Univest Financial Corporation

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.

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?

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.