Good morning, everyone and welcome to the Univest Corporation of Pennsylvania's Fourth Quarter 2016 and Yearend Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note that this event is being recorded. I would now like to turn the conference over to Jeff Schweitzer, President and CEO. Please go ahead.

Thank you, Warren. Good morning and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Keim, President of Univest Bank and Trust; and Roger Deacon, our Chief Financial Officer. 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. 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 $6.9 million during the fourth quarter, which is after the impact of certain one-time items, which Roger will detail in a minute. We expected that this quarter, will continue to have certain one-time items as we work through the acquisition of Fox Chase and other strategic initiatives and work towards our goal of having a clean 2017. The highlight of the quarter was continued strong loan growth of $96 million or 12% annualized, combined with solid deposit growth of $79 million or 10% annualized. We continue to see opportunities to take market share in our core historical markets, combined with our new expansion market in Lancaster County. Additionally, we opened our first financial center in the Lehigh Valley during the fourth quarter. While we entered the Lehigh Valley market back in 2008 with a loan production office and have expanded our services in the year since, we had no retail presence until now. This opening was offset by the planned closure of three legacy Univest financial centers on November 1. Before we get to questions, I would now like to ask Roger to spend a few minutes going through the financials and the one-time items we recorded in the fourth quarter to help provide some clarity into our financials. Roger?

Thank you, Jeff and I would also like to thank everyone for participating on today's call. The goal of my remarks is to provide additional clarity to our fourth quarter earnings without totally repeating the earnings release. First, I want to discuss net interest margin. Our net interest income for the quarter was $34.2 million or a reported net interest margin of 3.81%. Included in these numbers is $1.8 million or 20 basis points of purchase accounting accretion. During the quarter, we recognized approximately $700,000 or eight basis points of favorable purchase accounting accretion related to the exiting of three purchased credit impaired loans, which totaled $7.1 million. Our total purchase credit impaired loans were reduced from $14.6 million at September 30 to $7.4 million at December 31. This should reduce future credit risk. Our adjusted net interest margin after our purchase accounting adjustments is 3.61%, which is the same as the third quarter. For planning purposes, we are assuming purchase accounting accretion will approximate six basis points per quarter filling through 2017 although as everyone knows, this estimate can be volatile. Additionally, our loan growth was primarily in December. Thus, our end of period loan balances of $3.268 billion is $60 million higher than our average loan balances for the fourth quarter, which will help our net interest income in the first quarter of 2017. As it relates to noninterest income, nonrecurring income included a $450,000 associated with the proceeds from BOLI death benefits. This item is offset by approximate $236,000 of REO valuation adjustments, which is a negative to our other income. Finally, as it relates to noninterest expense, as Jeff mentioned, our goal for 2016 was to position the company for a clean 2017. At the current time, we do not anticipate any significant acquisition, integration and…

Yes Sir. We'll now begin the question-and-answer session. [Operator instructions] And the first question today comes from Michael Perito with KBW. Please go ahead.

Hey guys. I guess I was close enough. Quick question on the margin Roger, the corn name was flat quarter-over-quarter. I think last quarter you guys said you expected maybe a few basis points benefit from a 25 basis point hike in interest rates in fed funds rather. Was there any benefit in that -- material benefit in that 3.61 already in the fourth quarter or is there going to be or maybe a little more meaningful benefit in the first quarter and I guess any more high-level kind of core NIM outlook commentary for 2017 and maybe what you guys are expecting in terms of additional rate hikes?

We'll I'll answer the question first as if there were no rate hike. We did see a tiny bit of benefit, which helped keep the core NIM at 3.61. There's no rate hike I would -- as I said consistently, I would anticipate a couple basis point decline per quarter in the NIM going forward. The rate hike, we have calculated a benefit of a 25 basis point hike to be -- and this is a range anywhere from $1 million to $2 million for the year. And the reason I provide the range, it really depends on what happens with deposit pricing and really the competition around deposit pricing and whether we have to move off of the fairly low rates that we're paying at the current time.

And so in terms of the kind of 1Q margin from the 25 basis point hike that we had already, is there any additional benefit that's going to come in, in the first quarter?

There's a little bit, but it's not really that material.

Okay. And then maybe on the noninterest income side, as I look out into the first half of next year, obviously in the first quarter, you guys typically have a pretty strong insurance production, any other comments I guess as we kind of think about what's the realistic noninterest income growth range given kind of all the newer locations you have, which I am guessing are kind of underserved relative to the legacy Univest markets in terms like wealth and trust etcetera?

We would target and I think we communicated this before, a mid-single-digit growth rate in our noninterest income, you're right about the insurance. In the first quarter, we will have a seasonal benefit. Last year it was a little bit more than $1 million filling our numbers and we'll see that something like that in the first quarter again. But on a longer-term run rate more of that 5% to 7% are a mid-single-digit number is what we'll be targeting.

Okay. And maybe just one last question from Mike no longer a push strong in the quarter, do you know what the contribution was from kind of the new Lancaster team that you guys brought on.

Good morning, Mike. Roger can give you that specifically. I will tell you that the Lancaster outstanding portfolio as of today approximates $85 million. So, we continue to see that strong growth.

The growth in the fourth quarter for Lancaster was $40 million.

Okay. And as you guys look at the production I guess from the first month to the first quarter on kind of where the pipelines are, is there going to be any kind of at least as we move into the early part 2017 here? Is there any choppiness in loan growth that you can see that's worth noting or do you think it's going to be relatively consistent given where the pipelines are today?

Mike, the pipelines remained strong and we remain committed to the 10% to 12% loan growth we've talked about in the previous couple calls. Will the first quarter maybe be slightly lower than that, that's possible, but I basically think we look to be consistent, more consistent than we have been just because of the ad of the Lancaster Group in the form of Fox Chase team throughout quarters than we were previously.

Okay. Great. Thanks guys. I appreciate it.

Thanks Mike.

[Operator instructions] The next questionnaire today is Matthew Breese with Piper Jaffray. Please go ahead.

Hey, good morning, everybody.

Hey Matt.

I appreciate the color on the expense side in getting to $32.5 million next quarter. I am just curious once we get there, what's the growth rate you expect on top of that? What the organic growth rate and then considering the merger with Fox Chase, is there anything left in terms of cost saves there from potential branch closures? What are your thoughts on that going forward?

Well, we all have additional cost in '17. There's probably about based on leased property we had at Fox Chase, that will be part of my occupancy reduction is about 75,000 from the fourth quarter, but as it relates to Fox Chase expenses specifically remember, we're also adding branches. So, we're kind of at net, net, across the Board from there.

Okay. And then just from organically speaking, what's a good growth rate to apply to that $32.5 million run rate?

We're really targeting that number for the year 2017 Matt. After that, I would say we probably -- we haven’t spent a lot of time on this, but we'll be targeting about 4% to 5% probably number. Obviously, the model is built around, you grow your revenues at higher single-digit type numbers and your expenses in that middle type number and you get the operating leverage. Obviously, that will be contingent on if we did any wealth or insurance deals or the like, but that's how I'm thinking about the model going forward out in '18.

Okay. And then the provision was a bit higher than I expected this quarter, but non-performing assets looked relatively flat in terms of percentage to assets, could you walk me through the components that got you to that provision and is that a good run rate going for the $2 million to $2.5 million given the pace of group?

No Matt. I would say we think the run rate would be $1.5 million to the $1.8 million type number. We leaned into it fourth quarter and a little bit of that leaning into quite frankly is we had this benefit in the margin and that benefit related to exiting the purchase accounting loans of $700,000, that's really a credit benefit. It's not really a NIM benefit, but it's just how the accounting [mid] should do it and so if you offset that $2 million, $3 million with the $7 million, you're in the [1.6%] range.

Got it. Okay. That's really helpful. And then deposit growth is really strong this quarter. What's your outlook for deposit growth and how are you thinking about the loan-to-deposit ratio over the next 12 months?

So, we are anticipating that our loan-to-deposit growth ratio will increase. We've targeted obviously as Mike said, this 10% to 12% loan growth and from a planning perspective we're probably looking at 6% to 8% deposit growth. So, there will be an increase in that loan-to-deposit ratio. I think I've said this before, we will monitor the loan growth and be more aggressive on deposits following that loan growth. We won't leave the deposit growth and we want to target and stay within that 100 to 105 number.

Longer-term, we're very focused on our cash management businesses to continue to grow out that line of business as both that complement to our loan business, but also a way to drive new customers into the institution and that is how we'll close the gap on our longer-term growth on the loans versus deposits.

Okay. Okay. So, a bit of a bell curve shape in terms of the loan-to-deposit ratio long-term?

Correct.

Okay. And then last one, you mentioned potential wealth managed acquisitions, how is -- how have discussions on that front progressed pre-and-post the election? There seems to be some renewed optimism regarding the economy. Has that changed the acquisition land scape at all?

We always are working a pipeline of acquisitions in both the wealth management and the insurance lines of business. I wouldn't say that there's been any tick-up in activity since the election. We're obviously very focused on growing both businesses organically and then supplementing them with potential acquisitions as they come along. But we're always going to be working our pipeline, but I wouldn't say there has been anything that's really changed in the last two to three months.

Understood. Okay. Thanks guys. That's all I had.

Thank you, Matt.

Thanks Matt.

[Operator instructions] It looks like we have no further questioners. So, this will conclude our question-and-answer session. I would like to turn the conference back over to Jeff Schweitzer for any closing remarks.

Thanks a lot to everyone for joining us today and we look forward to talking to you again after first quarter earnings are released in mid-to-late April. Thanks and have a great day.

The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.