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 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. reported net income of $17 million during the third quarter, or 58 cents per share. Like most in our industry, we continue to be impacted by the rising cost of funding, primarily driven by the mixed shift in deposits, which negatively impacted our net interest margin during the quarter. We did see this shift slow during the third quarter compared to the second quarter. Given the rising cost of funding, we continue to increase loan pricing and focus our lending on full relationship customers. This has slowed lending by design as we focus on liquidity and maintaining capital for existing full-service customers. We did experience significant deposit growth during the quarter due to the seasonal build of public fund deposits. Given the margin pressures, our diversified business model continues to serve us well throughout this cycle with combined wealth management insurance revenue of 5.2% year-to-date. Before I pass it over to Bryden, I would like to thank the entire Univest family for the great work they do every day. Our team continues to focus on making a positive impact by 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. I would like to start by touching on five items from the earnings release. First, as Jeff mentioned, we saw continued pressure on funding costs and net interest margin, primarily due to the ongoing shift of deposits, as well as increased deposit betas. Reported NIM of 2.96% decreased 18 basis points compared to last quarter. Excess liquidity averaged $103 million for the quarter, which reduced reported NIM by four basis points. Core NAM, which excludes excess liquidity, was 3% compared to 3.14% in the second quarter. Our cycle to date interest-bearing deposit data was 54% through the third quarter and 41% when including total deposits. Our cost of funds was 2.54% up from 2.19% last quarter. Second, I would like to discuss our loan and deposit activity during the quarter. Loans grew by $112.7 million and deposits increased by $451.8 million. We experienced a $501.2 million seasonal increase in public fund deposits, offset by decreases of $26.9 million in personal accounts, $16.4 million in business accounts, and $6.2 million in broker deposits. Non-interest-bearing deposits decreased $150.2 million during the quarter. As of September 30th, non-interest-bearing deposits represented 22.2% of total deposits compared to 26.4% at June 30th. September 30th, unprotected deposits, which excludes insured, internal, and collateralized deposit accounts, totaled $1.3 billion and represented 20.8% of total deposits. Third, during the quarter, we recorded a provision for credit losses of $2 million. Our coverage ratio was 1.28% at September 30th, which was consistent with June 30th. Net charge-offs for the quarter totaled $969,000, or six basis points annualized. During the quarter, non-performing assets increased by $5.6 million. Non-performing assets as of September 30th included a $5.8 million non-performing loan that was sold on October 16th at PARC. Non-interest income increased $732,000, or 4.1%, compared to the third quarter of 2022. This was primarily driven by increased revenue from our wealth management, insurance, and mortgage banking lines of business. As we have said before, our diversified business model continues to serve us well during the current interest rate cycle and the resulting pressure on our spread business. Fifth, non-interest expense increased $2.3 million, or 5%, compared to the third quarter of 2022. This includes $596,000 of incremental FDIC expense, which is primarily driven by the industry-wide increased assessment rate, and $527,000 of incremental retirement plan costs, primarily driven by the current interest rate environment. Excluding these two items, expenses were up $1.2 million, or 2.6%, compared to the third quarter of 2022. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update for our 2023 guidance. First, on last quarter's call, I had communicated that we expected loan growth of approximately 9%, and that net interest income would be flat up 2% for the year. This guidance remains unchanged. Second, our provision for credit loss guidance for the year is being reduced to $12 to $14 million. However, the provision will continue to be event-driven, including loan growth, changes in economic-related assumptions, and the credit performance of the portfolio, including specific credits. Third, our non-interest income growth guidance for the year is being reduced from 2 to 4 percent to 0 to 1 percent. As a reminder, this is off the 2022 base of $76.9 million, which excludes $977,000 of BOLI death benefits. Fourth, our non-interest expense growth guidance is being reduced from 6% to 8% to 6% to 7%. Lastly, as it relates to income taxes, we continue to expect that our effective tax rate will be approximately 20% based on current statutory rates. That concludes my prepared remarks. We will be happy to answer any questions. Lydia, would you please begin the question and answer session?

Absolutely. Please press star followed by the number one if you'd like to ask a question and ensure that your device is unmuted locally when it's your turn to speak. If you change your mind or your question has already been answered, you can withdraw your question by pressing star followed by the number two. Our first question today comes from Tim Switzer of KBW. Please go ahead. Your line is open.