Good morning and welcome to the Univest Financial Corporation First Quarter 2019 Earnings Conference Call [Operator instructions]. I would now like to turn the conference over to Jeffrey Schweitzer, President and CEO of Univest Financial Corporation. Please go ahead.

Thank you, Brandon and 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; Roger Deacon, our Chief Financial Officer; and Brian Richardson, Executive Vice President and Director of Finance. 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 could be found on our website at univest.net under the Investor Relations tab. We reported net income of $16.1 million during the first quarter or $0.55 per share, which is a 19.6% increase over the first quarter of 2018 when you exclude restructuring cost recorded in the first quarter of 2018. We are pleased with our results for the quarter as loans grew $61.3 million or 6.1% annualized and deposits grew $117.2 million or 12.1% annualized. The first quarter is historically a slower quarter for us, so we were pleased with the growth we experienced and have strong pipelines as we head into the second quarter. We continue to see solid loan demand due to market disruption and the strength of our local economy. In our non-banking lines of business, wealth management revenues, which includes our trust business, was essentially flat with the prior year as assets under management were impacted by the market downturn in the fourth quarter. We expect this line of business to rebound in the second quarter as the markets recovered during the first quarter. Insurance revenues increased 5.2% year-over-year due to strong contingent commission income and growth in commercial lines and group health and life premiums. Another exciting development during the first quarter was our lift out of a commercial banking team of 8 individuals including five relationship managers and business developers in the Western Lancaster County market into York County. This complements our existing Lancaster team and we're excited about the continued growth opportunities the new team brings to us in the expanded market. Additionally, we hired a three-person team in the South Jersey, Philadelphia market in April as we continue to expand our presence in the growing Greater Philadelphia marketplace. I will now throw it over to Roger for some additional discussion on our results.

Thank you, Jeff. And I would also like to thank everyone for joining us today. I'm going to discuss a couple of items from the earnings release. I'd like to start off by saying I think we had our third consecutive quarter of very solid earnings and loan growth. We report a $0.55 per fully diluted share for the quarter with no reportable unusual or non-recurring items. This translates to a return on average assets of 1.30%, return on equity of 10.3% and return on tangible equity of 14.4%. Our tangible book value per share has increased to $15.72 per share representing an 8.1% increase from the prior year. Yesterday's closing price also represented 1.58x tangible book value per share and we believe, given our current business and capital plan, that we can increase this by 8% to 10% per year. Additionally, we continue to pay a $0.20 per quarter dividend, which equates to an annualized yield of 3.2%. As relates to net interest margin, our core margin was 3.74%, up 3 basis points compared to 3.71% in the fourth quarter of 2018. As a reminder, last quarter included 3 basis point negative impact of excess liquidity. And this quarter includes a 2 basis point benefit associated with reduced funding costs due to less days in the quarter. Accordingly we believe our core net interest margin is relatively flat from the prior quarter. Given the Federal Reserve's pause in rate increases this quarter, similar to other asset sensitive financial institutions, we would anticipate the net interest margin expansion that we have experienced over the past 2.5 years will likely end this quarter as deposit costs are likely to rise slightly faster than loan yields. Second, the provision for loan losses was negatively impacted by one large shared National Credit loan,…

[Operator Instructions] Our first question comes from Frank Schiraldi with Sandler O'Neill.

It's actually Justin Crowley on for Frank this morning. So first on the downgraded snick in the quarter, are you able to give any color on geography and/or the industry? And then secondly, in that same vein, what is the size of the snick portfolio? Where does that stand today?

Yes, this is Roger, I'll answer that question. So it is in the energy business and geographically it's in our locale, it's within Pennsylvania, yes. And then total, we have about $62 million in snicks credits outstanding.

$62 million? Okay. And then I guess just more broadly, apart from the downgrade in the quarter, are you seeing any other deterioration in the broader book or what are you kind of seeing there?

Now overall we're very happy with credit performance. The previous quarter we had this snick downgrade and in this quarter we did as well. We believe there's this isolated instances and in both cases we don't believe we'll actually take losses on those loans. So we're very pleased with how we continue to move forward on the credit side.

And then secondly on expenses. So you increased your expense guidance for the year and then you had the two team lift out. So you guys anticipating continuing that strategy? Do you expect a lift out any other teams throughout the year or what are your thoughts there?

Generally speaking, if we can bring on additional talent, we will continue to do that. As we mentioned on several calls before, it's not always that easy to get these teams. So when we have the opportunity to do it, we will do it. Believe, it's a very difficult thing to forecast. And overall we want to speak on expand, Roger?

Yes. Well, I was just going down the path more of, I totally agree with what Mike said that you have to be opportunistic and for everyone to remember, we raised the capital back in the fourth quarter of 2017 with the intend of growing the business through hiring of lenders and that's really a good part of that strategy. You can't pick the moments and it just so happened that these opportunities happened this quarter and we took advantage of it.

Our next question comes from Michael Perito with KBW.

This is actually Jeff on for Mike. Thanks for taking our question. My first question is could you just provide a little more detail on the recent hire in Lancaster? Like what type of production you expect and overall how big you think that market can be?

Well, we continue to grow that market. The hires that came on, Jeff referenced that there was five RMs/BDs. So there is not a lot of overlap to the existing Lancaster team that was in place. I mean generally speaking, I would tell you that an RM in that market should be able to do $10 million to $15 million a year, but there is a ramp-up period of time that has to get taken into consideration and we go from there. In terms of the type of business they do, there is C&I and CRE. They do not do Ags like the existing group did. So it's a good complement and they focus more on the western part of the Lancaster County marketplace. So we think it's a good add. The team in South Jersey, there is actually more of a business banking team, so a little bit smaller on loan size, but we think that's also a great addition to what we have in place.

Could I also ask what the next steps are in Lehigh Valley for growth?

Yes, we continue to look at the Lehigh Valley.

Yes, we continue to look at the Lehigh Valley. We're going to -- we've been there obviously for about 10 years now. We think that's a market that, from our perspective, we have a underutilized market share there. So like we do in all of our other markets, if we can lift out a team, we would certainly do that. But otherwise, we will continue to hire people on a one-off basis.

And my last question, capital deployment, what are your plans there?

So really it's not much of a change from what we've talked about in the past, the overall plan. We don't really intend to increase our dividend until we get to peer level payout ratios. Longer term we don't intend to do buybacks. What our plan is, is to come next March redeem a portion of the sub-debt that we have that converts from -- I think its five-year mark and converts from a fixed to a floating rate. So that's our number one goal as it relates to capital is the redemption of the sub-debt first.

[Operator Instructions] Our next question comes from Matthew Breese with Piper Jaffray. Please go ahead.

Just kind of doing a rough back-of-the-envelope math on the new hires, so the 5 RMs plus the 3 folks down in South Jersey. If we kind of split the difference and call it $12 million each, is that roughly $100 million annual benefit, the loan growth? Is that a good way to think about it?

I'm just going to caution you a little bit, Matt, in terms of if you're trying to apply that to the current year. But overall, yes. Now remember, we had some trade-offs up and down in terms of the overall staffing method. But those folks, if they were to hit those levels, I would tell you, the Lancaster folks will -- are what I said was traditional kind of CRE and C&I, the folks in South Jersey are more of a business banking team, so their loan sizes are going to be a little bit smaller, but at least for 2019 factor and the ramp up period.

Yes, completely agree. But let's just call by 2020 once they're fully ramped up, it's about a $100 million benefit.

$75 million to $100 million, that would -- yes.

And then, Roger, you did note that with the Fed on pause, it might be the end of core NIM expansion. Could you quantify a little bit what you think the downside potential is on a quarterly basis or if it's more of a stability in the core NIM.

So here is how I'm thinking about it. And again I'm going back to say that if you think the 2 basis point benefit, just a shorter number of cost of fund days this quarter, we really got it at 3.72%. I think we could decline this quarter on the max size 3 to 5 basis points, and that assumes there is no reduction in price pressure on deposits. So in our market, we have yet to see that. I know in other markets, there has been, with the Fed pause, a little bit of a pricing pressure -- reduction of price pressure. So if we do get that reduction, maybe it's not that significant. But when I look at the next quarter, that's where it could lay in if I don't catch a break on the pricing. And then after that, the markets are going to take it over and I don't think that that would slow after that. But it's still you have it very -- and that's going to be a little bit of a challenge going forward.

I hope you don't mind, I have a couple of other questions on Cecil.

We were anticipating that. Go ahead.

Well, at this point do you have an idea where the true-up reserve could go? What the We were anticipating that. Go ahead.

Well, at this point do you have an idea where the true-up reserve could go? What the impacts could be day one?

We do not.

Let me try it a couple of different ways here. As you've gone through the process of determining what the true-up reserve could be, could you give us an idea of the change in methodology? How much of the allowance today is driven by quality factors and in a pro forma Cecil world, what do you expect the quantitative portion to be?

So today quantitatively its 25% to 30%, is quantitative, the rest is qualitative. And we don't have an answer on the second part of your question yet.

Do you expect any reason for heavily quantitative?

We don't honestly know, Matt. We're just not -- we're not there yet and we just haven't gotten that far down the path.

Okay. And as you are going through the process of looking at historical losses, I'm just curious, how far back do you have to look to get a good data set of historical losses?

Brian, you can answer that.

We're going back six years on our own data and looking at peer data for an extended period of time including ourselves.

So six years on your own and then is there an additional timeframe beyond that or is 6 years sufficient?

And additional time period beyond that.

And what is that additional time period?

Three to four years.

So I'm just curious just thinking about this. At the time of implementation, we will have seen the worst years of the crisis basically rolling off the historical look back, is that accurate?

Yes.

Yes, correct.

And then just looking at your current reserve, I mean just summing it up, it looks like it's five, maybe six years of historical charge-offs. As you think about whether or not that's going up or down, is it more likely than not that you could see reserves flat to down given how much of historical charge-offs you already have in there?

This is Roger. I would just say, Matt, gosh, that would not make any sense and that's all I would say. I don't understand at all how. And maybe we're missing it, we're not there yet. I don't understand how you could go from an incurred loss model to a projected loss model and actually have a decline. It just doesn't make sense. But again we'll work through it, but I don't see that happening.

[Operator instructions] At this time there're no further questions. I'd like to turn the conference back over to Jeffrey Schweitzer for any closing remarks.

Thanks, Brendon. Thank you to everybody for listening in today. For those of you who followed us for the last three years, this is Roger's last conference call. He announced his retirement on June 30, and we're excited for him as he enters his next phase of life and I just want to personally thank him for everything he has done for us over the last three years since he joined us from Fox Chase and we wish him nothing but the best, and I'm sure all of you do too. Brian will be taking over the CFO duties come July 1 and we're very excited about him as he enters his next phase of his career also. So thank you again. We are excited about the quarter and we look forward to talking to everybody again at the end of the second quarter. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.