Univest Financial Corporation

Good morning and welcome to Unibest Financial Corporation's first quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your question, please press star and then two.

Thank you, Chris. And good morning and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Kime, President of Univest Bank and Trust, and Brian Richardson, our Chief Financial Officer. Before we begin, I would like to start by saying I hope everyone listening is staying safe and you and your families are healthy. I also need to remind everyone of the forward-looking statements disclaimer. Please be advised that during the course of this conference call, management may make forward-looking statements that express management's intentions, beliefs, or expectations within the meaning of the federal securities laws. UNIVEST's actual results may differ materially from those contemplated by these forward-looking statements. I will refer you to the forward-looking cautionary statements in our earnings release and in our SEC filings. Hopefully everyone had a chance to review our earnings release from yesterday. If not, it can be found on our website at univest.net under the Investor Relations tab. We reported net income of $32.6 million during the first quarter, or $1.11 per share. We were very pleased with our results for the quarter, as our pre-tax pre-provision income for the quarter was up $7 million, or 31.9% compared to the first quarter of last year. During the quarter, we experienced solid loan growth with loans excluding PPP loans growing $63.5 million or 5.3% annualized. The first quarter is historically one of our lighter quarters for loan growth. Additionally, deposits grew in step with loans growing $68.9 million or 5.3% annualized. Our mortgage banking team continues to perform very well as both volume and margins continue to be strong despite low inventory in our markets. Additionally, we had strong investment advisory income which increased 10.4% compared to the same period in the prior year due to favorable market conditions and new relationships. As our local economies continue to open and vaccinations continue to be administered, the economy for the foreseeable future looks solid and improving. As a result, we were able to reverse $11.3 million of our provision for credit losses with $12.9 million due to favorable changes and economic-related assumptions within our CECL model. Before I throw it over to Brian, I just want to thank the members of the Univest family. They continue to do a wonderful job serving our customers, our communities, and each other as we continue to work through the current environment and move Univest forward. I will now turn it over to Brian for further discussion on our results. Brian.

Thank you, Jeff. I would also like to thank everyone for joining us today. During the quarter, we displayed our continued ability to generate organic loan growth. In 2020, we achieved loan growth of 9.9%, excluding PPP loans, despite the inherent headwinds presented by the pandemic. As Jeff mentioned, the first quarter is traditionally a slower growth quarter for us, but we were still able to achieve annualized growth of 5.3%, despite a $58.1 million decrease in commercial line utilization. As of March 31st, 2021, Commercial line utilization was 30.2% compared to 34% at December 31, 2020, and 37.4% at December 31, 2019. In addition to demonstrating our continued ability to grow loans, we continue to have strong performance in our core business. For the quarter, we produced a pre-tax, pre-provision ROAA of 1.82%. I would now like to touch on four items from the earnings release. First, as Jeff mentioned, our reversal of provision for credit losses was $11.3 million for the quarter, which was driven by a $12.9 million benefit due to favorable changes in economic-related assumptions within our CECL model, offset by reserves attributable to our 5.3% annualized loan growth during the quarter. The allowance for credit loss coverage ratio, excluding PPP loans, was 1.46% at March 31, 2021, compared to 1.72% at December 31, 2020, and 1.53% at March 31, 2020. During the first quarter, our COVID-related deferral activity was relatively stable, ending March at $73 million, or 1.5% of the portfolio. Additionally, the reserve release was supported by decreases in non-performing assets, net charge-offs, and delinquencies during the quarter. Second, reported margin of 3.12% was up 10 basis points compared to the fourth quarter. Reported NIM was negatively impacted by 11 basis points of excess liquidity, which averaged $198 million for the quarter compared to $256 million in the fourth quarter and $329 million in the third quarter of 2020. PPP loans increased NIM by four basis points during the quarter and contributed $4.5 million to net interest income. of which $2.3 million was the result of forgiveness and paydowns of loans totaling $119.7 million. Core margin excluding excess liquidity and the PPP impact was 3.19%, a decrease of three basis points when compared to the fourth quarter of 2020. As of March 31st, 9.5 million of net deferred fees from PPP loans remained on the balance sheet, which represents approximately 55% of the initial net deferred fee amount. Third, non-interest income was up 4.9 million, or 26.5%, when compared to the first quarter of 2020. As Jeff mentioned, a mortgage banking business continues to perform very well, driven by strong volumes and margins. Additionally, investment advisory income also saw a nice increase year over year. Insurance commission and fee income included contingent income of $1.1 million, which was consistent with the first quarter of 2020. Swap fees also totaled $1.1 million for the quarter, compared to $1.6 million for the fourth quarter and $140,000 for the first quarter of 2020. Fourth, non-interest expense was up 2% compared to the first quarter of 2020. This includes $582,000 of incremental capitalized compensation associated with PPP loans originated during the quarter. Additionally, the first quarter of 2020 included long-term debt extinguishment charges of $656,000. After adjusting for these two items, our expenses were up 5.2% compared to the first quarter of 2020. This increase was partially driven by variable compensation due to strong pre-tax, pre-provision income during the quarter. I believe the remainder of the earnings release was straightforward, and that concludes my prepared remarks. We will be happy to answer any questions. Operator, would you please begin the question and answer session?