5,752,119				5,520,580				5,344,698				5,255,279				5,320,411				5,540,624			5,345,119
Deposits			5,645,291				5,903,173				5,984,815				6,041,798				5,666,725				5,843,182			5,439,345
Shareholders' equity			773,099				771,410				774,358				762,334				746,185				772,951			725,061

Univest Financial Corporation
Consolidated Summary of Loans by Type and Asset Quality Data (Unaudited)
September 30, 2022
(Dollars in thousands)
Summary of Major Loan and Lease Categories (Period End)		09/30/22				06/30/22				03/31/22				12/31/21				09/30/21
Commercial, financial and agricultural		$	1,052,733			$	1,028,354			$	932,485			$	956,396			$	927,015
Paycheck Protection Program			2,207				5,358				10,298				31,748				85,601
Real estate-commercial			2,936,204				2,870,286				2,816,737				2,718,535				2,669,898
Real estate-construction			329,915				319,449				285,083				283,918				260,874
Real estate-residential secured for business purpose			443,837				419,652				412,486				409,900				412,001
Real estate-residential secured for personal purpose			685,771				629,144				568,735				540,566				535,705
Real estate-home equity secured for personal purpose			175,843				168,536				160,134				158,909				159,029
Loans to individuals			26,679				27,061				26,249				25,504				26,458
Lease financings			196,070				193,937				188,579				184,541				175,464
Total loans and leases held for investment, net of deferred income			5,849,259				5,661,777				5,400,786				5,310,017				5,252,045
Less: Allowance for credit losses, loans and leases			(74,929	)			(72,011	)			(68,286	)			(71,924	)			(70,146	)
Net loans and leases held for investment		$	5,774,330			$	5,589,766			$	5,332,500			$	5,238,093			$	5,181,899
Asset Quality Data (Period End)		09/30/22				06/30/22				03/31/22				12/31/21				09/30/21
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and leases		$	13,620			$	13,355			$	30,876			$	33,210			$	34,528
Accruing loans and leases 90 days or more past due			416				2,784				274				498				2,204