Q4 2020 Civista Bancshares Inc Earnings Call
[music].
Good day and welcome to the statistical Bancshares third quarter and year end 2000, and 'twenty earnings Conference call.
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Please note today's event is being recorded.
I would now like to turn the conference over to Dennis Shaffer, President and CEO. Please go ahead Sir.
Good afternoon, and this is Dennis Shaffer, President and CEO of <unk> Bancshares, Inc.
I would like to thank you for joining us for our fourth quarter and full year 2000, and 'twenty earnings call I am joined today by Rich Dutton Senior Vice President of the company and Chief operating Officer of the Bank Chuck Parcher Senior Vice President of the company and Chief lending officer of the bank and other members of our.
Our executive team.
Before we begin I would like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of <unk> Bancshares, Inc. That involves risks and uncertainties various factors could cause actual results to be materially different from any future results.
And expressed or implied by such forward looking statements.
These factors are discussed and the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward looking statements made during the call. Additionally management may refer to non-GAAP measures, which are intended to supplement but not substitute the most.
Does not directly comparable GAAP measures. The press release available on our website contains the financial and other qualitative and quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures.
We will record this call and make it available on <unk> Bancshares website at <unk> Dot Com again, welcome to <unk> Bancshares fourth quarter and for full year 2020 earnings call I would like to begin by discussing our results which were issued this morning at the conclusion of my <unk>.
<unk>, we will take any questions you may have.
This morning, we reported earnings for the fourth quarter 2020 of $10 $2 million or <unk> 64 per diluted share, which represents an increase of $2 $5 million over the prior year fourth quarter. Our full year results were net income.
And with $32 $2 million or $2 per diluted share for the year ending December 31, 2020, which is a slight decrease of $1 million compared to 2019.
Our pre tax pre provision earnings for 2020 was $47 $2 million compared to $40 6 million for 2019.
And represented the highest pretax pre provision earnings our company has ever achieved.
Our strong capital position and continued ability to generate core earnings allowed our board of directors to approve an increase and our quarterly dividend by <unk> <unk> to <unk> 12 per share earlier, this month, which represents a dividend payout ratio of 24%.
As we noted during our last call and our strong capital position allowed us to resume share repurchases during the third quarter.
During the fourth quarter, we repurchased nearly 47500 shares at an average price of $14 72 per share.
Shares repurchased during 2020 total 826947 shares or approximately 5% of the outstanding shares at December 31, 2019 for $13 $4 million the weighted average price for the year was <unk>.
$16 and 16 per share we view share repurchases as an integral part of our capital management strategy as of December 31, we have $11 $5 million available from our repurchase authorization, which was approved last may.
Our return on average assets was 144% for the quarter and $1 one 7% for the year, while our return on average equity was 11, 79% for the quarter and $9 five 7% for the year.
Despite the continued low rate environment net.
Net interest income for the quarter increased to 23, and $5 million, which was $1 $5 million greater than the linked quarter and $2 $3 million greater than the prior year, while our margin did contract in 2020% to three 7% compared to $4 three one person.
<unk> for 2019, it did rebound to $3 six 9% compared to 344% for the third for the linked quarter.
Our PPP loans and the accretion of deferred fees associated with them provide positive net interest income and dollars, but they do have a negative impact on our margin PPP loans made up 11, 7% of our average loans, earning three 9% for the quarter.
And eight 8% of our average loans, earning three 7% for the year without the PPP loans, our margin would have improved by five basis points to 374% for the quarter and by 16 basis points to 386% for the year.
Non interest income totaled $7 $7 million for the quarter.
This is an increase of $880000 compared to the linked quarter and a 2 million dollar increase compared to the same quarter in the prior year year to date and non interest income increased $5 $7 million or 25, 6% as well.
The low interest rate environment continues to drive the mortgage markets across our footprint.
During 2020 mortgage banking was the largest driver of noninterest income fourth quarter gains on the sale of mortgage loans were $3 $1 million or 26, 9% greater than the linked quarter and $2 $1 million or over 200% greater.
Then the fourth quarter of the previous year.
Similarly, the year to date gain on sale of mortgage loans was $8 $6 million or $216, 3% higher than the previous year.
During the quarter, we sold $91 $8 million and residential mortgage loans and and at an average premium of 334 basis points compared to $84 1 million and the linked quarter and $45 2 million and the prior year.
Year to date, we sold $304 million and mortgages compared to $125 8 million and the previous year as we head into 2021, our mortgage pipeline remains very strong.
Other significant drivers of non interest income where service charges on deposit accounts interchange fees and wealth management fees.
Service charges decreased $1 $1 million compared to 2019 levels overdraft income, which is included in the service charge category decreased $1 1 million during 2020.
During the pandemic customer behaviors change and fewer customers over through their accounts and we also waived service charges on personal checking accounts during the early stages of the pandemic to provide relief to our deposit customers and our service charges return to more normal levels and both the <unk>.
Third and fourth quarters swap fee income was consistent with both the linked quarter and the fourth quarter of the previous year.
But was 943000 higher when compared to the prior year.
While non interest expense was flat during the quarter and increased five 6% for the year compared to 2019, we did see a decrease of four 3% for the linked quarter. The year over year increase was primarily related to compensation expenses, which centered on annual pay.
Increases that go into effect each April commissions attributable to increased mortgage loan activity and overtime associated with commercial loan modifications and increased mortgage activity and our participation and the SBA PPP program.
Our efficiency ratio was a very respectable 53, 7% compared to 67% for the linked quarter and 59, 1% year to date.
And our current size and excluding income associated with PPP, we think of ourselves as a low <unk> efficiency ratio organization. During 2020, our focus on controlling non interest expense was aided by some of the COVID-19 related changes we adopted.
Excluding PPP loans, our loan portfolio increased $58 $4 million during the fourth quarter and $131 $2 million for the year.
That equates to an annualized growth rate of 13, 1% and seven 7% respectively.
We are pleased with our loan production, which occurred in every market across our footprint and was spread across every commercial category.
As the pandemic continues and is difficult to project, how the larger economy and more specifically our loan portfolio will grow in future quarters. However, we remain optimistic our loan pipelines remained consistent with a $126 $8 million and approved undrawn.
And on construction loans at December 31.
With respect to PPP, one we originated over 'twenty 300 loans for $259 $1 million, resulting and SBA fees of $9 9 million as of December 31, 2020, 322 loans with a principal balance of 37.
$5 million had been approved for forgiveness by the SBA and were forgiven of the $9 9 million and fees related to PPP, one we recognized $4 $7 million and 2020 with the remaining expecting to be recognized in 2021.
With respect to PPP too we began accepting applications on January 15.
And through the end of January and January we had received 945 applications with 427 of those applications approved and funded for a total of $54 $7 million.
And regards to COVID-19 loan modifications as the cares Act was rolled out you will recall for this to took a very proactive approach offering 90 day modifications on over 800, mostly commercial loans totaling $431 3 million, which represented 24.
And for percent of our commercial loan portfolio at June 30.
That time, we and our customers continue to gain a better understanding of the impact of the pandemic on their business as a result, most and resume making their contractual payments.
At December 31, we had 55 loans totaling $73 $8 million or for percent of total loans net of PPP loans and payment deferral programs. The largest concentrations of these loans are $43 $6 million and hotel 11 million.
And mixed retail office, and $5 1 million and mixed retail residential and $5 $1 million and restaurant loans.
All of these programs the PPP won and the PPP too as well as the carriers modifications are part of our commitment to working with our customers and helping them as they cope with the pandemic.
I couldnt be more proud of the efforts that all of our employee employees have put into these programs as well as just running the bank on a day to day basis.
To provide banking services that our customers need and these trying times.
During the third quarter, we automatically downgraded each of the commercial loans that requested concessions beyond the initial 90 day modifications.
This resulted in nearly $108 million increase and our criticized loans from second quarter to the third quarter. We continue meeting with our customers to better understand how they have been impacted by the ongoing pandemic and their plans for operating as we move forward.
That said, our total criticized loan portfolio, which includes all classified and sub standard loans increased by $10 $9 million to $148 1 million at December 31, 2020, the largest segment of criticized loans, our hotels totaling $74 2 million.
We have downgraded risk ratings on many loans, we have yet to see any specific defaults or increase low losses.
Given the uncertainties associated with the COVID-19, and its impact on the economy, We continue to review and refine the qualitative factors and our allowance for loan loss model and.
As a result, we recorded a $2 million to $5 million provision expense for the quarter, and a 10 and $10 $1 million provision expense for the year.
The ratio of our allowance for loan losses for loans increased from eight 6% at year end 2019 for 1% to 2%.
Exclusive of the PPP loans. This ratio would have been 136% our allowance for loan losses to non performing loans also increased to 343, 5% at the end of the year from 161, 95% at the end of 2019.
While these reflect very strong credit metrics by historical standards, given the uncertain nature of our current economy, we will continue to monitor our portfolio and the economy, making further adjustments as our model dictates.
As a reminder, we did meet the guidelines for the delayed implementation of seasonal and will not be required to adopt it until 2023.
On the funding side.
Our deposits increased $510 6 million or 34% since the beginning of the year, while we have seen increases and every deposit category $173 $4 million of the increase came and our business checking accounts, where the proceeds from the PPP.
Loans for deposit and $85 million of our year to date and deposit growth came and personal checking and savings accounts.
The increase in deposits allowed us to reduce our reliance on our <unk> advances by $101 $5 million or 44, 8% since December 31.
In addition, during the second quarter, we borrowed $183 $7 million from the PPP liquidity facility to assist with the funding.
The PPP loans originated these borrowings were repaid in November.
In spite of the challenges that 2020 brought to all of US. We are pleased with another year of solid core earnings I continue to be proud of the great team, we have assembled and the quality customers that we have chosen to work with among.
Among our.
Our accomplishments during 2020 are helping our customers navigate through the first and now second rounds of the PPP process and our continued focus on improving customer our customer experience through a number of digital initiatives aimed at improving customer communications.
Adding better tools, which will enable a digital transformation for how we deliver treasury management services through our commercial clients as well as how we deliver our retail services to our consumers.
We expect to rollout many of these new digital tools and the second quarter of 2021 all of these accomplished this happened while learning to work under conditions, we had.
We had planned for but never really thought we would endure and especially over the last nine months.
While the next several months, we'll continue to test the banking industry and the larger business World I am confident that for Vista is well positioned with a solid balance sheet strong capital levels and diverse revenue streams to meet the challenges that lie ahead.
You for your attention. This afternoon, and now I will be happy to discuss any questions that you may have.
Thank you we will now begin the question and answer session.
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Today's first question comes from Michael Schiavone with BW. Please go ahead.
Hi, good afternoon, and thanks for taking my questions and Michael.
Okay.
And so you guys still have the majority of your April share repurchase authorization outstanding I think and $11 5 million.
And you are pretty active.
During 2020, which is a pretty challenging year and so is there any reason, we said and I expect that strong pace of buybacks to continue in 'twenty and 'twenty one.
I think we view that as a.
Great way to deploy our capital as long as our earnings.
<unk> strong and I think we've got a pretty good comfort level with our credit quality.
I think we.
And we will continue to you'll continue to see some activity there with our share repurchases.
Okay. Thanks, and then.
On the NIM can you tell us how much pressure and still see.
While experiencing on the loan yield at this point and then on the funding side of things any day.
Any opportunity to keep driving those rate filing just.
And just overall, China and <unk>.
We're on the core NIM might go from here, excluding PPP. Okay, Yes, we've done a pretty good job of protecting the margin I'll have Chuck Parcher, our chief lending officer comment on pressure on the loan yield rich debt and can comment on maybe on.
On the deposit side so.
Chuck you want to talk a little bit about share, yes, we're still seeing quite a bit and quite a bit of pressure, especially in <unk> and some of the larger markets.
Columbus being one of them.
Really competitive down there on.
Deal flow.
So we're seeing that price and we're seeing on lumber pressure, where people are going a little bit longer on balance sheet as well.
Continuing to evaluate that but.
And if it comes down between growth and holding margin and we're trying to hold margin more so today and we are trying to.
<unk> growth from that perspective.
Mike This is rich and then on the funding side I mean, we say it every quarter.
It's going to be hard to eke out more basis points on the funding side and it seems like every quarter and we find a way to do it.
I'd have a hard time, telling you that we're going to drop the funding cost much more than basis points again, and the next quarter I mean, I think we're kind of at that point.
And what we're gonna be and there is going to be some compression, but again I think we saw the compression really and the second quarter last year on our margin and kind of held our own with net.
Notwithstanding all the noise of the PPP and and that the amortization and those fees through there and we've kind of settled into a range, where I think I think at three and a set.
74 range, if you kind of normalize it for PPP is on and where we're at and where we expect to be and then it might drift down from there, but it's not going to be anything significant I don't think.
And that's really helpful and that's all I have happy Friday.
Okay. Thanks, Michael Thanks.
And our next question today comes from Terry Mcevoy with Stephens. Please go ahead.
Hey, guys how are you today.
Good military Hello.
Guess what.
Think about the reserve build and the fourth quarter and then.
And the tax kind of caught my eye, where you said you have yet to see any specific loan losses.
Are you kind of suggesting to the reserve build and the comments that the charge offs will likely trend higher a little bit from here and maybe what are your thoughts on full year net charge offs.
Yeah, I'll, let Paul Stark, our Chief Credit Officer comment I don't think we're implying a net charge offs will be and a higher I think the reserve build and ours has been kind of a slow build throughout the year.
Couple of things that happen initially when the pandemic broke that second quarter. There were businesses that were completely shut down and you know they had no revenue unemployment was rising.
We adjusted our qualitative factors and our reserve to account for that.
And we go into the third quarter and at beginning of the third for deferrals of rising so you've got higher deferrals.
So again, we adjust our qualitative factors kind of tier two.
Account for that and then this last quarter.
We feel we've got a really good handle on our book of business to peripherals are hovering right around that 4% range or so and.
But risk rate changes and so we've had a number of risk rate changes. So we've had to adjust the qualitative factors as we've gone on.
But we still see zero delinquency and our book I mean, there's very little delinquency.
So we don't see I don't think it much credit loss coming and I'll, let Paul add some color around that.
Most of it but I think it's difficult to tell what's going to happen and as we get through this.
And this pandemic has had and extended out this temporary period and so there's still a number of hotels, which is a business and Vegas segment and the portfolio that we're working with that business travel and leisure travel should pick up but it's not going to pick on this faster than people originally thought and so right now we feel pretty good about that.
And their ability to sustain these payments as we've as we've helped modify some of these into interest only payments.
And at the end of the day.
Some some may actually fall right now I think we've identified everything we can and we will continue to work on this on a month to month basis, and I think our deferral percentage to Terry.
And it was at a high point of 24% and a little above 24% right around 4% EBITDA just a little bit I think that's related to some of the seasonal businesses, we have within our footprint spread since and our headquarters market here.
We do some we have cedar point.
All of the island's Lake Erie Islands, and stuff and there are some seasonal businesses.
There that I think we just extended out deferrals for so yes.
Yes keep in mind that the first round, we deferred over $401 million and second round about $125 million and by the end of the month by the end of the quarter the 50.
And 52 million and you've seen that we're still and in fact at quarter and so and <unk>.
Reality.
We're looking longer term now and this is an extended and so.
The numbers.
And it's actually a reduction from the second quarter referral program.
And second round.
Okay.
And some great color. Thank you and then just as my follow up question on expenses.
A fair amount and as I look at the text here and there was some lower marketing and lower travel and just COVID-19 positively impacted the expense trends and.
The underlying assumption that things slowly return to normal could you just talk about what that means for expenses and 2021 and then the the digital tool that was mentioned in terms of rolling out and the second quarter will that have an impact on expenses as well.
And Terry this is rich and Youre right.
Covid and how fast the vaccine and gets distributed and how the economy reacts to that is the.
The big question and.
And so I think we're probably.
Looking at.
And number of things kind of return back to normal and Youre right its going to be travel, it's going be education is going to be marketing, but how fast that happens we're not sure.
Some of them still Havent answered your question.
Q2, which is the biggest part of our digital transformation and something that we did kickoff and a big weight during the fourth quarter, that's going to be about $200000 of expense per quarter.
And we're not going to roll that out until probably sometime mid to late second quarter and certainly any additional revenue that we enjoy from net transformation is not going to happen instantaneously and it's going to build.
Certainly we're looking at $200000 of additional expense related to that per quarter.
And that's probably the biggest thing going forward I think our insurance expense on the healthcare side, we saw a decent increase there I mean, everybody saw and I think ours is probably less than most but I think coven and.
It's kind of taken a total on the way the insurance guys are looking at that and and they they came back with some pretty decent increases I think we're expecting probably about a $350000 per quarter increase and our healthcare for next year. Those are probably the two biggest things going forward and then I.
I do know, we're taking a hard look I think.
<unk> expenses, I mean, and we identified a few things I think that.
Moving forward that we'll be able to reduce expenses on but we are making substantial investments into our digital technology and into technology that improves the overall customer experience and as rich alluded to.
And is there some of that expense and you don't recognize some of the revenue or even the cost savings and till later on one of the other projects. Besides the digital that we have going on was and upgrade and just all of our customer communications that we're sending out.
And to our customers.
And that's really upgrading that and it's going to allow us also to electronically deliver.
Statements.
Invoices so that.
Jill will eventually pick up post youll be able to reduce postage expense will be able to reduce paper expense.
There's little things that will pick up with the digital technology that we talked about on the income side.
We will recognize some of that revenue.
And the latter half of the year starting in the latter half of the year, because hopefully add more accounts with that and we pick up more service charge income.
And.
Our cards are.
And it loaded on the digital wallet and we pick up more interchange income and stuff so but.
And are continuing to invest back in so that's why and our my comments I said, we're probably going to be a low 60% efficiency shop, because there's things we need to do to get us to that next level. So it does require investing back into the company.
Thank you very much and hope you all have a nice weekend.
You too thanks.
And our next question today comes from Nick Rolli with Piper Sandler. Please go ahead.
Good afternoon, gentlemen, hope Youre doing well and act on.
Nick.
And with the tax business jumping into full gear and the first quarter can you just share with us your expectations for that business and how it compares to prior year's net.
It's going to be exactly on their expectations are exactly what we did last year and.
And if you'll recall I mean, we we've got contracts in place and I would expect that it would be spot on to what we did last year.
Okay terrific and then within the mortgage banking business, you had a big gap up and the gain on sale margin compared to the third quarter.
This is mostly a function and mix.
No.
And I don't think it was a positive mix and then look at our mix has been pretty consistent.
All year long.
Net.
We had quite a bit of volume built up through the summer.
For our refinance business lagged out to about a 90 day.
Flag for from originations to close and a lot of that stuff is built up over time and we got done in the fourth quarter and we continue to pick that up. So we are with our pricing we were getting a little bit more on a refi and on a purchase and we did increase our pricing a little bit going in the third and.
And fourth quarter as it would have been beneficial on the fourth quarter and that's a little bit on the gain on sale increase as well.
And we were able to substantially increase the pricing.
And that's why I think.
And we were at 336 basis points or something.
And would have looked at US 12, or 18 months ago, we were at 220 basis points or so so I think we did a really nice job there.
Fannie increased what they were.
Charging and we were able to kind of pass that on and still really see no GAAP and volume and pipelines remain very strong.
And Thats Great news, Okay. So even in spite of the strong loan growth and repurchasing five per cent of the stock and 2020. Your total risk based capital level was largely unchanged from the end of 2019. So I heard your commentary on incremental repurchase could you refresh us on your capital priorities and how youre thinking about and ideal level of capital.
Yes, I mean, we've always said keeping.
And we'd like to keep that capital ratio somewhere in the nine to nine 5% range, maybe as we can.
And the midst of a pandemic you'd like to keep a little bit more but.
And our thoughts really haven't changed too much on that and.
As long as our earnings remain as strong as they are and our capital position remains as healthy as it is and we feel comfortable with our credit quality I think we will deploy capital free.
The repurchase program, we think that's a great way to do that we will continue we think.
That will continue and we remain committed to that dividend.
And I think we need to do that with the earnings that.
That we're recognizing now.
And then I think we continue to look at M&A opportunities.
Some of that and.
It seemed and finding the right partners I.
And I think we're taking a little bit more proactive approach to that.
And reaching out but for us we I don't want to do a deal just to do a deal.
It's got to make sense for this organization, it's got to make sense for our shareholders and it's got to make sure. It's got to be a cultural fit because deals.
A lot of deals that are cultural fit for work so but those are kind of how we look at deploying our capital.
Thanks for taking my questions.
You bet Nick.
And our next question today comes from Russell Gunther with D. A Davidson. Please go ahead.
Hey, good afternoon, guys and Russell whole Russell.
I was hoping to follow up on the core margin commentary.
And that low <unk> III 70, <unk> TPP.
Could you spend a little more time on the glide path and how do you expect that to progress over 2021, and and what the drivers are understand the funding has largely played out but whether it's earning asset remix and timing and.
I think for more clarity would be helpful. Because that 370, <unk> well above where consensus is coming into the quarter.
Well I mean, that's what we did right and if we reported $3 69 for the quarter and we said that the PPP and put a five basis point.
Drag on that.
So I guess normalized if you will and and I guess theres a lot of PPP noise and there will be for the next year, but $3 70 for us kind of where we came in at.
I think like Chuck said, the pressure is going to be how how well, we do and our lenders do.
Putting loans on the books.
A reasonable rate.
And as far as the glide path I mean, again, I said basis points and is that going to be again, if you look at the last year Russell and when we had a pretty significant contraction. During Q2, and then kind of let's say leveled off but it certainly was much more muted in terms of the.
And the compression that we had and the margin and then from the second to third and then from third to for and I think that's kind of I guess, if youre looking for an indication of a glide path that would kind of be where I'd guide you to.
And if we.
And I guess, if I go through that same math I guess, we had about a 10 basis point contraction from Q3 to Q4.
Maybe that's a reasonable thing to look at going forward, but it wont be.
I would be surprised if it was more than that how about that.
And diligent.
Net.
And Chuck we've been pretty diligent about it and this low rate environment.
And building some floors and so that we can keep that hold the margin a little bit.
Like I said before we're looking at go on a little long run on the right deal and that all deals to pick up a little bit more of a few more basis points on margin and wanted to really solid balance sheet short and long term, but we've got some opportunity with its widening of the tenure and compared to the five to actually pick up some.
Some basis point that we feel are valuable so.
Looking at it every day, but we feel pretty confident and we can maintain that.
On the loan Martin pretty well.
That's very helpful guys, and certainly a better result, and it sounds sustainable so I appreciate the color there on.
The loan growth side of things.
I understand the uncertainty in your prepared remarks.
Maybe just talk a little bit about what your organic growth expectations are.
As you would expect to drive that both from a mix and geographic contribution issue.
I would tell you and we're still targeting that and mid single digit loan growth piece Russell.
And I feel like we may be it will fall and the first quarter.
And we know we've got a few large <unk>.
And will pay off and we also have already seen the effects of every time, we do want to use round of PPP as that money comes in and it rolls out and pay for our commercial lines of credit. So we're already seeing some reduction on our commercial lines here and in January and early February. So I think we'll see a little pressure from the growth perspective first quarter, but long term.
As I look at our pipeline our pipeline today was bigger than it was this time last year.
So now it is.
Got a little bit different mix too and I would tell you, it's a little bit more construction, which also means that we will see more of that growth.
And towards the mid to back half and those things and start to get built as compared to a profit we still feel confident and.
And the market for in.
We had a great year last year on the three CS greater Cleveland Greater Columbus, Greater Cincinnati, we had really nice strong loan growth across all those markets and we don't see that diminishing anytime in the near future.
That's great very helpful and just one kind of follow.
Follow up tangential to that.
And you're able to share kind of the mix of your loan portfolio and how that breaks down within your more urban metro markets versus rural what that contribution is from our commercial and our submission.
And I don't have that number right in front of me Russell, we can probably get back to you on that but I would tell you that it's.
I'm trying to I apologize by looking at a couple of numbers here, but we're probably and.
Any more.
And this isn't shoot off the hip above 70% metro as compared to.
Merle with Gram.
In terms of balances in terms of balance and that in terms of number of customers. Obviously, the number of customers and our and our rural legacy markets are our number wise bigger, but obviously the loan volume and the loan outstanding numbers are much bigger and the Metro region.
Russell, we don't have it in front on this but if you look at our investor deck towards the front of that where we've got that kind of map I believe and we've got a summary of loans by region and they kind of show, you and which ones are rural and which ones are on more urban.
But we'll be better prepared and next time, you asked us that question.
That's right.
And so the slip.
On the balance sheet.
I appreciate it guys. Thanks for appointment and the right direction as well that's it for me. Thank you.
And our next question today comes from Joe <unk>.
And Scott. Please go ahead.
Good afternoon, everyone how is everybody.
Hi, Joe.
A couple of quick questions one.
And you commented about the 60% low 60% efficiency ratio, but I mean.
It was such a strong fourth quarter, a lot and lot of good stuff happening.
But it seems like if youre still doing a pretty good job of controlling expenses with with NIM being a little bit better than people thought and at least mortgage banking remained strong and the first half of the year.
Is there a chance we could see.
And actually a five handle on the efficiency ratio here for the full year and 2021.
Well go off to see I mean, it's a lot of that depends on how quickly things return to normal because some of the expenses I think that rich talked about.
Travel and entertainment and things like that and we're virtually nothing.
Quickly do they return and stuff so.
There is a chance because it.
Mortgage banking stays as strong as it was we anticipate maybe that that falls off some in the second half of the year, but right now the pipelines are very healthy so.
I think theres always a chance, but some of it so.
Some of that kind of dependent on what happens.
And with the pandemic and when things return to normal.
And we're saving on Brent business promo and things like that.
People are hosting events and stuff and.
And so theres a lot of expense savings I think that.
That.
That are related to the pandemic.
Okay.
And and you talk about how all of that.
How robust mortgage banking is.
And specific color on what the first quarter or first half might look like relative to the fourth quarter or is it just seems like things came and so so strongly in the fourth quarter.
And just trying to get a sense directionally and absolutely kind of where the next couple of quarters might shake out.
Hi.
Our pipeline is really good still Joe so.
It's going to be hard to replicate the fourth quarter, obviously, but I would think the first quarter and especially into the second quarter.
It's just a matter of how fast and we process along and get them through the pipeline. So I would say, it's going to remain very strong for.
First and probably second quarter as well after we get past that and as you know for Kraft foods, and see where rates are going to go.
Thanks.
And on other two I had one just on the deferrals.
About how there is some seasonality and whatnot and impacting the fourth quarter flows and any kind.
Kind of directional thoughts on what deferrals might look like.
Let's say the end of March here and.
And any any concern that you have seen a new surge and request or other kind of activity there.
And as Paul.
And.
Hard to tell right now I don't anticipate any spike up I think there's a steady process and working with customers and as things change.
In terms of when they think revenues.
And are going to start to return hotels being a great example of that restaurants, when the restrictions are eased things like that and.
These guys are actually very cooperative and that's what we look for and then and they want to start paying as quickly as they can so most of our deferrals are actually.
Principal price deferrals.
Very few P&I deferrals.
<unk>.
And I guess I would see this thing is pretty steady and.
Some of the return to payments and we'll probably have to defer some others. So it really gets them on what the individual business cycle is and when.
Type of relief they need but on.
So far we have not seen any defaults.
And we have not.
And really seen anything that we think is going to evolve into a charge off at this point.
We're encouraged by that and we're encouraged by the fact that and we think unemployment is expected to improve.
Over the next quarter or so again.
We'll take it month to month and I.
I would add on.
And one nice thing and.
Back when we were originating and hotel loans, we were very diligent about understanding and sponsors and Adam.
And going through this process and the meeting will have most of our sponsor and have the wherewithal and to make those payments when called upon and tap on the shoulder. So we feel good about the sponsors behind almost and our entire hotel book.
Yes.
Great. Thank you.
And our next question today comes from Bryce Rowe and hobbies. Please go ahead.
Thanks, Good afternoon afternoon, Brian Hi, Bryce.
Hi.
And just one more one more question on the on the hotel.
But before I move on.
Another question or two what is the.
The weighted average LTV within that within that portfolio currently.
And within that.
I don't have that in front of me.
And we're talking about pointing on Tiffany.
Typically.
And that would give you a range, it's probably between 50 and 65%.
Book value and.
And then.
Based on on.
And the situations and most of them are are the major flags and.
And as Chuck indicated.
But not only and capacity, but willingness to support the launch and we've taken we've taken a number of those hotel loans through that SBA 500 for program. So.
You generally start out and like a 65% loan to value.
And 50% loan to value.
Because they put in.
They take 35% and the borrower has to put in and 15%.
We've done a number on that that level as well.
Okay. That's helpful.
I wanted to I wanted to ask about the deposit side of things and obviously you've had some.
And really nice growth and 2020.
Just curious on kind of the deposit mix and.
And where you are.
You might see opportunities.
<unk>.
<unk> continue to lower lower costs, there and you look in the.
The average balance sheet schedule within the release and it looks like the time deposits are still carrying out.
And one 5% type of type of cost.
So just.
Maybe you could talk through.
And the retention level.
CD customers what's maturing.
And what day, what the current rate is.
For for those maturing or for.
And for this maturing Cds.
Well, that's where the opportunity is would be a net CD bucket I think and our Alco working group. We identified that we may be able to get about $5 four to five basis points more eke out of that some of those rates as you said or one and a quarter or one and a half.
Still most of those were written for 18 months terms, so they'll be coming due sometime.
Over the next six months or so current.
Rates are down around 40 basis points surprisingly.
And.
And we keep a good number of those CD customers Theyre just loyal customers.
And that the bank has and we.
We still keep keep some of those on looking at our our rate sheet. Today are 18 months specialist 40 basis points and we have a 13 month special.
And out there.
Our 13 net.
Yes, 13, literally haven't 30 basis points so.
Those rates have dropped substantially so there is room for improvement there as far as the growth and those accounts most of and had been core accounts and as we alluded to 173 million and and.
Business deposit growth $85 million and personal checking accounts and.
And.
The nice thing about that is we will some of that noninterest income growth was in our Treasury management services.
<unk>.
And Thats just recurring income that we're going to get every year.
No.
And.
We have we have very little reliance on Cds.
So.
And I think we're going to continue with the same strategy and we want to add as many core accounts as we can because that's where we got opportunity on the noninterest income side in terms of interchange fees in terms of service charges.
On.
And we think Thats very valuable and that's why we've been able to push up over the last three or four years, our non interest income.
Got it okay.
Wanted to ask about PPP two here, you noted $55 million give or take on.
Of approvals so far.
How are you thinking about maybe relative to PPP, one that was $260 million give or take do you think that the ppt PPP to originations Wil and.
Approximately half of half of what you did PPP warner or or could it be less and that.
We're probably going to be and half if you look at even where we're at today I think I looked at some numbers rate before we came in I think we were at about 1035 loans and PPP wall and we did 23 little over 2300, and so we're getting pretty close to that half level and we're tracking them on a fee base.
And everything so we're right about at that Mark that's for <unk>.
Price as we I thought when this rolled out and I think Paul worker and Chuck echoed the same thoughts, but maybe.
And maybe we do half of that volume it looks like we're going to probably do maybe a little bit better than that.
And the number of loans, but in terms of actual outstandings and the average size of the loans and crop this round as part of it because the SBA for restrictions on the maximum amount and we really are trying to emphasize smaller borrowers.
Plus it's a lot more labor that go through this they didn't do anything to simplify it for us, but by and large I think those numbers are correct.
And the taper off a little bit and in terms of demand. So we will see.
How this all plays out because it's definitely more slow moving and we thought it would.
Okay.
Last one for me Dennis.
And you had some commentary around <unk>.
M&A and wanting to possibly.
Deploy capital into and.
And there is some M&A that might make sense.
I was wondering if you had.
And in some conversations with potential partners very informal conversations.
And just maybe talk about.
About the type of chatter you might be hearing each day as we started to kind of come out of this COVID-19 period and as.
Bank valuations bank stock valuations.
Yes.
Few months, yes, and.
I think that's part of my daily chores is to proactively reach out I mean, we're we.
We've identified some potential we think would be very good partners I.
I would tell you that I think the current received people realize the challenges that lie ahead, I think much more so today and is it even 12 months ago.
Some of my conversations with some of my counterparts at the other banks they recognize that hey, when PPP income goes away.
On mortgage activity returns to a more normal level.
And particularly in this low rate environment, there's going to be substantial pressure on margin.
And I think it's going to be very difficult for some of these banks to make money.
So.
Given that.
And they realize that so we've had some <unk> had some.
And some pretty decent conversations with people and regards to <unk>.
And what the future might look like we try to kind of try to share our vision.
We think we'd be a great fit for us.
And quite a few of these community banks.
<unk>.
And Ohio, Theres a 130.
Banks that are under.
$500 million and asset size, we think we will be great partners for those organizations as opposed to somebody that may be at $5 billion and assets for six or $7 billion and assets.
Because I think.
And we'll be a little bit more sensitive to their needs and.
Because I think it's got to work for both banks and it's got to work for the shareholders and kind of work for the communities and that's kind of working on employees and it's got to be that cultural fit and.
I think we will be the ideal partner.
There is not only opportunity and just in Ohio, I think eastern Indiana.
We've had some conversations with banks and NDA and we've.
And we've.
Southern Michigan and northern Kentucky those are all.
Think possibilities for us.
That's great color. Thank you you all have a good weekend.
Thank you.
And that concludes our question and answer session and I would like to turn the conference back over to Mr Singh for any final.
All remarks.
Thank you.
In closing I, just want to thank everyone for listening in and thank those who participated in the call and ask questions.
Again, we are extremely extremely pleased with the results of our fourth quarter.
And for the entire year 2021, I think will undoubtedly be another year full of challenges for us, but we look forward to meeting those challenges and to talking to you again and a few months to share our first quarter results. So thank you for your time today.
Thank you Sir.
Today's conference call you May now disconnect your lines and have a wonderful day.