Q4 2022 Univest Financial Corp Earnings Call

Okay.

Hello, everybody and welcome to you to Vest financial Corporation to hold fourth quarter 2022 earnings call. If you would like to ask a question. During today's presentation. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by Chi.

Now I'd like to turn the conference over to Jeff Schweitzer.

President and C. I. Please go ahead.

Thank you Julie and good morning, and thank you to all of our listeners for joining US joining me on the call. This morning is Mike time, our Chief operating officer, and President not being the best 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 Universe actual results may differ materially from those contemplated by those 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 <unk> dot net under the Investor Relations tab.

We reported net income of $23 $8 million during the fourth quarter or <unk> 81 per share.

Highlights of the quarter was our continued strong organic loan growth loans grew $274 million or 18, 8% annualized excluding PPP loans during the quarter and $842 8 million or 16% for the year.

This strong growth along with the increasing interest rate environment. During the year resulted in net interest income increasing 25, 5% in 2022 as compared to 2021, excluding PPP activity.

We are very happy with our results for the quarter and 2022 as a whole as we reported solid growth and financial results. While also investing in long term strategic initiatives and our digital strategy and expansion into Western Pennsylvania and Maryland.

Before I pass it over to Brian I would like to thank the entire universe 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 as Jeff indicated we are very pleased with our performance throughout 2022.

I would like to touch on four items from the earnings release.

We continued to see the benefit of our strong loan growth in recent years, coupled with our asset sensitivity in a rising rate environment.

<unk> margin of 376% increased nine basis points compared to last quarter net interest income increased $3 7 million or six 3% on a linked quarter basis.

During the quarter deposits grew $116 8 million or 8% annualized this included growth of $69 1 million and noninterest bearing deposits.

Second during the quarter, we recorded a provision for credit losses of $5 4 million.

Our coverage ratio was 129% at December 31, compared to $1 two 8% at September 30.

Net charge offs for the quarter totaled 908000 or six basis points annualized for.

For the year net charge offs totaled $3 9 million or seven basis points.

Consistent with the prior quarter. Despite general concerns regarding the economy, we are not seeing signs or indications of credit quality deterioration in our portfolio.

During the quarter, we continued to see stability in nonperforming assets and criticized and classified loans.

Third noninterest income increased $1 3 million or six 6% compared to the fourth quarter of 2021.

The fourth quarter of 2022 included $1 $2 million adjustment related to investment advisory income.

One $2 million of swap fees related to the conversion of certain LIBOR based loans, two sofa and 526000, a boldly death benefits offsetting.

Offsetting these items was continued pressure on wealth management revenue driven by reduced assets under management and supervision.

Market volatility and reduced gain on sale income from our mortgage banking business due to the current interest rate environment.

Core noninterest expense increased $4 million or nine 2% compared to the fourth quarter of 2021.

This includes 434000 related to our digital transformation initiatives 370000 of incremental expense, resulting from the inclusion of the <unk> Schaefer insurance agency, which was acquired in December of 2021.

430000 of fraud losses.

318000 related to our expansion into western P. A in Maryland, and 184000 of restructuring charges related to the planned consolidation of two financial centers. Excluding these items noninterest expense increased $2 3 million or five 5% versus the fourth quarter of 2021.

I believe the remainder of the earnings release was straightforward and I would now like to focus on five items as it relates to 2023 guidance.

First for 2022 net interest income totaled $218 3 million.

For 2023, we expect loan growth of approximately 12% to 14% and we expect this to result in net interest income growth of approximately 13% to 15% off the base of $218 3 million.

This assumes $1 25 basis point increase in February .

Each additional 25 basis point increase is expected to result in annualized net interest income of approximately 250 to 500000.

Second the provision for credit losses will continue to be driven by changes in economic forecast and credit performance of the portfolio. At this time, we expect the provision for 2023 to be approximately $18 million to $20 million.

Third for 2022 noninterest income included 977000 about we got benefits. Excluding these boldly death benefits noninterest income totaled $76 9 million in 2022.

2023, we expect noninterest income growth of approximately 4% to 6% off the base of $76 9 million.

Fourth we reported noninterest expense of $186 8 million for 2022, and expect growth of approximately 7% to 9% in 2023.

This includes core expense growth of approximately 5% to 6% plus 2% to 3% related to our expansion markets.

Lastly, as it relates to income taxes, we expect our effective tax rate to be approximately 20% to 25% based on current statutory rates.

That concludes my prepared remarks, we'd be happy to answer any questions drew would you. Please begin the question and answer session.

Yes of course.

We will now start today's Q&A session. If you would 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 <unk>.

Last question today comes from Ken Switzer from Kb Debbie Your line is now open.

Hey, good morning, I'm on for Mike accretive Thanks for taking my questions.

Good morning, Tim Good morning, Sam can.

Can we start with your loan growth expectations. I think you guys kind of raised its just a little bit from.

Well I guess sort of in the same range of 13% to 15% that we've talked about kind of like the main drivers youre seeing and.

What.

If anything help it like the acceleration that 19% annualized this quarter end.

Is there still upside you think to maybe your guidance.

<unk> don't deteriorate.

This is Mike content and good morning.

The range that Brian .

Communicated as an appropriate range for where we're looking out.

We continue to grow our teams and our existing markets and that is helping us to maintain volumes and then in our new markets in the Western P. A in Maryland, we believe that thats, allowing us to have upside growth relative to our peers.

And our mortgage operation, we had put on hybrid arms and 2022, we believe that will occur continue to occur at a rate in 2023.

But we'll see where rates go and we would because we would much prefer to get back to our primary mode, which is selling and reaping the gain on sale in our mortgage production, while retaining the servicing rights. So.

All in all I'd come back to the fact that we're comfortable with the range that Brian communicated.

Not to say, we have dramatic upside to that but we're confident in what we're doing in <unk>.

As we move forward here.

Okay and could you. The NII guide is really helpful. But could you talk about kind of the trajectory of that and the NIM I know it might be hard to hit like actual I can actually like target or number on the NIM itself, but can you help us think about how like the rising deposit costs are going to help a lot last quarter you guys.

You know mentioned you would probably peak this quarter and next and then move back into like the $3 $53 55 range.

Is that range higher now.

No. This is Brian Richardson.

Really holding in that same range, we expect the kind of NIM behaved exactly as we would've expected in the fourth quarter. We do expect this to be the peak and expect it to pull back in that mid single digit basis point range next quarter and in the subsequent quarters and settling settling probably right in that mid $3 50 to $3 60 range is where I think where it will end.

So really the function of the deposit beta current cycle to date looking on interest bearing we're at roughly 28%. If you look all in on deposits were up closer to 15%.

Historical norm on interest bearing for us would it be in that 40 to 45 range. So we still have some room to go there and if we're looking at historical norm on total deposits that would be closer to the 30% range. So again about halfway there on the deposit side. So I do think contraction will continue to occur for the next several quarters.

I gotcha, Okay. So a little bit of NIM contraction next few quarters on kind of stabilizes hopefully with the fed pausing or something.

Your guide for $18 million to $20 million on the provision.

If you kind of annualize the.

Number you guys had this quarter, it's a little bit above that what maybe like charge offs and npls are still like pretty solid so what kind of drove the provision this quarter.

So we look at our coverage ratio, you'll get specific assets, there's various things that play in there and that's why I mean I do as I indicated is event driven and there will be some some moving parts that would continue as as we navigate forward.

But again, we think that that $18 million to $20 million range is appropriate.

Especially given the loan growth.

Thanks for taking my call.

Right, Yeah, I mean, the loan reserve percentage didn't really move up all that much.

I just wanted to ask alright. Thank you.

Yes.

Just curious if you would like to ask a question on todays call. Please press star followed by one on your telephone keypad now.

Your mind, Please press star followed by T.

Okay.

Okay.

So we have no further questions at this time, so I'll hand, you back over to Jeff Schweitzer.

Thank you drew and thank you everyone for listening in on our call today as I said in my comments, we're very pleased with our results for 2022, a lot of strong financial performance a lot of growth and we're excited about the momentum we carry into 'twenty three even with pending economic concerns out there.

We're in great markets with great people and really strong customer. So we look forward to.

To a successful 2023 and talking to you at the end of the first quarter have a great day.

That concludes today's universe.

Financial Corporation first quarter 2020 earnings call you May now disconnect your line.