Q4 2024 Civista Bancshares Inc Earnings Call
Speaker Change: [music].
Good afternoon, ladies and gentlemen, and welcome to the Vista Bancshares, Inc. Fourth quarter 2024 earnings Conference call.
This time all lines are in a listen only mode.
Four we begin I would like to remind you that this conference call may contain forward looking statements with respect that a teacher performance and financial condition of citizens Bancshares, Inc that involve risk 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 but.
But not substitute the most directly comparable GAAP measures.
The press release also that'd be helpful. On the company's website contains the financial and other quantitative information to be discussed today as you all are sticking with the installation of the GAAP to non-GAAP measures.
This call will be recorded and made available to the debentures web site at Www Dot C. I V V Dot com.
At the conclusion of Mr. Shapers reward.
He and the management team will take any questions you may have.
Speaker Change: Now I will turn to collaborate to Mr cheaper.
Speaker Change: Thank you. Good afternoon. This is Dennis Shaffer, President and C. E O. So this debate shares I would like to thank you for joining us for our fourth quarter 2024 earnings call.
Speaker Change: I'm joined today by Chuck Parcher SVP of the company is president and Chief lending officer of the bank, which doesn't SVP of the company and Chief operating officer of the bank in Windows SVP of the company and Chief Financial Officer of the Bank and other members of our executive team.
Speaker Change: This morning, we reported net income for the fourth quarter up $9.9 billion or 63 cents per diluted share.
Speaker Change: Which represents a one.
Speaker Change: Our or 18% increase over the over the last quarter.
Speaker Change: 237000 dollar increase over our fourth quarter and 2023.
Speaker Change: We also reported net income for the year of $31 $7 million or $2.01 per diluted share, which compares to $43 $43 million or $2.73 per diluted share for 2023.
Speaker Change: Our ROA for the year was 21% however was point, 97% for the quarter, continuing our string of improving our ROA for each quarter of 2020 or.
Speaker Change: As I have mentioned during previous calls 2024 was a year of transition for <unk> as we look to replace nearly $5.2 million of 2023 non interest income.
Speaker Change: This included $1 $4 million due to changes to the way, we process overdrafts to $4 million in tax refund processing revenue and they wanted a half million dollar Mastercard renewal fees.
Speaker Change: I am happy to report that our non interest income for 2024 was $585000 greater than our non interest income for 2023, we were able to lease up this loss revenue by increasing other service charges increased gains on the sale of <unk>.
Speaker Change: Mortgages increased lease and loan originations and increase leasing and residual.
Speaker Change:
Speaker Change: Hello demand continues to be strong in each of our markets. However, we continue to be disappointed in our approach to loan and lease pricing, which had the intended impact of slowing growth.
Speaker Change: Our loan and lease portfolio grew at an annualized rate of 4.9% during the fourth quarter at a respectable rate of seven 7% for the year.
Speaker Change: Core deposit funding continues to be a focus and we were pleased that our core deposit funding grew organically by over $36 million during the quarter, which allowed us to reduce our reliance on brokered funding.
Speaker Change: All overall, if that was a slight decline in total deposits from the end of our third quarter. This represents a shift toward more relationship funding that we believe contributes to the overall value of our core deposit franchise.
Speaker Change: Currently we have a number of core deposit gathering initiatives underway and I continue to be encouraged by our ability to remain disciplined in pricing, both our loans and deposits through this entire interest rate cycle.
Speaker Change: We reported net interest income for the quarter of 31 $44 million, which represents an increase of $2 $1 million or seven 3% compared to our linked quarter.
Speaker Change: While our earning asset yield increased by one basis point increase in net interest income was primarily attributable to a 19 basis point decline in our overall funding cost which ended the year at 2.41%.
Speaker Change: Our decline in our funding cost was largely attributable to $200 million and brokered Cds that matured in October they carried a rate of 558% we were able to reduce or replace them bilateral brokered Cds over the subsequent 12 months at a blended rate.
Speaker Change: 443, 2%.
Speaker Change: The result was that our margin expanded by 20 basis points during the quarter to 336% it was 3.21% for the year.
Speaker Change: Similarly, we had $850 million and brokered Cds that matured in the last half of December that carried a rate of 5.08%.
Speaker Change: We were able to reduce and replace them with a $125 million of Cds ladder over the next 12 months.
Speaker Change: I did read at 43, 7%, representing a savings of 71 basis points. While this had little impact on our fourth quarter results. We do anticipate that it will further reduce our overall funding costs in the first quarter of 2025.
Speaker Change: We also have another $150 million of brokered Cds at a rate of 5.18% that will mature at the end of the first quarter that we anticipate being able to replace at a lower cost.
Speaker Change: We believe that our margin trough during the second quarter of 2020 or it will continue to expand over the next few quarters earlier. This month, we announced a penny per share increase in our quarterly dividend to 17 cents per share.
Speaker Change: Based on our year end market close of $21 51 says this represents an annualized yield of 341, 6%.
Speaker Change: During the quarter non interest income decreased 671, thousands of hours or six 9% from the linked quarter and increased $192000 or two 2% from the fourth quarter of 2023.
Speaker Change: The primary driver of the decline from our linked quarter was a $1.1 million decline in lease revenue and residual fees. As we have noted leasing fees, particularly residual income is less predictable than more traditional banking fees. The primary drivers for the increase from there.
Speaker Change: The prior year's fourth quarter worried 330, $384000 increase in gains from the sale of mortgage loans and leases and the receipt of a $319000 that's benefit on life insurance policy.
Speaker Change: All of our employees.
Speaker Change: As I mentioned, we are particularly proud of the fact that our year to date non interest income increased $585000 or one 6% in comparison to the prior year.
Speaker Change: Noninterest expense for the quarter of $28 $3 million represents a one 1% increase from our linked quarter. Our continued focus on expense control yielded improvement in nearly every category of non interest expenses. However, these declines in noninterest expense.
Speaker Change: Were offset by an increase in professional fees as we continue using consultants as we transition and our new finance team as our control were retired in July and we experienced the resignations of two other tenured employees in our finance department during the third quarter.
Speaker Change: These positions have all been filled and we will continue to utilize consultants at a reduced capacity during the first quarter of 2025.
Speaker Change: Not anticipate needing them beyond the end of the first orders.
Speaker Change: As we discussed during last quarters call. We are in the process of converting our lease accounting and servicing system.
Speaker Change: This will consolidate a number of systems and introduce automation to a number of task currently being manually per board.
Speaker Change: We noted during our last call that we had identified a reconciling item and established a reserve against it which was included in other non interest expense as we continued the process.
Speaker Change: We increased the reserve by another $482000 during the quarter, we expect the conversions to be completed during the first quarter.
Speaker Change: Year to date non interest expense increased $4 9 million or four 6% over the prior year.
Speaker Change: Compensation expense increased $3 5 million over the prior year due to merit increases insurers and other payroll related expenses.
Speaker Change: Taxes, and assessments increased $1 million, primarily due to an FDIC accrual adjustment in the fourth quarter of 2020 or coupled with an increase year over year and our total assessment base.
Speaker Change: Software maintenance expense was up $777000 due to a new software new software contracts aimed at improving our ability.
Speaker Change: To detect and mitigate fraud losses as well as increases in costs associated with existing software contracts.
Speaker Change: These increases were partially offset by a one and a half million dollar decline in depreciation on equipment, we own related to our operating lease contracts, which are included in equipment maintenance and depreciation we continue to originate fewer operating leases in our purchasing residual value insurance.
Speaker Change: All of those operating leases that we do originate with a goal of eventually eliminating depreciation expense related to operating leases.
Speaker Change: We remain a very tax efficient company, our effective tax rate was 13, 1% for the quarter and 13, 4% year to date.
Speaker Change: Our efficiency ratio for the quarter was 68, 3%, which is an improvement over the linked quarter, but continues to be higher than we would like we did close a branch in December and anticipate $142000 in annual savings as a result and are transitioning our app.
Speaker Change: After our calls away from a third party provider to our automated system, which should yield another $180000 in annual savings and improve our customer experience.
Speaker Change: We will continue our efforts in 2025 looking for revenue enhancements and cost efficiencies across the organization to bring this ratio more in line with our expectations.
Speaker Change: Turning our focus to the balance sheet.
Speaker Change: For the year total loans and leases leases grew by $245 million. This represented a growth rate of seven 7% as.
Speaker Change: As we experienced increases in commercial and AG loans, non owner occupied CRE loans residential real estate and real estate construction loans.
Speaker Change: During the quarter total loans and leases grew by $37 $3 million. This represents an annualized growth rate of four 8%.
Speaker Change: The loans, we originate for our portfolio continue to be virtually all adjustable rate in auto.
Speaker Change: Leases all have maturities of five years or less given todays rates, we expect approximately a $180 million of our loans to reprice at higher rates over the next 12 months.
Speaker Change: So there still remains a CRE lending base. However, we continue to be aggressive in pricing C&I loans and remaining disciplined in how we are pricing commercial real estate loans as we work to manage our CRE to risk based capital ratio and better align our lending and core funding.
Speaker Change: During the quarter, new and renewed commercial loans were originated at an average rate of 7.72% portfolio and sold residential real estate loans were originated at 641% in loans and leases originated by our leasing division were at an average rate of 9.3.
Speaker Change: 2%.
Speaker Change: At December 31st lowest secured by office buildings made up five 2% of our total little work go out 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 buildings.
Speaker Change: Located outside of Central business District.
Speaker Change: Along with year to date loan production, our pipelines remain solid and our Undrawn construction lines were $238 million at December 31st we anticipate continuing to manage our loan growth to be in the low single digit range for the next several quarters, allowing us to optimize.
Speaker Change: Funding and further improve our capital ratios.
Speaker Change: Our commercial lenders Treasury management officers private bankers and retail teams continue to focus on deepening relationships and attracting core deposit.
Speaker Change: Total deposits were relatively unchanged from the linked quarter. However, we did lower our balance of broker deposits by $48 million.
Speaker Change: For the year total deposits grew by $226 $8 million or seven 6% on increases in savings and money market accounts and time deposits. In addition to the initiatives of our frontline teams, we were successful at adding money market deposit.
Speaker Change: But at the state of Ohio, as Homebuyers, plus program and cash deposits held at our wealth management clients accounts, which represented 95 $7 billion and $97 million respectively.
Speaker Change: At December 31, our loan to deposit ratio was 96%.
Speaker Change: During the quarter, our cost of interest bearing deposits declined by one basis point to 2.79% as we became more aggressive in pricing higher balance money market accounts and time deposits as part of our initiative to replace wholesale funding.
Core deposits.
Speaker Change: Our deposit base continues to be fairly granular with our average deposit account, excluding Cds approximately $27000.
Speaker Change: At December 31, 2024, non interest bearing deposits made up 41, 9% of total deposits.
Speaker Change: With respect to FDIC insured deposits, excluding services, Oh deposit accounts, 13.4% or $431 $7 million of our deposits were in excess of the FDIC limits at year end, our cash and Unpledged securities.
Speaker Change: $499 $3 million more than covered those uninsured deposits.
Speaker Change: Other than $463 $3 million of public funds with various municipalities across our footprint, we had no deposit concentrations at December 31st.
Speaker Change: We believe in so this is low cost deposit franchise continues to be one of our most valuable characteristics contributing significantly to our solid net interest margin and overall profitability.
Speaker Change: We view our security portfolio as a source of liquidity at December 31st our security portfolio was $652 million, which represents 15, 9% of our balance sheet and when combined with cash balances represents 22, 3% of our total.
Speaker Change: Positive.
Speaker Change: At December 31st 100% of our securities were classified as available for sale and he had 53 point fell $4 million of unrealized losses associated with that.
Speaker Change: This represents an increase in unrealized losses of $13 $5 million from our linked quarter and $5 $8 million increase since December 31 2023.
Speaker Change: So this is earnings continue to create capital and our overall goal remains to maintain capital adequate to support organic growth and potential acquisitions, although we did not repurchase any shares during the quarter or year. We continue to believe our stock is a value.
Speaker Change: We ended the year with our tier one leverage ratio of eight 6%, which is D well capitalized for regulatory purposes.
Speaker Change: Although earnings were strong increasing our tangible common equity ratio from 643, 6% at the previous you're in the $6 four 3% at December 31, 2024, we recognize our tangible common equity ratio screen slow and our guidance remains that we will.
Speaker Change: To rebuild our TCE ratio basket between seven and seven 5%.
Speaker Change: And we will continue to focus on earnings and well balanced any repurchases and the payment of dividends with the O&M and capital to support growth.
Speaker Change: Despite the uncertainties associated with the national economy, the economy across the Ohio in southeastern Indiana is showing no signs of deterioration our credit quality remains strong.
Speaker Change: Ratio of the allowance for credit losses to total loans is 1.29% at December 31st 2024, which is consistent with one point, 300% at December 31, 2023, However, our allowance for credit losses to nonperforming loans declined from <unk>.
Speaker Change: 246% at December 31, 2023% to 124% at December 31, 2024. This was attributable to two loans totaling $16 $4 million that were downgraded to non performing during the quarter.
Speaker Change: One is an $8 million load on a multifamily property is under contract to be sold is expected to close during the first quarter of 2025.
Speaker Change: The second is an $8.4 million C&I loan that is current but out of compliance with our loan terms, we have met with the borrowers and believe that the well will be brought back into compliance during the first quarter of 2020 odd.
Speaker Change: During the quarter, we did make a $697000 provision, which was partially attributable to loan growth, but primarily attributable to the historically low prepayment and your cable win rates in our loan portfolio and its impact on our seasonal lull.
Speaker Change: As many of you may have seen we are happy to announce last week are were happy to announce last week that we have promoted Chuck Parcher, two executive Vice President and Chief lending Officer of the company is president and Chief lending officer of the bank.
Speaker Change: I will continue in my role as CEO and President of the company and CEO of the Bay. This change reflects this this succession plan and our organization's commitment to stability growth and a strong future shocks promotion is a well deserved recognition of his contributions.
Speaker Change: I look forward to work working together with him to serve our customers employees and shareholders.
Speaker Change: In summary, we are very pleased with our fourth quarter and full year end results, our disciplined approach to loan pricing and the way our teams continue executing on our deposit initiatives is bringing our lending and core funding into alignment.
Speaker Change: These efforts coupled with our expanding net interest margin yielded solid results that I believe sets us up for a strong 2025.
Speaker Change: So there still remains focused on creating shareholder value and serving our customers and communities.
Speaker Change: For your attention this afternoon and your investment and now we will be happy to address any questions that you may have.
Okay.
Speaker Change: Yeah.
Speaker Change: Thank you and ladies and gentlemen, well now begin the question answer session.
Speaker Change: To ask a question you May press star followed by the number one on your telephone keypad.
Speaker Change: Youre using a speakerphone please pick up your handset before pressing any key.
Speaker Change: Your question, especially stark naked and.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: And your first question comes from the line of Brendan Nosal withheld Jacob. Please go ahead.
Speaker Change: Yeah.
Brendan Nosal: Hey, good afternoon, guys hope you're doing well.
Speaker Change: Hey, Brandon.
Speaker Change: Just starting off on fee income you guys did a really nice job this year, replacing.
Speaker Change: What you lost from the the tax business.
Speaker Change: No that certain pieces of the fee based tend to be volatile, particularly that the leasing.
Speaker Change: P. P. So maybe offer some thoughts on the run rate for that specific line items as well as the overall fee base as we move through 2025.
Speaker Change: Well I think Oh boy fees I think you know the leasing where we're pretty optimistic there as we move forward, we feel again pretty good traction over the last six months or so so we can we expect that to continue as it relates to lower the two the leasing fees.
Speaker Change: I think also you know we have higher assets under management.
Speaker Change: Well side.
Speaker Change: And we saw some nice improvement year over year with our wealth wealth management fees.
Speaker Change: So I think that will hopefully continue we're growing that business nicely, we're managing now over $800 million and assets. There. So we're growing that we continue to analyze and review our service charges.
Speaker Change: So we did replace some of that loss and you're done with service charge increases last year.
But it is fraud has kind of taken off when it within the industry.
Speaker Change: We've been able to push a few more of our treasury management process or products out. So I think we're seeing we think that will continue to see some improvement in our treasury management fees a wildcard on cheese next year, I think will be really a residential mortgage loan.
Speaker Change: Loans they have no that's all right deposit dependent but we did.
Speaker Change: We have almost a million dollars more in residential gain on sale income than we did.
Speaker Change: That we had in 2023, so that's the wildcard, but we really think we've got some seasonally experienced residential mortgage lenders.
Speaker Change: As long as rates hold in there. Okay. I think we can we can at least equal what we did this past year or so.
Okay, Alright, that's helpful color.
Speaker Change: Maybe staying on the topic of fee income here.
Speaker Change: The net gain on sale of loans line I know that includes both.
Speaker Change: The CLS volume plus traditional one to four family residential do you have the split between those businesses for the quarter. Both in terms of fee income and sales.
Speaker Change: Sales.
Speaker Change: Yeah.
Speaker Change: And.
Speaker Change: So on Q4.
Speaker Change: 1.3 million on the gain on sale.
Speaker Change: Our split of around 40% for C. L F for policing and 60% mortgage I'm.
Speaker Change: Sachin points out to about $510000 for the leasing and about $750000 per mortgage.
Speaker Change: In terms of the sold volume in the fourth quarter mortgage volume was about 40 million that compares to 38 million in the third quarter.
Speaker Change: And the leasing well.
Speaker Change: It's just under $12 million that equates are cyclical or somewhere $10 million to $14 million.
Speaker Change: Sure.
Speaker Change: That's super helpful. Thank you.
Speaker Change: Thanks Brendan.
Speaker Change: Your next.
Speaker Change: Your next question comes from the line of Justin Crowley with Piper Sandler. Please go ahead.
Hey, good morning, everyone or good afternoon, rather.
Speaker Change: Uh huh.
Speaker Change: I wanted to start just on the margin discussion and some of the inputs. There you've got to think about 700 million in loans. If I have that right that reprice immediately can you remind us for that $180 million that you mentioned in fixed rate loans that come due over the next 12 months what yields are coming off that and then perhaps similar detail out to 2026, if you have it.
Speaker Change: They're probably those loans are probably right now we don't have you know exactly what that most likely those lessons learned are worse.
Yeah. So it's the high fours to low fives, they'll probably go somewhere repriced into the high sixes.
Speaker Change: Yeah.
Okay got it.
Speaker Change: So rapidly that 177.
Speaker Change: Seven given where treasury yields have gone almost all of those are based upon a five year treasuries it from that perspective Justin.
Speaker Change: Okay got it and then sticking with the margin looked like deposit cost on a net basis were flat quarter over quarter. He had to step down in rates paid on time and brokered some payoffs there, but you know it looks like it was offset by a pick up across other categories can you talk a little bit about efforts to drop rates outside of the repricing dynamics within the CD book.
Speaker Change: And what you know of the Fed's 100 basis points and cut so far is filtered through.
Speaker Change: Yeah, we have been very proactive I think in reducing the.
Speaker Change: Rates as the fed has lowered rates I mean, we are almost reducing them immediately we have reduced them in nearly every category.
Speaker Change: Again broker deposits, we're going to pick up some pricing to do our total funding cost should continue to migrate down but I think you know overall deposit cost may trend, a little bit higher as we get more aggressive and trying to generate core deposits most of them in this rate environment.
Speaker Change: Money market and see the cows and they'll that increase will really be related to more volume as we get gather those funds to pay down borrowings were to pay off or a broker deposits.
Speaker Change: More expensive broker deposits or or borrowings so you'll see those that cost kind of remain relatively flat, maybe tick up slightly as we but overall funding costs should come down.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay I appreciate that and then shifting gears a little bit you spoke about some expected savings on the expense side are you able to provide some more granular detail on you know how our S inflation across some other categories may offset that and where you maybe expect costs to shake out in the first quarter and then beyond.
Speaker Change: Yeah, I can do that one.
Speaker Change: So in the fourth quarter.
Speaker Change: Some accrual adjustments to start Barking and some professional fees could also mentioned we had some nonrecurring items.
Speaker Change: So she can you in any way.
Speaker Change: Net staff transition as well as our leasing conversion project.
Speaker Change: So in the first quarter were down a little bit of that expense remaining.
Speaker Change: We will start dropping off in the second quarter, we are expecting our first quarter expenses to be around 28 eight.
Speaker Change: And then also some of our cost savings that we've mentioned that are either starting in December we're underway in the first quarter are going to start taking effect really in that second quarter.
Speaker Change: As well, it's going to have some offset to that of investments that we're making as we move towards attracting some digital deposits.
Speaker Change: We are being very aggressive with some of our vendors trying to see if they'll hold the line on some of them are pass those off or it and where when those contracts are coming up theyre going out to bid more telling them you know kind of our expectation.
Speaker Change: So just you know with sheer inflation and stuff we are being much more.
Speaker Change: We're really work and the expense side, we will continue to look to identify cost savings and as I mentioned, we picked up a couple of those cost savings.
Speaker Change: Is there in the fourth quarter will really realize those throughout 2025 so.
Speaker Change: We do know we have merit increases and stuff coming generally at April.
Speaker Change: For the most part we are aggressively looking to reduce the reduce expenses, where we can we are making it so that offsets that is investment in technology that you initially bear some expense on the front end and the revenue comes.
Speaker Change: On the back end, so you know the.
Speaker Change: And then rich will probably give you some sort of guidance there run rate guidance as we move forward, but you know just realized that some of that at least on the technology side that expense, we won't recognize that revenue until the back end.
Yeah.
Speaker Change: Okay, and then you know I guess, what that 28 eight in the first quarter was your bias be toward you now starting to see.
Speaker Change: Like down as we head through the year or would it kind of be stable at that level.
Speaker Change: I would expect it to be stable at that level.
Speaker Change: Excluding some investments won't be doing that.
Speaker Change: Place to attract some digital deposits. So we could see a little bit of a tick up the customer marketing our south core expenses.
Speaker Change: Okay, Gotcha I will leave it there thanks, so much everyone.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Tim sits serve it keep VW. Please go ahead.
Speaker Change: Hey, good afternoon, thanks for taking my questions.
Speaker Change: At Hamilton.
Speaker Change: I appreciate some of the commentary you guys gave towards loan growth and working towards low single digits in near term.
Speaker Change: You know what are some of the puts and takes that could cause.
Speaker Change: You know.
Speaker Change: An acceleration here and you know I know it might be a little early for this but with the change in administration.
Speaker Change:
Speaker Change: No.
Speaker Change: Kind of a weird macro outlook and we're still not sure about the impact of terrorists or where rates will go or you've seen that result in any caution at all from some of your borrowers or.
Speaker Change: You know in certain industries that kind of go in the other direction, where there are a lot more bullish as that impacted your pipeline in any way.
Speaker Change: No not a whole lot Tim I mean, the some of the people that are very dependent upon imports actually kind of got ahead of it and and pre bought some either some inventory or a system supplier. So they see how it shakes out, but we haven't really seen.
Speaker Change: Whole lot from a from the bullish side of it yet.
Speaker Change: So I would say no there, but I would say that.
Speaker Change: Overall, the attitude of our customers is definitely better today than it was three months ago.
Speaker Change: Yeah, No I would I would just add there I think our biggest friction Tim it's going to be funding you know that's the biggest prescription but when we think we can generate some decent deposits was you know we've never been a high C D payer and we're going to get a little bit more aggressive as long as we can bring in funds that are cheaper than what we're.
Speaker Change: Borrowing and I think we're going to see some will get some lift there so that that'll be our biggest chunk I think we can generate the loans. The loan demand is there in our markets. You know we've talked previously about all the stuff that's happening in central Ohio with Intel last week do you know the state of Ohio announced the largest.
Speaker Change: Job creation expansion a project in the history of it.
Speaker Change: Eight of Ohio, we'd have a defense contractor moving in.
Two.
Speaker Change: Up to the central Ohio, There, that's going to create 4500, new jobs over the next 10 years.
You know so so.
Speaker Change: That at Intel and what that means for the whole state because there'll be suppliers located throughout the state we are already starting to see that some of them. Neither of those projects are fully implemented now, but I do think that you're going to see the loan demand is going to be there and.
Speaker Change: So really our biggest restriction is just generating lose deposits and we're making investments in the play and in our online our new account opening.
Speaker Change: System, that's going to not only help us Jenner, you know well be able to simplify how we opened up khalif online. It's also we're going to take that same experience into the branches and also what are our bankers are out making calls and people's offices and stuff I think we will see some.
Speaker Change: [laughter] lift because of that investment as well so yeah.
Speaker Change: So those are that that's really where our restriction lies in what we can do with you know our teams are really seasons really experienced very well connected.
Speaker Change: And they can generate quite a bit of low demand, if we turned them fully loose.
Yeah.
Speaker Change: Great. That's good to hear and then outside of the.
Speaker Change: The two credits you guys mentioned earlier are there any areas or geographies, where you're seeing a little bit more pressure on the credit side and you Kelly.
Speaker Change: Would be helpful.
Mike: Hi, This is Mike <unk>, Chief Credit officer, but no we're not seeing any specific areas, where we're having any issues any systemic issues at all so.
Mike: And it's any credit issues typically are one offs and so nothing in the way of geographic or concentration areas have we had any.
Mike: Heightened risk.
Mike: Yeah.
Mike: Okay.
Mike: Okay, Great. That's good to hear and then the last question I have is.
Mike: You guys have talked about wanting to build the TCE ratio to 775% over time.
Mike: Hum.
Mike: Forget about the impacts of a OCI going forward assume rates stay consistent do you have a timeline of getting there.
Mike: Preclude you from doing buybacks at all or any other kind of capital deployment.
Mike: Well again, it's all based on our earnings but we do think you know we did increase the dividend there.
Mike: Last quarter.
Mike: Our fourth quarter and I think it's all just dependent on our earnings but we are bullish where we think our earnings could go I mean that we wouldn't have done that if we didn't think our earnings we're going to remain strong. So some of that depends on the earnings and then the other wildcard is the interest rates you know in what they're what they're tied to we would hopefully.
Mike: Hopefully migrate closer to the set in the 7% by the end of the year I wouldn't I would think you know we continue to discuss our capital needs as we move forward.
Mike: Yeah.
Speaker Change: Okay got it well that's all for me and congrats to Chuck on the promotion.
Mike: Pleasure.
Mike: Okay.
Speaker Change: Your next question comes from the line of Terry Mcevoy with Stephens Inc. Please go ahead.
Mike: Yeah.
Mike: Thank you good afternoon Echo <unk> earlier comments on the impressive job, replacing the fee income last year and also congratulations Chuck on your new role at the company.
Mike: Thank you and then maybe.
Mike: Maybe just a first question do you have any targeted a targeted loan to deposit ratio was about 96% at the end of the year.
Mike: And I guess just as a follow up question. There you know broker deposits were in the regulatory crosshairs a bit last year is there any I don't want to use the word pressure, but any incentive to drive those balances lower outside of just building more core relationships.
Mike: Well I think the loan to deposit you know we were comfortable in that 90% to 95% range that you know, that's where ideally we would like to operate because they think we're utilizing our.
Mike: Our balance sheet, the best at that that level there.
Mike: No, we're a regulatory pressure or anything on broker deposits.
Mike: We just you know we just think that we you know we can generate maybe cheaper deposits are you know some C. DS and stuff that are that are less expensive than brokered and we are borrowing on our F. H L. D line. So that's really why you know, we we want to drive.
Mike: Our core deposits you know those core deposits higher and getting a little bit more aggressive on our C. DS. So if you were you know up until a year or two ago. We didn't have the knee. We always felt that broker deposits was a very efficient way to attract deposits, but we really didn't have the need we were always got it somewhere.
Mike: That is 75% to 90% range.
Mike: But as a.
Mike: Our load growth accelerated coming out of the pandemic, particularly in 'twenty, two and 'twenty three we had a seven 7% loan growth and 24 for the year is not a you know it is pretty good is that loan growth just deposits didn't keep up so we've kind of shifted our focus instead.
Mike: Let's get a little bit more aggressive to try to attract.
Mike: Some of our own money as opposed to.
Mike: Continuing to Butler to increase that with our broker deposits.
Mike: I appreciate that and then just as a follow up.
Mike: Fair amount of your loan growth has been.
Mike: None or non owner occupied multifamily could you just in Metro, Ohio markets could you just talk about renter demand occupancy rates construction activity and and and the overall health of those markets. Because there are some soft patches were hearing about elsewhere across the country. Thank you.
Terry Mcevoy: Yeah, I would tell you it's Terry we're not really seeing that right now as far as most of our most of them, especially in construction projects that were bringing on.
Terry Mcevoy: The rents are actually higher than what they are they were projected in AR and the appraisals. So we're not really seeing a softening of demand from from that piece of it.
Terry Mcevoy: And beyond and they're filling up you know on schedule I guess without the absorption rates are at.
Terry Mcevoy: And then pretty much spot on if not a little bit better. So you know knock on wood, we feel really good about that especially as the remainder of the I guess the three CS.
Terry Mcevoy: You know when we've got a lot of those are projects that and the rents are really higher I think because the borrower to make the project works having to put in more capital more equity into the deal. So they get their return they've got they've got to charge higher rates and it appears so far we're still seeing demand.
Speaker Change: Great. Thanks again.
Terry Mcevoy: Thank you Terry.
Speaker Change: Your next question comes from the line of Manuel Nava with D. A Davidson. Please go ahead.
Terry Mcevoy: Okay.
Speaker Change: Hey, good afternoon guys.
Speaker Change: Can you go into more detail on your future our deposit gathering initiatives you had great success there.
Speaker Change: With the Ohio home Homebuyers program in wealth management transfer in brokered last year and all of that was kind of.
Speaker Change: It allows you to keep core deposit untouched. So I just would love to hear more about what you're going to do going forward.
Speaker Change: And kind of how are you going to keep from a new money market accounts cannibalizing any.
Speaker Change: Deposit costs.
Speaker Change: Yeah. Good question. So we have a number of initiatives underway very well one of those as you know and I think with our new finance and accounting team and livery and its leadership.
Speaker Change: You're going to see the utilization of more dashboards that our frontline bankers are going to have available for them, which will allow them to kind of look at that total relationship. You know it's more of a manual process for our bankers to do that and I think yes. So we were migrating towards these more ash boards and.
Speaker Change: And profitability models I think that that one will help we have identified and run.
Of our whole book of business and identified a number of accounts, where we have either no deposit relationship or low deposits with a and we are reaching out and and through all of our business lines, our retail bankers or commercial bankers or private.
Speaker Change: Banking group, our Treasury banking group. They really are focused on those lists and working those list. So that's that's a project. That's underway. In addition, we made this investment we invested in a product called mantle and mantle.
Speaker Change: I think is probably the premier on new well count online a new account opening.
Speaker Change: System out there and so we think that we've looked at a number of those are what we invested in a product called Q2 about a year and a half two years ago. They had an online account opening solution.
Speaker Change: But we found that we were real pleased with that that solution. We still have we're still using the Q2 platform, but we're gonna have mantle. We think that's a it's a much superior product and again once we kicked that off we just think it's going to be much more efficient for our the our bankers.
Speaker Change: And the customer it's gonna be a bunch of better customer experience, that's going to allow us to gather some deposits through a channel where we really haven't tapped into yet and that's the digital channel. So we think that that will also enhance.
Speaker Change: And he has some of those we look at deposit rates a weekly we more leading very frequently with our deposit rates. So you know.
Speaker Change: Obviously, we try.
Speaker Change: Try to keep an eye. So we're not cannibalizing our deposit cost, but I think you know it kind of goes back to the comments I made one of the earlier questions that are you know I think some of those deposit costs will inch up just because we're gathering more volume as opposed to.
Speaker Change: Just pay higher rates throughout across the board.
Speaker Change: And I'll add I think we're pretty focused on high balance money market accounts again were trying to do everything we can but they cannibalize that toward deposit balance that we value. So much. So we're doing some things with index based pricing that we haven't done in the past and I think our depositors understand better and we'll get some decent feedback from them.
Speaker Change: The really big depositors that they don't have to worry about shopping whether or not where we're charging them a fair rate our lenders and the other folks Treasury management folks are out in the field can explain that product to them and how about we still have to take care of them, but that's sometimes that they understand it and we again initially it seemed like we got some.
Speaker Change: Solid feedback on that but again those are aimed at really high dollar deposits. So that we don't cannibalize kind of it.
Speaker Change: A smaller deposits that we have so many of them.
Speaker Change: For new money.
Speaker Change: Or is it if it's large enough commercial relationship you would offer any index product.
Speaker Change: Absolutely it is large commercial product or customer we would but it is.
Speaker Change: Geared toward new money, but I don't think we've said it has to be new money.
Speaker Change: It's really it's really geared toward that deposit customer that familiar depositor or no.
Speaker Change: Sure. Okay. That's helpful. Ken about cannibalizing you know the entire book right.
Speaker Change: And.
Speaker Change: Did you ever like what's like the initial index price then obviously it will float around with that movement I'm sure or some percentage of fed movement towards that kind of get initial price though.
Speaker Change: Whether you can give me a call. After this and we will sign you up.
Speaker Change: [laughter].
Speaker Change: We have a tiered based on the size of balances Southerner is at a bottom thresholds as Chuck alluded to and that worked hearing it off of fed funds.
Speaker Change: And then.
Speaker Change: The digital channel.
Speaker Change: I heard something about marketing costs is it all branded with so this stuff is it is it some.
Speaker Change: Outside the partnerships.
Speaker Change: It's all branded with service.
Speaker Change: Okay.
Speaker Change: You know marketing, we're gonna be doing most of that marketing through social media, which really there's not a lot of cost.
Speaker Change: They all run campaigns that theyre, helping us with that but I think most of them you know the cost to market is just internally stuff that we're you know we're gonna do but most of that will be through social media as we'd be really utilizing that.
Speaker Change: That channel that's how we hope to gather deposits and then in branch signage and things like that.
Speaker Change: Hi. This is this has been very helpful. I appreciate kind of the detailed can I just take a kind of a bigger picture view.
Speaker Change: Do you have a sense.
Speaker Change: I Wonder do you have a sense for kind of where the near term NIM can go where can it go by the end of the year and like what are you thinking in terms of the rate environment for the year.
Speaker Change: Yeah.
Speaker Change: Yes, So we finished Q4.
Speaker Change: With a 336 now.
Speaker Change: No we have additional loans that are going to reprice on those lower rates as we mentioned.
Speaker Change: The brokered benefit that happened in December.
Speaker Change: But that was where our pricing and we have another tranche that's going to happen in March of 2020 $550 million.
Speaker Change: In terms of where that.
Speaker Change: That is going.
Speaker Change: It changed really quickly in the last 30 days.
Speaker Change: We're definitely not economics.
Speaker Change: Just.
Speaker Change: To be able to figure that out, but you know it's quite likely that there's one rate cut in the first half of the year.
Speaker Change: Right now are kind of thinking about getting to maybe in the low to mid three forties.
Speaker Change: And that level out from there.
Speaker Change: That's helpful and that's.
Speaker Change: In this first half of the year or kind of.
Speaker Change: Yeah, we probably will get a higher kind of by second quarter.
Speaker Change: And that probably level out from there.
Speaker Change: Depending on what the fed does second half again.
Speaker Change: With.
Speaker Change: Just with your deposit initiatives with loan and brought broker repricing.
Speaker Change: This NIM outlook.
Speaker Change: Has pricing competition on either side of the balance sheet picked up we're just kind of stand right now.
Speaker Change: Okay.
Speaker Change: I would say the pricing has not really picked up and it's probably fairly stable right. Now I mean, we're I mean, it's competitive on both sides. If you look at the most.
Speaker Change: Both deposit and loan pricing is still competitive, but it's been competitive throughout all of last year. So I wouldn't say, it's any more intense.
Speaker Change: We think we're going to get more competitive.
Speaker Change: So we'll have to see what the rest of the marketplace does but it's been what we feel has been pretty competitive over the last year or so.
Speaker Change: I'm not sure it picks up in the marketplace.
Speaker Change: But there you know there are a number of community banks it.
Speaker Change: Alright, all at the same situation, we're in and looking for deposits.
Speaker Change: So we just wanted to make sure we're ready to not only when we get a little bit more aggressive, but we're not just aggressive on price were aggressive in being able to deliver a better customer experience and that was again the investment in the mantle and stuff that's kind of trigger that so we wanted to kind of do those things in conjunction.
Speaker Change: That's helpful and my last question is about the Securities book.
Speaker Change: You offered it up as a potential source of liquidity.
Speaker Change: Liquidity does that give you a little more flex like where can that and what are the cash flows coming off of that working at end the year in terms of where do you want it to be at the same size larger and.
Speaker Change: And does that give you flexibility to kind of manage your deposit as well.
Speaker Change: Just kind of talk about what's after that.
Speaker Change: Oh Wow, that's keeping it.
Speaker Change: Relatively the same size as a percentage of deposits. So we do believe in just having enough liquidity available.
Speaker Change: So as the cash flows come out we'll reinvest those and have to increase that investment portfolio have deposits starting to go up for one yeah. We don't want a decree decrease so we don't want to decrease that as a percentage of deposits. You know we you know we feel liquidity is probably the biggest thing they can you know.
Speaker Change: Herb.
Speaker Change: A bank.
Speaker Change: We even more so than credit you know banks have failed because of liquidity issues. So we have a certain targeted percentage that we shoot for and you know so most likely we will decrease that and use that for you know to play logos.
Speaker Change: Yeah.
Speaker Change: That makes sense all right. Thank you. Thank you I'll step back in the queue I appreciate the commentary.
Speaker Change: Okay.
Speaker Change: Thank you and there are no further questions at this time I would like to turn it back to Mr. Shaffer for closing remarks.
Speaker Change: Well I'm just going to cause you I just want to thank everyone for joining us for today's call.
Speaker Change: This quarter's inaugurated results were due to a large due in large part to the lot of the hard work and discipline of our team. So I want to first and foremost thank them for all of their efforts we will.
Speaker Change: Kidney to focus on growing so this is the right way and I believe that our focus on improving our strong core deposit franchise and our proven and disciplined approach that we've taken pricing of our loans and deposits and managing the company that positions us very well for the future. So I look forward to talking with Oh.
Speaker Change: All of you again in a few buildings.
Speaker Change: First quarter result calls so have a great rest of the afternoon. Thank you.
Speaker Change: Thank you for saying and this concludes today's conference call. Thank you all for participating you may now disconnect.
Speaker Change: [noise].
Speaker Change: Okay.
Speaker Change: Yeah.