Earnings call transcript: Univest Q2 2025 results reveal mixed market reaction

Univest Financial Corporation (UVSP), a regional bank with an $861 million market capitalization trading at an attractive P/E ratio of 10.9x, reported its second-quarter earnings for 2025, meeting analysts’ expectations with an earnings per share (EPS) of $0.69, matching the forecast. Revenue slightly exceeded expectations, coming in at $81 million against a forecast of $79.35 million. Despite these results, Univest’s stock experienced a 7.18% decline in after-hours trading, closing at $29.61, down from $31.90.

According to InvestingPro analysis, Univest currently appears undervalued based on its Fair Value estimate, with two analysts recently revising their earnings expectations upward for the upcoming period.

Key Takeaways

• Univest’s Q2 earnings met EPS forecasts but slightly surpassed revenue expectations.
• After-hours trading saw a significant stock price drop of 7.18%.
• Net interest margin improved, rising by 11 basis points to 3.2%.
• Loan outstandings decreased by $31.9 million during the quarter.
• The company continues to focus on disciplined expense management and capital efficiency.

Company Performance

Univest demonstrated stable financial performance in the second quarter of 2025, with net income reaching $20 million. The company managed to expand its net interest margin to 3.2%, up by 11 basis points from the previous quarter. However, loan outstandings contracted by $31.9 million, indicating challenges in loan growth. Despite these hurdles, Univest’s year-to-date commercial loan production increased to $57 million, compared to $42 million in the prior year.

Financial Highlights

• Revenue: $81 million, surpassing the forecast of $79.35 million.
• Earnings per share: $0.69, meeting expectations.
• Net interest margin: 3.2%, up 11 basis points from the previous quarter.
• Loan outstandings: Decreased by $31.9 million.
• Net charge-offs: $7.8 million, primarily related to one credit.

Earnings vs. Forecast

Univest’s EPS of $0.69 aligned with analyst forecasts, resulting in no EPS surprise. However, the revenue of $81 million provided a positive surprise of 2.08% over expectations. This performance indicates a steady operational environment despite the competitive and challenging market conditions.

Market Reaction

Following the earnings release, Univest’s stock fell by 7.18% in after-hours trading, closing at $29.61. The decline reflects investor concerns despite the company meeting EPS expectations. The stock’s performance is notable against its 52-week range, with a high of $32.86 and a low of $22.83. InvestingPro data shows analyst price targets ranging from $31 to $33, suggesting potential upside from current levels. The stock has delivered a solid 16.3% return over the past year, demonstrating resilience despite market volatility.

Outlook & Guidance

Looking ahead, Univest projects a loan growth of 1-3% for 2025 and anticipates a 10-12% increase in net interest income. The company expects noninterest income to grow by 1-3% and has set a provision for credit loss between $12-14 million. These projections align with the company’s strong financial health score from InvestingPro, which rates the company’s overall financial condition as "GOOD" based on comprehensive analysis of profitability, growth, and cash flow metrics. These projections highlight Univest’s focus on maintaining growth amidst a competitive deposit environment and challenging interest rates.

Executive Commentary

Jeff Schwartz, a key executive, emphasized the company’s strong loan origination activity and commitment to share buybacks, stating, "Loan activity and loan origination activity is strong." Additionally, Mike Keim noted the competitive challenges, saying, "It is a tough environment from a competitive perspective."

Risks and Challenges

• Competitive deposit environment may pressure margins.
• Interest rate fluctuations could impact loan and deposit yields.
• Potential infrastructure investments in Pennsylvania could affect capital allocation.
• Loan prepayments present ongoing challenges.
• Macro-economic factors, including potential Federal Reserve rate cuts, may influence financial performance.

Q&A

During the earnings call, analysts questioned Univest’s strategies for dealing with loan prepayments and deposit competition. Discussions also explored capital deployment strategies and the potential impact of Federal Reserve rate cuts on the company’s performance.

Full transcript - Univest Corporation Pennsylvania (UVSP) Q2 2025:

Jeff Schwartz, CEO or Senior Executive, Univest Financial Corporation: Good morning, all, and thank

Carly, Call Coordinator, Univest Financial Corporation: you for joining us. Univest Financial Corporation second quarter twenty twenty five earnings call. My name is Carly, and I’ll be coordinating the call today. If you’d like to a question during the call, you can do so by pressing star followed by one on your telephone keypad. And to remove yourself by line of questioning, please star followed by 2.

I’d now like to hand over to our host, Jeff Schwartz, to begin. The floor is yours.

Jeff Schwartz, CEO or Senior Executive, Univest Financial Corporation: 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 $20,000,000 during the second quarter or $0.69 per share, While loan outstandings contracted by $31,900,000 during the quarter, production has remained solid through the first six months of the year. However, we continue to be impacted by early payoffs and paydowns.

Overall, year to date commercial loan production through June 30 was $5.00 $7,000,000 compared to $4.00 $2,000,000 in the prior year. However, this has resulted in contraction in loan outstanding year to date of $25,400,000 compared to growth of $117,600,000 in the prior year. While deposits decreased $75,800,000 during the quarter, this was predominantly due to the seasonal decline of public funds deposits and a decline in broker deposits. Excluding these declines, deposits increased $77,500,000 during the quarter. During the quarter, we reported $7,800,000 of net charge offs predominantly related to one credit, which accounted for $7,300,000 of the charge offs.

The remaining balance of this relationship of $16,400,000 has been placed on non accrual and is supported by the appraised value of the real estate collateral. As this is still an active situation where fraud is suspected, we will have no further comments at this time. Absent this one relationship, credit quality continues to remain strong. 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.

Thank you, Jeff. I would also like to thank everyone for joining us today. I would like to start by highlighting a few items from the earnings release. First, during the quarter, reported NIM of 3.2% increased by 11 basis points from 3.09% in the prior quarter due to increased yields on assets and a reduction in our cost of funds. Core NIM of 3.24%, which excludes the impact of excess liquidity, expanded by 12 basis points compared to the first quarter.

We expect core NIM to contract by a few basis points in the third quarter due to the repricing of our 2020 sub debt issuance and the seasonal build of higher cost public funds. However, we expect NII to be relatively in line with the second quarter. Second, noninterest income increased by 521,000 or 2.5% compared to the second quarter of two thousand twenty four. This was primarily driven by increases in investment management fees, gains on sale of SBA loans, and treasury management fees, partially offset by a decrease in net gains on mortgage banking due to elevated interest rate environment and competition. Third, noninterest expense increased 1,600,000.0 or 3.3% compared to the second quarter of two thousand twenty four.

The increase was primarily driven by compensation costs, specifically annual merit increases, medical costs, and variable incentives. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update to our 2025 guidance. First, for the full year, we expect loan growth of approximately 1% to 3%, and we expect net interest income growth of 10% to 12% compared to 02/2024. Second, our provision for credit loss guidance remains unchanged at 12,000,000 to $14,000,000 for 2025. However, the provision will continue to be event driven, including loan growth, changes in economic related assumptions and the credit performance of the portfolio, including specific credits.

Third, 2024 noninterest income totaled 84,500,000.0 when excluding the $3,500,000 gain on sale of MSRs and 245,000 of Boeing death benefits. For 02/2025, we expect noninterest income growth for approximately one to 3% off the 84,500,000 base. Fourth, we reported noninterest expense of a 198,000,000 for 02/2004. For 2025, we expect growth of approximately 2% to 4%. Lastly, as it relates to income taxes, our guidance remains unchanged at 20% to 20.5% based on current statutory rates.

The aggregate impact of these guidance updates when compared to our most recent guidance is accretive to both EPS and PPNR. That concludes my prepared remarks. We will be happy to answer any questions. Harley, would you please begin the question and answer session?

Carly, Call Coordinator, Univest Financial Corporation: Of course. Thank you very much. With that, I’d open the line for q and a. If you’d like to ask a question, please leave a message by pressing star followed by one on your telephone keypad. To remove your cell phone and a question, it will be star followed by two.

As a reminder, to raise a question, it will be star followed by one. Our first question comes from Tim Switzer from KBW. Tim, your line is now open.

Jeff Schwartz, CEO or Senior Executive, Univest Financial Corporation: Hey. Good morning, guys. Thank you for taking my question. I I apologize. You you broke up a little bit on my end on some of the guidance numbers.

Could you give me your update for loan growth and expenses? Sure. Loan growth is one to 3%, and the corresponding interest income growth is 10 to 12%, and then expenses is two to 4%. Okay. Great.

I guess, could you maybe talk about some of the changes there? It looks like both those numbers are down a little bit. Could you just talk about, you know, what you’re seeing from the loan environment? Is there a lot of is demand kind of faltering a little bit, or is it more about competition? No.

Actually, as Jeff referenced at the beginning of his remarks, Tim, loan activity and loan origination activity is strong. We’re consistent with what it has been in the prior year. We were just impacted fairly significantly by payoff activity in the first half of the year. We look to, you know, we predict that and forecast that and are interacting with our customers to the best of our ability. We’re looking for that to slow down that being prepayment activity in the second half of the year, and we’ll continue to produce at the levels that we have.

And therefore, that’ll lead to growth. And then on the expense side, we just continue to see the benefit of our prudent expense management and discipline on that side. Of course, there’s some variable expenses like medical costs and some things like that that aren’t directly controllable. But but as we trend through the first six months of the year, that’s what’s causing us to to ratchet the expense growth down from four to 5% down to two to 4%. Gotcha.

Okay. And you you guys are sitting with very healthy capital levels. You you haven’t seemed all that determined to execute any M and A deals. You you guys are doing a little bit of share repurchases, but, you know, with share price coming up, it’s going to be a longer earn back. Can you kind of talk about what your strategy is going to be to efficiently deploy that capital and whether you’re going to return it to shareholders or find some opportunities to reinvest into the business?

Yeah. So, Tim, you know, we will continue to be active on buybacks and even with the rise in our share price. The earn back period, while it’s gotten longer, it’s still well within, you know, two it’s within a two to three year range even as we go up from here. So we’ll we’ll still continue to stay active on the buyback front and feel that that’s a good use of capital. You know, while m and a isn’t an immediate strategic priority of ours, we always wanna be have our eyes open and see what’s available out there.

There’s nothing that’s overly exciting right now. But we also look at on the insurance side, wealth management side. We’re always keeping our eyes open there too. So we’re not opposed to m and a. I would say it’s probably more on the nonbank side than the bank side at this point that we would be more interested.

But within lieu of opportunities like that, we’re gonna continue to also do share buybacks. Okay. And I’m I’m I’m curious what you guys are hearing or seeing in terms of deposit competition out there. There’s been some reports from some competitors that it’s starting to, you know, step up a little bit. And with the Fed not lowering rates this year so far, it sounds like a lot of deposit repricing has, you know, kind of already ran through.

No. I would say that that’s consistent with what we see, especially on the consumer side with money market rates and CD rates. So, yeah, it is a tough environment out there. People continue to fight for the deposit and to generate the liquidity necessary to support their their growth. So we’ve identified certain things, certain campaigns and certain niches that we continue to, you know, push forward with.

And we look forward to continue to grow our deposits as the year moves forward. As you well know or most people know if they follow us, the third quarter will be a peak quarter for us on public funds. So that, you know, that would be expected. We will continue to manage through, but no, it is a tough environment from a competitive perspective. Okay.

Gotcha. And last question for me. Could you guys talk about your outlook in terms of the NIM trajectory going forward over the next couple of quarters? You you mentioned public funds is gonna be seemingly higher next quarter, so that impacts it a little bit. And then what would you guy what kind of impact could you expect from one or two rate cuts in the back half of the year?

Sure, Tim. So as I’ve got it, for the third quarter, we expect core NIM to pull back. We’ll report NIM to pull back for sure, core NIM to pull back slightly just again due to our the repricing of our sub debt issuance as well as those higher cost public funds coming on, then we’d expect it to be flat to slightly up thereafter assuming relatively stable interest rate environment for next several quarters. If we one or two rate cuts, it really does not expect it to be impactful over a longer term. There might be noise within a given quarter just based on how the timing of when assets and liabilities reprice.

But then once that kind of lends itself through, you’re not expecting that to be overly impactful due to our new relative neutrality from an Aon perspective. Okay. Great. Thank you guys for taking all my questions. Appreciate it.

Carly, Call Coordinator, Univest Financial Corporation: much. As a reminder, to raise a question, we’ll be start followed by one. Our next question comes from Tyler Casciatore from Stephens. Tyler, your line is now open.

Jeff Schwartz, CEO or Senior Executive, Univest Financial Corporation: Good morning. This is Tyler on for Matt Breeze. Morning, Tyler. Morning, Tyler. I just wanted to start.

Last week, senator Dave McCormick held the energy and innovation summit in Pittsburgh outlining a number of projects totaling around 90,000,000,000 in data centers, energy and power infrastructure, and some other projects, some of which are expected in Eastern Pennsylvania. Just curious on any on if you’ve heard anything on these projects and if you think there could be some positive benefit in your footprint? I mean, anytime that there’s investment in our state, we’re obviously very supportive of that and excited to see the money flowing into Pennsylvania. You know, we’ll bet in a bit more from our customers being able to participate in any projects that are being built out. You know, we have a very diversified customer base, a lot of which are in, you know, electrical contracting and construction and things of that nature that could potentially benefit from this.

I think it’s a little early stages right now as far as that we’ve heard any significant chatter from our customers in market, but I know that everybody’s excited, obviously, to see the investment made in Pennsylvania. And I would just add, wouldn’t just be Eastern Pennsylvania for us. We’re act obviously active in Central Pennsylvania, and we have a presence in Western Pennsylvania. So to Jeff’s point, we’d be certainly pleased to participate across our footprint. Alright.

Thanks. And then I just had one more. I know you talked about the pipeline a little bit. I was just wondering how yields are holding up. I know you cited some increase in competition.

But in terms of spread compression, how much are you seeing there? We we really haven’t. New loan yields on the commercial side, have been relatively stable for the last quarter or two. And, again, as we said, productions remain strong just so that the lack of loan growth is really driven by the payoff headwinds. Okay.

Great. So do you think without any rate cuts, the space of loan yields loan yield expansion is repeatable? Not repeatable. I think that’ll definitely start to slow down from an expansion perspective because we have a repricing of the book occurs, of course, as that base gets higher. Just on a notional basis, your that expansion will start to slow down even if you can remain with consistent production volume.

So I think it would slow down a little bit and things remain competitive for sure. But but nothing that that would suggest at this point that it’s gonna start pulling back in anyway. Okay. Great. That’s all for me.

Thanks for answering my questions. Thank you.

Carly, Call Coordinator, Univest Financial Corporation: Thank you very much. We currently have no further questions. So I’d

Jeff Schwartz, CEO or Senior Executive, Univest Financial Corporation: just like to hand back to Josh White for any further remarks. I’d like to thank everyone for participating today. Hope you’re having a great summer. We look forward to talking to everybody after the end of the third quarter.

Carly, Call Coordinator, Univest Financial Corporation: As we conclude today’s call, we’d like to thank everyone for joining. You may disconnect your lines.

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