Univest outlines flat loan growth and 12–14% net interest income increase for 2025 as deposit inflows surge

Earnings Call Insights: Univest Financial Corporation (UVSP) Q3 2025

MANAGEMENT VIEW

* Jeff Schweitzer, Chairman, President & CEO, opened the call reporting net income of $25.6 million or $0.89 per share, citing "an increase of $7.1 million or 38% compared to the same quarter in the prior year, primarily due to continued growth in our net interest income and margin, combined with prudent expense management as expenses are only up 2% year-to-date compared to the prior year." He highlighted a significant deposit increase of $635.5 million, mainly from a seasonal build of public funds deposits, and noted total new commercial loan commitments of $808 million year-to-date. Schweitzer addressed the previously disclosed commercial loan relationship, stating that "the receiver has entered into an agreement to sell the property, which is subject to court approval. If the sale is approved by the court and consummated in accordance with the executed agreement, we expect the proceeds will adequately cover our carrying balance, resulting in no further charge-offs."
* Brian Richardson, Senior Executive VP & CFO, commented, "Reported NIM for the quarter was 3.17%, down slightly from 3.20% last quarter due to increased excess liquidity during the quarter from our seasonal public funds build. However, core NIM of 3.33%, which excludes the impact of excess liquidity, expanded by 9 basis points compared to the second quarter." Richardson stated noninterest income increased $1.8 million or 8.8% year-over-year and noninterest expense increased $2.1 million or 4.4%, primarily driven by compensation costs. He reiterated, "expenses were up 2% as we remain focused on prudent expense management."

OUTLOOK

* Richardson provided updated guidance: "For the full year, we expect loans to be relatively flat when compared to December 31, 2024. We expect net interest income growth to be 12% to 14% compared to 2024." He guided for provision for credit losses of $11 million to $13 million for 2025, with noninterest income growth of approximately 1% to 3% off the $84.5 million base, though he cautioned about risk if a government shutdown affects SBA loan origination and sales. Noninterest expense is expected to grow by 2% to 3%, and income tax guidance remains at 20% to 20.5%.
* Compared to the previous quarter, the loan growth outlook shifted from 1%–3% growth to flat, while net interest income growth guidance increased from 10%–12% to 12%–14%. Provision for credit losses guidance narrowed and slightly decreased.

FINANCIAL RESULTS

* The company reported net income of $25.6 million or $0.89 per share for the quarter. Net interest margin was 3.17%, with core NIM at 3.33%. Deposits increased by $635.5 million, driven by a $473.2 million seasonal build in public funds. Excluding public funds, deposits rose $162.3 million. Loan outstandings contracted by $15.7 million during the quarter, and net charge-offs totaled $480,000. Noninterest income climbed by $1.8 million year-over-year, including a $987,000 increase in BOLI death benefits. Noninterest expense rose $2.1 million, mainly from compensation and variable incentives. The coverage ratio was 1.28% as of September 30.

Q&A

* Tyler Cacciator, Stephens Inc.: Asked about the outlook for public funds, commercial, and broker deposit inflows and related cash balances. Mike Keim, President & Director, responded, "We would expect that normal seasonality would be $75 million to $100 million of outflows of public funds per month in the fourth quarter... we'll see that excess liquidity start to diminish potentially cut in half, call it, through the fourth quarter and then see it continue to wind down in the first quarter."
* Cacciator: Inquired about NIM outlook, incremental loan yields, and cost of deposits. Keim said, "I'd expect the core NIM to be relatively flat... We continue to see strong new loan yields hovering around just below the 7% range on the commercial side... as we see the higher cost public funds run out, you'd expect that to tick down a little bit as well."
* Cacciator: Asked about the loan pipeline and growth expectations. Keim explained, "Loan pipeline is healthy at this point in time, as Jeff referenced... commitment and new activity actually exceeded last year. But this year, we're in a decline versus the growth last year. We are expecting some level of growth consistent with the guidance that Brian provided in the fourth quarter."
* Emily Noelle Lee, KBW: Questioned the amount of CDs set to reprice and deposit competition. Richardson said, "We have a couple of hundred million dollars a quarter of CDs that are maturing and churning... competition continues to be fierce, while at a lower absolute level just based on the interest rate environment."
* Lee: Asked about NIM sensitivity to Fed rate cuts. Keim noted, "For the first -- the next couple of cuts, we'll call it, not expected to be overly impactful... our balance sheet model is out relatively neutral at this point."
* Lee: Asked about floating rate loans. Keim confirmed, "It continues to be right in that range" of roughly one-third of the loan book.
* Lee: Probed on buyback strategy. Richardson stated, "No anticipation at this time to cut back from that $6 million to $7 million per quarter, but we would look to opportunistically deploy."
* Lee: Asked about M&A appetite. Keim said, "Our appetite really hasn't changed at this point... we have a lot of internal initiatives we're doing on the efficiency front and with digital that we really don't want to take our eye off of the ball."

SENTIMENT ANALYSIS

* Analysts focused on deposit flows, margin outlook, loan pipeline, deposit competition, CD repricing, and capital deployment, with a neutral to slightly positive tone, reflecting interest in guidance details and stability.
* Management maintained confidence throughout both prepared remarks and Q&A, with Richardson stating, "expenses were up 2% as we remain focused on prudent expense management," and Keim emphasizing, "Loan pipeline is healthy at this point in time." Tone was consistent with previous quarter, with continued focus on operational discipline and stable outlook.
* Compared to the prior quarter, sentiment from both management and analysts remained stable, with questions again centering on deposit and loan dynamics, margin, and capital strategies.

QUARTER-OVER-QUARTER COMPARISON

* Loan growth guidance shifted from 1%–3% to flat, reflecting a more cautious stance. Net interest income growth guidance increased from 10%–12% to 12%–14%. Provision for credit losses narrowed to $11 million–$13 million, down from $12 million–$14 million. Expense growth guidance decreased from 2%–4% to 2%–3%.
* Deposit inflows reversed from a decline last quarter to a significant increase, mainly due to seasonality. Loan outstandings continued to contract, but commercial loan commitments grew year-over-year. Management's confidence in expense control and profitability initiatives remained strong, with a consistent focus on operational efficiency and digital transformation. Analyst focus on deposit competition and margin trajectory persisted quarter over quarter.

RISKS AND CONCERNS

* Management cited ongoing risks related to prepayment activity affecting loan growth, competition for deposits, and event-driven provision for credit losses. Richardson warned, "there is a risk to this guidance if the government shutdown continues and we are unable to originate and sell SBA loans during the fourth quarter."
* Analysts raised concerns about deposit outflows, margin compression, CD repricing, and capital deployment. Management reiterated that credit quality remains strong outside of isolated events and maintained a disciplined approach to buybacks and M&A.

FINAL TAKEAWAY

Univest Financial Corporation reported strong third quarter results with notable net income growth, driven by net interest income improvement and disciplined expense management. While loan outstandings contracted, commercial loan commitments increased and deposits surged due to seasonal public funds. Management updated guidance for flat loan growth and higher net interest income expansion, while maintaining a stable expense outlook. The company continues to focus on operational efficiency, prudent capital deployment, and navigating a competitive deposit environment, aiming to finish the year with continued strength.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/uvsp/earnings/transcripts]

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