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Univest Corporation of Pennsylvania Reports Third Quarter Results

Company Release - 10/24/2018 4:30 PM ET

SOUDERTON, Pa., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Univest Corporation of Pennsylvania (“Univest” or the “Corporation”) (NASDAQ: UVSP), parent company of Univest Bank and Trust Co. and its insurance, investments and equipment financing subsidiaries, today announced financial results for the third quarter ended September 30, 2018. Univest reported net income of $15.0 million, or $0.51 diluted earnings per share, for the quarter ended September 30, 2018, compared to net income of $11.2 million, or $0.42 diluted earnings per share, for the quarter ended September 30, 2017. Net income for the nine months ended September 30, 2018 was $32.2 million, or $1.09 diluted earnings per share, compared to net income of $33.8 million, or $1.27 diluted earnings per share, for the nine months ended September 30, 2017.

The financial results for the nine months ended September 30, 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) in the second quarter of 2018, which represented $0.34 diluted earnings per share, related to alleged fraudulent activities perpetrated by one or more employees of a borrower. In addition, the financial results for the nine months ended September 30, 2018 included tax-free bank owned life insurance ("BOLI") death benefit claims of $446 thousand during the second quarter of 2018, which represented $0.02 diluted earnings per share, as well as restructuring costs related to financial center closures of $451 thousand, net of tax, or $0.02 of diluted earnings per share, recognized in the first quarter of 2018. There were no restructuring costs during the nine months ended September 30, 2017.

The financial results for the nine months ended September 30, 2017 included a tax-free BOLI death benefit claim of $889 thousand recognized in the second quarter of 2017, which represented $0.03 diluted earnings per share.

The financial results for the three and nine months ended September 30, 2018 also included a reduction in the Corporation's statutory federal income tax rate from 35% to 21% effective January 1, 2018 in accordance with the Tax Cuts and Jobs Act of 2017 (“TCJA”).

Loans
Gross loans and leases increased $47.8 million, or 5.0% (annualized), from June 30, 2018 and increased $246.1 million, or 9.1% (annualized), from December 31, 2017. Additionally, loans increased $379.0 million, or 10.9%, from September 30, 2017. The growth in loans during 2018 and compared to September 30, 2017 was primarily in commercial real estate, commercial business and residential real estate loans.

Deposits
Total deposits increased $199.3 million, or 22.0% (annualized), from June 30, 2018 primarily due to a seasonal increase in public funds deposits of $207.3 million. Total deposits increased $265.1 million, or 9.9% (annualized), from December 31, 2017 and increased $301.5 million, or 8.6%, from September 30, 2017 primarily due to increases in commercial, public funds and consumer time deposits.

Net Interest Income and Margin
Net interest income of $116.7 million for the nine months ended September 30, 2018 increased $10.2 million, or 9.6%, from the nine months ended September 30, 2017. The increase in net interest income for the nine months ended September 30, 2018 compared to the same period in 2017 was primarily due to the previously described increase in loans.

Net interest margin, on a tax-equivalent basis, was 3.71% for the third quarter of 2018, compared to 3.73% for the second quarter of 2018 and 3.80% for the third quarter of 2017. The favorable impact of purchase accounting accretion was 3 basis points ($343 thousand) for the quarter ended September 30, 2018 compared to 3 basis points ($349 thousand) for the quarter ended June 30, 2018 and 11 basis points ($1.1 million) for the quarter ended September 30, 2017. Excluding the impact of purchase accounting accretion, the net interest margin, on a tax-equivalent basis, was 3.68% for the quarter ended September 30, 2018 compared to 3.70% for the quarter ended June 30, 2018 and 3.69% for the quarter ended September 30, 2017.

Net interest margin, on a tax-equivalent basis, in 2017 was calculated using a 35% federal tax rate as compared to a 21% federal tax rate for 2018. Assuming a 21% federal tax rate and excluding purchase accounting, net interest margin was 3.62% for the quarter ended September 30, 2017.

Noninterest Income
Noninterest income for the quarter ended September 30, 2018 was $14.9 million, an increase of $752 thousand, or 5.3%, from the third quarter of 2017. Noninterest income for the nine months ended September 30, 2018 was $45.8 million, an increase of $669 thousand, or 1.5%, from the comparable period in the prior year.

Investment advisory commission and fee income increased $330 thousand, or 9.6%, for the quarter and $1.3 million, or 12.8%, for the nine months ended September 30, 2018, primarily due to new customer relationships and continued favorable market performance. Insurance commission and fee income increased $151 thousand, or 4.3%, for the quarter and $713 thousand, or 6.2%, for the nine months ended September 30, 2018, primarily due to an increase in group life and health premiums and an increase in contingent commission income of $374 thousand, which is largely recognized in the first quarter of the year. Other service fee income increased $161 thousand, or 7.6%, for the quarter and $529 thousand, or 8.3%, for the nine months ended September 30, 2018, primarily due to increases in debit card interchange income, mortgage servicing fees and human resource and payroll consulting services within the insurance line of business. Service charges on deposit accounts increased $83 thousand, or 6.1%, for the quarter and $189 thousand, or 4.8%, for the nine months ended September 30, 2018, primarily due to increased fee income on cash management accounts.

BOLI income decreased $403 thousand for the nine months ended September 30, 2018 primarily due to proceeds from the previously mentioned BOLI death benefits of $446 thousand in the second quarter of 2018 as compared to $889 thousand in the second quarter of 2017. The net gain on mortgage banking decreased $154 thousand, or 17.0%, for the quarter and $1.1 million, or 32.2%, for the nine months ended September 30, 2018, primarily due to a decrease in refinance mortgage volume, a shortage of housing supply and the Bank retaining, on balance-sheet, a higher percentage of its mortgage originations. Such on balance-sheet loans are predominantly hybrid adjustable rate mortgages. Other income decreased $610 thousand, or 85.7%, for the nine months ended September 30, 2018. The decrease in the nine months ended September 30, 2018 is primarily due to a net loss of $325 thousand related to valuations and sales of other real estate owned and sales of closed branches as compared to a net gain of $245 thousand of such assets in the nine months ended September 30, 2017.

Noninterest Expense
Noninterest expense for the quarter ended September 30, 2018 was $34.4 million, an increase of $1.7 million, or 5.1%, compared to the third quarter of 2017. Noninterest expense for the nine months ended September 30, 2018 was $103.8 million, an increase of $6.6 million, or 6.8%, from the comparable period in the prior year.

Salaries, benefits and commissions increased $1.1 million, or 5.9%, for the quarter and $4.4 million, or 7.7%, for the nine months ended September 30, 2018, primarily attributable to additional staff hired to support revenue generation across all business lines, expansion of our financial center footprint in Lancaster County and annual merit increases. Data processing expense increased $221 thousand for the quarter and $405 thousand for the nine months ended September 30, 2018 primarily due to increased investments in customer relationship management software, internal infrastructure improvements and outsourced data processing solutions. Marketing and advertising expense increased $190 thousand for the quarter and $243 thousand for the nine months ended September 30, 2018 primarily related to deposit product campaigns. Other expense increased $267 thousand for the quarter and $911 thousand for the nine months ended September 30, 2018 primarily due to increases in Bank shares tax, loan processing expenses and increased corporate development expenses. Restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the first quarter of 2018. There were no restructuring costs during the nine months ended September 30, 2017. Excluding restructuring costs, noninterest expense for the nine months increased $6.0 million, or 6.2%, from the comparable period in 2017.

Asset Quality and Provision for Loan and Lease Losses
Total nonperforming assets were $31.0 million at September 30, 2018, compared to $32.8 million at June 30, 2018 and $28.6 million at December 31, 2017. The modest increase in nonperforming assets during 2018 is primarily due to one commercial real estate loan in the amount of $12.3 million being placed on non-accrual status during the first quarter of 2018 partially offset by $10.3 million in troubled debt restructured commercial real estate loans for another borrower being returned to performing status during the first quarter of 2018 as the borrower was in compliance with the modified terms of the restructuring for the required time period.

Net loan and lease charge-offs were $1.0 million during the third quarter of 2018. The provision for loan and lease losses was $2.7 million for the third quarter of 2018. The year-to-date September 2018 net loan and lease charge-offs of $14.4 million and the provision for loan and lease losses of $20.2 million include the previously discussed $12.7 million commercial loan charge-off during the second quarter of 2018.

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 0.79% at September 30, 2018, compared to 0.70% at December 31, 2017 and 0.71% at September 30, 2017.

Tax Provision  
The effective income tax rate was 17.6% for the quarter ended September 30, 2018 compared to an effective income tax rate of 28.3% for the quarter ended September 30, 2017. The effective income tax rate was 16.2% for the nine months ended September 30, 2018 compared to an effective income tax rate of 27.1% for the nine months ended September 30, 2017. As previously discussed, the Corporation's statutory federal tax rate was reduced to 21% effective January 1, 2018 in accordance with the TCJA. The Corporation's effective income tax rate for the nine months ended September 30, 2018 was favorably impacted by discrete tax benefits and proceeds from BOLI death benefits. Excluding these items, the effective tax rate was 18.3% for the nine months ended September 30, 2018.

Dividend
On August 27, 2018, Univest declared a quarterly cash dividend of $0.20 per share, payable on October 1, 2018. This represented a 3.06% 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 third quarter 2018 results on Thursday, October 25, 2018 at 9:00 a.m. EDT. Participants may preregister at http://dpregister.com/10124769. The general public can access the call by dialing 1-888-338-6515. A replay of the conference call will be available through November 25, 2018 by dialing 1-877-344-7529; using Conference ID: 10124769.

About Univest Corporation of Pennsylvania

Univest Corporation of Pennsylvania (UVSP), including its wholly-owned subsidiary Univest Bank and Trust Co., Member FDIC, has approximately $4.8 billion in assets and $3.6 billion in assets under management and supervision through its Wealth Management lines of business at September 30, 2018. 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 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 Corporation of Pennsylvania and the reports Univest Corporation of Pennsylvania 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 Corporation of Pennsylvania. These forward-looking statements involve certain risks and uncertainties. There are a number of important factors that could cause Univest Corporation of Pennsylvania’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 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 Corporation of Pennsylvania is engaged; (6) technological issues that may adversely affect Univest Corporation of Pennsylvania’s financial operations or customers; (7) changes in the securities markets or (8) risk factors mentioned in the reports and registration statements Univest Corporation of Pennsylvania files with the Securities and Exchange Commission. Univest Corporation of Pennsylvania undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this press release.

 
Univest Corporation of Pennsylvania
Consolidated Selected Financial Data (Unaudited)
September 30, 2018
(Dollars in thousands)              
               
Balance Sheet (Period End) 09/30/18 06/30/18 03/31/18 12/31/17 09/30/17    
Assets $  4,801,998  $  4,749,181  $  4,613,959  $  4,554,862  $  4,417,363     
Investment securities    447,339     446,933     462,252     454,082     443,822     
Loans held for sale    106     1,778     687     1,642     2,228     
Loans and leases held for investment, gross    3,866,169     3,818,398     3,689,888     3,620,067     3,487,164     
Allowance for loan and lease losses    27,371     25,652     23,410     21,555     20,543     
Loans and leases held for investment, net    3,838,798     3,792,746     3,666,478     3,598,512     3,466,621     
Total deposits    3,820,048     3,620,786     3,497,293     3,554,919     3,518,590     
Noninterest-bearing deposits    1,047,081     1,055,479     1,002,021     1,040,026     987,881     
NOW, money market and savings    2,101,484     1,970,912     1,974,769     1,940,144     1,959,549     
Time deposits    671,483     594,395     520,503     574,749     571,160     
Borrowings    326,709     481,862     466,510     355,590     332,529     
Shareholders' equity    614,242     605,294     606,719     603,374     528,798     
               
               
Balance Sheet (Average) For the three months ended, For the nine months ended,
  09/30/18 06/30/18 03/31/18 12/31/17 09/30/17 09/30/18 09/30/17
Assets $  4,817,321  $  4,682,827  $  4,555,977  $  4,442,743  $  4,416,332  $  4,686,296  $  4,327,490 
Investment securities     453,422     450,375     457,926     456,045     459,862     453,892     466,216 
Loans and leases, gross    3,832,295     3,743,195     3,634,510     3,505,260     3,467,235     3,737,391     3,392,400 
Deposits    3,792,627     3,563,956     3,484,044     3,508,676     3,480,318     3,614,673     3,373,033 
Shareholders' equity    611,803     611,667     605,973     554,071     527,032     609,836     517,994 
               
               
Asset Quality Data (Period End)               
  09/30/18 06/30/18 03/31/18 12/31/17 09/30/17    
Nonaccrual loans and leases, including nonaccrual troubled debt restructured              
  loans and leases $  27,559  $  30,148  $  27,694  $  14,517  $  15,949     
Accruing loans and leases 90 days or more past due    1,224     150     2,295     761     1,595     
Accruing troubled debt restructured loans and leases    766     790     1,032     11,435     11,468     
Total nonperforming loans and leases    29,549     31,088     31,021     26,713     29,012     
Other real estate owned    1,433     1,742     1,843     1,843     1,763     
Total nonperforming assets    30,982     32,830     32,864     28,556     30,775     
Nonaccrual loans and leases / Loans and leases held for investment  0.71%  0.79%  0.75%  0.40%  0.46%    
Nonperforming loans and leases / Loans and leases held for investment  0.76%  0.81%  0.84%  0.74%  0.83%    
Nonperforming assets / Total assets  0.65%  0.69%  0.71%  0.63%  0.70%    
               
Allowance for loan and lease losses    27,371     25,652     23,410     21,555     20,543     
Allowance for loan and lease losses / Loans and leases held for investment   0.71%  0.67%  0.63%  0.60%  0.59%    
Allowance for loan and lease losses / Loans and leases held for investment  0.79%  0.76%  0.73%  0.70%  0.71%    
  (excluding acquired loans at period-end)              
Allowance for loan and lease losses / Nonaccrual loans and leases held for investment  99.32%  85.09%  84.53%  148.48%  128.80%    
Allowance for loan and lease losses / Nonperforming loans and leases held for investment 92.63%  82.51%  75.47%