Univest Financial Corporation Common Stock 2026 Q3 Earnings Call

You may begin. Thank you, Jordan, 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 under the investor relations tab.

We reported net income of $21.6 million, or $0.78 per share for the third quarter. Our results for the quarter were negatively impacted by a $14.4 million charge-off associated with a commercial lending relationship, which had a specific reserve of $9.8 million at June 30. The remaining balance related to this credit is supported by a letter of intent to sell the business. While the results for the quarter were impacted by this credit event, excluding this charge-off, our core operations and pipelines remained solid and our asset quality remains stable to improving, with our criticized classified loans expected to decline in the fourth quarter. While lending activity continues to be solid, loans declined just slightly during the quarter, primarily due to the planned payoff of a $35.3 million shared national credit and the previously noted charge-off.

Total deposits for the quarter increased $421.5 million or 6.1%, primarily due to the seasonal increase in public funds deposits along with growth in commercial deposits. We continue to execute on our initiative to lower our loan-to-deposit ratio, which on average was 120 basis points lower year to date than through the first 9 months of 2025. Our fee businesses and fee income continue to contribute to our overall operations. Excluding BOLI death benefits, fee income increased 6.3% compared to the third quarter of 2025, led by wealth management, which increased 10.3%. We continue to be active with respect to stock buybacks, buying back 301,127 shares of our stock during the quarter. Year to date, we have repurchased 1,077,804 shares or 3.8% of outstanding shares as of the beginning of the year.

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 will now turn it over to Brian for further discussion on our results.

Thank you, Jeff, and thank you to everybody for joining us today. I would like to start by touching on four items from the earnings release. First, we saw continued strength in net interest income and expansion of our core net interest margin during the quarter. Net interest income increased $1.5 million or 2.3% compared to the second quarter and increased $6.4 million or 10.5% compared to the third quarter of 2025. Reported net interest margin was 3.42% compared to 3.49% in the second quarter. However, the decrease was driven by higher excess liquidity during the quarter from our seasonal public funds build. Excluding the impact of excess liquidity, our core net interest margin increased two basis points to 3.55% from 3.53% in the second quarter.

Second, as it relates to credit, as Jeff mentioned, $14.4 million of the $17.6 million in net charge-offs for the quarter was associated with one commercial relationship we discussed last quarter. As a result of the elevated charge-off activity, our provision for credit losses was $9 million during the quarter. During the quarter, non-performing assets declined to $51.4 million from $63 million at June 30. Our allowance for credit losses was $81 million, or 1.15% of total loans held for investment, compared to 1.28% at June 30. Third, as Jeff mentioned, our core fee businesses continued to perform well during the quarter. As we've said in the past, our diversified fee income businesses continue to serve us well while providing earnings stability in varying economic environments. Fourth, non-interest expense was $54 million for the quarter, an increase of $3.3 million or 6.6% compared to the third quarter of 2025.

This was driven by higher compensation, marketing, and data processing costs. With regards to the compensation cost, in addition to annual merit increases, increased variable compensation, and increased medical costs, we've seen increases in staff primarily within revenue-producing areas and our data analytics functions. With regards to marketing, we entered into a sponsorship agreement with a local university and have also seen increased advertising spend related to various deposit origination initiatives. Despite the year-over-year expense increase, our efficiency ratio improved to 59.5% for the quarter compared to 62.3% in the second quarter and 60.2% in the third quarter of last year. I would now like to turn briefly to our outlook for the remainder of 2026. We are maintaining our outlook for loan growth of approximately 2%-3% for the full year. We are updating our full-year net interest income growth outlook to a range of 10%-11%.

With respect to provision expense, we expect a full-year provision of $15 million-$17 million. However, as I've said in the past, provisioning is event-driven and may be impacted by the resolution of workout credits, loan growth, and changes in economic conditions. With regards to non-interest income, we expect growth of 5%-7%, excluding BOLI death benefits and REO valuation adjustments. As it relates to non-interest expense, we expect growth of 5%-6% for the full year when excluding restructuring charges. That concludes my prepared remarks. Jordan, we would be happy to take any questions at this time.