Q3 2022 Civista Bancshares Inc Earnings Call
[music].
Yes.
Good day.
And welcome to the service the Bancshares' third quarter 2022 earnings call.
All participants will be in a listen only mode today.
Should you need any assistance. Please signal conference specialist by pressing the Starkey followed by zero on your telephone keypad.
Before we begin I would like to remind you that this conference call may contain forward looking statements with respect to the future performance and financial condition of <unk> Bancshares and could that involve risks and 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 made during the call. Additionally.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures. The press release also available on the Companys website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures.
This call will be recorded and made available answer Vista Bancshares' website at Www Dot C. I V B E Dot com.
At the conclusion of Mr. Shapers remarks, he and the service the management team will take any questions you may have.
Now I'd like to turn the call over to Mr. Schafer.
Good afternoon. This is Dennis Shaffer, President and CEO of <unk> Bancshares, and I would like to thank you for joining us for third quarter 2022 earnings call.
I'm joined today by Rich Dutton SVP of the company and Chief operating officer of the Bank Chuck Parcher SVP of the company and Chief lending officer of the bank and other members of our executive team.
Let me start by noting several significant accomplishments or transactions that occurred during the third quarter.
This morning, we reported net income of $11 $1 million or 72 cents per diluted share for the third quarter of 2022, and net income of $27 3 million or $1.82 per diluted share for the nine months.
Ending September 30th 2022.
This is a direct result of our continued focus on growing and diversifying our revenue streams and the disciplined approach that we take in managing the company.
We closed our transaction with community Banc Corp. On July 1st and completed the systems conversion over this past weekend. In addition to adding adding approximately $174 million of loans and $251 million of low cost core deposits to our balance sheet. We.
We are excited to introduce our new northwest, Ohio customers to the products and services that suggests the has to offer.
Loan growth across our footprint continues to be strong.
Even after adjusting for the loans that came to us via community Bank loans grew organically by $93 million or 18% on an annualized basis during the quarter.
Due to our strong core funding and rising interest rates, our margin expanded by 60 basis points over the linked quarter as new interest, earning assets were added at higher yields and existing loans re priced our deposit betas move slower and as a result, our fun.
And cost only increased two basis points.
Our return on average assets was 1.35% for the quarter compared to 1% for the linked quarter and a return on average equity was $14 four 5% for the quarter compared to 9.86% for the linked quarter.
Year to date, our return on assets was 1.14% and our return on equity was 11.34%.
We continue to be active in repurchasing common shares during the quarter, we repurchased 286611 shares year to date, we have repurchased 734810 shares or 4.9% of the outstanding shares.
At December 31, 2021.
Finally, we were excited to announce the acquisition of vision financial group, a full service business equipment leasing and finance company based in Pittsburgh, Pennsylvania. The transaction closed on October 1st We believe the addition of the small ticket commercial leasing company to the service the family fare.
Other expands our revenue streams.
Now, let's turn our attention to our income statement, then our balance sheet.
Net interest income increased $6 $2 million or 25, 4% over the linked quarter and $6 million or 24, 6% year over year net interest income for the first nine months of 2022 increased $5 5 million.
Or 7.7% comparing to 2021 the increase was primarily the result of our excellent organic loan growth throughout the year, the rising interest rate environment and the acquisition of community Bank Corp. This past quarter.
This increase was particularly impressive given that there were significant P. P. P fees amortized into interest income in the prior year.
As I stated we are extremely pleased with our loan growth for the quarter. Excluding P. P P fees.
PPP loans and the loans acquired via our community Bank transaction, we were able to grow loans organically by $93 million or four 5% for the quarter, which is 18% on an annualized basis.
At the end of the quarter of the approximately $400 million in P. P. P loans. We originated during 2020 in 2021 only $819000 remained outstanding without question. This program was a success for our business customers and communities throughout our footprint.
Our net interest margin was 4.03% for the quarter and 3.62% for the first nine months of 2022, respectively. Both measures reflect expansion over the comparable 2021 periods. Similarly, our margin expanded by 60 basis points.
It was a linked quarter from 343% to 4.83%.
The yield on earning assets increased by 48 basis points compared to the prior year quarter and increased by 63 basis points over the linked quarter as new loans are being originated at higher rates and loans already on our books reprice at higher rates argued on earning assets for the first nine.
Months of 2022 grew by 17 basis points compared to the same period in 2021, even though our 2021 loan yields were augmented by the accretion of $9 $8 million in P. P P interest and fees.
Funding costs for the quarter ticked up by eight basis points over the prior year quarter and year to date compared to the prior year increased by two basis points in comparison to the linked quarter or third quarter funding cost also ticked up by two basis points.
During the quarter non interest income was consistent with the linked quarter at $5 $7 million and declined $692000 in comparison to the same quarter in the prior year.
The primary driver of the decrease from our prior year quarter was a decline in gain on the sale of mortgage loans of $975000, which were partially offset by a $366000 increase in service charges.
Third quarter gains on the sale of mortgage loans were $637000, an increase of 11, 2% from our linked quarter as we return to our more typical mortgage banking activity of financing new home port purchases.
You will recall that we recognized a $1 $8 million gain on the sale of our visa B shares as part of our balance sheet restructuring in the second quarter of 2021, which contributed to the year to date decline.
However, the primary driver of the decrease in our non interest income was a $4 4 million dollar decline in gains on the sale of mortgage loans.
For the nine months period, noninterest income declined $5 $6 million or 22, 8% in comparison to the prior year.
Wealth management revenues were consistent comparing our third quarter to the linked quarter as was our wealth management year to date revenue at $3 $7 million compared to $3 $6 million in the prior year.
We continue to add new accounts and our existing clients continue to make additions to their existing accounts, which helped us keep pace with the decline in the overall market. While we anticipate that market pressures will continue to be a headwind for some time, we view the expansion of these services across our entire footprint as an.
<unk> to diversify and grow non interest income.
Noninterest expense for the quarter was $22 $6 million compared to our linked quarter of $24 million $788000 or the 2.2 million dollar increase was the result of one time deal costs associated with the community Bank transaction.
Noninterest expense increased $2 $5 million or four 1% year over year as the prior year balance sheet restructuring cost were replaced by increases in compensation expense professional fees software maintenance expense and nonrecurring expenses related to our community.
Bank transaction.
You may recall that during the second quarter of 2021, we incurred $3 $7 million prepayment penalty on our early termination of a S. H L. B long term borrowing.
Compensation expense increased $2 $1 million or 6% over the prior year, primarily due to annual salary increases which go into effect each year in April and the addition of approximately 44 former community Bank employees on July 1st.
Professional fees increased $1 $3 million or 59, 3% primarily related to $839000 in legal and investment banking fees related to our community Bank transaction.
Total expenses related to the community Bank transaction were in line with our expectations and totaled $1 $9 million through September 30th.
Our efficiency ratio was 61, 4% compared to 67% from the linked quarter.
And 64, 4% year to date, if we had adjusted for one time deal costs, our efficiency ratio for each of those periods would have been 59, 7% 66, 1% and 62, 9% respectively.
Year to date, our total loans increased by $337 million, which includes the addition of $174 $3 million of loans from community Bank and a $42 4 million dollar reduction in P. P pillows.
Excluding the community Bank N P. P. P loans, our loan portfolio would have grown by $198 $8 million or at an annualized basis of 13.6%, making the adjustment for community Bank N. P. P. P. Our third quarter growth was $93 million or <unk>.
18% on an annualized basis demand for commercial real estate and virtually every one of our markets continue to drive the majority of this increase.
Along with our strong year to date loan production, our Undrawn construction lines remain near an all time high at $163 $4 million at September 30th.
While we believe the higher interest rate environment will inevitably slow the economy and loan growth. We are confident that even in the face of the anticipated headwinds we will grow our loan portfolio at a high single digit rate for the balance of 2022 and at a mid single digit growth rate in <unk>.
2023.
On the funding side, we experienced growth in every category, except interest bearing demand with total deposits, increasing $291 $6 million or 12, 1% since the beginning of the year.
The addition of community banks low cost core deposits accounted for $251 million of this increase.
Non interest bearing demand accounts continue to be a focus and made up 37% of our total deposits at September 30th.
As we continue to attract operating accounts of our business and municipal customers.
Even in light of the uncertainties associated with the economy, we have not seen any real deterioration in our customers' financial positions across our footprint.
While we did make a $300000 provision during the quarter. It was attributable to growth in our loan portfolio rather than economic stress. In addition, we have realized $132000 in net recoveries year to date.
The ratio of our allowance for loan losses to loans at September 30th declined slightly from December 2021 from 1.33% to $1, one 9% as did our allowance for loan losses to nonperforming loans, which was 476, 2% at.
30th compared to 496, 1% at the end of 2021.
I would note that if we include the credit Mark of $2 $8 million associated with the community bank's loans, our ratio of allowance for loan losses to loans would have been 1.31% at the end of the quarter.
We continue to be on track to adopt the new Cecil allowance requirements beginning in 2023.
The higher interest rate environment and the pressure. It has had on the bond market resulted in a $78 8 million dollar decline from December 31, 2021 to September 30th in other comprehensive income related to our investment portfolio.
As a result, we ended the quarter with a tangible common equity ratio of six 5% compared to 9.25% at December 31 2021.
Despite this decline our tier one capital ratio at September 30th was 9.32%, which is well above what is deemed well capitalized for regulatory purposes.
So this continues to create capital through earnings and our overall goal remains to have adequate capital to support organic growth and potential acquisitions two important parts of our capital management strategy continues to be the payment of dividends and share repurchases.
We continue to believe our stock is a value.
During the quarter, we repurchased 286661 shares of common stock for $6 $1 million for an average price of $21 33 per share.
Year to date, we have repurchased 734810 shares or 4.9% of our shares that were outstanding at December 31, 2021, we have an authorization of approximately $6 $2 million remaining in our current repurchase program.
So just to understand the opportunities growths brings to our customers employees and shareholders.
Any of our employees were involved with the planning and execution of our recent conversion and I could not be more pleased with what the way they continued to manage their daily responsibilities.
It has been a summer of much planning and even more work and to see the way. The conversion came together this past weekend reinforces my pride in our team.
As I indicated earlier, we closed our transaction with vision Financial Group, Inc. On October 3rd.
Vision is an equipment leasing and finance company with over 30 years of history based in Pittsburgh, Pennsylvania that brings a new revenue stream to service the well not exclusively they do focus on six industry sectors propane recycling recycling and waste management and environmental additive.
Factory construction and non destructive testing.
I have said on previous calls that each transaction must be a cultural fit I'm confident after our extensive due diligence process that both organizations drive results by building strong customer relationships and by providing a superior customer experience.
Highlights include.
The consideration mix was 84% or $28 6 million cash and 16% or 5.25 million stock. We expect the deal to be immediately accretive ramping up from being <unk>.
Six 4% accretive in year, one to being 15, 1% accretive in year, two as vision Leverages, our low cost funding to transition into a bank funded model.
The deal has a three point.
Eight year tangible book value earn back.
Our employees will continue to work towards a successful integration over the fourth quarter and we look forward to leveraging both of our client base is to grow our commercial loan and leasing businesses.
In summary, we are pleased with another quarter of excellent earnings continued loan growth and solid credit quality.
Fight the volatile interest rates, the economic uncertainties and inflationary pressures. We are all facing we remain optimistic businesses and consumers across our footprint continued to have strong balance sheets. Our loan pipelines are solid we successfully integrated community banking as a service the family and are well on.
Her way to the same successful integration of vision financial group.
Thank you for your attention this afternoon and now we'd be happy to address any questions that you may have.
We will now begin the question answer session.
Ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Yeah.
And our first question here will come from Terry Mcevilly with Stephens. Please go ahead.
Good afternoon guys.
Hi, Harry Terry.
Maybe start with a couple of questions on vision, if if I could first off is that included in your your loan growth outlook for the remainder of this year and next year and then just as a follow up there can you help me understand the balance sheet impact as you kind of build loans, where would you expect that portfolio to be at the end of next year.
Any reserving that would be connected with that and and I guess the last piece is the expense side. Just so we can kind of back into that that accretion that was discussed earlier on the call.
Yeah.
It's not included in any of our numbers for the remainder of the year Terry and then I think your second was the balance sheet impact we would see most of that balanced terrorism, Chuck that we see most of that balance sheet impact obviously in the C&I portion of our of our lending side.
I'm not sure I know rich is looking for right now I'm not sure we've actually modeled out yet from from that perspective, what the the.
The provision etcetera would be yet.
Terry.
It came together and we've been trying to do this conversion and I'd I'd be less than honest with you I said, we had good good expense numbers for the fourth quarter, we will get those out to you. We will do it for everybody will issue an 8-K, that's got that number on it but I don't have a good run rate for the fourth quarter. That's got the division numbers in it.
Okay.
I appreciate that and then on the deposit costs what are your thoughts on deposit costs going forward, you've done a great job holding holding them low end you know have you raised deposit rates here in the month of October .
Yeah, when we look for the deposit beta I think to increase obviously it was virtually nothing in the third quarter, we are feeling a little bit of pressure, but we still think that we will have some margin expansion in the fourth quarter here. We have raised deposit rates are slightly up.
And we'll continue to watch that but you know there is pressure on deposit rates right now that deposit beta is gonna be a little bit bigger than it was this past quarter, we know that but we do think that will continue to have some margin expansion as rates rise here in the fourth quarter.
Terry This is rich and we've consistently kind of model that 13 basis point beta on them.
Non maturing deposits and that's still what our model tells us I mean, we've been have done a pretty good job like you you alluded to and kind of holding the line and like Dennis said, we've kind of approached a number of our larger depositors a lot of municipalities are kind of on a one on one and negotiated deals I mean, I think we're feeling pressure for sure and we're taking care of them.
Kind of a one on one as we go forward, but there may be a time in the next quarter or so where we might have to do some some.
Across the board not big increases, but certainly a wider wider ranging increases yeah.
<unk> of our franchises is strong core deposit base that we have and you definitely see it in times like this I think you saw it in the third quarter results I think you'll continue to see it and you know I I can I'll continue to say that I think that's what you know will separate the high performing banks from one another the banks would have there.
Growing core deposit base and as I mentioned in my comments, we have 37% noninterest bearing deposit.
Deposit accounts.
Maybe I'll squeeze one last one in the maybe just talk about the Toledo market now that that conversion has occurred and as part of their conversion I.
Should I ask the question have you had any loss of customers or our key employees since that deal was closed thanks guys.
No we've not lost any employees and we've really not lost any accounts balances were pretty flat in that third quarter. Both on a more on a deposit and oh on the loan side I think they were fairly fairly flat, we are integrating them and now Chuck's Chuck's work.
And Oh on hiring we had in our original budget, just our budget alone to add or add a person for that area. So I'll, let Chuck comment a little bit further on maybe some of the personnel and stuff. We're working on right now hiring what I would call a market exactly we didn't have as Dennis mentioned, we did not lose anybody to the competition.
Per se from of.
Of any substance.
For the first half perspective, we did have one of their senior lenders retire.
<unk> decided to retire at the time of conversion. So we're looking to replace them. We're looking to name a head in and actually looking for another lender as well so you know.
I feel like we'll get that entire group built out by the end of the year.
And remember Terry Chuck's background was Toledo, that's where he was born and that's where he spent most of his banking career. So you know he's got a lot of context, there not only with customers, but with with our with the other bankers.
Bankers in the market.
Yeah.
Thanks for the reminder, and thanks for all the information.
You bet.
Our next question here will come from Tim Switzer with K B W. Please go ahead.
Hey, good afternoon.
Right.
Sure Tim.
Well My first question was on the loan guide for.
Like deceleration from <unk>.
Mid single digits.
Yeah.
And that you know.
And the economy.
Here or.
Yeah.
We're having a hard time.
Here your understanding I don't know if here it sounds a little muffled yeah.
I don't know if it's just our end or.
Yeah.
I'm sorry is this better.
Okay, I'm, sorry, I didn't want to read any closer to the [laughter] I don't want you to do that for me.
Yeah. My question was on the the loan guide you know a little bit of a deceleration from high single to mid single digits. In 'twenty three is that assuming some weakness in the economy. Just given you know the impact of fed tightening and the recent trends we've seen and then you know like let's say the economy kind of holds up is there upside.
<unk> maintained the high single digits.
Yeah, I think Tim This is Chuck I think there is upside if if it does hold up you know were pretty clear, we feel pretty clear based on our pipeline right now through you know through November and probably end of December and then it becomes a little hazy as we look out past that that's you know we have normally been a from a budget perspective amid a mid to high single digit.
Planner and that's kind of what we're starting to starting to build our plans around but if the economy does hold up I would say, yes. We can you know what we'll be looking at that higher single digits to lower double digit piece going forward.
Tim.
We're we're new to leasing, but then those projections. We are just starting to kind of get our arms around what the leasing division.
And the impact that will have on our loan and lease footings going forward too.
Right and to be clear you're that mid single digit rate in 'twenty three does not include visit right.
Correct.
Okay Alright.
And then do you guys have I'm, sorry, if I missed it you guys have what the impact of purchase accounting was on NII This quarter.
I'm sure it wasn't big but just trying to get a handle on it.
This is where the music start forward.
One four basis points four basis, okay, great. Thank you.
And then I know, it's been you know, it's kind of tough to guess, where the NIM is going ahead, but more generally do you think at some point in 'twenty three probably like middle of 'twenty. Three once we've had a lot of the asset repricing finished deposit betas will still be catching up. So you know is there.
Is there a scenario, where we start to see a little bit of NIM compression.
In the second half of 'twenty three.
Driven by the deposit betas, and I know the leasing portfolio growth could maybe offset that but.
I'm forgetting that part.
Right.
As rich again, and I you know historically I mean, we've done a pretty good job of being disciplined and repricing of our deposits certainly if if if the fed kind of levels things out after another increase or two.
Logic would say that deposits would creep up a little bit, but again, we're just talking basis points I again with such a huge portion of our funding a 37% of our deposits non interest bearing and 19, 91% of those deposits are basically in low cost deposits. So they are in personal.
Savings or or business checking and in personal.
Checking so you know we don't have a heavy reliance on C. D. So I think we will have less impact, but you know I think once the rates slow down and and you. You know you I don't know if we'll see large and cooked meal significant margin compression, but it'll certainly flattened out quite a bit.
Right, Okay that makes sense. The other point that we would want to make those noninterest bearing deposits.
70% of them I don't know.
71% of those are business account. So it shows our operating lines that really aren't interest rate sensitive. If you will I mean, our our lenders and I don't I don't credit them, often my heart lenders do a great job of gathering deposits when they gathered loans, we really do a good job of I mean, we don't do.
Transactions, Tim we're a relationship bank like Dennis alluded to during his comments.
And that's again I think that pays dividends when rates start to move I think again, we will see some compression when when the music stops, but it's not going to be significant.
Okay. That's helpful and the last question I had do you have you guys been running like a parallel Cecil.
Accounting and do you know what the impact will be next quarter or have any idea.
Good boy, that's false start we've been running in parallel for a couple of quarters now and I don't you know based on the numbers today I don't think we're going to see a huge change, but I would say that a lot of that is going to depend on what happens over the next three or four months.
I could just interject for one second before polymer speaks we're gonna adopt Cecil on January 1st right, what's that going to be the next quarter it'll be right one karate.
Alright, okay.
You know I think it was basically the question I always get is is that there is a moderate and a throw us.
A significant impact I would say overall no.
So you know, but we're far from the point, where we can start saying hey, here's what the number is going to be.
Okay Awesome I appreciate it that's all for me.
Thanks, Tim.
Our next question will come from Nick <unk> with Piper Sandler. Please go ahead.
Good afternoon, everyone how are you.
Hi, Nick.
Can you help us think about the cost savings from the community Bank deal and how much do you expect to extract out of the run rate in future periods, just especially given the recent systems conversion.
We had 35% cost saves modeled 75% of them went in and you know really this this year I think 25% or more in the next year Nick.
So and we've we've we've realized most of those you know most of those cost saves will take place a lot of them in compensation and employee compensation because remember the four most senior people at the bank.
Basically have retired.
Yeah that was a lot of that compensation expense.
So this unlike a lot of the acquisitions that we've done we you know we recognize that almost immediately those people did stay on to help us through this conversion period and stuff, but we will start recognizing those almost immediately now Nick.
Nick will get you some better numbers, but if you take the one time costs out of Q3.
Costs are our noninterest expense was about $28 million.
And I would say, that's probably a good proxy ex vision.
For Q4, and we'll get you a better number I apologize I'm, usually better than this and I just don't have it now.
No apology no apology necessary, thanks, Rich and lastly, I just wanted to touch on capital return and the active share buybacks. So in light of your current tangible common equity and further anticipated dilution from the vision deal can you give us some color on your appetite for continued repurchase.
Yeah, I think you know, we we still think that's a great way to deploy capital.
We've kind of paused a little bit here over the you know.
Kind of just.
You know paused a little bit I think we're thinking about that we want to see how these numbers shake out.
Once you know with the vision stuff, we see how they've shaken out now with H C. B.
So we're being very mindful of that.
As we move forward, we are creating capital with our earnings and nil earnings are stronger than they've ever been and so I think that's a plus and we are as things roll out you know yeah. We think this is somewhat temporary you know get past. This next this fourth quarter yeah. If these rate increases.
Slow down because we are replacing things roll in maturing in the portfolio with higher yielding assets and stuff. So we do think that trend will eventually reverse so.
So those are our thoughts I guess around that.
Terrific. Thank you very much I appreciate you taking my questions.
Thank you Nick.
As a reminder, if you have a question you May press Star then wanted to join the queue.
Our next question here will come from Manwell, Nevada with D. A Davidson. Please go ahead.
Hey, good afternoon.
I'm Danielle.
And so.
Going back to the NIM discussion.
Can you just remind me have you.
Kind of firmed up yet what type of yields you're going to pursue.
Transaction I think you were modeling, 8% to 9% is that right.
Yeah, 8% was what we modeled on the vision transaction, we should view rates have risen since then.
So we should we should be you know, putting all those things a little higher than that number but.
It just depends on the mix it there'll be able to generate they will we do think there'll be a little bit more competitive and going after some of these larger corporation lease deals that was one of the things that I think they found us attractive those rates are higher than our loan rates are.
But they're not you know.
Well, if we're lending at six and a quarter today, they may be lending or leasing that at 7% or 7% quarter on those.
Higher.
It was larger deals and stuff. So Chuck you had any color more do you want to add there are no I you know I am comfortable with the 8% number that we put out there.
Our capital our capital or our pricing structure gives them at what I would say is if you said their average customer was a three way a customer in the past it gives them a little bit of opportunity to bid on some more higher quality credits are leases with.
If I had to read credit, which make them, we'll give them the opportunity and maybe come off that 8% number but I would say in general that 8% number looking forward as Doug said was it was a good number to look as you're modeling forward.
It seems like there's still a lot to work through it but I wanted to bring that back to the NIM discussion.
How high can you peak out because.
A lot of thought.
We talked to you were talking about a peak NIM in the first half of next year, but you're going to still be adding vision.
Vision assets.
At a at a much higher accretive to the loan book.
Right.
Could you still see demand rising past.
So you got to get through the rest of next year.
But potentially you know we're working through right now to just to try to figure out how much we want to hold how much we want to sell you know so youll, probably see some more gain on gain on sale type.
Numbers looking forward into into next year.
You know that some of the stuff that we're still working through on a mix perspective to try to decide.
How much were going to hold you know, there's a lot of that will depend on how our.
Loaded loan deposit ratio kind of increases over that time period, but.
Yeah. So we're just going to watch that I mean, you know we we modeled.
About retaining 50 in selling 50, what you know, but some of that's going to depend on where those loan to deposit ratio shake out currently we're about 89% loan to deposit.
So we got plenty of run room right now.
Which I think will be very beneficial a vision that is on pace to do $120 million to $130 million in loans or leases. This year, who even bottled close to about 155 or so so you know if we retain half of those there's $75 million.
So that perhaps goes on it or should go on at higher yields so that will definitely be a benefit for us and that's one of the reasons we liked the deal.
We will not only wanted to diversify our revenue streams, but you know we're picking up.
Our revenue stream that we think set a little bit higher yielding than what our what we have out there today.
And it's also in the other department really like about it is the synergies it has with our within our organization we've already seen in the first couple of weeks.
A few quite a few referrals going back and forth and we really think that especially in our C&I C&I customer base, it's a way to bring in a leasing company instead of instead of them coming to one of our competitive banks that has leasing right now they may end up losing the customer long term. So the synergies are great within this deal and we didn't model any of those synergies.
And our base model. So we didn't you know that would all be.
All lift for us.
Okay.
That's really helpful and just confirm I think it's come up with.
Your loan guidance for next year does not include vision yet.
Correct.
And then.
Okay.
With with how well you've kept in deposit costs is there any.
Any update to the through the cycle deposit beta there or is that kind of you're still assuming the same same rough percentage.
Well I think again, we will we do anticipate margin expansion the deposit beta will be more than it was this the third quarter because it was virtually nothing so it will be slightly more but well again.
I just looked back to the 16 17 18 time period, one before rates had fallen our margin was 55 to 60 basis points better than our peer banks as margins then as rates started to fall.
Our peers caught up a little bit to us we were still 15 to 20 basis points, because we had less room for improvement now in Florida now as Theyre going back up we feel we are we've proven that we were disciplined before we're going to stay disciplined again, we think that our margin.
Is going to remain.
<unk> healthier than some of our peer banks.
Just you know just what we've done in the past and then we're back in that cycle with rising rates.
Okay. That's great that's great I appreciate it.
I appreciate the problems.
Our next question is a follow up from Terry Mccafferty with Stephens. Please go ahead.
I think just one more I figured that the TV keeps telling me we're in a recession. So I should ask a credit quality question when I when I look at your CRE portfolio, which is which is you know quite a bit over $1 billion have you stress tested for higher interest rates as those loans mature and then within the CRE maybe talk.
What you're seeing in office retail or hotels or anything else that you're watching closely.
Alright, I'll start the first one Paul so so I think you know that we do have a significant amount of CRE out there and we have been stressing. This as we go we will you know when Covid hit we really started monitoring these things even more.
Completely than we did in the past. So we're looking at you know on the construction deals. We're looking at the interest reserves to make sure that they're on top of that we're making sure that that are getting more frequent financials. As we go we really haven't seen much deterioration in this at all in fact, we see in the hotel at all of the hotels are all the criticized that we had built up.
Over Covid has really been upgraded since that time.
And then maybe probably a little bit more of a leisure mix than business, but they are all returned to pre pre COVID-19 revenues. So from that standpoint, we feel pretty good about it I don't think we're going to open the door and start doing a lot of them, but clearly are I think the the the concern we had at the time is gone I think as we go forward.
You know office.
Still a big question, Mark what's going to happen there, although the vacancy rates have not significantly deteriorated in our markets.
Terry you know looking across the at least from the sales side or the sales perspective, you know our markets have been really stable as Paul mentioned, we're watching office, but we're not seeing any deterioration in office.
Columbus, you know from a growth perspective, with Columbus, with Intel announcements and the University et cetera, you know that market continues to develop very strongly we've had great growth. So far this year and both Cleveland and Cincinnati Metro areas. So we feel really good about our markets, we're not seeing much decline.
You know knock on wood hopefully that are you know that continues into the into next year and we've always stressed our rates Terry I mean, even when rates were low we did 100 203 hundred up environment. So we do stress those I think we did have you know we do a pretty good job.
Looking at how liquid are borrowers and co borrowers are we look at leverage we look at cap rates cap rates are at historically low so when we're looking at a deal and.
Can we say Jesus.
65% loan to value based on what.
What the appraisals coming in that well if they can't have that cap rate was five and a half you know we're like well what is it that six and a half okay. Instead of 65 and a half it's 74% or something we we we want to know that as we go in and I think we do a pretty good job in the underwriting and that's why I feel pretty good.
We don't do go into a recession because it.
Not only us, but I think all banks have really beefed up the way they underwrite credits and stuff and just to remind you. We don't have a lot of office, we have about five 5% in hotels.
About 6% in office and we don't have any tall.
Office buildings, you know big downtown office buildings, most of ours are either single storey office buildings or couple story office buildings and stuff so and those those right now that the Occupancies are really good really good with those so what we are doing a very good job I think of <unk>.
Dressing rates and stressing cap rates and in some of the other underwriting.
So now not only in the underwriting as you said, but also we did kind of a bottom up top down of our existing portfolio. After the fact, so I haven't really seen anything jump out that we're really concerned about but there's a lot of noise out there from a standpoint of increased costs, but nothing has really hit so far yeah.
And I guess, one last I guess the thing that I watch relatively closely Terry as you know, what's our outstandings on our revolving lines of credit and you know obviously almost all of our commercial revolving line of credit and got paid way down during during a all of the governmental.
Stimulus money that came in and we used to run closer to 50%, 60% on those revolving lines.
We're running right now in the low mid to low Thirty's I think at quarter end I think we were at 36% and it actually went down a little bit even when we brought them.
Henry County, and I think we're I think last I looked a couple of days ago was about 33%. So you know what.
We're not seeing any stress on our what I would call our core corporate customers to be drawing on their lines of credit.
Great I appreciate all that thanks again.
I think Sarah Hughes.
Yeah.
With no remaining questions, we will conclude our question and answer session.
I'd like to turn the conference back over to Dennis Shaffer for any closing remarks.
Thank you in closing I, just want to thank everyone for joining and those who participated in today's call again, we are extremely pleased with our third quarter results.
I do believe that our strong low cost core deposit base.
<unk> as well as we move forward I look forward to talking to all of you in a few months to share our year end results. So thank you for your time today.
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.