UVSP - Univest Financial Corporation Reports Year and Fourth Quarter Results

SOUDERTON, Pa., Jan. 22, 2020 (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 year ended December 31, 2019 of  $65.7 million, or $2.24 diluted earnings per share, compared to net income of $50.5 million, or $1.72 diluted earnings per share, for the year ended December 31, 2018. Net income for the quarter ended December 31, 2019 was $15.5 million, or $0.53 diluted earnings per share, compared to net income of $18.4 million, or $0.63 diluted earnings per share, for the quarter ended December 31, 2018.

One-Time Items
The financial results for the year ended December 31, 2019 included a Federal Deposit Insurance Corporation (FDIC) small bank assessment credit of $1.1 million (after-tax benefit of $871 thousand) of which $988 thousand was recognized during the third quarter of 2019 and $114 thousand was recognized during the fourth quarter of 2019. The FDIC credit represented a favorable impact to earnings per share of $0.03 during the third quarter of 2019 and for the year ended December 31, 2019. In addition, the fourth quarter and year ended December 31, 2019 included an expense related to a legal settlement with a former Fox Chase Bank customer of $869 thousand (after-tax charge of $687 thousand), or $0.02 diluted earnings per share.

The financial results for the year ended December 31, 2018 included a net provision for loan and lease losses of $10.9 million (after-tax charge of $8.6 million), or $0.29 diluted earnings per share related to fraudulent activities by employees of a borrower. The second quarter of 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), or $0.34 diluted earnings per share, related to this relationship, and the quarter ended December 31, 2018 included a recovery of $1.8 million (after-tax recovery of $1.5 million), which represented $0.05 diluted earnings per share.

The year ended December 31, 2018 included two additional items: 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, and 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 $380.3 million, or 9.5%, from December 31, 2018 and $134.9 million, or 12.7% (annualized), from September 30, 2019 primarily due to growth in commercial real estate and residential real estate loans.

Deposits
Total deposits increased $468.8 million, or 12.1%, from December 31, 2018 primarily due to an increase in public funds deposits of $201.9 million and increases in commercial and consumer deposits. Total deposits increased $16.8 million, or 1.5% (annualized), from September 30, 2019 primarily due to increases in commercial and consumer deposits partially offset by a seasonal decrease in public funds deposits of $166.3 million.

Net Interest Income and Margin
Net interest income of $169.2 million for the year ended December 31, 2019 increased $11.2 million, or 7.1%, from the prior year. The increase in net interest income for the year ended December 31, 2019 compared to the prior year was primarily due to a 9.8% increase in average loans during the last year. Net interest margin, on a tax-equivalent basis, was 3.59% for the year ended December 31, 2019 compared to 3.72% for the year ended December 31, 2018. The favorable impact of purchase accounting accretion was two basis points for each of the years ended December 31, 2019 and 2018. Excess liquidity reduced net interest margin by approximately eight basis points for the year ended December 31, 2019 compared to one basis point for the year ended December 31, 2018. This excess liquidity was primarily driven by strong deposit balance growth during 2019. Excluding purchase accounting accretion and the impact of excess liquidity, the net interest margin, on a tax-equivalent basis, was 3.65% for the year ended December 31, 2019 and 3.71% for the year ended December 31, 2018.

Net interest margin, on a tax-equivalent basis, was 3.44% for the fourth quarter of 2019, compared to 3.52% for the third quarter of 2019 and 3.72% for the fourth quarter of 2018. The favorable impact of purchase accounting accretion was three basis points for the quarter ended December 31, 2019 compared to no impact for the quarter ended September 30, 2019 and one basis point for the quarter ended December 31, 2018. Excess liquidity reduced net interest margin by approximately 12 basis points for the quarter ended December 31, 2019, compared to 13 basis points for the quarter ended September 30, 2019, and four basis points for the quarter ended December 31, 2018. Excluding purchase accounting accretion and the impact of excess liquidity, the net interest margin, on a tax-equivalent basis, was 3.53% for the quarter ended December 31, 2019 compared to 3.65% for the quarter ended September 30, 2019 and 3.75% for the quarter ended December 31, 2018.

Noninterest Income
Noninterest income for the quarter ended December 31, 2019 was $16.2 million, an increase of $1.8 million, or 12.2%, from the fourth quarter of 2018. Noninterest income for the year ended December 31, 2019 was $65.4 million, an increase of $5.2 million, or 8.7%, from the comparable period in the prior year.

The net gain on mortgage banking activities increased $325 thousand, or 45.6%, for the quarter and $821 thousand, or 26.3%, for the year ended December 31, 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 $212 thousand, or 5.5%, for the quarter and $842 thousand, or 5.6%, for the year ended December 31, 2019, primarily due to new client relationships and appreciation of assets under management. Insurance commission and fee income increased $194 thousand, or 5.7%, for the quarter and $913 thousand, or 5.8%, for the year ended December 31, 2019, primarily due to an increase in premiums for commercial lines and group life and health for the quarter and year ended December 31, 2019 as well as an increase in contingent commission income of $316 thousand for the year ended December 31, 2019. Service charges on deposit accounts increased $314 thousand, or 5.6%, for the year ended December 31, 2019, primarily due to increased fee income on commercial cash management accounts. BOLI income increased $311 thousand for the quarter ended December 31, 2019 primarily due to a decline in the value of the non-qualified annuity portfolio of $287 thousand in the fourth quarter of 2018.

Other income increased $853 thousand for the quarter and $2.4 million for the year ended December 31, 2019. Fees on risk participation agreements increased $407 thousand for the quarter and $1.1 million for the year ended December 31, 2019, driven by increased customer activity. Gain on sale of small business administration (SBA) loans increased $94 thousand for the quarter and $462 thousand for the year ended December 31, 2019 due to increased SBA loan sale activity. Net loss on valuations and sales of other real estate owned was $28 thousand for the year ended December 31, 2019 compared to $626 thousand for the year ended December 31, 2018.

Noninterest Expense
Noninterest expense for the quarter ended December 31, 2019 was $37.5 million, an increase of $4.1 million, or 12.2%, compared to the fourth quarter of 2018. Noninterest expense for the year ended December 31, 2019 was $146.1 million, an increase of $8.8 million, or 6.4%, from the prior year.

Salaries, benefits and commissions increased $2.4 million, or 12.2%, for the quarter and $7.8 million, or 9.7%, for the year ended December 31, 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 $333 thousand, or 14.2%, for the quarter and $1.4 million, or 15.9%, for the year ended December 31, 2019, primarily due to continued investments in customer relationship management software and internal infrastructure improvements as well as outsourced data processing solutions for the year ended December 31, 2019. Other expense included a charge of $869 thousand related to a legal settlement with a former Fox Chase Bank customer.

These increases were partially offset by a decrease in deposit insurance premiums of $1.1 million for the year ended December 31, 2019 due to the previously discussed FDIC small bank assessment credit. Intangible expenses decreased by $107 thousand, or 22.2%, for the quarter and $571 thousand, or 26.4%, for the year ended December 31, 2019 due to a run-off of intangible assets from prior acquisitions. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the first quarter of 2018. There were no restructuring costs incurred during 2019.  Excluding the FDIC small bank assessment credit, the legal settlement charge and restructuring costs, noninterest expense for the year ended December 31, 2019 increased $9.6 million, or 7.1%.

Asset Quality and Provision for Loan and Lease Losses
Nonperforming assets were $39.3 million at December 31, 2019, compared to $40.4 million at September 30, 2019 and $28.1 million at December 31, 2018. The increase in nonperforming assets at December 31, 2019 compared to December 31, 2018 was primarily due to one commercial banking relationship, totaling $11.9 million as of December 31, 2019, which was placed on non-accrual status during 2019.

Net loan and lease charge-offs were $558 thousand during the fourth quarter of 2019 and $2.6 million for the year ended December 31, 2019. The provision for loan and lease losses was $2.2 million for the fourth quarter of 2019 and $8.5 million for the year ended December 31, 2019. Net loan and lease recoveries were $1.9 million during the fourth quarter of 2018, which included the $1.8 million recovery related to the previously discussed commercial loan charge-off. The provision for loan and lease losses was $103 thousand for the fourth quarter of 2018. For the year ended December 31, 2018, net loan and lease charge-offs of $12.5 million and the provision for loan and lease losses of $20.3 million include the previously discussed $10.9 million commercial loan net charge-off.

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 December 31, 2019 and September 30, 2019 and 0.81% at December 31, 2018.

Tax Provision  
The effective income tax rate was 17.9% for the quarter ended December 31, 2019, compared to an effective income tax rate of 17.6% for the quarter ended December 31, 2018. The effective income tax rate was 17.9% for the year ended December 31, 2019 compared to an effective income tax rate of 16.7% for the year ended December 31, 2018.

Dividend
On December 9, 2019, Univest declared a quarterly cash dividend of $0.20 per share, payable on January 2, 2020. This represented a 3.01% 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 fourth quarter and year end 2019 results on Thursday, January 23, 2020 at 9:00 a.m. EST. Participants may preregister at http://dpregister.com/10137953. The general public can access the call by dialing 1-888-338-6515. A replay of the conference call will be available through February 23, 2020 by dialing 1-877-344-7529; using Conference ID: 10137953.

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 $3.8 billion in assets under management and supervision through its Wealth Management lines of business at December 31, 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 asset quality, 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.