Univest Financial Corporation

Good morning and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Keim, our Chief Operating Officer and President of Univest Bank and Trust, and Brian Richardson, our Chief Financial Officer. Before we begin, I'd 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 $17.4 million during the fourth quarter or 59 cents per share. For the year, we reported net income of $91.8 million or $3.11 per share. We are very pleased with our results for the quarter and the year. as we continue to experience strong loan production along with growth in our fee income businesses. Even with the continued offset of payoffs due to the success of our customers, we experienced solid loan growth of $111.8 million, or 8.7% annualized during the quarter, resulting in total growth for 2021 of $455.2 million, or 9.4% excluding PPP loans. Since the acquisition of Fox Chase Bank and the lift-out of the Lancaster team, which both occurred in mid-2016, we have averaged 10% loan growth per year, excluding PPP loans. Additionally, to bolster our fee income business, on December 1st, we completed the acquisition of the Paul I. Schaefer Insurance Agency, expanding our insurance team into the Lancaster market, where we have significant banking operations. 2021 was a strong year for Univest as we continue to grow our lines of businesses and make investments for the future in both people and technology. Before I throw it over to Brian, I once again want to thank the members of the Univest family. They continue to do a wonderful job living our core values each day and 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. And I would also like to thank everyone for joining us today. As Jeff said, we are very pleased with our performance during 2021. We produced a pre-tax, pre-provision ROAA of 1.57%. This was a direct reflection of the strength of our diversified business model and continued ability to grow loans. I would like to touch on four items from the earnings release. First, reported margin of 2.86% with down 25 basis points compared to the third quarter. Reported NIM was negatively impacted by 43 basis points of excess liquidity, which averaged $874 million for the quarter compared to $490 million in the third quarter. This increase in average excess liquidity was driven by a $226 million seasonal increase in average public fund deposits, as well as a $149 million increase in commercial deposits. During the fourth quarter, PPP loans increased NIM by eight basis points and contributed $1.6 million to net interest income. Core margin, which excludes the impact of excess liquidity and PPP, was 3.21%, an increase of three basis points when compared to the third quarter. As it relates to PPP, as of December 31st, 817,000 of net deferred fees remained on the balance sheet. During 2021, we recognized net interest income of $15 million related to PPP loans. Second, during the fourth quarter, we recorded a provision for credit losses of $1.4 million. The allowance for credit loss coverage ratio, excluding PPP loans, was 1.36% on December 31st, which was consistent with September 30th. During the quarter, our COVID-related deferrals declined to 6.2 million, or 0.1% of the portfolio. We experienced net recoveries during the quarter of 243,000, and net charge-offs for the year totaled 213,000. Third, non-interest income increased 4.9 million or 6.3% in 2021 compared to 2020, which reflects the continued benefit of our diversified business model. During 2021, non-interest income represented 31% of total revenue. Fourth, non-interest expenses increased 12.4 million or 8% for the full year when compared to 2020. Salaries, benefits, and commissions increased $11 million, or 11.8%, as we continued to be aggressive in hiring revenue producers when presented the opportunity. We have also experienced cost increases due to merit increases, the impact of wage inflation, and variable incentive compensation costs, which increased $3.6 million year over year due to our strong performance in 2021. Excluding the increase in variable incentive compensation, non-interest expense increased 5.7% over 2020. Professional fees increased $2.3 million, or 44%, primarily attributable to increased consulting fees in support of our DE&I and training initiatives, as well as our treasury management product and process enhancements. During 2021, we spent $1.4 million on these initiatives. Data processing expenses increased $1.4 million, or 12.4%, primarily due to continued investments in our end-to-end loan origination solution for loans below $1 million, customer relationship management software, internal infrastructure improvements, and outsourced data processing solutions. I believe the remainder of the earnings release was straightforward, and I would now like to focus on five items as it relates to 2022 guidance. First, during 2021, net interest income totaled $173.4 million when excluding PPP income of $15 million. For 2022, we expect loan growth of approximately 8% to 9% excluding PPP loans, and we expect this to result in net interest income growth of approximately 8% to 10% off the base of $173.4 million. This assumes one 25 basis point rate increase in March. Each additional 25 basis point increase is expected to result in annualized net interest income of approximately $3.5 to $4 million. Second, the provision for credit losses will continue to be driven by changes in economic forecasts, government stimulus, and performance of the portfolio. At this time, we expect the provision for 2022 to be approximately $6 to $8 million. Third, 2021 non-interest income included $1.1 million of BOLI death benefits. Excluding these BOLI death benefits, non-interest income totaled $82.1 million in 2021. For 2022, we expect non-interest income growth of approximately 1% to 3% off the base of $82.1 million. This translates to a compound annual growth rate of approximately 8% to 9% from 2019 to 2022. Fourth, we reported non-interest expense of $167.4 million in 2021 and expect growth of approximately 6% to 8% in 2022. Lastly, as it relates to income taxes, we expect our effective tax rate to be approximately 19% to 20%, assuming the current statutory rate remains unchanged. That concludes my prepared remarks. We will be happy to answer any questions. Operator, would you please begin the question and answer session?

Thank you. We will now proceed with the Q&A. If you'd like to ask a question, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you can press star 2. Please ensure you're unmuted locally when asking your question. Our first question comes from Michael Terito, who is a private investor. Michael, over to you.