Civista Bancshares Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2023

There are 10 speakers on the call.

Operator

Good day, and welcome to the Savista Bancshares First Quarter 2023 Earnings Conference Call. 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 Savista Bancshares Inc. That involve risks and uncertainties, various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward looking statements made during the call.

Operator

Additionally, management may refer to non GAAP measures, which are intended to supplement, but not substitute, the most directly comparable GAAP measures. The press release, also available on the company's website, contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non GAAP measures. This call will be recorded and made available on Savista Bankster's website at www.cibb.com. At the conclusion of Mr. Schafer's remarks, he and the Savista management team will take any questions you may have.

Operator

Now, I will turn the call over to Mr. Schafer. Please go ahead.

Speaker 1

Good afternoon. This is Dennis Shafer, President and CEO of Savista Bancshares. And I would like to thank you for joining us for our Q1 2023 Earnings Call. I am joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank Chuck Parcher, SVP of the company and Chief Lending Officer of the bank and other members of our executive team. Given the recent events in the banking industry, I would like to start off my comments by discussing our deposits, liquidity, credit and capital positions.

Speaker 1

First, we have seen very little unusual movement in our deposits. Our staff has been proactively engaging our customers and educating them on the strength of Savista and how we differ from the banks that recently failed. In addition, our employees have done a tremendous job in providing our customers options to maximize FDIC insurance coverage. If we exclude Savista's own deposit accounts and those related to our tax program, 14% or 397.4 $1,000,000 of our deposits were uninsured by the FDIC at March 31. Our cash and unpledged securities were $434,800,000 at quarter end, which more than covered our uninsured deposits at March 31.

Speaker 1

Other than $156,700,000 of public funds with various municipalities across our footprint, we had no concentration in deposits at March 31. Excluding our tax deposit and our brokered CDs, total deposits declined by $55,800,000 or 2.1% compared to December 31, 2022. Savista is no different than the overall industry in that many of our retail and commercial customers received stimulus money during the pandemic and as expected, customers are beginning to utilize these funds. I would point out that approximately $20,000,000 of this movement out of retail and commercial checking and savings accounts was in the higher yielding treasury funds in our own wealth management department. Mid quarter we became a little bit more aggressive with promotional rates on higher balance money market and CDs to retain more of these deposits on the bank's balance sheet.

Speaker 1

Attracting and retaining the operating accounts of our business customers continues to be a focus. At March 31, 33 percent of our deposits were non interest bearing demand accounts, of which 76.6% or commercial business accounts. We continue to believe our deposit franchise is one of Savista's most valuable characteristics and contribute significantly to our peer leading net interest margin and profitability. 2nd, we continue to monitor our liquidity position and have strong on balance sheet liquidity and ready as to off balance sheet funding. As I mentioned, at March 31, we had cash and unpledged securities of 430 $4,800,000 and immediate access to nearly $1,300,000,000 in funding from the Federal Reserve, the Federal Home Loan Bank and SEDAR's.

Speaker 1

While we have signed up for the Federal Reserve Bank's term funding program, we have not nor do we anticipate utilizing this funding source and it is not included in this $1,300,000,000 of off balance please earn a date. 3rd, despite the uncertainties associated with the economy, our credit quality is strong. Our credit metrics remain stable compared to the year end and we have not seen any systemic deterioration in our customers' financial conditions. We did make a $620,000 provision during the quarter that was solely attributable to growth in our loan and lease portfolio rather than economic stress, we did adopt CECL on July 1, 2023. This resulted in a $4,300,000 increase in our allowance for credit losses and a $3,400,000 increase in the reserve for unfunded commitments.

Speaker 1

Consistent with generally accepted accounting principles, the entries related to our initial adoption were recorded as adjustments to our equity it did not impact earnings. As a result of the CECL adoption, our ratio of our allowance for loan losses to loans improved from 1.12% at December 31, 2022 to 1.33% at March 31, as did our allowance for loan losses to non performing loans, which increased from 261.45 percent at December 31, 2022 to 346.82 percent at March 31. And lastly, we continue to create capital through earnings and our capital ratios continue to be strong. All of our regulatory capital ratios remain above what is considered well capitalized. Now I would like to share some detail about our Q1.

Speaker 1

This morning we reported net income of $12,900,000 or $0.82 per diluted share for the Q1 of 2023. During the quarter, net loans and leases grew by $35,400,000 we're at an annualized growth rate of 5.2%. This includes $16,200,000 of equipment loans and leases originated and retained by our new leasing company Vision Financial. You will recall Vision provides small equipment leasing and financing across the country. Our funding costs rose by 44 basis points during the quarter.

Speaker 1

However, we were able to maintain a 4.11% margin as asset yields very nearly kept pace. Our CommuniBank transaction is well on its way to be fully integrated, which allowed us to focus on the integration of our newest partner Vision Financial Group during the quarter. We were pleased with the overall gross production during the quarter and we do anticipate their volume to increase as the Q1 is historically slower in the leasing industry. Our return on average assets was 1.47% for the quarter compared to 1.41 percent for the linked quarter and our return on average equity was 15.32% for the quarter compared to 16.09 percent for the linked quarter. Now I will share some detail on our performance for the quarter.

Speaker 1

Net interest income was consistent with our linked quarter and $9,700,000 or 42.2% greater and our Q1 of the prior year. The increase over the prior year was a result of strong organic loan growth throughout 2022, which continued during the quarter, our organic growth coupled with the acquisitions of CommuniBank Corp. And Vision Financial in the second half of 2022 was magnified by the rising interest rate environment. This increase over the Q1 of 2022 was particularly impressive given that there were $1,200,000 of PPP fees amortized into interest income in the prior year. Our net interest margin remained strong at 4.11% for the quarter compared to 4.14% for the linked quarter and reflects significant expansion over the Q1 of 2022, our yield on earning assets increased by 41 basis points compared to the linked quarter, it increased by 159 basis points compared to the Q1 of 2022 as new loans are being originated at higher rates and loans already on our books continue to reprice.

Speaker 1

Our loan beta has been consistent through the cycle at 30 basis points over the last 12 months and for the quarter, our funding costs for the quarter were 1.44%, which represents an increase of 44 basis points over our linked quarter. In comparison to the Q1 of 2020 Our funding cost increased by 89 basis points. Our deposit beta accelerated during the quarter as we became more aggressive with larger balance deposits, as I mentioned earlier, our deposit beta, excluding broker CDs, was 8 basis points over the last 12 months and increased to 38 basis points for the quarter. We will continue to monitor deposit flows and react accordingly, but we do not anticipate a similar jump in our deposit beta going forward. Service charge revenue declined by 290 $7,000 or 14.3 percent compared to our linked quarter and showed an increase of 194,000 were 12.3% over our Q1 of last year.

Speaker 1

The decline in service charges for the linked quarter is due to the timing when post tax season services are earned on our tax program deposit accounts. These fees are assessed annually and were 250 dollars 1,000 in the Q4 of 2022. Mortgage banking continues to be under pressure as interest rates increased and the inventory of homes available for purchase continues to be tight. 1st 1st quarter gains on the sale of mortgage loans were $631,000 a decline of 49.6 percent from our linked quarter, which was $1,300,000 and a 32.6% decline from the prior year gain, which was $936,000 Interchange fees at $1,200,000 were consistent with our linked quarter and were up $113,000 over the Q1 of the prior year as a result of additional debit card customers that came

Speaker 2

to us through our Commutibank transaction.

Speaker 1

Lease revenue and residual fee income of $2,000,000 was $264,000 or 11.4 percent less then the linked quarter, which was our Q1 offering small equipment leasing through Vision Financial. Leasing traditionally picks up throughout the year and peaks in the Q4 as leasing customers look to take advantage of accelerated depreciation tax rules. Other non interest income increased by $852,000 over our linked quarter and $1,500,000 over the first quarter of 2022. The increase over both periods was a result of our newly negotiated debit brand agreement with Mastercard that became effective during the quarter. In addition to higher per transaction revenue, we received a $1,500,000 signing bonus that was included in our other non interest income during the quarter.

Speaker 1

Non interest expense increased $7,400,000 year over year, which was primarily attributable to annual compensation increases that go into effect each year in April and the addition of Camuto Bank and Vision Financial, which closed in the 3rd and 4th quarters of 2022. Non interest expense increased $332,000 or 1 point 2% compared to the linked quarter as we saw increases in compensation expense and taxes and assessments that were nearly offset by declines in net occupancy, contracted data processing and professional fees. Compensation expense increased $698,000 and accounted for the largest portion of the linked quarter increase in non interest expense. Payroll taxes and 401 contributions are typically higher in the Q1 and increased $511,000 from the linked quarter. Health insurance also increased over the linked quarter by $708,000 as we trued up accruals during the Q4 of 2022 and resumed our normal accrual levels in the Q1 of this year.

Speaker 1

Taxes and assessments increased by $418,000 compared to our linked quarter resulting from our higher assessment basis. These increases were largely offset by a decline in net occupancy and equipment expense as we charged off $255,000 of obsolete equipment in the previous quarter and a one time $474,000 charge in the Q4 of 2022 for contracted data processing related to the October system conversion of CommuniBank. Although professional fees declined compared to our linked quarter, our current quarter includes a $400,000 consulting fee pay for assistance with our new Mastercard debit brand agreement. Our efficiency ratio was 62.4% compared to 63.2% for the linked quarter and 65.2% for the Q1 of 2022. Turning our focus to the balance sheet.

Speaker 1

As I mentioned, total loans grew by $33,400,000 during the quarter we're at an annualized rate of 5.2%. While non owner occupied CRE loans led the way, we had solid demand in nearly every loan type across our footprint. Included in our loan growth we're $16,200,000 in loan and lease origination at an average rate of 8.75% during the quarter. We did sell $11,300,000 of our lease originations to manage our balance sheet. Along with strong first quarter loan production, our undrawn construction lines ended the quarter at $181,600,000 giving us further confidence that we will grow our loan portfolio at a mid single digit rate for 2023.

Speaker 1

As I stated earlier, mortgage loan production is down. However, we remain optimistic. Our pipeline is solid and we are seeing quite

Speaker 2

a bit of we have quite

Speaker 1

a few pre approvals. Unfortunately, housing inventory remains tight across our footprint and many houses are still being sold to cash buyers. On the funding side, total deposits increased $223,500,000 or 8.5 percent since the beginning of the year. Increases in balances related to our income tax processing program were $82,000,000 and our brokered deposits increased $202,500,000 These increases were partially offset by declines in personal and business checking and saving deposits that I discussed earlier. The volume of activity in our tax program is consistent with prior years.

Speaker 1

However, with higher interest rates, the funds are not remaining on our balance sheet for as long as they have in recent years. The average balances in our tax program accounts were $156,500,000 this quarter compared to 180 $800,000 during the Q1 of 2022. As I mentioned, in late March, we filled an order for $141,500,000 of 5.2 percent 9 month and $151,000,000 or 5% 12 months brokered CDs to replace $92,000,000 of maturing brokered CDs and preserve our overnight borrowing capacity at the Federal Home Loan Bank, a move that we thought prudent given the uncertainty created by recent events. While the higher interest rate environment continues to put pressure on bond portfolios, at March 31, all of our this represented a reduction in unrealized losses of $10,200,000 since December 31, 2022. As a result, we ended the quarter with our Tier 1 leverage ratio at 8.63%, which is deemed well capitalized for regulatory purposes.

Speaker 1

Our tangible common equity ratio was 6.14% at March 31, 2023 compared to 5.83% at December 31, 2022. Our solid earnings were partially offset by our adoption of CECL and its $6,100,000 impact on our capital during the quarter. Savista continues to create capital through earnings our overall goal remains to have adequate capital to support organic growth and potential acquisitions. 2 important parts of our capital management strategy continue to be the payment of dividends and share repurchases. We continued our $0.14 per share dividend during the quarter and given our recent acquisitions and current market turmoil, we did not repurchase any shares during the quarter.

Speaker 1

We do continue to believe our stock is a tremendous value. In summary, we are pleased with another quarter of strong earnings, solid loan growth and steady credit quality. The Q1 presented economic challenges for all of us. Increasing short term rates in the inverted yield curve put pressure on both deposit and loan rates and the failure of 2 banks fueled concern with the industry's balance sheet liquidity. As some banks pull back, Sadista will take advantage of this opportunity to pick up new lending and deposit customers and strengthen relationships with our existing customers.

Speaker 1

Thank you for your attention this afternoon. And now we will be happy to address any questions you may have.

Operator

Today's first question comes from Terry McEvoy with Stephens. Please go ahead.

Speaker 3

Good afternoon, guys. How are you? Good.

Speaker 4

Good. Good. Good. Good. Good, Terry.

Speaker 3

Maybe start with all the focus on deposits, could you just discuss when the tax refund deposits will leave the balance sheet? I think you mentioned it was kind of moving off at an accelerated pace this year, but just want to make sure I accurately capture your expectations there.

Speaker 2

Yes, Terry, this is Rich. And I think similar to prior years, while maybe the balances are a little lower, I mean, it's a quarter 1 quarter 2 phenomenon for the most part. I mean, in December of last year, we still had $70,000,000 in tax deposits in the bank. So they don't all go out, but we're just not hanging around the half money, if you will, has not been hanging around as long as it has in prior years. Hope that helps.

Speaker 2

That's as good a crystal ball to have.

Speaker 3

Okay. Thanks, Rich. And then the vision, the VFG, is that a good run rate for revenue? And then the equipment depreciation was a $2,000,000 increase. Maybe is that a good run rate as well or will that be volatile and kind of up and down as the year progresses?

Speaker 2

I would think that the depreciation level would be a pretty good run rate. And again, it has to do with how many operating leases we originate and keep. But it will grow slowly over the course of the year. And what was the first one?

Speaker 1

Well, the revenue run rate will be a little bit higher. Their volume should pick up as the year increases. So I think that run rate will be higher, particularly the 4th quarter is usually a strong quarter in the leasing industry.

Speaker 3

Maybe one last one real quickly. Over half the portfolio the loan portfolio CRE, it's a concern among bank investors. Could you just discuss your portfolio and how you would push back on any concerns that are out there with CRE in your markets?

Speaker 4

Bob, this is Paul Stark.

Speaker 5

We have quite a bit of real estate, but it's pretty diversified by type and across our market. Overall, I think the biggest areas that people point to are the office space and construction. And we've done a deep dive on our We feel pretty good about where we're at. Haven't seen any systemic deterioration, really haven't seen any concerns come up at any event. Clearly, there's a little more stress because of increased input costs and interest reserves, but They're all strong.

Speaker 5

They all should get finished without any troubles.

Speaker 4

Yes, there is Chuck. I mean our metrics around our commercial real estate, I don't think they've ever been stronger. You read a lot of stuff in the national news about the problems of commercial real estate. But I would tell you the Midwest, especially in the 3 Cs, we're not seeing really Any deterioration in any of

Speaker 2

our portfolio? 3 Cs are?

Speaker 4

Cleveland, Columbus and Cincinnati.

Speaker 1

And Terry, I would just add that there's really no concentration. That book is very well diversified. For instance, your office portfolio is A little over 4%. 5.9%. 5.9%.

Speaker 1

And the type of office that we're going isn't downtown high rise office stuff. So we feel good about that. On the retail, we have no big box retailers. So we feel good about that as well. So we think that book is really well diversified with no concentrations and we do extensive monitoring of that and actually get the accolades from our regulatory agencies about how we monitor and the portfolio monitoring that goes on.

Speaker 3

Perfect. I appreciate all the color. Thanks guys and have a good weekend.

Speaker 1

Thanks, Dan. Thank you.

Operator

Thank you. And our next question today comes from Tim Switzer, KBW. Please go ahead.

Speaker 6

Hey, good morning. I'm on for Mike Perito. Thanks for taking my questions.

Speaker 2

Sure can.

Operator

First off, can you give us

Speaker 6

what the purchase accounting impact was to NII and if that's a good run rate going forward for the rest of the year?

Speaker 2

I think it was 6 basis points, flipping while I'm talking. Okay. Yes, that would be a good run rate we have a warrant.

Speaker 6

Okay. And on the talk about deposit rates, you think the beta is going to not increase by as much as it did this quarter. Can you help us think about the NIM trajectory over the rest of the year, maybe the magnitude of compression or if it can stabilize? What are your expectations there?

Speaker 2

Well, and this is Rich, Tim. This is the Q1 that has contracted in this cycle for us. And again, we got, like Dennis said, kind of aggressive kind of mid quarter on the deposit rates. We anticipate another 25 basis point move in Next week, the week after next. And we're 90% loan to deposit.

Speaker 2

I mean, a lot of this has to do with how fast the loan portfolio grows. But if you ask us what We think it's probably a little bit of contraction, basis points, but not

Speaker 1

a ton. And we got aggressive basically because of the bank failures. We just felt, hey, the banks have failed deposits. We need to do everything we can to keep deposits. So we did get a little bit more aggressive during that time frame.

Speaker 1

We think we're If we don't get a ton of these rating, we think the next rate increase actually benefits us a little bit because we don't think we have to do much on the deposit side. Plus, we think we can push spreads on the lending side a little bit. That will help our net interest margin. We Generally, in the past, big banks tend to pull back in times of crisis. So we view that as opportunity for us.

Speaker 1

And some banks are going to pull back because the inverted yield curve and short term borrowings, if people are borrowing, those rates are high and they may feel they can't make enough spread, I think that gives us opportunity to push some of our loan spreads a little bit, which may help us as well.

Speaker 6

Okay. Yes, that's helpful. And you made the comment that you still believe your stock is tremendous value. You didn't repurchase any shares this quarter. I'm was a lot of that because of the activity we saw in March being a little bit cautious and

Speaker 4

are you able to give

Speaker 6

us any kind of parameters of expectations going

Speaker 1

forward? Yes, absolutely. I think the events in March, we've come in off 2 acquisitions in 2 quarters in a row, so we used some capital there. So we just felt Right now, it's time to kind of let things settle down a little bit, and we'll just continue to evaluate. We didn't know how well, too, that would be received in the marketplace given the recent events in March and the concerns around liquidity and capital.

Speaker 6

Yes, I think that was probably pretty reasonable to think. My last question Last quarter you guys seemed a little open to it, but any more plans or willingness to purchase possibly either other leasing businesses or other fee business Or bank M and A overall?

Speaker 1

Yes. I think we remain interested in that and That's obviously we think we'd like to give a little bit more size because we get more efficient as a company given where bank values and things are today, I think that makes it a lot more difficult. We'll continue. It doesn't mean we stop talking to potential partners and things like that, but we certainly that's still part of our strategy is bank acquisitions. And I think

Speaker 4

with a lot of

Speaker 1

the fees under pressure right now, overdrafts and other fees under pressure, we are certainly open to exploring additional leasing or other fee based businesses.

Speaker 6

Okay, great. Thank you. That's all for me.

Speaker 1

Thanks, Tim.

Operator

Thank you. And our next question today comes from Manuel Nieves with D. A. Davidson. Please go ahead.

Speaker 7

Hey, good afternoon.

Speaker 2

Good afternoon.

Speaker 7

I just wanted to catch up on a couple of things that you touched on. So you have a good amount of construction that's still going to be drawn down, do you have an idea of the timing of those draw downs and also kind of what are those yields going to be?

Speaker 4

I would tell you, I don't have that chart right in front of me, Manuel, but I would say that it's The bulk of it will draw down in this calendar year. I mean, a couple of projects will spill over obviously in the next year, especially

Speaker 7

some of

Speaker 4

the new stuff that we've just approved in the last quarter. And I would tell you the rates are probably in line with where we've been, I'd say in that mid-six percent range on the stuff that's already been approved And to draw down, maybe a touch higher on some of the floating rate construction stuff, but I think all in, when it's all done, I'd say in the mid-6s on that.

Speaker 1

Manuel, we can originate that over the course of the year. So some of that will go eventually go to the perm market because we do a lot of construction mini firm type stuff. So a lot of that goes to rolls off to a nonrecourse lender as well. So it's not like all of that will hit our balance sheet, but it's all been put on over the course of last year and then we'll be through this year and stuff, but it does help our balances until that eventually goes to the pro market.

Speaker 2

Right, right. It's a little bit of

Speaker 8

a downside to not like a downside protection to the loan growth guide. Is that that's kind of how I'm thinking about it.

Speaker 4

No, I think that's correct. I think as a company, I think like everybody else, we're not seeing the same acceleration of large payoffs from people selling product just because the rates are up a little bit, we're not seeing as much changeover. I looked at that before we came in, our large payoffs were $10,000,000 less this Q1 than they were in the Q1 of last year. So we're seeing a little stickiness of that. But I would tell you the large Projects that do go to the perm market and for the people to get off the guarantees, they're still going to go and they're still planning on going.

Speaker 4

Okay.

Speaker 7

You were able to send some funds to like Sweep accounts, it is in the deposit side. I think those are like wealth management sweep accounts, was it roughly around $20,000,000

Speaker 1

That's correct. What do you have

Speaker 7

in those? How much do you have of those?

Speaker 2

So, Manuel, those are not sweep accounts, right? That's money that actually left the bank and went into our wealth management department.

Speaker 1

Right. So those were just potential depositors seeking higher yields and they basically were buying 1 year of treasuries is basically what they were buying. So that was an option for them and we When we didn't want to pay a higher rate, we rather than those that money just leave the bay, we refer them to our wealth department, and they basically have a they have their Novae like 1 year treasury score had a little bit higher yield. We thought that was we feel that now when those come due, we're going to have a better opportunity to get those back into the bank.

Speaker 7

Thank you for clarifying. That makes it makes perfect sense. In terms of so you talked a little bit about A little bit of NIM pressure this coming quarter. If we just get one more hike and then we kind of pause, Where does the NIM kind of go across the rest of the year post during the pause?

Speaker 2

Yes, it can be pretty stable. It really just depends on how fast our loan portfolio grows and How we have to fund it. I mean, if we can and our lenders are great at bringing deposits along with those loans. I mean, we've we kind of had a history of not doing transactions, but we do relationships. And so we expect when we make a loan to get the deposits that go with it.

Speaker 2

But in the 'ninety percent for a loan to deposit ratio, Certainly funding and how much we have to fund and how inverted the yield curve stays, that helped put pressure on the margin for sure.

Speaker 7

Thank you. I'll step back into the queue. Thank you.

Operator

Today's next question comes from Ben Gertlinger with Halti Group. Please go ahead.

Speaker 8

Hey, good afternoon guys.

Speaker 2

Hi, Bill.

Speaker 8

I just want to follow-up on a question Terry asked, kind of asked just a different way. So with the leasing and broadly fee income, I get that the 4th quarter is kind of the high watermark, the first quarter is the low. It's probably ramped throughout the year. So like we've seen a 4th quarter of let's call it $10,000,000 for total fees and the Q1 is like let's call it 9.5 to exclude the one time, is it fair to assume somewhere around $40,000,000 or do you think that the ramp is bigger now that it's integrated and you have potentially more I still work

Speaker 1

with You mean $40,000,000 a quarter of production?

Operator

No, sorry.

Speaker 1

$10,000,000 a quarter. For the full year. No, no, no, no. It isn't okay. Got you.

Speaker 1

No, that's probably close.

Speaker 4

Yes. I mean, I think you'll see a slight pickup in mortgages. I think you'll see a slight pickup in the leasing gain on sale. I think a little bit of leasing gain on sale is a little bit Probably less than normal, Ben, just because a lot of the stuff that was originated in the Q4 that got sold in the first Order rates moved a little bit against us, so you're not quite getting as much gain on sale as you would normally get. So I anticipate we're doing a lot of management around that.

Speaker 4

I anticipate that

Speaker 5

A little bit stronger. Like I

Speaker 4

said, the mortgage income, I would say, during even though inventories are pretty slim across most of our marketplaces, Spring is the selling season and we expect to have a few more first mortgages on that piece, but the rest of it I think is pretty much in line.

Speaker 1

Now remember, we have the tax program money in there too. So we'll have to put a pencil to that probably get back to you with everybody that's a little better number I think because we'll get a little bit of the tax money in yet there in the second quarter, but we do have that also in the equation. So

Speaker 2

I think, again, historically what you've seen is not different than what you'll see going forward, again, Maybe the mortgage piece, but we'd be kidding you if we told you we were all leasing experts yet. We're still new at it and we're still kind of trying to get our arms around that part of it. I guess it's going to grow. It's just a matter of how fast it grows and how much of it we sell.

Speaker 1

Got it. Yes.

Speaker 8

No, that's good. It's helpful color. I get that seeing a full year and the cadence within that was definitely we're all kind of learning as we go here. But when you think about the expenses associated with that, do you think it's a parallel like on salaries? Or is it kind of already accrued throughout the year?

Speaker 2

They're almost I mean, the big salary people are almost all commissions. So that's kind of nice and that when they do well, we do well.

Speaker 8

Got you. Okay. So it's kind of comped the same as mortgage. Okay.

Speaker 4

And we'll be interested in the C2, Ben, just on the swap piece too. We've had a little bit more interest in swaps over the last probably 6 weeks or so, it will be interesting to see if that continues going forward or not. Obviously, we're trying to push That longer term rate lot piece to the swap side and a few people are taking advantage of that right now as compared to one to be shorter on the interest rate cycle.

Speaker 8

Got you. And then lastly, what would be a good tax rate for full year? It's moved around a little bit year over year.

Speaker 1

So for the quarter, we

Speaker 2

were $16,400,000 And I would say, yes, dollars 16,500,000 is probably a good number. We've got a fair amount of tax preference revenue, and we try to manage that down. That would be fair.

Speaker 8

Got you. Appreciate the color. Have a good weekend guys.

Speaker 1

Thanks, Ben.

Operator

Thank you. And our next question today comes from Dan Cardenas with Janney Montgomery Scott. Please go ahead.

Speaker 9

Hey, good afternoon, guys.

Speaker 2

Good afternoon, David.

Speaker 9

I guess just as I look at Operating expenses for you guys here, is the Q1 number kind of a good run rate to build off of? Or is there some room maybe to reel those numbers in a little bit.

Speaker 2

Well, I think like we like Dennis said during the call, we have a $400,000 fee for a consultant that helped us with the Mastercard program and the payroll tax and the 401 contributions are always big in the Q1, too. And some of that gets balanced out with the raises that we go into effect on April 1 or the 1st part of April. So going forward, if you guys penciled in about $27,000,000 a quarter for the next three quarters, that would be Pretty close to what our budget says it ought to be.

Speaker 9

Okay. All right. That's helpful. Thank you. And then How should I think about deposit balances as you approach the end of the year?

Speaker 9

Do you think you can kind of sustain them? And if you do, is that going to be through broker deposit growth or how are you looking more at organic deposit growth? I guess a couple of questions there.

Speaker 1

Yes. I think we can sustain deposits. We've gotten a little bit more aggressive. Again, I do think this is going to be opportunity for us. So we're going to demand a little bit more.

Speaker 1

We always have been pretty good at gathering deposits when we do it alone. We're going to go back to a lot of those borrowers, existing borrowers, whether they have a new loan request or not, and we're going to say, look, We're hearing that certain banks are pulling back in their lending efforts and things like that. We're still in the game, but to be in the game, we need deposits and we're going to ask them to move more deposits to us. So we're really going to play off the relationships that we have to try to drive a little bit more business there. So we think definitely we can sustain.

Speaker 1

We know deposits are at a kind of at a premium now and we're going to really work those relationships.

Speaker 9

Right. In competitive factors, I mean, I imagine it's pretty intense on the deposit side right now. Is it more the smaller banks in your market, the bigger banks, Everybody, I mean, can you Yes,

Speaker 1

it's really everybody. We see the Huntington's of the world offering certain specials. Everybody kind of has a little bit different strategy. We've tried to stay short with our strategy, and I think we will continue to do that. So it is very competitive and but we're going to need that because we don't we want to continue to grow on the lending side.

Speaker 1

So we're really going to push some of those relationships, try to attract at least some of that cheaper money that not so much the hot money.

Speaker 9

Okay, good. I'll step back for right now. Thanks guys.

Operator

And our next question today is a follow-up from Manuel Alnavas. Please go ahead.

Speaker 7

Hey, I just wanted to check-in on the low loss reserve moved up because of the CECL addition, you're at 133.

Speaker 8

What should we expect kind of going forward on the provision side? It's

Speaker 7

definitely it stepped up a little bit in Q4 last year. Is that kind of the right level or kind of the lower level you had before that?

Speaker 4

I think this is Paul Stark. I

Speaker 5

think we're kind of new to the CECL methodology. So if you

Speaker 2

look at the risk profile,

Speaker 5

risk profile continues to be strong and we don't see that changing. The machinations of the model might, we'll have to even it out after the Q1's experience. But I really don't expect it to be any higher And probably where we were at the end of the year.

Speaker 2

I mean, I don't know if we provided for any losses For a number of quarters, I mean, it's all been growth.

Speaker 1

Yes, it's all been growth. We at one point had like 8 3 quarters of recoveries.

Speaker 5

Even though the small loss we took this quarter was really related to an acquisition as opposed to any type of normalized deterioration. So We expect that profile to continue to be strong.

Speaker 1

Yes. So that provision is probably going to stay pretty close to where around the number it is today.

Speaker 9

That's perfect. That's very helpful. Thank you, guys.

Speaker 1

Thank you. Thank you.

Operator

And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Schafer for closing remarks.

Speaker 1

Thank you. In closing, I do want to thank everyone for joining and those that participated on today's call. Again, we are pleased with our Q1 results, our strong core deposit franchise, our proven disciplined approach to pricing deposits, our solid credit history, I think all positions us very well for future success. I look forward to talking to all of you again here in a few months to share our 2nd quarter results. So thank you for your time today.

Operator

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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Earnings Conference Call
Civista Bancshares Q1 2023
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