Business Context and Reporting Period
Univest Financial Corporation is a Pennsylvania bank holding company serving individuals, businesses, municipalities and nonprofit organizations across Pennsylvania, New Jersey and Maryland. Its businesses comprise Banking, Wealth Management and Insurance. This Form 10-K covers the fiscal year ended December 31, 2023, not a standalone fourth-quarter filing; quarterly fourth-quarter information is disclosed only where specifically noted.
At year-end, Univest had $7.8 billion of assets, $6.5 billion of net loans and leases, $6.4 billion of deposits, $839.2 million of shareholders’ equity and 979 employees.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net interest income | $220.0 million | $218.3 million | Up 0.8% |
| Net interest margin, tax-equivalent | 3.12% | 3.38% | Down 26 bp |
| Provision for credit losses | $10.8 million | $12.2 million | Down $1.4 million |
| Noninterest income | $76.8 million | $77.9 million | Down 1.4% |
| Noninterest expense | $197.4 million | $186.8 million | Up 5.7% |
| Net income | $71.1 million | $78.1 million | Down 9.0% |
| Diluted EPS | $2.41 | $2.64 | Down 8.7% |
| Return on average assets | 0.94% | 1.12% | Down 18 bp |
| Return on average equity | 8.83% | 10.13% | Down 130 bp |
| Efficiency ratio | 66.0% | 62.4% | Higher expenses relative to revenue |
Interest income increased $119.5 million to $371.7 million as asset yields and average interest-earning assets rose. This benefit was largely offset by a $117.8 million increase in interest expense to $151.7 million, driven by higher deposit and borrowing costs. Average interest-bearing deposits increased, particularly money-market and time deposits.
Cash flow from operating activities was $89.7 million, compared with $109.5 million in 2022. Investing activities used $454.4 million, primarily reflecting a $474.2 million net increase in loans and leases. Financing activities provided $461.7 million, principally from a $462.2 million increase in deposits and $215.0 million of additional long-term debt, partly offset by reduced short-term borrowings and dividends paid.
Balance Sheet, Credit, Debt and Liquidity
- Total assets increased 7.7% to $7.78 billion, including 7.3% growth in loans and leases held for investment to $6.57 billion.
- Deposits increased 7.8% to $6.38 billion, but noninterest-bearing deposits declined to 23.0% of deposits from 34.6%. Unprotected deposits represented 23.3% of deposits, down from 31.0%.
- Borrowings totaled $465.1 million, including $310.0 million of FHLB advances and $148.8 million of subordinated notes. Long-term debt increased $215.0 million, while short-term borrowings declined $190.8 million.
- Unencumbered cash and cash equivalents were $241.5 million. Total committed borrowing capacity was $3.4 billion, of which $1.9 billion was available; unused uncommitted correspondent-bank funding was $369.0 million.
- The allowance for credit losses increased to $85.4 million, or 1.30% of loans and leases, from $79.0 million, or 1.29%. Net charge-offs increased to $5.4 million from $3.9 million.
- Nonaccrual loans and leases rose to $20.5 million from $13.4 million. Total nonperforming assets increased to $40.1 million from $33.5 million, while other real estate owned remained approximately $19.0 million.
- Approximately 79.2% of the loan portfolio consisted of commercial, commercial real estate, construction and lease exposures, creating sensitivity to business conditions and real estate values.
- The Corporation remained well capitalized. Total risk-based capital was 13.90%, Tier 1 risk-based capital was 10.58%, and Tier 1 capital to average assets was 9.36% at year-end.
Material Changes Versus the Prior Comparable Period
- Profitability weakened despite modest net interest income growth: net income declined $7.0 million, primarily because funding costs and operating expenses rose faster than revenue.
- Net interest margin compressed 26 basis points because the balance sheet was liability-sensitive and deposit repricing costs increased.
- Noninterest income was broadly stable, with higher insurance commissions and deposit-service fees offset by lower investment advisory fees, mortgage banking income, bank-owned life insurance income and interest-rate-swap income.
- Noninterest expense increased $10.6 million. Key increases included salaries and benefits, data processing, deposit insurance premiums and $1.5 million of restructuring charges related to financial-center optimization and expense management.
- Loan growth was concentrated in commercial real estate, residential mortgage lending and lease financings. Commercial, financial and agricultural loans declined, while commercial real estate increased.
- Accumulated other comprehensive loss improved by $11.5 million, primarily from higher available-for-sale securities values and derivative values.
- Wealth Management pre-tax income declined to $6.2 million from $9.2 million; assets under management and supervision increased to $4.7 billion from $4.2 billion. Insurance pre-tax income increased to $5.1 million from $3.3 million.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings, revenue, margin or loan-growth guidance. Management describes its objectives as pursuing business growth while maintaining capital and liquidity and managing credit and interest-rate risk.
- Management’s interest-rate analysis indicates a liability-sensitive balance sheet. Modeled next-12-month net interest income changes ranged from a decline of $2.7 million under a 300-basis-point increase to a decline of $11.4 million under a 300-basis-point decrease, although actual results may differ materially from the model.
- Credit risk increased in selected areas. A $6.1 million construction-loan relationship entered nonaccrual status in the fourth quarter, with a $1.1 million individual reserve. Two nonaccrual commercial loans to one borrower generated $2.4 million of charge-offs during 2023.
- Commercial real estate, construction, office, retail, multifamily, agricultural and other commercial exposures may be adversely affected by recessionary conditions, higher rates, weaker property values, tenant losses or lower business cash flows.
- Deposit competition and the decline in low-cost deposits could raise funding costs and further pressure net interest margin. The filing identifies uninsured deposits, brokered deposits and access to wholesale funding as liquidity considerations.
- The securities portfolio included significant unrealized losses caused primarily by interest rates. At year-end, available-for-sale securities had $35.6 million of unrealized losses and held-to-maturity securities had $17.5 million of unrealized losses; management concluded these did not represent credit losses requiring recognition.
- Other unusual items included $1.5 million of restructuring charges, a $965 thousand bank-owned life insurance death benefit claim in the 2022 comparison period, and a $250 million interest-rate swap with a $5.8 million liability fair value at year-end.
- Cybersecurity, third-party technology, regulatory compliance, FDIC insurance assessments, competition, local economic concentration and the ability to retain key personnel remain material risks. The Corporation reported no known cybersecurity incident that had materially affected or was reasonably likely to materially affect it.
- Legal proceedings are described as routine and, based on currently available information, are not expected to materially affect results, financial position or cash flows.
Important Facts for Investors to Verify
- Whether deposit pricing and the mix of interest-bearing deposits cause further net interest margin compression.
- Trends in nonaccrual loans, criticized and classified commercial credits, construction loans, commercial real estate and charge-offs.
- The adequacy of the $85.4 million allowance for credit losses under changing unemployment, GDP and real estate forecasts.
- The stability of uninsured, brokered and noninterest-bearing deposits and the availability and cost of FHLB, Federal Reserve and correspondent-bank funding.
- The fair value and liquidity implications of the securities portfolio’s unrealized losses.
- Whether expense-management and financial-center optimization actions offset higher salaries, technology, deposit-insurance and other operating costs.
- Capital ratios, dividend capacity and the effect of future regulatory, FDIC assessment or accounting changes.
- Execution and profitability of the Wealth Management, Insurance and digital-growth initiatives, including the sustainability of assets under management and fee income.