Univest Financial Corporation (UVSP) Earnings

Management highlights

- Overall Financial Results * Q2 2026 delivered solid overall performance, with core results strong even after accounting for one-time items. * The firm continues to progress on its strategic initiative to lower its loan-to-deposit ratio, which is 180 basis points lower year-to-date than the first half of 2025. * Stock repurchase activity continued during the quarter: 425,539 shares were bought back in Q2, bringing year-to-date repurchases to 776,677 shares. - Net Interest Income & Margin * Net interest income and margin showed continued strength and stability in the quarter, driven by growing average loan balances, improved asset yields, and a lower overall cost of funds. - Credit Quality * Two one-time credit items impacted the quarter: a $5.2 million pre-tax valuation adjustment on an OREO property (reducing after-tax earnings by $4.1 million, or $0.15 per diluted share), and a $28.6 million commercial C&I loan that was placed on non-accrual status with a $9.8 million specific reserve established. - Strategic Shifts * The firm has shifted its lending focus away from long-term commercial real estate (CRE) toward construction-oriented financing to capture wider margins and additional fee income amid increased competitive pricing pressure. - M&A Activity * Management remains open to M&A conversations for bank, wealth management, and insurance acquisitions, though near-term activity remains slower than historical levels with no imminent transactions expected. - Talent & Deposit Growth * The firm continues to actively recruit quality relationship management talent when opportunities arise in the market. Deposit pipelines remain strong, with particular strength expected in seasonal public fund growth in Q3, and solid demand for the firm's CD offerings.

Guidance

- Full-year 2026 loan growth guidance is maintained at approximately 2%-3%. - Excluding BOLI death benefits and OREO valuation adjustments, non-interest income growth guidance is maintained at 6%-8%. - Non-interest expense growth guidance is maintained at 3%-5%. - Full-year provision for credit losses guidance is maintained at $11 million-$13 million; the final outcome will depend on resolution of the Q2 non-accrual commercial loan, other charge-off activity, loan growth, and changes in economic conditions. - Full-year net interest income growth guidance was revised upward to 8%-10%, reflecting stronger-than-expected first half performance and continued margin stability. - The effective full-year tax rate guidance is maintained at 20%-21%. - Management expects core net interest margin to remain stable in the 3.50% range (plus or minus 5 basis points) over the next several quarters, assuming no drastic changes to the rate or economic environment.

Segment performance

The call does not break out financial performance by separate product segments, only reporting aggregate firm-level results. For the second quarter of 2026, Univest reported net income of $23 million, or $0.82 per diluted share, representing an 18.8% increase in EPS compared to Q2 2025. Reported net interest margin expanded 16 basis points quarter-over-quarter to 3.49%, while core net interest margin (excluding excess liquidity impacts) increased 9 basis points to 3.53%. Net interest income grew $2.9 million (4.5%) from Q1 2026 and $6.7 million (11.3%) from Q2 2025. Non-interest income totaled $18.1 million, down $3.4 million year-over-year, primarily due to the $5.2 million OREO valuation adjustment; excluding this adjustment, core non-interest income was solid: investment advisory fees rose $583,000 (10.7%) year-over-year, and net mortgage banking gains rose $365,000 (37.2%) year-over-year. The firm grew total loans by $101.7 million (6% annualized) and total deposits by $119.2 million (7.2% annualized) in the quarter. Net charge-offs were $1.9 million (11 basis points annualized), with the allowance for credit losses coverage ratio holding stable at 1.28% of total held-for-investment loans.

Risks & headwinds

- Intensifying competition for loan growth across all markets has led to narrowing credit spreads, pressuring margins on new originations. - The 165,000 square foot OREO lab/office property in the Princeton market has seen valuation pressure from weak market comparables for both sales and per-square-foot rental rates, and there is no guaranteed timeline for selling the property. - The $28.6 million non-accrual C&I loan to a seasonal discretionary manufacturing/distribution business creates uncertainty around future credit provisioning and potential additional charge-offs, with resolution timelines uncertain. - Limited opportunity to lower deposit costs in the current stable rate environment, as maturing CDs must be re-priced at or slightly above current rates, creating margin pressure on the liability side. - M&A activity remains sluggish, with limited high-quality acquisition opportunities available for purchase at agreeable valuations.

Analyst Q&A

• Q: With maintained low single-digit loan growth guidance amid widespread competition, how is competition evolving across markets and loan categories, and how is Univest adapting? /

  A: Management confirms increased pricing competition across all markets that has narrowed spreads industry-wide as firms compete for asset growth. To maintain adequate margins, Univest has strategically shifted lending focus from long-term CRE to construction-oriented financing, which delivers wider margins and additional fee income, allowing the firm to hit its target loan growth targets.

• Q: What is the expected trajectory for net interest margin going forward, especially after potential rate changes? /

  A: Management models the bank’s net interest sensitivity as fairly neutral to both rate hikes and cuts. Core NIM is expected to hold steady in the 3.50% range, plus or minus 5 basis points, over the next several quarters assuming no extreme market changes. This outlook already accounts for the separate impact of excess liquidity on reported NIM.

• Q: What is the outlook for share buyback pace going forward, given the repurchase activity in Q2? /

  A: Management intends to continue active buybacks for the near term, with substantial remaining authorized repurchase capacity. The firm balances buybacks with other capital priorities including organic balance sheet growth and potential M&A opportunities, and will manage capital ratios to stay around the level seen at the start of 2026.

• Q: How active is Univest currently for M&A opportunities, given broader sluggish market activity? /

  A: Univest remains open to M&A conversations for bank, wealth management, and insurance targets, and continues to participate in ongoing market discussions. However, management notes that overall market deal activity has slowed, there are limited high-quality targets that are actually for sale, and no near-term transactions are imminent.