Univest(UVSP) - 2023 Q4 - Annual Report

PART I Business Univest Financial Corporation is a bank holding company headquartered in Souderton, PA, with $7.8 billion in assets as of December 31, 2023, offering banking, wealth management, and insurance services across Pennsylvania, New Jersey, and Maryland Company Snapshot (as of December 31, 2023) | Metric | Value | | :--- | :--- | | Total Assets | $7.8 billion | | Net Loans and Leases | $6.5 billion | | Total Deposits | $6.4 billion | | Total Shareholders' Equity | $839.2 million | - The Corporation's primary market is Southeastern, Central, and Western Pennsylvania, with a high concentration of deposits and loans in Montgomery, Bucks, Lancaster, and Philadelphia counties[17] - As of December 31, 2023, the company employed 979 individuals, with approximately 94% being full-time, and an annual turnover rate of 19.6%, which is below the industry average of 23.5%[23][27] - The Corporation and its subsidiaries are primarily regulated by the Pennsylvania Department of Banking and Securities, the Federal Reserve Bank of Philadelphia, the FDIC, and the SEC[15][37][38] Human Capital Resources The company significantly invests in employee development, diversity initiatives, and community engagement, fostering a supportive work environment - In 2023, the company invested over $736,000 in employee training and development, providing approximately 28,000 training hours[25] - The company emphasizes Diversity, Equity, and Inclusion (DEI) through a dedicated committee, a DEI Manager, and mandatory training for all employees, including an Inclusive Leadership Workshop for supervisors[32][33] - In 2023, employees volunteered 13,117 hours, and the Corporation contributed $2.4 million to non-profit organizations[36] Supervision and Regulation The Corporation and its bank subsidiary are subject to extensive federal and state regulations, including capital rules and deposit insurance assessments - The Bank received a "satisfactory" Community Reinvestment Act (CRA) rating in its most recent federal examination, with new CRA regulations becoming applicable on January 1, 2026[41][42] - The Corporation and the Bank are subject to Basel III capital rules, requiring specific minimum ratios for Common Equity Tier 1, Tier 1, and Total Capital to risk-weighted assets, along with a 2.5% capital conservation buffer[45] - The FDIC increased deposit insurance assessment rates by two basis points starting in Q1 2023 and issued a special assessment to recover losses from recent bank failures[49] Risk Factors The Corporation faces significant risks from interest rate fluctuations, concentrated commercial lending, operational vulnerabilities, and regional economic downturns - Profitability is highly dependent on net interest income, which can be adversely affected by changes in interest rates and an inverted yield curve[72][73] - Lending activities are a primary source of risk, with approximately 79.2% of the loan portfolio consisting of commercial, financial, agricultural, commercial real estate, and construction loans, which carry a higher risk of default than residential loans[76] - The Corporation's geographic concentration in Pennsylvania and New Jersey makes it vulnerable to local economic downturns, which could lead to higher loan losses and nonperforming assets[104][105] - Operational risks include potential failures or security breaches of IT systems, reliance on third-party providers, and the challenge of keeping pace with technological changes[94][97] Cybersecurity Risk Management, Strategy and Governance The Corporation manages cybersecurity risk through a NIST-based framework, overseen by the Board's Enterprise-Wide Risk Management Committee and led by a CISO - The cybersecurity program is designed around the National Institute of Standards and Technology (NIST) Cybersecurity Framework and is managed by the Chief Information Security Officer (CISO)[132][133] - Oversight is provided by the Enterprise-Wide Risk Management Committee, which includes independent board members and receives quarterly cybersecurity updates from the CISO[133][134] - Key components of the program include annual risk assessments, regular employee training with simulated phishing attacks, independent third-party penetration testing, and a structured Incident Response Plan (IRP)[136][139][141] Properties As of December 31, 2023, the Corporation occupied 54 properties, primarily banking offices, across its operating regions - The Corporation occupied 54 properties as of year-end 2023, which include full-service branches, corporate headquarters, and subsidiary offices for its various business segments[148][149] Legal Proceedings The Corporation is involved in various legal actions, but management anticipates no material adverse effect on its financial condition or operations - Management does not expect any pending or threatened legal actions to have a material adverse effect on the Corporation's financial position, results of operations, or cash flows[152] Mine Safety Disclosures This item is not applicable to the Corporation PART II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Univest Financial Corporation's common stock trades on NASDAQ under "UVSP", and the company repurchased shares in Q4 2023 under its approved program - The Corporation's common stock is traded on the NASDAQ Global Select Market under the symbol "UVSP"[156] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2023 | — | $ — | | November 2023 | 26,485 | $17.43 | | December 2023 | — | $ — | | Total | 26,485 | $17.43 | - As of the end of Q4 2023, 1,202,689 shares remained available for repurchase under the company's publicly announced plan[161] Management's Discussion and Analysis of Financial Condition and Results of Operations For 2023, net income decreased to $71.1 million, impacted by restructuring charges, while total assets grew to $7.8 billion driven by loan and deposit increases Key Performance Indicators (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income | $71.1 M | $78.1 M | | Diluted EPS | $2.41 | $2.64 | | Net Interest Income | $220.0 M | $218.3 M | | Net Interest Margin (Tax-Equivalent) | 3.12% | 3.38% | | Provision for Credit Losses | $10.8 M | $12.2 M | | Return on Average Assets | 0.94% | 1.12% | | Return on Average Equity | 8.83% | 10.13% | - The decrease in net income for 2023 was influenced by $1.5 million in restructuring charges related to financial service center optimization and expense management strategies[183] - Total assets grew by $558.6 million (7.7%) to $7.8 billion at year-end 2023, primarily driven by a $444.0 million (7.3%) increase in gross loans and leases[216][222] - Total deposits increased by $462.3 million (7.8%), but the composition shifted, with noninterest-bearing deposits decreasing from 34.6% to 23.0% of total deposits from 2022 to 2023[242] Results of Operations Net interest income slightly increased in 2023, while noninterest income decreased and noninterest expense rose due to higher salaries and deposit insurance premiums - Net interest income increased by $1.7 million (0.8%) in 2023, as a $118.8 million increase in interest income was largely offset by a $117.8 million increase in interest expense due to the rising rate environment[187] - The provision for credit losses was $10.8 million in 2023, down from $12.2 million in 2022, while net charge-offs increased to $5.4 million from $3.9 million[196] - Noninterest income decreased by $1.1 million (1.4%) to $76.8 million, driven by lower mortgage banking income and a prior-year revenue adjustment, partially offset by a $2.0 million increase in insurance commissions[199][200][201] - Noninterest expense rose by $10.6 million (5.7%) to $197.4 million, primarily due to higher salaries and benefits, a 56.9% increase in deposit insurance premiums, and $1.3 million in restructuring charges[206][207][208] Financial Condition Total assets and deposits grew in 2023, while nonaccrual loans increased and shareholders' equity improved due to net income Balance Sheet Highlights (December 31, 2023 vs. 2022) | (in thousands) | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $7,780,628 | $7,222,016 | $558,612 | 7.7% | | Net Loans & Leases | $6,481,827 | $6,044,226 | $437,601 | 7.2% | | Total Deposits | $6,375,781 | $5,913,526 | $462,255 | 7.8% | | Total Borrowings | $465,067 | $440,401 | $24,666 | 5.6% | | Shareholders' Equity | $839,208 | $776,500 | $62,708 | 8.1% | - Nonaccrual loans and leases increased to $20.5 million at year-end 2023 from $13.4 million at year-end 2022, primarily due to a $6.1 million construction loan relationship being placed on nonaccrual status[227] - Shareholders' equity increased by $62.7 million, driven by $71.1 million in net income, partially offset by $24.7 million in cash dividends, with accumulated other comprehensive loss improving by $11.5 million[250] Asset/Liability Management The Corporation manages interest rate risk using gap analysis and earnings at risk simulation, maintaining substantial liquidity through committed borrowing capacity - The Corporation uses gap analysis and earnings at risk simulation modeling to manage interest rate risk, indicating a liability-sensitive position over the next twelve months, with more liabilities repricing than assets[258][261] Earnings at Risk Simulation (Estimated Change in NII over 12 Months) | Rate Shock | Amount (in thousands) | Percent | | :--- | :--- | :--- | | +300 bps | $(2,680) | (1.25%) | | +200 bps | $(2,769) | (1.29%) | | +100 bps | $(197) | (0.09%) | | -100 bps | $(1,802) | (0.84%) | | -200 bps | $(5,195) | (2.43%) | | -300 bps | $(11,389) | (5.32%) | - At December 31, 2023, the Corporation had total committed borrowing capacity of $3.4 billion from the FHLB and Federal Reserve, of which $1.9 billion was available, providing ample liquidity[274] Quantitative and Qualitative Disclosures About Market Risk The Corporation's primary market risk is interest rate risk, managed by the Investment Asset/Liability Management Committee, with detailed disclosures in Item 7 - The primary market risk for the Corporation is interest rate risk, which is managed by the Investment Asset/Liability Management Committee under policies established by the Board of Directors[280][281] - Detailed quantitative and qualitative disclosures about market risk, including liquidity and interest rate sensitivity analysis, are located in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" (Item 7)[282] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Univest Financial Corporation for the three-year period ended December 31, 2023, including the independent auditor's report Consolidated Balance Sheets The Consolidated Balance Sheets provide a snapshot of the Corporation's financial position, detailing assets, liabilities, and equity as of December 31, 2023 and 2022 Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $249,799 | $152,799 | | Net loans and leases | $6,481,827 | $6,044,226 | | Total assets | $7,780,628 | $7,222,016 | | Liabilities & Equity | | | | Total deposits | $6,375,781 | $5,913,526 | | Total liabilities | $6,941,420 | $6,445,516 | | Total shareholders' equity | $839,208 | $776,500 | Consolidated Statements of Income The Consolidated Statements of Income present the Corporation's financial performance, including net interest income, noninterest income, expenses, and net income for the past three fiscal years Consolidated Income Statement Data (for the year ended Dec 31) | (in thousands, except per share) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net interest income | $219,997 | $218,297 | $188,383 | | Provision for credit losses | $10,770 | $12,198 | $(10,132) | | Noninterest income | $76,824 | $77,885 | $83,224 | | Noninterest expense | $197,362 | $186,774 | $167,409 | | Net income | $71,104 | $78,120 | $91,801 | | Diluted EPS | $2.41 | $2.64 | $3.11 | Notes to Consolidated Financial Statements These notes provide detailed explanations and breakdowns of significant accounts and policies, including loans, asset quality, deposits, and regulatory capital matters - Note 5: Loans and Leases - Total loans and leases held for investment grew to $6.57 billion in 2023 from $6.12 billion in 2022, with Real estate-commercial ($3.30 billion) and Commercial, financial and agricultural ($0.99 billion) as the largest categories[397] - Note 5: Asset Quality - Nonperforming loans and leases increased to $21.1 million at year-end 2023 from $14.2 million in 2022, with the allowance for credit losses on loans and leases standing at 1.30% of total loans held for investment[231][400] - Note 9: Deposits - Total deposits were $6.38 billion at year-end 2023, with time deposits significantly increasing to $1.15 billion from $519 million in 2022, while noninterest-bearing deposits decreased to $1.47 billion from $2.05 billion[437] - Note 21: Regulatory Matters - Both the Corporation and the Bank were categorized as "well capitalized" under regulatory standards as of December 31, 2023, with the Corporation's Total Capital to Risk-Weighted Assets ratio at 13.90%[529][530] Controls and Procedures Management concluded that the Corporation's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, a conclusion affirmed by the independent auditor - Management, including the CEO and CFO, concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2023[559] - Based on an assessment using the 2013 COSO framework, management concluded that the Corporation's internal control over financial reporting was effective as of December 31, 2023[562] - The independent registered public accounting firm, KPMG LLP, provided an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2023[567][568] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the fourth quarter of 2023 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan during the three months ended December 31, 2023[574] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the Corporation's definitive proxy statement for its annual shareholder meeting on April 25, 2024 - Required information is incorporated by reference from the proxy statement for the annual meeting of shareholders on April 25, 2024[576] Executive Compensation Information for this item is incorporated by reference from the Corporation's definitive proxy statement for its annual shareholder meeting on April 25, 2024 - Required information is incorporated by reference from the 2024 Proxy statement[577] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2024 Proxy statement, detailing securities available for future issuance under equity compensation plans Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 269,914 | $26.14 | 1,195,500 | Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the Corporation's definitive proxy statement for its annual shareholder meeting on April 25, 2024 - Required information is incorporated by reference from the 2024 Proxy statement[579] Principal Accounting Fees and Services Information for this item is incorporated by reference from the Corporation's definitive proxy statement for its annual shareholder meeting on April 25, 2024 - Required information is incorporated by reference from the 2024 Proxy statement[579] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the annual report, including articles of incorporation, bylaws, and certifications - This section contains the index to financial statements and a list of all exhibits filed as part of the Form 10-K[581][586] Form 10-K Summary This item is not applicable to the Corporation - No summary is provided under this item[588]