Univest Financial Corporation Reports Fourth Quarter and 2022 Results

(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)