Q2 2021 Civista Bancshares Inc Earnings Call
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Wealth bancshares, second-quarter earnings call. All participants will be in listen-only mode. You need assistance, please single conference password by pressing the star key followed by zero after they took an opportunity to ask questions. Please note that this event is being recorded. Like the time the conference over to mr. Shaffer president and CEO, please go ahead.
Good afternoon. This is Dennis Shaffer, president, and CEO of civista Bank shares. And I would like to thank you for joining us for our second quarter 2021 earnings. Cause I'm going today by Rich Dutton SVP of the company, and Chief Operating Officer of the bank. Check, Parcher, SVP & Company. In Chief lending officer of the of the bank and all members of 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 civista bancshares Inc, that involves risk of uncertainties various factors. Could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.
These factors are discussed in the company's SEC filings, which are available on the company's website.
The company, disclaims, any obligation to update any forward-looking statements?
Lead during the call, additionally management, May refer to non-gaap measures which are intended to supplement but not substitute the most directly comparable. Gaap measures wage is release available on the website, contains the financial and other quantitative information to be discussed today as well as the reconciliation of the gaap to non-gaap measures. Thursday we will record this call and make it available on civista bancshares website at ww.w. Again welcome to juice bancshares second quarter 2021 earnings call at the conclusion of my remarks we will take any questions you may have.
Let me start off by my remarks by noting several significant accomplishments or transactions that occur during the second quarter this morning. We reported net income of 9.2 million dollars or $0.59 per diluted share for the second quarter of 2021. And net income of 19.9 million months or a dollar $27 per diluted share for the 6 months. Ended, June 30th 2021.
Our earnings per share for the quarter increased 45.1% compared to the second quarter of 2020 as well as 43.9%. Can I choose the first 6 months of 2 thousand and twenty? This is a direct result of our continued focus on growing and diversifying, our revenue streams and the disciplined approach that we take in packaging the company.
On June 9th, we successfully launched the new civista digital banking, which provides a better customer experience in both the mobile and online platforms. We will also be wrong online account opening, and improving our in Branch account opening process. Later this year, we also took steps to restructure our balance sheet and improve our jobs, as we seem to be in another lower for longer interest rate environment.
During the quarter, we paid off the long-term fhlb advances, which will reduce our interest expense by 1 billion dollars on an annual basis. We paid a penalty of a good point, 7 million dollars to do that, but we were able to offset that penalty with gains on the sale of our Visa, B shares of 1.8 million,
We also.
Put some additional cash to work in Investments the whole effect of these transactions. When we see more in our third quarter margin, however, we did see a nice uptick of 23 basis points in or large. And this quarter compared to the linked quarter.
Finally, our board of directors approved a 17% increase in our quarterly dividend on July 9th to fourteen cents per share which represents a dividend payout ratio of 23.7%. We continue to be opportunistic in the execution of our stock repurchase program.
Now let's talk a little bit about our quarterly numbers are low growth. For the quarter, excluding PPP loans was 2.9% or 11.6% annualized. The 2 categories that we saw the largest increases in Were Real Estate construction and non-owner-occupied Commercial, Real Estate. Arlo pipelines continue to be Thursday or Mortgage Banking, business continues to drive, non-interest income generating gains of 2.2 million dollars. This quarter nearly keeping Pace with the 2 point, 6 million dollar game that we recorded in the linked quarter.
We continue our focus on managing COVID-19 loan deferrals as well as asset quality as a whole or deferrals have continued to improve from 3.6% of total loans, Thursday, December 31st, 2022 and half percent at June 30th. Many of these borrowers have seasonal businesses, which did not resume operations until midnight in the spring and continue to deal with the shortage of people returning to work. We anticipate more of our seasonal borrowers, exiting, their deferrals in the third and fourth quarters of 2012 or do our efforts of working with customers and the strength of our borrowers. We have not experienced any defaults attributable to the pandemic and delinquencies remain as historical low levels.
Net interest income for the quarter was consistent, with our first quarter and increased 1.8 million dollars or 8% year-over-year. Net interest income for the first 6 months of 2021 increased 3 and half million dollars or 7.9% compared to 2020.
Our net, interest margin was 3.53% and 3.41% for the quarter. And for the first 6 months of 2021 respectively, both measures are lower the comparable 2020. But higher than the first quarter of 2021.
As we shared in our first quarter, earnings release the increase liquidity. We experienced as a result of the federal government stimulus program, and the excess cash created by the processing program. Both had a significantly negative negative impact on our margin. Our second quarter margin has rebounded and we expect that it will continue to improve further due to the balance sheet. Restructuring, I previously mentioned
We continue to see decreases in our funding costs due to the lower interest rate. Environment funding costs went down by $240,000 compared to the linked quarter off at $852,000. When comparing the second quarter of 2021, to the second quarter of 2020 and 1 point 8 billion dollars. When comparing the first 6 months of 2021 to the same period of 2020, we expect to see more decreases as a result of the balance sheet. Restructuring.
Or yield on earning assets is down for the quarter and for the first 6 months of 2021 compared to the same period in 2 thousand and twenty. The largest reason for the decrease in the comparable quarters is the increase in interest bearing cash, the average balance of interest-bearing cashed increased which reduces the overall yield due to the loan know that we are as part of the balance sheet restructuring, we put some cash to work. During the second quarter, the yield is also down for the 6-month comparable. As interest rates began to Tumble late in the first quarter of 2020.
During the quarter, not interest income declined to $165,000 or 1.8% in comparison to the length quarter. And increase, 2 point 2 million dollars or 31.7% year-over-year. However, if we back out the effect of the 1.8 million dollar gain on the sale of our Visa am not interest. Income would have declined, 2 million dollars or 21.2% and comparisons are linked order and increase $386,000 or 5.6% year-over-year. The first quarter of the Year includes a larger portion of the tax processing fees that we learn which was the primary reason for the decline and fees from the fourth quarter to the second quarter for the first 6 months of 2 thousand and Twenty-One not interest income increased 4 and a half million dollars compared to $2,000 off.
Removing the gain on Visa, B, shares. The increase is 2 point 7 million dollars. Most of this increase is due to the gain on sale of Residential Mortgage loan.
Mortgage Banking continues to be the largest driver of our non-interest income, second quarter gains on the sale of mortgage loans or 2.2 million dollars. Down slightly from our links course of 2 point, 7 million dollars inconsistent, with the games, we recorded in the prior-year for the corridor for the first 6 months of 2 thousand and twenty 1. We recorded game 5 million dollars compared to 3 point, 1 billion dollars in 2020. We sold 69.2 million dollars, a mortgage loans during the second quarter of 2021 and 147.8 million dollars during the first 6 months of 2 thousand and Twenty-One. Well, both measures are increases compared to 2 thousand 20-second. Call volume is down, 9.4 million dollars from the linked quarter. We reduced our pricing in the second quarter, it demands softened resulting in a decline in the average premium recognized on
The sales loans by $35.
From 3.55% to 3.20% over the linked order.
Revenue increased $387,000 for the quarter and $175,000 for the first 6 months of 2021. Compared 2020, you may recall civista suspended, many of our service charges during the second quarter of 2020. As our customers dealt with the onset of the pandemic off The Interchange Revenue, increased $233,000 for the quarter and $513,000 for the first 6 months of 2 thousand and Twenty-One as consumers consider their ship to online and cashless retail buying options.
Wealth management Revenue, increased $284,000 for the quarter and $424,000 for the first 6 months of 2026. RVs are asset-based and the pandemic negative impact on the markets, adversely affected last year's wealth management Revenue.
Income tax, refund processing program continues to be an important contributor, to our non-interest income, during our first and second quarters. Each year income from that program. During the summer quarter was consistent with the prior year at $475,000.
We also had a decrease in swop fees as we reduced the loans, we entered into swaps as part of our asset-liability Management program.
Not intrest expense for both the quarter and the first 6 months of 2 thousand and Twenty-One included, a 3.7 million dollar, prepayment penalty, on long-term fhlb borrowing, or reported numbers showing 24% increase for the quarter and a 16.4% increase for the first 6 months or moving the effect of prepayment penalty. The increase is 3 and half percent for the quarter and 6% for the first 6 months. Additionally, adjusted. Non-interest expenses would have a decreased 3.3% compared to the linked quarter lower efficiency ratio for the quarter was 67.5% are adjusted. Efficiency ratio would have been 59.5% compared to 58% for the quarter and 61.7% year-over-year.
During our Focus to the balance sheet, our total loans declined, 38.3 million dollars. We had a net reduction of 64.3 million hours of PPP Lowe's in the first 6 months of 2 thousand and Twenty-One exclusive excluding PPP loans. Our loan portfolio would have grown twenty 6 million dollars or 2.8%. Second quarter growth was fifty, 2 point 6 million dollars or 11.6% annualized demand for em occupied commercial, real estate across our footprint. Continue real estate construction loan. Demand increased as the construction season fully opened up
We are in.
George by the lowest book during the quarter as well as the strong demand across our footprint and under drone construction lines totaling $124 million dollars which store near an all-time high. We expect that we will grow our loan portfolio and he mid-single-digit rate for 2021
On the funding side, we experienced growth in every category except time deposits with total deposits increasing 213 point 6 million dollars or 9.8% since the beginning of the year.
Non-interest demand bearing demand account, which made up 35.5% of our total deposit at June thirtieth, ruined by a hundred thirty 2 point..5 million dollars compared to December 31st 2020. While balance balance is related to our income tax processing program. Made a 50.8 million hours of the increase seventy 3 point 2 million dollars of the growth came from non interest-bearing business accounts as our business customers deposited PPP loan. Proceeds we also experienced a 70.1 million dollar increase in our interest bearing. Demand accounts driven by a forty 7 point 6 million dollar increase in public funds.
During the pandemic, we automatically downgraded commercial loans that requested concessions beyond the initial 90-day modification. Our total criticize Lumpur package, which includes all classified and substandard Loans declined from 148.1 million dollars at December 31st, 2022, 186.1 billion dollars at June 30th 2021.
The largest segment of criticize loans, continues to be hotels totaling 65.8 million dollars. Many of these borrowers are experienced increased occupancy in the second quarter of 2021 and we anticipate further reduction in our criticize portfolio as Hotel, revenues stabilize.
You today we have realized $339,000 in net, recoveries while there are still uncertainties associated with the economy, we continue to see if he can prove it in both the economy and our customers Financial positions. As a result, it was not necessary to record a provision expense during the quarter.
The ratio of our allowance for loan losses, 2 loans increased from 1.22% at year. End 2022, 1.30% exclusive of the name of this ratio would have been 1.40% or allowance for loan losses to non-performing loans. Also increase to 443.5% at the end of the quarter from 343.5% at the end of 2020.
we ended the
Order with a tangible common equity ratio of 9.51% compared to 9.98% at December 31st 2020. The extra $86 million of liquidity related to our income tax refund processing, business at quarter-end combined with $153 million dollars in PPP loans off the effect of reducing or tce ratio by approximately 60 basis points.
We continue to create Capital earnings. Our overall goal was to have adequate capital for growth both organic and for acquisitions.
2 important parts of our Capital Management strategy. Our dividends and share repurchases as previously stated. We recently announced the increase of our third quarter dividend to $14, additionally, during the quarter. We repurchased 323612 shares of common stock for 7 point 4 million dollars for an average price of $22.80 per share your the date. We have repurchased 505239 thousand shares or 3.2% of our shares. That were outstanding at December 31st, 2020. We have approximately 7 point 4 million dollars remaining of the current repurchase.
In summary we are very pleased with another quarter fueled by solid earnings increase low road, net interest margin expansion and improved Crepes quality during the first half of 2021. We have seen the economy open up in life returning to normal. We remain optimistic as the year progresses our loan lines are solid. We expect that nearly all of the remaining ptpp, phase 1 rose in. Many of the face to those will be forgiven during the balance of 2021 on a continuing to rule out or lose digital banking tools, which will allow us to provide a better customer experience.
Thank you for your attention this afternoon. And now, I'll be happy to address any questions that you may have.
And I'll begin the question-and-answer session. Ask a question, you may press * then 1 on your touchtone phone you're using speakerphone, please pick up your handset before pressing the keys off all your questions. Please press star than to just, pause momentarily to assemble the roster.
First question comes from Terry. I got a voice up Stephens, please go ahead.
Hey guys, good afternoon Jerry, maybe. Let's start with with the margin. Want to make sure I understand the message correctly. Should we think about the second half of this year? The margin wage increases beyond the balance sheet actions that were taken last quarter and if so can you just run through again? What do you think, drives that core margin expansion?
so,
Terry, this is Rich that that transaction occurred late in May so we really didn't see that entire impact, obviously, at the on the quarter numbers or even the 6 months numbers. And I would expect our modeling if we said, 17 basis points of growth in the margin for the, for the, over a 12-month period or or annualized, we're looking at probably 10 more basis points off over the year. Is that make sense related to that lady's related to that? Yes, I got you there, okay.
So beyond that. Did you have another question or did I answer what you were asking me? I guess beyond the, the transaction that occurred in the Matthew just ran through was there some implicit were you implying that there's additional margin expansion above and beyond there as you reduce funding costs and and those come down lower? Well, certainly there are some rooms to bring in funding costs down and don't forget about that kind of stimulus. I think the technical term is snafu, that occurred right at the beginning. So, we had 16 basis points of drag on a six-month margin for that and that will continue to diminish as the as the year runs out. And also the tax the excess tax cash that had another fifteen basis points of dragon 6-month margin and again that number will continue to decline is is the cash rules out a little bit more noise than most because of the tax per month.
The the stimulus error that was in there and then that we didn't have any of the balance sheet, you know, transactions. So and plus we collect a lot of these and then Thursday in the second quarter so there is there is quite a bit of noise in there.
I thanks for clearing all that up and then just as a follow-up the the outlook for Mid single-digit loan growth. This year looks like the non-owner-occupied was really the bright spot in the second quarter. Do you think I am going to be The Driver of growth in the back half of this year and maybe talk about just Market Market competition in terms of pricing within that loan category. This is Chuck, you know? Obviously we're off. That's our bread-and-butter that 99 owner-occupied. Real estate. We have, you know, still really good. The man we've got really good pipelines right now. You know, we've been a little sister on C and I really more. So from a, from just, the amount of cash that companies have from all the government stimulus, we had a few loans to pay off just because they had a lot of excess cash. And, you know, I was looking at our loan utilization on a revolving lines, and the commercial side, and it fell from 36% at 12:31 to about 30 a little bit under 32% off.
At 6 at 6:30, so we're hoping maybe we get some drawback on some of those lines, but, you know, all in all, you know, then you asked me about competition, you know, I think, I think it's competitive wage. I think, you know, most of it. Almost all banks are much like us. Have a lot of cash on the balance sheet. So, you know, every deal seems like it's competitive, but, you know, we've, we've got a pretty good job of holding, you know, trying to keep my life where we like it at have we lost a few more deals in normal. Probably. Yes, but, you know, we're a pipeline is out right now. We're really feel comfortable with that mid single-digit going through the end of the year.
Right.
thanks for that and enjoy the weekend, like,
Thank you. Our next question comes from Nick. Could you rally Piper Sandler? He's go ahead. Good afternoon, everyone in terms of jobs. Accommodation deferrals. Do you have a breakout of those hotels that are 11:00 to business travel versus those that are more destination or application oriented
Yeah. This is Paul Stark virtually. All of the hotels are, are more Leisure Travel than business. We don't really Finance too many that that are focused on business. That's not to say that is not some that are mixed. So and for the most part, A lot of those I think over half of our, our deferred referrals, are on hotels. Almost of that Thursday, just for a little more color of that fifty that that's outstanding about 26 million of that. I've already presumed payments, they're just catching up on interest. So we're taking as a birth, and sort of line on that and continue to call those deferrals. So, they're all heading should say all hadn't, but most of them are headed in the right direction. And, and Nick, I would say that Chuck can import their teams have both been out and making calls on a lot of those clients and a lot of stuff. We're hearing a pretty positive. We just want to make sure that, you know, revenues kind of bounced back for some of them.
We want to see kind of a little bit of sustainability to that so you know our approach is it'd be a little bit slower and make sure that, you know, that Revenue wage is being able to be sustained. And as I mentioned in my comments, I think that, you know we do anticipate hopefully in third and fourth quarters that we see more upgrades to the money aside for folio and and and the full number to continue to go down
That's great color. So it's fair to say that occupancy and average daily rate have been trending in a positively. Yeah. And then with respect to swap these you know slowed down relative to income levels. I know they can be volatile but are you expecting a pickup in this line item or staying at this level for the time being
Tell you next joke. I will tell you what probably be.
Pretty close to the same level, through the, the back half of the Year. Unless we see, you know, some major change in the yield curve, it just right now. It's it makes more sense for us to go a little longer on some in-house month then to to take that. Libor + 225.250 rate and put on the balance sheet right now.
Okay that's fair. And then lastly the tax rate bump bump down a little bit quarter. What are you expecting on a go-forward basis?
I'm not sure what did it bounced down to, but going forward, I think we've got 13.
20% is probably a good run rate. Going forward, an effect on a gaap effective tax rate basis. Yes. Thank you. Thanks for taking my questions, dead.
Thank you.
And the next question is from Switzerland, KBW please, go ahead.
Hey, good afternoon. This is Tim Switzerland from Mike. Do you guys have pretty strong Capital? You guys have pretty strong Capital levels on right now and there's still a good amount of buyback authorization from the Borg and 7 point 4 million. So I was wondering, do you guys expect to kind of keep a similar buyback pays for the rest of this year, I'm assuming the environment, you know continues going well. And then you have any plans at all, maybe hold onto a bit more capital and preparation for any m&a opportunities that may come up.
Well, yeah, I think they from the capital level, we've we've kind of publicly stated from a standpoint. Anyway, if we've been trying to manage the company to about a 9% level, there were above that. So I think we're about 9 and 1/2 or so. So we've we've, you know, we've been fairly aggressive, you know, we think we're undervalued off and and because of that, I think we've you the stock repurchase program as a good way to deploy some of that Capital. So, yeah, we've probably been a little bit more aggressive that we have and as long as as long as our earnings stay where we are, we're probably continues to stay fairly, fairly aggressive on that front.
Okay. And any plans at all to hold, I just want to add Dennis was right. Or tce is 9 and 1/2, but if you normalize it for the all the PPP and the tax money, we've got closer to probably 10.1. I think another sixty basis points higher than that. So so like did it said we've got, we've got plenty of capital, if you will to continue to repurchase shares as far as holding it on for Acquisitions, you know? That just depends on the deal. I think, Tim, you know, the size of the deal, you know, the percentage of stock and cash into that deal. So, you know that's that's all kind of a hard hard question to answer but we have kind of been on that higher-end 1 because of the VIN through strong, but to we would like to do a deal, we get it, get a deal or 2 done here. So you know, that's why but our Capital position we think is is dead.
Great, thanks. And then I had a quick follow-up on your adjusted expenses. This quarter pretty solid, you have a good efficiency ratio sub-60 despite some of your Tech initiatives. So do you think you can kind of maintain efficiency, range near the 60% level going to the 2022? And I guess just sort of what is your expense trajectory going to look like with your, um, as you expand your Tech capabilities here. So, Taylor's rich. And the shorter answer is yes. But I think if you're, as you get familiar with the bank, I mean we were kind of front-end loaded with the tax money so we've got maybe more Revenue in the first and second quarter. So the low point of our efficiency ratio for the year is the first and second quarter, we've always kind of said, we're a sixty 61% efficiency bank, there's nothing new. I mean we've made all Investments at least that we think we're going to make near-term for want to say digital and whatnot. So it'll be a I think a 60 or 61 is where birth.
Where you could think of us being.
Yeah. Well, you know, I think to continue to invest some of these earnings back into the company, to keep us at the Forefront and in terms of technology and stuff. So that's not going to slow. I will say that we should really recognize someone like the digital digital product that we rolled out a lot of that Revenue happens on the back end of that. So we will just start the recognize them in terms of. You know what we do the online account opening piece later this year, that could bring more new accounts, which will bring more service charges than the Disco enhance. Our interchange Collections and it should also expand our footprint. So all of those things I think will lead to increased Revenue age.
Down the road for us.
Great. Yeah, and do you have any Targets are willing to share on kind of how quickly you think it could accelerate your account gross at all or related revenues, will be working pretty hard on that, maybe the back half of them here, but really most of that effort right now, I mean we've got some really conservative efforts but we'll spend a little bit more time on that the back half of this year if we head into next year, so maybe able to share some things later and maybe in the in the fourth quarter with on that.
Okay, great. Thank you.
Can I help you have a question? Please press * then 1.
Next question comes from Russell. Russell Gunther Davidson please go ahead. Hey good afternoon guys. Hey Russell just a few thoughts on the loan growth. So second quarter going to have to keep. He's turned out as strong, if not stronger than you, guys were expecting. And so just curious as to your thoughts for the back half of the year, you know, about any potential for upside to that mid single-digit number and just what the loan growth drivers on an organic basis are expected to be.
We do. I mean, we might have a little upside, you know, 1 of the things I'm watching pretty close is we've got quite a few construction large construction projects that are coming to fruition and coming to an end. So we're staring, you know, quite a bit of what I would call payoff money, you know, in that, in that third and fourth quarter of those, if those projects go to the permanent market. So we're kind of tempering our our record off our kind of our record-high pipelines right now, that some of that payoffs down the road. So I'm still comfortable in that mid single-digit number for the end of the year. But if some of those payoffs get pushed off in the in the next year or you know, a couple of extra projects come in. We could we could exceed that but I tell you, to be a much more comfortable than single digits understood. I appreciate the color there. And then Thursday, last 1 is a follow-up to the margin discussion. So, I think you guys mentioned an additional kind of 10 basis points from the balance sheet. Restructuring, talked about some other positive catalysts, like, funding cost reduction.
And and putting some of that excess liquidity to work. So could you guys share kind of like Glide path as to where you think the margin shakes out over the next couple of quarters?
She says that, you know, normalize when you with PPP and whatnot, I guess that's the Wild Card Russell PPP and how quick that prepays. So I guess if you take that off the table, I mean, it could be a 3738 kind of number just depends on the PPP. Yep. Understood. Okay, talk about where I was shaking out too. So I appreciate it. Thanks for taking my questions.
I mean, I guess the math on the back of my
This concludes our question-and-answer session, not like the time, the covers back over mr. Shaffer for closing remarks, please go ahead. I just want to thank everyone for listening and participating in the call again we are very pleased with our second quarter and look forward to talking to you again in a few months to share our third-quarter results so thank you for your time today.
Conference is now concluded. Thank you for attending today's presentation. You may now disconnect