Univest Financial Corporation

Hello everyone and thank you for joining the Univest Financial Corporation fourth quarter 2025 earnings call. My name is Gabrielle and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to your host, Jeff Schweitzer, President, Chairman, and CEO of Univest Financial Corporation. Please go ahead.

Thank you, Gabrielle. And good morning and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Keim, 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 laws. The best 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 had a strong fourth quarter reporting net income of $22.7 million or 79 cents per share, which was a 21.5% increase compared to earnings per share in Q4 of 2024, resulting in record earnings per share for Univest for the year of $3.13. While loan production remained solid throughout 2025, we were impacted in the first three quarters by early payoffs and paydowns. These pressures eased back to more normal levels in the fourth quarter, and as a result, we had solid loan growth during the fourth quarter as loan outstandings grew by $129.3 million. During the quarter, loans totaling $13.9 million related to a non-accrual commercial loan relationship were paid off and a $449,000 recovery was recognized. This relationship had been placed on non-accrual during the second quarter of 2025. As of December 31st, 2025, a residential property related to this relationship remains in other real estate owned with a carrying value of $1.4 million. As a result of this payoff, our non-accrual loans to total loans declined 20 basis points to 0.2% and our non-performing assets to total assets declined 16 basis points during the quarter to 0.45%. 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 the 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, Jim, and I would also like to thank everyone for joining us today. We were very pleased to carry the momentum from the first three quarters into the fourth quarter and finish the year strong. I would now like to touch on five items from the earnings release. First, during the quarter, we saw slight compression in our reported NIM due to increased excess liquidity resulting from our seasonal public fund build during the third quarter. Reported NIM of 3.10% decreased seven basis points compared to 3.17% in the third quarter, while core NIM, which excludes excess liquidity, increased four basis points from the third quarter to 3.37%. As it relates to our loan and deposit activity, loans grew by 129.3 million during the quarter, or 7.6% annualized. For the full year of 2025, loans grew by 88.2 million, or 1.3%. During the quarter, deposits decreased by 130.8 million, which was primarily driven by a $198.8 million decrease in public funds, partially offset by an $84 million increase in consumer balances. For the full year of 2025, total deposits grew by 328.1 million, or 4.9%. Third, during the quarter, we recorded a provision for credit losses of $3.1 million. Our coverage ratio was 1.28% at December 31st, which was consistent with September 30th. Net charge-offs for the quarter totaled 1.1 million, or seven basis points annualized. Fourth, Non-interest expense increased $2.1 million, or 4.1%, compared to the fourth quarter of 2024. For the full year of 2025, expenses increased by $5 million, or 2.5%. Lastly, during the fourth quarter, the corporation repurchased approximately 480,000 shares of common stock at an average cost of $32.17 per share, including brokerage fees and excise taxes. During 2025, we repurchased 1.1 million shares at an average cost of $30.75. This represents 3.9% of shares that were outstanding as of December 31st, 2024. On December 10th, 2025, we were pleased to announce that the board of directors of the corporation approved the repurchase of an additional 2 million shares. As of December 31st, 2025, 2.3 million shares are available for repurchase under the share repurchase plan. As it relates to 2026, we are targeting repurchases of $10 to $12 million per quarter. I believe the remainder of the earnings release was straightforward, and I would now like to focus on five items as it relates to 2026 guidance. First, for 2025, net interest income totaled $240.2 million. For 2026, we expect loan growth of approximately 2% to 3% and modest NIM expansion, resulting in net interest income growth of approximately 4% to 6%. This assumes a relatively stable environment with two 25 basis point rate decreases in 2026. However, modest Fed actions are not expected to have a material impact on our NII due to our overall ALM neutrality. Second, the provision for credit losses will continue to be driven by changes in economic forecasts and the credit performance of the portfolio. At this time, we expect the provision for 2026 to be in the range of $11 to $13 million. Third, 2025 non-insured income totaled $85.7 million when excluding $2.1 million of BOLI death benefits. For 2026, we expect non-interest income growth of approximately 5 to 7% off the $85.7 million base. Fourth, we reported non-interest expense of $203 million for 2025. For 2026, we expect growth of approximately 3 to 5%. Lastly, as it relates to income taxes, we expect our effective tax rate to be in the range of 20 to 21% based off current statutory rates. That concludes my prepared remarks. We will be happy to answer any questions. Gabrielle, would you please begin the question and answer session?

Thank you very much, Brian. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Tim Switzer from KBW. Your line is now open. Please go ahead.

Hey, good morning, guys. Hope you're all doing well.

Morning, Tim. Morning, Timson.

First question I have, thanks for all the color on the outlook here, but near term, what's kind of the seasonality for deposits in Q1? You mentioned the elevated funds at the end of the quarter. You know, how should that move over, you know, I guess Q1 and Q2? And then, you know, the follow on to that is like, what's the impact to excess cash? And, you know, I think you still probably have more than what's going to flow out. Like, is there any, are there any plans right now to deploy some of that excess cash you have?

Hi, Tim. This is Brian. I'll start out with that one. As it relates to public funds outflow, we expect $100 to $150 million per quarter in the first and second quarter to flow out. And then you couple that with loan growth that you'd expect during that point in time. So it won't be fully deployed, say, as the time we get to the end of the second quarter, but a significant portion of the excess liquidity at the end of the period will be deployed over that time period.

Gotcha. Okay, that's great. And, you know, how should we think about the inventory over the course of the year? If we only get, say, one more rate cut, like where do you think we're sitting at the end of the year compared to where we are now?

Compared to where we are as of the fourth quarter, I'd expect it to be relatively in line to slightly up. If you look over that full year time horizon now, of course, just because the expansion that we saw from the first quarters of 2025, you expect overall expansion on a full year basis in 26 compared to 25, but expect it to be flat to slightly up as we look through the quarters in 26. On a core basis, of course, you have volatility that comes in on a reported basis due to excess liquidity and the seasonality of that excess liquidity.

Okay, okay. What are you guys seeing in terms of deposit competition? There's been some talk over, I mean, kind of started last quarter, but picking up this quarter of increasing competition, pricing getting a lot more difficult, even with the recent Fed rate cuts. You know, what are you guys seeing in your markets? What's been the customer reaction on your end and with your ability to keep lowering deposits?

The competition remains and has been, and to your point, in some regards has increased slightly. From our customer perspective, we actually make sure we're in the range is what I would tell you is the better answer. Where we've been really successful and we had a lot of success last year is in CD retention. So we're not at the top of the market, but we're close enough that our customers continue to stay with us and move forward with us. And so that's how we manage it. There is a continued mix that we go through. You talked about our municipal deposits that you and Brian had some dialogue on just now. Those are a little bit more price sensitive. At the same time, we have an initiative to go on and get more operating accounts. So we're trying to change that mix. So we're working across the board.

We need to be competitive.

We just don't need to be at the top price to continue to grow our deposit price or book, excuse me.

Gotcha. Okay. And the last question I have is, Can you review your ag farmland portfolio and, like, which products are in there? You know, like, how granular is it? You know, what kind of – what does your underwriting and credit performance look like? And just with all the noise right now, like, are there any areas of concern right now?

So our ag book is not an agribusiness book. It is smaller – family farms that diversify across. They could be in dairy, crops, livestock, et cetera. Almost all instances were secured by the real estate in conjunction with what else they might be doing. The average loan size is on the smaller range. And the team that we have operating in central Pennsylvania, which is the vast majority of our ag loans, not entirely all of them, but close to it, has been doing this for a number of years. Our leader of the ag business is actually a farmer himself. So we have a lot of longstanding understanding and history. We have a conservative underwriting approach. And most importantly, beyond that, we have a very diversified and business that underlines all these ag loans.

Thank you, Tim, for your question.

Tim, do you have anything else?

I think Tim will have to dial back in to ask their follow-up questions. Our next question is from Tyler from Stevens. Your line is now open. Please go ahead.

Hey, good morning. This is Tyler from . Good morning, Tyler. My first question is just on the margin and appreciate the color there. You know, we've just been hearing some discussions around spread compression. And I'm wondering if you guys have been seeing any of that. And then I would love to hear some more about incremental loan yields.

Good morning. This is Brian again. We look at kind of new loan rates for the quarter. On the commercial side, we definitely saw some compression kind of on an absolute basis moving in line with the Fed action, so down, call it 40 to 50 basis points. So we haven't seen true spread compression, just overall new offering rate compression based on the interest rate environment. But things certainly remain competitive out there, and that holds true.

Great. Thanks. And then my next question is just on the loan growth going into next year. Heard you on the 26 guide. Just curious on what you guys are seeing as it relates to payoff and prepayment activity and kind of what you guys are expecting moving into 26.

So, as Jeff referenced in his opening comments, The first three quarters of 2025, we saw elevated prepayment activity. That began to slow in the fourth quarter, which obviously helped for our net loan growth in the quarter. We're anticipating more of a fourth quarter-like prepayment environment going forward. And when you look at our loan growth, the commercial book will grow significantly. And there's an offset on the mortgage side where we've historically, or the last couple of years, have put up a lot of on-balance sheet construction of perm, one-time closed loans, which are running off. And we're going more on the agency-directed product for that. So when you look at our loan growth, we're going to be much more heavily oriented towards the commercial side and comparative to the last couple of years with actually a decline on the residential mortgage side.

Great. Thanks. And then if I could just squeeze one more in on the expense side, um, there's a bit higher than what we're expecting this quarter, which I assume a lot of that to be fourth quarter seasonality stuff. Um, if you could just talk about a good starting point for, for the first quarter and, uh, Yeah, I heard you on the three to five expense growth, but maybe just touch on where we're starting at.

Yeah, so as we looked at kind of the incentive accruals and the variable comp in the fourth quarter, which was a hit, that was an increase quarter over quarter by roughly $1.3 million. So when you kind of back that out as a starting point, I'd expect us to kind of be relatively – down slightly from where we were in the fourth quarter.

Great. Very helpful. That'll be it for me. Thanks, Tyler.

Thank you, Tyler. As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question is from Manuel Navas from Piper Sandler. Your line is now open. Please go ahead.

Hey, good morning. Can I ask a broader picture question on is your buyback case at all tied into movements in your balance sheet and like if loan growth slows down, could that increase? Could you just talk to that kind of buyback acceleration?

This is Brian. We look to really what the limiter there or the guide on that is we're looking to not grow regulatory capital meaningfully from a ratio perspective. So it is a combination of earnings and balance sheet growth are the two things that play in that will drive us to toggle our repurchase activity up or down as a result of that, but really with the end goal being to not have expansion of our regulatory capital ratios.

I appreciate that. And it seems like the provision that kind of stepped up in this quarter is kind of the right pace going forward. Even if loan growth settles down a little bit, can you just talk about that provision level that you have expected for next year versus the fourth quarter?

Yeah. So, I mean, if you look at it from a growth perspective with the guide we provided there, you'd expect for that to not generate as much provision on a run rate basis as to what we saw. But we did have seven basis points of annualized charge-offs in the quarter. So, as you look for that to just be something a little bit more normalized in that 12 to 13 basis point range, coupled with our growth, that's how we would get to the provision guide for the year.

Okay. I appreciate that. deposit initiatives are key. You talked about the deposit pipeline and how those initiatives are progressing, and this is kind of for the commercial outreach. Just kind of talk about that a little bit more detail, please.

Sure. You know, as you referenced, we continue to make good progress there. Let's start from the top here. We continue to work with our commercial lending team with every deal that we do and how we go out and seek even deposit only customers. We continue to move forward with our small business initiative, which is more deposit oriented than loan oriented. So driving forward to capture deposits from small businesses that sits and operate in our footprint. And then we have specific programs that are more tailored. We have a title company initiative that continues to gain momentum. We have a labor union initiative that we started two years ago and continues to gain momentum. And we're about to launch in a more formal way an initiative to interact with law firms across the board. We did some tests and our newer markets in western Pennsylvania and Maryland with regard to money market campaigns and seeing to an earlier question here, what is the sensitivity to the rate that we need to provide to grow and drive new acquisition of customers? So we continue to work across the board on all those initiatives. And then lastly, I talked about this a little bit before with regard to our municipal banking, our municipal deposits, government banking, continue to look to take that number of deposits. One, try and get a little bit more consistent so there's not as much peak and valley during the quarters throughout the year. And then two, continue to try and incrementally increase the amount of operating accounts that we have, which will effectively lower our cost of funds and improve our NIM as we move forward.

That was really helpful. Thank you for the commentary.

You're welcome.

Thank you, Manuel. As a final reminder, to ask a question, please press star followed by one on your telephone keypad. We currently have no further questions, so I will hand back to Jeff for closing remarks.

Thank you, Gabrielle, and thank you, everybody, for joining us this morning on our call. You know, we're excited about our results for 2025 and the record earnings that we had from an earnings per share perspective and the momentum that carries us into 2026 and look forward toward another successful year and talking to everybody at the end of Q1. Have a great day.

Thank you. This concludes today's Univest Financial Corporation fourth quarter 2025 earnings call. Thank you for joining. You may now disconnect your lines.