Univest Corporation of Pennsylvania Q2 2026 Earnings Call Transcript

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July 23, 2026

Key Takeaways

  • Positive Sentiment: Univest reported Q2 net income of $23 million, or $0.82 per share, up 18.8% year over year, and said core operating results were strong after adjusting for a one-time REO valuation hit.
  • Positive Sentiment: Net interest margin expanded to 3.49% and net interest income rose 4.5% sequentially, leading management to raise full-year net interest income growth guidance to 8%–10%.
  • Neutral Sentiment: Loan balances grew $101.7 million in the quarter and deposits increased $119.2 million, while management said it remains focused on lowering the loan-to-deposit ratio and continuing active share repurchases.
  • Negative Sentiment: Credit costs were pressured by a $5.2 million REO valuation adjustment and a $28.6 million commercial loan moving to non-accrual with a $9.8 million specific reserve, which could affect second-half provisioning.
  • Neutral Sentiment: Management kept its 2026 outlook unchanged for loan growth of 2%–3%, non-interest income growth of 6%–8% excluding one-time items, non-interest expense growth of 3%–5%, and provisioning of $11 million–$13 million.
AI Generated. May Contain Errors.
Earnings Conference Call
Univest Corporation of Pennsylvania Q2 2026
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good morning and welcome everyone to the Univest Financial Corporation second quarter 2026 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Jeff Schweitzer, Chairman, President, and CEO of Univest Financial Corporation. Please go ahead.

Speaker 1

Thank you, Audra. 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.

Speaker 1

We had a solid second quarter as we reported net income of $23 million, or $0.82 per share, which was an 18.8% increase compared to earnings per share in Q2 of 2025. Our results for the quarter were impacted by a $5.2 million valuation adjustment on an OREO property due to an updated appraisal, which impacted earnings per share for the quarter by $0.15. Excluding this adjustment, our core operating results for the quarter were strong. Loan growth for the quarter was solid as we grew loans by $101.7 million, or 6% annualized. Total deposits for the quarter increased to $119.2 million or 7.2% annualized. We continue to execute on our initiative to lower our loan-to-deposit ratio, which on average was 180 basis points lower year-to-date than through the first six months of 2025.

Speaker 1

We also continue to be active with respect to stock buybacks, buying back 425,539 shares of our stock during the quarter. Year-to-date, we have repurchased 776,677 shares. Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities, and each other. I'll now turn it over to Brian for further discussion on our results.

Speaker 2

Thank you, Jeff, and thank you to everyone for joining us today. I would like to start by touching on three items from the earnings release. First, we saw continued strength and stability in our net interest income and margin during the quarter. Reported net interest margin expanded 16 basis points from the first quarter to 3.49%. In addition, core NIM, which excludes the impact of excess liquidity, increased nine basis points to 3.53%. Net interest income increased $2.9 million, or 4.5% compared to the first quarter, and increased $6.7 million, or 11.3% compared to the second quarter of 2025, driven by continued growth in average loan balances, improved asset yields, and a reduction in our overall cost of funds. Second, as it relates to credit, the quarter included two notable items.

Speaker 2

First, as Jeff mentioned, we recorded a $5.2 million pre-tax valuation adjustment on an REO property based on an updated appraisal reflecting the property's estimated fair value less cost to sell. This reduced earnings by $4.1 million after tax, or $0.15 per diluted share. Second, during the quarter, a commercial loan relationship totaling $28.6 million was placed on non-accrual status and a specific reserve of $9.8 million was established. Net charge-offs for the quarter were $1.9 million or 11 basis points annualized, and our allowance for credit losses coverage ratio remains stable at a 1.28% of total loans held for investment. Third, non-interest income was $18.1 million for the quarter, a decrease of $3.4 million compared to the second quarter of 2025, primarily due to the $5.2 million REO valuation adjustment. Excluding that item, underlying fee income trends remain solid as these businesses continue to perform well.

Speaker 2

Investment advisory commission and fee income increased $583,000, or 10.7% compared to the prior year, driven by appreciation in assets under management and new customer relationships. Net gain on mortgage banking activities increased $365,000 or 37.2% compared to the prior year, primarily due to increased saleable volume and improved margins. We also recognized $708,000 of tax-free BOLI death benefit proceeds during the quarter. Turning briefly to our outlook for the remainder of 2026. Based on our performance during the first half of the year and our current assumptions, we are maintaining our outlook for loan growth of approximately 2%-3%, non-interest income growth of approximately 6%-8%, excluding BOLI death benefits and REO valuation adjustments, non-interest expense growth of 3%-5%, and provisioning of $11 million-$13 million.

Speaker 2

As I've said in the past, our provisioning is event-driven and may be impacted in the second half of the year depending on the final resolution of the $28.6 million loan that was placed on non-accrual during the second quarter, as well as other charge-off activity, loan growth, changes in economic conditions, and the resulting impact on our coverage ratio. We are updating our full-year net interest income growth outlook to a range of 8%-10%, reflecting the strength of the first half of the year and continued margin stability. Our effective tax rate is expected to remain in the 20%-21% range. That concludes my prepared remarks. Audra, would you please begin the question and answer session?

Operator

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll take our first question from Tim Switzer at KBW.

Speaker 3

Hey, good morning. Thank you for taking my questions.

Speaker 2

Morning, Tim.

Speaker 4

Morning, Tim.

Speaker 3

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

Speaker 4

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

Speaker 3

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

Speaker 2

Hi, Tim. This is Brian. Yeah. From a rate change perspective, either up or down, really at this point, we do model out fairly neutral. That said, I would think for the next several quarters, assuming nothing drastic occurs, I'd expect NIM to hold in that current range, give or take a couple of basis points. In that 350 range, plus or minus, call it five basis points either way is where I expect us to operate for the next several quarters.

Speaker 3

Okay. That's even assuming any changes to the excess liquidity on the balance sheet?

Speaker 2

Yeah. That's from a core NIM perspective. Of course, excess liquidity will have its impact on a reported NIM. From a core NIM perspective, I expect us to maintain in that 350 range, give or take.

Speaker 3

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

Speaker 2

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

Speaker 3

Okay. It sounds like this has now been on sale for about a year. Any timeline on when you think a buyer can be found and the deal closed?

Speaker 2

Again, that's going to be event-driven, circumstance-driven. Hopefully, we'll continue to market it, and we'll see how that plays out here over the next couple of quarters.

Speaker 3

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

Speaker 4

Tim, it's Mike Keim again. First off, it is an operating business. It's a C&I credit. It's a seasonal business with more of a discretionary kind of items. They're both a manufacturer and distributor. The seasonality is really strongest late in the third quarter into the fourth quarter. We'll continue to see how that evolves. The specific reserve that was put up was based upon there's some indications of interest on the company as a whole, and where we are from a financial perspective. We're going to get updated 630 financial statements, and we're investigating. Do we have to look at a total sale of the company at some point in time, or could we sell it in parts? It will be what is the best answer for the collective situation here as we move forward.

Speaker 4

Truth be told, we still need to learn a little bit more and update our analysis on that. Would I love to see it gone or disposed with in some positive fashion in the rest of the year? Yes. Can I guarantee it? That might not be the best answer, quite frankly. We will just work through this and take the best answer for us.

Speaker 3

Cool. Yeah, totally understand. Appreciate it.

Operator

We'll move to our next question from Jacob Morton at Stephens Inc.

Speaker 5

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

Speaker 2

Jacob, this is Brian. Really spot deposit cost, of course, when you have builds and things like that occur, there'll be a little bit of noise there, but really tracks what we saw for the quarter. As it relates to ability to reduce cost of deposits and cost of funds, kind of where we're at right now, again, assuming a stable rate environment, I wouldn't expect much opportunity. We have just over $300 million of CDs that mature here in, call it the third quarter. As we look at what we're offering, our current offering rates, they're at that level or slightly above. There's not much opportunity to reprice down there.

Speaker 2

That's why that NIM outlook and guide really is stable at this point in time because you have a little bit of opportunity on the asset side and a little flat to a little bit of pressure on the liability side, you kind of see that play out as a stable core NIM.

Speaker 5

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

Speaker 2

Yeah. Out to 2028, in all honesty, I mean, really looking through next year, I expect relative stability with slight upside. 2028, again, a lot's likely to change between now and then. I wouldn't necessarily try to put a pin in the ground on that.

Speaker 5

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

Speaker 1

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

Speaker 4

I'd say it's active, not as active, there's still conversations occurring and we are open to having them.

Speaker 5

Got it. Okay. Thank you. Thank you guys for taking my questions.

Speaker 1

Yep.

Speaker 2

Thank you.

Operator

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

Speaker 6

Hey, do you guys hear me? Hello?

Operator

Yes, we can hear you now.

Speaker 4

Yep, we can hear you now.

Speaker 6

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

Speaker 4

Sure. Look, on the deposit pipelines, the first side of that equation, we continue to be active in that. Brian referenced a little bit in terms on the NIM question previously. We have a compelling offer on the CD side and we have strong appetite that's coming on that. Then we've talked in previous calls about the number of initiatives. We have a union initiative where we pursue union deposits. Our public funds build will happen in the third quarter. Pipelines are strong. Some of that is kind of the seasonal nature of our public fund business, that'll build strongly. We have various offers that'll be in the marketplace, working with title companies, law firms, et cetera, all sources that will ultimately play to grow our deposit base over time. We're happy with that.

Speaker 4

This is going to be the ramp-up time where we'll have some excess liquidity and have an increase in our public funds as we traditionally see. Moving to the talent side. Look, we've been active in the marketplace. We have hired a couple of new RMs in the recent time period here. This is one of those things that when talent becomes available, you need to take that opportunity and add that talent to your team, we will continue to do that.

Speaker 4

There's not a ton of disruption in the marketplace, but when there is, that's when the talent seems to be available to us, and we're always in conversations. Similar to what Jeff referenced on an M&A side, we're always talking to people, and trying to see if we can get good quality talent to join our organization.

Speaker 6

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

Speaker 1

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

Speaker 2

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

Speaker 6

Okay. Thank you, guys. Thanks so much.

Speaker 1

Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 1

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

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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