UVSP - Univest Financial Corporation Reports Third Quarter Results

SOUDERTON, Pa., Oct. 23, 2019 (GLOBE NEWSWIRE) -- Univest Financial Corporation (“Univest” or the “Corporation”) (NASDAQ: UVSP), parent company of Univest Bank and Trust Co. and its insurance, investments and equipment financing subsidiaries, today announced net income for the quarter ended September 30, 2019 of $17.7 million, or $0.60 diluted earnings per share, compared to net income of $15.0 million, or $0.51 diluted earnings per share, for the quarter ended September 30, 2018. Net income for the nine months ended September 30, 2019 was $50.2 million, or $1.71 diluted earnings per share, compared to net income of $32.2 million, or $1.09 diluted earnings per share, for the nine months ended September 30, 2018.

One-Time Items
The financial results for the three and nine months ended September 30, 2019 included a Federal Deposit Insurance Corporation (FDIC) small bank assessment credit of $988 thousand (after tax benefit of $781 thousand), which represented a favorable impact to earnings per share in each period of $0.03. The FDIC notified the Bank during September 2019 that the required deposit insurance fund reserve ratio was met at June 30, 2019, triggering the application of small bank credits. The Bank's total FDIC small bank assessment credit was $1.1 million, with the remaining credit of $114 thousand expected to be applied to the fourth quarter of 2019. 

The financial results for the nine months ended September 30, 2018 included a pre-tax charge to the provision for loan and lease losses of $12.7 million (after-tax charge of $10.1 million) in the second quarter of 2018, which represented $0.34 diluted earnings per share, related to fraudulent activities by employees of a borrower. In addition, the nine months ended September 30, 2018 included a tax-free bank owned life insurance (BOLI) death benefit of $446 thousand during the second quarter of 2018, which represented $0.02 diluted earnings per share. The nine months ended September 30, 2018 included restructuring costs related to financial center closures of $451 thousand, net of tax, recognized in the first quarter of 2018, which represented $0.02 diluted earnings per share.

Loans
Gross loans and leases increased $84.0 million, or 8.1% (annualized), from June 30, 2019 and $245.4 million, or 8.2% (annualized), from December 31, 2018 and $385.8 million, or 10.0%, from September 30, 2018 primarily due to growth in commercial real estate, commercial business and residential real estate loans.

Deposits
Total deposits increased $215.9 million, or 20.9% (annualized), from June 30, 2019 primarily due to an increase in public funds deposits of $311.3 million partially offset by decreases in commercial and consumer deposits. The growth in public funds during the quarter resulted from seasonal increases and new customer relationships. Total deposits increased $452.1 million, or 15.5% (annualized), from December 31, 2018 and $517.9 million, or 13.6%, from September 30, 2018, primarily due to the previously discussed increase in public funds deposits as well as increases in commercial and consumer deposits.

Net Interest Income and Margin
Net interest income of $42.6 million for the quarter ended September 30, 2019 increased $2.2 million, or 5.5%, from the third quarter of 2018. Net interest income of $126.8 million for the nine months ended September 30, 2019 increased $10.1 million, or 8.7%, from the nine months ended September 30, 2018. The increase in net interest income for the quarter and nine months ended September 30, 2019 compared to the same periods in 2018 was primarily due to the growth in loans during the last year.

Net interest margin, on a tax-equivalent basis, was 3.52% for the third quarter of 2019, compared to 3.67% for the second quarter of 2019 and 3.71% for the third quarter of 2018. Purchase accounting accretion had no impact on the quarter ended September 30, 2019 compared to a favorable impact of one basis point for the quarter ended June 30, 2019 and three basis points for the quarter ended September 30, 2018.  Excess liquidity reduced net interest margin by approximately 13 basis points for the quarter ended September 30, 2019, compared to 5 basis points for the quarter ended June 30, 2019 and 3 basis points for the quarter ended September 30, 2018. This excess liquidity was primarily driven by strong deposit balance growth. Excluding purchase accounting accretion and the impact of excess liquidity, the net interest margin, on a tax-equivalent basis, was 3.65% for the quarter ended September 30, 2019 and 3.71% for the quarters ended June 30, 2019 and September 30, 2018.

Noninterest Income
Noninterest income for the quarter ended September 30, 2019 was $16.6 million, an increase of $1.7 million, or 11.7%, from the third quarter of 2018. Noninterest income for the nine months ended September 30, 2019 was $49.3 million, an increase of $3.5 million, or 7.6%, from the comparable period in the prior year.

The net gain on mortgage banking activities increased $875 thousand for the quarter and $496 thousand for the nine months ended September 30, 2019, primarily due to an increase in mortgage volume partially offset by contraction in margins to remain price competitive. Investment advisory commission and fee income increased $247 thousand, or 6.5%, for the quarter and $630 thousand, or 5.6%, for the nine months ended September 30, 2019, primarily due to new customer relationships. Insurance commission and fee income increased $234 thousand, or 6.4%, for the quarter and $719 thousand, or 5.9%, for the nine months ended September 30, 2019, primarily due to an increase in contingent commission income of $203 thousand for the quarter and $323 thousand for the nine months ended September 30, 2019 as well as an increase in premiums for commercial lines and group life and health for the nine months ended September 30, 2019. Service charges on deposit accounts increased $59 thousand, or 4.1%, for the quarter and $279 thousand, or 6.8%, for the nine months ended September 30, 2019, primarily due to increased fee income on commercial cash management accounts.

Other income increased $428 thousand for the quarter and $1.5 million for the nine months ended September 30, 2019. Fees on risk participation agreements increased $137 thousand for the quarter and $681 thousand for the nine months ended September 30, 2019 driven by increased customer activity. Gain on sale of small business administration (SBA) loans increased $55 thousand for the quarter and $368 thousand for the nine months ended September 30, 2019 related to increased SBA loan sale activity. Net loss on valuations and sales of other real estate owned was $28 thousand for the nine months ended September 30, 2019 compared to $507 thousand for the nine months ended September 30, 2018.

These increases were partially offset by a decrease in BOLI income of $306 thousand, or 11.2%, for the nine months ended September 30, 2019 primarily due to proceeds from BOLI death benefits of $446 thousand recognized in the second quarter of 2018.

Noninterest Expense
Noninterest expense for the quarter ended September 30, 2019 was $36.3 million, an increase of $1.9 million, or 5.5%, compared to the third quarter of 2018. Noninterest expense for the nine months ended September 30, 2019 was $108.6 million, an increase of $4.8 million, or 4.6%, from the comparable period in the prior year.

Salaries, benefits and commissions increased $2.5 million, or 12.1%, for the quarter and $5.4 million, or 8.9%, for the nine months ended September 30, 2019, primarily attributable to additional staff hired to support revenue generation across all business lines, expansion of our commercial lending groups and annual merit increases. During the first quarter of 2019, Univest hired a team of eight commercial lenders and support staff to focus on increasing Univest’s presence in Western Lancaster and York Counties. During the second quarter of 2019, a team of three commercial lenders was hired to help expand Univest’s presence in the New Jersey suburbs of Philadelphia. Data processing expense increased $285 thousand, or 12.2%, for the quarter and $1.1 million, or 16.6%, for the nine months ended September 30, 2019, primarily due to continued investments in customer relationship management software and internal infrastructure improvements as well as outsourced data processing solutions for the nine months ended September 30, 2019.

These increases were partially offset by a decrease in deposit insurance premiums of $988 thousand for the quarter and $949 thousand for the nine months ended September 30, 2019 due to the previously discussed FDIC small bank assessment credit of $988 thousand which was recognized during the third quarter of 2019. Intangible expense decreased by $101 thousand, or 21.1%, for the quarter and $464 thousand, or 27.5%, for the nine months ended September 30, 2019 due to run-off of the intangible assets. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the first quarter of 2018. Excluding restructuring costs and the FDIC small bank assessment credit, noninterest expense for the nine months ended September 30, 2019 increased $6.3 million, or 6.1%.

Asset Quality and Provision for Loan and Lease Losses
Nonperforming assets were $40.4 million at September 30, 2019, compared to $28.1 million at December 31, 2018 and $31.0 million at September 30, 2018. The increase in nonperforming assets at September 30, 2019 was primarily due to one commercial banking relationship, totaling $11.6 million, which was placed on non-accrual status during the third quarter of 2019.

Net loan and lease charge-offs were $468 thousand during the third quarter of 2019 and $2.0 million for the nine months ended September 30, 2019. The provision for loan and lease losses was $1.5 million for the third quarter of 2019 and $6.3 million for the nine months ended September 30, 2019. Net loan and lease charge-offs were $1.0 million during the third quarter of 2018 and $14.4 million for the nine months ended September 30, 2018. The provision for loan and lease losses was $2.7 million for the third quarter of 2018 and $20.2 million for the nine months ended September 30, 2018. Both net loan and lease charge-offs and the provision for loan and lease losses during 2018 included the previously discussed $12.7 million commercial loan charge-off during the second quarter of 2018.

The allowance for loan and lease losses as a percentage of loans and leases held for investment, excluding covered loans acquired in the Fox Chase and Valley Green Bank acquisitions, which were recorded at fair value as of the acquisition date, was 0.85% at September 30, 2019, 0.81% at December 31, 2018 and 0.79% at September 30, 2018.

Tax Provision  
The effective income tax rate was 17.6% for the quarter ended September 30, 2019, consistent with the effective income tax rate for the quarter ended September 30, 2018. The effective income tax rate was 17.9% for the nine months ended September 30, 2019 compared to an effective income tax rate of 16.2% for the nine months ended September 30, 2018. The Corporation's effective income tax rate for the nine months ended September 30, 2019 was favorably impacted by discrete tax benefits. Excluding these items, the effective tax rate was 18.3% for the nine months ended September 30, 2019.

Dividend
On August 26, 2019, Univest declared a quarterly cash dividend of $0.20 per share, payable on October 1, 2019. This represented a 3.21% annualized yield based on the closing price of Univest’s stock on the date the dividend was paid.

Conference Call
Univest will host a conference call to discuss third quarter 2019 results on Thursday, October 24, 2019 at 9:00 a.m. EDT. Participants may preregister at http://dpregister.com/10135540. The general public can access the call by dialing 1-888-338-6515. A replay of the conference call will be available through November 24, 2019 by dialing 1-877-344-7529; using Conference ID: 10135540.

About Univest Financial Corporation
Univest Financial Corporation (UVSP), including its wholly-owned subsidiary Univest Bank and Trust Co., Member FDIC, has approximately $5.4 billion in assets and $3.6 billion in assets under management and supervision through its Wealth Management lines of business at September 30, 2019. Headquartered in Souderton, Pa. and founded in 1876, the Corporation and its subsidiaries provide a full range of financial solutions for individuals, businesses, municipalities and nonprofit organizations primarily in the Mid-Atlantic Region. Univest delivers these services through a network of more than 50 offices in southeastern Pennsylvania extending to the Lehigh Valley and Lancaster, as well as in New Jersey and Maryland and online at www.univest.net.

This press release of Univest and the reports Univest files with the Securities and Exchange Commission often contain "forward-looking statements" relating to present or future trends or factors affecting the financial services industry and, specifically, the financial operations, markets and products of Univest. These forward-looking statements involve certain risks and uncertainties. There are a number of important factors that could cause Univest’s future results to differ materially from historical performance or projected performance. These factors include, but are not limited to: (1) competitive pressures among financial institutions; (2) changes in the interest rate environment; (3) changes in prepayment speeds, loan sale volumes, charge-offs and loan loss provisions; (4) general economic conditions; (5) legislative or regulatory changes that may adversely affect the businesses in which Univest is engaged; (6) technological issues that may adversely affect Univest financial operations or customers; (7) changes in the securities markets or (8) risk factors mentioned in the reports and registration statements Univest files with the Securities and Exchange Commission. Univest undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this press release.