Q1 2024 Civista Bancshares Inc Earnings Call

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Operator: Ladies and gentlemen, 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. that involve risks and uncertainty. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures.

Speaker Change: Ladies and gentlemen, 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, let's suppose debentures that involve risks and uncertainties.

Speaker Change: 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.

Speaker Change: The company disclaims any obligation to update any forward looking statements made during the call.

Speaker Change: Additionally, management may refer to non-GAAP measures, which are intended to supplement the substitute the most directly comparable GAAP measures.

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 GAAP measure to the non-GAAP measure. This call will be recorded and made available on Civista Bancshares' website at www.cibb.com. At the conclusion of Mr. Shaffer's remarks, he and the Civista Management team will take any questions you may have. Now, I will turn the call over to Mr. Shaffer. Please go ahead.

Speaker Change: Press release also available on the company's website and seems to financial and other quantitative information to be discussed today.

That's less of a constellation to the GAAP measure alright, Melissa ever constellation of the GAAP to non-GAAP measures.

Speaker Change: This call will be recorded and made available on surface debentures website www dot IBD dotcom.

Speaker Change: At the conclusion of Mr. Shapers anymore.

Speaker Change: He understood as the banishment team and we will take any questions you may have.

Mr. Sha: Now I will turn the call over to Mr. Sha. Please go ahead.

Dennis G. Shaffer: Good afternoon. This is Dennis Shaffer, President and CEO of Civista Bancshares, and I would like to thank you for joining us for our first quarter 2024 earnings call. I'm joined today by Richard 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 first quarter of $6.4 million, or 41 cents per deleted share, which represents a $6.5 million decline from our first quarter in 2023 and a $3.3 million decline from our previous longest quarter

Good afternoon. This is Dennis Shaffer, President and CEO of Suez, The Bankshares and I would like to thank you for joining us for our first quarter 2024 earnings call I'm joined today by Rich Dutton SVP of the company and Chief operating Officer, The Bank Chuck Parcher SVP of the company's Chief lending officer of the bank.

Mr. Sha: Other members of our executive team.

Mr. Sha: This morning, we reported net income for the first quarter of $6 $4 million were 41 cents per diluted share, which represents a six and a half million dollar decline from our first quarter of 2023, $83 3 million hour decline from our linked quarter.

Dennis G. Shaffer: While we are disappointed in our results, we knew there would be headwinds as we stepped away from being the third-party processor of income tax refunds, and we did not have the benefit of a $1.5 million one-time bonus that we received from the renegotiation of our debit brand agreement. In addition, in late 2023, we implemented changes in the way we processed overdrafts, which reduced service charge income. As a result of these three items, non-interest income was approximately $3.8 million less in this quarter than in the previous year.

While we are disappointed in our results we knew there would be headwinds as we stepped away from the third party processor of income tax refunds and we did not have the benefit are they wanted a half million dollars. One time bonus that we received from the renegotiation of our debit brand agreement.

Mr. Sha: In addition in late 2023, we implement any changes in the way, we process overdrafts, which reduced service charge income.

Mr. Sha: As a result of these three items non interest income was approximately $3 $8 million less in this quarter than in the previous year.

Dennis G. Shaffer: While we continue to reduce rates on our CD specials and select money market accounts, the migration from our non-interest-bearing and lower-rate checking accounts into higher-rate money market accounts and CDs continues to put pressure on our net interest margin. We also experience an increase in our allowance for credit losses as our CECL model requires higher reserves based on our individually-analyzed loan and lease portfolio and loan growth. During the third quarter of 2023, we announced that Civista would be stepping away from being a third-party processor of tax refunds due to increased scrutiny from our regulators.

Mr. Sha: While we continued to reduce rates on our CD specials in select money market accounts, so migration from our non interest bearing and lower rate checking accounts into higher rate money market accounts and Cds continued to put pressure on our net interest margin. We also experienced an increase in our allowance for credit losses.

So she saw model requires higher reserves base starter individually analysed loan and lease portfolio and loan growth.

Mr. Sha: During the third quarter of 2023, we announced that sonesta would be stepping away from the third party processor of tax refunds due to increased scrutiny from our regulators. So that's to earn $1 $9 million and $475000, respectively. During the first and second quarters of 2000.

Dennis G. Shaffer: Civista earned $1.9 million and $475,000, respectively, during the first and second quarters of 2023 related to this program. Like many in the industry, we have been analyzing the way we process overdraft accounts and the fees associated with those services. Late in December, we discontinued assessing a charge on represented overdrafts, represented overdrafts, and reduced our NSF charge from $37 to $32. We are also enhancing how we communicate with our customers on the use of their deposit accounts.

Dennis G. Shaffer: 23 related to this program.

Speaker Change: Like many in the industry, we have been analyzing the way we process overdraft the camps and the fees associated with those services late in December we discontinued assessing a charge unrepresented overdrafts represented overdrafts and reduced our NSF charge from $37 to $32.

Speaker Change: We are also enhancing how we communicate with our customers on the use of their deposit accounts, our overdraft fees, which are included in service charges declined $375000 compared to our first quarter of 2023, we anticipate these changes it changes will reduce service charge.

Dennis G. Shaffer: Our overdraft fees, which are included in service charges, declined $375,000 compared to our first quarter of 2023. We anticipate these changes will reduce service charge revenue by $1.2 million over the course of 2024. In anticipation of this lost revenue, we implemented a number of initiatives to reduce our reliance on wholesale and borrowed funding, to increase revenue, and to reduce expenses. Although we have seen some immediate impact, most of the benefit from these initiatives will occur over the balance of the year. I am encouraged by the early results, and I'm optimistic that we are headed in the right direction.

Dennis G. Shaffer: By $1.2 million over the course of 2024.

Speaker Change: In anticipation of this lost revenue, we implemented a number of initiatives to reduce our reliance on wholesale and borrowed funds to increase revenue and to reduce expenses. Although we have seen so many immediate impact most of the benefit from these initiatives will occur over the bad.

Speaker Change: What sort of a year I am encouraged by the early results and I'm optimistic that we were headed in the right direction.

Dennis G. Shaffer: We anticipated pressure on our margin as we exited the tax program and the need to replace the significant interest-free funding balances it provided during the first and second quarters. However, it is difficult to model the impact of depositors migrating from non-interest-bearing to interest-bearing accounts, which was evident during the quarter. During the quarter, our cost of funding increased by 35 basis points to 2.54%, while our yield on earning assets increased by 12 basis points to 5.64%.

Dennis G. Shaffer: We anticipated pressure on our margin as we exited the tax program and the need to replace the significant interest free funding balances. It provided during the first and second quarters. However, it is difficult to model the impact of the depositors migrating from noninterest bearing into interest bearing accounts, which were.

Speaker Change: It's evident during the quarter.

Speaker Change: During the quarter, our cost of funding increased by 35 basis points to 245, 4%, while our yield on earning assets increased by 12 basis points to 564%. This resulted in a margin contracted by 22 basis points coming in at 342, 2% for the quarter.

Dennis G. Shaffer: This resulted in our margin contracting by 22 basis points, coming in at 3.22% for the quarter. During the quarter, we continued our measured approach to decreasing rates paid on some of our higher-tiered demand deposit accounts and CD specials. In spite of lowering these rates, our cost of deposits, excluding broker deposits, increased by 21 basis points to 1.22% during the quarter. We have a number of initiatives in progress to reduce costs and our reliance on broker and wholesale funding. The state of Ohio announced its Ohio Homebuyers Plus program to encourage Ohioans to save for the purchase of homes in Ohio by offering tax incentives to the depositors and subsidizing participating banks.

Speaker Change: During the quarter, we continued our measured approach to decreasing rates paid on some of our higher tier demand deposit accounts and CD specials in spite of lowering these rates our cost of deposits excluding broker deposits increased by 21 basis points to 1.22% during the quarter.

Dennis G. Shaffer: We have a number of initiatives in progress to reduce costs and our reliance on brokered and wholesale funding.

Dennis G. Shaffer: The state of Ohio announced this Ohio Homebuyers plus program to encourage ohioans save for the purchase of coals in Ohio by offering tax incentives to the depositors and subsidizing participating bank as part of the program. The state will deposit up to $100 million of low cost funds at the.

Dennis G. Shaffer: As part of the program, the state will deposit up to $100 million in low-cost funds at the current rate of 86 basis points into participating banks. We also have historically maintained the cash balances of our wealth management clients and other financial institutions. However, we are currently taking steps that will allow us to hold the cash deposits of our wealth management clients at the bank.

Speaker Change: Current rate of 86 basis points into participating banks.

Speaker Change: We also have historically maintained the cash balances of our wealth management clients and other financial institutions. However, we are currently taking steps that will allow us to hold the cash deposits or wealth management clients at the bank, we anticipate the race to approximate bedfellows less 20 to 25 basis.

Dennis G. Shaffer: We anticipate the rates to approximate fed funds, less 20 to 25 basis points. Based on the current cash positions, we anticipate being able to move $75 million of these funds into the bank by the end of the third quarter. Our loan and lease portfolios grew at an annualized rate of 5% for the quarter. This was organic growth, and we believe it is indicative of the continued strength of our markets in our organization. While this is slower, we have focused on holding rates at higher levels.

Speaker Change: Points based on the current cash positions, we anticipate being able to move $75 million of these funds into the base by the end of the third quarter.

Dennis G. Shaffer: Loan and lease portfolios grew at an annualized rate of 5% for the quarter. This was organic growth and we believe it is indicative of the continued strength of our markets and our organization well. This is slower we have focused on finding ways to add higher levels, we anticipate continuing to grow.

Dennis G. Shaffer: We anticipate continuing to grow at a mid-single-digit pace for the balance of 2024. While our overall credit remains solid, as I previously mentioned, we experienced an increase in our allowance for credit losses as our CECL model required higher reserves based on our individually analyzed loan and lease portfolios. This was primarily attributable to a hospitality credit and a cellular power credit that have both been classified for several quarters. Both borrowers continue to be cooperative; however, new information became available during the quarter, and it was necessary to adjust the collateral values and increase our reserves. Earlier, we announced a quarterly dividend of 16 cents per share based on our March 29 share price.

Speaker Change: At a mid single digit pace for the balance of 2024.

Speaker Change: Yeah.

Dennis G. Shaffer: While our overall credit remains solid as I previously mentioned, we experienced an increase in our allowance for credit losses as our seasonal model required higher reserves based on her individually analysed loan and lease portfolio. This was primarily attributable to a hospitality credits and a cellular tower tower credits.

Speaker Change: Those been classified for several quarters, both borrowers continue to be cooperative. However, new information became available during the quarter it was necessary to adjust the collateral values and to increase our reserve.

Speaker Change: Earlier, we announced a quarterly dividend of <unk> 16 cents per share based on a March 29th share price. This represents a 4.16% yield and a dividend payout ratio of 42, 111%.

Dennis G. Shaffer: This represents a 4.16% yield and a dividend payout ratio of 42.11%. Our efficiency ratio for the quarter was 73.8% compared to 64.3% for the late quarter. However, if we were to back out the depreciation expense related to our operating leases from our leasing group, our efficiency ratio would have been 70% for the quarter and 60% for the late quarter. During the quarter, non-interest income declined $319,000 or 3.6% in comparison to the previous quarter and $2.6 million or 23.2% in comparison to the prior year post-quarter.

Dennis G. Shaffer: Our efficiency ratio for the quarter was 73, 8% compared to 64, 3% of the linked quarter. However, if we were to back out the depreciation expense related to our operating leases from our leasing group our efficiency ratio would have been 70% for the quarter.

Dennis G. Shaffer: After the wasteful.

Speaker Change: During the quarter non interest income declined $319000 or three 6%.

Dennis G. Shaffer: Harrison to the linked quarter, and 2.6 million or 43, 2% in comparison to the prior year goes forward.

Dennis G. Shaffer: The primary drivers of the decrease from our link quarter were declines in service charges due to the previously mentioned changes to how we were processing overdrafts and a $418,000 decline in swap fee income. However, these declines were offset by increases in other non-interest income, which included increases of $182,000 in fees related to leases and $289,000 in income from our captive insurance subsidiaries. The primary drivers for the decline for the prior year's first quarter were $1.9 million in tax refund processing fees earned in the prior year that I mentioned earlier, and a non-recurring $1.5 million signing bonus that we recognized in the first quarter of 2023 related to a new debit brand agreement.

Speaker Change: The drivers of the decrease from our linked quarter declines in service charges due to the previously mentioned changes to how we go to processing overdrafts in the $418000 decline in swap fee income. These declines were offset by increases in other non interest income which included increased.

Speaker Change: And the $182000.

Speaker Change: Related to leases and $289000 in income from our captive insurance subsidiary.

Speaker Change: The primary drivers for the decline from the prior year's first quarter were $1 9 million in tax refund processing fees earned in the prior year that I mentioned earlier and a nonrecurring wanted a half million dollars signing bonus that we recognized in the first quarter of 2023 related to a new debit brand agreement. These.

Dennis G. Shaffer: These declines were partially offset by increases in the same other non-interest income items, a $584,000 increase in fees related to leases, and a $453,000 increase in income from our captive insurance subsidiary. Non-interest expense for the quarter of $27.7 million represents a $2.3 million, or 9%, increase from the linked quarter. This increase is primarily attributable to increases in compensation-related expenses, including salaries, which were up $139,000, payroll taxes, which increased $434,000 as the beginning of the year's full payroll tax load resumed, and an increase in health insurance expense of $346,000. You will recall that Civista is self-insured for our employee health insurance.

Dennis G. Shaffer: Declines were partially offset by increases in the same other non interest income items, a $584000 increase in lease related to leases and a $453000 increase in income from our captive insurance subsidiary.

Dennis G. Shaffer: Noninterest expense for the quarter of $27 $7 million represents a $2 $3 million or a 9% increase from a linked quarter. This increase was primarily attributable to increases in compensation related expenses, including salaries, which were up $139000 payroll taxes.

Dennis G. Shaffer: Which increased $434000 as the beginning of the year old payroll tax load resumed and an increase in health insurance expense of $346000. You will recall that so this is self insured for our employee health insurers.

Dennis G. Shaffer: As has been our practice, we begin each year by accruing our health insurance expense at the rate computed by our actuaries. Thankfully, as has often been the case, we were able to reduce that accrual in the third and fourth quarters of the prior year. In addition, the combination of truing up our marketing accrual in the previous quarter and the resumption of our monthly marketing accrual in the current quarter accounted for $669,000 of the increase. Compared to the prior year's first quarter, non-interest expense increased $257,000, or 1%.

Speaker Change: As has been our practice, we begin each year by accruing our health insurance expense at the rate computed by our actuaries.

Dennis G. Shaffer: Thankfully as has often been the case, we were able to reduce that are cool with a third and fourth quarters of the prior year. In addition, the combination of Truing up our marketing rule in the previous quarter and a resumption of our monthly marketing accruals in the current quarter accounted for $669000 of the increase.

Dennis G. Shaffer: Compared to the prior year's first quarter non interest expense increased $257000 well, 1%. The increase was attributable to our normal annual merit increases, which take place each April and software expenses related to our digital banking platform that were mostly offset by declines in depreciation.

Dennis G. Shaffer: The increase is attributable to our normal annual merit increases, which take place each April, and software expenses related to our digital banking platform that were mostly offset by declines in depreciation related to operating leases and professional fees that were paid to the consultant who assisted us with our debit card brand renewal in the prior year, putting our focus on the balance sheet. For the quarter, total loans and leases grew by $36.4 million. This represents an annualized growth rate of 5%.

Dennis G. Shaffer: Related to operating leases and professional fees that were paid to the consultant who assisted us with our debit card brand renewal in the prior year.

Dennis G. Shaffer: Turning our focus to the balance sheet.

Dennis G. Shaffer: For the quarter total loans and leases grew by $36 $4 million. This represents an annualized growth rate of 5%.

Dennis G. Shaffer: While we experienced increases in nearly every loan category, our most significant increases were in non-owner-occupied CRE loans, residential real estate loans, and real estate construction loans. The loans we are originating for our portfolio are virtually all adjustable-rate loans, and our leases all have maturities of five years or less. New and renewed commercial loans were originated at an average rate of 7.92% during the quarter. Loans secured by office buildings make up about 5.1% of our total loan portfolio. As we have stated previously, these loans are not secured by high-rise metro office buildings. Rather, they are predominantly secured by single or two-story offices located outside of central business districts.

Dennis G. Shaffer: While we experienced increases in nearly every loan category. Our most significant increases were non owner occupied CRE loans residential real estate loans and real estate construction loans. The loans, we're originating for our portfolio are virtually all adjustable rate loans and our leases all have maturities.

Dennis G. Shaffer: Five years or less.

Dennis G. Shaffer: New and renewed commercial loans were originated at an average rate of 792% during the quarter.

Dennis G. Shaffer: Loans secured by office buildings make up about five 1% of our total loan portfolio.

Dennis G. Shaffer: As we have stated previously these loans are not secured by high rise Metro office buildings, rather they are predominantly secured by single or two storey office is located outside of central business District.

Dennis G. Shaffer: Along with year-to-date loan production, our pipelines are fairly strong, and our undrawn construction lines were $244 million at March 31. As a result, we anticipate loan growth to continue to be in the mid-single-digit range for the balance of 2024. On the funding side, total deposits were mostly flat, declining just $4.3 million, or a negative 0.1% since the beginning of the year. However, if we back out non-core tax program and broker deposits, our deposit balances declined to $29 million, or 1% year-to-date.

Speaker Change: Along with year to date loan production, our pipelines are fairly strong or undrawn construction lines were $244 million at March 31.

Speaker Change: Again, we anticipate loan growth to continue to be in the mid single digit range for the balance of 2024 on.

Dennis G. Shaffer: On the funding side total deposits were mostly flat declining just $4 $3 million or negative <unk>, 1%.

Dennis G. Shaffer: Since the beginning of the year. However, if we back out non core tax program in broker deposits, our deposit balances declined to $29 million or 1% year to date.

Dennis G. Shaffer: As I mentioned, we have a number of initiatives in progress aimed at gathering core funding. Our deposit base is 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 brokered deposits.

Speaker Change: And we have a number of initiatives in progress and the gathering core funding our.

Dennis G. Shaffer: Our deposit base is fairly granular with our average deposit account, excluding Cds approximately $25000.

Dennis G. Shaffer: Non interest bearing demand accounts continue to be a focus excluding tax related and broker deposits non interest bearing deposits made up 29.5% of our total deposits at March 31.

Dennis G. Shaffer: Non-interest-bearing deposits made up 29.5% of our total deposits at March 31. With respect to FDIC-insured deposits, excluding Civista's own deposit accounts and those related to the tax program, 13.1%, or $392.3 million, of our deposits were in excess of the FDIC limits at quarter end. Our cash and unpledged securities at March 31st were $452 million, which more than covered these uninsured deposits. Other than the $369.5 million of public funds with various municipalities across our footprint, we had no deposit concentration at March 31st.

Dennis G. Shaffer: With respect to FDIC insured deposits, excluding services open deposit accounts and those related to the tax programs 13, 1% or $392 $3 million of our deposits were in excess of the FDIC limits at quarter end, our cash and Unpledged Securities at March 30 <unk>.

Dennis G. Shaffer: First were 452 million, which more than covered these uninsured deposits other.

Dennis G. Shaffer: Other than the $369 $5 million of public funds with various municipalities across our footprint, we had no deposit concentration at March 31st.

Dennis G. Shaffer: At quarter end, our loan to deposit ratio was 98.3%. Our commercial lenders, treasury management officers, and private bankers continued to have some success requesting additional deposits and compensating balances from our commercial customers, and we will continue to be disciplined in how we price our deposits. We believe our low-cost deposit franchise is one of Civista's most valuable characteristics, contributing significantly to our solid net interest margin and overall profitability. However, the interest rate environment continues to put pressure on bond portfolios.

Dennis G. Shaffer: At quarter end, our loan to deposit ratio was 98, 3% our commercial lenders Treasury management officers and private bankers continue to have some success requesting additional deposits and compensating balances from our commercial customers and we will continue to be disciplined in how we price our deposits.

Dennis G. Shaffer: We believe our low cost deposit franchise. One. So this is the most valuable characteristics contributing significantly to our solid net interest margin and overall profitability.

Dennis G. Shaffer: The interest rate environment continues to put pressure on bond portfolios.

Dennis G. Shaffer: At March 31st, all of our securities were classified as available for sale and had $62.5 million of unrealized losses associated with them. This represented an increase in unrealized losses of $7.9 million since December 31, 2023. Over the past few quarters, we have reduced our security portfolio by using its cash flow to fund our balance sheet. On March 31st, our security portfolio was $608.3 million, which represented 15.7% of our balance sheet.

Dennis G. Shaffer: At March 31st secure your securities were classified as available for sale and had 62 and a half million dollars unrealized losses associated with this.

Dennis G. Shaffer: This represented an increase in liberalized losses of $7 $9 million since December 31 2023.

Dennis G. Shaffer: Over the past few orders, we have reduced our security portfolio by using its cash flow to fund our balance sheet at March 31st our security portfolio was $608.3 million, which represented 15, 7% of our balance sheet.

Dennis G. Shaffer: We ended the quarter with our Tier 1 leverage ratio at 8.62%, which is deemed well-capitalized for regulatory purposes. Our tangible common equity ratio was 6.26% at March 31st, down slightly from 6.36% at December 31st, 2023. Civistas' earnings continue to create capital, and our overall goal remains to maintain adequate capital to support organic loan growth and potential acquisitions. Although we did not repurchase any shares during the quarter, we continue to believe our stock is of value.

Dennis G. Shaffer: We ended the quarter with our tier one leverage ratio at 862%, which is being well capitalized for regulatory purposes.

Dennis G. Shaffer: Our tangible common equity ratio was 642, 6% at March 31 down slightly from $6 three 6% at December 31 2023.

Dennis G. Shaffer: So this is earnings continue to create capital and our overall goal remains to maintain adequate capital to support organic loan growth and potential acquisitions, although we did not repurchase any shares during the quarter. We continue to believe our stock is a value.

Dennis G. Shaffer: While our capital levels remain strong, we recognize our tangible common equity ratios are spring low. Our previous guidance remains that we would like to rebuild our TCE ratio back to between seven and seven and a half percent. To that end, we will continue to focus on earnings and will balance any repurchases in the payment of dividends with building capital to support growth. As we stated in an earlier 8K, the board reauthorized a new stock repurchase program of $13.5 million during its April meeting.

Dennis G. Shaffer: While our capital levels remained strong we recognize our tangible common equity ratios screen loves our previous guidance remains that we would like to rebuild our TCE ratio basket between two and.

Dennis G. Shaffer: Seven 5% to that end, we will continue to focus on earnings.

Dennis G. Shaffer: Any repurchases and the payment of dividends with building capital to support growth.

Dennis G. Shaffer: As we stated in an earlier 8-K, the board reauthorized, a new stock repurchase program of 13, and a half million dollars or at its April meeting.

Dennis G. Shaffer: 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. As I previously mentioned, we did make a $2 billion provision during the quarter, which was primarily attributable to higher reserves required by our model based on individually analyzed loans and leases, which was driven by True2Credit, a $3.3 million hospitality credit, which we expect to resolve via the sale of the properties and have a substantial guarantor backing, and a $4 million cellular tower credit, which we expect to resolve in the next six months.

Dennis G. Shaffer: 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 as I. Previously mentioned, we did make a $2 million provision during the quarter, which was primarily attributable to a higher reserves required by our model based on individually.

Dennis G. Shaffer: We analyze loans or leases, which was driven by true two credits.

Dennis G. Shaffer: <unk> $3.3 million of hospitality credit, which we expect to resolve via the sale of the properties and they have a substantial guarantor backing and a $4 million cellular tower credits, which we expect to resolve in the next six months.

Dennis G. Shaffer: I would note that neither of these credit issues were related to underwriting weakness. The hotel had an issue with its fire suppression system. During the pandemic that prevented it from operating for 17 months and continues to limit operations. The cellular tower business suffered an internal fraud, where an employee.

Dennis G. Shaffer: I would note that neither of these credit issues were related to underwriting weakness. The hotel had an issue with its fire suppression system during the pandemic that prevented it from operating for 17 months and continues to limit operations. The cellular power business suffered an internal fraud where an employee caused significant damage to the company for personal gain.

Dennis G. Shaffer: Cause significant damage to the company for personal gain.

Dennis G. Shaffer: Our ratio of allowance for credit losses, and a one 3% at December 31, 2023 to 1.3 or four 4% at March 31st. In addition, our allowance for credit losses to nonperforming credits increased from $245 six 7% at December 30.

Dennis G. Shaffer: Our ratio of allowance for credit losses improved from 1.3% at December 31st, 2023, to 1.34% at March 31st. In addition, our allowance for credit losses to non-performing loans increased from 245.67% at December 31st, 2023, to 247.06% at March 31st. In summary, although our margin compression was more than we anticipated, our margin remains strong, and we are taking steps to generate more lower-cost funding. Our loan growth during the quarter should remain at a mid-single-digit pace for the balance of 2024.

Dennis G. Shaffer: <unk> 2023 to 247, 6% at March 31.

Dennis G. Shaffer: In summary, although our margin compression was more than we anticipated our margins remained strong and we are taking steps to generate more lower cost funding our loan growth during the quarter should remain in the mid single digit pace for the balance of 2024, while we experienced some isolated credit issue.

Dennis G. Shaffer: We have seen no systemic deterioration in our credit quality.

Dennis G. Shaffer: While we experienced some isolated credit issues, we have seen no systemic deterioration in our credit quality. Overall, Civista continues to generate solid earnings, and our focus continues to be on creating shareholder value. Thank you for your attention this afternoon and your investment, and now we will be happy to address any questions that you may have.

Dennis G. Shaffer: Overall service to continues to generate solid earnings ever focus continues to be on creating shareholder value.

Dennis G. Shaffer: Thank you for your attention this afternoon and your investment and now we will be happy to address any questions that you may have.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Dennis G. Shaffer: A question. Please press the star followed by the one under Touchtone phone.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any key.

Speaker Change: Well, you're right that you can't estimate.

Operator: Questions will be taken in the order received should you wish to cancel your request. Please press the star followed by the channel.

Operator: We are using a speaker phone please lift the handset before pressing any case once again that is star one chicken this to ask a question.

Operator: Your first question is from Brendan Nosal from <unk>. Please ask your question.

Speaker Change: Hey, good afternoon folks hope you're doing well.

Operator: Once again, that is store one should you wish to ask a question. Your first question is from Brandon Nossel from Hobjy Group. Please ask your question.

Speaker Change: Hi, Brandon.

Operator: Maybe just to start off here I think you folks have historically had the CFO position bake it for quite a long time. So just maybe talk to the decision to formally spill that CFO position with your announcement earlier today and widened out with the right time.

Brandon Nossel: And good afternoon, folks. Hope you're doing well. Howdy, Brandon. Maybe just to start off here, I think you've historically had the CFO position vacant for quite a long time, so just maybe talk through the decision to formally fill that CFO position with your announcement earlier today and why now is the right time.

Speaker Change: Well I think so.

Brandon Nossel: Michael was filled that role for us for the last 30 years and he's done a.

Brandon Nossel: Great job at that but Todd is approaching retirement age you'll be retiring over in there.

Brandon Nossel: The next couple of years and we wanted to have a sufficient time, Todd as a lot of institutional knowledge and and we think he will bring value are working with our new CFO, but we just thought the timing of that was is right right now.

Dennis G. Shaffer: Well, I think Todd Michael has filled that role for us for the last 30 years, and he's done a great job at it, but Todd is approaching retirement age. He'll be retiring in the next couple of years, and we wanted to have sufficient time. Todd has a lot of institutional knowledge, and we think he'll bring value working with our new CFO. We just think the timing of that is right now, given his plans for the future.

Dennis G. Shaffer: Given that and given his plans for the future.

Speaker Change: All right great. Thanks.

Dennis G. Shaffer: One more from me I'm moving to the expense base.

Dennis G. Shaffer: Even though costs were up sequentially. They still came in quite a bit better than I was expecting.

Dennis G. Shaffer: On the last earnings call you folks pinpointed by $28 7 million of expenses per quarter for the <unk>.

Brandon Nossel: All right, great, thanks. Maybe one more from me.

Brandon Nossel: Three quarters of the year, just kind of curious to hear your updated thoughts on the expense base and how you expect that to trend going forward.

Brandon Nossel: Moving to the expense base, you know, costs, even though costs were up sequentially, they still came in quite a bit better than I was expecting. I think on the last earnings call, you pinpointed $28.7 million in expenses per quarter for the final three quarters of the year. Just kind of curious to hear your updated thoughts on the expense base and how you expect that to trend going forward. Kevin Feinbrenner, this is Richard Dutton.

Brandon Nossel: Kevin Brennan. This is rich we did we got in last quarter I think during the call to $28 four and I would say that's a good number for the rest of the year and the big difference between the first quarter and the rest of the year is as you'll recall our merit increases go into effect April 1st every year and that's.

Kevin Feinbrenner: Really the only significant.

Kevin Feinbrenner: Additional cash and cash expenditure that we've got slated for <unk> and our budget.

Richard J. Dutton: Between now and the end of the year.

Richard J. Dutton: This is Rich. We got in last quarter, I think during the call 28.4. And I would say that's a good number for the rest of the year. And the big difference that we're going to have between the first quarter and the rest of the year is, as you'll recall, our merit increase is going to affect April 1 every year. And that's really the

Kevin Feinbrenner: Yeah, we've we really focused on is kind of an expense control here.

Speaker Change: Yeah, and near the end of last year and going into this year, just knowing oh. The lost revenues that we would have so I think that's a really good if we're guiding to the because I think we're starting to see some of the expense control initiatives that we put into place. So I think that that number at which gave it.

Richard J. Dutton: We guided last quarter of our merit increases went into effect in the second quarter, but I think that's it that's it.

Richard J. Dutton: It's showing up I think we are getting either.

Richard J. Dutton: Controlling other expenses.

Richard J. Dutton: This is the basic expenditure that we've got slated in our budget. We really focused on kind of expense control here near the end of last year and going into this year, just knowing the lost revenues that we would have. So I think that's really good if we're guiding to the because I think we're starting to see some of the expense control initiatives that we put into place. So I think that number at Rich Dave, you know, if we guided last quarter, our merit increases went into effect in the second quarter, but I think that's a, that's a, you know, that's showing that I think we are, you know, getting Yep, yep, that's perfect.

Richard J. Dutton: Yep Yep, that's perfect alright, Thank you for taking my questions.

Speaker Change: Thank you.

Richard J. Dutton: Okay.

Richard J. Dutton: Thank you. Our next question is from Justin Rally from Piper Sandler. Please ask your question.

Speaker Change: Hey, good afternoon guys.

Speaker Change: I wanted to hit on the net interest margin for the quarter given some of the dynamics you discussed in the prepared remarks can you unpack a little more just what you're seeing as far as lingering upward pressure on the funding side are you know where we may be on that you know when you get to a spot where asset repricing allows for margin stabilization in let's call. It a flat rate environment.

Richard J. Dutton: <unk>.

Rich: Yeah, Justin this is rich again.

Richard J. Dutton: I can't remember if you were on the call last time or not but I don't really have a great track record of predicting where our margin is going to do well.

Richard J. Dutton: I think even with the contraction in our margins responsible and I think the initiatives that Dennis discussed, Ohio, Homebuyers, where there's about we feel pretty confident we're going to be able to bring in a $100 million are pretty low cost funding related to that and the opportunity to move some of the cash balances at all.

Brandon Nossel: Yep, yep, that's perfect. All right. Thank you for taking my question.

Operator: Thank you. Your next question is from Justin Braley from Kuiper Sandler. Please ask your question.

Justin Braley: That's amazing group has that are off balance sheet onto our balance sheet. Our two two opportunities to kind of reduce funding and again I think absent growth and probably the bigger wild card is absent a migration from the noninterest bearing deposits and a higher whether their money market or even a C. D. I mean, that's that's the thing.

Justin Braley: Hey, good afternoon, guys. I wanted to hit on the net interest margin for the quarter. Given some of the dynamics you discussed in the prepared remarks, can you unpack a little more just what you're seeing as far as lingering upward pressure on the funding side and where we may be on that when you get to a spot where asset repricing allows for margin stabilization and, let's call it, a flat rate environment?

Justin Braley: I think we continue to it just I don't know it's impossible to model, but we haven't figured out I haven't figured out how to model that I think our models tell us that if nothing changes and we don't have any significant crazy movements in interest rates, but again, it will contract by basis points, but I've said that.

Richard J. Dutton: Hey Justin, this is Rich again. I can't remember if you were on the call last time or not, but I don't have a great track record of predicting what our margin is going to do. But I think even with the contraction, our margin is respectable, and I think the initiatives that Dennis discussed, the Ohio homebuyers, we feel pretty confident we're going to be able to bring in $100 million of pretty low-cost funding related to that.

Rich: Two quarters in a row and ive been wrong two quarters in a row.

Richard J. Dutton: The big difference I think it.

Richard J. Dutton: Just as we are starting to see some positives. We are you know we were able to reprice some broker at near the end of March some of the broker deposits. We did see some improvement there we were able to get to you know that funding at 22 basis points less than we got it we had it on the books for.

Richard J. Dutton: And the opportunity to move some of the cash balances that our wealth management group has that are off-balancing, onward-balancing, are two opportunities to kind of reduce funding. And again, I think absent growth, and probably the bigger wild card, is absent migration from non-interest-bearing deposits into higher-interest-bearing deposits, whether they're money market or even CEO.

Speaker Change: Yeah, a lot of our CD specials.

Richard J. Dutton: You know are starting to you know they they you know rates haven't moved so there was way too where were high back mid year last year with you know where they ended the third quarter are those rates.

Richard J. Dutton: That's the thing that I think we should continue; it's just, I don't know if it's impossible to model, but we haven't figured out how to model that. I think our models tell us that if nothing changes, and we don't have it,

Richard J. Dutton: We'll adjust downward at their next repricing here over the next you know.

Richard J. Dutton: We're the ones that are coming due over the next quarter or so so there are some positive signs, but I do think as rich alluded to it all comes down to.

Richard J. Dutton: You know the loan you know how fast we grow loans, you know because we're gonna need funding for that and we may not get the benefit of the well program and the tax money that may be a third quarter to say are you know we were starting to implement will be able to start taking it was those oh Viva plus deposits here.

Richard J. Dutton: And we don't have any significant crazy movements in interest rates that, again, will contract by basis. But I've said that two quarters in a row, and I've been wrong two quarters in a row.

Dennis G. Shaffer: The big difference, I think, Justin, is we are starting to see some positives. We were able to reprice some brokerage near the end of March, some of the broker deposits. We did see some improvement there.

Dennis G. Shaffer: Early.

Dennis G. Shaffer: Early in the first week of May here, but how quickly we put those on the balance sheet really depending on what that you know where our margin goes in that second quarter, but the third quarter I think we should see good improvement because we also have a more loads at assets, where you're repricing that we have the first half of the year.

Dennis G. Shaffer: We were able to get that funding at 22 basis points less than we had it on the books for. We have a lot of our CD specials starting, you know; rates haven't moved. So those rates were high back mid-year last year, you know, into the third quarter. Those rates, you know, will adjust downward at their next repricing year over the next, you know, the ones that are coming due over the next quarter or so.

Dennis G. Shaffer: So theres a couple of factors you know I think at least some positive signs that we see see that's emerging late starts stabilizing.

Speaker Change: Okay got you that's helpful. And then I guess, just dovetailing off some of that now what do you have I'm not sure if you're able to quantify just in terms of brokered funding that's maturing through the balance of the year and you know what does that repricing look like buckboard here.

Dennis G. Shaffer: So there are some positive signs, but I do think, as Rich alluded to, it all comes down to, you know, the loan, you know, how fast we grow loans, you know, because we're going to need funding for that. And we may not get the benefit of, you know, like the wealth program and the tax money, that may be a third quarter thing, you know, we're starting to implement, and we'll be able to start taking those, those homebuyer plus deposits here early, early in the first week of May here, but how quickly we put those on the balance sheet will really depend on where our margin goes in that second quarter.

Dennis G. Shaffer: So that is all in the fourth quarter.

Dennis G. Shaffer: I'd, rather it we haven't done nothing or repricing, a we had a slug of 151 million that repriced. Our March 20th So we really didn't get much benefit of that in the in the first quarter.

Dennis G. Shaffer: And the next twos slopes.

Dennis G. Shaffer: Our brokerage stuff is really in the fourth quarter late in the fourth quarter that will reprice. That's right. So we've got 500 million and that's been kind of constant or brokered Cds as Dennis said, we've got 200 million of that that will come due or mature in November of this year.

Dennis G. Shaffer: But in the third quarter, I think we should see good improvement because we also have more loans and assets repricing than we did in the first half of the year. So there's a couple of factors, you know; I think at least some positive signs that we see that the birds might start stabilizing.

Dennis G. Shaffer: The rest of it goes into 25.

Dennis G. Shaffer: And that's really good.

Dennis G. Shaffer: Yeah.

Dennis G. Shaffer: Yeah.

Speaker Change: Okay. That's helpful. And then just shifting gears a little yeah I know.

Justin Braley: Okay, gotcha. That's helpful. And then I guess just dovetailing off some of that, you know, what do you have? I'm not sure if you're able to quantify just in terms of brokered funding that's maturing through the balance of the year. And you know, what does that repricing look like? Looking forward here.

Speaker Change: The focus here has been rebuilding capital levels getting T C back to southern seven and a half, but just looking for any high level commentary on the environment environment for M&A, which of course has remained fairly quiet, but just more so I'm trying to get a sense of just where your capital priorities stand over you know, maybe the medium or longer term.

Justin Braley: Yeah, I mean, I think there's a lot of dialogue happening around M&A I, just think it's really tough environment to do any M&A right now, whether you're a buyer or seller the low lurks, you'll try to figure that out.

Dennis G. Shaffer: That is all in the fourth quarter. The remainder of it, we have nothing repricing. We had a slug of $151 million that repriced on March 20th. We really didn't get much benefit from that in the first quarter.

Dennis G. Shaffer: In this environment with a lot of times you know you really have to dive into how you know.

Dennis G. Shaffer: And the next two slugs of our broker stuff are really in the fourth quarter, late in the fourth quarter that will reprice. That's right. So we've got $500 million, and that's been kind of constant for brokered CDs. As Dennis said, we've got $200 million of that that will come due or mature in November of this year. The rest of it goes into 25. And that's really going to be it.

Dennis G. Shaffer: You know buyer or sellers, our loan books are repricing, you know well will what's the what's the effect of higher rates for the half on those books and things like that so I think the marks of our that your daughter are pretty heavy so I.

Dennis G. Shaffer: I just I just you know for US. We you know we're focused on capital you know building our capital base right now because we just think it's too tough environment right now to do any type of M&A.

Speaker Change: Okay got it thanks for taking my questions guys I appreciate it.

Dennis G. Shaffer: Yep.

Dennis G. Shaffer: Yes.

Justin Braley: Okay, that's helpful. And then just shift gears a little. You know, I know the focus here has been rebuilding capital levels, getting PC back to seven, seven and a half, but just looking for any high-level commentary on the environment, the environment for M&A, which, you know, of course, has remained fairly quiet, but just more so trying to get a sense of just where your capital priorities stand over, you know, maybe the medium or longer term.

Speaker Change: Thank you. Your next question is from Tim Mcevilly comment Steven Please ask your question.

Speaker Change: Hi, Thanks, good afternoon everybody.

Speaker Change: Take care.

Justin Braley: Maybe you could just talk about loan pipelines confidence in that mid single digit growth rate over the remainder of the year and do you think that growth will continue to come from kind of multifamily and metro, Ohio markets in some of the other categories that.

Dennis G. Shaffer: Yeah, I mean, you know, I think there's a lot of dialogue happening around M&A. I just think it's a really tough environment to do an M&A right now, whether you're a buyer or a seller. The loan marks, you know, trying to figure that out in this environment with, you know, a lot of times, you really have to dive into how, you know, you know, buyer or seller's loan books are repricing, you know, what's the effect of higher rates going to have on those books and things like that.

Justin Braley: That Dennis talked about earlier.

Dennis G. Shaffer: Yes, Terry this is Chuck you know pipelines are actually pretty good right now and you know when I compare it to last year. Our pipeline right now is actually higher than it was last year is sitting at the same time.

Dennis G. Shaffer: Now I would tell you that our pull through rates not been quite as strong as they were in the past just because we're really trying to be very very mindful of margin at holding rates at it you know.

Speaker Change: Well, Bob I eat a lot as far as new originations on most especially real estate deals. So a fulsome rate of them somewhat it has been even.

Dennis G. Shaffer: So I think the mark that you're doing is pretty heavy. So, for us, we're focused on capital, you know, building our capital base right now because we just think it's too tough an environment right now to do any type of M&A. Okay.

Dennis G. Shaffer: We're still seeing really good strong demand, especially in the multifamily area, obviously pointless cant build the units fast enough, but we're seeing really good.

Justin Braley: Okay, I got it. Thanks for taking my questions, guys. I appreciate it.

Dennis G. Shaffer: Good growth in Cincinnati, and Cleveland, two as far as the Metro markets with with some we've got some stuff coming on both between O N D. In day, two so I would say that the five major metro markets.

Operator: Thank you. Your next question is from Terence McEvoy from Stevens. Please ask your question.

Terence James McEvoy: Yeah, Terry, this is Chuck. You know, pipelines are actually pretty good right now. And you know, compared to last year, our pipeline right now is actually higher than it was last year sitting at the same time. Now, I would tell you that our pull through rates are not quite as strong as they were in the past, just because we're really trying to be very, very mindful of margin and holding rates at, you know, well above eight. Sorry.

Terence James McEvoy: We're doing well on the multifamily side, you really haven't seen it.

Terence James McEvoy: Really any what I would call rate concessions of rate pressures.

Terence James McEvoy: Across any of our categories, so far and we're really seeing especially in the multifamily area. Most stuff that's coming on after it's been built the rents are actually higher than what's being let's make projected isn't it in the appraisal. So do you feel pretty good about you know, where we sit here in Ohio, and South Eastern Indiana.

Charles A. Parcher: and Southeast Indiana and Northern Kentucky. We feel like the demand's still pretty strong. You know, the one thing that I think we talked about last call, you know, it's taking a little bit more equity in these projects to get them to work from a cashflow perspective. The bigger developers are willing to put that extra cash in and make them work.

Terence James McEvoy: And northern Kentucky, we feel like the <unk>.

Charles A. Parcher: Demand is still pretty strong you know the one thing that I think we talked about last call and it's taken a little bit more equity in these projects commit to get them to work from a cash flow perspective, but yeah.

Charles A. Parcher: Bigger developers are willing to put that extra cash and to make them work.

Terence James McEvoy: That's great. Thanks for the color there.

Speaker Change: That's great. Thanks for the color there as a follow up I know that's a tough question. How are you thinking about the noninterest bearing funds coming out of the tax refund processing program that it was $19 $5 million last quarter should we kind of model out $20 million per quarter.

Terence James McEvoy: As a follow-up, I know that's a tough question. How are you thinking about the non-interest-bearing funds coming out of the tax refund processing program that was $19.5 million last quarter? Should we kind of model out $20 million per quarter going forward, or was the first quarter a bit outsized in your view?

Terence James McEvoy: Going forward or was the first quarter a bit outsized in your view.

Dennis G. Shaffer: Well, that's probably fair. I think at the end of March, we had about $31 million left in there, Terry. We're kind of at the mercy, if you will, of the tax processing department that we have. I mean, they're going to move that money out at some point. But we thought that was going to happen in December. And I guess we're fine if they want to leave it because it's free money to us. But right now, the conversation is that he would be gone sometime in the second quarter.

Speaker Change: Oh, that's probably fair I think at the end of the March we had about $31 million left in there Terry.

Dennis G. Shaffer: Okay. We're.

Dennis G. Shaffer: Kind of at the Mercy, if you will of.

Dennis G. Shaffer: The tax processing partner that we have I mean, there may at some point going to move that money out.

Dennis G. Shaffer: But we thought that was going to happen in December and I guess, we're fine if they want to leave it because it's free money to us, but right now the conversation is that that would be gone sometime in the second quarter.

Dennis G. Shaffer: Okay.

Terence James McEvoy: And just one last quick one, the $1.2 million of overdraft service charge revenue that's lost this year, is that fully captured in the one queue run rate, or is there incrementally more to come down a bit in the remainder of the year? Oh, I would

Dennis G. Shaffer: Just one last quick one the $1 $2 million of Overdraft service charge revenue that's lost this year.

Terence James McEvoy: Fully captured in the <unk> run rate or is there incrementally more to come down a bit in the remainder of the year I would say that our first quarter is typically our highest NSF court.

Dennis G. Shaffer: I would say that our first quarter is typically our highest NSF quarter, post-holidays. So, if we had $375,000 less NSF income in the first quarter, it's going to be something less than that. And over the course of 12 months, we're kind of projecting the 1.5.

Dennis G. Shaffer: Most holidays. So if we had $375000 less of NSF income in the first quarter and it's gonna be something less than that and then over the course of 12 months, we're kind of projecting the one thing too.

Dennis G. Shaffer: Yeah.

Speaker Change: Okay. Thanks for taking my questions have a good day.

Terence James McEvoy: Okay, thanks for taking my questions. Have a good day.

Speaker Change: Thank you Sir.

Terence James McEvoy: Yes.

Terence James McEvoy: Yeah.

Operator: Thank you. Your next question is from Kim Seltzer from KBW. Please ask your question.

Terence James McEvoy: Thank you. Your next question is from Ken Zerbe from K B W. Please ask your question.

Kim Seltzer: Hey, good afternoon. Thanks for taking my question. Hi, Tim.

Kim Seltzer: Hey, good afternoon, Thanks for taking my question.

Kim Seltzer: Hi, Tim.

Kim Seltzer: I had a follow up on your loan commentary I think you guys raised your guidance expectation from its lows.

Kim Seltzer: I had a follow-up on your loan commentary. I think you guys raised your guidance expectation for Lowe's from low single-digit last quarter to mid-single digits, and I think I remember you guys mentioning something about, you know, it sounded like the competitive environment was getting a little bit more intense last quarter. Have you seen that moderate a little bit, and is that maybe what drove the upside to Guided here?

Kim Seltzer: Oh single digit last quarter to mid single digits, and I think I remember you guys mentioning something about you know it sounds like the competitive environment getting a little bit more intense last quarter have you seen that moderate a little bit and is that maybe what drove.

Kim Seltzer: The upside to guidance here.

Dennis G. Shaffer: I think all along, Tim, we were projecting, you know, mid single digits, you know, that five, six percent range, five percent, be focused on. And we have seen a little bit of relief, not a lot.

Speaker Change: Well I think I think.

Kim Seltzer: I think all along in saying we were projected in our.

Dennis G. Shaffer: Mid single digits, you know that 5% to 6% range, 5% people, we really refocused our and we have seen a little bit of.

Dennis G. Shaffer: Relief not a lot I mean, there's a lot of competitors out there as we talked about I think last call. We thought we'd seen a lot of competitors come back.

Dennis G. Shaffer: There are a lot of competitors out there. As we talked about, I think on last call, we've seen a lot of competitors come back, getting Tradery Plus as compared to kind of really looking at the cost of funds more so with the inverted yield curve that puts us at a little bit of a competitive disadvantage. But all in all, as you know, the 5 and 10 have actually come back up a little bit in this first quarter and into the second quarter.

Dennis G. Shaffer: <unk>.

Dennis G. Shaffer: Bidding treasury, plus as compared to kind of really looking at cost of funds more so with the inverted yield curve up put a total look at competitive disadvantage, but but all in all as you know that the five and 10 have actually come back up a little bit in this first quarter.

Dennis G. Shaffer: And into the second quarter, so that Treasury, plus we've got a little closer to what we're offering.

Dennis G. Shaffer: So, Tradery Plus has gotten a little closer to what we're offering, but I feel, I just feel like we really haven't changed our guidance thing. I don't, at least I don't feel that way, you know, after the first quarter result. Well, the only thing I'd add to that, I mean, the governor really depends on our loan growth is our ability to fund it. And again, we're disciplined in how the loan guys price those, but as big an impediment to growing our balance sheet as it is.

Dennis G. Shaffer: But I I feel I, just feel like we really havent changed our our our guidance thing I don't know at least I don't feel that way.

Dennis G. Shaffer: After our first quarter results.

Dennis G. Shaffer: Well, the only thing I'd add to that that's where the governor really on our loan growth is our ability to fund that loan right.

Dennis G. Shaffer: We're disciplined in how the loan guys priced those but as big an impediment to grow on our balance sheet as competition is our ability to fund it right.

Kim Seltzer: At that rate, we're going to be out of here. All right. Can you guys remind us what percent of your loans are floating rate and how you'd expect loan yields to trend in a downward rate environment and then maybe what the overall impact on the net would be if we just got maybe one or two basis cuts towards the end of the year.

Speaker Change: Yeah, sorry about that.

Kim Seltzer: Yeah.

Kim Seltzer:

Kim Seltzer: Can you guys remind us what.

Kim Seltzer: Chris Center of your loans are floating rate and how you'd expect loan yields to trend in a downward rate environment and then maybe what the overall impact on the NIM would be if we just got maybe one or two basis cuts towards the end of the year.

Dennis G. Shaffer: Well, we think that will benefit us. The rate cuts probably benefit us a little bit because, again, we've been funding some of that with overnight borrowings. So, you know, those have been trending kind of upwards. I think they were up $30 million from $12.31 to $3.31.

Speaker Change: Well, we think that will benefit us.

Dennis G. Shaffer: Ken it's probably benefit us a little bit because again, we've been funding some of that with our with you know.

Dennis G. Shaffer: Overnight borrowings. So you know those have been trending.

Dennis G. Shaffer: Kind of upwards I think they were up $30 million from 12 31 to 331, so we would benefit from that.

Dennis G. Shaffer: And you know we also have a you know.

Dennis G. Shaffer: Are you more of those repricing.

Dennis G. Shaffer: You know a lot of our loans are tied to you know 75% of our book are more tied to treasuries and those even if short term rates come off it looks like the yield curve trying to correct itself, a little bit and it was treasury rates.

Dennis G. Shaffer: So, we would benefit from that. And, you know, we also have, you know, more loans repricing. You know, a lot of our loans are tied to, 75% of our book is more tied to treasuries, and higher. So as that book reprices, we should benefit. I'll give you some raw numbers. You know, about a little over 25% of our book is floating daily from that perspective, Tim. So then, when we started out the year, we did a deep dive, and we had about $140 million that we're going to reprice in 2024, of which only $15 million of that was repriced in the first quarter.

Dennis G. Shaffer: Or higher so as that book re prices.

Dennis G. Shaffer: We shouldn't benefit so so yeah I mean just.

Dennis G. Shaffer: Just to kind of.

Dennis G. Shaffer: Give you some raw numbers.

Dennis G. Shaffer: How about a little over 25% of our book is floating daily.

Dennis G. Shaffer: From that perspective, Tim So then.

Dennis G. Shaffer: When we started out the year, we did a deep dive and we had about $140 million that we're going to reprice in.

Dennis G. Shaffer: 2024 of which only 15 million of that was repricing in the first quarter. So when Dennis mentioned earlier that we feel good about some of the repricing and so the margin help in the second half of the year, you know out of that $140 million.

Dennis G. Shaffer: 93 million of it was going to be is going to be moving in the second half of the year.

Dennis G. Shaffer: So when Dennis mentioned earlier that we feel good about some of the repricing and some of the margin help in the second half of the year, you know, out of that $140 million, $93 million of it is going to be moving in the second half of the year.

Dennis G. Shaffer: Yeah.

Speaker Change: Great I appreciate all the detail. Thank you guys.

Dennis G. Shaffer: Okay.

Speaker Change: Thank you. Your next question is from then on that list from D. A Davidson. Please ask your question.

Dennis G. Shaffer: Hey.

Speaker Change: I think a lot of my questions have been answered, but could you help quantify the potential size.

Kim Seltzer: Great, I appreciate all the detail. Thank you guys. Thank you. Your next question is from Manuel Navas.

Manuel Antonio Navas: The wealth management.

Manuel Antonio Navas: Opportunity instead of 75 million in third quarter or is there more after that or is it just that amount.

Operator: Thank you. Your next question is from Manuel Navas from D.A. Davidson. Please ask your question. Hey, I think a lot of my questions have been answered, but could you...

Manuel Antonio Navas: It wasn't a bathroom, saying well this is rich yeah. It's just it would be just the transaction those those deposits are sitting in our wealth Department now once we get the mechanics of that squared away. It will just be at.

Manuel Antonio Navas: Unknown Executive, Civista Bancshares Inc. We'll just move that money over to the bank. And it's not gonna be super cheap money, but it will certainly be less than what we borrowed overnight. And then I would add that we mentioned those two initiatives, but there are a number of other initiatives that we think that we'll be able to add deposits to. I mean, we have a, you know, we're looking at all our public funds in the markets that we, where we have branches, we're looking at schools and libraries and municipalities and county money and stuff.

Manuel Antonio Navas: We'll just move that money over to the bank and it's not gonna be super cheap money, but it will be certainly less than what we borrow overnight at it.

Manuel Antonio Navas: And then what I would add that.

Manuel Antonio Navas: We mentioned those two initiatives.

Manuel Antonio Navas: Yeah, but there are a number of other initiatives that we think that we'll be able to add deposits. I mean, we have a you know we're looking at all of our public filings and the markets that we where we have branches.

Manuel Antonio Navas: We're looking at at schools, and libraries, and municipalities and county money and stuff and we're proactively going to be reaching out and getting a little bit more aggressive to get maybe a little bit more of that funding. We have a number of we pulled a number of reports for instance, with customers with lending.

Manuel Antonio Navas: And we're proactively going to be reaching out and getting a little bit more aggressive to get maybe a little bit more of that funding. We have a number of, we pulled a number of reports, for instance, with customers with lending with no or little loans or deposit relationships. We'll be targeting those customers and stuff, but I think there are a number of initiatives underway in addition to the State of Ohio's Homebuyer Plus Program and that Wealth Program that we think can have an immediate impact on our funding costs. I wouldn't say immediate, but over time. Over the next year, I would say, as I mentioned in my remarks, over the next year.

Manuel Antonio Navas: No or little loans or deposit relationships will.

Manuel Antonio Navas: We'll be targeting lose customers and stuff, but I think there's a number of initiatives underway. In addition to the state of Ohio School buyer plus program and that well program that we think can be an immediate impact on our funding cost.

Manuel Antonio Navas: I wouldn't say immediate.

Manuel Antonio Navas: Well over time.

Manuel Antonio Navas: Next year I don't play over there as I mentioned in my remarks over the next year.

Manuel Antonio Navas: Okay.

Speaker Change: I appreciate that.

Speaker Change: Thank you.

Manuel Antonio Navas: Yeah.

Unknown Executive: Thank you once again. If you wish to ask a question, please press star 1 on your telephone keypad. Your next question is from Daniel Cardenas from Janie Montgomery's Cot. Please ask your question.

Manuel Antonio Navas: Yeah.

Daniel Edward Cardenas: Thank you once again you wish to ask a question. Please press star one on your telecom.

Unknown Executive: Your next question is from Daniel Cardenas from Janney Montgomery Scott. Please ask your question.

Operator: Good afternoon, guys. A couple of questions on the fee income side.

Daniel Edward Cardenas: Good afternoon guys.

Operator: Yeah.

Daniel Edward Cardenas: A couple of questions on the fee income side I mean I. Appreciate all the color that you guys have given and it sounds like youre working to try to patch up somebody yeah.

Daniel Edward Cardenas: I mean, I appreciate all the cover that you guys have given, and it sounds like you're working to try to patch up some of the holes that have been created. But how should we think of a good run rate for you guys on a going forward basis?

Daniel Edward Cardenas: Those that have been created but how should we think of it.

Daniel Edward Cardenas: A good run rate for you guys on a go forward basis.

Unknown Executive: So if we had $8.5 million from the quarter, again, I think the wild card in there right now for us is mortgage banking. Again, we're coming into probably the best.

Daniel Edward Cardenas: Yeah.

Daniel Edward Cardenas: Yeah.

Unknown Executive: So if we had eight and a half million dollars for the quarter again, I think the wildcard in there right after us as mortgage banking.

Unknown Executive: And again, we're coming into a probably.

Unknown Executive: It was the best time, man. I went to Chuck to talk about it, but I don't...

Unknown Executive: Probably the best time and that I'll, let Chuck talk about it but I don't I.

Unknown Executive: I guess the other wildcard is leases, the fees related to our leasing, and again, I guess we're a year into it, but we're still, those are some pretty lumpy revenues, depending on when.

Unknown Executive: I guess the other wildcard at least the opinions related to our leasing and it getting worse.

Unknown Executive: I guess, where you're at at year end two of our scope those are some pretty lumpy.

Unknown Executive: Revenues, depending on when pieces of equipment gets sold and whatnot, but I I I'll, let Chuck talk about mortgage banking a little bit.

Unknown Executive: When Pieces of Equipment Get Sold and Whatnot. But I'll let Chuck talk about the mortgage.

Unknown Executive: Well.

Charles A. Parcher: Well, Dan, our first quarter production and mortgages, even though it doesn't show as well on that gain on sale, we did about $10 million more in production in the first quarter this year as compared to the first quarter last year. We feel like we've got a really solid pipeline there.

Unknown Executive: Yeah.

Chuck: Our first quarter production in mortgages.

Charles A. Parcher: No it doesn't show as well on the gain on sale, we did about 10 million more dollars in production.

Charles A. Parcher: In the first quarter of this year as compared to the first quarter last year, we feel like we've got a really solid pipeline. There you know, we're still limited a little bit in Ohio, and just the amount of inventory that's out there. It's just you know we've.

Charles A. Parcher: We're still limited a little bit in Ohio in just the amount of inventory that's out there. We've got a lot of pre-approvals, and people can't still buy houses, but we have made a concerted effort going into this year about getting more of our production to be saleable as compared to our portfolio. Obviously, the...

Charles A. Parcher: We've got a lot of Preapprovals. So people can still buy houses, but we have put a concerted effort going into it into this year about getting more of our production being a saleable as comparative portfolio, obviously the C.

Charles A. Parcher: The construction piece and our CRA piece have to go on the books, but the rest of the stuff we're really pushing towards more of a saleable product. And it seems like the consumer is getting a little bit more adjusted to having higher rates. I mean, a lot of people still don't want to come off a 3% rate to get to a 7% rate. But people that actually have been holding off, you know, making a move are starting to come into the marketplace because they need to. And it doesn't look like the rates are going to come down, you know, in the near future. Well, in the spring and summer months, the volume should be up. So, you know, I'm optimistic there.

Charles A. Parcher: The construction piece and our CRA piece I have to go on the books, but the rest of the stuff, we're really pushing towards more of a saleable product and it seems like the consumer is getting a little bit more adjusted to having higher rates I mean, a lot of people still aren't gonna want come off a 3% rate to get to a 7% rate, but people that actually get at that holding off.

Charles A. Parcher: You know, we're making a move and are starting to come into the marketplace, because they just need to and it doesn't look like the rates are going to come down.

Charles A. Parcher: And in the real near distant future well, the spring and summer months volumes should be up so you know optimistic there.

Daniel Edward Cardenas: Also, we did create a syndication desk through our leasing company, which I think will help us with some of that gain on sale. Because we'll be at, you know, that's going to be their sole function to work our relationships and get us the best pricing so that our gains improve. The cadence will happen, you know, get us in some sort of cadence where that's happening a little bit quicker and things. So that was another one of our initiatives that we looked at was how do we maybe do a little bit better? We're going to incentivize, you know, who's running that area based on, Unknown Executive, Civista Bancshares Inc. Yo, what the hell is that?

Charles A. Parcher: So we did create a syndication desk.

Daniel Edward Cardenas: Throughout our leasing company, which I think which will help us with some of that gain on sale.

Daniel Edward Cardenas: Because it will be at a meal are there that we're gonna be their sole function take to work our relationships and get us the best pricing, so that our game and through the cadence and that will.

Daniel Edward Cardenas: It will happen you know will get us in some sort of cadence, where that's happening a little bit quicker and things. So that was another one of our initiatives that we looked at was how do I. How do we how do we maybe do a little bit better where instead of eyes.

Unknown Executive: Running that area based on the.

Daniel Edward Cardenas: The bigger gains as he can get you know you'll have a chance to really get a little bit of income and stuff like.

Unknown Executive: We talked about the NSF fees being down $375,000, but our service charges were only down about $300,000. So, we made that up with higher service charges, and that's something we put in place during the quarter. Right. We only had one month of benefit on our service charge. We did increase some service charges across the board, and we really only had one month of... March was the only real month of benefit there, so we are trying to offset some of that lost revenue in various ways.

Daniel Edward Cardenas: That was another initiative that we undertook in the first quarter.

Speaker Change: The only thing I'd add.

Unknown Executive: Talked about the NSF fees being down $375000, but our service charges were only down about $300000. So we made that up with higher service charges and.

Unknown Executive: And that's something that we put in place during the quarter right. We only had one month of that benefit on our service charge. We did increase some service charges across the board and we really only had one month of March was the only real lots of benefit there. So but we are trying to offset some of.

Unknown Executive: That lost revenue.

Unknown Executive: You know bear.

Unknown Executive: Aureus ways.

Daniel Edward Cardenas: So it sounds like maybe you can stay flattish in Q2 and then start building up from there. Yeah, honestly. Yeah. Okay, and then, how should I...

Daniel Edward Cardenas: Okay. So it sounds like maybe you can stay flattish in Q2, and then start start building up from there.

Daniel Edward Cardenas: Yeah I'm honestly.

Daniel Edward Cardenas: I'm sorry, Dan, I can say the wild card on that a little bit, too, is just our swap income. It kind of bounces up and down depending on, you know, our borrower's appetite for... We did quite a few, what I would call, mid- to short-term swaps in the fourth quarter. I think we generated $475,000 in the fourth quarter. A lot of people were jumping on a three-year swap at that time. The way the yield curve's been bouncing around, that hasn't been as appealing to some more borrowers, but depending on how the inversion of the yield curve goes over the next few months, we might be able to pick up a little more swap income, too. That can be lumpy, right?

Daniel Edward Cardenas: Yeah.

Dan: Okay, and then how should I think about that.

Daniel Edward Cardenas: I'm, sorry, I'm going to say the wildcard of that a little bit to assist our swap income it kind of bounces up and down depending on you know.

Daniel Edward Cardenas: <unk> appetite for we did quite a few what I would call mid to short term swap.

Daniel Edward Cardenas: Swaps in the fourth quarter I think we generated 475000 in the fourth quarter electrical jump it on a three year swap at that time the way the yield curve may bounce around that haven't been as appealing to some more borrowers, but depending on how the inverse.

Daniel Edward Cardenas: Inversion of the yield curve goes over the next few months, we might be able to pick up a little more swap income too.

Daniel Edward Cardenas: That can be lumpy right. So.

Daniel Edward Cardenas: All right, and then the tax rate for you guys, how should we be thinking about that?

Dan: Got it right and then our tax rate for you guys, how should we be thinking about that.

Unknown Executive: We came in a lot lower than we thought we would this time. Our effective rate was just under 12% this quarter, but we've always kind of said 15% or 16%, and I think that's what I...

Speaker Change: It came in a lot lower than we thought it would at this time, our effective rate was just under 12% this quarter, but we've always kind of said, 15% or 16% I think that's what I'm up.

Daniel Edward Cardenas: I don't know what the tax preference items were, and I should know the answer to that, but that's about as low as we've ever seen it. If you wait until the very last question to ask me one that I didn't know the answer to, no problem. No problem. All right. I'll stop there and step back.

Unknown Executive: I don't know what the tax preference items were on I should.

Daniel Edward Cardenas: That drove that down this quarter.

Daniel Edward Cardenas: But that's about as low as we've ever seen it I.

Daniel Edward Cardenas: I should know the answer that you wait until the very last question to ask me one I didn't know the answer.

Daniel Edward Cardenas: Uh huh.

Daniel Edward Cardenas: No problem no problem alright.

Daniel Edward Cardenas: Thank you guys. Thanks, Dan. Thanks, Dan.

Daniel Edward Cardenas: I'll stop there and step back thank you guys.

Speaker Change: Thanks, Dan finished it.

Dennis G. Shaffer: Thank you. There are no further questions at this time. I will now hand it back to Dennis Shaffer for the closing remarks.

Dennis G. Shaffer: Thank you there are no further questions at this time I will now hand, it over to Dennis Shaffer for closing remarks.

Dennis G. Shaffer: Well, in closing, I just want to thank everyone for joining and those that have participated in the call today. Again, while we are not pleased with our first quarter, we are confident that our strong core deposit franchise and just our disciplined approach to pricing deposits and managing the company positions us well for future success. So I look forward to talking to you all again in a few months to share our second quarter results. Thank you for your time today.

Dennis G. Shaffer: Well in closing I, just want to thank everyone for joining and those that have participated in the call today again, while we're not pleased with our first quarter.

Dennis G. Shaffer: We are confident that our strong core deposit franchise, and just our disciplined approach to pricing deposits and managing the company positions us well for the future for future success. So I look forward to talking to you all again in a few months to share our second quarter results. Thank you for your time today.

Speaker Change: [noise]. Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.

Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining us. You may all disconnect.

Operator: Yeah.