Univest Financial Corporation Q3 FY2025 earnings call

Key Points

• Strong third quarter net income growth due to net interest income and margin growth and prudent expense management.
• Loan outstandings contracted but year-to-date new commercial loan commitments increased.
• Deposits saw significant increase, especially public funds.
• Discussed a commercial loan charge-off and OREO asset, with receiver working on selling the commercial real estate property.
• Brian Richardson highlighted NIM, provision for credit losses, noninterest income, noninterest expense, and provided guidance.

Univest Financial Corporation had a strong third quarter with net income of $25.6 million or $0.89 per share, an increase of $7.1 million or 38% compared to the prior year. Net interest income and margin continued to grow, while expenses were up 2% year-to-date. Loan outstandings contracted by $15.7 million during the quarter, but year-to-date new commercial loan commitments were $808 million compared to $659 million in the prior year. Deposits increased significantly during the quarter by $635.5 million, predominantly due to a seasonal build of public funds deposits of $473.2 million. Excluding public funds, deposits increased $162.3 million.

Guidance Points

• Full year loans expected to be relatively flat compared to December 31, 2024.
• Net interest income growth expected to be 12% to 14% compared to 2024.
• Provision for credit losses expected to be $11 million to $13 million for 2025, event-driven.
• Noninterest income expected to grow approximately 1% to 3% off the $84.5 million base in 2024, but at risk if government shutdown continues affecting SBA loans in Q4.
• Noninterest expense expected to grow approximately 2% to 3% for 2025.
• Tax guidance remains unchanged at 20% to 20.5% based on current statutory rates.

Risks

• Risk to noninterest income guidance if government shutdown continues and inability to originate and sell SBA loans in Q4.
• Intense competition on CD terms, with credit unions extending terms which could impact net interest margin.

Q: This is Tyler on for Matt Breese. Walk me through public funds, commercial and broker deposit inflows versus going forward and cash balances, and also on NIM outlook, incremental loan yields, and cost of deposits settling out once seasonal items roll off.

A: Mike Keim mentioned normal seasonality would have $75 million to $100 million of outflows of public funds per month in the fourth quarter and into first quarter, with commercial deposit build having one-timers that will flow out. Core NIM expected relatively flat, new loan yields around below 7% on commercial side, and cost of funds to see benefit as CDs mature and higher cost public funds run out.

Q: This is Emily stepping in for Tim Switzer. Asks about CD repricing, deposit competition, impact of Fed rate cuts on NIM, portion of loan book that's floating rate, buyback story, and M&A appetite.

A: Brian Richardson said a couple hundred million dollars of CDs mature each quarter, competition fierce with credit unions extending CD terms. Mike Keim stated first couple Fed cuts not overly impactful, loan book still ~1/3 floating rate. Brian mentioned buyback expected to stay in $6 million to $7 million range quarterly, and Mike Keim said M&A not a top priority currently, focused on internal efficiency projects.