Company: UVSP
Filing Date: 2025-02-24
Form Type: 10-K
Source: 0000102212-25-000006
Chunk: 3

Company: UNIVEST FINANCIAL Corp
Filing Date: 2025-02-24
Form: 10-K
Item: Item 8
Chunk 3
---
performance, change the default rate using a statistical regression analysis. The reasonable and supportable forecasts and scenarios are based on the projected performance of the selected economic variables which are sourced from a third party. Management evaluated the likelihood of each scenario to determine a reasonable and supportable forecast, including the relevant economic factors (loss driver selection). Management utilizes a four-quarter forecast period followed by a four-quarter reversion to historical averages. The LGD model component is determined utilizing an estimation technique that derives a LGD input from segment specific risk curves that correlate LGD with PD. The effective interest rate of the underlying loans of the Company serves as the discount rate applied to the expected periodic cash flows. The collective ACL estimate also included consideration of the need for qualitative adjustments related to factors that are not fully captured in the quantitative model.

We identified the assessment of the collective ACL as a critical audit matter. Such assessment required complex auditor judgment, and specialized skills and knowledge in the industry due to significant measurement uncertainty. The assessment of the collective ACL encompassed the evaluation of the collective ACL methodology, including the assumptions used to estimate (1) the PD rate input and its key assumptions including loan pool segmentation, peer selection, the historical observation period, and loss driver selection, (2) the reasonable and supportable economic forecast and scenarios and (3) the LGD input. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL, including controls over the:

•governance and oversight over the collective ACL methodology

•development of the PD rate input and LGD rate input

•determination of the key assumptions used to estimate the PD rate input, reasonable and supportable economic forecast and scenarios, and the LGD rate input

•measurement and on-going monitoring of the collective ACL estimate.

We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used and considered, including the relevance and reliability of such data, factors and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge who assisted in:

•evaluating the Company's collective ACL methodology for compliance with U.S. generally accepted accounting principles

•evaluating the assumptions used in determining the PD rate input, reasonable and supportable economic forecast, and LGD rate input, by inspecting management's model and methodology