Q4 2023 Civista Bancshares Inc Earnings Call
Operator: www.circlelineartschool.com 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 Civista Bancshares Inc., which 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 The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures.
Okay.
[music].
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 service. The Bancshares, Inc. That involves risks and uncertainties various factors could cause actual.
Our results to be materially different from any future results expressed or implied by such forward looking statements.
Factors are discussed in the company's S E SEC filings, which are available on the company's website.
The company disclaims any obligation to update any forward looking statements made during the call. Additionally management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures. The press release also available on the company's website contains the financial and.
Operator: 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 gap to non-gap measures. This call will be recorded and made available on Civista Bancshares' website at www.civb.com At the conclusion of Mr. Schaefer's remarks, he and the Civista Management team will take any questions you may have. Now, I will turn the call over to Mr. Schaefer.
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 service does bancshares' website at Www C. I V. P. Dot com at the conclusion of Mr. Schaefers 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.
Dennis Schaefer: Good afternoon, this is Dennis Schaefer, President and CEO of Civista Bancshares Inc., and I would like to thank you for joining us for our fourth quarter 2023 earnings call. I am joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank, and Chuck Parcher, 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 fourth quarter of $9.7 million, or $0.62 per diluted share, which represents a 20.5% decrease from our fourth quarter of 2022. Our full-year net income represented record earnings of $43 million, or $2.73 per diluted share, which represents a 9% increase over our 2022 performance. Our fourth quarter and year-to-date performance was set up by continued, strong growth in our loan and lease portfolio, excluding the participation adjustment, which grew at an annualized rate of 15.5% for the quarter and 12.4% year-to-date. We added new and renewed commercial loans at a yield of 7.94% during the quarter, and new equipment finance loans and leases at a yield of 9.80% during the quarter. Demand came from all areas of our footprint as we continue to strengthen market share in most of our markets and add new customers in our urban markets.
Good afternoon. This is Dennis Shaffer, President and CEO of Sinister Bancshares, Inc.
Thank you for joining us for our fourth quarter 2023 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.
This morning, we reported net income for the fourth quarter of $97 million or <unk> 62 cents per diluted share, which represents a 25% decrease.
Third quarter in 2022 or.
Our full year net income represented record earnings of $43 million or $2.73 per diluted share, which represents a 9% increase over our 2022 formats.
Our fourth quarter and year to date performance was set up by continued strong growth in our loan and lease portfolio. Excluding the participation of adjustments, which grew at an annualized rate of 15% for the quarter and 12, 4% year to date.
We added new and renewed commercial loans at a yield of 794% during the quarter and new equipment finance loans and leases.
The order of 9.81% during the quarter.
Demand came from all areas of our footprint as we continue to strengthen market share and most of our markets.
New customers in our urban markets.
Dennis Schaefer: While we do not anticipate continuing to grow at this pace, we do anticipate continued growth at a single-digit pace in 2024. Net interest income declined compared to our reference quarter, but it increased 13.9% for the year in comparison to 2022. Competition for deposits is becoming a little bit more rational, but it's still very intense. This led to a 5 basis point increase in our cost of deposits, excluding the broker, to 72 basis points for the quarter. During the quarter, we began a measured approach to decreasing rates paid on some of our higher-tiered demand deposit accounts and select CDs. Excluding broker and tax-related deposit accounts, our deposit balances were consistent compared to the late quarter.
While we do not anticipate continuing to grow at this pace. We do anticipate continued growth at a single digit pace in 2024.
Net interest income declined compared to our linked quarter, but increased 13, 9% for the year in comparison to 2022.
Competition for deposits is becoming a little bit more rational but is still very intense. This led to a five basis point increase in our cost of deposits, excluding brokered to 72 basis points for the quarter.
During the quarter, we began a measured approach to decreasing rates paid on some of our higher tier demand deposit accounts and select Cds, excluding broker and tax related deposit accounts, our deposit balances were consistent compared to the linked quarter.
Dennis Schaefer: All in, our funding cost increased by 47 basis points from our link quarter to 2.19% as we funded much of our growth with wholesale funding. In the face of funding pressures, our margin compressed at the same pace as it did during the previous quarter, coming in at 3.44% for the quarter and 3.7% year-to-date. Our yield on earning assets increased by 18 basis points during the quarter to 5.52% and was 5.35% year-to-date. However, the cost of funding our balance sheet increased by 47 basis points during the quarter to 2.19% and was 1.72% year-to-date. Non-interest income was up 8.6% for the late quarter, primarily on higher swap fee income, and it was up 27.8% year-to-date, primarily on lease revenue.
All in our funding cost increased by 47 basis points from our linked quarter to $2, one 9% as we funded much of our growth with wholesale funding.
In the face of funding pressures our margin compressed at the same cases it did during the previous quarter coming in at 344, 4% for the quarter and three 7% year to date, our yield on earning assets increased by 18 basis points during the quarter to 545.
<unk>, 2% it was 543, 5% year to date.
However, the cost of funding our balance sheet increased by 47 basis points during the quarter to $2, 190%. It was 172% year to date.
Noninterest income was up eight 6% for the linked quarter quarter, primarily on higher swap fee income and it was up 27, 8% year to date, primarily on lease revenues, while we continue to complete our integration of our leasing division, we view them as a significant contributor.
Dennis Schaefer: While we continue to complete our integration of our leasing division, we view them as a significant contributor to our non-interest income as we move into 2024 and beyond. Our tangible book value grew to $15.10 compared to $12.60 at September 30th and $12.61 at December 31st, 2022. And our TCE ratio increased to 6.36% from 5.49% at September 30th and 5.66% at December 31st, 2022. This growth came from continued solid core earnings and a marked reduction in unrealized losses related to our securities portfolio. We will continue to focus on growing our TCE ratio during 2024. Last week, we announced a quarterly dividend of $0.16 per share.
Sure sure noninterest income as we move into 2024 and beyond.
Our tangible book value grew to $15.10 compared to $12 60 at September 30th and $12 61 at December 31, 2022, and our TCE ratio increased to $6, 36% from five.
Four 9% at September 30, and $5 six 6% at December 31 2022.
This growth came from continued solid core earnings and Mark and a marked reduction in unrealized losses related to our securities portfolio. We will continue to focus on growing our TCE ratio during 2024.
Last week, we announced a quarterly dividend of <unk> 16 cents per share. This is consistent with our prior quarter dividend and represents a 23% dividend payout ratio based on our 2023 earnings.
Dennis Schaefer: This is consistent with our prior quarter dividend and represents a 23% dividend payout ratio based on our 2023 earnings. Our efficiency ratio for the quarter was 64.1% compared to 66.5% for the linked quarter and 65.2% year-to-date. However, if we were to back out the depreciation expense related to our operating lease... Our efficiency ratio would have been 59.8% for the quarter and 61.3% year-to-date. Our return on average assets was 1.02% for the quarter, compared to 1.12% for our lengthiest quarter, and our return on average equity was 11.34% for the quarter, compared to 11.83% for the lengthiest quarter. Year-to-date, our return on assets was 1.16%, and our return on equity was 12.5%. During the quarter, non-interest income increased $698,000, or 8.6%, in comparison to the linked quarter, and decreased $1.2 million, or 12.3%, in comparison to the prior year's fourth quarter.
Our efficiency ratio for the quarter was 64, 1% compared to 66, 5% for the linked quarter and 65, 2% year to date. However, if we were to back out the depreciation expense related to our operating leases our efficiency ratio would've been 59.
8% for the quarter and 61, 3% year to date.
Our return on average assets was one point or 2% for the quarter compared to 1.12% for linked quarter and a return on average equity was 11.34% for the quarter compared to 11.83% for the linked quarter year to date, our return on assets was 1.16.
And our return on equity was 12, 5%.
During the quarter non interest income increased $698000 or eight 6% in comparison to the linked quarter and decreased $1 2 million or 12, 3% in comparison to the prior year fourth quarter.
Dennis Schaefer: The primary drivers of the increase from our late quarter were $454,000 in swap fees as borrowers took advantage of the inverted interest rate curve to lock in what they viewed as favorable rates. We also earned an annual $225,000 bonus from our Debit Brand partners that contributed to the income. The primary driver for the decrease from the prior year's quarter was an $874,000 decline in lease revenue and residuals as the higher interest rate environment put pressure on our leasing division's production. In addition, we recorded $345,000 fewer in gains on the sale of loans and leases originated by our leasing division as our buyers paid lower premiums as their balance sheets became less liquid. Year-to-date non-interest income increased $8.1 million, or 27.8%, in comparison to the prior year.
The primary drivers of the increase from our linked quarter were $454000 in swap fees as borrowers took advantage of the inverted interest rate curve to lock in what they viewed as favorable reviews.
Also earn an annual $225000 bonus from our debit brand partners that contributed to the increase.
The primary driver for the decrease from the prior year's quarter was at $874000 decline in lease revenue and residuals as the higher interest rate environment put pressure on our leasing divisions for production.
In addition, we recorded $345000 less in gains on the sale of loans and leases originated by our leasing division as our buyers paid lower premiums as their balance sheets became less liquid.
Year to date non interest income increased $8 1 million or 27, 8% in comparison to the prior year.
Dennis Schaefer: The primary drivers of this increase were $5.3 million in lease revenue and residual fees. This was the result of a full year's income from our leasing division, which we acquired in October 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.
The primary drivers of this increase were $5 $3 million in lease revenue and residual piece.
This was a result of the full year's income from our leasing Division, which we acquired in October 2022. These fees are primarily made up of operating lease payments and gains on sale of equipment at the end of the lease term.
Dennis Schaefer: Also included in other non-interest income was a $1.5 million bonus we received for entering into a new debit grant agreement during the first quarter and $1.2 million in interim rent payments generated by our leasing division that we did not have in the prior year. 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. Non-interest expense for the quarter of $25.3 million represents a 5.4% decline from the linked quarter as we experienced improvement in nearly every line item of non-interest expense. Year-to-date non-interest expense increased $17.1 million, or 18.9% over the prior year. Much of this increase is attributable to growth from our acquisitions of Communibank and BFG in the third and fourth quarters of 2022. Our compensation expense increased $7.2 million, or 14.2%, over the prior year.
Also included in other noninterest income was a one and a half million dollar bonus we received for entering into a new debit brand agreement during the first quarter and one $2.2 million and inner web payments generated by our leasing division that we did not have in the prior year.
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 $25 $3 million represents a five 4% decline from our winter quarter as we experienced an improvement in nearly every line item about interest expense.
Year to date noninterest expense increased $17 $1 million or 18, 9% over the prior year much of this increase was attributable to growth from our acquisitions of <unk> Bank N V F G and the third and fourth quarters of 2022.
Our compensation expense increased $7 $2 million of 14, 2% over the prior year. The bulk of the increase was due to $5 $2 million and additional salaries commissions and benefits attributable to new employees to last year's acquisition. The balance of this increase is attributable.
Dennis Schaefer: The bulk of the increase is due to $5.2 million in additional salaries, commissions, and benefits attributable to new employees from last year's acquisition. The balance of this increase is attributable to normal benefit and merit increases. While we do have an additional seven branch offices as a result of our Communibank acquisition, the $6.7 million increase in occupancy and equipment expense was primarily due to an increase in depreciation expense on equipment related to our new lease. Equipment under an operating lease is owned and depreciated by Civista until the end of the lease term.
Two normal better benefit and merit increases.
While we do have an additional seven branch offices as a result of our community Bank acquisition, the $6 $7 million 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.
Didn't depreciate advice of this until the end of the lease term depreciation related to operating leases was $6 $5 million year to date.
Dennis Schaefer: Depreciation related to operating leases was $6.5 million year-to-date. The increase in other non-interest expense was primarily due to a $515,000 provision for credit losses on unfunded loan commitments. That was a new expense category resulting from our adoption of CECL in January. Like many in the industry, we experienced an increase of $400,000 in bad check losses year-to-date. Turning to the balance sheet, year-to-date, our total loans, excluding the participation adjustment, grew by $315.1 million, which includes $42.1 million of loans and leases originated by the Leasing Division. This represents an annualized growth rate of 12.4%.
The increase in other non interest expense was primarily due to a $515000 provision for credit losses.
And loan commitments that was a new expense category, resulting from our adoption of Cecil in January like many in the industry, we experienced an increase of $400000 in bad check losses year to date.
Turning to the balance sheet year to date, our total loans, excluding the participation adjustment grew by $315 $1 million, which includes $42 $1 billion of loans and leases originated by the leasing division. This represents an annualized growth rate of $12 four per.
As said during our last call I noted that a number of banks in our markets had curtailed their lending efforts, which created some opportunities for us to expand the existing relationships and enter into some new relationships.
As we move into 2024, we have noticed that the larger regional banks in our markets are becoming more active so we do not expect the rate of loan growth we experienced during the quarter to continue into 2024.
Dennis Schaefer: During our last call, I noted that a number of banks in our markets had curtailed their lending efforts, which created some opportunities for us to expand existing relationships and enter into some new relationships. As we move into 2024, we have noticed that the larger regional banks in our markets are becoming more active. So we do not expect the rate of loan growth we experienced during the quarter to continue into 2024. While we experienced increases in nearly every loan category, our most significant increases were in C&I, non-owner-occupied CRE loans, residential real estate loans, and lease financing receivables. The loans we are originating are virtually all adjustable-rate loans and leases, and all have maturities of five years or less. Loans secured by office buildings make up about 5.2% of our total 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.
While we experienced increases in nearly every loan category. Our most significant increases were in C&I and owner occupied CRE loans residential real estate loans and lease financing receivables loans. We are originating are virtually all adjustable rate loans and leases.
I'll have maturities of five years or less.
Loans secured by office buildings make up about five 2% of our total portfolio. These loans are not secured by high rise office buildings, rather they are predominantly secured by single or two storey office is located outside of central business as greg's.
Our CRE portfolio remains well diversified with no concentration risk by property type or by geography.
Along with year to date loan production, our Undrawn construction wise were $237.3 million at December 30, <unk>, we anticipate loan growth to moderate to a low single digit rate in 2024 on the funding side total deposits increased 300.
$65 million or 13, 9% since the beginning of the year. However, if we were back out non core tax program in broker deposits our deposit balances declined five 8% year to date, our core deposit balances remain consistent from the linked quarter.
Our deposit base is what we would term as fairly granular with our average deposits excluding.
Excluding Cds approximately $25000.
Dennis Schaefer: Our CRE portfolio remains well diversified with no concentration risk by property type or by geography. Along with year-to-date loan production, our undrawn construction lines were $237.3 million at December 31st. We anticipate loan growth to moderate to a low single-digit rate in 2024. On the funding side, total deposits increased $365 million, or 13.9 percent, since the beginning of the year. However, if we were to back out non-core tax program and broker deposits, our deposit balances declined 5.8 percent year-to-date. However, our core deposit balances remained consistent from the late quarter.
Non interest bearing demand accounts continue to be a focus excluding tax related and broker deposits non interest bearing deposits made up 33, 2% of the remaining total deposits at December 31st.
With respect to FDIC insured deposits. Excluding so this is one deposit accounts and those related to the tax program.
14.1% or $421 $4 million of our deposits were in excess of the FDIC limits at December 31.
Our cash and Unpledged Securities at December 31 were $462 $5 million, which more than covered these uninsured deposits.
Other than the $336 $5 million of public funds with various municipalities across our footprint, we had no concentrations and deposits at December 31.
Dennis Schaefer: Our deposit base is what we would term fairly granular, with our average deposit account excluding CDs being approximately $25,000. Non-interest-bearing demand accounts continue to be a focus, excluding tax-related and broker deposits. Non-interest-bearing deposits made up 33.2% of the remaining total deposits at December 31st.
At December 31, our loan to deposit ratio, excluding deposits related to our tax refund processing program was 97, 6%.
Our commercial lenders are treasury management officers and private bankers are having success requesting additional deposits in compensating balances from our commercial customers.
We will continue to be disciplined in how we price our deposits and we will take advantage of brokered and wholesale funding sources. When we think it makes sense.
Dennis Schaefer: With respect to FDIC-insured deposits, excluding Civista's own deposit accounts and those related to the tax program, 14.1%, or $421.4 million, of our deposits were in excess of the FDIC limits at December 31st. However, our cash and unpledged securities at December 31st were $462.5 million, which more than covered these uninsured deposits. Other than the $336.5 million of public funds with various municipalities across our footprint, we had no concentrations of deposits at December 31st.
We believe our low cost deposit franchise is one of them. So this is most valuable characteristics contributing significantly to our strong net interest margin and overall profitability.
At December 31st all of our $624 million in securities were classified as available for sale.
Year end, the unrealized losses associated with our securities portfolio improved from $93 $1 million at September 30th $254.5 million.
At year end, our tangible common equity ratio had improved to $6 three 6%, which was <unk>, which was an 87 basis point improvement over September 30th and our tier one leverage ratio at year end was $8 seven 5%, which is well above what is deemed well capitalized for regulatory firm.
Dennis Schaefer: At December 31st, our loan-to-deposit ratio, excluding deposits related to our tax refund processing program, was 97.6%. Our commercial lenders, our treasury management officers, and private bankers are having success requesting additional deposits and compensating balances from our commercial customers. We will continue to be disciplined in how we price our deposits, and we will take advantage of brokered and wholesale funding sources when we think it makes sense. We believe our low cost to profit franchise is one of Civista's most valuable characteristics, contributing significantly to our strong net interest margin and overall profitability. At December 31st, all of our $620.4 million in securities were classified as available for sale.
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So this is a strong earnings continue to create capital and our overall goal remains to maintain adequate capital to support organic growth and potential acquisitions.
Although we did not repurchase any shares during the quarter. We continue to believe our stock is a value.
During the year, we repurchased 84230 shares of common stock for one and a half million dollars or an average price of $17.77 per share all of our 2023 repurchase activity occurred during the third quarter.
We have an authorization of approximately $12 million remaining on our current repurchase program.
While our capital levels remained strong we recognize our tangible common equity ratio screen low we have stated publicly that we would like to rebuild our TCE ratio back to between seven and 7.5%.
To that end, we will continue to focus on earnings that will balance any repurchases and the payment of dividends with building capital to support growth.
Despite the uncertainties associated with the economy and the expense pressures, our borrowers face our credit quality remains strong and our credit metrics remain stable.
We did make a $2 3 million dollar provision during the quarter, which was primarily attributable to our strong loan and lease growth.
Dennis Schaefer: At year-end, the unrealized losses associated with our security portfolio improved from $93.1 million at September 30th to $54.5 million. Additionally, at year-end, our tangible common equity ratio had improved to 6.36 percent, which was an 87 basis point improvement over September 30th. And our tier one leverage ratio at year end was 8.75 percent, which is well above what is deemed well capitalized for regulatory purposes. Civista's strong earnings continue to create capital, and our overall goal remains to maintain adequate capital to support organic growth and potential acquisitions. Although we did not repurchase any shares during the quarter, we continue to believe our stock is a value. During the year, we repurchased 84,230 shares of common stock for $1.5 million, for an average price of $17.77 per share.
Our ratio of allowance for loan losses to loans improved from one point, though 8% at December 31, 2022 to one 3% at December 31, reflecting growth in our adoption of C sold during the first quarter. In addition, our allowance for loan losses.
Two nonperforming loans declined slightly from 261.
Four 5% at December 31, 2022 to $245 six 6% at December 31 2023.
As I conclude my remarks, I would like to thank our entire service the gene.
2023 was another challenging year and once again they show me what it means to be a part of a team that cares about our customers our communities our shareholders and most importantly, each other I could not be more proud, although our margin continues to be under pressure.
Continue to generate strong earnings and our margin remains relatively strong.
2023, it was a year of exceptional organic loan growth and while we do not anticipate growth at a similar pace in 2020 for our markets do remain vibrant and we expect to grow in the mid single digit pace, we will continue to examine and stress our portfolios, but so far we have seen.
Dennis Schaefer: All of our 2023 repurchase activities occurred during the third quarter. We have an authorization of approximately $12 million remaining on our current repurchase program. While our capital levels remain strong, we recognize our tangible common equity ratios screen low. We have stated publicly that we would like to rebuild our PCE ratio back to between 7% and 7.5%. To that end, we will continue to focus on earnings, and we'll balance any repurchases and the payment of dividends with building capital to support growth. Despite the uncertainties associated with the economy and the expense pressures our borrowers face, our credit quality remains strong, and our credit metrics remain stable. We did make a $2.3 million provision during the quarter, which was primarily attributable to our strong loan and lease growth.
No material deterioration in credit and our credit quality.
In 2024, our focus will continue to be on creating shareholder value for 2023, and a tough interest rate environment. Our earnings per share increased 5%, which we believe is indicative of our disciplined approach to managing the company.
Thank you for your attention this afternoon and now we'd be happy to address any questions you may have.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
Here a prompt.
Put your hand has been raised should you wish to decline from the polling process. Please press star followed by the Q. If you are using a speaker phone. Please lift the handset before pressing any keys one moment. Please for your first question.
Your first question comes from.
Nick.
Could Charlie with Husky. Please go ahead.
Hey, guys good afternoon.
I guess I'd make pucciarelli.
[laughter] just to just start on the net interest margin could you help us quantify the near term outlook and then longer term now how your balance sheet reacts once the fed starts cutting rates.
Dennis Schaefer: Our ratio of allowance for loan losses to loans improved from 1.08% at December 31st, 2022 to 1.30% at December 31st, reflecting growth in our adoption of CECL during the first quarter. In addition, our allowance for loan losses to non-performing loans declined slightly from 261.45% at December 31st, 2022 to 245.66% at December 31st, 2023. As I conclude my remarks, I would like to thank our entire Civista team. 2023 was another challenging year, and once again, they showed me what it means to be a part of a team that cares about our customers, our communities, our shareholders, and, most importantly, each other. I could not be more proud.
So Nick this is rich and that the way our model projects at rates down and rates up it doesn't move much I mean, I guess, we kind of hit that trough. The model says that for each 25.
Basis point cut.
We would anticipate about a two basis point contraction in our margin.
And again I guess they are model is get it loaded in the second half of the year and I think we use the blue chip forecast. It is to kind of run that model and that's three rate cuts I think Nate.
I'm looking at Todd May.
Q2, Q3, and Q4 I mean, you go Q2, you can see that that's it that's a better answer Nick.
I will say just to kind of give a little color.
We did have a bump.
Bucket of prototype D $150 million ish of Cds that matured or came due in December the cost of those Cds was about 530.
Dennis Schaefer: Although our margin continues to be under pressure, we continue to generate strong earnings, and our margin remains relatively strong. 2023 was a year of exceptional organic loan growth, and while we do not anticipate growth at a similar pace in 2024, our markets do remain vibrant, and we expect to grow at a mid-single-digit pace. We will continue to examine and stress our portfolios, but so far, we have seen no material deterioration in our credit quality. In 2024, our focus will continue to be on creating shareholder value.
We replaced those in December with a like Atlanta $150 million of Cds at a cost of 508. So we picked up about 22 basis points there.
Got another similar tranche or a whole group of about $150 million of Cds that will roll off in March.
Cost on those was.
I'm 40.
And if we were going to replace those today with one year in brokerage Cds it would be at 5%. So we pick up another 40 basis points. There. So if nothing changes and we didn't grow much.
Those are two real positive I think kind of impacts on our margin well and then new lows are going on the books at higher rates existing loans or repricing at higher rates and we have started to inch down some deposits. Some of our CD specials are some of our just general money market rates and stuff.
Dennis Schaefer: For 2023, in a tough interest rate environment, our earnings per share increased 5%, which we believe is indicative of our disciplined approach to managing the company. Thank you for your attention this afternoon, and now we'll be happy to address any questions you may have. Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the number on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the, If you are using a speakerphone, please lift the handset before pressing any, One moment, please, for your first question.
And we saw no real impact from that and we started that Oh sometime mid November and we've done you know a couple of moves there just small things to see if there's any impact so far have not seen any real impact. So we'll continue to watch that but I do think theres going to be some opera.
Acuity there.
Okay, Great and then in that same vein. It you saw the opportunity on the loan side you know to your point you utilize the brokerage Cds at the at the end of the year. This is a pretty high historically relative to where you are at close to 17% of deposits. So your assumption is that you you replace that with core funding.
Operator: Your first question comes from Nick Cucharale with, Go ahead. Hey guys, good afternoon. Hi Nick Cucharale.
Over the course of the year and drive that down or are you at a peak in terms of brokered funding.
Yeah, I mean, yeah.
And we're going to replace 100% of it but certainly we've got a number of initiatives in place.
Rich: So Nick, this is Rich, and the way our model projects it, rates down, and rates up really don't move much. I mean, I guess we've kind of hit that trough. The model says that for each 25 basis point cut in rate, we would anticipate about a two basis point contraction in our margin. And again, I guess our model has got loaded for the second half of the year, and we use the blue chip forecast to kind of run that model, and that's three rate cuts, I think, May. I'm looking at Todd May.
And a transition away from brokered or noncore funding and back to something more.
In line with what we've done historically.
Got it and then I know this isn't it.
Good.
Just a different question I just on the leasing business specifically on the gain on sale line I. Appreciate your commentary on lower production due to the rate environment and lower premiums with your partners given liquidity constraints, how should we think about the pipeline there and usually the fourth quarter, obviously, you get a step up for.
Rich: Q2, Q3, and Q4. There you go. Q2, Q3.
For tax reasons with your with your borrowers there just overall your thoughts there.
Rich: That's a better answer, Nick. I will say, just to kind of give a little color. We did have a bucket of brokered CDs, $150 million-ish of CDs that matured or came due in December. The cost of those CDs was about $530 million. We replaced those in December with a like amount of $150 million of CDs at a cost of $508 million. So we picked up about 22 basis points there. We've got another similar financial group of about $150 million in CDs that will roll off in March. The cost of those was $540 million.
Yeah.
Well, we said, we do think we're going to.
Be able to pay you know improve on what we did in.
In 'twenty three from our leasing group.
Yes.
Reis dictate a lot of what's going on in fourth quarter is usually their strongest quarter. So first quarter will probably be a little bit softer than what it was in the fourth quarter, but.
We spent a lot of time.
We're an unregulated company and we're a regulated company and we spent a lot of time.
You know with consultants and they're looking at their I T systems looking at Oh, just print compliance training things like that that I think took away from sales. So we.
We do expect to make up some additional income that in 24 that we didnt have in 'twenty three.
Rich: And if we were going to replace those today with one-year brokered CDs, it'd be at 5%. So we'd pick up another 40 basis points there. So, if nothing changes, and we don't grow much... Those are two real positive, I think, kind of impacts on our margin. Well, and then new loans are going on the books at higher rates. Existing loans are repricing at higher rates, and we have started to inch down on some deposits, some of our CD specials, some of our just general money market rates and stuff. And We saw no real impact from that.
Yeah. Nick This is Chuck I would say from a from a budgeting perspective, we budgeted for them to be up I get a little bit a little bit more production than then.
And then last year, but nothing that's a you know nothing that would really move the needle.
Very helpful. And then just my last question on expenses you your thoughts on the run rate going forward it looks like a little bit of volatility in this quarter relative to what you were expecting.
Well and and Nick we've always kind of Truing up our accruals at the end of the year and probably I don't know if sloppy as a technical term, but maybe we got a little sloppy in hand.
And a little more of a true up at the end of the year.
And what we have traditionally done I think we guided you guys to 27 and a half million dollars for the quarter and we ended up coming in at $25 three.
When we normalize everything we're guiding to for the first quarter. It was about $28 4 billion of expense and you'll recall that our merit increases all go into effect in the second quarter, so there'll be a little bit of a jump there and maybe 'twenty.
Rich: And we started that sometime in mid-November, and we've done a couple of moves there, just small things to see if there'd be any impact. And so far, I've not seen any real impact. So we'll continue to watch that.
$28 seven is what we're looking at and that would be a decent run rate there for the rest of the year.
Thanks, so much for the color I appreciate you taking my questions you.
Rich: But I do think there's going to be some opportunity there. Okay, great. And then in that same vein, you know, if you saw the opportunity on the loan side, you know, and to your point, you utilize the brokerage CDs at the end of the year. This is pretty high historically relative to where you are close to 17% of deposits. So your assumption is that you replace that with core funding over the course of the year and drive that down, or are you at a peak in terms of brokered funding? Yeah, I mean, I doubt that we're going to replace 100% of it, but certainly, we've got a number of initiatives in place to kind of transition away from broker or non-core funding and back to something more in line with what we've done historically. And then on the lifting business... Go ahead, Nick, go ahead.
You bet.
Your next question comes from Terry Mcevoy with Stephens. Please go ahead.
Hi, guys good afternoon.
Hey, Terry.
Maybe just to start off the New York Community Bank, that's been in the headlines. This past week are you getting questions concerns for many of your clients on your commercial real estate loans or your liquidity position.
We really have not gotten a heartland.
Got no calls that I know of unlike we you know when the banks failed and large you know there was quite a quite a few calls and stuff.
We've heard nothing so far with the with the New York Community Bank struggles and stuff.
Yeah.
That's good to hear next question as you commented in the press release, you've had really good growth in multifamily none of them, none or non owner occupied loans could you just maybe talk about what your developers or are seeing in the markets in terms of rates vacancy trends in and are you.
Rich: Just a different question. I just want to ask you about the leasing business, you know, specifically on the gain on sale line. I appreciate your commentary on lower production due to the rate environment and lower premiums with your partners, given liquidity constraints. How should we think about the pipeline there?
Being a bit more cautious at all on your multifamily underwriting given those conditions.
Yeah. This is Chuck I would say, yes were being a little bit more cautious for sure you know in looking at it but we've got some we you know the markets that were really strong in Cleveland, Columbus, and Cincinnati and predominantly Columbus.
Can't build units fast enough, but I would tell you that probably 80% of the deals that we're doing the work that we're doing buildup on as far as on a on a multifamily rental rates are coming in higher than what they were projected to be in the appraisal. So those markets are really really strong still in multifamily.
Rich: And usually, the fourth quarter, obviously, you get a step up for tax reasons with your borrowers there, just overall your thoughts there. Well, we do think we're going to be able to, you know, improve on what we did in 23 from our leasing group. I think, you know... Rates dictate a lot of what's going on. The fourth quarter is usually their strongest quarter, so the first quarter will probably be a little bit, you know, softer than what it was in the fourth quarter.
And I would say Terry to I mean, as far as are we being a little bit more cautious.
I think the interest rate environment is driving some of that because a lot of these deals you have to have more equity into the deal make the numbers work and so that's putting I think your smaller developers.
Rich: But, you know, we spent a lot of time, you know, they were an unregulated company, and we're a regulated company, and we spent a lot of time with consultants in there, looking at their IT systems, looking at, you know, just compliance training, things like that, that I think took away from sales. So we do expect to make up some additional income in 24 that we didn't have in 23. I would say from a budgeting perspective, we budgeted for them to be a little bit more production than last year, but nothing that would really move the needle. Very helpful.
Developers or even some of the midsized developers are going to the sidelines.
So the guys that are going to deals are you pretty well heeled borrowers because they have that extra cash to put into the deals where a lot of times haven't seen 35% or so going into those multifamily deals to make them work.
And then thanks for that and maybe one last one when you put together the 'twenty 'twenty four budget any type of range are you were thinking about for that lease revenue and residual income line I know you talked about it earlier, but.
And you know it is a growing part of your fee income stream and.
Just maybe get some insight in terms of how you're thinking for the full year.
You know what Terry if I gave you a number I'd be kind of fudge and let me let me look I'll get you a good number and I'll get it out to all you guys. Okay. I don't have that in front of me.
Rich: And then just my last question on expenses. What are your thoughts on the run rate going forward? It looks like a little bit of volatility in this quarter relative to what you were expecting. Well, and Nick, we've always kind of trued up our accruals at the end of the year and, probably, I don't know if sloppy is a technical term, but maybe we got a little sloppy and had a little more to true up at the end of the year than we have traditionally done. I think we guided you guys to $27.5 million for the quarter, and we ended up coming in at $25.3 million. When we normalize everything, what we're guided to for the first quarter is about $28.4 million in expenses.
Okay I appreciate that rich thanks for taking my questions.
Sure.
Yeah.
Your next question comes from Michael Perito with K B W. Please go ahead.
Hi, This is Mike associate Andrew are filling and thanks for taking my questions.
Andrew I'm going to say Andrew.
Just a quick one here from me first I was just wondering was there any accretion impact on the margin this quarter and if so what would the core NIM has looked like for <unk>.
Sure.
60 basis points, which has been pretty consistent I think for the last number of quarters in terms of the accretion impact so take six basis points off of it and that's what it would've been.
And I guess going forward I don't see it changing over the next.
Four quarters anyway.
Great Thanks for that.
And then I appreciate all the color on the on the capital front. Obviously the focus here is to kind of push back up towards that 77 F. T C E.
Broadly what their purchase kind of expiring here in May I know, you said, you're going to be opportunistic, but maybe just a high level comment on M&A I know that's not the focus right now, but our conversations kind of started to return to the market here and.
Rich: And you'll recall that our merit increases all go into effect in the second quarter. So there'll be a little bit of a jump there, maybe 28.7 is what we're looking at. And that would be a decent run rate then for the rest.
Yeah, just any broad thoughts there would be great.
I still think it's fairly quiet on the M&A front, I mean, everybody's talking but you know there's a few banks that are you know.
Operator: Thanks so much for the call; I appreciate you taking my question. Amen. Your next question comes from Terry McEvoy with Stevens. Please go ahead. Hi, guys. Good afternoon.
You know, we're struggling but I think you would like to partner up.
Chuck: Thank you very much. Maybe just to start off, the New York Community Bank that's been in the headlines this past week, are you getting questions or concerns from any of your clients on your commercial real estate loans or your liquidity position? We really have not gotten hardly any, I mean, we've gotten no calls that I know of. Unlike when the bank failed in March, there were quite a few calls and stuff. But we've heard nothing so far about the New York Community Bank struggles and stuff. That's good to hear. Next question, as you commented in the press, Felice, you've had really good growth in multifamily, non-owner-occupied loans. Could you just maybe talk about what your developers are seeing in the markets in terms of rates, vacancy trends, and are you being a bit more cautious at all on your multifamily underwriting given those conditions? Yeah, this is Chuck.
But you know, they're just tough deals to do right now the marks are so.
Heavy in and just to get done you know and we're bancshares.
We're trading at and other banks are trading at I think those deals are hard to do so you know for right now where you are.
Laser focus just trying to to.
You know grow our capital increase that TCE ratio.
Because you know I don't I don't see a lot happening over this first half of the year.
So we're gonna be laser focused in and they're growing.
Getting that TCE ratio back in line.
Yes.
Great piece.
All the color thanks for taking my questions.
Yeah.
Ladies and gentlemen, as a reminder, should you have a question. Please press star.
Why not.
Your next question comes from Manuel Nevada with D. A Davidson. Please go ahead.
Hey, good afternoon guys.
Yes.
Do you have kind of our overall guide for fees I guess that it is in part driven by the F. G trends, but just kind of a deal like an overall expectation for fees.
That include that.
Chuck: I would say yes, we're being a little bit more cautious for sure, you know, and looking at it. But we've got some, you know, the markets that we're really strong in, you know, Cleveland, Columbus, and Cincinnati, and, predominantly, Columbus, they can't build units fast enough. And I would tell you that probably 80% of the deals that we're doing, that we're building up on as far as multifamily, the rental rates are coming in higher than what they were projected to be in the appraisal. So those markets are really, really strong, still multifamily.
Include that business.
I'm looking.
Yeah.
I guess, what we're saying towards the line item that was lease revenue and residual so that'd be the operating piece of it a.
That looks like and they have a run rate of about $2 million a quarter.
And I think that's maybe a little bit better than what we did this year.
Yeah.
Okay.
Okay, and then the other pieces grow.
With industry trends.
And they're kind of buried in interest income I mean, they're not you know what I mean, and then I guess other as far as the sell in selling equipment at the end of the lease and whatnot. That's kind of buried in there you're just talking to leasing right just because he's just started leasing right. There's question overall fees or just leasing.
My question was overall fees, but I appreciate the the lease itself I'm, sorry, I'm, sorry, I forgot.
Chuck: And I would say, Terry, too, as far as we're being a little bit more cautious, I think the interest rate environment's driving some of that because a lot of these deals, you have to have more equity in the deals to make the numbers work. And so that's putting, I think, your smaller developers and even some of the mid-sized developers on the sidelines. So the guys that are going to deals are your pretty well-heeled borrowers because they have that extra cash to put into the deals. We're often times having, you know, seeing 35% or so going into those multi-family deals to make them work. And then, thanks for that. Maybe one last one.
I have at least here in my mind.
Quick so I was going to say, we probably will do fairly close to what we did this year and fees. You know we have overdraft fees that are that are we had some overdraft reform and we lose a little bit of overdraft income there, but we do think were you know at least right now with the yield curve so inverted.
You can pick up some swap fees.
If rates move down even slightly I think Chuck feels we've got so portfolio residential loans that we did put on the books that we probably could flip over into salable loans.
Which also frees up a little liquidity. There. So you know I think our guide is probably fairly close to that 37 or so million dollars of noninterest income that we did.
And in 'twenty three Mr. Schafer, usually shoots a little high [laughter] I didn't say that number's, probably closer to $34 million and I don't know if it grows linearly.
Rich: When you put together the 2024 budget, any type of range you were thinking about for that lease revenue and residual income line? I know you talked about it earlier, but it is a growing part of your fee income stream, and just maybe get some insight in terms of how you're thinking for the full year. You know what, Terry?
Because we got attached correct right that.
So I think if you had if you had an 8 million from the first quarter and $8 to $8 seven and nine I think that's the way we pledge.
Budgeted for the year of 34, that's right.
Okay.
Rich: If I gave you a number, I'd be kind of fudging. Let me look, and I'll get you a good number, and I'll get it out to all you guys. Okay? I don't have that in front of me.
I appreciate that.
I like the comments about the the NIM with rate cuts, but just kind of.
So the next what even more near term.
You put out a lot of loans this quarter.
What where do you kind of see the NIM going next quarter.
Rich: Appreciate that, Rich. Thanks for taking my questions. Thanks, Terry. Your next question comes from Michael Perito with KBW. Please go ahead.
I mean, it it might float a little higher again.
Again, just based on what we did on the funding side and again, we put a lot of higher yielding loans on in December and November.
But I you know I don't know yeah, I I think I think it stays about where it is that you know, we think it's pretty well trough.
Operator: Hi, this is Mike's associate Andrew Fillingan. Thanks for taking my question. See you, Andrew. See you, Andrew.
But you know we are we hope to get some improvement there we'll see because we are you know hopefully getting better pricing on the brokerage stuff, we're going to hopefully.
Bring down some of the funding cost, which we've talked about we started to do with things repricing. So.
Operator: Just a quick one here for May 1st. I was just wondering, was there any accretion impact on the margin this quarter? And if so, what would the core NIM have looked like for 4Q?
Uh huh.
We're optimistic that we'll be able to improve there.
Yeah, I think we're going to see some pressure on the lending side, though too from that perspective fourth quarter. We felt like we had with a lot of our competition seem like they've kind of taken went to the sidelines in the fourth floor kind of waiting so.
Speaker: So it was six basis points, which has been pretty consistent, I think, for the last number of quarters in terms of decreasing impact. So take six basis points off of it, and that's what it would have been, and I guess going forward, I don't see it changing over the next or Quarters anyway. Great, thanks for that. And then, I appreciate all the color on the Capitol front.
They're not in December our commercial production, new and renewed was over 8%, which I think is the first time, we eclipsed the 8% piece, we're seeing rates in the marketplace right now really fall back here mid January.
With almost all of the competition back in in a lot of competition now going back to pricing off the treasury as compared to pipe kind of pricing up where deposit costs right.
Speaker: Obviously, the focus here is to kind of push back up towards that 7-7-F TCE. Broadly, with the repurchase kind of expiring here in May, I know you said you're going to be opportunistic, but maybe just a high-level comment on M&A. I know that's not the focus right now, but conversations have kind of started to return to the market here. Yeah, just any broad thoughts there would be great.
That's I appreciate that commentary overall.
I guess, that's also probably drive some of the loan growth commentary, but is there enough is there a amount of success on the deposit side that they could give you some upside to low single digit loan growth.
Well I thought.
I think so we're really focused on the funding side I think that's gonna be a big challenge not only for us in 'twenty four but for all community banks. So we're all faced with the same thing we've got a number of initiatives underway as rich alluded to some of those just you know we you know we we have scrubbed our existing loan portfolios whether that's.
Speaker: Yeah, I still think it's fairly quiet on the M&A front. I mean, everybody's talking, but, you know, there's a few banks that are, you know, that are struggling that I think you would like to partner up with. But, you know, they're just tough deals to do right now because the marks are so heavy.
Consumer commercial there are customers that don't have a deposit relationship where we where we know that have substantial other deposits. So we will be putting a campaign around that to go after those customers. So that will be one of our focus is to try to build core deposits.
We are we are on the process of identifying another a bucket of cash how the clients.
Speaker: And just to get done, you know, and where banks are, you know, where we're trading at and other banks are trading at, I think those deals are hard to do. So, you know, for right now, we are, you know, laser focused just trying to, you know, grow our capital, increase that TCE ratio because, you know, I don't see a lot happening in this first half of the year. So we're going to be laser focused on growing, getting that TCE ratio back in. Great. I appreciate all the color.
You know that.
These cash rich businesses like law firms or title companies the business and professional associations.
And then and then trying to create a niche product to go after to try to get some of those deposits.
We'll probably throw some more dollars at our Treasury management area, we've got.
Great success hiring.
Commercial lenders, who are pretty well connected.
With books of business and you know that.
And we've done that on the Treasury side I think when they wanted to do that some more and see if they can move over deposits.
We're going to expand our digital.
Deposit product offerings. So there's a number of initiatives I think to do.
Speaker: Thanks for taking my question. Ladies and gentlemen, as a reminder, should you have a question, please press star. Your next question comes from Manuel Nevev with DA Davidson. Please go ahead.
That we're gonna be embarking on throughout the year.
We.
Well give us some opportunity to build upon.
<unk> core deposit franchise.
Okay. That's great I appreciate it I appreciate it I'll step back into the queue.
Operator: Hey, good afternoon, guys. Do you have kind of a general guide for fees? I guess it's in part driven by VFG trends, but just kind of deal like an overall expectation for fees that includes them in that business. I'm working.
Okay.
Your next question comes from Daniel Cardenas with Janney Montgomery Scott.
Please go ahead.
Good afternoon guys.
Yep.
A couple a couple of questions here and tax rates kind of been jumping around throughout the year, what's what's what's kind of a good run rate to use for you guys on a go forward basis.
Rich: I guess what we're seeing for the line item that was lease revenue and residuals, so that'd be the operating piece of it. It looks like it'd have a run rate of about $2 million a quarter. I think that's maybe a little bit better than what we did this year. Okay, and then the other pieces grow, with Industry Trends. They do, and they're kind of buried in interest income. I mean, they're not. Do you know what I mean?
So really 15 for the quarter I mean, I you know 15 or 16 is probably I think we're.
Settling in at.
Uh huh.
Thank you.
And then Oh.
I noticed a little bit of a creep up in your in your non performers. This quarter can you give us a little color as to.
What was driving that in terms of what.
Rich: And I guess other things, as far as the selling of equipment at the end of a lease and whatnot, that's kind of buried in. You're just talking leasing. Right, just talking leasing. You're just talking leasing. This is a question about overall fees, which is disleasing. My question was about overall fees, but I appreciate the lease itself. Okay, I'm sorry, I'm sorry.
Was it one loan was at multiple loans.
This section of the portfolio that it was coming from and then also what what to watch list trends look like for you guys.
Yeah.
Hi, This is Mike multiple the chief credit Officer.
We had one loan relationship that moved to non accrual. It was about three and a half million dollars that was a big reason for the jump in the nonperforming.
Rich: I had the lease on my mind. I was going to say we probably will do fairly close to what we did this year in fees. We have overdraft fees because we had some overdraft reform, and we lose a little bit of overdraft income there. But we do think we're, at least right now, with the yield curve so inverted, that we can pick up some swap fees. If rates move down even slightly, I think Chuck feels we've got some portfolio residential loans that we put on the books that we probably can flip over into saleable loans, which also frees up a little liquidity there. So I think our guide is probably fairly close to that 37 or so million dollars of non-interest income that we did in 23. Mr. Schaefer usually shoots a little high.
And and I missed the last part of your question.
Yeah, just just trying to get a sense of well for that one loan is that was that a commercial loan yes.
Yes.
Yes, okay.
In <unk>.
On CRE.
None of this is Gary.
Oh yeah.
Okay.
And I think he asked about the watch list and I think that's pretty stable yeah, yeah. The watchlist the watchlist credits are pretty stable.
Two great changes for the quarter and.
No systemic issues that we're.
We're seeing right now.
And we're also doing we're not really seeing much movement as far as some of our loans are repricing, we're not seeing a lot of pressure on those loans from.
From the jump in interest rates caused the cash flow that you.
Always have a handful and you're looking at them, but all in all it's been very stable knock on wood it remains that way.
Rich: I'd say that number is probably closer to 34 million. I don't know if it grows linearly. No, that's right, because we've got the tax money in there. Right, right, right. So I think if you had 8 million from the first quarter and 8.2, 8.7, and 9, I think that's the way we budgeted it for the year. How about that? Oh, 34.
Okay.
And then are there any particular sectors segments in your portfolio that maybe you're tapping the brakes on as you come into 'twenty four.
Or is that not necessarily the case.
I mean, obviously like everybody else, we're very mindful of office and not to let us exposure get too high.
The the hotel.
Rich: Okay, I appreciate that. I like the comments about the NIM with rate cuts, but just kind of, for the next, even more near term, you put on a lot of loans this quarter. Where do you kind of see the NIM going next quarter?
Piece of it but you know it's pretty much stayed flat from a percentage basis points in that as well.
And I think somebody earlier mentioned multifamily work, we're still bullish on multifamily, but we are taking a closer look and especially looking at communities. Let's see you know if they can sustain the growth of the multifamily is taking place.
Rich: I mean, it might float a little higher, again, just based on what we did on the funding side. And again, we put a lot of higher-yielding loans on in December and November, but I don't know. Yeah, I think it stays about where it's at.
Other than that I think we're you know, we're probably being a touch more cautious but we're not.
We're not really shutting down any areas.
Okay perfect perfect.
And then the last question I have is just the it looks like your home loan advances came down fairly substantially in the quarter was that.
Did you guys do that through the broker deposits that you raised or how is that achieved.
Chuck: We think it's pretty well through, but we hope to get some improvement there. We'll see, because we are hopefully getting better pricing on the brokerage stuff. We're gonna hopefully bring down some of the funding costs, which we've talked about, and we've started to do, and then with things repricing, so we're optimistic that we'll be able to improve. I think we're going to see some pressure on the lending side, though, too, from that perspective. You know, in the fourth quarter, we felt like we had a lot of our competition seemed like they kind of went to the sidelines in the fourth quarter, kind of waiting.
Yeah that was exactly what it was and it was just.
It was cheaper to go out and get the broker deposits that was borrowed from the federal home loan bank.
And generally we try to keep the federal home loan bank stuff freed up because that's something that's.
Readily available so when we see inefficiencies or opportunities in any other wholesale markets, where the broker market. We're always kind of looking at it if it makes sense, we'll take down a chunk of financing there just because of the again, it's it's economically to our advantage and also just from a risk standpoint.
We try to keep the federal home loan bank.
Your line is free as we can just just in case.
And how much how much capacity do you guys have left them on that line.
Chuck: So, believe it or not, in December, our commercial production, new and renewed, was over 8 percent, which I think is the first time we've eclipsed 8 percent. We're seeing rates in the marketplace right now really fall back here, you know, mid-January with, you know, almost all the competition back in, and a lot of the competition now going back to pricing off the Treasury as compared to kind of pricing off for deposit costs. I appreciate that commentary.
Oh pardon me, but.
I'll have to get back to you it's a lot.
[laughter].
All right great I'll step back thanks, guys.
There are no further questions at this time. Please proceed.
Okay well. Thank you in closing I, just want to thank everyone for joining us and those who are participating in today's call.
Interest rate environment continues to be a challenge.
All of our earnings to remain strong and our margin remains solid.
I'm very proud of the fact that for the year, we had record net income.
Chuck: Overall, I guess that also probably drives some of the loan growth commentary, but is there an amount of success on the deposit side that could give you some upside to low single-digit loan growth? Well, I think so. We're really focused on the funding side. I think that's going to be a big challenge, not only for us in 24, but for all community banks. So we're all faced with the same thing.
We had year over year margin expansion.
We had positive earnings per share growth and you.
And I'm sure there's a lot of community banks and say, let's say at all three of those things so.
I remain optimistic that our disciplined approach.
To pricing and our solid core deposit franchise will continue to produce superior results and when I just look forward to talking to everyone.
The next few months to share our first quarter results. So thank you.
Chuck: We've got a number of initiatives underway, as Rich alluded to, some of those just, we have scrubbed our existing loan portfolios, whether that's consumer or commercial. There are customers that don't have a deposit relationship or we know that have substantial other deposits. So we'll be putting a campaign around that to go after those customers. So that will be one of our focuses to try to build core deposits. We are in the process of identifying another bucket of cash-heavy clients, these cash-rich businesses like law firms or title companies, business, and professional associations, and then trying to create a niche product to go after to try to get some of those deposits. We'll probably throw some more dollars at our treasury management area. We've had great success hiring commercial lenders who are pretty well connected in books of business.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating in that that you. Please disconnect your lines.
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Yeah.
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Chuck: And, you know, we've done that on the Treasury side. I think we may want to do that some more and see if they can move over deposits. We're going to expand our digital deposit product offerings. So there's a number of initiatives, I think, to do that we're going to be embarking on throughout the year that will give us some opportunity to build upon, you know, our strong core deposit franchise. That's great. I appreciate it. I'll step back into the queue. Your next question comes from Daniel Cardenas with Johnny Montgomery Scott.
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Operator: Go ahead. Good afternoon, guys. A couple questions here. The tax rates have been jumping around throughout the year. What's, it's kind of a good run rate to use for you guys in a go forward phase. So, 15 from the quarter. I mean, 15 or 16 is probably, I think, where we're kind of settling in at. Thank you all. Bye.
Okay.
Yes.
Yeah.
Okay.
Okay.
Speaker: And then I noticed a little bit of a creep up in your non-performers this quarter. Can you give us a little color as to what was driving that in terms of, was it one loan, was it multiple loans? section of the portfolio that it was coming from, and then also, what do watchlist trends look like for you guys? Hi, this is Mike Mulford, the Chief Credit Officer. We had one loan relationship that moved to non-accrual. It was about $3.5 million, so that was a big reason for the jump, the non-performing loan. And I missed the last part of your question. Yeah, just trying to get a sense of, well, for that one loan, was that a commercial loan? Yes.
Yeah.
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Okay.
Mike Mulford: Yes, at the non-theory level, non-theory, yeah, non-theory, non-I level, yeah, I think he asked about a watch list, and I think that's pretty stable. Oh yeah, yeah, the watch list credits are pretty stable. Very few great changes for the quarter and, so, systemic issues that we're seeing right now. And we're also, Dan, not really seeing much movement as far as some of our loans are repricing; we're not seeing a lot of pressure on those loans from the jumping interest rates causing cash flow issues. You know, you always have a handful when you're looking at them, but all in all, it's been very stable. Knock on wood, it remains that way. And then, are there any particular segments in your portfolio that maybe you're tapping the brakes on as you come into 24, or is that not necessarily the case? Obviously, like everybody else, we're very mindful of office space and not to let office exposure get too high. You know, we're watching the hotel.
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Chuck: We've pretty much stayed pretty much flat from a percentage point in that as well. I think somebody earlier mentioned multi-family. We're still bullish on multi-family, but we are taking a closer look and especially looking at communities to see if they can sustain the growth of the multi-families taking place. Other than that, I think we're probably being a touch more cautious, but we're not really shutting down any areas. www.circlelineartschool.com And then the last question I have is just that your home loan advances came down fairly substantially in Yeah, that was exactly what it was, and it was just...
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Speaker: It was cheaper to go out and get the broken deposit than it was to borrow it from the Federal Home Loan Bank. In general, we try to keep the Federal Home Loan Bank stuff freed up, because that's something that's readily available. So when we see inefficiencies or opportunities in other wholesale markets or the broker market, we're always kind of looking, and if it makes sense, we'll take down a chunk of financing there, just because, again, it's economically to our advantage, and also just from a risk standpoint, we try to keep the Federal Home Loan Bank line as free as we can, just in case. And how much capacity do you guys have left on that? Uh, I don't have that in front of me, but... I'll have to get back to you. It's a lot.
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Speaker: All right, great. I'll step back. Thanks, guys. There are no further questions at this time. Please proceed. Okay, well, thank you.
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Dennis Schaefer: In closing, I just want to thank everyone for joining us and those that participated in today's call. The infrastructure environment continues to be a challenge, but our earnings do remain strong, and our margin remains solid. I am very proud of the fact that, for the year, we had record net income, year-over-year margin expansion, and positive earnings per share growth. And I'm sure there are a lot of community banks that can say that they had all three of those things. So I remain optimistic that our disciplined approach to pricing in our solid core deposit franchise will continue to produce superior results, and I just look forward to talking to everyone in the next few months to share our first quarter results.
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Dennis Schaefer: So thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, www.circlelineartschool.com Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music
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