Univest(UVSP) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Univest Financial Corporation's unaudited condensed consolidated financial statements for Q2 2024 and FY 2023, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets Total assets and equity increased from Dec 2023 to June 2024, driven by loan growth, with liabilities rising due to higher deposits Key Financial Metrics | Metric | June 30, 2024 (Thousands) | December 31, 2023 (Thousands) | |:---|:---|:---| | ASSETS ||| | Cash and cash equivalents | $190,911 | $249,799 | | Investment securities held-to-maturity | $140,112 | $145,777 | | Investment securities available-for-sale | $342,776 | $351,553 | | Loans and leases held for investment | $6,684,837 | $6,567,214 | | Total assets | $7,855,446 | $7,780,628 | | LIABILITIES ||| | Total deposits | $6,495,322 | $6,375,781 | | Total liabilities | $7,001,309 | $6,941,420 | | SHAREHOLDERS' EQUITY ||| | Total shareholders' equity | $854,137 | $839,208 | - Total assets increased by $74.8 million (1.0%) from December 31, 2023, to June 30, 2024[4] - Net loans and leases held for investment increased by $117.2 million, from $6,481,827 thousand at December 31, 2023, to $6,599,092 thousand at June 30, 2024[4] Condensed Consolidated Statements of Income Net income increased for Q2 and H1 2024, driven by higher interest income and lower credit loss provisions, despite increased interest expense Key Financial Metrics | Metric (Thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Total interest income | $99,832 | $90,139 | $198,441 | $173,392 | | Total interest expense | $48,805 | $35,809 | $95,947 | $59,745 | | Net interest income | $51,027 | $54,330 | $102,494 | $113,647 | | Provision for credit losses | $707 | $3,428 | $2,139 | $6,815 | | Total noninterest income | $20,980 | $19,833 | $46,575 | $39,513 | | Total noninterest expense | $48,708 | $49,799 | $98,782 | $99,328 | | Net income | $18,107 | $16,800 | $38,412 | $37,834 | | Basic EPS | $0.62 | $0.57 | $1.31 | $1.29 | | Diluted EPS | $0.62 | $0.57 | $1.30 | $1.28 | - Net income for the three months ended June 30, 2024, increased by $1.3 million (7.8%) to $18.1 million compared to $16.8 million in the prior year[1][182] - Net income for the six months ended June 30, 2024, increased by $0.6 million (1.5%) to $38.4 million compared to $37.8 million in the prior year[1][182] Condensed Consolidated Statements of Comprehensive Income Total comprehensive income rose in Q2 2024 from positive unrealized gains, but decreased for H1 2024 due to higher unrealized losses Key Financial Metrics | Metric (Thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Net income | $18,107 | $16,800 | $38,412 | $37,834 | | Other comprehensive income (loss) | $616 | $(5,484) | $(3,478) | $1,070 | | Total comprehensive income | $18,723 | $11,316 | $34,934 | $38,904 | - Net unrealized gains (losses) on available-for-sale investment securities shifted from a loss of $(2,431) thousand in Q2 2023 to a gain of $88 thousand in Q2 2024[15] - Net unrealized gains (losses) on interest rate swaps used in cash flow hedges shifted from a loss of $(3,247) thousand in Q2 2023 to a gain of $412 thousand in Q2 2024[15] Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from Dec 2023 to June 2024, driven by net income, offset by dividends, comprehensive loss, and treasury stock repurchases Key Financial Metrics | Metric (Thousands) | Balance at Dec 31, 2023 | 6 Months Ended June 30, 2024 | |:---|:---|:---|\ | Common Stock | $157,784 | $157,784 | | Additional Paid-in Capital | $301,066 | $300,166 | | Retained Earnings | $474,691 | $500,482 | | Accumulated Other Comprehensive Loss | $(50,646) | $(54,124) | | Treasury Stock | $(43,687) | $(50,171) | | Total Shareholders' Equity | $839,208 | $854,137 | - Total shareholders' equity increased by $14.9 million (1.8%) from December 31, 2023, to June 30, 2024[205][224] - Retained earnings increased by $25.8 million, primarily from net income of $38.4 million, offset by $12.3 million in cash dividends[224] Condensed Consolidated Statements of Cash Flows Net cash from operations significantly decreased in H1 2024, with reduced cash from investing and financing, leading to an overall cash decrease Key Financial Metrics | Metric (Thousands) | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|\ | Net cash provided by operating activities | $8,157 | $40,063 | | Net cash used in investing activities | $(109,061) | $(385,732) | | Net cash provided by financing activities | $42,016 | $333,281 | | Net decrease in cash and cash equivalents | $(58,888) | $(12,388) | | Cash and cash equivalents at end of period | $190,911 | $140,411 | - Cash paid for interest increased to $91.9 million for the six months ended June 30, 2024, from $53.7 million in the prior year[26] - Net increase in deposits was $119.5 million for the six months ended June 30, 2024, compared to $73.9 million in the prior year[26] Notes to Condensed Consolidated Financial Statements Provides detailed information on accounting policies, key financial instruments, equity, cash flows, and other significant disclosures Note 1. Summary of Significant Accounting Policies Outlines consolidation principles, basis of presentation, use of estimates, and accounting pronouncements, noting no material impact from ASU 2023-02 adoption - The unaudited condensed consolidated financial statements include Univest Financial Corporation and its wholly owned subsidiaries, with all significant intercompany balances and transactions eliminated[11] - Material estimates susceptible to significant changes include the fair value measurement of investment securities available-for-sale and the determination of the allowance for credit losses[12] - ASU No. 2023-02, 'Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,' became effective January 1, 2024, but did not have a material impact on the Corporation's financial statements[14] Note 2. Earnings per Share Basic and diluted EPS increased for Q2 and H1 2024, reflecting the overall increase in net income Key Financial Metrics | Metric (Thousands, except per share data) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Net income available to common shareholders | $18,107 | $16,800 | $38,412 | $37,834 | | Weighted-average shares outstanding (Basic) | 29,247 | 29,439 | 29,330 | 29,376 | | Adjusted weighted-average shares outstanding (Diluted) | 29,353 | 29,504 | 29,453 | 29,493 | | Basic earnings per share | $0.62 | $0.57 | $1.31 | $1.29 | | Diluted earnings per share | $0.62 | $0.57 | $1.30 | $1.28 | - Average antidilutive options and restricted stock units excluded from diluted EPS computation decreased from 575 thousand in Q2 2023 to 334 thousand in Q2 2024[40] Note 3. Investment Securities Investment securities portfolio decreased in cost and fair value from Dec 2023 to June 2024, with persistent unrealized losses due to interest rates Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Securities Held-to-Maturity ||| | Amortized Cost | $140,112 | $145,777 | | Fair Value | $120,592 | $128,277 | | Gross Unrealized Losses | $(19,520) | $(17,500) | | Securities Available-for-Sale ||| | Amortized Cost | $389,791 | $395,727 | | Fair Value | $342,776 | $351,553 | | Gross Unrealized Losses | $(46,372) | $(43,598) | | Allowance for Credit Losses (AFS) | $(781) | $(731) | - At June 30, 2024, held-to-maturity securities in an unrealized loss position had a fair value of $120.6 million, with unrealized losses of $19.5 million, primarily federal agency mortgage-backed securities[46] - At June 30, 2024, available-for-sale securities in an unrealized loss position (with an allowance for credit losses) had a fair value of $69.1 million, including unrealized losses of $7.5 million and an allowance of $781 thousand, mainly corporate bonds[48] Note 4. Loans and Leases Loan and lease portfolio increased from Dec 2023 to June 2024, with decreased nonaccrual loans and a slight increase in credit loss allowance Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Total loans and leases held for investment | $6,684,837 | $6,567,214 | | Allowance for credit losses, loans and leases | $(85,745) | $(85,387) | | Net loans and leases held for investment | $6,599,092 | $6,481,827 | | Total nonperforming loans and leases | $16,405 | $21,061 | | Nonaccrual loans and leases held for investment | $16,200 | $20,519 | | Allowance for credit losses, loans and leases / loans and leases held for investment | 1.28% | 1.30% | | Nonaccrual loans and leases / loans and leases held for investment | 0.24% | 0.31% | | Allowance for credit losses, loans and leases / nonaccrual loans and leases | 529.29% | 415.97% | - Net loan and lease charge-offs for the six months ended June 30, 2024, were $2.2 million, a decrease from $3.4 million in the prior year, primarily due to a $2.4 million charge-off related to one borrower in Q1 2023[196] - Nonaccrual loans and leases decreased by $4.3 million from December 31, 2023, to June 30, 2024, with pay-downs totaling $2.2 million on two nonaccrual construction loans to one borrower during the quarter[402] Note 5. Goodwill and Other Intangible Assets Goodwill remained stable, while amortized intangible assets, particularly servicing rights, decreased from Dec 2023 to June 2024 due to sales Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Goodwill | $175,510 | $175,510 | | Total amortized intangible assets (Net Carrying Amount) | $7,701 | $10,950 | | Servicing rights (Net Carrying Amount) | $6,083 | $8,982 | | Amortization of core deposit and customer-related intangibles (6 months) | $350 | $458 | - The aggregate fair value of servicing rights was $11.0 million at June 30, 2024, down from $17.7 million at December 31, 2023, primarily due to the sale of servicing rights associated with $591.1 million of serviced loans in Q1 2024[348] - No impairment of goodwill or identifiable intangibles was recognized during the six months ended June 30, 2024 or 2023[202] Note 6. Deposits Total deposits increased from Dec 2023 to June 2024, shifting towards higher-cost time deposits, with noninterest-bearing deposits declining Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Noninterest-bearing deposits | $1,397,308 | $1,468,320 | | Interest-bearing deposits | $5,098,014 | $4,907,461 | | Total deposits | $6,495,322 | $6,375,781 | | Weighted Average Interest Rate (Total) | 2.57% | 2.38% | | Time deposits (Amount) | $1,457,738 | $1,153,792 | | Time deposits (Weighted Average Interest Rate) | 4.49% | 4.22% | - Total deposits increased by $119.5 million (1.9%) from December 31, 2023, primarily due to increases in commercial, consumer, and brokered deposits, partially offset by a seasonal decrease in public funds deposits[203] - Noninterest-bearing deposits represented 21.5% of total deposits at June 30, 2024, down from 23.0% at December 31, 2023[203] Note 7. Borrowings Total borrowings decreased from Dec 2023 to June 2024 due to FHLB advance repayments, while maintaining substantial borrowing capacity Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Short-term borrowings | $11,781 | $6,306 | | Long-term debt (FHLB advances) | $250,000 | $310,000 | | Subordinated notes | $149,011 | $148,761 | | Weighted Average Interest Rate (Long-term debt) | 4.39% | 3.73% | | Weighted Average Interest Rate (Subordinated notes) | 6.08% | 6.08% | - Total borrowings decreased by $54.3 million (11.7%) from December 31, 2023, primarily due to $60.0 million in pay-downs of long-term FHLB advances, partially offset by a $5.5 million increase in customer repurchase agreements[204] - The Corporation had $3.6 billion in committed borrowing capacity and $459.0 million in uncommitted funding sources at June 30, 2024[117][234] Note 8. Retirement Plans and Other Postretirement Benefits Net periodic benefit costs for Retirement and Postretirement Plans decreased in Q2 and H1 2024, primarily due to lower expected losses Key Financial Metrics | Metric (Thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Retirement Plans ||||| | Service cost | $135 | $136 | $283 | $266 | | Interest cost | $600 | $587 | $1,192 | $1,184 | | Expected loss on plan assets | $(869) | $(761) | $(1,740) | $(1,531) | | Net periodic benefit cost | $42 | $212 | $86 | $419 | | Other Postretirement Benefits ||||| | Service cost | $14 | $19 | $28 | $38 | | Interest cost | $27 | $32 | $54 | $64 | | Net periodic benefit cost | $12 | $47 | $25 | $94 | - The Corporation expects to contribute $156 thousand to Retirement Plans and $112 thousand to Other Postretirement Benefit Plans in 2024[119] Note 9. Stock-Based Incentive Plan Stock-based incentive plan activity in H1 2024 included RSU grants and option exercises, with significant unrecognized compensation expense Key Financial Metrics | Metric (Thousands, except per share data) | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|\ | Restricted stock units granted | 273,030 | 213,429 | | Weighted average grant date fair value (RSUs granted) | $19.70 | $25.04 | | Restricted stock units vested | 151,041 | 181,175 | | Weighted average grant date fair value (RSUs vested) | $27.66 | $22.20 | | Stock options outstanding at June 30, 2024 | 238,804 | N/A | | Weighted average exercise price (Stock options) | $26.65 | N/A | | Unrecognized compensation cost (RSUs) | $8,274 | N/A | | Weighted-average period remaining (RSUs) | 2.1 years | N/A | - The 2023 Equity Incentive Plan was approved by shareholders on April 26, 2023, replacing the prior plan[95] - No stock options were granted during the six months ended June 30, 2024 or 2023[326] Note 10. Accumulated Other Comprehensive (Loss) Income Accumulated other comprehensive loss increased from Dec 2023 to June 2024, driven by unrealized losses on AFS securities and interest rate swaps Key Financial Metrics | Metric (Thousands) | December 31, 2023 | June 30, 2024 | |:---|:---|:---|\ | Net Unrealized Losses on Available-for-Sale Investment Securities | $(34,321) | $(36,526) | | Net Derivatives Used for Cash Flow Hedges | $(4,566) | $(6,071) | | Net Defined Benefit Pension Plans | $(11,759) | $(11,527) | | Total Accumulated Other Comprehensive Loss | $(50,646) | $(54,124) | - Other comprehensive loss for the six months ended June 30, 2024, was $(3,478) thousand, compared to income of $1,070 thousand in the prior year[329] Note 11. Derivative Instruments and Hedging Activities The Corporation uses interest rate swaps for cash flow hedges and engages in credit and mortgage banking derivatives, generating a net gain Key Financial Metrics | Derivative Type (Thousands) | Notional Amount (June 30, 2024) | Fair Value (June 30, 2024) | |:---|:---|:---|\ | Interest rate swap - cash flow hedge | $250,000 | $(7,685) | | Credit derivatives | $851,485 | $(116) | | Interest rate locks with customers | $46,792 | $746 | | Forward loan sale commitments | $74,968 | $(139) | | Total net gain (6 months ended June 30, 2024) | N/A | $657 | - The interest rate swap cash flow hedge, with a notional amount of $250.0 million, is highly effective in offsetting changes in cash flows of the hedged item[330] - The maximum potential payments by the Corporation under credit derivatives are not estimable due to their contingency on future interest rates and lack of a maximum payment limitation[362] Note 12. Fair Value Disclosures Financial instruments are measured at fair value using a three-level hierarchy, covering recurring and non-recurring measurements and related disclosures Key Financial Metrics | Asset/Liability (Thousands) | Level 1 (June 30, 2024) | Level 2 (June 30, 2024) | Level 3 (June 30, 2024) | Total Fair Value (June 30, 2024) | |:---|:---|:---|:---|:---|\ | Available-for-sale securities | $0 | $342,776 | $0 | $342,776 | | Equity securities | $2,995 | $0 | $0 | $2,995 | | Loans held for sale | $0 | $28,176 | $0 | $28,176 | | Contingent consideration liability | $0 | $0 | $614 | $614 | | Credit derivatives | $0 | $0 | $116 | $116 | | Individually analyzed loans held for investment (non-recurring) | $0 | $0 | $15,292 | $15,292 | | Other real estate owned (non-recurring) | $0 | $0 | $20,007 | $20,007 | | Repossessed assets (non-recurring) | $0 | $0 | $149 | $149 | - The contingent consideration liability for the Paul I. Sheaffer Insurance Agency acquisition was $614 thousand at June 30, 2024, with remaining potential payments up to $635 thousand through November 30, 2024[110][370] - Credit derivatives liability at June 30, 2024, was $116 thousand, representing the Credit Valuation Adjustment (CVA) of 134 interest rate swaps with a notional amount of $851.5 million[133] Note 13. Segment Reporting The Corporation operates three segments: Banking, Wealth Management, and Insurance, with Banking as the largest contributor to assets and pre-tax income Key Financial Metrics | Segment (Thousands) | Total Assets (June 30, 2024) | Pre-Tax Income (3 Months Ended June 30, 2024) | Pre-Tax Income (6 Months Ended June 30, 2024) | |:---|:---|:---|:---|\ | Banking | $7,721,111 | $23,553 | $48,590 | | Wealth Management | $64,331 | $1,360 | $2,812 | | Insurance | $51,102 | $1,076 | $4,187 | | Other | $18,902 | $(3,397) | $(7,441) | | Consolidated | $7,855,446 | $22,592 | $48,148 | - The Banking segment provides a full range of banking services, including deposit taking, loan origination, mortgage banking, and equipment lease financing[174] - The Wealth Management segment's noninterest income increased due to new customer relationships and appreciation of assets under management and supervision, which were $5.0 billion as of June 30, 2024[226] Note 14. Contingencies The Corporation faces legal actions, but management believes they will not materially adversely affect its operations, financial position, or cash flows - The Corporation is periodically subject to various pending and threatened legal actions involving claims for monetary relief[145] - Management's opinion is that any legal and financial responsibility arising from such claims will not have a material adverse effect on the Corporation's results of operations, financial position, or cash flows[145] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Overview Net income and diluted EPS increased for Q2 and H1 2024, influenced by BOLI benefits and MSR sale gains, offset by prior restructuring charges Key Financial Metrics | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Net income | $18,107 | $16,800 | $38,412 | $37,834 | | Diluted EPS | $0.62 | $0.57 | $1.30 | $1.28 | | Return on average assets | 0.94% | 0.91% | 1.00% | 1.04% | | Return on average equity | 8.62% | 8.35% | 9.16% | 9.56% | - Financial results for the three months ended June 30, 2024, included tax-free BOLI death benefit claims of $171 thousand, representing $0.01 diluted EPS[183] - Financial results for the six months ended June 30, 2024, included a $3.4 million net gain ($2.7 million after-tax), or $0.09 diluted EPS, from the sale of mortgage servicing rights[183] Results of Operations Net interest income decreased due to rising deposit costs, while noninterest income grew from mortgage banking, advisory fees, and BOLI. Noninterest expense declined Net Interest Income Tax-equivalent net interest income decreased for Q2 and H1 2024 due to rising deposit costs, with net interest margin declining but stabilizing Key Financial Metrics | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Net interest income (tax-equivalent) | $51,311 | $54,632 | $103,061 | $114,316 | | Net interest margin (tax-equivalent) | 2.84% | 3.14% | 2.86% | 3.35% | | Total interest income | $100,116 | $90,441 | $199,008 | $174,061 | | Total interest expense | $48,805 | $35,809 | $95,947 | $59,745 | - Net interest income on a tax-equivalent basis decreased by $3.3 million (6.1%) for the three months and $11.3 million (9.8%) for the six months ended June 30, 2024, compared to the prior year[422] - Excess liquidity reduced net interest margin by approximately two basis points for the three and six months ended June 30, 2024[152] Provision for Credit Losses Provision for credit losses significantly decreased for Q2 and H1 2024, indicating improved credit quality or a more favorable economic outlook Key Financial Metrics | Metric (Thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Provision for credit losses | $707 | $3,428 | $2,139 | $6,815 | | Allowance for credit losses, loans and leases / loans and leases held for investment | 1.28% | 1.28% | 1.28% | 1.28% | - The provision for credit losses decreased by $2.7 million for the three months and $4.7 million for the six months ended June 30, 2024, compared to the prior year[426] Noninterest Income Noninterest income increased for Q2 and H1 2024, driven by mortgage banking, advisory fees, BOLI, and insurance commissions, with mixed other service fees Key Financial Metrics | Metric (Thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Total noninterest income | $20,980 | $19,833 | $46,575 | $39,513 | | Net gain on mortgage banking activities | $1,710 | $1,039 | $2,649 | $1,664 | | Investment advisory commission and fee income | $5,238 | $4,708 | $10,432 | $9,460 | | Bank owned life insurance income | $1,086 | $789 | $1,928 | $1,556 | | Service charges on deposit accounts | $1,982 | $1,725 | $3,853 | $3,272 | | Insurance commission and fee income | $5,167 | $5,108 | $12,368 | $11,595 | | Other service fee income | $3,044 | $3,318 | $9,459 | $6,394 | - Net gain on mortgage banking activities increased by $671 thousand (64.6%) for the three months and $985 thousand (59.2%) for the six months ended June 30, 2024, due to increased salable volume[189] - Other service fee income decreased by $274 thousand (8.3%) for the three months but increased by $3.1 million (47.9%) for the six months ended June 30, 2024, primarily due to a net gain of $3.4 million from the sale of mortgage servicing rights in Q1[212] Noninterest Expense Noninterest expense decreased for Q2 and H1 2024, primarily due to the absence of prior year restructuring charges and reduced professional fees Key Financial Metrics | Metric (Thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Total noninterest expense | $48,708 | $49,799 | $98,782 | $99,328 | | Salaries, benefits and commissions | $30,187 | $29,875 | $61,525 | $60,889 | | Professional fees | $1,466 | $1,669 | $3,154 | $3,610 | | Restructuring charges | $0 | $1,330 | $0 | $1,330 | | Data processing | $4,161 | $4,137 | $8,656 | $8,166 | - Total noninterest expense decreased by $1.1 million (2.2%) for the three months and $546 thousand (0.5%) for the six months ended June 30, 2024[397] - Professional fees decreased by $456 thousand (12.6%) for the six months ended June 30, 2024, primarily due to reduced consultant fees related to loan origination solutions[192] Tax Provision Income tax expense increased for Q2 and H1 2024, with effective tax rates benefiting from tax-exempt income and BOLI death benefits Key Financial Metrics | Metric (Thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Income tax expense | $4,485 | $4,136 | $9,736 | $9,183 | | Effective tax rate | 19.9% | 19.8% | 20.2% | 19.5% | - The effective tax rates for the three and six months ended June 30, 2024, were favorably impacted by proceeds from BOLI death benefits[162] Financial Condition Total assets increased at June 30, 2024, driven by loan growth, with stable asset quality, strong capital, and liquidity Assets Total assets increased from Dec 2023 to June 2024, primarily from loan growth, partially offset by decreases in cash and investment securities Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | Change Amount | Change Percent | |:---|:---|:---|:---|:---|\ | Total assets | $7,855,446 | $7,780,628 | $74,818 | 1.0% | | Cash, interest-earning deposits and federal funds sold | $190,911 | $249,799 | $(58,888) | (23.6%) | | Investment securities | $485,883 | $500,623 | $(14,740) | (2.9%) | | Loans and leases held for investment | $6,684,837 | $6,567,214 | $117,623 | 1.8% | | Bank owned life insurance | $137,823 | $131,344 | $6,479 | 4.9% | | Accrued interest receivable and other assets | $114,753 | $95,203 | $19,550 | 20.5% | - Cash and interest-earning deposits decreased by $58.9 million (23.6%), primarily due to a decrease in interest-earning deposits at the Federal Reserve Bank and cash letters, as excess cash was used to pay down long-term debt and fund loan growth[215] - Total investment securities decreased by $14.7 million (2.9%), mainly due to maturities and pay-downs, and decreases in fair value, partially offset by purchases[194] Asset Quality Asset quality remained stable, with decreased nonaccrual loans, minor OREO increases, and a robust credit loss allowance relative to nonaccrual loans Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Nonaccrual loans and leases held for investment | $16,200 | $20,519 | | Accruing loans and leases, 90 days or more past due | $205 | $534 | | Total nonperforming loans and leases | $16,405 | $21,061 | | Other real estate owned | $20,007 | $19,032 | | Repossessed assets | $149 | $0 | | Total nonperforming assets | $36,561 | $40,093 | | Allowance for credit losses, loans and leases / nonaccrual loans and leases | 529.29% | 415.97% | - Nonaccrual loans and leases decreased by $4.3 million from December 31, 2023, to June 30, 2024[402] - Other real estate owned increased to $20.0 million at June 30, 2024, from $19.0 million at December 31, 2023, primarily due to capitalized improvements and the transfer of a commercial real estate property[218] Liabilities Total liabilities increased slightly, driven by deposits, offset by decreased borrowings, with noninterest-bearing deposits declining as a percentage of total Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | Change Amount | Change Percent | |:---|:---|:---|:---|:---|\ | Total deposits | $6,495,322 | $6,375,781 | $119,541 | 1.9% | | Short-term borrowings | $11,781 | $6,306 | $5,475 | 86.8% | | Long-term debt | $250,000 | $310,000 | $(60,000) | (19.4%) | | Subordinated notes | $149,011 | $148,761 | $250 | 0.2% | | Total liabilities | $7,001,309 | $6,941,420 | $59,889 | 0.9% | - Total borrowings decreased by $54.3 million (11.7%), primarily due to pay-downs of long-term FHLB advances of $60.0 million, partially offset by an increase of $5.5 million in customer repurchase agreements[204] - Noninterest-bearing deposits represented 21.5% of total deposits at June 30, 2024, down from 23.0% at December 31, 2023[203] Shareholders' Equity Total shareholders' equity increased from Dec 2023 to June 2024, driven by net income, offset by dividends, OCI loss, and treasury stock repurchases Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | Change Amount | Change Percent | |:---|:---|:---|:---|:---|\ | Total shareholders' equity | $854,137 | $839,208 | $14,929 | 1.8% | | Retained earnings | $500,482 | $474,691 | $25,791 | 5.4% | | Accumulated other comprehensive loss | $(54,124) | $(50,646) | $(3,478) | 6.9% | | Treasury stock | $(50,171) | $(43,687) | $(6,484) | 14.8% | - Retained earnings increased by $25.8 million, primarily due to net income of $38.4 million, offset by $12.3 million in cash dividends paid[224] - Accumulated other comprehensive loss increased by $3.5 million, attributable to decreases in the fair value of available-for-sale investment securities and derivatives[224] Discussion of Segments Banking segment reported increased pre-tax income, Wealth Management saw noninterest income growth, and Insurance experienced increased noninterest income - The Banking segment reported pre-tax income of $23.6 million for the three months and $48.6 million for the six months ended June 30, 2024, an increase from the prior year[206] - Wealth Management noninterest income increased due to new customer relationships and appreciation of assets under management and supervision, which were $5.0 billion as of June 30, 2024[226] - Insurance segment noninterest income for the six months ended June 30, 2024, included an increase in contingent commission income of $476 thousand[207] Capital Adequacy The Corporation and Bank met all regulatory capital adequacy requirements at June 30, 2024, with the Bank 'well capitalized' and CECL transition guidance adopted Key Financial Metrics | Capital Ratio | Corporation (June 30, 2024) | Bank (June 30, 2024) | Minimum for Capital Adequacy | Minimum for Well Capitalized | |:---|:---|:---|:---|:---|\ | Total Capital (to Risk-Weighted Assets) | 14.09% | 12.22% | 8.00% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 10.72% | 11.00% | 6.00% | 8.00% | | Tier 1 Common Capital (to Risk-Weighted Assets) | 10.72% | 11.00% | 4.50% | 6.50% | | Tier 1 Capital (to Average Assets) | 9.74% | 9.98% | 4.00% | 5.00% | - The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, requiring Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50%[209] - The Corporation adopted the transition guidance and the 2020 CECL IFR relief, allowing for the phase-in of regulatory capital impact from CECL adoption[210][232][249] Asset/Liability Management The Corporation uses gap analysis and earnings at risk modeling to manage interest rate risk, aiming to minimize volatility and maximize net interest income - The Corporation uses gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk[250] - Management's objective is to understand the Corporation's sensitivity to changes in interest rates and develop strategies to minimize volatility while maximizing net interest income[233] Liquidity Ample liquidity is maintained through cash, AFS securities, and borrowing capacities, with core deposits as the largest funding source Key Financial Metrics | Metric (Thousands) | June 30, 2024 | December 31, 2023 | |:---|:---|:---|\ | Unencumbered cash and cash equivalents | $182,300 | $241,500 | | Unencumbered available-for-sale securities | $22,100 | $23,300 | | Committed borrowing capacity (FHLB & FRB) | $3,600,000 | $3,400,000 | | Available committed borrowing capacity | $2,300,000 | $1,900,000 | | Uncommitted funding sources from correspondent banks | $459,000 | $369,000 | - Core deposits continue to be the largest significant funding source for the Corporation, primarily generated from individuals, businesses, public funds, and non-profit customers[235] - The Corporation also utilizes a mix of short-term and long-term wholesale funding providers, including federal funds purchases, secured borrowing lines from FHLB and FRB, and brokered deposits[252][253] Cash Requirements Primary cash requirements are for contractual obligations and credit commitments, expected to be met through on-balance sheet liquidity and depository services - The most significant contractual obligations are for the Bank to repay certificates of deposit and short- and long-term borrowings[254] - Commitments to extend credit are the Bank's most significant commitment, though they do not necessarily represent future cash requirements as they often expire unused[236] Recent Accounting Pronouncements No material changes in recent accounting pronouncements were noted for Q2 2024, with further details in Note 1 of the financial statements - For information regarding recent accounting pronouncements, refer to Note 1 to the Condensed Consolidated Financial Statements, 'Summary of Significant Accounting Policies'[237] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk occurred in Q2 2024; detailed discussion is in the Corporation's 2023 Annual Report on Form 10-K - No material changes in the Corporation's market risk occurred during the period ended June 30, 2024[237] - A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2023[237] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting during the quarter - The Corporation's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of June 30, 2024[255] - There were no changes in the Corporation's internal control over financial reporting during the quarter ended June 30, 2024, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[256] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Corporation faces legal actions, but management believes they will not materially adversely affect its operations, financial position, or cash flows - The Corporation is periodically subject to various pending and threatened legal actions that involve claims for monetary relief[238] - Management's opinion is that any legal and financial responsibility arising from such claims will not have a material adverse effect on the Corporation's results of operations, financial position, or cash flows[238] Item 1A. Risk Factors No material changes in risk factors from those disclosed in the Corporation's 2023 Annual Report on Form 10-K - No material changes in risk factors applicable to the Corporation from those disclosed in 'Risk Factors' in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2023[239] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Corporation repurchased common stock under a Board-approved program in Q2 2024, separate from shares withheld for stock-based incentive plans Key Financial Metrics | Period | Total Number of Shares Purchased | Average Price Paid per Share | |:---|:---|:---|\ | April 1 – 30, 2024 | 79,763 | $19.77 | | May 1 – 31, 2024 | 58,763 | $22.56 | | June 1 – 30, 2024 | 52,282 | $21.64 | | Total (3 months) | 190,808 | $21.14 | - The Board of Directors approved the repurchase of 1,000,000 shares on October 26, 2022, with no scheduled expiration date[258] - Shares withheld to cover income taxes upon the vesting of restricted stock awards and stock swaps to exercise stock options are repurchased pursuant to the terms of the applicable plan and not under the Corporation's share repurchase program[241] Item 3. Defaults Upon Senior Securities This section indicates no defaults upon senior securities during the reporting period - This section is marked as 'None,' indicating no defaults upon senior securities[241] Item 4. Mine Safety Disclosures This section is 'Not Applicable,' as the Corporation has no operations subject to mine safety disclosures - This section is marked as 'Not Applicable,' indicating no mine safety disclosures[242] Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during Q2 2024 - During the three months ended June 30, 2024, none of the Corporation's directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of the Corporation's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any 'non-Rule 10b5-1 trading arrangement'[241] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including organizational documents, certifications, and financial statements in Inline XBRL format - Exhibit 3.1: Amended and Restated Articles of Incorporation[265] - Exhibit 31.1 and 31.2: Certifications of Jeffrey M. Schweitzer (CEO) and Brian J. Richardson (CFO) pursuant to Rule 13a-14(a) of the Exchange Act[265] - Exhibit 101: Financial statements from the Quarterly Report on Form 10-Q, formatted in Inline XBRL[265] SIGNATURES The report is signed by Univest Financial Corporation's CEO Jeffrey M. Schweitzer and CFO Brian J. Richardson as of July 30, 2024 - The report is signed by Jeffrey M. Schweitzer, Chairman, President and Chief Executive Officer (Principal Executive Officer)[266] - The report is signed by Brian J. Richardson, Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)[263] - The signing date for the report is July 30, 2024[263][266]