Univest Financial Corporation (UVSP) Earnings Call Transcript & Summary

Good morning, and welcome to the Univest Financial Corporation Annual Meeting of Shareholders. Ladies and gentlemen, as fixed by the order of the Board of Directors, the hour has arrived for the 2021 Annual Shareholders Meeting of Univest Financial Corporation pursuant to notice by mail to each shareholder. As President and CEO of the corporation, it is my privilege to call the meeting to order. Due to the public health concerns regarding the coronavirus and the restrictions on in-person gatherings and to support the health and well-being of our employees, directors and shareholders, we decided to hold this annual meeting via a live webcast. On behalf of the directors and the officers of Univest, let me welcome you and express my appreciation to you for participating in this online meeting today. [Operator Instructions] We will address questions that relate to the matters conducted at this meeting throughout the meeting. The Board has appointed William Aichele as Chairman of the meeting; and Megan Santana as Secretary of the meeting. And now I'd like to introduce Mr. Aichele.

Thank you, Mr. Schweitzer. The next order of business is to ask for the reading of the minutes of last year's annual meeting of shareholders.

Mr. Chairman, I move that the reading of the minutes of last year's annual shareholders meeting be waived.

I second the motion.

All those in favor signified by saying aye and those opposed signified by saying no. [Voting]

The ayes have it. [ Ms. Ludlow ], as meeting judge, will you report whether a quorum is present?

Mr. Chairman, as the judge, I would like to report that a quorum is present, approximately 83.6% of the outstanding shares are represented by proxy.

Thank you, [ Ms. Ludlow ]. Ms. Santana, as meeting secretary, will you confirm that the notice of this meeting was properly provided.

A sample of the notice and proxy is available as part of the meeting materials in the lower right corner of the meeting center screen. It was mailed on March '19, 2021, to all shareholders of record as of February 12, 2021. Further, the following action was taken at the January 27, 2021 meeting of the Board of Directors as provided by Article III, Section 1 of the amended bylaws. Upon motion duly seconded and unanimously passed, it was resolved to fix the number of directors to be elected at the Annual Shareholders Meeting on April 28, 2021, at 4 Class I directors to be elected for a 3-year term and one alternate director to be elected for a one year term. Nominating Committee has recommended that the following persons be elected as Class I directors for a 3-year term. William Aichele, Suzanne Keenan, Thomas Petro and Charles Zimmerman. The Nominating Committee has also recommended that Joseph Beebe be elected as an alternate director for a 1-year term.

Article II, Section 17 of the bylaws requires other nominations to be submitted in writing and received by the corporation, not less than 50 days prior to the meeting. As there were no such nominations, the nominations are closed.

Mr. Chairman, I move that the nominations of 4 Class I directors and one alternate director be approved.

I second the motion.

Are there any questions with respect to the nominations of the 4 Class I directors and one alternate director?

Mr. Chairman, there are no applicable questions in the queue.

Thank you. The next order of business is the ratification of KPMG LLP as our independent registered public accounting firm for 2021.

Mr. Chairman, I move that KPMG LLP be ratified as the corporation's independent registered public accounting firm for 2021.

I second the motion.

Are there any questions with respect to the ratification of the independent registered public accounting firm?

Mr. Chairman, there are no applicable questions in the queue.

Thank you. The next order of business is the approval on an advisory basis of the compensation of our named executive officers as presented in the proxy statement.

Mr. Chairman, I move that the compensation of our named executive officers as presented in the proxy statement be approved.

I second the motion.

Are there any questions with respect to the approval on an advisory basis of the compensation of our named executive officers as presented in the proxy statement?

Mr. Chairman, there are no applicable questions in the queue.

Thank you. Polls are open for voting for Class 1 directors and the alternate director. The ratification of KPMG LLP as Univest independent registered public accounting firm for 2021 and the approval on an advisory basis of the compensation of our named executive officers as presented in the proxy. If you have already voted, there is no need for you to recast your vote. However, if you have not yet voted, I'll pause for a minute so that you may do so by clicking in the lower right corner of the meeting center screen online. [Voting]

The polls for voting hereby are closed, let me ask for a report of the balloting.

Mr. Chairman, based upon the preliminary count of proxies, each nominee for election as a director or alternate director has received a plurality of the votes cast and has been duly elected. KPMG LLP has been ratified by a majority of the votes cast as the Corporation's independent registered public accounting firm for 2021, and the compensation of the named executive officers as presented in the proxy statement has been approved by the majority of the votes cast. Thank you.

Thank you, [ Ms. Ludlow ]. The judge will provide a detailed report to the secretary. At this time, I'd like to ask Jeffrey Schweitzer, President and CEO, to present the Univest 2020 annual report and to summarize our key highlights.

Thank you, Bill, and I would like to thank everyone for attending today's annual meeting. I doubt a year ago, any of us would have guessed that we would be meeting virtually again this year. As we reflect on a year unlike any other, it is easy for the unprecedented challenges to stand out. But despite the headwinds, it was a very successful year for Univest Financial Corporation. As you read in our annual report, Univest achieved strong performance in 2020 while also being proactive in our response to the COVID-19 pandemic as we prioritize the health and safety of our employees and customers. We were the first financial institution in our market to limit access at our financial centers by offering drive-up banking only. Thanks to past strategic investments in our digital evolution, we were able to conveniently serve our customers without interruption. In addition, 95% of our nonbranch personnel quickly transitioned to working remotely. For much of the year, we operated under this new normal as we did our part to help our communities stay safe. Our ability to adapt to an ever-changing environment speaks volumes about our culture here at Univest. Even in the midst of a pandemic, it was important that we continue to evolve our business. Our ability to do that successfully during these uncertain times is a testament to the Univest family and our corporate values. We reported net income of $46.9 million for the year. Deposits increased 20.2% or $882.6 million, which reflects our continued effort to grow core deposits, along with enhanced liquidity due to COVID-related stimulus received by our customers. Our loan portfolio grew more than $436 million, an increase of 9.9% for the year, excluding Paycheck Protection Program loans. While not included in our core loan growth numbers, participating in the Paycheck Protection Program, PPP, for short, was a very large part of what we accomplished in 2020 and continues to be our priority today as we move through the second round of funding and help our customers navigate the forgiveness process. These PPP funds are a lifeline to local business owners, their employees and our communities, providing a bridge to the economic recovery our markets are experiencing. In the past year, we successfully originated more than 3,800 PPP loans, totaling in excess of $705 million, and we estimate that approximately 51,500 jobs were funded, thanks to these loans. In addition to participating in the PPP program, we also provided support to our customers in the form of deferrals and modifications to help provide assistance until the economy reopened. At our peak, we provided deferrals for approximately $720 million of loans or 16.2% of our outstanding portfolio. This helped our customers preserve cash flow during the economic shutdown. At year-end, the level of deferrals had been reduced to $68 million or 1.4% of our outstanding loans. Along with our impressive organic loan and deposit growth and the assistance we provided through PPP and deferrals, we achieved significant milestones across the company. The East Penn and New Jersey Commercial Banking Division reached the impressive milestone of closing more than $1 billion in loan commitments in 2020 and surpassing $4 billion in total loan commitments. The Central Pennsylvania division surpassed $1 billion in total loan commitments in 2020. This was accomplished in less than 5 years in that market, which is a testament to our strategic expansion plans and brand visibility. These solid results are due to the efforts of our strong commercial lending team serving both markets. We also made progress in our commitment to expand into markets contiguous to our current footprint. Since December 2020, we have opened 3 regional offices, new locations in York and Mechanicsburg support our growing Central Pennsylvania market, and our new office in Westlaw in Berks County creates continuity between our Lehigh Valley and Central PA markets. These regional offices serve both business and consumer customers and provide Univest's full suite of integrated financial solutions. The mortgage banking division had a record breaking year, funding more than $700 million of residential mortgages and more than $60 million in consumer loans. On the residential side, fundings were up by more than 103% year-over-year as rates dropped to historically low levels in the first quarter due to COVID-19 and remained low throughout the year. The low rates increased refinance activity to record levels, which was met with strong execution by the entire mortgage banking team. This was especially impressive given the need to shift to virtual loan processing, underwriting and closings. Over the course of the year, our mortgage and consumer teams helped more than 3,200 customers satisfy their home financing needs through our mortgage and home equity products. Our Wealth Division, Girard, also had a year of strong growth, surpassing $4 billion in assets under management and supervision for the first time in the history of the division. Additionally, Univest Capital had a successful year with historical sales surpassing $750 million. Our ability to navigate the unprecedented challenges of 2020 while achieving these milestones speaks volumes about our culture. The dedication, empathy, hard work and commitment to delivering exceptional customer service from each member of the Univest family continued to move us forward. Over the course of 2020, we were also unwavering in our commitment to our community core value by donating more than $1.9 million to nonprofits in the communities we serve. Of that, $126,000 was directed to COVID-related relief efforts. Thanks to our disciplined approach to the business, we were able to stay true to our philanthropic spirit and continue to support our communities, which is vital as we continue to navigate these unprecedented times. Another way we helped our communities during the pandemic was through the establishment of a Micro-Loan Recovery Program. Our team led the charge in partnership with the Philadelphia City Council to create this program in an effort to assist small businesses that were impacted or damaged during the periods of social unrest last summer. Four other local banks signed up to participate, bringing the total fund of $650,000. These low interest loans were used to support the reopening of these impacted businesses. We also are participating with 19 other local banks in the Greater Philadelphia Financial Services Leadership Coalition, which is a $100 million fund earmarked for loans and grants to local minority-owned businesses to increase access to capital for these businesses and also offer technical support as well as scale capacity for local community development financial institutions. These are just 2 examples of how Univest is being part of the solution, helping our communities heal and move forward. As we look forward to 2021, we are poised for success. With solid pipelines and a dedication to a superior customer experience, we remain confident in our ability to achieve our vision of being the best integrated financial solutions provider in the market. However, there are some headwinds to be aware of as the pandemic continues to impact the economy, and our net interest margin continues to be impacted by the low interest rate environment. Despite these challenges, we are excited about the year ahead and have a plan to guide us that includes 5 strategic initiatives aimed at moving our business forward. They are: to further develop digital lending and deposit solutions for small businesses and consumers; to develop plans to accelerate growth in our diversified businesses of mortgage banking, wealth management and insurance to offset pressure on our net interest income caused by the low interest rate environment; to continue to improve our operating leverage with a long-term efficiency goal of below 60%; to optimize the balance sheet to maintain our existing net interest margin in 2021 with peer competitive credit metrics while maintaining a conservative credit culture; and finally, to develop and execute on a strategic plan around diversity, equity and inclusion. The first strategic initiative is to further develop digital lending and deposit solutions for small businesses and consumers. Progress on this initiative will include completing the build-out of Encino for loans of $1 million and below, including storing and auto-decisioning. We will also focus on enhancing our technology and process for home equity and unsecured loans for consumers as well as further driving adoption of digital products. The next strategic initiative, which is especially important due to the economic headwinds in the low interest rate environment is to accelerate growth in our diversified businesses of mortgage banking, wealth management and insurance. As all indications are that rates will remain low for some time. It is important that we continue to grow our diversified revenue and accelerate the growth in our fee income businesses. We have challenged the teams in mortgage banking, wealth management and insurance to develop and begin to execute on plans to accelerate revenue and income in these areas. Our third strategic initiative is to continue to improve long-term operating leverage, the long-term goal of achieving an efficiency ratio below 60%. One tactic that will help achieve this is the execution of our previously announced financial center optimization plan, which will provide cost savings of $1.8 million this year and annualized cost savings of $2.4 million in future years. The next phase of the plan goes into effect at the end of June when 3 financial centers will be closed and one financial center will be relocated. We also have a goal of keeping customer attrition below 10%, and we'll focus on continued efficiency benefits from our technology investments. The next strategic initiative is to optimize the balance sheet to maintain our existing net interest margin in 2021 with peer competitive credit metrics while maintaining our conservative credit culture. With interest rates at historic lows, we need to ensure we continue to get paid for the risk we take in lending and also manage our margin. Additionally, we will be focused on reducing excess liquidity and optimizing our balance sheet. This will be challenging given the excess liquidity caused by PPP forgiveness. Our final strategic initiative is to develop and execute a strategic plan around diversity, equity and inclusion. In 2020, we formed a Diversity, Equity and Inclusion Committee and engaged DEI specialist at PricewaterhouseCoopers, who conducted an assessment on the current state of DEI at Univest. The resulting transparency report from that assessment is being used to guide our course of action as we aim to cultivate an environment at Univest where everyone is able to be their unique self. The committee has decided to focus on 3 areas this year: education and awareness with a focus on unconscious bias; review of policies, procedures and practices to ensure they don't have unintentional impacts; and finally, recruiting, mentoring and retention of diverse talent. It will take efforts from across the organization at every level to increase awareness and create change, but I am confident that we are taking the right steps to begin our journey to being a more diverse, equitable and inclusive workplace. For nearly 145 years, Univest has been grounded as a company, guided by our core values of tradition, integrity, excellence, community and spirituality, and more recently, the 18 fundamentals of the Univest way. We are confident Univest will continue to be successful for many years to come if we stay true to who we are as an organization and execute on these 5 strategic initiatives. As evidenced from the past year, even during challenging times, we remain focused on helping our customers achieve their financial dreams, positively impacting our communities and serving each other. We enter 2021 with strong momentum, well positioned to seize opportunities, serve our customers, strengthen our franchise and enhance shareholder value. I would like to thank the entire Univest family for their efforts over the past year. Their commitment to having a growth mindset allowed us to adapt to unprecedented challenges presented by the pandemic and their commitment to our customers, communities and each other, resulted in a successful year at Univest. I could not be prouder of their efforts and to be a member of the Univest family with them. On behalf of the entire Univest family, I would like to thank all of you for your continued support, confidence and investment. Mr. Chairman, this concludes my formal remarks. At this time, I'm happy to take any questions.

There are no applicable questions in the queue.

Thank you, Brian. This concludes the Chairman's remarks. Thank you, Jeff. This concludes the scheduled agenda for the meeting. As there appears to be no further business, the 2021 Shareholder Meeting of Univest Financial Corporation is adjourned. Mr. Schweitzer, do you have any further comments.

First, I would just like to congratulate the directors on their reelection. We look forward to continuing to work together in the coming years. And finally, in connection with our one core value of tradition, I'd like to ask Charles Zimmerman to lead us in prayer.

[Presentation]

The annual meeting of Univest Financial Corporation shareholders has now come to an end. Thank you for attending. You may now disconnect.