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 Kime, 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 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 $16.3 million during the fourth quarter, or $0.55 per share. During the quarter, we started to see stabilization and the shift in the mix of deposits along with the cost of deposits. While loans declined slightly during the quarter due to the higher rate environment, the payoff of some potential problem credits, and a general slowdown in economic activity, we continue to have solid pipelines as we enter 2024. We continue to focus on full relationship customers and prospects. Brian will provide additional guidance for 2024 in his comments. Before I pass it over to Brian, I'd just like to thank the entire Univest family for the great work that they do every day and their continued efforts serving our customers, our 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. I would like to start by touching on six items from the earnings release. First, during the quarter, we saw signs of NIM stabilization. Reported NIM of 2.84% declined 12 basis points from 2.96% in the third quarter. This compares to an 18 basis point decline during the third quarter. Additionally, Core NIM, which excludes excess liquidity of 2.94%, declined 6 basis points compared to the third quarter. This compares to a 14 basis point decline during the last quarter. Second, as it relates to our loan and deposit activity, loans contracted by $7.7 million during the quarter and grew $444 million or 7.3% during 2023. Deposits contracted by $63.4 million in the quarter and grew by $462.3 million or 7.8% during 2023. The $63.4 million decrease in the fourth quarter included a $57.5 million reduction in brokered CDs. During the fourth quarter, we saw signs of stabilization as it relates to non-interest-bearing deposits, which increased by $35.8 million compared to a decrease of $150 million last quarter. As of December 31st, non-interest-bearing deposits represented 23% of total deposits, compared to 22.2% at September 30th. Third, during the quarter, we recorded a provision for credit losses of $1.9 million. Our coverage ratio was 1.3% at December 31st, compared to 1.28% at September 30th. Net charge-offs for the quarter totaled $1.1 million, or six basis points annualized. Fourth, non-interest income decreased $1.8 million, or 9%, compared to the fourth quarter of 2022. This was primarily driven by decreases in wealth management revenue, FOLE income, and swap-related fees. These decreases were driven by a $1.2 million adjustment for previously unrecorded wealth management revenue and $526,000 of FOLE death benefits, both of which were recognized during the fourth quarter of 2022. Interest rate swap income also decreased $1.5 million compared to the fourth quarter of 2022. Fifth, non-interest expense increased $1.7 million, or 3.6%, compared to the fourth quarter of 2022. This includes $642,000 of incremental FDIC expense, which is primarily driven by the industry-wide increased assessment rate. Lastly, during the fourth quarter, we repurchased 26,485 shares of stock and plan to opportunistically repurchase shares in 2024. I believe the remainder of the earnings release was straightforward, and I would now like to focus on five items as it relates to 2024 guidance. First, for 2023, net interest income totaled $220 million. For 2024, we expect loan growth of approximately 4% to 5%, and we expect net interest income to be flat to down 3%. This assumes a stable rate environment and then bottoming out in the first half of the year and then climbing thereafter as we start to see stability on the liability side coupled with continued repricing of assets. Second, the provision for credit losses will continue to be driven by changes in economic forecasts. and the credit performance of the portfolio. At this time, we expect the provision for 2024 to be approximately $11 to $13 million. Third, 2023 non-interest income totaled $26.8 million. For 2024, we expect non-interest income growth of approximately 4% to 6% off the $76.8 million base. Fourth, we reported non-interest expense of $197.4 million for 2023. For 2024, we expect growth of approximately 3% to 5%. 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 will be happy to answer any questions. Drew, would you please begin the question and answer sessions?

Thank you. We will now start today's Q&A session. If you would like to ask a question, please press start followed by one on your telephone keypad now. If you change your mind, please press start followed by two. Our first question today comes from Tim Switzer from KBW. Please go ahead.