Univest Financial Corporation (NASDAQ:UVSP) Q1 2024 Earnings Call Transcript

Univest Financial Corporation (NASDAQ:UVSP) Q1 2024 Earnings Call Transcript April 25, 2024

Univest Financial Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Univest Financial Corporation First Quarter 2024 Earnings Call. My name is Carla and I will be coordinating your call today. [Operator Instructions]. I will now turn the call over to your host, Jeff Schweitzer, President and CEO of Univest Financial Corporation to begin. Jeff, please go ahead.

Jeff Schweitzer: 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. 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 $20.3 million during the first quarter 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. This resulted in stabilization in our net interest margin. Loan growth was muted during the quarter as loans grew $11.9 million, this is due to a combination of lower loan demand from customers given the higher interest rate environment, pay off activity of some problem credits and remaining disciplined down pricing and focusing on relationship customers and prospects. With that said Q1 is historically a slower quarter and we are seeing pipelines grow as we head into the second quarter.

Our diversified business model served as well as the insurance and wealth management lines of business and strong performance in the quarter. We were also actively stopped [ph] buybacks during the quarter as we repurchased 315,507 shares of stock while still growing 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 everyday and for their continued efforts serving our customers, communities and eachother. I will now turn it over to Brian for further discussion on our results.

Brian Richardson : Thank you, Jeff, and I would also like to thank everyone for joining us today. I would like to highly a few items from the earnings release. First, during the quarter, we continued to see signs of NIM stabilization. Reported NIM of 2.88% increased 4 basis points from 2.84% in the fourth quarter of 2023. Core NIM of 2.91% which excludes the impact of excess liquidity declined 3 basis points compared to the fourth quarter. This compares to a 6 basis point decline experienced during the last quarter. Second, as it relates to our loan and deposit activity, loans grew $11.9 million and deposits grew $29.6 million during the first quarter. Third, during the quarter we recorded a provision for credit losses of $1.4 million.

Our coverage ratio was 1.3% at March 31st which was consistent with December 31st. Net charge-offs for the quarter totalled $1.4 million or 9 basis points annualized. During the quarter we saw decreases in delinquent loans, criticizing classified loans and stability in non-performing assets. Fourth, non-interest income increased $5.9 million, or 30.1% compared to the first quarter of 2023. This includes a $3.4 million net gain on mortgage serving rates. Insurance, commission and fee income increased $714,000 primarily due to a $484,000 increase in contingent income. As a reminder contingent income has always been recognized in the first quarter of each year. Additionally we saw notable increases in investment advisory, commission and fee income, treasury management fees, net gains on mortgage banking and the sale of SPA loans.

These year over year increase continued to highlight the benefit of our diversified business model. Non-interest expense increased $545,000 or 1.1% compared to the first quarter of 2023. This reflects the various expense management strategies deployed over the last year. Lastly during the first quarter as Jeff said we repurchased 315,507 shares of stock and we plan to remain active with regard to buybacks. As it relates to 2024 guidance when excluding the $3.4 million pretax gain on the sale of mortgage servicing rates 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.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from [indiscernible].

Unidentified Analyst: Hey guys. David here, and I am here for Matt. I just wanted to touch a little bit on some commercial real estate exposure in terms of the help you are seeing in the Philadelphia market and kind of any large office exposures you have in that area and if you can provide some color there?

Mike Keim: In general the CRE market continues to hold up, we are not a big participant in a largescale office holdings in the city of Philadelphia, so there is some movement there but we are not participant like I said. The biggest issue that we had seen from our specific book of business was more in luxury townhome side of what we were doing in CRE’s perspective. We actually had little bit over $20 million of total exposure and we actually cut that basically in half in the first quarter this year so we have really the minimum 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 are not large [indiscernible] Philadelphia with regard to our presence, it’s more of a suburban oriented office kind of footprint for lack of better of term.

Our average loan size on the office is less than $2 million and in the next two years we have less than $25 million per year maturing. So we have done a good job in terms of getting forward and making sure that we have good quality tenants and underlying guarantors. We have gotten ahead of it in terms of where interest rates are trying to manage that and be proactive. So all things being equal given the circumstances we feel good about our overall credit book and also about where we are going from an office perspective, we haven’t added to the portfolio and its actually running down as we move forward.

Unidentified Analyst: Great, appreciate that. And next moving on would you try to give some color on NIM quick takes and outlook from your current levels and maybe where your outlook is for peak deposit this year too? Thanks.

Brian Richardson: This is Brian Richardson. From a NIM perspective again we saw signs of stabilization here in the first quarter we do expect that continue into the second quarter and be relatively flat calling into 290 range on a reported and core basis in the second quarter and then really we will look forward to expand a couple of basis points each quarter thereafter again as long as repricing we are seeing the stabilization on the deposit side look for that to drop down with an increase in NIM. We do expect, we saw data slowdown the growth of data slowdown in the first quarter and really expect that to hold the current levels as we progress through the remainder of the year.

Unidentified Analyst: Okay, great. Then last one for me, just kind of an appetite, you guys repurchased shares this quarter and so just on the appetite for continued repurchases throughout the year with the stock at this level.

Brian Richardson: This is Brian again. We look to continue to be active as I said in my prepared comments there. At this point we are 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 would be reasonable to conclude that we will be putting at least a decent portion of that in repurchases for the foreseeable future.

Operator: [Operator Instructions]. We have no further questions. I will hand over back to Jeff to conclude.

Jeff Schweitzer: 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 said there will be stabilization in the first half of the year and we expect to see continue to improve on the margin side as the year goes on. So still a decent economy with lower GDP print this year and we are starting to see activity pickup. So we are looking forward to having a successful year. 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 line.