Q4 2019 Earnings Call

Thank you Chad and good morning. And thank you to all of our listeners for joining us joining me on the call this morning is Mike time president Universe Bank and Trust and Brian Richardson our Chief Financial Officer month before we begin we 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 universe actual results May differ materially from those contemplated by these forward-looking statements. I will refer you to the forward-looking cock statements in our earnings release and in our SEC filings,

hopefully everyone had to

Next review our earnings release from yesterday. If not, it could be found on our website at Universal under the investor relations tab. We reported net income of 15.5 million dollars during the fourth quarter of a $0.53 per-share earnings for the quarter were impacted by an $869,687 after tax charge related to a legal settlement with a former Fox Chase Bank customer in connection with the work out that occurred prior to our acquisition of Fox Chase Bank in 2016. This charge impacted earnings by two cents per share during the quarter.

We were pleased with our results for the quarter as loans grew 134.9 million dollars or 12.7% annualized which resulted in total loan growth for 2019 and 380.3 million months or 9.5% Additionally, although deposits only grew 16.8 million during the fourth quarter due to seasonal run off of public funds deposits growth for the year was 4068.8 million dollars or 12.1%

while we continue to

See solid loan demand due to Market disruption and the strength of our local economy our net interest margin continues to be impacted by the overall lower interest rate environment combined with increased competition wage rate and structure. Brian will discuss our net interest margin further in his comments with the decreasing rate environment combined with Investments. We have made in Home Loan Consultants gain-on-sale from a banking operation increased $325,000 or 55.6% for the quarter and $821,000 or 26.3% for the year when compared to the same period in 2018 additionally revenues from our other fee based businesses of wealth management, which includes trust and insurance increase 4.2% and 5.7% respectively wage compared to the fourth quarter of 2018 helping offset the impact from the compression in our net interest margin.

I will now throw it over to Brian for some additional discussion on our results. Thank you Jeff and I would also like to thank everyone for joining us today during the fourth quarter. We continue to our trend of strong financial performance as Jeff mentioned. We reported earnings per share of $0.53 or $0.55 when excluding the legal settlement charged for the full year of 2019. We reported earnings per share of $2.24. I would like to touch on three items related to the earnings release before focusing on 2020 guidance.

first

Like pressure on that interest income during the second half of the Year 2019 was relatively strong from a metric perspective with the return on average assets of 1.26% return on average wage of 10.07% return on tangible Equity of 13.82% and an efficiency ratio of 61.4%

With regards to the efficiency ratio, I would like to remind everyone that has a Pennsylvania state Charter Bank and Trust Company. Our bank is subject to Pennsylvania bancshares tax instead of Pennsylvania state income tax laws for 2019, Pennsylvania bancshares tax expense total 3.9 million and was included in other expense not income tax expense accordingly this results in a project 270 basis points of drag on our reported efficiency ratio. Second during 2019. We grew tangible book value per share $17.01 off an increase of $1.76 or 11.5%

Third no.

Income for 2019 was up 7.1% compared to 2018.

This is due to strong average loan growth of 9.8% partially offset by net interest margin compression our net interest margin for the fourth quarter of 3.44% decrease monthly basis points from 3.52% in the third quarter during the fourth quarter. We continue to have access to a quiddity due to strong deposit growth throughout 2019 average access New Jersey City of approximately $166 million negatively impacted nymph by 12 basis points compared to 174 million or 13 basis points in the third quarter purchase a package expiration contributed three basis points to them during the current quarter, excluding the impact of excess liquidity and purchase accounting accretion coordinate was 3.53% a decrease of 12 basis points when compared to 3.65% in the third quarter.

As communicated on last quarter's call.

The pressure on that interesting, highlights the importance of our Diversified business model for 2019 non-interest income represented 28% of total revenue.

I believe the remainder of the earnings release was straightforward and I would now like you focus on five items as it relates to 2020 guidance.

First due to the current rate environment and competition on the commercial lending side. We expect net interest margin excluding the impact of excess liquidity to compress by approximately 324 basis points in the third quarter of 2020. We then expect him to be flat to slightly down for the remainder of the Year second. We expect to provision for credit losses to be approximately 9 to 10 million dollars for 2020 or on average two point three two, two point five million per quarter.

Third we normally seen on interest income growth of approximately 5% per year, but we experience outside his growth of 8.7% in 2019 due to strong swop fees contingent Income Life Insurance business and refinance activity in our mortgage banking business accordingly. We expect more normalized growth in non-interest income of 3% to 3.5% in 2012 off of the elevated level from 2019.

4th

Expect non interest expense growth of our frog approximately 5.5 to 6% in 2020. This includes the carryover impact of Team lift outs and investments in Revenue producers agknowledge e which were made during 2019. Lastly as it relates to income taxes. We expect our effective tax rate to be approximately 18% to 18.5% for 2012 that is it for my prepared remarks. We will be happy to answer any questions operator. Would you please begin the question-and-answer session? Thank you. We will now begin the question-and-answer session wage to ask a question. You may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press start at this time will pause momentarily to assemble our roster.

And the first question today will be from Frank with Piper Sandler, please go ahead. Good morning, I didn't hear you didn't I don't think you mentioned a loan growth for for 2020. So wondering if you had any expectations you could share with us on that front page Frank. We're currently targeting 8% growth for 2020.

Okay.

And then I want to ask you specifically about the team you hired recently. I think it was a couple of quarters ago maybe in in in Lancaster and I'm just kind of curious how that team is doing in terms of of origination. And and I know that they came out of a attrition from a recent package deal out there. So just wondering if there's any, you know impact on them in terms of short-term in terms of non-solicitation that might be slowing their growth output know Frank. It's my kind there's they had no limitations in terms of from a contractual perspective. I will tell you that the acquiring company, but it's been a little bit more aggressive in terms of make trying to maintain their customer base. So they've done a good job from that perspective versus the previous team that we had.

Gotcha, okay.

And then just finally on the margin Outlook just curious if that includes any further rate cuts. And and what such a rate cut. You know, what a what sort of impact the 25 basis-point rate would have on on them all else equal. Yeah Frank is that that assumes a stable rate environment? So there's no anticipated decreases included in that guidance consistent with prior quarter Communications, a 25 basis-point decreased translates into an immediate impact of roughly three to four basis points. And then you see one or two in the fall in the past couple of quarters immediately following as a result of lagging on the deposit side and the like so three to four initially and then slight pressure for the subsequent quarters.

Great. Okay. Thank you very much. Thanks for answering.

Once again, if you'd like to ask a question, press * then 1 the next question will come from Michael perrito with KBW.

Good morning, everyone. This is Ashley Michael schiavoni stepping in from like. Oh, good morning. Can you guys provide a little more color on where you saw the loan growth than Thursday 3 both geographically and by line of business and given the recent momentum. Do you have any updates to your growth targets for 20 28?

In terms of the growth, you know, the vast majority of the growth came from the commercial our commercial line of business and then grows in that quarter would be equally strong between what we refer to our Delaware Valley division in our central Pennsylvania division with the centrifuge APA division slightly ahead. Overall. Our growth rate for Thursday that we're targeting is 8% and we would see that coming across our entire footprint.

Right. Thanks. And I know capital capital levels remain strong. Do you have any updates around capital capital deployment or priorities going in 8020?

Sure, this is Brian Richardson as private as previously communicated. Our priority has been to position ourselves to pay down some debt as a reminder on March 30th of this year. We have fifty million of sub debt off the 5 year mark and flips from fixed rate to variable rate. And it's favorable Capital treatment starts to diminish accordingly. We plan to redeem this issuance. Once the sub debt is paid down. We will be evaluating all capital deployment options. However, as previously communicated we do like keeping some powder dry to enable us to be opportunistic with future lift outs or fee income acquisition opportunities as they present themselves.

Okay, and just one last question on expenses, they were a little lower in the quarter. And I know you guys gave some initial Guidance Do you have any commentary on the geography of where you expect some movement in expenses in 2020?

Geography on the interstate or yeah, yeah.

No, I mean I hardly has been that you guys are the best they're going to be in headcount. So you're going to see that in the compensation line items. And then also we we don't have any large significant investment coming on the technology side, but investments from that we did in 2019 that will roll over will continue to have some level of impact on the data processing technology line off.

Great. Thank you. That's all for me. Thank you. And is the final reminder? If you'd like to ask a question, please, press * then 1.

This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Schweitzer for any closing remarks. Thank you Chad and thank you to everyone for listening today. You know, we feel really good about how may end of the year and the momentum we have entering 2020. Obviously, there's some head ruins with net interest margin, but overall the economy is is very strong in our in our market and we feel very good about a year ahead of us. So we look forward to talking to you at the end of the first quarter. Have a great day and thank you sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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