Univest Widens Margin as Loan Growth Reaccelerates
Net interest income rose 4.5% from the prior quarter to $66.2 million as loan growth and lower funding costs widened the margin.
Univest Financial (UVSP), the Pennsylvania-based banking and wealth-management company, expanded its tax-equivalent net interest margin by 16 bps from the prior quarter to 3.49% in the second quarter. Net interest income rose $2.9 million, or 4.5% QoQ, and 11.3% YoY to $66.2 million as higher loan balances and yields combined with lower funding costs.
The margin advance extended a three-quarter climb from 3.10% in the fourth quarter of 2023 and 3.33% in the first quarter. Excess-liquidity drag narrowed to 4 bps from 11 bps in the prior quarter and 27 bps two quarters earlier, while the margin excluding excess liquidity increased 9 bps QoQ to 3.53%.
Loan pricing and deposit costs both contributed to the wider spread. Average loan yield increased 8 bps QoQ to 5.88%, while the cost of interest-bearing deposits declined 3 bps to 2.87% and total funding costs fell 6 bps to 2.36%. That widened the net interest spread by 16 bps to 2.73%.
Gross loans and leases grew $101.7 million, or 1.5% QoQ, equivalent to a 6.0% annualized pace after 1.6% annualized growth in the first quarter. Commercial, construction and commercial real-estate lending drove the increase, partly offset by residential mortgage runoff. Average loans rose 2.4% YoY to $7.01 billion.
Deposits returned to growth, increasing $119.2 million, or 1.8% QoQ, after declining 3.9% in the first quarter. Deposits rose 5.3% YoY, led by commercial and brokered balances, while the noninterest-bearing share declined 60 bps QoQ to 21.1%.
Fee revenue absorbed a $5.2 million valuation loss on other real estate owned, pulling noninterest income down 15.8% YoY to $18.1 million. Investment-advisory commissions and fees increased 10.7%, and mortgage-banking gains rose 37.2%. Noninterest expense increased 5.5% to $53.1 million, led by higher compensation, marketing and professional fees.
Credit costs rose from the first quarter as Univest placed a $28.6 million commercial relationship on nonaccrual and established a $9.8 million specific reserve. Nonperforming assets increased $21.8 million QoQ to $63.0 million, provision expense rose to $2.7 million from $1.3 million and net charge-offs increased to $1.9 million from $1.3 million. The allowance held at 1.28% of loans.
The common-equity Tier 1 ratio declined 13 bps QoQ to 11.19%, while the Tier 1 leverage ratio improved 18 bps to 10.13%. Univest repurchased 425,539 shares at an average price of $38.71 and maintained its quarterly dividend at $0.23 following the 4.5% increase announced in the first quarter.