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spk03: Welcome to the Unifest Financial Corporation first quarter 2024 earnings call. My name is Carla and I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand you over to your host, Jeff Schweitzer, President and CEO of Unifest Financial Corporation, to begin. Jeff, please go ahead.
spk01: Thank you, Carla, 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 cautionary 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 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 $20.3 million during the first quarter, or 69 cents per share. During the quarter, we continued to see stabilization in the shift in the mix of deposits along with the cost of deposits. This resulted in stabilization in our net interest margin. Loan growth was muted during the quarter as loans grew $11.9 million. This is due to a combination of lower loan demand from customers given the higher interest rate environment, payoff activity of some problem credits, remaining disciplined on pricing, and focusing on relationship customers and prospects. With that said, Q1 is historically a slower quarter, and we are seeing pipelines grow as we head into the second quarter. Our diversified business model served as well as the insurance and wealth management lines of business had strong performance in the quarter. We were also active with stock buybacks during the quarter as we repurchased 315,507 shares of stock while still growing tangible book value. 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 efforts serving our customers, communities, and each other. I'll now turn it over to Brian for further discussion on our results.
spk02: Thank you, Jeff, and I would also like to thank everyone for joining us today. I would like to highlight a few items from the earnings release. First, during the quarter, we continued to see signs of NIM stabilization. Reported NIM of 2.88% increased four basis points from 2.84% in the fourth quarter of 2023. Core NIM of 2.91%, which excludes the impact of excess liquidity, declined three basis points compared to the fourth quarter. This compares to a six basis point decline experienced during the last quarter. Second, as it relates to our loan and deposit activity, loans grew 11.9 million and deposits grew 29.6 million during the first quarter. Third, during the quarter, we recorded a provision for credit losses of $1.4 million. Our coverage ratio was 1.3% at March 31st, which was consistent with December 31st. Net charge-offs for the quarter totaled $1.4 million, or nine basis points annualized. During the quarter, we saw decreases in delinquent loans, criticizing classified loans, and stability in non-performing assets. Fourth, non-interest income increased $5.9 million, or 30.1%, compared to the first quarter of 2023. This includes a $3.4 million net gain on sale of mortgage servicing rates. Insurance commission and fee income increased $714,000, primarily due to a $484,000 increase in contingent income. As a reminder, contingent income is largely recognized in the first quarter of each year. Additionally, we saw notable increases in investment advisory, commission and fee income, treasury management fees, net gains on mortgage banking, and the sale of SBA loans. These year-over-year increases continue to highlight the benefit of our diversified business model. Fifth, non-interest expense increased 545,000, or 1.1%, compared to the first quarter of 2023. This reflects the various expense management strategies deployed over the last year. Lastly, during the first quarter, as Jeff said, we repurchased 315,507 shares of stock, and we plan to remain active with regard to buybacks. As it relates to 2024 guidance, when excluding the $3.4 million pre-tax gain on the sale of mortgage servicing rights, there are no changes to the information I provided on last quarter's call. That concludes my prepared remarks. We will be happy to answer any questions. Carla, would you please begin the question and answer session?
spk03: If you'd 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. When preparing to ask your question, please ensure your device is unmuted locally. So that is star followed by one on your telephone keypad to ask a question. Our first question comes from Frank Giraldi from ABC. Your line is now open. Frank, your line is now open. Our next question comes from David Mirachnik from Stephens.
spk00: Hey, guys. David here. I'm on for Matt Breeze. Good morning, David. Good morning. Yeah, I just wanted to touch a little bit on some commercial real estate exposure kind of in terms of just the health you're seeing in the Philly CRE market and kind of any large office exposures you have in that area and if you could provide some color there.
spk02: Yes, so good morning. It's Mike Kine. You know, in general, the CRE market continues to hold up. We are not a big participant in large-scale office holdings in the city of Philadelphia. So there is some movement there, but we are not a participant, like I said. You know, the biggest issue that we had seen from our specific book of business was more in the luxury townhome side of what we're doing on the CRE perspective. We actually had a little bit over $20 million of total exposure, and we actually cut that basically in half in the first quarter of this year. So we have really de minimis exposure and feel good about the resolution of the remaining loans that we have on our balance sheet. In terms of office altogether, like I said, we're not large in the city of Philadelphia with regard to our presence. It's more of a suburban-oriented office kind of footprint, for lack of a better term. Our average loan size on the office is less than $2 million. And in the next two years, we have less than $25 million per year maturing. So we've done a good job in terms of getting forward, making sure that we have good quality tenants and underlying guarantors. We've gotten ahead of it in terms of where interest rates are and trying to manage that and be proactive. So all things being equal, given the circumstances, we feel good about our overall credit book. and also about where we're going from an office perspective. We haven't added to the portfolio, and it's actually running down as we move forward.
spk00: Great. I appreciate that. And next, moving on, would you kind of give some color on NIM, put some pace in the outlook from current levels, maybe where your outlook is for peak deposit costs this year, too? Thanks.
spk02: Good morning. This is Brian Richardson. From a NIM perspective, again, we saw signs of stabilization here in the first quarter. We do expect that to continue into the second quarter and be relatively flat, call it in that 290 range, on a reported and core basis in the second quarter, and then really look for it to expand a couple of basis points each quarter thereafter. Again, as loans reprice and we're seeing a stabilization on the deposit side, we'll look for that to drop down with an increase in NIM. We do expect we saw beta slow down, the growth of beta slow down in the first quarter, and really expect that to kind of hold at the current levels as we progress through the remainder of the year.
spk00: Okay, great. And then last one for me, just kind of on the appetite for, I guess, repurchase shares this quarter, and so just on the appetite for continued repurchases throughout the year with the stock at this level.
spk02: This is Brian again. We look to continue to be active, as I said in my prepared comments there. At this point, we're really not looking to grow our regulatory capital. So to the extent that any capital that we generate organically is not deployed into loan growth, it would be reasonable to conclude that we'd be putting at least a decent portion of that into repurchases for the foreseeable future.
spk00: Great. Well, that is all. I appreciate you taking my questions. Thank you. Thank you.
spk03: As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question is from Frank Sherald from AEC. Frank, your line is now open.
spk02: Yes, hello, can you guys hear me? We can, Frank. We could hear you, Frank.
spk03: Frank is disconnected. We have no further questions. I will hand over back to Jeff to conclude.
spk01: Well, we can wait. Give Frank another two minutes just in case he plans on jumping back on as he's already tried toys. Of course. All right, well, Frank, if you can hear us, you can always follow up with Brian or myself or Mike offline. So with that, we appreciate everybody listening in this morning and for your questions. And we look forward to, you know, a good year. As we've said, it's going to be stabilization in the first half of the year, and we expect to see things continue to improve on the margin side as the year goes on. So still a decent economy, even with a lower GDP print this morning. And we're starting to see activity pick up. So we're looking forward to having a successful year. And for those of you participating in our shareholder meeting later today, we look forward to talking to you then also. Have a great day.
spk03: This concludes today's call. Thank you for joining Human Arts Connect Your Lines.
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