Univest Financial Corporation

Good morning. Thank you for attending today's Unifest Financial Corporation third quarter 2022 earnings conference call. My name is Alexis and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to Jeff Schweitzer, President and CEO of Unifest. You may proceed, sir.

Thank you, Alexis, and 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 the Univest Bank and Trust, and Brian Richardson, our Chief Financial Officer. Before we begin, I would like 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 $20.8 million during the third quarter, or 71 cents per share. Our net interest income increased 13.2% from the second quarter of the year as we continue to benefit from rising interest rates. Additionally, we continue to have very strong loan growth as loans grew 190.6 million or 13.5% annualized excluding PPP loans during the quarter. Year-to-date loan growth has been $568.8 million or 14.4% annualized excluding PPP loans. We are very happy with our results for the quarter as our pre-tax pre-provision income continues to be solid and increased 27.9% from the second quarter. Additionally, while non-interest income has been negatively impacted by increasing rates and decreasing margins for mortgage banking, along with the decline in financial markets impacting assets under management and supervision for wealth management, new business production across our lines of businesses continues to be solid, setting us up for continued future growth. Finally, While there is definitely recession risk as the Federal Reserve continues to raise rates, our credit quality continues to be solid as non-performing assets to total assets declined four basis points during the quarter with minimal net charge-offs of eight basis points. Before I pass it over to Brian, I'd like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities, and each other. I'll now turn it over to Brian for further discussion on our results.

Thank you, Jeff, and I would also like to thank everyone for joining us today. As Jeff indicated, we continue to be very pleased with our performance during the first nine months of the year. I would like to touch on five items from the earnings release. First, our strong loan growth in recent years, coupled with the benefit of the rising rate environment, continue to provide momentum for our net interest income and net interest margin. Reported margin of 3.67% increased 48 basis points compared to last quarter. Core margin, which excludes the impact of excess liquidity and PPP, was 3.68%, an increase of 27 basis points when compared to last quarter. Net interest income increased 6.8 million, or 13.2%, compared to last quarter. Second, during the quarter, we recorded a provision for credit losses of 3.6 million. Our coverage ratio was 1.28% on September 30th, compared to 1.27% at June 30th. For the first nine months of the year, we've had net charge-offs of $3 million or seven basis points annualized. Despite general economic concerns, we are not seeing signs of pervasive credit quality deterioration in our portfolio. During the first quarter, we actually saw a slight reduction in non-performing assets and delinquencies and a $59 million or 35% reduction in criticized and classified loans. Third, non-interest income decreased 2.6 million or 12.6% compared to the third quarter of 2021, which was primarily driven by a $2.4 million decrease in net gains on mortgage banking due to a decrease in saleable volume. Fourth, non-interest expense increased 3.4 million or 7.9% compared to the third quarter of 2021. This includes 1.2 million related to our digital transformation initiative, 504,000 resulting from the inclusion of the Paul I. Schaefer Insurance Agency, which was acquired on December 1st of last year, and $227,000 related to our expansion into western Pennsylvania and Maryland. Excluding these items, non-interest expense increased $1.5 million, or 3.4%. Fifth, on October 26th, the Board of Directors authorized an additional 1 million shares for repurchase. Including this authorization, there are a total of 1.23 million shares authorized for repurchase. During the first nine months of the year, we purchased 450,000 shares at an average price of $25.29. Going forward, we will opportunistically repurchase shares with no predefined quarterly volume targets. I believe the remainder of the earnings release was straightforward, and I would now like to provide two updates to our 2022 guidance. First, on last quarter's call, I had guided to loan growth of 10% to 11% for 2022. Based on our continued strong growth during the quarter and our current pipelines, we are increasing this guidance to 13 to 15%. Second, we expect the increased loan growth coupled with the rising rate environment to result in net interest income growth of approximately 23 to 25% off the base of 173.4 million in 2021. This assumes a 75 basis point rate increase next week and another 75 basis points in December. I'd also like to note the guidance provided last quarter For the provision for credit losses, non-interest income, non-interest expense, and income taxes remains unchanged. That concludes my prepared remarks. We would be happy to answer any questions. Operator, would you please begin the question and answer session?