Univest Corporation of Pennsylvania Aktie

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Univest Financial Corporation First Quarter 2026 Earnings Call [Operator Instructions] I will now turn the call over to Jeff Schweitzer, Chairman, President and CEO of Univest Financial Corporation. Please go ahead.

Thank you, Rebecca, 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. 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 had a strong start to the year as we reported net income for the first quarter of $27.1 million or $0.96 per share, which was a 24.7% increase compared to earnings per share in Q1 of 2025. Results were solid across our lines of business, resulting in our ROAA improving to 1.33% for the quarter. Additionally, we continue to execute on our initiatives to lower our loan-to-deposit ratio, which on average was 280 basis points lower than Q1 of 2025 and our efficiency ratio, which declined 190 basis points from Q1 of 2025, showing improved operating leverage as we continue to see results from our investments in technology over the past few years. Our for the quarter also resulted in our rewarding our shareholders by increasing our quarterly dividend 4.5% to $0.23 per share and buying back 351,138 shares of our stock during the quarter. 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 this morning. I would like to start by touching on 4 items from the earnings release. First, we saw a solid NIM expansion during the quarter with reported NIM increasing 23 basis points to 3.33%. Additionally, core NIM, which excludes excess liquidity of 3.44% increased 7 basis points compared to the fourth quarter. Second, during the quarter, credit quality remained strong, and we recorded a provision for credit losses of $1.3 million. At March 31, nonperforming loans and leases represented approximately 0.25% of total loans, and our allowance for credit losses remained steady at 1.28% of loans held for investments. Net charge-offs for the quarter totaled $1.3 million or 7 basis points annualized. Third, noninterest income increased $1.7 million or 7.5% compared to the first quarter of 2025. When excluding BOLI death benefits, noninterest income increased $2.3 million or 11% compared to the first quarter of 2025. This growth was driven by continued strength in investment advisory, insurance and servicing-related fee income as well as increased risk participation and swap-related fee income. Mortgage banking revenue increased modestly from the prior period, reflecting higher saleable volume during the quarter. Fourth, noninterest expense increased $3.3 million or 6.8% compared to the first quarter of 2025. This included $427,000 of restructuring charges and an increase of $753,000 or 48.8% in medical claims expense. The corporation maintains a self-funded or self-insured medical plan and is responsible for claim costs up to the stop-loss limit. This results in expense volatility based on the timing and magnitude of claims. Excluding the restructuring charges and increased medical costs, expenses increased $2.2 million or 4.4% compared to the first quarter of 2025, which is in line with the guidance that I had provided on January's call. Turning briefly to our outlook for the remainder of 2026. Based on the first quarter performance and current assumptions, we are maintaining our outlook for loan growth of approximately 2% to 3%, provisioning of $11 million to $13 million, noninterest expense growth of approximately 6% to 8%, excluding BOLI debt benefits and noninterest expense growth of 3% to 5%. We are updating our full year net interest income growth outlook to the range of 5% to 7%, reflecting the strength of the first quarter results continued with margin momentum. Our effective tax rate is expected to remain in the 20% to 21% range. That concludes my prepared remarks. Rebecca, would you please begin the question-and-answer session?

Your first question comes from the line of Jacob Morton with Stephens.

This is Jacob Morton on for Matt Breese.

First, I want to start out with deposit cost reductions from this quarter. I'm curious about the spot rate at the end of the quarter. And can you also talk about how much more room you see to lower deposit costs?

So we're starting to get to a little bit of a point of equilibrium. Don't expect there to be too much based on the stable interest rate environment, don't expect there to be too much movement in the cost of funds in the near term. If we look at spot overall, the book, we were down 10 basis points on a spot basis compared to 12/31 to 3/31. We do have inherently churning of CDs that are coming off tend to put replacement dollars on at a little bit lower cost. But as we're looking to grow deposits and decrease our loan-to-deposit ratio, that inherently puts a little bit of pressure on cost of funds. So that's why we don't see potentially more upside, but looking for relative stability there in the near term.

Got it. I appreciate the color there. And moving on, so cash balances came down quite a bit this quarter. Do you feel liquidity is where you want it or more to deploy? And if so, how do you intend to do so over time? And what is the time frame for that deployment?

Yes. So the decrease we saw in cash and excess liquidity during the quarter was consistent with what we normally see from a seasonality perspective with the runoff of public funds and then you inherently have the deployment into loans we'd expect that runoff of public fund dollars to continue at a similar rate here into the second quarter. And we normally hit the trough at the end of the second quarter based on the tax collection cycles in Pennsylvania. And then we would look for that to continue to build. Again, that's just the normal seasonality of public funds outside of any of our deposit initiatives and other things we're looking to do to grow core deposits.

Got it. Great. And last one for me. Can you talk about the loan pipeline, expectations for growth over the next few quarters and competitive conditions? And then last, what are incremental yields?

So it's Mike K. In terms of pipeline, pipeline is solid for the second quarter. And the biggest thing that we're starting to see is somewhat of a normalization of our prepayment activity. That's actually what saw some of our commercial growth. We actually did a lower number of commitments in the first quarter than we did prior year, but still did an additional $23 million worth of net growth on the commercial side. So pipelines are solid. From a competitive perspective, and I would also mention that typically and historically, our quarters, the second quarter and the fourth quarter have been our best quarters from a loan growth perspective. And I don't see anything in the current picture that would change that. From a competitive perspective, it continues -- actually has gotten more competitive, especially on the CRE side. The good news with that from our perspective is we are playing more on the construction side. which margins are still strong there. But on the permit takeout side and obviously, on the strong C&I credits, you are starting to see this get even more competitive than it was. So we're still able to play in the niches that we want to and still see strong pricing with where we're originating and funding loans at. Brian can give you the specifics with regard to pricing.

Yes. We tend to be in the -- it's really consistent with the fourth quarter, what we saw in the first quarter in that kind of mid-6 range is where we were on new commercial loan rates.

Your next question comes from the line of Emily Lee with KBW.

This is Emily Lee stepping in for Tim Switzer. Congrats on a great quarter. Yes, no problem. So my first question is, how many Fed rate cuts are baked into your expectations? And if we have a flat rate environment, where do you anticipate the NIM shaking out? And then what would the impact of 25 bps Fed rate cut have on the NIM?

So when we came into the year in my initial guidance and our initial guidance was based on 2 rate cuts in the year. But as I had indicated at that time, the first couple of rate cuts really is not impactful to our over -- exclusive of short-term timing within any given quarter and just the timing of how things reprice, not overly impactful to our NII or NIM in the near term. So therefore, with the fact that now if there's an expectation of lower or reduced rate cuts, not really expecting that to have an impact on our guidance. So call it, whether there's 2 cuts or no cuts, we're kind of in the same range as the guidance that I provided.

Great. And then kind of switching to capital. On capital deployment, you continue to be active on the buyback front with about $12 million of repurchases this quarter. So how should we think about the buyback story going forward given your current capital position? And do you kind of anticipate you sticking around the $10 million plus range quarterly? Or would you guys pull back at all?

Emily, this is Jeff. No, I don't anticipate us pulling back on buybacks. It's a balance between loan growth, timing of loan growth where you might see a slight increase in our ratios compared to what we're targeting. But overall, we don't anticipate pulling back on buybacks in any time in the near future.

Yes. And this is Brian. Just to elaborate a little bit further. As we have indicated in the past, we really do not -- the metric we most closely monitor is CET1. We do not look for that to materially grow or really grow at all. During the quarter, that didn't -- we came into the year at 11.22%. We finished the first quarter here at 11.32%. We do not look for that to continue, and we actually look to ratchet that back down to that 11.22% or lower range here. So we would be ramping up buybacks accordingly to target that.

Understood. And then outside of buybacks, you increased the dividend this quarter. Are there any -- are you exploring any other capital priorities? And I guess, has your update for M&A changed at all? Or is it mainly buybacks?

So right now, I mean, we want to -- we've always wanted to keep some dry powder out there in case there are opportunities on the M&A front, whether it be in bank M&A, wealth M&A, insurance M&A. Right now, the best use of our capital appears to be on buying back shares. Obviously, there's no real execution risk there. Our earn-back period is still pretty short. So we're going to continue to be somewhat aggressive on the buyback front, but be opportunistic if something of interest were out there. We are open to looking at M&A opportunities that may arise more so than we probably were the last few years. given that we've done a lot of things internally that we've gotten projects behind us that we think we're probably in a lot better place to be able to look at M&A opportunities. So we're looking at them. We we'd be open to an opportunistic strategic opportunity. But in the meantime, we will continue to be heavier in the buyback arena.

Definitely makes sense. And then I guess just on the credit front, credit remained stable. I guess, is there anything you've been kind of looking out for from borrowers that you're kind of keeping an eye on?

First, there's no trends that we're seeing in our portfolio that are concerning. And I think that what we would look at is similar to what everybody else is looking at in terms of what is the impact of higher fuel costs and energy costs. And then we have a large ag book. So what is the impact of shortfalls and then obviously, increases in fertilizer costs. At the present time, those customers that are in either the shipping/distribution business are putting surcharges in. So they're not impacted it and are in discussion with our kind of ag clients, most of them have bought and gotten their fertilizer in advance. So it will be a next year consideration and one we'll have to evaluate in terms of how long the conflict remains and what the impact is on fertilizer prices as we move forward here.

Got it. And then just lastly for me. Can you just remind us what portion of the loan book is floating rate?

About 1/3 of the book is purely floating, about 30% is fixed, and then we have the remainder, which is adjustable with a little bit longer reset dates.

And at this time, there are no -- my apologies. And at this time, we have a question from the line of Chris Reynolds with Neuberger...

Yes, that was just a terrific quarter. My questions have been answered, but I just wanted to provide an observation that Neuberger became investors in your company back in 2009 when you raised cash, selling shares around $17. And Jeff, you and your management team have just done a superb job. Taking a look at where your earnings are right now, you may be approximating a $4 per share normalized earnings rate. And in that '08, '09 period, you were in the $1.60, $1.75 range. So there's been a tremendous increase in the earnings production and your market cap during that period has gone from about $270 million to $950 million. And so there's been a tremendous performance. And I think your stock does look undervalued, and I support the comments that you made about stock repurchase because if you look back during that period that I just referenced, your stock has topped out around $30 a share, 4x despite this increase in the earnings power of the company. So my thought is it looks like your stock is broken out and likely continue to move higher and the stock repurchase program really makes a lot of sense. So I just wanted to provide those comments and congratulate you on the performance.

Thanks, Chris. We really appreciate it. It's good to hear your voice. I know it's been a little bit of a while, but I appreciate you as a shareholder and all of our shareholders. We're excited about the first quarter. We're excited about the year. Obviously, there's a lot of uncertainty in the world, but I think we're in a good spot, and we're looking forward to having a really successful 2026.

I will now turn the call back over to Jeff Sweiser for closing remarks.

Thank you, Rebecca, and thank you, everyone, for joining us today. We have our shareholders' meeting this afternoon at 11:30 later this morning. So if anybody participates in that, we look forward to talking to you again at that point. Otherwise, just really appreciate everybody's support. And as I said a few seconds ago, we're really excited about the first quarter results and the year ahead of us and look forward to continue to perform at a high level. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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. [Operator Instructions]

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. 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 had a strong fourth quarter, reporting net income of $22.7 million or $0.79 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 3 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 nonaccrual commercial loan relationship were paid off and a $449,000 recovery was recognized. This relationship had been placed on nonaccrual during the second quarter of 2025.

As of December 31, 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 nonaccrual loans to total loans declined 20 basis points to 0.2% and our nonperforming 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 their continued efforts serving our customers, communities and each other.

I will now turn it over to Brian for further discussion on our results.

Thank you, Jeff, and I would also like to thank everyone for joining us today. We were very pleased to carry the momentum from the first 3 quarters into the fourth quarter and finish the year strong. I would now like to touch on 5 items from the earnings release.

First, during the quarter, we saw a 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 7 basis points compared to 3.17% in the third quarter, while core NIM, which excludes excess liquidity, increased 4 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 31, which was consistent with September 30. Net charge-offs for the quarter totaled $1.1 million or 7 basis points annualized.

Fourth, noninterest 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 31, 2024.

On December 10, 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 31, 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 million to $12 million per quarter.

I believe the remainder of the earnings release was straightforward, and I would now like to focus on 5 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 forecast and the credit performance of the portfolio. At this time, we expect the provision for 2026 to be in the range of $11 million to $13 million.

Third, 2025 noninterest income totaled $85.7 million when excluding $2.1 million of BOLI debt benefits. For 2026, we expect noninterest income growth of approximately 5% to 7% off the $85.7 million base.

Fourth, we reported noninterest 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?

[Operator Instructions] Our first question is from Tim Switzer from KBW.

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. How should that move over, I guess, Q1 and Q2? And then the follow-on to that is like what's the impact to excess cash? And 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?

Tim, this is Brian. I'll start out with that one. As it relates to public funds outflow, we expect $100 million 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 we -- a significant portion of the excess liquidity at the end of the period will be deployed over that time period.

Got you. Okay. That's great. And how should we think about the NIM trajectory 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 with the expansion that we saw in the first -- 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. And what are you guys seeing in terms of deposit competition? There's been some talk over -- I mean, kind of started last quarter, but it's picking up this quarter of increasing competition, pricing getting a lot more difficult even with the recent Fed rate cuts. What are you guys seeing in your markets? What's been the customer reaction on your end? And what's your ability to keep lowering deposits?

So 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.

Got you. Okay. And the last question I have is, can you review your ag farmland portfolio and like which products are in there? How granular is it? What kind of -- what is 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 a smaller range. And these -- 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 long-standing understanding and history. We have a conservative underwriting approach. And most importantly, beyond that, we have a very diversified business that underlines all these ag loans.

Tim, do you have anything else?

I think Tim will have to dial back in to ask their follow-up question. Our next question is from Tyler Cacciator from Stephens.

This is Tyler on for Matt Breese. My first question is just on the margin, and I appreciate the color there. 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.

This is Brian again. As we look at kind of new loan rates for the quarter, we definitely -- 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. And then my next question is just on the loan growth going into next year. I 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.

Yes. So as Jeff referenced in his opening comments, the first 3 quarters of 2025, we see -- 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 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 onetime 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, to be much more heavily oriented towards the commercial side in comparative to the last couple of years with actually a decline on the residential mortgage side.

Great. And then if I could just squeeze one more in on the expense side. It's a bit higher than what we're expecting this quarter, which I assume a lot of that to be fourth quarter seasonality stuff. If you could just talk about a good starting point for the first quarter. And yes, I heard you on the 3% to 5% expense growth, but maybe just touch on where we're starting at.

Yes. So as we looked at kind of incentive accruals and the like, you have 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.

[Operator Instructions] Our next question is from Manuel Navas from Piper Sandler.

Can I ask a broader picture question on -- is your buyback pace at all tied into movements in your balance sheet? And like if loan growth slows down, could that increase? Can you just talk to that kind of buyback acceleration?

Sure, Manuel. 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 2 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.

Okay. 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?

Yes. 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 7 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. And then deposit initiatives are key. Can you talk 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. 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 sit 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 2 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 in 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.

[Operator Instructions] 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. 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.

Hello, everyone, and thank you for joining the Univest Financial Corporation Third Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instruction] I will now hand over to Jeff Schweitzer, President, Chairman and CEO of Univest Financial Corporation. Please go ahead.

Thank you, Claire, and good morning, and thank you to all of our listeners for joining us. Joining me on the call this morning is 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. 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 had a strong third quarter, reporting net income of $25.6 million or $0.89 per share. This was an increase of $7.1 million or 38% compared to the same quarter in the prior year, primarily due to continued growth in our net interest income and margin, combined with prudent expense management as expenses are only up 2% year-to-date compared to the prior year. While loan outstandings contracted slightly during the quarter by $15.7 million, production has remained solid through the first 9 months of the year. However, we continue to be impacted by early payoffs and paydowns. Year-to-date, new commercial loan commitments through September 30 were $808 million compared to $659 million in the prior year. However, this has resulted in contraction in loan outstandings year-to-date of $41.1 million compared to growth of $163.5 million in the prior year.

Deposits increased significantly during the quarter by $635.5 million during -- predominantly due to the seasonal build of public funds deposits of $473.2 million. Excluding the build in public funds deposits, deposits increased $162.3 million during the quarter. During the second quarter of this year, we recorded a $7.3 million charge-off related to a commercial loan relationship that had been placed on nonaccrual and had a $16.4 million carrying balance as of June 30, 2025.

As of September 30, 2025, the carrying balance of loans and other real estate owned related to this relationship totaled $13.9 million and $1.4 million, respectively. The $13.9 million of loans is secured by commercial real estate, which is under the control of a court-appointed receiver. The receiver has entered into an agreement to sell the property, which is subject to court approval.

If the sale is approved by the court and consummated in accordance with the executed agreement, we expect the proceeds will adequately cover our carrying balance, resulting in no further charge-offs. With regards to the $1.4 million residential OREO asset, the carrying balance is supported by an appraisal and eviction proceedings are underway. 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 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, reported NIM for the quarter was 3.17%, down slightly from 3.20% last quarter due to increased excess liquidity during the quarter from our seasonal public funds build. However, core NIM of 3.33%, which excludes the impact of excess liquidity, expanded by 9 basis points compared to the second quarter. We expect core NIM to be relatively flat in the fourth quarter. Second, during the quarter, we recorded a provision for credit losses of $517,000. Our coverage ratio was 1.28% at September 30, which was consistent with June 30. Net charge-offs for the quarter totaled $480,000 or 3 basis points annualized.

Third, noninterest income increased $1.8 million or 8.8% compared to the third quarter of 2024. This includes $987,000 increase in BOLI death benefits. Fourth, noninterest expense increased $2.1 million or 4.4% compared to the third quarter of 2024. The increase was primarily driven by compensation costs, specifically annual merit increases and variable incentives.

Additionally, we saw increases in bank share, tax and loan workout fees. As Jeff mentioned, through the first 9 months of the year, expenses were up 2% as we remain focused on prudent expense management. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update to our 2025 guidance. First, for the full year, we expect loans to be relatively flat when compared to December 31, 2024. We expect net interest income growth to be 12% to 14% compared to 2024.

Second, we expect our provision for credit losses to be $11 million to $13 million for 2025. However, the provision will continue to be event-driven, including loan growth, changes in economic-related assumptions and the credit performance of the portfolio, including specific credits. Third, 2024 noninterest income totaled $84.5 million when excluding the $3.4 million gain on sale of MSRs and $245,000 of BOLI death benefits. For 2025, we expect noninterest income growth of approximately 1% to 3% off the $84.5 million base.

However, there is a risk to this guidance if the government shutdown continues and we are unable to originate and sell SBA loans during the fourth quarter. Fourth, we reported noninterest expense of $198 million for 2024. For 2025, we expect growth of approximately 2% to 3% -- as it relates to income taxes, our guidance remains unchanged at 20% to 20.5% based on the current statutory rates. This concludes my prepared remarks. We will be happy to answer any questions. Claire, would you please begin the question-and-answer session?

We have our first question from Tyler Cacciator from Stephens.

This is Tyler on for Matt Breese.

If you could just walk me through the public funds, commercial and broker deposit inflows, what's going to be there versus coming out going forward? And then I guess, kind of the same question for cash balances.

Yes. We would expect that normal seasonality would be $75 million to $100 million of outflows of public funds per month in the fourth quarter, and then we see that trend continue into the first quarter. And the commercial deposit build that we saw, there were a couple of one-timers in there that are transaction-based where we'll see some of that flow out as well. So we'll see kind of consistent with prior years, we'll see that excess liquidity start to diminish potentially cut in half, call it, through the fourth quarter and then see it continue to wind down in the first quarter.

Great, thank you and then my next question is just on the margin. If you could add some more color on the NIM outlook, the NIM and the outlook from there, I would also love to hear about incremental loan yields and where you think the cost of deposits settle out once the seasonal items roll off.

Yes. So as it relates to NIM, as I said, I'd expect the core NIM to be relatively flat and then reported NIM just based on the timing of excess liquidity outflows and the like, that will be within a couple of basis points of where we were here in the third quarter.

We continue to see strong new loan yields hovering around just below the 7% range on the commercial side. Those have been north of 7% for the last several quarters. But with Fed rate action and the like, you start to see those ticking down a little bit. And on the cost of fund side, I mean, we still have the opportunity for CDs to be repricing as they mature and come through. So that's an opportunity that will continue to lead to a little bit of benefit there. And then again, as we see the higher cost public funds run out, you'd expect that to tick down a little bit as well.

Great. And then if I could just squeeze one more in. You may have talked about it a little bit in the prepared remarks, but if you could just talk about the loan pipeline a little bit, what expectations are there for the next few quarters and kind of what the main drivers are there? That will be it for me.

Sure. Loan pipeline is healthy at this point in time, as Jeff referenced in the opening remarks, commitment and new activity actually exceeded last year. But this year, we're in a decline versus the growth last year.

We are expecting some level of growth consistent with the guidance that Brian provided in the fourth quarter. It's always subject to what happens on the prepayment activity, but we feel good with the activity that we have in front of us and as we move forward here in the fourth quarter. We need to continue to match our loan growth with our deposit activity to keep our loan-to-deposit ratio in the range that we're targeting. So that continues to be the governor.

And the other part of what's going on in our loan growth story is from a CRE perspective, we're much more focused on construction commitments. So those are going to ebb and flow based upon draw activity, whereas in the past, we are doing permanent takeout finance as well. So we're actually churning the same dollar of capital for construction activity multiple times and generating increased fee income, which is actually leading to some of the rationale behind our improvements in our profitability ratios.

And on the mortgage side, we have returned over the last year plus back to more traditional mortgage banking, which has also led to a decline in the level of residential mortgages we're putting on our books. So there's a balance as we move forward here, but pipelines on the commercial side are healthy and continue to be strong.

Our next question comes from Emily Lee from KBW.

This is Emily stepping in for Tim Switzer. Congratulations on the quarter and thanks for taking that questions.

So I wanted to kind of ask about -- you mentioned the -- in terms of the cost of funds and opportunity for CDs to reprice as they come through. I was wondering what amount of CDs are set to reprice over the next few quarters? And also more generally, how has deposit competition been looking in your markets? I know last quarter, you mentioned it's been a little fierce. So I was wondering if you're still seeing that and if there's any opportunity to bring down those deposit costs further outside of CDs, too.

Yes. This is Brian, Emily. On the CD side, we have a couple of hundred million dollars a quarter of CDs that are maturing and churning. And we had that throughout this year, and that continues to be the case for the foreseeable future. As it relates to rates, competition continues to be fierce, while at a lower absolute level just based on the interest rate environment, things still remain very competitive on the deposit pricing side for attractively and cost-effective deposits. Yes.

And what we're seeing on the CD side, specifically from a competitive nature is that a lot of credit unions are -- we would offer that rate for maybe a 7-month term, and they're extending that into 24 months and beyond terms. And given what we're seeing and anticipating subsequently from Fed movements, that's just not realistic and not good for us from a net interest margin perspective. So that's where you see the biggest and strongest competition.

Understood. And also in terms of the NIM and as it relates to Fed rate cuts, how -- what's the exact impact or I guess, the range of the impact for each 25 basis point rate cut that would have on NII and the NIM?

So from a -- for the first -- the next couple of cuts, we'll call it, not expected to be overly impactful. There may be some timing within a quarter depending on when your variable rate loans and deposits may reset and the expectations of that leading up to a cut. But all things equal over a couple-of-month time horizon be relatively neutral for the first couple of cuts here. As you get deeper into a cut cycle, you'd start to see potentially a little bit of pressure. But again, that all gets back to the competitive environment at that point in time and what occurs. But our balance sheet model is out relatively neutral at this point.

Okay. Got it. And can you also remind us what portion of the loan book is floating rate? I believe a few quarters ago, it was roughly 1/3 of the book. And so I was wondering if that was still correct.

Yes, correct. It continues to be right in that range.

Okay. Got it. And then just two more questions, if that's okay. On capital deployment, you been, you've continued to be active on the buyback front. And I was just wondering how we should think about the buyback story going forward. And if you anticipate kind of sticking around the $6 million to $7 million range quarterly or if you kind of intend to pull back a little bit?

So this is Brian again. As it relates to capital deployment, as we've said in the past, we're not looking to meaningfully grow our regulatory capital ratios, and we look at any capital that we do generate, we look at deploy and return it to shareholders via things like the buyback. So we look to toggle our buyback activity based on our forward forecast of earnings growth and balance sheet growth accordingly. So there's no anticipation at this time to cut back from that $6 million to $7 million per quarter, but we would look to opportunistically deploy. If we're in a position where capital is going to be growing, we would potentially be deploying more via buybacks.

Okay. Understood. And then also just wondering how you kind of think about M&A given kind of a regulatory easing environment and if your appetite for M&A has changed at all?

Yes, Emily. So our appetite really hasn't changed at this point. Part of the problem is when we look at the landscape, given that we're at the $8 billion range to buy something to bump up right to the $10 billion doesn't make a lot of sense.

And also when we look around, there just isn't much that we're seeing out there that we feel is something that we would really want to go after at this point, especially considering we have a lot of internal initiatives we're doing on the efficiency front and with digital that we really don't want to take our eye off of the ball on what we're accomplishing there and what we're working on because we were basically doing an M&A transaction, we would have to put a lot of that on pause, and we see some good efficiency paybacks continuing to go forward as we continue to lower our efficiency ratio. and manage expenses, we don't really want to take our eye off that ball and we'd like to continue to work through those projects before we really start meaningfully looking at M&A. We're always open to it. If something popped that was very interesting and look like it could be really helpful to our franchise, but it's not one of our, I would say, top strategic priorities at this point.

Okay, understood. Well, congratulations on the great quarter and thanks for taking that questions, Jeff.

We currently have no further questions. So I'll hand back to Jeff for any closing remarks.

Thank you very much, and thank you to everybody for participating today. We're excited about the quarter that we were able to print for the third quarter and look forward to finishing the year strong and talking to you in January. Have a good day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.

Good morning all, and thank you for joining us for Univest Financial Corporation's Second Quarter 2025 Earnings Call. My name is Carly, and I'll be coordinating the call today. [Operator Instructions] I'd now like to hand over to our host, Jeff Schweitzer, to begin. The floor is yours.

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 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. 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 during the second quarter or $0.69 per share. While loan outstandings contracted by $31.9 million during the quarter, production has remained solid through the first 6 months of the year. However, we continue to be impacted by early payoffs and paydowns. Overall, year-to-date commercial loan production through June 30 was $507 million compared to $402 million in the prior year. However, this has resulted in contraction in loan outstandings year-to-date of $25.4 million compared to growth of $117.6 million in the prior year.

While deposits decreased $75.8 million during the quarter, this was predominantly due to the seasonal decline of public funds deposits and a decline in broker deposits. Excluding these declines, deposits increased $77.5 million during the quarter.

During the quarter, we recorded $7.8 million 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 has been placed on nonaccrual 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 NIM of 3.2% increased by 11 basis points from 3.09% in the prior quarter due to increased yields on assets and a reduction in our cost of funds. Core NIM of 3.24%, which excludes the impact of excess liquidity, expanded by 12 basis points compared to the first quarter. We expect core NIM 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, noninterest income increased by $521,000 or 2.5% 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 banking due to elevated interest rate environment and competition.

Third, noninterest expense increased $1.6 million or 3.3% 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 the earnings release was straightforward, and I would now like to provide an update to our 2025 guidance.

First, for the full year, we expect loan growth of approximately 1% to 3%, and we expect net interest income growth of 10% to 12% compared to 2024. Second, our provision for credit loss guidance remains unchanged at $12 million to $14 million for 2025. However, the provision will continue to be event-driven, including loan growth, changes in economic-related assumptions and the credit performance of the portfolio, including specific credits. Third, 2024 noninterest income totaled $84.5 million when excluding the $3.5 million gain on sale of MSRs and $245,000 of BOLI death benefits. For 2025, we expect noninterest income growth of approximately 1% to 3% off the $84.5 million base.

Fourth, we reported noninterest expense of $198 million for 2024. For 2025, we expect growth of approximately 2% to 4% Lastly, as it relates to income taxes, our guidance remains unchanged at 20% to 20.5% based on current statutory rates. The aggregate impact of these guidance updates when compared to our most recent guidance is accretive to both EPS and PPNR. That concludes my prepared remarks. We will be happy to answer any questions. Carly, would you please begin the question-and-answer session?

[Operator Instructions] Our first question comes from Tim Switzer from KBW.

I apologize, you broke up a little bit on my end on some of the guidance numbers. Could you give me your update for loan growth and expenses?

Sure. Loan growth is 1% to 3% and corresponding net interest income growth is 10% to 12% and then expenses is 2% to 4%.

Okay. Great. I guess could you maybe talk about some of the changes there? It looks like both those numbers are down a little bit. Could you just talk about what you're seeing from the loan environment? Is there a lot of -- is demand 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 -- we predict that and forecast that and are interacting with our customers to the best of our ability. We're looking for that to slow down, that being prepayment activity in the second half of the year, and we'll continue to produce at the levels that we have, and therefore, that will lead to growth.

And then on the expense side, we just continue to see the benefit of our prudent 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 we trend through the first 6 months of the year, that's what's causing us to ratchet the expense growth down from 4% to 5% down to 2% to 4%.

Got you. Okay. And you guys are sitting with very healthy capital levels. You haven't seemed all that determined to execute any M&A deals. You guys are doing a little bit of share repurchases, but with the share price coming up, it's going to be a longer earnback. 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 to reinvest into the business?

Yes. So Tim, we will continue to be active on buybacks. And even with the rise in our share price, the earn-back period, while it's gotten longer, it's still well -- it's within a 2- to 3-year range even as we go up from here. So we'll continue to stay active on the buyback front. We feel that that's a good use of capital. While M&A isn't an immediate strategic priority of ours, we always want to be -- 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 nonbank 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.

No, I would say that that's consistent with what we see, especially on the consumer side with money market rates and CD rates. So yes, it is a tough environment out there. People continue to fight for the deposit and generate the liquidity 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 as they follow us, the third quarter will be a peak quarter for us on public funds. So that would be expected and we will continue to manage through. But no, it is a tough environment from a competitive perspective.

Okay. Got you. And last question for me. Could you guys talk about your outlook in terms of the NIM trajectory going forward over the next couple of quarters? You mentioned public funds is going to be seasonally higher next quarter, so that impacts it a little bit. And then what would you guide -- what kind of impact would you expect from 1 or 2 rate cuts in the back half of the year?

Sure, Tim. So as I had guided for the third quarter, we expect core NIM to pull back -- reported NIM to pull back for sure, core NIM to pull back slightly just again, due to our -- the repricing of our sub debt issuance as well as those higher cost public funds coming on, then we expect it to be flat to slightly up thereafter, assuming relatively stable interest rate environment for the next several quarters. If we -- 1 or 2 rate cuts, it really does not expect it 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 liabilities reprice. 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 ALM perspective.

[Operator Instructions] Our next question comes from Tyler Cacciator from Stephens.

This is Tyler on for Matt Breese. I just wanted to start, last week, Senator Dave McCormick held 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 flowing into Pennsylvania. We'll 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 is excited, obviously, to see the investment made in Pennsylvania.

And I would just add, wouldn't just be Eastern Pennsylvania for us. We're obviously active in Central Pennsylvania, and we have a presence in Western Pennsylvania. So to Jeff's point, we'd be certainly pleased to participate across our footprint.

All right. 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 increased 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 2. And again, as we said, production remained strong, just the lack of loan growth is really driven by the payoff headwinds.

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

Not repeat. I think that will definitely start to slow down from an expansion perspective because we have the repricing of the book occurs, of course, as that base gets 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 in any way.

We currently have no further questions. So I'd just like to hand back to Jeff Schweitzer for any further remarks.

I'd just like to thank everyone for participating today. I hope you're having a great summer, and 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 may now disconnect your lines.