Q4 2019 Earnings Call
Eddie weighted average price of
$20.77
that repurchase plan expired in December and our board approved a new repurchase plan of up to six hundred seventy two thousand shares in for 2020 took it back to our financial results are full year diluted earnings per share increased $0.16 compared to our adjusted 2018 results, which is an 8.6% increase our fourth quarter results compared to adjusted 2018 earnings showed a slight decline in the fourth quarter of 2019 are diluted earnings per share was $0.47, which is a decline a three point eight percent, but that is primarily due to a December 2018 accrual adjustment. We made to our wealth management income.
Our return on average assets was 1.37% for the quarter and 1.51% Year-to-date while our return on average Equity was 9.44% off quarter and 10.64% year today the increase in our core earnings continues to be driven by our Strong net interest income in what has been an interesting interest rate environment net interest income increased $477,000 for the fourth quarter and $19 for the year interest income increased $814,000 for the fourth quarter and twenty four point four million dollars for the year.
our average
Assets increased 162.2 million for the fourth quarter and 429.7 million dollars for the year the volatility in the interest rate environment wage scale on our average yields for the fourth quarter are average yield decreased 3.6% while for the year our average yield increased 5.5% off our interest expense increased $337,000 for the fourth quarter and five point four million dollars for the year. These increases were due to both increased back this and a higher higher cost of funding during the first half of 2019 funding costs Rose to catch up with the increases the fed put in place during 2018 deposit costs have not decreased as quickly as the FED moved in the last half of 2019 net interest income grew by 3.9% off.
linked order in 28
.7% year-over-year our net interest margin remains strong at 4.18% for the quarter and 4.31% for the year compared to 4.38% off and 4.21% in 2018 included in our 2019. Margin are 14 basis points of accretion in the fourth quarter in 15 points of accretion for the year compared to $22 and 6 basis points for the same periods in 2018.
All of the comparisons that I make to 2018 include the adjusted earnings for both the fourth quarter and year-to-date. The non-gaap tables on our earnings release may have the full details of our adjusted earnings. We were successful in increasing our non-interest income in 2019 during the quarter non-interest income increased $762,000 or 15.7% in comparison to the fourth quarter of 2018 and increased three point nine million or 21% for the year Prime due to the acquisition of you during the third quarter of 2018 for both periods. We have seen an uptick in service charges and interchange fees from the addition of usage.
keen on sale of loans in
Increase $620,000 for the quarter in one point 1 million dollars for the year on Strong Mortgage activity during the quarter civista originated in sold $40,000 of mortgage loans compared to twenty one point four million dollars in 2018. Year-to-date our mortgage loans sold total of 125.8 million dollars compared to seventy nine point five million dollars in 2018. The decline in wealth management fees during the quarter is attributable to a $245,000 accrual adjustment made during the fourth quarter of 2018. We continue to view wealth management as an opportunity to grow non-interest income and look forward to expanding these services off our new markets.
Controlling not interest expense continues to be a priority after adjusting for $782,000 of acquisition expenses incurred during the fourth quarter of 2018 and twelve point seven million dollars incurred during the entirety of 2018 non-interest expense increased nine point seven million dollars for the quarter and 24.1% year-over-year a similar adjustment is necessary to draw a meaningful comparison of compensation expense which included $172,000 and 5.2 million dollars of acquisition-related expense adjusted compensation expense increased $601,000 for the quarter in 7.1 million dollars for the year off. This was attributable to an increase in ftes and normal pay raises our FTE count increased by $75 to $445 compared to to Thursday.
2018 it was
primarily attributable to the UCB acquisition
the increase in net occupancy and Equipment again is primarily due to the addition of eight branches in a Loan Production Office in the transaction and the opening of our new Beachwood Ohio branch conversely. The decrease in data processing expense was primarily due to conversion related expenses of $260,000 for the quarter and five or half million dollars for the year related to the transaction in 2018 Professional Services also decreased due to $139,000 and 1.6 million months of expenses associated with the transaction included in the fourth quarter and year-to-date during 2018.
Our efficiency ratio was 61.4% for the year compared to our adjusted efficiency ratio of 62.9% in 2018 month given our business model of operating as a Community Bank in rural communities and is a more Boutique Commercial Bank and urban markets. We think of ourselves as a low sixties and see ratio.
Continue to be pleased with Loan Production across our footprint our loan portfolio grew 147 million dollars or 9.4% for the year and 14 + 5% annualized for the quarter while the majority of the growth came in both older and non-owner-occupied Commercial Real Estate. We had strong growth in virtually every category home and across our footprint. We anticipate growing our loan portfolio at a mid-single-digit rate for 2020.
On the funding side are deposits increased 98.9 million dollars or 6.3% during the year with ninety point seven million dollars of that growth coming and core deposit accounts. We are particularly pleased that seventy three point five million dollars of this growth was in business and Municipal operating accounts. We added to treasury Bankers to a staff early in 2019 and are beginning to see lift and deposit growth from new and existing business customers across our footprint.
on the whole
For funding side fhlb advances increase 32.9 million to 226.5 million at your end. I am sure many of you are wondering of impact Cecil will have on our bank. We were for it fortunate to meet the guidelines for the delayed implementation of Cecil and will not be required to adopt it until 2023.
Well asset quality remains strong the growth in our loan portfolio. Let us to record an $885,000 provision during the fourth quarter and 1 million dollars for the box or asset quality metrics continue to be solid. Our non-performing loans were 9.1 million representing 309% of total assets at year-end wage compared to 9.9 million in 2018. The ratio of our allowance for loan losses two loans was .86% at December 31st, 2019 compared to .88% at December 31st, 2018. Our coverage of non-performing loans increased to 161.95% at December 31st, 2019 from 137.87% at the end of 2018.
as we look
Back on 2019. It was another very busy and extremely successful year for civista in a challenging interest rate environment. We managed to organically grow our own portfolio by 9.4% We were also able to fund a large portion of that loan growth with core deposit funding which grew at 6.3% and we were able to do that while maintaining our margin at 4.31% We are pleased with a record year fueled by solid core earnings. We are confident are disciplined approach to managing civista and our long-term focus on driving shareholder value will continue yielding positive results looking forward into 2020 while the lending environment is competitive. We are confident that our continued focus on relationships will allow civista to grow both loans and deposits without relaxing our standards dead.
thank you for your attention to
Good afternoon, and now we will be happy to address any questions you may have.
Thank you. We will now begin the question-and-answer session to ask a question. You may press the one on your touchtone phone. If you're using the speaker phone. We asked you please pick up your handset before pressing the key to recharge your question, please press Start into today's first question comes from Michael Prieto. Okay, BW, please go ahead. Hey, good afternoon. Everybody else. Happy, New York.
Thanks for taking my questions. I wanted to start on the low growth Outlook, you know, the the mid single-digit Outlook does seem a little conservative based on kind of the acceleration of the course of the year at low growth and I'm curious if that's a function of the the kind of the setup with the funding of the balance. See now with the loaner deposit ratio stepping up, you know towards a hundred percent right at 100% or so off over the course of the year. And now you guys are the position where you want to fund kind of loans dollar-for-dollar with deposit growth going forward and that kind of limits you a little bit onto the net growth you can show or or the other, you know factors that kind of lead you to maintaining that mid single-digit guidance for for next year after the strong end to to 2019. Yeah, Mike I I would say we're in that mid mid to single-digit range just took in perspective or kind of leary. What are the economy exactly going to go here in 2020 with it being an election year, you know, I'd say that. Midday I would call at mid to high single-digit, you know assumption is probably the right to something off.
We did come into the year with.
Pretty healthy pipeline. We came into the year with with a a nice construction portfolio still available to be drawn. So, you know, we feel good about where we're at. We're just south of apprehensive about where the economy is going to go in the back half of the year and we can we can continue like I think to be selective in in the loan. So we want to make sure we're getting the pricing and in the structure of loans. So I think that's why you know given what Chuck said and and being a little bit selective is why we've targeted kind of that mid-single-digit loan growth
Okay, that's helpful. Thank you guys and the deposit side, you know, can you talk a little bit more about the the cost of some of the growth that that you guys are seeing and how you expect that to tread into twenty-twenty here. Do you think there's room for funding costs to move down if you're growing it at a mid-single-digit peso or do you think it might be you know move a little slower downward if you guys are growing the overall portfolio based on kind of the market pricing dynamics that you see today?
Mike this is
I mean our funding costs have always been among the lowest in the peer group as there's not a whole lot room for me to come down. They didn't come down at one basis point length quarter-page. That's where the compression our margin comes from. I mean again, I think that the treasury folks that we hired early in the year are ability to attract business deposits. That's where the positive growth for the whole Parts going to come from. Okay. We're seeing some pretty good momentum toward the end of the year.
And we continue to try to build out that treasury platform Mike. I mean, it's our goal to continue to try to bring in as as many low-cost slash, you know a core deposit as we possibly have been a tremendous success in nineteen and I I think we we have that momentum that's going to carry over into twenty-twenty. I mean that is a huge emphasis for us because we think we can continue to Garner a little bit more of that relationship from some of those commercial clients.
Helpful, thank you. And then one more just on Capitol. I'm wondering Dennis to see the kind of the conservatism on the economic Outlook. Does that carry into a g m a appetite as well as we think about your Capital plans for this year and and I just left over to start you out of a couple of follow-ups, but does that impact your you know your willingness I guess to purchase to m&a given a conservative economic kind of thought you guys are having for the back half the 20/20. No. No, I actually think the the interest rate environment is going to put a little bit of pressure on these net interest margins for some of these smaller Banks. So if anything I think that environment is going to you know, hopefully fuel some activity there. There's not been a ton in Ohio. Other than the the the first Defiance and Home Savings deal. So, you know, I I think that that's you know, the the Dead.
outlook for the economy and and with the interest rate environment School
Going to you know going to help that per se so and you know, we we I think you'll being pretty well levered up. We want to try to find a bank that has you know, ideally would have a lower loan-to-deposit ratio than us so that we can continue to put those funds to to work.
Okay, and and actually I'm going to Pivot a little back to my loan real question cuz you remind me of a question. I want to ask I forgot the also the is there room. What kind of assumptions are you guys make sure if if any around the first Defiance United Community merger? I know it's just clothes and conversion hasn't happened yet. So it might still be some time for for a bunch of moving pieces to play out and I know both franchises more very often, but do you think in this kind of the northern half of the state? They'll be opportunities from from any disruption or or how are you guys doing that and and is that factored in at all kind of to your loan growth budgeting for 4020? We we really haven't fact make a truck. We really haven't factored really any of that disruption into our loan growth assumptions. We haven't seen a lot of it yet quite frankly. I I guess I'm looking at it more. So from a fan perspective, I think they'll probably be a little bit more competitive a little bit less competitive just because it could have a little bit more sheer size. I don't know yet if there's we haven't seen any yet as far off.
Many employees being let go.
That would be you know somebody that we would like to Target in addition to bring in and and help generate loans from their portfolio that hasn't taken place yet, but we'll probably know more at our next call next quarter.
Okay. Well, thank you guys for taking my questions as always. I appreciate it. Thanks. Mike Chandler, please. Go ahead.
Yeah your lines over, Michigan Charlie.
I'm sorry about that. Good afternoon. Gentlemen, with the tax business coming into focus in the first quarter. Can you help us think through your expectations? It's similar to Prior years. Yeah, although I'll tell you that we're going to it's going to be a little less. I think in the last pass several years. I think the total revenue that we are going to have a 2.7 million this year. We expect a steady 2.4 million with about one point nine million that happened and then the first quarter but it's not materially different and I think in terms of the the funds flowing through be pretty similar but it is going to be a little bit less than what we've had the last two or three years.
Okay, that's great. And did you happen to extend your
Mid to the Future years or is that we did happen to do that. And it seems we always we did that in December. We had it a year and the years of still three seasons.
Okay, that's great. And then just building on the loan growth outlook here. As far as segments are concerned. Are you expecting a similar Trends with commercial real estate leading the way or is the focus on greater diversification in twenty-twenty? I think my kids truck. You know, I think we'll keep it. Hopefully at the same kind of trajectory with commercial commercial real estate, you know, our goal is to help augment or I guess keep that at the same growth pay for maybe grower C&I a little bit quicker as far as from a trajectory perspective, you know, we did hire to run retail and I I would like to see us do a little more consumer lending to hear zoning in the 2020s compared to what we've done in the past. So but I would tell you I I wage and remodeling I would think the first real estate will still lead the way as far as from a from a total by in perspective.
That's great color. Thanks for taking my questions, please. Go ahead.
Hey guys.
How are you? Good? Good. Hey, most of my questions are answered appreciate the color, but maybe just thinking about the expense base, you know obviously was up a little bit odd, but you know not all that surprising given the strong production and and mortgage and Loans, but how can how do we kind of think about the expenses going forward I guess in in kind of conjunction with the mid-single-digit loan growth outlook for 2020. Thanks.
Richie wanted to tackle that I mean, I think the the you're right on in terms of growth in the commission expense because of the increased loan demand. I think what we're looking at in the the first quarter for next year is again, we've got the increase in the payroll taxes the bank a piece of it. I guess it's the fact that people do to suit a piece of any way that first name is bigger and then health insurance and and I don't know if you've been on the calls before but we always kind of more self-assured and so we take and expects what the underwriters tell us that we ought to what we should expect but I would tell you that more years than not as the year progresses we end up kind of reducing that expenses. We see the the average expense coming through so to say it's front end loaded is probably not the wrong way to look at it. I think we're looking at a run-rate remember it's not the right term, but from the first quarter dead.
I think and I got the number here in front of me and I
What do we say that was going to be the first quarter? Let me flip one page. I've got 17.6 million is way too expensive for the first quarter.
Yep. Yep, 17.6
and then maybe just one follow-up on the on the tax business. Was there something specific that that drove the kind of the the difference between nineteen and and the expectation for twenty. I guess a couple of weeks passed the Hub testing just curious if there's anything in your seeing in the market.
No, there's nothing that we're seeing in the market. It's just I think again our partner tpg who is owned by Green. They've got their own bank and it was just kind of a load shift. I think that's part of one of the bigger producers. They shipped a little bit more of that business to them and we got a little bit more of the kind of smaller RT original. So just kind of a loaner shift. I suppose the best way to look at it.
Okay, great. Thanks.
Appreciate it.
I don't know question today comes from Scott very I've been in scattered Hood, please. Go ahead.
Hey, good afternoon, guys. Hi Scott afternoon. I just wanted to kind of touch on you know, a few things first off on the loan yields. I'm kind of looking at you know, where New loans are coming on. And you know, I I obviously can respect that. This is dependent on mix and product type but you know looking at the yield on the portfolio page today and we're new yields are coming on. Do you have any thoughts on kind of the directional, you know trim line you expect for you know, the overall loan yields in the portfolio. It's jumping out the accretion. My message says that you know, you were down about fifteen basis points or so this quarter.
That's correct. Yeah, and and you know loan yields have definitely Fallen back in the fourth quarter. And and if if stabilize the touch as we started new origination and Twenty Eight twenty, but we still feel that there's there's going to be some downward pressure looking forward. I don't know that I've got a great number for you today Scott, but we're definitely you probably off a few ticks from from from where we were last year. Yeah. The fourth quarter would have had the full impact of the three interest rate reductions. So, you know, even though you know, some of them happen mid-year and and some of them later in that third-quarter the fourth quarter had the full impact wage, which I think impacted that fifteen basis points that you saw so, you know that that but the loans are definitely going on at at a lower lower.
great and what we were putting them on the
first quarter of of 2019
so maybe would it be fair to say that, you know, we could expect maybe not quite the same reduction that experience this quarter, you know with a flat interest rate environment, but you know, maybe some directions to Farmville through the year. It's on the new origination, right and we think that'll be you know, not as great in the first quarter. I think it might be later in the year because you've got all the tax program income coming in that first quarter for the majority of it coming in that first quarter mile marker from a margin perspective, right? Excellent. That's very helpful. And then
The other questions, I mean first off on the the tax rate, you know, I know you have some lumpiness usually it kind of threw the year, but the tax rate was a bit low for me. And in the fourth quarter is kind of a 14 to 15% range a good a good rate to use for 20 2015 would be a 14 or fifty. I think fifteen of how are you? Okay, thank you, you know from a little bit of a broader perspective, you know, I know that you're still active leads the you know, exploring m&a opportunities. Just wanted to kind of follow up on that and you know looking at at Journeys power of the company right now and check your Capital ratios. Just kind of wanted to get a sensitive, you know any thoughts you might have on the buyback and particularly, you know any thoughts you might have on Thursday.
you know the decision to not
Be more active with that in the fourth quarter. Yeah, I think given that we're growing our capital and we're earning in in growing our capital of the way. We all are we did increase their organization of the buyback going in here to the first quarter and with without an m&a transaction imminent. I think that we're Oil. We're we're may be a little bit more aggressive with the BuyBacks. We we we think that's a good way to deploy some of our capital
Excellent now that is that is helpful. All right. Well that answers all my questions and thanks for taking the time guys. Thanks got this is a question answer session off turn the conference back over to mister Saven Mister Schaefer for any final remarks.
Yeah, thank you know we would I do want to thank everyone for listening today. And for those that participated on the call. Again, we are extremely pleased with our fourth quarter in 2019 resolved and are very proud of the production across all of our business lines and of the strong low-cost core deposit franchise that we have created through our disciplined relationship price approach. We look forward to a prosperous 2020 and and to talking to you again in a few months to share her first quarter results. Thank you for your time today. Thank you this Thursday conference call. We thank you all for attending today's presentation. You may not have sent your lines and have a wonderful day.