Univest Financial - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered stronger profitability: diluted EPS was $0.77 (+11.6% y/y) aided by a $0.04 BOLI death benefit; normalized EPS ex-BOLI was $0.73, a clear beat vs S&P Global consensus of $0.64.33; net interest margin expanded 21 bps q/q to 3.09% on improved funding mix and reduced excess liquidity drag.
• Total “revenue” on an S&P definition (net interest income after provision + noninterest income) was $76.9M, modestly below S&P consensus of $77.7M, driven by lapping a prior-year MSR sale and lower contingent insurance income; underlying NII after provision rose and NIM expanded.
• Capital return accelerated: dividend raised 4.8% to $0.22 per share and 221,760 shares repurchased (~$6.5M at $29.54 incl. fees), signaling confidence and ongoing buyback activity.
• Asset quality remained solid: NPAs/Assets 0.43% (vs 0.41% in Q4’24 and 0.52% in Q1’24); net charge-offs 10 bps annualized; allowance coverage stable at 1.28% of loans.
• Management maintained 2025 guidance (ex-BOLI) and reiterated fee-income growth of 4–6% y/y; tone constructive but cautious on macro/tariffs; watch deposit seasonality and loan payoffs as near-term drivers of margin trajectory.

What Went Well and What Went Wrong

What Went Well

• NIM expansion and efficiency: reported NIM rose to 3.09% (core 3.12% ex excess liquidity), up 21 bps q/q; efficiency ratio improved to 61.6% from 65.5% in Q4’24 as OpEx declined y/y.
• Credit resilience: NPAs/Assets 0.43% and annualized net charge-offs 0.10%; allowance coverage of 1.28% of loans held for investment remained stable.
• Shareholder returns: dividend increased to $0.22 per share and buybacks continued; CEO emphasized ongoing buyback activity: “we plan on continuing to be active with stock buybacks going forward”.

What Went Wrong

• Noninterest income down y/y (-12.4%): lapping the $3.4M MSR sale in Q1’24, lower net servicing fees, and $0.7M lower contingent insurance income were headwinds despite growth in investment advisory and deposit service charges.
• Deposit decline q/q (-$100.8M, -1.5%): seasonal public funds outflows weighed; brokered deposits increased to replace maturing FHLB advances.
• Loan growth muted: net growth of $6.5M as solid originations were offset by larger payoffs; management highlighted customer caution amid tariff/interest rate uncertainty.

Transcript

Operator (participant)

Good morning, everyone. Thank you for joining us for the Univest Financial Corporation Q1 2025 earnings call. My name is Carly, and I'll be coordinating the call today. If you'd like to register a question during the call, you can do so by pressing star followed by one on your telephone keypad, and to remove yourself from line of questioning, you'll use star followed by two. I'm now going to hand over to our host, Jeff Schweitzer, President and CEO of Univest Financial Corporation. The floor is yours.

Jeffrey Schweitzer (President and CEO)

Thank you, Carly, 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 $22.4 million during the Q1, or 77 cents per share. We're off to a solid start to 2025 in spite of the uncertainty in the economy with interest rates and geopolitical concerns. While loan growth was muted during the quarter, we actually saw solid production. However, we were hit with some larger payoffs, resulting in net growth of $6.5 million. With the recent uncertainty from the announcement of tariffs on April 2, we have witnessed commercial customers being more cautious, looking for more clarity on a number of items related to tariffs, taxes, interest rates, and the overall economy. While deposits decreased to $100.8 million during the quarter, this was predominantly due to the seasonal decline of public funds deposits.

We continue to see a stabilization of non-interest-bearing deposits, which, combined with discipline on loan pricing, helped our margin improve to 3.09% during the quarter from 2.88% for the Q4 of 2024. Additionally, credit quality continues to remain strong as non-performing assets to total assets increased slightly by two basis points during the quarter to 43 basis points, with net charge-offs remaining low at 10 basis points on an annualized basis. With respect to capital, yesterday the Board of Directors announced a one-cent increase in our quarterly dividend to $0.22 per share. Additionally, we repurchased 221,760 shares of stock during the quarter, and we plan on continuing to be active with stock buybacks going forward.

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.

Brian Richardson (CFO)

Thank you, Jeff, and I would also like to thank everyone for joining us today. I would like to start by touching on four items from the earnings release. First, as Jeff mentioned, we saw solid NIM expansion during the quarter, with reported NIM increasing 21 basis points to 3.09%. Additionally, core NIM, which excludes excess liquidity, of 3.12%, increased 10 basis points compared to the Q4. Second, during the quarter, we recorded a provision for credit losses of $2.3 million. Our coverage ratio was 1.28% at March 31, which was consistent with December 31. Net charge-offs for the quarter totaled $1.7 million or 10 basis points annualized. Third, non-interest income decreased $3.2 million or 12.4% compared to the Q1 of 2024.

Excluding the non-recurring $3.4 million gain on sale of MSRs in the Q1 of 2024 and the $1 million BOLI death benefit in the current quarter, non-interest income decreased $797,000 or 3.6%. Contingent income in the insurance line of business decreased $700,000 compared to the Q1 of 2024. As a reminder, contingent income totaled $2.3 million in the Q1 of 2024, which was an all-time record for our insurance business. Fourth, non-interest expense decreased $746,000 or 1.5% compared to the Q1 of 2024, as we continue to prioritize prudent expense management. As it relates to the 2025 guidance, when excluding the $1 million BOLI death benefit recorded in the quarter, there are no changes to the information I provided on last quarter's call. That concludes my prepared remarks. We will be happy to answer any questions. Carly, would you please begin the question-and-answer session?

Operator (participant)

Of course. Thank you very much. We've now opened the lines for Q&A. If you'd like to ask a question, please press star followed by one on your telephone keypad now, and to remove yourself from line of questioning, you'll be star followed by two. As a reminder, to raise a question, you'll be star followed by one. Our first question comes from Frank Schiraldi of Piper Sandler. Frank, your line is now open.

Frank Schiraldi (Managing Director and Senior Equity Research Analyst)

Good morning. I thought, Brian, correct me if I'm wrong, and maybe I missed it, but in terms of the fee income growth expectations, I thought it was mid-single digits for the year. If that's the case, can you just maybe talk about kind of drivers to get there?

Brian Richardson (CFO)

Sure, Frank. Yeah, four to six was our guidance range when we kind of came into the year and continued to hold that steady. Of course, we'll see what occurs on the mortgage banking side, which will provide potential opportunity and lift there or something that we'll continue to keep an eye on. You will have inherently, when you look at the year-over-year current growth, when you back out the contingent income and the noise that that put into the Q1, we would again expect to fall into that low single-digit % range.

Frank Schiraldi (Managing Director and Senior Equity Research Analyst)

Okay. And then just on the loan-to-deposit ratio, there's some seasonality there on the public funds and the deposits. I think, if you correct me if I'm wrong, you guys continue to target like a 95-105% ratio. I guess, where do you see that trending to? If you can just remind us the cadence of kind of those balances, public funds through the year.

Brian Richardson (CFO)

Yeah, Frank, so I'll start out there, and we could elaborate as necessary or appropriate. On a longer term, we look to head towards 95-100. That said, we realize that's going to be a process for us to navigate there, so we look to continually and methodically kind of ratchet that down over time, knowing that there's cyclicality and seasonality with public funds and how that presents at each quarter end from a loan-to-deposit ratio perspective.

Jeffrey Schweitzer (President and CEO)

Yeah, we'll hit a low point by June 30 on public funds, and then they'll start to build in the second half of the year again.

Frank Schiraldi (Managing Director and Senior Equity Research Analyst)

Okay, great. Lastly, you mentioned capital return. I just wondered if you could maybe size the potential for buybacks here in terms of payout ratio going forward. Thanks.

Brian Richardson (CFO)

Sorry, payout ratio as it relates to buyback. I mean, I think the volume that you saw in the Q1, just from an overall dollar perspective, if you looked at it from that perspective, is something that we would continue to kind of target something in that general range. Again, that's a decision that we make, though, on a quarterly basis as we look forward to projections of earnings and loan growth and projections of our regulatory capital ratio such that we're looking to deploy any excess capital that would be generated while not overreacting in any specific quarter for any kind of short-term lifts. We are looking over the longer-term time horizon called the next 9-12 months of where we would expect capital to land. That is kind of the process that we go through.

Frank Schiraldi (Managing Director and Senior Equity Research Analyst)

Okay. All right, great. Thanks for the color.

Jeffrey Schweitzer (President and CEO)

Thank you, Frank.

Operator (participant)

Thank you very much. As a reminder, to raise a question, please press star followed by one on your telephone keypad. Our next question comes from Emily of KPW. Emily, your line is now open. Emily, just confirming your line is now open. It appears we are not able to get any connection from Emily's line, and we currently have no further questions, so I would like to hand back to Jeff Schweitzer for any further remarks.

Jeffrey Schweitzer (President and CEO)

All right, thank you, Carly, and thank you, everyone, for participating on the call today. As we noted, we had a very solid Q1. While there is a lot of uncertainty in the environment, we are very well poised to navigate through anything that is thrown at us. We look forward to talking to everybody who participates later today for our shareholders' meeting and then at the end of the Q2. Have a great day.

Operator (participant)

As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your line.