Univest Financial (NASDAQ:UVSP) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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View the webcast at https://registrations.events/direct/Q4I3774017

Summary

Univest Financial Corporation reported a net income of $23 million, or $0.82 per share, representing an 18.8% increase compared to Q2 2025, despite a $5.2 million valuation adjustment on an REO property impacting earnings per share by $0.15.

The company achieved solid loan growth of $101.7 million (6% annualized) and deposit growth of $119.2 million (7.2% annualized), while actively managing its loan-to-deposit ratio and repurchasing 425,539 shares during the quarter.

Net interest income increased by $2.9 million (4.5%) from the previous quarter and $6.7 million (11.3%) from Q2 2025, with a net interest margin expansion of 16 basis points to 3.49%.

Outlook for 2026 remains stable with expected loan growth of 2%-3%, noninterest income growth of 6%-8% (excluding certain adjustments), and net interest income growth of 8%-10%.

Management highlighted increased competition in loan pricing and strategic pivoting toward construction financing to maintain margins, while continuing to explore M&A opportunities.

Full Transcript

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 speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.

At this time I would like to turn the conference over to Jeff Schweitzer, Chairman, President and CEO of Univest Financial Corporation. Please go ahead.

Jeff Schweitzer — President and Chief Executive Officer

Thank you, Audra, and good morning, and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Keim, our Chief Operating Officer and President of Univest Bank and Trust, and Brian Richardson, our Chief Financial Officer. Before we begin, I would like to remind everyone of the forward-looking statements disclaimer. Please be advised that during the course of this conference call, management may make forward-looking statements that express management's intentions, beliefs or expectations within the meaning of the federal securities laws.

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. 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 REO 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 $119.2 million, or 7.2% annualized. We continue to execute on our initiative to lower our loan-to-deposit ratio, which on average was 180 basis points lower year to date than through the first six months of 2025.

We also continue to be active with respect to stock buybacks, buying back 425,539 shares of our stock during the quarter. 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.

Brian Richardson — Chief Financial Officer

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 9 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. 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 nonaccrual 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 1.28% of total loans held for investment. Third, noninterest income was $18.1 million for the quarter, a decrease of $3.4 million compared to the second quarter of 2025, primarily due to the $5.2 million REO valuation adjustment. Excluding that item, underlying fee income trends remain solid as these businesses continue to perform well.

Investment advisory commission and fee income increased $583,000, or 10.7%, compared to the prior year, driven by appreciation in assets under management and new customer relationships. Net gain on mortgage banking activities increased $365,000, or 37.2% compared to the prior year, primarily due to increased saleable volume and improved margins. We also recognized $708,000 of tax-free BOLI death benefit proceeds during the quarter. Turning briefly to our outlook for the remainder of 2026, based on our performance during the first half of the year and our current assumptions, we are maintaining our outlook for loan growth of approximately 2% to 3%, noninterest income growth of approximately 6% to 8% excluding BOLI death benefits and REO valuation adjustments, noninterest expense growth of 3% to 5%, and provisioning of $11 to $13 million. However, as I've said in the past, our provisioning is event-driven and may be impacted in the second half of the year depending on the final resolution of the $28.6 million loan that was placed on nonaccrual 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% to 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% to 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 Scher at KBW.

Tim Scher — Analyst at KBW

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

Mike Keim — President

Tim, good morning. It's Mike Keim. So 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 minutes ago. But certainly it is increasing; competition spreads are narrowing. I would just imagine everybody's looking to fight for asset growth.

So that's what's translating here. It's one of the reasons why we pivoted from more long-term CRE to more construction-oriented financing, because we still believe that there's ability to get a little bit wider margin and fee income out of that product offering.

Tim Scher — Analyst at KBW

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

Brian Richardson — Chief Financial Officer

Hi, Tim, this is Brian. Yes, so from a rate change perspective, either up or down, really at this point, we do model out fairly neutral. That said, I would think kind of for the next several quarters, assuming nothing drastic occurs, I'd expect kind of NIM to hold in that current range, give or take a couple of basis points. So in that 3.50 range, plus or minus 5 basis points either way, is where I expect us to kind of operate for the next several quarters.

Tim Scher — Analyst at KBW

Okay. And that's even assuming any changes to, like, the excess liquidity on the balance sheet?

Brian Richardson — Chief Financial Officer

So that's from a core NIM perspective. Of course, excess liquidity will have its impact on a reported NIM, but from a core NIM perspective, I expect us to maintain in kind of that 3.50 range, give or take.

Tim Scher — Analyst at KBW

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

Brian Richardson — Chief Financial Officer

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

Tim Scher — Analyst at KBW

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

Brian Richardson — Chief Financial Officer

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

Tim Scher — Analyst at KBW

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

Mike Keim — President

Tim, it's Mike Keim again. So first off, it is an operating business. It's a C&I credit. It's a seasonal business with more of a discretionary kind of items that they're both a manufacturer and distributor. So the seasonality is really strongest late in the third quarter into the fourth quarter. So we've continued to see how that evolves. The specific reserve that was put up was based upon there's some indications of interest on the company as a whole and kind of where we are from a financial perspective.

We're going to get updated 6/30 financial statements and we're investigating are there opportunities with, 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 and, truth be told, we still need to learn a little bit more and update our analysis on that. So would I love to see it gone or disposed of in some positive fashion in the rest of the year?

Yes. Can I guarantee that might not be the best answer, quite frankly, and we will just work through this and take the best answer for us.

Tim Scher — Analyst at KBW

Cool. Yeah, totally understand. Appreciate it.

OPERATOR

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

Jacob Morton — Analyst at Stevens Inc.

Hey, good morning, this is Jacob Morton on for Matt Reese. 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? And I'm just curious on how you feel about your ability to maintain or further lower deposit costs from here.

Brian Richardson — Chief Financial Officer

Jacob, this is Brian. So really spot deposit cost, of course when you have bills and things like that occur, there'll be a little bit of noise there, but really tracks what we saw for the quarter. As it relates to ability to reduce cost of deposits and cost of funds, kind of where we're at right now, again assuming a stable rate environment, I wouldn't expect much opportunity. We have just over $300 million CDs that mature here in, call it, the third quarter.

And as we look at what we're offering, our current offering rates, they're at that level or slightly above. So there's not much opportunity to reprice down there. 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, a little bit of pressure on the liability side, and you kind of see that play out as a stable quarter NIM.

Jacob Morton — Analyst at Stevens Inc.

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

Brian Richardson — Chief Financial Officer

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

Jacob Morton — Analyst at Stevens Inc.

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

Jeff Schweitzer — President and Chief Executive Officer

Yeah, this is Jeff. So, you know, we're definitely open to conversations on M&A, both on the bank side and also on wealth or insurance organizations. And, you know, we're always out talking to people. As we always say, something has to be for sale. You can't just go and buy it whether you like it or not. So it is something. There are conversations happening. I would say it did slow down for a little while there, but there are still conversations that are occurring in the market that we're participating on.

But I can't tell you that there's anything imminent or that it will result in anything in the near term, because frankly, it has to be something that is actually for sale. And obviously there has to be an agreement on what it looks like going forward. So I would say it's active. Not as active, but there's still conversations occurring, and we are open to having them.

Jacob Morton — Analyst at Stevens Inc.

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

OPERATOR

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

Manuel Navis — Analyst at Piper Sandler

Hey, do you guys hear me? Hello?

OPERATOR

Yes, we can hear you now.

Eknor Najar — Analyst at Piper Sandler

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

Mike Keim — President

Sure. You know, look, on the deposit pipeline, it's the first side of that equation, you know, we continue to be active in that. We have a compelling—you know, Brian referenced a little bit in terms of the NIM question previously—but we have a compelling offer on the CD side and we have strong appetite that's coming on that. And then we've talked in previous calls about the number of initiatives. We have a union initiative where we pursue union deposits.

Our public funds build will happen in the third quarter. So pipelines are strong. Some of that is kind of the seasonal nature of our public fund business. So that will build strongly. And, you know, we have various offers that will be in the marketplace, working with title companies, law firms, et cetera, all sources that will ultimately play to grow our deposit base over time. So we're happy with that. This is going to be the ramp-up time where we'll have some excess liquidity and have an increase in our public funds as we traditionally see.

Moving to the talent side, we've been active in the marketplace. We have hired a couple of new RMs in the recent time period here. This is one of those things that when talent becomes available, you need to take that opportunity and add that talent to your team. And we will continue to do that. There's not a ton of disruption in the marketplace, but when there is, that's when the talent seems to be available to us. And we're always in conversations, similar to what Jeff referenced on 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.

Eknor Najar — Analyst at Piper Sandler

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

Jeff Schweitzer — President and Chief Executive Officer

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 and 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. But we expect that we will continue to be active on the buyback front for the near term for sure.

Brian Richardson — Chief Financial Officer

And 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, then they came back down here in the second quarter as we did the buyback. So we'll have to continue to kind of manage in that general range.

Eknor Najar — Analyst at Piper Sandler

Okay, thank you guys. Thanks so much.

OPERATOR

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

Jeff Schweitzer — President and Chief Executive Officer

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

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.