Q3 2023 Civista Bancshares Inc Earnings Call
Excuse me. This is the conference operator, thank you for your patience look whole begin shortly thank you.
[music].
But 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 Sophistic Bancshares, Inc.
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 this call. 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 company's.
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 on services Bancshares' website at Www Dot C. I V B dot com.
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At the conclusion of Mr. Shapers remarks, he and the service the management team will take any questions. You may have now I will turn the call over to Mr. Schafer.
Good afternoon. This is Dennis Shaffer, President and CEO of <unk>, Bankshares, and I would like to thank you for joining us for our third quarter 2023 earnings call.
Joining today by rich Dutton SVP of the company and Chief operating officer of the Bank Chuck Archer SVP of the company and Chief lending officer of the bank and other members of our executive team.
This morning, we reported net income for the third quarter of $10 $4 million or 66 cents per diluted share, which represents a six 5% decrease from the third quarter of 2022.
Net income of $33 3 million or $2 12 per diluted share for the nine months ended September 32023, which represents a 22, 1% increase over our first nine months of 2020 twos performance.
Our strong third quarter and year to date performance. We're setup by continued growth in our loan and lease portfolios, which grew at an annualized rate of 18% for the quarter and 10, 9% year to date. This was organic growth and I believe is indicative.
On the strength of our markets and our organization, while we do not anticipate continuing to grow at this pace. We do anticipate continued growth at a single digit pace for the balance of the year and into 'twenty 'twenty four.
This growth in the higher rate environment led to higher net interest income for the linked quarter and year to date, which translated into record net earnings which were up 22% over the same period in the prior year.
In the face of funding pressures, our margin compressed, albeit at a slower pace than the previous quarter coming in at $3 six 9% for the quarter and 388% year to date, our yield on earning assets increased by three basis points during the quarter to five.
Three 4% and was 5.29% year to date, however, the cost of funding of our balance sheet increased by 21 basis points during the quarter to 172% and was 147% year to date.
During the quarter, we continued our measured approach to increasing rates paid.
On some of our higher tier demand deposit accounts and select Cds. This led to an increase in our cost of deposits, excluding brokered by 18 basis points to 26, 7% during the quarter.
All in our funding costs increased by 41 basis points from our linked quarter to 172%.
During the quarter, we experienced what has become our typical decline in total deposits, which were down 147 million for the linked quarter I say typical because of the decline was due to the seasonality of the deposits related to our tax business, which were down $187 million from the linked quarter.
Sure.
Yes.
As we noted in our earnings release, we made the decision during the quarter to step away from our income tax refund business for 2024 since the first quarter of 2021, when we mistakenly received five $6 billion in stimulus payments from the U S government.
We began receiving an increased volume of complaints from taxpayers looking further stimulus payments.
Since then the amount of information required by our regulators to closeout. Each complaint has increased while our business partner TPG.
Brian on the research related to these requests it has become apparent that our regulators view of the program is changing and we felt it better to step away before it became something that might inhibit future M&A activity, we will look to our new leasing division other Rev.
New opportunities and tighter expense controls to help us replace this lost revenue next year and into the future.
Yesterday, we announced a quarterly dividend of <unk> 16 cents per share.
This is consistent with our prior quarter dividend and represents a 24.2% dividend payout ratio based on our year to date earnings.
Our efficiency ratio for the quarter was 66, 5% compared with 67, 9% from the linked quarter and 65, 5% year to date.
However, if we were to back out in depreciation expense related to our operating leases from our new leasing company, our efficiency ratio would have been 62.6% for the quarter and 61, 7% year to date.
Our return on average assets for the quarter was consistent with our linked quarter at 111, 2% and our return on average equity was 11, eight 3% for the quarter compared to 11.58% for the linked quarter.
Year to date, our return on assets was $1 two 4% and our return on equity was 12, 8%.
During the quarter non interest income declined $1 million or 11, 2% in comparison to the linked quarter.
<unk> $2.4 million or 41, 7% in comparison to the prior year's third quarter. The primary drivers of the decrease from our linked quarter were declines in lease residuals fees from our income tax refund processing program and other non interest income.
Consistent with prior years income from our tax programs is hard during the first and second quarters.
The primary driver for the increase over the prior year's quarter was $1 $9 million in lease revenue and residuals generated by our leasing division, our leasing division and that revenue stream, we're not a part of service until the beginning of the fourth quarter and 2022.
Year to date non interest income increased $9 $3 million or 49, 1% in comparison to the prior year.
The primary drivers of this increase were $6 $2 million in lease revenue and residual fees from the addition of our racing Division. In 2022. These fees are primarily made up of operating lease payments and gains on the sale of equipment at the end of the lease term.
Also included in other non interest income was $1 5 million our owners, we received for entering into a new debit brand agreement during the first quarter and $707000 in interim rent payments generated by our leasing division that we did not have in the prior year.
Sure.
Wealth management revenues for the quarter were consistent with the linked quarter and declined slightly year to date compared to the prior year.
While we anticipate that market uncertainty will continue for some time, we continue to view the expansion of these services across our footprint as an opportunity to diversify and grow non interest income.
Noninterest expense for the quarter of $26 $8 million represents a four 2% decline from our linked quarter as we experienced improvement in nearly every line item of non interest expense.
Year to date noninterest expense increased $19 $1 million or 32% over the prior year. Much of this increase is attributable to growth from our acquisitions of commuter Bay and ESG and the third and fourth quarters of 2022.
Our compensation expense increased $7 $5 million were 24% over the prior year.
The bulk of the increase is due to $6 $1 million in additional salaries commissions and benefits attributable to new employees from last year's acquisitions. The balance of this increase is attributable to normal benefit and merit increases.
Well, we do have seven additional branch offices as a result of our community Bank acquisition. The $7 2 million dollar increase in occupancy and equipment expense was primarily due to an increase in depreciation expense on equipment related to our new leasing division.
Equipment under operating leases.
And appreciate advice to this until the end of the lease or depreciation related to operating leases was $6 $1 million year to date.
The increase in other non interest expense was primarily due to a $595000 provision for credit losses on unfunded loan commitments that was a new expense category, resulting from our adoption of Cecil in January like.
Like many in the industry, we experienced an increase of $353000 bad check losses year to date, we also experienced 608 thousands of increases.
In a number of other expense categories related to our new leasing.
Yeah.
Turning to the balance sheet year to date, our total loans have grown by $208 $2 million, which includes $32 $9 billion of loans and leases originated by our leasing division.
This represents an annualized growth rate of 10, 9%.
Number of banks in our markets have curtailed their lending.
Efforts, which we view as an opportunity opportunity for new and expanded lending opportunities to increase our spreads on those loans and the opportunity to require new and increased compensating deposit balances.
While we experienced increases in nearly every loan category. Our most significant increases were in non owner occupied CRE and residential real estate loans and lease financing receivables.
Loans, we are originating are virtually all adjustable rate loans and our leases all have maturities of five years or less.
Loans secured by office buildings make up 5.5% of our total loan portfolio. These loans are not secured by high rise office buildings, rather they are predominantly secured by single or two story offices located outside of central business districts.
Along with year to date loan production, our Undrawn construction lines were $239 5 billion at September 30th we anticipate loan growth to moderate to a low single digit rate for the balance of 2023 and into 2024.
On the funding side total deposits increased $175 8 million or 647% since the beginning of the year.
However, if we were to back out non core tax program in broker deposits, our deposit balances declined 1% year to date when compared to what we are seeing across the industry. We believe this illustrates the strong relationships, we have with our commercial and retail customers.
Our deposit base is what we would term as fairly granular with an average deposit account excluding Cds approximately $26000.
Noninterest bearing demand accounts continue to be a focus.
Excluding tax related and broker deposits non interest bearing deposits made up 32% of the remaining total deposits at September 30.
With respect to FDIC insured deposits. Excluding so this this one deposit accounts and those related to the tax program, 14.5% or $404 $5 million of our deposits were in excess of the FDIC limits at September 30th.
Our cash and Unpledged Securities at September 30 were $430 million, which more than covered these uninsured deposits.
Other than $361.1 billion of public funds with various municipalities across the blueprint, we had no concentration in deposits at September 30.
At September 30th our loan to deposit ratio, excluding deposits related to our tax refund processing program was 101%.
As I mentioned, we are having success requesting additional deposits and compensating balances from our commercial customers and we will continue to be disciplined in how we price our deposits and we will take advantage of brokered funding funding what do we think it makes sense.
We believe our low cost deposit franchise is one of the most valuable characteristics contributing significantly to our strong net interest margin and overall profitability.
At September 30th all of our $595 $5 million in securities were classified as available for sale and had $93 $1 million of unrealized losses associated with them, which puts pressure on our tangible common equity.
At quarter end, our tangible common equity ratio has declined to five 5% as compared to 583% at December 31 2022.
Despite this decline our tier one capital ratio at September 30 was 879%, which is well above what is being well capitalized for regulatory purposes.
So this was strong earnings continue to create capital and our overall goal remains to maintain adequate capital to support organic growth and potential acquisitions.
We continue to believe our stock is a value and as such we resumed our repurchase program during the third quarter during.
During the quarter, we repurchased 84230 shares of common stock for one and a half million dollars or an average price of $17.77 per share. This represents all of our repurchase activity year to date, we have an authorization of approximately 12 million.
Dollars remaining in our current repurchase program.
While our capital levels remained strong we recognize our tangible common equity ratio screen flow and will balance our repurchases and the payment of dividends with building capital to support growth.
Despite uncertainties associated with the economy and the expense pressures our borrowers face our credit quality remains strong and our credit metrics remained stable, we did make a $630000 provision during the quarter, which was primarily attributable to loan and lease growth.
Our ratio of allowance for loan losses to loans improved 1.1 or 2% at December 31, 2020 to the one point to 8% at September 30th reflecting growth in our adoption of <unk> sold during the first quarter.
In addition, our allowance for loan losses to nonperforming loans increased from 261.45% at December 31, 2022 to $308.
Five 2% at September 30.
In summary.
Although we experienced margin compression, we continue to generate strong earnings and our margin remains strong while we experienced exceptional organic loan growth during the quarter, we anticipate a slowdown in loan growth as we finish out the year, while we continue to examine and stress our portfolios we have seen.
No material deterioration in our credit quality.
Our focus continues to be on creating shareholder value, which is evidenced by the year over year increase in our earnings per share and hopefully will eventually be rewarded.
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 and answer session to.
To ask a question you May press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Nick could trial with Hubby. Please go ahead.
Good afternoon, everyone how are you.
Welcome back Nick.
Thank you [laughter] did just wanted to clarify the loan growth outlook are you, suggesting that early indications are for a slowdown in loan growth for for 'twenty 'twenty four to low signal digit pace did I hear that correctly.
Yeah, I'd say low to mid single digits.
But I would say.
Ballpark, 5%, maybe next one that perspective somewhere in that range I think we're seeing obviously loan growth spend rate of our pipelines are really strong right now, but we just we start we're starting to see some slowness from the economy.
And Nick I'd say some of it will be us being a little bit more selective.
We have to push our interest rates, we've got to get our spread.
Because you know our loan to deposit ratio is so high so we have to push our spread.
You know those those.
Those spreads are widening for us.
We anticipate those that higher rate environment will slow lately.
Lending activity as well.
Yeah. It makes sense I'm, just just to pivot over to expenses was there anything irregular in the results that drove the outperformance relative to the guidance and any sense of where that may shake out in the fourth quarter.
I don't know if I'd use the term irregular, but but yeah I think in the fourth quarter. What we did was we had a I think it was where we're self insured for health insurance and it's hard for us not to do what the actuaries tell us to do until we get closer to the end of the year and are our employees tend to be a little.
More healthy I guess, what the actuaries felt they were gonna be so we backed out of that was the big I guess decline and the compensation level.
In the fourth quarter wasn't that we've kind of reduced the accrual.
Health insurance I think I told you guys $28 million would be our run rate last quarter. It looks like you guys heard me.
I would tell you that oh.
For the fourth quarter is probably 27 and a half million dollars.
Don't know that I would want to go into next year.
There's a couple of things moving around but I think that's a good number for the fourth quarter and won't be a whole lot different than that.
And again, we do raise.
Raises merit raises the first part of April so that they're not really impacting the first quarter and we've got some pretty favorable.
Pricing on our health insurance and the reinsurance piece of it.
That we used to kind of base our expense on a in fact, we had no increase during that renewal, which I thought was a phenomenal.
But anyway those those are the big things Nick.
That's great color historically, the fourth quarter is an especially strong period for the leasing business is your expectation that you'd see a material pick up in sales and lease revenue during the fourth quarter relative to the September period, and if so can you help us quantify that impact.
Well, we do anticipate it to increase.
Yeah, we were just on a call with them yesterday Chuck.
It looked like you know theyre going to double what we did in September so.
I mean, I think we probably need to get back in that kind of on a quantification number but we do expect.
Higher production.
Now what we see.
And in the fourth quarter.
I appreciate that.
And then lastly, do you expect to take any charge given your announcement that youre going to be exiting the tax business.
No no charge.
That's the revenue that we.
I encourage you know or I guess at least the first two quarters for the last number of years that just goes to zero.
Yeah, because the income statement in fact, okay.
We'll have to replace that didn't kind of I think we've got that we've identified we think we have opportunity through our leasing division.
Well as we have hurt.
Revenue we've.
Quite a few revenue opportunities within our existing products and services.
And I think.
You know, where we will have.
Tighter expense controls as we move into next year. So we're still working through the budget. So we really can't quantify any numbers there, but we're working on.
You know kind of make it neutral it is neutral but impact as possible.
Thank you for taking my questions you bet. Thank you Nick.
The next question comes from Terry Mcevoy with Stephens. Please go ahead.
Hey, guys good afternoon.
Alright.
Dennis I think your comments on the income tax refund business and in the press release were pretty clear.
As is the $2.4 million of fees what amount of deposits do you still have on the balance sheet connected to this program and and when when do you expect them to completely run off and that running off I noticed the uptick in F. H L V or a short term short term that will that level.
It could be consistent or or potentially grow from here.
Yeah.
It may change some of those deposits or is this a certain percentage that.
Sticks around you know that we will have to a sheet over the next five you know what five years or so what Richard do you have the balances there yeah as at September 30, carrying we had $73 4 million on our balance sheet.
And I think at the beginning of the year that number was.
So I Wanna say $40 million of that might be exactly right, but its close and that's that number.
For whatever reason and it's a small percentage of folks that asked for us to make.
Gave us their refund check and then I don't know if they died or loss check of where those checks a percentage I'm just don't ever get cashed and those will remain on our balance sheet again for what is typically five years each state somewhat different but I think for the most parts that'll.
Run out or it's been down over the next five years.
And where were the the pekin balances this year, where do they peak out any guess or any feel there oh, yeah, I mean, I think the average.
Yeah, I'm just flipping through my notes here.
So we had about 174 million in reduction isolation fantastic deposits for the quarter or so.
So the year to date average tenure was 169 million through the first three.
Quarters.
It peaks as you would think in the middle of the second quarter right. After.
March ish kind of thing that's when most of it comes through.
Does that money Terry was moving in and out much quicker the last two years and it had the previous say five years or whatever for whatever reason, we really didn't know what.
You know our funding as we move forward is going to have to rely on more brokered and.
You know a pitch L b borrowings and things like that and we hope to offset that funding like pushing our loan yields higher we think we can do that just because.
Theres been a number of banks that have gone to the sidelines you know the big banks generally fewer recession. So they could go to the sidelines and then Theres a number of other banks I think are in the same situation. The balance sheets are pretty levered up and they've chosen to stop lending, but we're not going to stop.
But.
What does he will probably slow just because we've got to push rates the.
Spread is higher.
Order to do some of those deals, but we view it really has an opportunity to to pick up core deposits and other deposit relationships because if we're going to do the loans and no. One else is lending we're going to require.
But it's more of those deposits are all of those deposits.
Yeah.
It makes complete sense.
The bad check plus is that just a.
A one off situation is that just what youre seeing across the bank, which I think is consistent with the industry in or and do you think that level continues from here on the expense side.
Wish it was one or no.
Big ones, but there aren't yeah, just just a phenomenon that I think we're all in the industry kind of figure out I mean, if we can get everybody to switch over to positive pay that would be a huge help for us and our treasury management folks I'll tell you what they've been selling the heck out of them, but apparently there is that's called fast enough well with us.
We just we're kind of we have a big campaign awareness campaign that we're doing on social media, we're doing it through our digital side our online I.
Just to make our customers aware, but fraud is really for me, but we are working well with a number of other banks with our banking Association's here in Ohio.
And and our regulators.
Was it a regulatory meeting three weeks ago.
This was a topic of discussion, but we you know we just got a raise the level of awareness.
As you know for all of our customers because of the fraud piece of it is is really picked up throughout the throughout our industry.
Yep.
And maybe one last one the decision to.
Its exit the income tax refund business as you mentioned in the release might get in the way of a future Bank Bank M&A. So it sounds like that was part of the decision on top of that the number of complaints so level, maybe a dentist conversations youre, having with potential partners clearly theres some interest rate marks in financial loss.
Nichols to get over but what's your outlook for bank M&A for serviced well.
Well I think you know I think it's tough right now just as you mentioned just you know to do any type of M&A, but given where stock price is hard and you know low marks and embarks on security portfolios and things like that so you know, it's just tough to make that math work, we are continuing to have dial.
Log and we're meeting with potential partners you know so.
Those discussions are ongoing I, just think it makes it whether you're a buyer or a seller of the bath is really hard to do right. Now we have looked at a couple of smaller deals that were announced earlier in the year. We just couldn't make those you know the math work.
And you know I don't see that easing up you know in the near term, but we have to continue with the discussions because.
The minute you stop giving you kind of lose that we get a little bit of that release, you know, maybe you'll that relationship and and stuff. So I. Just think you have to continue those discussions.
As you know certain banks are going to be under more pressure than we are and you know they're going to they're going to work.
What a partner up and we want to make sure. We're a top of mind. So we'll continue to have meaningful discussions with the people that we view as good partners.
Great. Thanks for taking my questions I have a nice weekend, okay. Thanks Terry.
Again, if you have a question. Please press Star then one.
Our next question comes from Tim Switzer with K B W. Please go ahead.
Hey, good afternoon I'm on for Mike Perito, Thanks for taking my question.
No.
For first off do you guys have with the purchase accounting impact was to the margin. This quarter I think last quarter was around eight basis points and had some like prepayments I'm wonder if that settled down at all.
It's almost identical when computers at seven basis points in this core Pam.
Okay is that like kind of a good run rate going forward or should it moved back down once prepayments.
Alright.
I wouldn't use that until we tell you different how about that so if you were all you'll have your own for a quarter [laughter] it sounds good.
And can you guys talk about your expectations for the NIM going forward I would expect a little bit of.
No moderation on the compression still next quarter or two but like when do you think it could really trough here.
Well I think one thing I'd like to say and I kind of set the table as I think as we've increased our funding and a little more reliant thought reliance, but we've not reduced the deposits that we have I mean, they were only down like 1%, we've got more overnight borrowing and we've got more broker short term brokered Cds.
Our balance sheet has gotten more neutral than it was we used to talk about being asset sensitive and it's really pretty well balanced when we ran our model at the end of Q3.
And looked out rates up it's really flat.
The first at least 100 basis points movement. So I'd be surprised if you think rates are going to go up more than 100 basis points.
And breaks down for.
For each quarter point down our model shows are Mahmud compressing at something less than five basis points for every court appointment. So again are we at the trough I guess the model says we are.
I guess the other thing I would say is if our margin for the corner was three 388 or well with 363 69, and our margin year to date was 388, I mean that would indicate that maybe theres still some room for it to kind of compress a little bit but not nothing.
We've experienced I don't believe in the first.
Over the last two quarters, Yeah, we may we may see similar impact in the fourth quarter.
So just because of that really is on the brokered and stuff.
But we don't we really don't.
As we get through that we think its trough.
I'm not I'm surprised you, though as I talk to other banks.
We haven't given up all the large and you know if you look back at the end of 'twenty one.
Our margin was 347, so you know way.
I think we we havent given all of that margin back up. So you know we made I think we were we are deposit betas didn't move as quick the first two quarters as it did the last quarter or I'm sorry.
The fourth quarter of 22 in the first quarter of 43, our deposit beta didn't move like other banks did it did then start moving much more rapidly in the second and third quarter and we will probably have further impression here into the fourth quarter.
Okay. Okay, so at least another quarter or two as compression and Pos right stabilized okay.
Yeah that makes sense.
And the last question I had was you guys step back and started doing repurchases again, you made the comment that you like the value of your stock here.
You know any insight you can give us on if you'll continue to do that and use the rest of your.
Authorization over the rest of the year and into 'twenty four.
Well I you know I think as I mentioned in the comments, we just recognize that that tangible common equity ratio as you know it just screams LOE a little bit ratios lower this quarter than it was the previous quarter.
Thank you know it makes you know repurchasing your stock a little bit tougher.
But we'll continue to.
To be mindful of that and kind of island for repurchases.
The payment of dividends with the ability to capital one and to support growth. We you know I don't.
Pits pate repurchase activity to really you know.
Oh the levels. It has been for the last couple of Andrew Yeah. So I think it would be tough to burn through that that authorization, Tim I want to make one clarification. Dennis said he thought it was a value he did not say he liked where our stock price.
That's right.
Understood understood well that that's all for me. Thank you guys have a good weekend, okay. Thanks to them.
The next question comes from Manuel Novice with D. A Davidson. Please go ahead.
Hey, Thanks, So my comments today, just wanted to follow up on the NIM a little bit.
You see similar compression to the third quarter, and the fourth quarter or first quarter or is that compression.
A little less as you pursue other deposit opportunities can you just kind of clarify that a little bit that progression well I think the compression.
Off or from one to two that it was from two of the free and I think what we're saying is it's probably that 17 basis points of compression that we saw in Q for over the course of Q3.
Is probably.
We've got a good barometer of what we might anticipate.
Yeah.
Fourth quarter grew 44 alright.
And then.
Perhaps a little bit less compression into next year correct.
Correct and this is it.
And then at the point.
If we ever if we have no more hikes.
And we're staying at $5 50 fed funds for <unk> into 'twenty four is there a point in 'twenty, four where where you could start to see the NIM inflect or would you just stay stable. After it's done compression I think it'd be more of a stable kind of a scenario.
Well.
You get 100% loaned up ish, so that makes it can but there are a whole lot of levers to pull in more everything that every bit of groups that we have incrementally we gotta go out on it.
And that makes it hard to explain for sure there's already a lot of modeling kind of shows it creeps up rates down it's pretty neutral.
The only part of the part right now Manuel is that are you know we're slowly seeing that was mentioned earlier, we're slowly seeing our loan rates increase.
Over months from from a production perspective, obviously, all the all of the one of the role right now our role at significantly higher prices.
Okay.
Is.
Can you talk a little bit about kind of the.
Where are you focusing on for deposit gathering because I'm sure. That's that's kind of a.
A wildcard for you that you could have less wholesale funding at all.
Our focus initiatives that you have out there on the deposit side or outperform.
Yeah, a couple of things there one the commercial deposits that we mentioned, we're really pushing hard to say look we're you know.
With certain banks not lending, we're saying we're going to do your deal. We got to have all of these deposits are used so we know we need to do is compensating balances and we're having success and we're having pretty good success with that we have a pretty good success with that so you know that's that's one focus.
We have streamlined our small business the way, we process of small business loans and a bed.
That is set to kick off here in the fourth quarter, and we think that will make it easier for our people to you know.
A process you know go after those loans and processes lows well, we'll also look to do almost a checkout on micro.
Micro loans through our retail division, which we don't pay out there's a lot of those small business loans are self funding.
So you know those are two areas, where we're really focusing on and then we continue to work on our digital app.
To get a you know.
We're not fully.
Maximizing is.
You know its capabilities yet but.
But we'll continue to work on that.
Could you add a differentiating services that may drive people to that out and.
You can open accounts through that App and things like that so those are a couple of things that we're working on to try to gather additional deposits.
That's that's great.
Just shifting over a.
Quick at least seen growth seem to be a little bit less this quarter just.
Is that still coming on at 9% yields and are the expectations pretty much unchanged for the year.
The yields are higher than the yields or yields for at least September were 10%.
And you know as Chuck indicated on the commercial side you don't even you don't sell or hold on in October and maybe an increase since the September 30th rates. So.
Yeah volume was a little bit less than we had anticipated for that third quarter, but pipelines are really good. So we do it.
We do anticipate that volume in the leasing group.
Two.
Of us quite a bit in the fourth quarter.
Okay.
But probably just a touch less than well then.
Well, we probably guided for for the full year, but we think we'll close the gap here in the fourth quarter.
And.
You can always choose to sell more of that if you have any balance sheet constraints right. That's that's exactly right.
You know we are getting paid less audits for.
For the you know the people purchasing it so we try to weigh that with you.
Yeah, We you know we we may.
They end up having to do that right now we modeled it going in keeping 50% in selling 50% that's kind of what made the earn back numbers work.
You know we felt made it working well so far we've been sticking to that but we may have to shift course, depending on liquidity needs.
Okay.
I appreciate the comments. Thank you very much thank you.
The next question comes from Daniel Cardenas with Janney. Please go ahead.
Hey, good afternoon, guys, Hey, Dan.
You had mentioned on the call that that $2 4 million dollar revenue hole is gonna be plugged through increasing your leasing some revenue opportunities within your.
Current products and services and then some expense controls I guess, if you had to assign percentages, how how would that work out and how quickly do you think you can you can fill that hole, but we hope to gain.
So kind of like through the leasing group because as they became you know they were an unregulated privately held company and.
So we had additional expenses in there you know consultants that we've had to hire we had to you know have you know some of you know always included an accountant and I T people and different things that you know that should be you know.
Behind us for the most part so we hope to pick up some there we hope to build a little bit more cadence now I can tell you the activity of the last four or five months has been.
Much better than the first four or five months of the year day, and so you know.
If we just continue now to do what we're doing we're going to make up that was the first four or five months, where we werent really extremely profitable in that with that group.
Just because we were you know.
They were kind of sidetracked or whatever things that we had additional expenses in the in our rates were moving up and you know just getting everybody on board. So we do think we'll be able to.
To make up a good chunk of that with the with the leasing group. Then there are some expenses that go away on that side we've identified.
Some expenses on our side, you know things like overtime and things like that that we think we can control a little bit more. So we've identified you know some of the expense base and then you know just through normal you know.
<unk> products and services that we have Chuck has led our revenue enhancement project.
And they've come up.
We had people from all over the Bay and they've come up with some.
Some dollars there as well also.
I would say you know you know that we have all that is going to come from the leasing side and then the other half from revenue enhancements and from expense saves.
And that's my Best guess right now again, we're working through the budget. So but you know that's that's all.
Our best guess right now.
Right right and do you think that that this is.
But the timing on this but this can be done in 2024 do you think that's going to.
Take until 'twenty five before you kind of hit full stride. There no. We think we can get that what as you know.
So some of the things involves sending disclosures and things like that those are are those are really set to go out in December so we hope to be hitting the ground running and in January with a lot of this.
Wonderful.
Good good and then just jumping over to the balance sheet quickly can you give me some color as to how.
How much of your securities portfolio is scheduled to mature here in the fourth quarter and.
And how would those proceeds be put to work on the lending side or do those get put back into the securities portfolio.
A little bit of both I'm trying to get to the page. So we're scheduled for.
Yes.
Almost $30 million that will mature in the next quarter and the fourth quarter and probably.
Two thirds or two.
Two thirds of that is at the <unk>.
<unk> subsidiaries those proceeds when they mature probably stay in the investment portfolio. We've got another third of that that's in the bank and Windows and they had been maturing over the course of the year and as those mature those are used to fund loans and or pay off borrowings.
Richard and I were just talking about some of that day and two even if the investments are.
You know there are certain taxes locations, we're going to run the math and see what those tax implications or because you know it.
It may.
It may be better for us just to utilize those funds to fund some of this loan growth and stuff or to pay down borrowings or stuff like that so we're running you know we're working on that as well. We just don't have an answer for you there, but rich is right. So far our bar, we've said hey, let's just.
So just because of the tax implications.
Running the math on that.
Got it okay.
Good good and then and then.
On your credit I mean credit quality looks good.
How our watch list trends.
Directionally what were they looking like here in Q.
Q3, and in what areas are you guys kind of watching a little closer today than you were saying you know two or three quarters ago. Yeah. Dan. This is Chuck I mean.
Knock on wood, our metrics continue to be really stable.
Really feel really good about the portfolio, obviously kind of like everybody else, we're really watching office.
We don't really have any first Fannie concentration as downtown off its most of our offices is suburban office you know that one two and three story building in suburbia.
So we're not really seeing a lot of strain there yet, but we're watching it closely.
What we're really seeing a lot of really nice growth in the multifamily piece across our major metropolitan areas in Ohio, or they can't build units fast enough in our Columbus et cetera. So we feel good about that piece of it.
All in all I would tell you that we don't have a lot of concern right now, but no like everyone else, we're watching a little closer in the watch list has been fairly you know the migration there it's been pretty neutral because we've added a couple but there's a couple of either paid off or upgraded so it's oh.
From a number of loans and from a dollar standpoint, it's pretty neutral.
Okay. Good.
Last question for me.
Like what how should we be thinking about your tax rate here on a go forward basis.
The effective tax rate for the I guess year to date was 15, 4% and for the quarter was.
15, 2%.
I'd say, 15% would be what I put in my model.
Yeah.
All right great I'll step back thanks, guys.
You bet. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Dennis Shaffer for any closing remarks.
So thank you in closing I just want to thank everyone.
Joining us those that participated in today's call. The interest rate environment continues to be a challenge. However, our earnings do remained strong our margin remains solid.
And I remain optimistic that our disciplined approach to pricing and our solid core deposit franchise will continue to produce superior results and I look forward to talking to you in a few months the sheer share yearend results. So thank you for your time today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Yeah.
Okay.
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