Univest Financial Corporation

Good morning and welcome everyone to the Univest Financial Corporation second quarter 2026 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Jeff Schweitzer, Chairman, President, and CEO of Univest Financial Corporation. Please go ahead.

Thank you, Audra, 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 U of 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. We had a solid second quarter as we reported net income of $23 million, or 82 cents per share, which was an 18.8% increase compared to earnings per share in Q2 of 2025. Our results for the quarter were impacted by a $5.2 million valuation adjustment on an Oriel property due to an updated appraisal, which impacted earnings per share for the quarter by 15 cents. Excluding this adjustment, our core operating results for the quarter were strong. Loan growth for the quarter was solid as we grew loans by $101.7 million, or 6% annualized. and all of our total deposits for the quarter increased $119.2 million or 7.2% annualized. We continue to execute on our initiative to lower our loan to deposit ratio, which on average was 180 basis points lower year to date than through the first six months of 2025. We also continue to be active with respect to stock buybacks, buying back 425,539 shares of our stock during the quarter. Here to date, we have repurchased 776,677 shares. 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, and thank you to everyone for joining us today. I would like to start by touching on three items from the earnings release. Thank you for joining us. Net interest income increased 2.9 million, or 4.5%, compared to the first quarter, and increased 6.7 million, or 11.3%, compared to the second quarter of 2025, driven by continued growth in average loan balances, improved asset yields, and a reduction in our overall cost of funds. Second, as it relates to credit, the quarter included two notable items. Thank you for joining us. Net charge-offs for the quarter were $1.9 million, or 11 basis points annualized. And our allowance for credit losses remains, coverage ratio remains stable at a 1.28% of total loans held for investment. Third, non-insurance income was $18.1 million for the quarter, a decrease of $3.4 million compared to the second quarter of 2025, primarily due to the $5.2 million REO valuation adjustment. Excluding that item, Underlying fee income trends remain solid as these businesses continue to perform well. Investment Advisory Commission and fee income increased 583,000, or 10.7%, compared to the prior year, driven by appreciation in assets under management and new customer relationships. Net gain on mortgage banking activities increased 365,000, or 37.2%, compared to the prior year, primarily due to increased saleable volume and improved margins. We also recognized $708,000 of tax-free BOLI death benefit proceeds during the quarter. Turning briefly to our outlook for the remainder of 2026, based on our performance during the first half of the year and our current assumptions, we are maintaining our outlook for loan growth of approximately 2-3%, non-interest income growth of approximately 6-8%, excluding BOLI death benefits and REO valuation adjustments. Non-interest expense growth of 3% to 5% and provisioning of $11 to $13 million. However, as I've said in the past, our provisioning is event-driven and may be impacted in the second half of the year depending on the final resolution of the $28.6 million loan that was placed on non-accrual during the second quarter, as well as other charge-off activity, loan growth, changes in economic conditions, and the resulting impact on our coverage ratio. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

If you would like to answer all your questions, simply press star 1 again. We'll take our first question from Tim Schweitzer at KDW.

Hey, good morning. Thank you for taking my questions. My first one is on the outlook for loan growth. You guys maintained the low single-digit guide here. Could you maybe talk about the competition you're seeing in your various markets and if you're seeing it intensifying in either a specific market or a loan category, and then more specifically on the loan yield. It seems like there's a lot of competition there.

Good morning. It's my time. I would agree with your question, quite frankly. We are seeing increased competition on the pricing side of the equation. across the board in all of our markets. We still do believe there's room enough for us to get an adequate margin and participate to hit the numbers that the loan growth numbers that Brian referenced a couple of minutes ago. But certainly it is increasing competition, spreads are narrowing. I would just imagine everybody's looking to fight for asset growth. So that's what's translating here. It's one of the reasons why we pivoted from more long-term CRE to more construction-oriented financing because we still believe there's the ability to get a little bit wider margin and fee income out of that product offering.

Okay, that's helpful. And then can you discuss, I guess, what the NIM trajectory looks like for you going forward, especially what would be the impact of rate hikes previously you guys talked about being pretty neutral, but obviously that was an environment where we were looking more towards rate cuts.

Hi, Dennis, Brian. Yeah, so from a rate change perspective, either up or down, really at this point we do model out fairly neutral. That said, I would think kind of for the next several quarters, assuming nothing drastic occurs, I'd expect kind of NIM to hold in that current range, give or take a couple of basis points. So in that 350 range, plus or minus 12.5.

Okay, so that's from a core NIM perspective.

Of course, excess liquidity will have its impact on a reported NIM, but from a core NIM perspective, I expect us to maintain in kind of that 350 range, give or take.

Okay. Very helpful. and then on the credit side of things, can you maybe remind us of this Oreo property? I know it was Oreo four years ago. Can you remind us, you know, maybe what market it's in or the loan category, the CRE loan?

Yeah, so it's a land space built office building that is approximately 165,000 square feet and is located in the Princeton market. So there were significant repairs that were required on that building. Those were completed first quarter into second quarter of last year. So there was a time period where the property wasn't being marketed. We started marketing it second quarter last year and then kind of continued those efforts now. Got an updated appraisal, and as a result of kind of comps in the market, both from a sale perspective as well as a rental square foot perspective, there was pressure on both of those, which resulted in a decrease in value from an appraised perspective.

Okay, and it sounds like this has now been on sale for about a year. You know, any timeline on when you think this can, you know, a buyer can be found and the deal closed?

Not, again, that's going to be kind of event-driven, circumstance-driven. Hopefully, we'll continue to market it, and we'll see how that kind of plays out here over the next couple quarters.

Okay, okay, and the last one on the other credit here that... moved to non-accrual. Any color you can provide on the industry it's in, you know, maybe what's causing the issues, and it sounds like the provision guide for this year is depending on the resolution. Is this one that could be resolved this year?

Tim, it's Mike Keim again. So, first off, it is an operating business. It's a C&I credit. It's a seasonal business with more of a discretionary kind of They're both a manufacturer and distributor. So the seasonality is really strongest late in the third quarter into the fourth quarter. So we would continue to see how that evolves. The specific reserve that was put up was based upon there's some indications of interest on the company as a whole and kind of where we are from a financial perspective. We're going to get updated 630 financial statements. and we're investigating. Can we, are there opportunities with, you know, do we have to look at a total sale of the company at some point in time or could we sell it in parts? It will be what is the best answer for, you know, the collective situation here as we move forward and truth be told, we still need to learn a little bit more and update our analysis on that. So, what I'd love to see it go on or disposed with in some positive fashion in the rest of the year? Yes. Can I guarantee that might not be the best answer, quite frankly. And we will just work through this and take the best answer for us.

Cool. Yeah, totally understand.

Appreciate it.

We'll move to our next question from Jacob Morton at Stevens Inc. Hey, good morning.

This is Jacob Morton on for Matt Brees. I wanted to start out, I'm curious on what was the spot cost of deposits and the spot name at the end of the quarter. And I'm just curious on how you feel about your ability to maintain or further lower deposit costs from here.

This is Brian. So really spot deposit costs. Of course, when you have bills and things like that occur, there'll be a little bit of noise there, but really tracks what we saw for the quarter as it relates to ability to reduce cost of deposits and cost of funds, kind of where we're at right now. Again, assuming a stable rate environment, I wouldn't expect much opportunity. We have just over $300 million of CDs that mature here in fall of the third quarter. And as we look at what we're offering, our current offering rates, they're at that level. We're slightly above, so there's not much opportunity to reprice down there. That's why that NIM outloping guy really is stable. at this point in time because you have a little bit of opportunity on the asset side and a little bit of pressure on the liability side. And you kind of see that play out as a stable core NIM.

Got it. Okay. Thank you. I appreciate the color there. And then thinking about the NIM longer term, when you modeled out how much longer might we see fixed asset repricing benefits of the NIM, and I'm particularly focused on 2028 given five years prior in 2023 loan yield spiked for the industry. and I'm generalizing but thinking we start to roll some of those off is what I'm curious about and what the impacts are.

It's about the 28 in all honesty. I'll be really looking through next year. I expect relative stability with slight upside. 28 again, a lot likely to change between now and then. So I wouldn't necessarily try to put a pin in the ground on that.

Got it. Okay, thank you. And last for me on deal appetite from here, I'm just curious. Your perspective on activity in the market. It's been sluggish from a deal perspective, but curious if conversations are similarly slow.

Yeah, this is Jeff. So, you know, we're definitely open to conversations on M&A, both on the bank side and also on, you know, welfare insurance organizations. And, you know, we're always out talking to people. As we always say, something has to be for sale. You can't just go and buy it whether you like it or not. So it is something, there are conversations happening. I would say it did slow down for a little while there, but there are still conversations that are occurring in the market that we're participating on. But I can't tell you that there's anything imminent or that it will result in anything in the near term because frankly, it has to be something that is actually for sale. and obviously there has to be an agreement on what it looks like going forward. So I'd say it's active, not as active, but there's still conversations occurring. And we are open to having them.

Got it. Okay.

Thank you. Thank you guys for taking my questions. Yep. Thank you.

We'll go next to Emmanuel Navas at Piper Sandler. and Mr. and Officer, line is open. You may be muted.

Hey, do you guys hear me?

Hello?

Yes, we can hear you now. Hi, I'm in here for Manuel. I had a question about what do your deposit pipelines look like and also on the talent side, what is sort of like the new wave of talent hires going forward? and any color you could provide on the front.

Sure. You know, look, on the deposit pipelines, the first side of that equation, you know, we continue to be active in that. We have a compelling, you know, Brian referenced a little bit, turns on the NIM question previously, but we have a compelling offer on the CD side and we have strong appetite that's coming on that. And then we've Talked in previous calls about the number of initiatives. We have a union initiative where we pursue union deposits. Our public funds build will happen in the third quarter. So pipelines are strong. Some of that is kind of the seasonal nature of our public fund business, so that will build strongly. And, you know, we have various offers that will be in the marketplace. Working with title companies, law firms, etc. All sources that will ultimately play to grow our deposit base over time. So we're happy with that. This is going to be the ramp up time where we'll have some excess liquidity and have an increase in our public funds as we traditionally see. Moving to the talent side. We've been active in the marketplace. We have hired a couple of new RMs in the recent time period here. This is one of those things that when talent becomes available, you need to take that opportunity and add that talent to your team, and we will continue to do that. There's not a ton of disruption in the marketplace, but when there is, that's when the talent seems to be available to us. And we're always in conversations, similar to what Jeff referenced on the M&A side. We're always talking to people and trying to see if we can get good quality, talented ground to join our organization.

Thank you. That's helpful. Also, when I was looking at your buyback case, you bought back about 1.5 of outstanding shares. Should we kind of that's the same case to continue going forward?

We intend to continue to be active on our buyback plan. You know, we have a lot of shares still authorized. Obviously, there's been a run up in our price and we want to make sure that, you know, we are effectively using capital and, you know, balancing all of the other things we talked about from M&A opportunities and growing the balance sheet. You know, we're balancing all of that, but we expect that we will continue to be active on the buyback front for the near term for sure.

Yeah, really the kind of guy there is not looking to grow our capital ratios really kind of from where we started the year. You'll see we grew in the first quarter, then they came back down here in the second quarter as we did the buybacks. We'll have to continue to kind of manage in that general range.

Okay. Thank you guys. Thanks so much. Thank you.

And that concludes our Q&A session. I will now turn the conference back over to Jeff Schweitzer for closing remarks.

Thank you, Audra, and thank you for everyone participating this morning on our call. We've had a strong start to the year through the first six months and we're excited about the next six months as we continue to execute on our strategic plans and continue to grow our organization for the long term. Look forward to talking to everybody at the end of next quarter. Have a great day.