Univest Financial Corporation

Good morning, all, and thank you for joining us for the Univest Financial Corporation's second quarter 2024 earnings call. My name is Carly, and I'll be the call coordinator for today. During the presentation, you can raise a question by pressing star followed by one on your telephone keypad, or to remove yourself from that line of questioning, you can press star followed by two. I would like to hand over to our host, Jeff Schweitzer, CEO and President, to begin.

Thank you, Carly, 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 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 $18.2 million during the second quarter for $0.62 per share. During the quarter, we continued to see stabilization in the shift in the mix of deposits along with the cost of deposits. A highlight of the quarter was growth in deposits of $90 million or 5.6% annualized during the quarter, which was net of our normal seasonal runoff of public funds deposits, along with the decrease of broker deposits as we experienced solid core deposit growth. Additionally, loan growth picked up in the second quarter as we grew loans by approximately $106 million or 6.4% annualized. Our diversified business model continued to serve us well as our non-interest income was up $1.1 million or 5.8% compared to the prior year. And finally, we continued to be active with stock buybacks during the quarter as we repurchased 190,808 shares of stock while still growing our 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.

Thank you, Jeff, and I would also like to thank everyone for joining us today. I would like to start by highlighting a few items from the earnings release. First, during the quarter, we continue to see signs of NIM stabilization, and we expect core NIM to expand in the second half of the year. Reported NIM of 2.84% decreased four basis points from 2.88% in the first quarter. Core NIM of 2.86%, which excludes the impact of excess liquidity, declined five basis points compared to the first quarter. During the quarter, loan yields decreased five basis points or increased five basis points to 5.73%. Interest earning asset yields increased by six basis points and the cost of interest bearing liabilities increased by nine basis points. It is important to note the increase in our interest earning asset yields approximates the increase in our loan yields as we are not seeing a benefit from shrinking the investment book that some of our peers are seeing. We have consistently maintained the investment portfolio at 6% to 8% of total assets and plan to continue doing so. Second, as it relates to the loan and deposit activity, loans grew $105.8 million and deposits grew $90 million during the second quarter, despite decreases in brokered and public fund deposits of $37.5 million and $24.1 million, respectively. Third, during the quarter, we recorded a provision for credit losses of $707,000. Our coverage ratio was 1.28% at June 30th, compared to 1.3% at March 31st. Our general reserve coverage ratio, which excludes individually analyzed loans, was 1.28% at June 30th compared to 1.27% at March 31st. Net charge-offs for the quarter totaled $809,000, or five basis points annualized. During the quarter, we saw a decrease in non-performing assets and relative stability in loan delinquencies and criticizing classified assets. Fourth, non-interest income increased 1.1 million, or 5.8%, compared to the second quarter of 2023. This increase was primarily driven by a 671,000, or 64.6% increase in net gain on mortgage banking activities, and a 530,000, or 11.3% increase in investment advisory commission and fee income. We continue to be happy with and proud of the contributions from our free income businesses and our diversified business models. Fifth, non-interest expense decreased 1.1 million or 2.2% compared to the second quarter of 2023. When excluding the 1.3 million of restructuring charges in the second quarter of 2023, expenses were up 239,000 or 0.5% year over year. This reflects the benefit of the various expense reduction strategies we deployed during 2023 and demonstrates our ongoing commitment to prudent expense management. Lastly, during the second quarter, we repurchased approximately 191,000 shares of stock at an average all-in cost of $21.17, while growing tangible book value per share by $0.47, or 2.1%. During the first six months of 2024, we repurchased approximately 506,000 shares at an average all-in cost of $20.74. This represents 1.7% of the shares that were outstanding as of December 31, 2023. As of June 30, there were approximately 696,000 shares available for repurchase under our share repurchase plan, and we plan to remain active with regards to buybacks. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update to our 2024 guidance. First, our previous loan growth guidance of 4% to 5% remains unchanged, and we expect net interest income to contract 3% to 5% for the full year of 2024 compared to 2023. This assumes that NIM has bottomed out in the second quarter and will expand during the second half of the year. Second, our provision for credit loss uh guidance for the year is being reduced from 11 to 13 million to 8 to 10 million however the provision will continue to be event driven including loan growth changes in economic related assumptions and credit performance of the portfolio including specific credits third our non-interest income growth guidance for the year is being increased from four to six percent to 7% to 9% when excluding the $3.4 million pre-tax gain on the sale of MSRs in the first quarter, including the gain on sale of MSRs. Non-interest income growth guidance for the year is 11% to 13%. As a reminder, this is off the 2023 base of $76.8 million. Fourth, In 2023, our non-interested expenses totaled $195.8 million when excluding the $1.5 million of restructuring charges. For 2024, we expect growth of 2% to 4% off the base of $195.8 million. Lastly, as it relates to income taxes, we expect our effective tax rate to be approximately 20% to 20.5% based off of current statutory rates. The aggregate impact of these guidance updates, when compared to our most recent guidance, is accretive to EPS and relatively neutral to TPNR. While the revenue side of the equation is inherently being pressured, we have and will continue to strive to mitigate the impact on our bottom line by way of prudent expense management. That concludes my prepared remarks. We'll be happy to answer any questions. Carly, would you please begin the question and answer sessions?