This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Thank you, Drew, 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 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 those 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 $23.8 million during the fourth quarter, or 81 cents per share. The highlight of the quarter was our continued strong organic loan growth. Loans grew $274 million or 18.8% annualized excluding PPP loans during the quarter and $842.8 million or 16% for the year. This strong growth, along with the increasing interest rate environment during the year, resulted in net interest income increasing 25.5% in 2022 compared to 2021, excluding PPP activity. We are very happy with our results for the quarter and 2022 as a whole, as we reported solid growth in financial results while also investing in long-term strategic initiatives in our digital strategy and expansion into western Pennsylvania and Maryland. Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued effort serving our customers, communities, and each other. I will now turn it over to Brian for further discussion on our results.
spk04: Thank you, Jeff, and I would also like to thank everyone for joining us today. As Jeff indicated, we are very pleased with our performance throughout 2022. I would like to touch on four items from the earnings release. First, we continue to see the benefit of our strong loan growth in recent years, coupled with our asset sensitivity in the rising rate environment. Reported margin of 3.76% increased nine basis points compared to last quarter. Net interest income increased 3.7 million, or 6.3% on a linked quarter basis. During the quarter, deposits grew 116.8 million, or 8% annualized. This included growth of $69.1 million in non-interfering deposits. Second, during the quarter, we recorded a provision for credit losses of $5.4 million. Our coverage ratio was 1.29% at December 31st compared to 1.28% at September 30th. Net charge-offs for the quarter totaled $908,000 for six basis points annualized. For the year, net charge-offs totaled $3.9 million for seven basis points. Consistent with the prior quarter, despite general concerns regarding the economy, we are not seeing signs or indications of credit quality deterioration in our portfolio. During the quarter, we continued to see stability in non-performing assets and criticized and classified loans. Third, non-insured income increased 1.3 million or 6.6% compared to the fourth quarter of 2021. The fourth quarter of 2022 included $1.2 million adjustment related to investment advisory income, $1.2 million of swap fees related to the conversion of certain live work-based loans to SOFR, and $526,000 of VOLI death benefits. Offsetting these items was continued pressure on wealth management revenue driven by reduced assets under management and supervision due to market volatility, and reduced gain on sale income from our mortgage banking business due to the current interest rate environment. Fourth, non-interest expense increased $4 million, or 9.2%, compared to the fourth quarter of 2021. This includes $434,000 related to our digital transformation initiative, $370,000 of incremental expense resulting from the inclusion of the Paul I. Schaefer Insurance Agency, which was acquired in December of 2021, $430,000 of fraud losses, $318,000 related to our expansion into Western PA and Maryland, and $184,000 of restructuring charges related to the planned consolidation of two financial centers. Excluding these items, non-interest expense increased $2.3 million, or 5.5%, versus the fourth quarter of 2021. I believe the remainder of the earnings release was straightforward, and I would now like to focus on five items as it relates to 2023 guidance. First, for 2022, net interest income totaled $218.3 million. For 2023, we expect loan growth of approximately 12 to 14 percent, and we expect this to result in net interest income growth of approximately 13 to 15 percent off the base of $218.3 million. This assumes one 25 basis point increase in February. Each additional 25 basis point increase is expected to result in annualized net interest income of approximately $250,000 to $500,000. Second, the provision for credit losses will continue to be driven by changes in economic forecasts and credit performance of the portfolio. At this time, we expect the provision for 2023 to be approximately $18 to $20 million. Third, for 2022, non-interest income included $977,000 of boldly death benefits. Excluding these boldly death benefits, non-interest income totaled $76.9 million in 2022. 2023, we expect non-interest income growth of approximately 4% to 6% off the base of $76.9 million. Fourth, we report a non-interest expense of $186.8 million for 2022 and expect growth of approximately 7% to 9% in 2023. This includes core expense growth of approximately 5% to 6%, plus 2% to 3% related to our expansion markets. Lastly, as it relates to income taxes, we expect our effective tax rate to be approximately 20% to 20.5% based on current statutory rates. That concludes my prepared remarks. We'd be happy to answer any questions. Drew, would you please begin the question and answer session?
spk00: Yes, of course. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. Our first question today comes from Tim Switzer from KBW. Your line is now open.
spk01: Hey, good morning. I'm on for Mike Carito. Thanks for taking my questions.
spk02: Morning, Tim.
spk01: Morning, Tim. Can we start with your loan growth expectations? I think you guys kind of raised it just a little bit from, well, I guess sort of in the same range of 13%, 15%. Do you want to talk about kind of like the main drivers you're seeing and, you know, what, did anything help with like the acceleration that 19% annualized this quarter and Is there still upside, you think, to maybe your guidance if economic trends don't deteriorate?
spk03: This is Mike Compton. Good morning. I think the range that Brian communicated is an appropriate range for where we're looking at. We continue to grow our teams in our existing markets, and that's helping us to maintain volume. And then in our new markets in the Western PA and Maryland, We believe that that's allowing us to have upside growth relative to our peers. In our mortgage operation, we had put on hybrid arms in 2022. We believe that will continue to occur at a rate in 2023, but we'll see where rates go because we'd much prefer to get back to our primary mode, which is selling and reaping the gain on sale in our mortgage production while retaining the servicing rights. All in all, I come back to the fact that we're comfortable with the range that Brian communicated. I would not say we have dramatic upside to that, but we're confident in what we're doing as we move forward here.
spk01: Okay. The NII guide is really helpful, but could you talk about the trajectory of that in the NIM? I know it might be hard to hit an actual targeter number on the NIM itself, but Can you help us think about how like the rising deposit costs are going to help? Last quarter you guys, you know, mentioned it would probably peak this quarter or next and then move back into like the 350, 355 range. Is that range higher now?
spk04: No, this is Brian Richardson. We're really holding in that same range. We expect NIM to behave exactly as we would have expected in the fourth quarter. We do expect this to be the peak and expect it to pull back in that mid-single-digit basis point range next quarter and in the subsequent quarters and settling probably right in that mid-350 to 360 range is, I think, where we'll end up. Really, a function of the deposit beta, current cycle to date, looking on interest bearing, we're at roughly 28%. If you look all in on deposits, we're up closer to 15%. Historical norm on interest bearing for us would be in that 40 to 45 range. So, we still have some room to go there. And if we're looking at historical norm on total deposits, that'd be closer to the 30% range. So, again, about halfway there on the deposit side.
spk01: so i do think contraction will continue to occur for the next several quarters i gotcha okay so a little bit of nym contraction next few quarters and kind of stabilizes hopefully with the fed pausing or something um i think the uh the last question i had for you guys you know your guys for 18 to 20 million on the provision if you kind of annualize the number you guys have this quarter it's a little bit above that what But, like, charge-offs and MPAs are still, like, pretty solid. So what kind of drove the provision this quarter?
spk04: Yeah, so we look at our coverage ratio. You look at specific assets. There's various things that play in there. And that's why, I mean, I do, as I indicated, is event-driven. There will be some moving parts that would continue as we navigate forward. But, again, we think that $18 million to $20 million range is appropriate.
spk02: Especially given the loan growth.
spk01: Okay, great. Thanks for taking my question. Right. Yeah. I mean, the loan reserve percentage didn't really move up all that much. But I just wanted to ask. All right. Thank you. Yep. Thank you.
spk00: Just to reiterate, if you would like to ask a question on today's call, please press start followed by one on your telephone keypad. Now, if you change your mind, please press start followed by two. So we have no further questions at this time. So I'll hand you back over to Jeff Schweitzer.
spk02: Thank you, Drew. And thank you, everyone, for listening in on our call today. As I said in my comments, we're very pleased with our results for 2022. A lot of strong financial performance, a lot of growth. And we're excited about the momentum we carry into 23, even with pending economic concerns out there. We're in great markets with great people and really strong customers, so we look forward to a successful 2023 and talking to you at the end of the first quarter. Have a great day.
Disclaimer