Univest Financial Corporation Reports Fourth Quarter and 2022 Results

Univest Financial Corporation

(2022 Loan Growth of 16.0% (excluding PPP¹ loans))

SOUDERTON, Pa., Jan. 25, 2023 (GLOBE NEWSWIRE) -- Univest Financial Corporation (“Univest” or the "Corporation") (NASDAQ: UVSP), parent company of Univest Bank and Trust Co. and its insurance, investments and equipment financing subsidiaries, announced net income for the quarter ended December 31, 2022 was $23.8 million, or $0.81 diluted earnings per share, compared to net income of $17.4 million, or $0.59 diluted earnings per share, for the quarter ended December 31, 2021.

One-Time Items
The financial results for the quarter included bank owned life insurance ("BOLI") death benefit claims of $526 thousand, which represented $0.02 diluted earnings per share. Restructuring charges of $184 thousand were recognized in the fourth quarter related to the consolidation of two financial centers.

Loans
Gross loans and leases, excluding Paycheck Protection Program ("PPP") loans¹, increased $842.8 million, or 16.0%, from December 31, 2021, primarily due to increases in commercial, commercial real estate, construction, residential mortgage loans, and lease financings. Gross loans and leases, excluding PPP loans, increased $274.0 million, or 18.8% (annualized), from September 30, 2022, primarily due to increases in commercial, commercial real estate, construction, residential mortgage loans, and lease financings.

Deposits
Total deposits decreased $151.3 million, or 2.5%, from December 31, 2021, primarily due to decreases in commercial, consumer and public funds deposits partially offset by an increase in brokered deposits. Total deposits increased $116.8 million, or 8.0% (annualized), from September 30, 2022, primarily due to increases in commercial, consumer and brokered deposits partially offset by decreases in public funds deposits.

Net Interest Income and Margin
Net interest income of $61.9 million for the three months ended December 31, 2022 increased $3.7 million, or 6.3%, from the three months ended September 30, 2022, and $14.4 million, or 30.3%, from the three months ended December 31, 2021. The increase in net interest income for the three months ended December 31, 2022 compared to the same period of 2021 and the prior quarter was largely due to significant loan growth, the rapid increase in interest rates and the asset sensitivity of the Corporation's balance sheet, offset by an increase in costs of funds.

Net interest margin, on a tax-equivalent basis, was 3.76% for the fourth quarter of 2022, compared to 3.67% for the third quarter of 2022 and 2.86% for the fourth quarter of 2021. Excess liquidity reduced net interest margin by approximately one basis point for the quarter ended December 31, 2022 compared to one basis point for the quarter ended September 30, 2022 and 43 basis points for the quarter ended December 31, 2021. PPP loans had no impact on net interest margin for the quarters ended December 31, 2022 and September 30, 2022 and had a favorable impact on net interest margin of eight basis points for the quarter ended December 31, 2021. Excluding the impact of excess liquidity and PPP loans, the net interest margin, on a tax-equivalent basis, was 3.77% for the quarter ended December 31, 2022 compared to 3.68% for the quarter ended September 30, 2022 and 3.21% for the quarter ended December 31, 2021.

Noninterest Income
Noninterest income for the quarter ended December 31, 2022 was $20.5 million, an increase of $1.3 million, or 6.6%, from the comparable period in the prior year.

Investment advisory commission and fee income increased $700 thousand, or 14.3%, for the quarter ended December 31, 2022 compared to the comparable period in the prior year. This increase was primarily due to a $1.2 million adjustment in the quarter for previously unrecorded revenue of which $815 thousand related to the first nine months of 2022. This adjustment was partially offset by decreased income driven by reduced assets under management due to market volatility. Insurance commission and fee income increased $698 thousand, or 18.7%, for the quarter ended December 31, 2022 compared to the comparable period in the prior year, primarily due to incremental revenue attributable to the acquisition of the Paul I. Sheaffer insurance agency in the fourth quarter of 2021.

Other income increased $1.2 million, or 114.7%, for the quarter ended December 31, 2022 compared to the comparable period in the prior year due to a $1.1 million increase in interest rate swap income.

BOLI increased $511 thousand, or 71.1%, for the quarter ended December 31, 2022 compared to the comparable period in the prior year, primarily due to death benefit claims as previously discussed.

Net gain on mortgage banking activities decreased $2.1 million, or 82.7%, for the quarter ended December 31, 2022 compared to the comparable period in the prior year, primarily due to a decrease in loan sales and a contraction of gain on sale margins.

Noninterest Expense
Noninterest expense for the quarter ended December 31, 2022 was $47.3 million, an increase of $4.0 million, or 9.2%, from the comparable period in the prior year. The results for the three months ended December 31, 2022 included approximately $434 thousand in expenses related to our digital transformation initiative, a comprehensive digital platform which will blend our core operating systems together and allow Univest to personalize experiences and seamlessly deliver existing products and services, digitally, across an expanded footprint.

Salaries, benefits and commissions increased $1.7 million, or 6.0%, for the quarter ended December 31, 2022 compared to the comparable period in the prior year. This increase reflects the insurance acquisition in the fourth quarter of 2021, our expansion into Maryland and Western Pennsylvania, and annual merit increases.

Data processing expenses increased $684 thousand, or 20.4%, for the quarter ended December 31, 2022 compared to the comparable period in the prior year, primarily due to continued investments in technology, general price increases, and $206 thousand in support of the previously discussed digital transformation initiative for the respective period.

Restructuring charges increased $184 thousand for the quarter ended December 31, 2022 compared to the comparable period in the prior year as previously discussed.

Other expense increased $1.2 million, or 21.3%, for the quarter compared to the comparable period in the prior year primarily due to increases in travel and entertainment expenses of $228 thousand for the quarter and $430 thousand of fraud losses.

Tax Provision
The effective income tax rate was 19.6% for the year ended December 31, 2022, compared to an effective income tax rate of 19.7% for the year ended December 31, 2021. The effective tax rate for the year ended December 31, 2022 and 2021 reflects the benefits of tax-exempt income from investments in municipal securities and loans and leases.

Asset Quality and Provision for Credit Losses
Nonperforming assets were $33.5 million at December 31, 2022, compared to $33.0 million at September 30, 2022 and $34.0 million at December 31, 2021.

Net loan and lease charge-offs were $908 thousand and $1.2 million for the three months ended December 31, 2022 and September 30, 2022, respectively, compared to net loan and lease recoveries of $243 thousand for the three months ended December 31, 2021. Net loan and lease charge-offs were $3.9 million and $213 thousand for the year ended December 31, 2022 and December 31, 2021, respectively.

The provision for credit losses was $5.4 million for the three months ended December 31, 2022 compared to a provision for credit losses of $3.6 million and $1.4 million for the three months ended September 30, 2022 and December 31, 2021, respectively. The provision for credit losses was $12.2 million for the year ended December 31, 2022 compared to a reversal of provision for credit losses of $10.1 million for the comparable period in the prior year. The allowance for credit losses on loans and leases as a percentage of loans and leases held for investment was 1.29% at December 31, 2022 compared to 1.28% at September 30, 2022 and 1.35% at December 31, 2021.

Dividend
On January 25, 2023, Univest declared a quarterly cash dividend of $0.21 per share to be paid on February 22, 2023 to shareholders of record as of February 8, 2023.

Conference Call
Univest will host a conference call to discuss fourth quarter 2022 results on Thursday, January 26, 2023 at 9:00 a.m. EST. Participants may preregister at https://www.netroadshow.com/events/login?show=789ec9e7&confId=45853. The general public can access the call by dialing 1-844-200-6205; using Access Code 610261. A replay of the conference call will be available through February 23, 2023 by dialing 1-866-813-9403; using Access Code: 720149.

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

About Univest Financial Corporation
Univest Financial Corporation (UVSP), including its wholly-owned subsidiary Univest Bank and Trust Co., Member FDIC, has approximately $7.2 billion in assets and $4.2 billion in assets under management and supervision through its Wealth Management lines of business at December 31, 2022. Headquartered in Souderton, Pa. and founded in 1876, the Corporation and its subsidiaries provide a full range of financial solutions for individuals, businesses, municipalities and nonprofit organizations primarily in the Mid-Atlantic Region. Univest delivers these services through a network of more than 50 offices and online at www.univest.net.

This press release and the reports Univest files with the Securities and Exchange Commission often contain "forward-looking statements" relating to trends or factors affecting the financial services industry and, specifically, the financial condition and results of operations, business, prospects and strategies of Univest. These forward-looking statements involve certain risks and uncertainties in that there are a number of important factors that could cause Univest's future financial condition, results, business, prospects or strategies to differ materially from those expressed or implied by the forward-looking statements. These factors include, but are not limited to: (1) competition; (2) inflation and/or changes in interest rates, which may adversely impact our margins and yields, reduce the fair value of our financial instruments, reduce our loan originations or lead to higher operating costs; (3) changes in asset quality, prepayment speeds, loan sale volumes, charge-offs and/or credit loss provisions; (4) changes in economic conditions nationally and in our market; (5) economic assumptions that may impact our allowance for credit losses calculation; (6) legislative, regulatory, accounting or tax changes; (7) technological issues that may adversely affect our operations or those of our customers; (8) changes in the securities markets; (9) the continuing effects resulting from the COVID-19 pandemic on our business and results of operation; (10) the current or anticipated impact of military conflict, terrorism or other geopolitical events; (11) potential recessionary conditions and/or (12) risk factors mentioned in the reports and registration statements Univest files with the Securities and Exchange Commission.

(UVSP - ER)

Univest Financial Corporation
Consolidated Selected Financial Data (Unaudited)
December 31, 2022
(Dollars in thousands)
Balance Sheet (Period End)		12/31/22				09/30/22				06/30/22				03/31/22				12/31/21
ASSETS
Cash and due from banks		$	84,176			$	65,859			$	59,590			$	57,307			$	49,202
Interest-earning deposits with other banks			68,623				47,451				35,187				716,474				840,948
Cash and cash equivalents			152,799				113,310				94,777				773,781				890,150
Investment securities held-to-maturity			154,727				159,170				159,808				166,339				176,983
Investment securities available for sale, net of allowance for credit losses			350,256				347,479				351,382				349,994				317,007
Investments in equity securities			2,579				2,994				2,934				2,569				2,999
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost			33,841				29,475				29,116				26,330				28,186
Loans held for sale			5,037				9,087				8,352				14,521				21,600
Loans and leases held for investment			6,123,230				5,849,259				5,661,777				5,400,786				5,310,017
Less: Allowance for credit losses, loans and leases			(79,004	)			(74,929	)			(72,011	)			(68,286	)			(71,924	)
Net loans and leases held for investment			6,044,226				5,774,330				5,589,766				5,332,500				5,238,093
Premises and equipment, net			50,939				50,533				50,080				50,429				56,882
Operating lease right-of-use assets			30,059				30,654				30,929				30,498				30,407
Goodwill			175,510				175,510				175,510				175,510				175,510
Other intangibles, net of accumulated amortization			11,384				11,650				11,728				11,784				11,848
Bank owned life insurance			120,297				120,035				120,103				119,398				118,699
Accrued interest and other assets			90,362				83,170				76,328				54,087				54,057
Total assets		$	7,222,016			$	6,907,397			$	6,700,813			$	7,107,740			$	7,122,421
LIABILITIES
Noninterest-bearing deposits		$	2,037,562			$	1,968,422			$	2,062,538			$	2,136,467			$	2,065,423
Interest-bearing deposits:			3,866,263				3,818,554				3,500,510				3,911,465				3,989,701
Total deposits			5,903,825				5,786,976				5,563,048				6,047,932				6,055,124
Short-term borrowings			197,141				80,711				97,606				18,976				20,106
Long-term debt			95,000				95,000				95,000				95,000				95,000
Subordinated notes			148,260				99,107				99,030				98,952				98,874
Operating lease liabilities			33,153				33,718				33,951				33,566				33,453
Accrued expenses and other liabilities			68,137				57,698				48,253				39,459				46,070
Total liabilities			6,445,516				6,153,210				5,936,888				6,333,885				6,348,627
SHAREHOLDER'S EQUITY
Common stock, $5 par value: 48,000,000 shares authorized and 31,556,799 shares issued			157,784				157,784				157,784				157,784				157,784
Additional paid-in capital			300,808				299,791				298,800				297,945				299,181
Retained earnings			428,637				410,942				396,295				389,332				375,124
Accumulated other comprehensive loss, net of tax benefit			(62,104	)			(64,985	)			(42,781	)			(31,909	)			(16,353	)
Treasury stock, at cost			(48,625	)			(49,345	)			(46,173	)			(39,297	)			(41,942	)
Total shareholders’ equity			776,500				754,187				763,925				773,855				773,794
Total liabilities and shareholders’ equity		$	7,222,016			$	6,907,397			$	6,700,813			$	7,107,740			$	7,122,421
		For the three months ended,																				For the twelve months ended,
Balance Sheet (Average)		12/31/22				09/30/22				06/30/22				03/31/22				12/31/21				12/31/22			12/31/21
Assets		$	7,019,381			$	6,797,466			$	6,962,401			$	7,047,980			$	7,088,289			$	6,956,292		$	6,655,443
Investment securities, net of allowance for credit losses			505,717				517,335				515,741				522,128				469,588				515,192			406,463
Loans and leases, gross			5,979,581				5,752,119				5,520,580				5,344,698				5,255,279				5,651,265			5,322,475
Deposits			5,837,823				5,645,291				5,903,173				5,984,815				6,041,798				5,841,832			5,591,195
Shareholders' equity			767,192				773,099				771,410				774,358				762,334				771,499			734,456

Univest Financial Corporation
Consolidated Summary of Loans by Type and Asset Quality Data (Unaudited)
December 31, 2022
(Dollars in thousands)
Summary of Major Loan and Lease Categories (Period End)		12/31/22				09/30/22				06/30/22				03/31/22				12/31/21
Commercial, financial and agricultural		$	1,086,781			$	1,052,733			$	1,028,354			$	932,485			$	956,396
Paycheck Protection Program			2,147				2,207				5,358				10,298				31,748
Real estate-commercial			3,027,955				2,936,204				2,870,286				2,816,737				2,718,535
Real estate-construction			381,811				329,915				319,449				285,083				283,918
Real estate-residential secured for business purpose			478,254				443,837				419,652				412,486				409,900
Real estate-residential secured for personal purpose			730,395				685,771				629,144				568,735				540,566
Real estate-home equity secured for personal purpose			176,699				175,843				168,536				160,134				158,909
Loans to individuals			27,873				26,679				27,061				26,249				25,504
Lease financings			211,315				196,070				193,937				188,579				184,541
Total loans and leases held for investment, net of deferred income			6,123,230				5,849,259				5,661,777				5,400,786				5,310,017
Less: Allowance for credit losses, loans and leases			(79,004	)			(74,929	)			(72,011	)			(68,286	)			(71,924	)
Net loans and leases held for investment		$	6,044,226			$	5,774,330			$	5,589,766			$	5,332,500			$	5,238,093
Asset Quality Data (Period End)		12/31/22				09/30/22				06/30/22				03/31/22				12/31/21
Nonaccrual loans and leases, including nonaccrual troubled debt restructured
loans and leases		$	13,353			$	13,620			$	13,355			$	30,876			$	33,210
Accruing loans and leases 90 days or more past due			875				416				2,784				274				498
Accruing troubled debt restructured loans and leases			49				50				50				51				51
Total nonperforming loans and leases			14,277				14,086				16,189				31,201				33,759
Other real estate owned			19,258				18,960				18,604				279				279
Total nonperforming assets		$	33,535			$	33,046			$	34,793			$	31,480			$	34,038
Nonaccrual loans and leases / Loans and leases held for investment			0.22	%			0.23	%			0.24	%			0.57	%			0.63	%
Nonperforming loans and leases / Loans and leases held for investment			0.23	%			0.24	%			0.29	%			0.58	%			0.64	%
Nonperforming assets / Total assets			0.46	%			0.48	%			0.52	%			0.44	%			0.48	%
Allowance for credit losses, loans and leases		$	79,004			$	74,929			$	72,011			$	68,286			$	71,924
Allowance for credit losses, loans and leases / Loans and leases held for investment			1.29	%			1.28	%			1.27	%			1.26	%			1.35	%
Allowance for credit losses, loans and leases / Loans and leases held for investment, excluding Paycheck Protection Program loans (1)			1.29	%			1.28	%			1.27	%			1.27	%			1.36	%
Allowance for credit losses, loans and leases / Nonaccrual loans and leases held for investment			591.66	%			550.14	%			539.21	%			221.16	%			216.57	%
Allowance for credit losses, loans and leases / Nonperforming loans and leases held for investment			553.37	%			531.94	%			444.81	%			218.86	%			213.05	%
		For the three months ended,																				For the twelve months ended,
		12/31/22				09/30/22				06/30/22				03/31/22				12/31/21				12/31/22				12/31/21
Net loan and lease charge-offs (recoveries)		$	908			$	1,196			$	1,715			$	76			$	(243	)		$	3,895			$	213
Net loan and lease charge-offs (recoveries) (annualized)/Average loans and leases			0.06	%			0.08	%			0.12	%			0.01	%			(0.02	%)			0.07	%			0.00	%
(1) Non-GAAP metric. A reconciliation of this and other non-GAAP to GAAP performance measures is included at the end of this document.

Univest Financial Corporation
Consolidated Selected Financial Data (Unaudited)
December 31, 2022
(Dollars in thousands, except per share data)
		For the three months ended,																For the twelve months ended,
For the period:		12/31/22			09/30/22			06/30/22			03/31/22				12/31/21			12/31/22			12/31/21
Interest income		$	77,401		$	66,877		$	56,717		$	51,198			$	52,262		$	252,193		$	209,731
Interest expense			15,485			8,627			5,246			4,538				4,737			33,896			21,348
Net interest income			61,916			58,250			51,471			46,660				47,525			218,297			188,383
Provison (reversal of provision) for credit losses			5,416			3,558			6,674			(3,450	)			1,392			12,198			(10,132	)
Net interest income after provision for credit losses			56,500			54,692			44,797			50,110				46,133			206,099			198,515
Noninterest income:
Trust fee income			1,808			1,835			1,998			2,102				2,086			7,743			8,403
Service charges on deposit accounts			1,575			1,522			1,574			1,504				1,486			6,175			5,504
Investment advisory commission and fee income			5,585			4,199			4,812			5,152				4,885			19,748			18,936
Insurance commission and fee income			4,424			4,442			4,629			5,570				3,726			19,065			16,357
Other service fee income			3,236			3,124			3,309			2,756				2,759			12,425			10,275
Bank owned life insurance income			1,230			1,153			705			699				719			3,787			3,981
Net gain on sales of investment securities			-			-			-			30				5			30			145
Net gain on mortgage banking activities			436			817			1,230			1,929				2,518			4,412			15,141
Other income			2,164			867			741			728				1,008			4,500			4,482
Total noninterest income			20,458			17,959			18,998			20,470				19,192			77,885			83,224
Noninterest expense:
Salaries, benefits and commissions			29,028			29,400			29,133			28,245				27,374			115,806			104,191
Net occupancy			2,551			2,504			2,422			2,716				2,477			10,193			10,397
Equipment			977			968			977			982				985			3,904			3,899
Data processing			4,039			3,901			3,708			3,567				3,355			15,215			12,743
Professional fees			1,829			2,521			2,844			2,138				1,750			9,332			7,687
Marketing and advertising			739			605			693			425				683			2,462			2,063
Deposit insurance premiums			708			662			812			893				698			3,075			2,712
Intangible expenses			301			309			342			341				267			1,293			979
Restructuring charges			184			-			-			-				-			184			-
Other expense			6,970			5,795			6,440			6,105				5,746			25,310			22,738
Total noninterest expense			47,326			46,665			47,371			45,412				43,335			186,774			167,409
Income before taxes			29,632			25,986			16,424			25,168				21,990			97,210			114,330
Income tax expense			5,796			5,185			3,258			4,851				4,578			19,090			22,529
Net income		$	23,836		$	20,801		$	13,166		$	20,317			$	17,412		$	78,120		$	91,801
Net income per share:
Basic		$	0.82		$	0.71		$	0.45		$	0.69			$	0.59		$	2.66		$	3.12
Diluted		$	0.81		$	0.71		$	0.45		$	0.68			$	0.59		$	2.64		$	3.11
Dividends declared per share		$	0.21		$	0.21		$	0.21		$	0.20			$	0.20		$	0.83		$	0.80
Weighted average shares outstanding			29,251,293			29,290,829			29,490,154			29,542,467				29,471,304			29,392,606			29,402,845
Period end shares outstanding			29,271,915			29,242,451			29,365,775			29,636,425				29,500,542			29,271,915			29,500,542

Univest Financial Corporation
Consolidated Selected Financial Data (Unaudited)
December 31, 2022
	For the three months ended,																				For the twelve months ended,
Profitability Ratios (annualized)	12/31/22				09/30/22				06/30/22				03/31/22				12/31/21				12/31/22				12/31/21
Return on average assets		1.35	%			1.21	%			0.76	%			1.17	%			0.97	%			1.12	%			1.38	%
Return on average assets, excluding restructuring		1.36	%			1.21	%			0.76	%			1.17	%			0.97	%			1.13	%			1.38	%
charges (1)
Return on average shareholders' equity		12.33	%			10.67	%			6.85	%			10.64	%			9.06	%			10.13	%			12.50	%
Return on average shareholders' equity, excluding		12.40	%			10.67	%			6.85	%			10.64	%			9.06	%			10.14	%			12.50	%
restructuring charges (1)
Return on average tangible common equity (1)(3)		16.23	%			14.06	%			9.10	%			14.04	%			11.93	%			13.36	%			16.55	%
Return on average tangible common equity, excluding		16.33	%			14.06	%			9.10	%			14.04	%			11.93	%			13.39	%			16.55	%
restructuring charges (1)(3)
Net interest margin (FTE)		3.76	%			3.67	%			3.19	%			2.89	%			2.86	%			3.38	%			3.06	%
Efficiency ratio (2)		56.9	%			60.6	%			66.6	%			67.0	%			64.3	%			62.4	%			60.9	%
Efficiency ratio, excluding restructuring charges (1)(2)		56.7	%			60.6	%			66.6	%			67.0	%			64.3	%			62.4	%			60.9	%
Capitalization Ratios
Dividends declared to net income		25.8	%			29.6	%			47.1	%			29.1	%			33.9	%			31.2	%			25.6	%
Shareholders' equity to assets (Period End)		10.75	%			10.92	%			11.40	%			10.89	%			10.86	%			10.75	%			10.86	%
Tangible common equity to tangible assets (1)		8.49	%			8.55	%			8.97	%			8.58	%			8.56	%			8.49	%			8.56	%
Common equity book value per share	$	26.53			$	25.79			$	26.01			$	26.11			$	26.23			$	26.53			$	26.23
Tangible common equity book value per share (1)	$	20.42			$	19.67			$	19.91			$	20.06			$	20.14			$	20.42			$	20.14
Regulatory Capital Ratios (Period End)
Tier 1 leverage ratio		9.81	%			9.87	%			9.45	%			9.35	%			9.13	%			9.81	%			9.13	%
Common equity tier 1 risk-based capital ratio		10.37	%			10.51	%			10.62	%			11.07	%			11.08	%			10.37	%			11.08	%
Tier 1 risk-based capital ratio		10.37	%			10.51	%			10.62	%			11.07	%			11.08	%			10.37	%			11.08	%
Total risk-based capital ratio		13.67	%			13.10