Good morning all, and thank you for joining us for Univest Financial Corporation's Second Quarter 2025 Earnings Call. My name is Carly, and I'll be coordinating the call today. I'd now like to hand over to our host, Jeff Schweitzer, to begin. The floor is yours.

Thank you, Carly, 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 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 million during the second quarter or $0.69 per share. While loan outstandings contracted by $31.9 million during the quarter, production has remained solid through the first 6 months of the year. However, we continue to be impacted by early payoffs and paydowns. Overall, year-to-date commercial loan production through June 30 was $507 million compared to $402 million in the prior year. However, this has resulted in a contraction in loan outstandings year-to-date of $25.4 million compared to growth of $117.6 million in the prior year. While deposits decreased by $75.8 million during the quarter, this was predominantly due to the seasonal decline of public funds deposits and a decline in broker deposits. Excluding these declines, deposits increased by $77.5 million during the quarter. During the quarter, we recorded $7.8 million of net charge-offs predominantly related to one credit, which accounted for $7.3 million of the charge-offs. The remaining balance of this relationship of $16.4 million has been placed on nonaccrual and is supported by the appraised value of the real estate collateral. As this is still an active situation where fraud is suspected, we will have no further comments at this time. Absent this one relationship, credit quality continues to remain strong. Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities, and each other. I'll now turn it over to Brian for further discussion on our results.

Thank you, Jeff. I would also like to thank everyone for joining us today. I would like to start by highlighting a few items from the earnings release. First, during the quarter, reported NIM of 3.2% increased by 11 basis points from 3.09% in the prior quarter due to increased yields on assets and a reduction in our cost of funds. Core NIM of 3.24%, which excludes the impact of excess liquidity, expanded by 12 basis points compared to the first quarter. We expect core NIM to contract by a few basis points in the third quarter due to the repricing of our 2020 subordinated debt issuance and the seasonal build of higher cost public funds. However, we expect NII to be relatively in line with the second quarter. Second, noninterest income increased by $521,000 or 2.5% compared to the second quarter of 2024. This was primarily driven by increases in investment management fees, gains on the sale of SBA loans, and treasury management fees, partially offset by a decrease in net gains on mortgage banking due to an elevated interest rate environment and competition. Third, noninterest expense increased by $1.6 million or 3.3% compared to the second quarter of 2024. The increase was primarily driven by compensation costs, specifically annual merit increases, medical costs, and variable incentives. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update to our 2025 guidance. First, for the full year, we expect loan growth of approximately 1% to 3%, and we expect net interest income growth of 10% to 12% compared to 2024. Second, our provision for credit loss guidance remains unchanged at $12 million to $14 million for 2025. However, the provision will continue to be event-driven, including loan growth, changes in economic-related assumptions, and the credit performance of the portfolio, including specific credits. Third, 2024 noninterest income totaled $84.5 million when excluding the $3.5 million gain on the sale of MSRs and $245,000 of BOLI death benefits. For 2025, we expect noninterest income growth of approximately 1% to 3% off the $84.5 million base. Fourth, we reported noninterest expense of $198 million for 2024. For 2025, we expect growth of approximately 2% to 4%. Lastly, as it relates to income taxes, our guidance remains unchanged at 20% to 20.5% based on current statutory rates. The aggregate impact of these guidance updates when compared to our most recent guidance is accretive to both EPS and PPNR. That concludes my prepared remarks. We will be happy to answer any questions. Carly, would you please begin the question-and-answer session?

Our first question comes from Tim Switzer from KBW.

I apologize, you broke up a little bit on my end on some of the guidance numbers. Could you give me your update for loan growth and expenses?

Sure. Loan growth is 1% to 3% and corresponding net interest income growth is 10% to 12% and then expenses is 2% to 4%.

Okay. Great. I guess could you maybe talk about some of the changes there? It looks like both those numbers are down a little bit. Could you just talk about what you're seeing from the loan environment? Is demand kind of faltering a little bit? Or is it more about competition?

Loan activity and loan origination remains strong and is in line with the previous year. However, we were significantly affected by payoff activity in the first half of the year. We expect prepayment activity to slow down in the second half and anticipate maintaining our production levels, which should lead to growth. On the expense side, we continue to benefit from our careful expense management. While some variable expenses, like medical costs, are not fully controllable, over the first six months of the year, this has led us to lower our expense growth forecast from 4% to 5% down to 2% to 4%.

Got you. Okay. And you guys are sitting with very healthy capital levels. You haven't seemed all that determined to execute any M&A deals. You guys are doing a little bit of share repurchases, but with the share price coming up, it's going to be a longer earnback. Can you kind of talk about what your strategy is going to be to efficiently deploy that capital and whether you're going to return it to shareholders or find some opportunities to reinvest into the business?

Yes, we will continue to actively pursue share buybacks. Despite the increase in our share price, the payback period has extended but remains within a 2- to 3-year range as we move forward. We believe share buybacks are a good use of our capital. Although mergers and acquisitions are not an immediate focus for us, we are always keeping an eye out for opportunities. Currently, there isn't anything particularly enticing. We are also monitoring options in the insurance and wealth management sectors. While we are not against M&A, our interest leans more toward nonbank opportunities at this time. In the absence of suitable options, we will maintain our share buyback initiatives.

Okay. And I'm curious what you guys are hearing or seeing in terms of deposit competition out there. There's been some reports from some competitors that it's starting to step up a little bit. And with the Fed not lowering rates this year so far, it sounds like a lot of the deposit repricing has kind of already run through.

No, I would say that that's consistent with what we see, especially on the consumer side with money market rates and CD rates. So yes, it is a tough environment out there. People continue to fight for the deposit and generate the liquidity necessary to support their growth. So we've identified certain things, certain campaigns and certain niches that we continue to push forward with. And we look forward to continue to grow our deposits as the year moves forward. As you well know or most people know as they follow us, the third quarter will be a peak quarter for us on public funds. So that would be expected, and we will continue to manage through. But no, it is a tough environment from a competitive perspective.

Could you discuss your outlook for the NIM trajectory over the next few quarters? You mentioned that public funds will be seasonally higher next quarter, which affects it somewhat. Additionally, what impact do you anticipate from one or two rate cuts in the latter half of the year?

Sure, Tim. As I guided for the third quarter, we anticipate a decrease in both reported NIM and core NIM, with core NIM expected to decline slightly due to the repricing of our subordinated debt issuance and higher costs from public funds. Following this period, we expect NIM to remain flat or increase slightly, provided that interest rates remain stable over the next few quarters. If there are one or two rate cuts, we do not expect them to have a significant long-term impact. There may be fluctuations within individual quarters based on the timing of asset and liability repricing, but once these adjustments play out, we don't expect them to have a major effect due to our relative neutrality from an Asset-Liability Management perspective.

Our next question comes from Tyler Cacciator from Stephens.

This is Tyler on for Matt Breese. I just wanted to start, last week, Senator Dave McCormick held an Energy and Innovation Summit in Pittsburgh, outlining a number of projects totaling around $90 billion in data centers, energy and power infrastructure and some other projects, some of which are expected in Eastern Pennsylvania. Just curious on if you've heard anything on these projects and if you think there could be some positive benefit in your footprint?

I mean any time that there's investment in our state, we're obviously very supportive of that and excited to see the money flowing into Pennsylvania. We'll benefit more from our customers being able to participate in any projects that are being built out. We have a very diversified customer base, a lot of which are in electrical contracting and construction and things of that nature that could potentially benefit from this. I think it's a little early stages right now as far as that we've heard any significant chatter from our customers in market, but I know that everybody is excited, obviously, to see the investment made in Pennsylvania.

And I would just add, wouldn't just be Eastern Pennsylvania for us. We're obviously active in Central Pennsylvania, and we have a presence in Western Pennsylvania. So to Jeff's point, we'd be certainly pleased to participate across our footprint.

All right. And then I just had one more. I know you talked about the pipeline a little bit. I was just wondering how yields are holding up. I know you cited some increased competition. But in terms of spread compression, how much are you seeing there?

We really haven't. New loan yields on the commercial side, especially have been relatively stable for the last quarter or two. And again, as we said, production remained strong, just the lack of loan growth is really driven by the payoff headwinds.

Okay. Great. So do you think without any rate cuts, this pace of loan yield expansion is repeatable?

Not repeat. I think that will definitely start to slow down from an expansion perspective because we have the repricing of the book occurs, of course, as that base gets higher, just on a notional basis, that expansion will start to slow down even if you can remain with consistent production volume. So I think it would slow down a little bit and things remain competitive for sure, but nothing that would suggest at this point that it's going to start pulling back in any way.

We currently have no further questions. So I'd just like to hand back to Jeff Schweitzer for any further remarks.

I'd just like to thank everyone for participating today. I hope you're having a great summer, and we look forward to talking to everybody after the end of the third quarter.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.