Univest Financial Corporation

Morning to all and thank you for joining us. UniVest Financial Corporation, second quarter 2025 island school. My name is Carly and I'll be coordinating the call today. If you'd like to register a questionnaire in the call you can do so by pressing the star followed by one on your telephone keypad and to remove yourself from that line of questioning, you can start with a by two. At that time, the VISTA host, Jeff Schwartz, will begin the call of choice.

Thank you Carly and good morning and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Kym, our Chief Operating Officer and President of UniVest Bank and Trust and Brian Richardson, our Chief Financial Officer. Before we begin, I would like to remind everyone of the forward-looking statements disclaimer. Please be advised that during the course of this conference call, management may make forward-looking statements that express management's intentions, beliefs, or expectations within the meaning of the federal securities law. UniVest's actual results may differ materially from those contemplated by these forward-looking statements. I will refer you to the forward-looking cautionary statements in our earnings release and in our SEC filings. Hopefully everyone had a chance to review our earnings release from yesterday. If not, it can be found on our website at univest.net under the investor relations tab. We reported net income of 20 million dollars during the second quarter or 69 cents per share. While loan outstanding is contracted by 31.9 million dollars during the quarter, production has remained solid through the first six months of the year. However, we continue to be impacted by early payoffs and paydowns. Overall, -to-date commercial loan production through June 30th was 507 million dollars compared to 402 million dollars in the prior year. However, this has resulted in contraction in loan outstanding -to-date of 25.4 million dollars compared to growth of 117.6 million dollars in the prior year. While deposits decrease 75.8 million dollars during the quarter, this was predominantly due to the seasonal decline of public funds deposits and the decline in broker deposits. Excluding these declines, deposits increased 77.5 million dollars during the quarter. During the quarter, we recorded 7.8 million dollars of net charge-offs predominantly related to one credit which accounted for 7.3 million of the charge-offs. The remaining balance of this relationship of 16.4 million dollars has been done non-aggrue and is supported by the appraised value of the real estate collateral. As this is still an active situation where fraud is suspected, we will have no further comments at this time. Absent this one relationship, credit quality continues to remain strong. Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities, and each other. I'll now turn it over to Brian for further discussion on our results.

Thank

you Jeff.

I would also like to thank everyone for joining us today. I would like to start by highlighting a few items from the earnings release. First, during the quarter, reported NAM of 3.2 percent increased by 11 basis points from 3.09 percent in the prior quarter due to increased yields on assets and a reduction in our cost of funds. Core NAM of 3.24 percent, which excludes the impact of excess liquidity, expanded by 12 basis points compared to the first quarter. We expect Core NAM to contract by a few basis points in the third quarter due to the repricing of our 2020 sub-debt issuance and the seasonal build of higher cost public funds. However, we expect NII to be relatively in line with the second quarter. Second, non-interest income increased by 521,000 or 2.5 percent compared to the second quarter of 2024. This was primarily driven by increases in investment management fees, gains on sale of SBA loans and treasury management fees, partially offset by a decrease in net gains on mortgage planning due to elevated interest, rate, environment, and competition. Third, non-interest expense increased 1.6 million worth 3.3 percent compared to the second quarter of 2024. The increase was primarily driven by compensation costs, specifically annual merit increases, medical costs, and variable incentives. I believe the remainder of hearings were at least straightforward, and I would now like to provide an update for our 2025 guidance. First, for the full year, we expect loan growth approximately 1 to 3 percent, and we expect net interest income growth of 10 to 12 percent compared to 2024. Second, our provision for credit law guidance will be unchanged at $12 to $14 million for 2025. However, the provision will continue to be of interest and include loan growth, changes in economic related assumptions, and the credit performance of the portfolio, including specific credits. Third, 2024 non-interest income totaled 84.5 million when excluding the $3.5 million gain on sale of MSRs and 245,000 of the following death benefits. For 2025, we expect non-interest income growth for approximately 1 to 3 percent off the $84.5 million base. Fourth, we reported non-interest expense of 198 million for 2024. For 2025, we expect growth of approximately 2 to 4 percent. Lastly, as it relates to income taxes, our guidance remains unchanged at 20 to 20.5 percent based on current statutory rates. The aggregate impact of these guidance updates when compared to our most recent guidance is accreted to both ECS and TP&R. That concludes my pair of remarks. We will be happy to answer any questions. Carly, would you please begin the question and answer session?

Of course. Thank you very much. We'd like to open the line for Q&A. If you'd like to ask a question, please take an over question star followed by one and let's have a blank sheet back. For the reason that's not on the question, we'll be star followed by two. As a reminder to raise a question, we'll be star followed by one. Our first test question comes from Tim Switzer from KPW. Tim, the line is not open.

Hey, good morning guys. Thank you for taking my question. I apologize. You broke up a little bit on my end on some of the guidance. Can you give me your update for loan growth and expenses?

Sure. Loan growth is 1 to 3 percent and corresponding to average income growth is 10 to 12 percent and expenses is 2 to 4 percent.

Okay, great. I guess you've maybe talked about some of the changes there. I look like both those numbers are down a little bit. Could you just talk about what you're seeing from the loan environment? Is the name kind of faltering a little bit or is it more about competition?

Actually, as Jeff referenced at the beginning of his remarks, Tim, loan activity and loan origination activity is strong. We're consistent with what it has been in the prior year. We were just impacted fairly significantly by payoff activity in the first half of the year. We look to, you know, we predict that and forecast that and are interacting with our customers for the best of our ability. We're looking for that to slow down, that in repayment activity in the second half of the year and we'll continue to produce at the levels that we have and therefore that'll lead to growth. And then on the expense side, we just continue to see the benefit of our burden expense management and discipline on that side. Of course, there's some variable expenses like medical costs and some things like that that aren't directly controllable. But as you trend through the first six months of the year, that's what's causing up the rashes, the expense growth down from 4 to 5 percent down to 2 to 4 percent.

Gotcha. Okay. And you've been just very healthy capital levels. You haven't seemed all that determined to execute M&A deals. You've been doing a little bit of share repurchases, but you know that with the share price coming up, it's going to be a longer earning back. Can you kind of talk about what your strategy is going to be to efficiently deploy that capital and whether you're going to return it to shareholders or find some opportunities during just these business?

Yeah, so Tim, you know, we will continue to be active on buybacks and even with the rise in their share price, the earning back period, while it's gotten longer, it's still well within, you know, it's within a two to three year range even as we go up from here. So we'll continue to stay active on the buyback front. We feel that's a good use of capital. You know, while M&A isn't in the media that's got the strategic priority of ours, we always want to have our eyes open and see what's available out there. There's nothing that's overly exciting right now, but we also look at on the insurance side, wealth management side, we're always keeping our eyes open there too. So we're not opposed to M&A. I would say it's probably more on the non-bank side than the bank side at this point that we would be more interested. But in lieu of opportunities like that, we're going to continue to also do share buybacks.

Okay, and I'm curious what you guys are hearing or seeing in terms of deposit competition out there. There's been some reports from some competitors that it's starting to step up a little bit and with the Fed not lowering rates this year so far, it sounds like a lot of the deposit repricing has kind of already ran through.

I would say that that's consistent with what we see, especially on the consumer side with money market rates and TD rates. So yeah, it is a tough environment out there. People continue to fight for the deposit and to generate the liquidity and as much as necessary to support their growth. So we've identified certain things, certain campaigns and certain niches that we continue to push forward with and we look forward to continue to grow our deposits as the year moves forward. As you well know or most people know if they follow us, the third quarter will be a peak quarter for us on public funds so that would be expected. We will continue to advance for it, but no, it is a tough environment from a competitive perspective.

Okay, gotcha. And last question for me, could you guys talk about your outlook in terms of the NIN trajectory going forward over the next couple quarters? You mentioned public funds are going to be seen by higher next quarter. Is that impacted a little bit? And then what would you guys, what kind of impact did you expect from one or two rate cuts in the back half of the year?

Of course, and so as I had guided for the third quarter, we expect coordinate and pullback, reported in the pullback for sure, coordinate and pullback slightly just again due to our the re-pricing of our sub-debt issuance as well as the higher cost of the funds coming on. Then we expected to be classed as slightly up on this thereafter assuming relatively stable interesting environment for the next several quarters. If we, one or two rate cuts, it really is not expected to be impactful over a longer term. There might be noise within a given quarter just based on how the timing of when assets and liability re-price, but then once that kind of blends itself through, you're not expecting that to be overly impactful due to our relative neutrality from an A-line perspective.

Okay, great. Thank you guys for taking on my questions. Appreciate it.

Thank you very much. I don't mind if you raise a question, we'll be fast followed by one. Our next question comes from Tyler Cassius-Torre from Stevens. Tyler, your line is live.

All right, good morning. This is Tyler on from ABRICE. I just wanted to start. Last week, Senator Dave McCormick held an Energy and Innovation Summit in Pittsburgh, outlining a number of projects totaling around 90 billion in data centers, energy and power infrastructure, and some other projects, some of which are expected in eastern Pennsylvania. Just curious on if you've heard anything on these projects and if you think there could be some positive benefit in your footprint.

I mean, any time that there's investment in our state, we're obviously very supportive of that and excited to see the money loaned into Pennsylvania. It will benefit more from our customers being able to participate in any projects that are being built out. We have a very diversified customer base, a lot of which are in electrical contracting and construction and things of that nature that could potentially benefit from this. I think it's a little early stages right now as far as that we've heard any significant chatter from our customers in market, but I know that everybody's excited obviously to see the investment made in Pennsylvania.

I would just add, what is this for Pennsylvania? For us, we're obviously active in central Pennsylvania. We have a presence in western Pennsylvania, so at this point we'd be certainly pleased to participate across our footprint.

All right, thanks. And then I just had one more. I know you talked about the pipeline a little bit. I was just wondering how yields are holding up. I know you cited some increase in competition, but in terms of spread compression, how much are you seeing there?

We really haven't. New loan yields on the commercial side especially have been relatively stable for the last quarter or two. And again, as I said, production remains strong just so the lack of loan growth is really driven by the payoff headwinds.

Okay, great. So do you think without any rate cuts, this space of loan yield expansion is repeatable?

Um, not repeatable. I think that'll definitely start to slow down from an expansion perspective because we have a re-pricing of the book that occurs of course as that dates get higher. Just on a notional basis, that expansion will start to slow down even if you can remain with consistent production volume. So I think it would slow down a little bit and things remain competitive for sure, but nothing that would suggest at this point that it's going to start pulling back anyway.

Okay, great. That sounds to me. Thanks for my questions.

Thank you.

Thank you very much. We currently have no further questions, but I'd like to have that suggestion for any further remarks.

I'd like to thank everyone for participating today. I hope you're having a great summer. We look forward to talking to everybody after the end of the third quarter.

As we conclude today's call, we'd like to thank everyone for joining. You guys just snatched your loans.