Univest Financial Q1 2024 Earnings Call Transcript

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April 25, 2024

There are 6 speakers on the call.

Operator

Welcome to the Udivest Financial Corporation First Quarter 20 24 Earnings Call. My name is Carla, and I'll be coordinating your call today. I will now hand you over to your host, Jeff Schwitzer, President and CEO of Univest Financial Corporation to begin. Jeff, please go ahead.

Speaker 1

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.

Speaker 1

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 $20,300,000 during Q1 or $0.69 per share. During the quarter, we continued to see stabilization in the shift in the mix of deposits along with the cost of deposits.

Speaker 1

This resulted in stabilization in our net interest margin. Loan growth was muted during the quarter as loans grew $11,900,000 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 historically a slower quarter and we are seeing pipelines grow as we head into the 2nd quarter. Our diversified business model served us 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.

Speaker 1

Before I pass it over to Brian, I would like 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.

Speaker 2

Thank you, Jeff. And I would also like to thank everyone for joining us today. 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 percent increased 4 basis points from 2.84% in the Q4 of 2023.

Speaker 2

Core NIM of 2.91%, which excludes the impact of excess liquidity declined 3 basis points compared to the 4th quarter. This compares to a 6 basis point decline experienced during the last quarter. 2nd, as it relates to our loan and deposit activity, loans grew $11,900,000 and deposits grew $29,600,000 during the Q1. 3rd, during the quarter, we recorded a provision for credit of $1,400,000 Our coverage ratio was 1.3% at March 31, which was consistent with December 31. Net charge offs for the quarter totaled $1,400,000 or 9 basis points annualized.

Speaker 2

During the quarter, we saw decreases in delinquent loans, criticized and classified loans and stability in non performing assets. 4th, non interest income increased $5,900,000 or 30.1% compared to the Q1 of 2023. This includes a $3,400,000 net gain on sale of mortgage servicing rights. 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 Q1 of each year.

Speaker 2

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. 5th, non interest expense increased $545,000 or 1.1 percent compared to the Q1 of 2023. This reflects the various expense management strategies deployed over the last year. Lastly, during the Q1, as Jeff said, we repurchased 315,507 shares of stock and we plan to remain active with regard to buybacks.

Speaker 2

As it relates to 2024 guidance, when excluding the $3,400,000 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?

Operator

Our first question comes from Frank Schiraldi from ABC.

Speaker 3

Yes, that's me. Good morning. Hey, how are you guys doing?

Operator

Your line is now open.

Speaker 3

Can you guys hear me?

Operator

Frank, your line is now open. Hello. Our next question comes from David Meraknick from Stephens.

Speaker 4

Hey, guys. David here. I'm on for Matt Breeze.

Speaker 2

Good morning, David. Good morning.

Speaker 4

Yes, 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?

Speaker 5

Yes. So good morning. It's Mike Kine. 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.

Speaker 5

So there is some movement there, but we are not a participant, like I said. 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 CRDs perspective. We actually had a little bit over $20,000,000 of total exposure, and we actually cut that basically in half in the Q1 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.

Speaker 5

It's a more of a suburban oriented office kind of footprint, for lack of better term. Our average loan size on the office is less than $2,000,000 And in the next 2 years, we have less than $25,000,000 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 on about where we're going from an office perspective.

Speaker 5

We haven't added to the portfolio and it's actually running down as we move forward.

Speaker 4

Great. I appreciate that. And next, moving on, would you kind of give some color on NIM puts and takes and outlook from current levels, maybe where your outlook is for peak deposit costs this year or 2? Thanks.

Speaker 2

Good morning. This is Brian Richardson. From a NIM perspective, again, we saw signs of stabilization here in the Q1. We do expect that to continue into the Q2 and be relatively flat, call it in that 2.90 range on a reported and core basis in the 2nd quarter. And then really we'll look for it to expand a couple of basis points each quarter thereafter.

Speaker 2

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 slowdown, the growth of beta slowdown in the Q1 and really expect that to kind of hold at the current levels as we progress through the remainder of the year.

Speaker 4

Okay, great. And then last one for me, just kind of on the appetite for you guys repurchased shares of Tortor and so just on the appetite for continued repurchases throughout the year with the stock at this level?

Speaker 2

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'd be reasonable to conclude that we'd be putting at least a decent portion of that into repurchases for the foreseeable future.

Operator

Our next question is from Frank Schiraldi from ABC.

Speaker 4

Can you

Speaker 3

guys hear me now? Hello?

Operator

Your line is now open.

Speaker 3

Yes. Hello. Can you guys hear me?

Speaker 5

We could hear you, Frank.

Operator

Frank is disconnected. We have no further questions. I will hand over back to Jeff to conclude.

Speaker 1

Well, we can wait. Give Frank another 2 minutes just in case he plans on jumping back on as he's already tried toys.

Speaker 3

Of course.

Speaker 1

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 a good year. As we've said, it's going to there'll 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.

Speaker 1

So still a decent economy even with the 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.

Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Univest Financial Q1 2024
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