Univest Financial Corporation

Ladies and gentlemen, the Unifest Financial Corporation's third quarter 2024 earnings call will begin shortly with your host, Jeff Schweitzer. We appreciate your patience as we prepare your session for today. During the call, we do encourage participants to raise any questions they may have. You can raise a question by pressing star followed by one on your telephone keypad and to remove yourself from that line of questioning, it will be star followed by two. We will begin shortly. Good morning all and thank you for joining us for the Univest Financial Corporation Third Quarter 2024 Earnings Call. My name is Carly and I'll be the call coordinator for today. If you'd like to register a question during the call, you can do so by pressing star followed by one on your telephone keypad and to remove yourself out of the questioning, it will be star followed by two. I'd now like to hand over to your host, Jeff Schweitzer, Chairman, CEO, to begin. The floor is yours.

Thank you, Carly. 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. The best 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 $18.6 million during the third quarter, or 63 cents per share. During the quarter, we saw a large increase in deposits of $358.8 million due to our seasonal build of public funds deposits. Loan growth was slightly muted during the quarter at $45.9 million, or 2.8% annualized. While loan production was solid, we have been impacted by declining line usage by customers as they continue to utilize existing cash on hand as opposed to drawing down on their lines, combined with elevated payoff activity. Our diversified business model continued to serve us well as our non-interest income was up $1.5 million or 7.8% compared to the prior year as we have seen growth in our non-banking lines of business with wealth management and insurance of 9.8% and 8% respectively compared to the third quarter of the prior year. Additionally, we continue to prudently manage expenses as non-interest expenses were down $436,000 or 0.9% compared to the prior year. With respect to capital, we continue to be active and plan on continuing to be active with stock buybacks as we repurchased 156,728 shares of stock during the quarter and 663,043 shares year-to-date, which represents 2.25% of shares outstanding as of December 31, 2023, while growing tangible book value per share 7.32% year-to-date. Finally, at our board meeting yesterday, the board approved an increase of 1 million shares available for repurchase. 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 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 highlighting a few items from the earnings release. First, during the quarter, reported NIM of 2.82% decreased two basis points from 2.84% in the prior quarter due to the increase in excess liquidity from the seasonal public funds bill. As expected, core NIM of 2.91%, which excludes the impact of excess liquidity, expanded five basis points compared to the second quarter. We expect core NIM to be flat to slightly up in the fourth quarter, assuming a 25 basis point rate cut at each of the FOMC meetings in November and December. Second, during the quarter, we recorded a provision for credit losses of $1.4 million. Our coverage ratio at September 30th was 1.28%, which was unchanged from June 30th. Net charge-offs for the quarter totaled $820,000, or five basis points annualized. During the third quarter, we saw continued stability in non-performing assets, loan delinquencies, and criticized and classified loans. Third, non-interest income increased 1.5 million, or 7.8%, compared to the third quarter of 2023. We saw increased contributions from our wealth management and insurance lines of business and increased gains on sale of SBA loans. Offsetting these increases was a reduction in service fee income, which was primarily driven by a $785,000 valuation allowance recorded on our mortgage servicing asset. This allowance was driven by an increase in assumed prepayment speeds due to the decrease in interest rates during the quarter. Overall, we continue to be very happy with the diversification and contributions from our fee income businesses. Fourth, non-interest expense decreased $436,000 or 0.9% compared to the third quarter of 2023. This reflects the continued benefit of the various expense reduction strategies we deployed during 2023 and our ongoing commitment to prudent expense management. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update to our 2024 guidance. First, for the full year of 2024, we expect loan growth of approximately 4%. and we expect net interest income to contract 4 to 5% for the full year of 2024 compared to 2023. Second, our provision for credit loss guidance for the year is being reduced to 6 to 8 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 remains at the sale of MSRs in the first quarter. Including the gain on the sale of MSRs, non-interest expense growth guidance for the year remains at 11 to 13 percent. As a reminder, this is off the 2023 base of $76.8 million. Fourth, in 2023, our non-interest expense totaled $195.8 million when excluding the $1.5 million of restructuring charges. For 2024, we expect Lastly, as it relates to income taxes, we expect our effective tax rate to be approximately 20.5% based on current statutory rates. That concludes my prepared remarks. We would be happy to answer any questions. Carly, would you please begin the question and answer session?