Civista Bancshares Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2023

There are 9 speakers on the call.

Operator

Afternoon. 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.

Operator

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 to 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 direct reconciliation of the GAAP to non GAAP measures. The call will be recorded and made available on Savista Bancshares' website at www.civb.com. At the conclusion of Mr.

Operator

Schaeffer's remarks, he and the Savista management team will take any questions you may have. Now I'll turn the call over to Mr. Schaeffer.

Speaker 1

Good afternoon. This is Dennis Schafer, President and CEO of Savista Bancshares Inc. And I would like to thank you for joining us for our Q2 2023 earnings call. I'm joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank Chuck Pardoner, 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 Q2 of $10,000,000 or $0.64 per diluted share, which represents a 20.8% increase over our Q2 in 2022 and net income of $22,900,000 or $1.45 per diluted share for the 6 months ended June 30, 2023, which represents a 41.8% increase over the first half of twenty twenty two's performance.

Speaker 1

Our margin, which was 3.99% year to date and 3.86 percent for the quarter continues to drive our earnings. However, like the rest of the industry, our margin is under some pressure. Our yield on earning assets decreased by 9 basis points during the quarter to 5.31% and was 5.27 percent year to date. The cost of funding our balance sheet increased by 36 basis points during the quarter to 1.51% and was 1.33% year to date. Let me provide some additional color around our deposit strategy.

Speaker 1

Late in the Q1, with the uncertainty surrounding the bank failures, we went out and locked up funding to to fortify our balance sheet. We filled an order for $141,500,000 of 9 month brokered CDs paying 5.2 percent and $151,000,000 of 12 month brokered CDs paying 5%. This replaced $92,000,000 of maturing brokerage CVs and provided additional liquidity to preserve our overnight borrowing capacity at at the Federal Home Loan Bank. We felt this was extremely important given the bank failures in March. Beginning in the Q1, we also began raising interest rates primarily to our larger balance money market and time deposit customers to maintain balances.

Speaker 1

Excluding the increase in broker deposits and increases in deposits related to our tax refund processing program, our deposit balances have declined just 2.3% from December. As a result, while our cost of deposits during the quarter increased from 49 basis points to 107 basis points, our cost of deposits excluding broker deposits only increased 10 basis points during the quarter from 39 basis points to 49 basis points. Our cost of deposits excluding brokered deposits year to date was 46 basis points. Our deposit beta excluding brokered CDs was 7 basis points over the last 12 months and our cost of overall funding beta was 22 basis over the last 12 months. Our loan beta has been consistent over the 12 month cycle at 30 basis points.

Speaker 1

We will continue to monitor deposit flows and react accordingly, but we do not anticipate a similar increase in our funding costs going forward. Our earnings were also impacted by lower gains on sales of leases. This was primarily the result of internal changes made to our lease sales process in May, which were not fully implemented until the quarter end. We anticipate resuming the sale of our originations in the Q3. For the quarter, we originated $36,600,000 of loans and leases through VFG and sold $10,800,000 for a gain of $256,800 We typically target the sale of 50% of our lease production.

Speaker 1

Yesterday, we also announced a $0.01 per share increase in our quarterly dividend to $0.16 per share. This is a 6.7% increase in our dividend and represents a 25% dividend payout ratio based on our 2nd quarter earnings. This is our 2nd consecutive quarterly increase and reflects our confidence in our earnings. Our year to date earnings per share have increased 32.3 percent when compared to the same period a year ago. Our return on average assets was 1.12 set for the quarter compared to 1.47 percent for the linked quarter and our return on average equity was 11.58% for the quarter compared to 15.32 percent for the linked quarter.

Speaker 1

Year to date, our return on assets was 1.29% our return on equity was 13.42%. During the quarter, non interest income declined $1,900,000 or 17.3 percent in comparison to the linked quarter and increased $3,500,000 year over year. The primary driver of the decrease from our linked quarter was the timing of fees from our income tax refund processing program. Consistent with prior years, income from our tax program during the first quarter was $1,900,000 compared to $475,000 in the 2nd quarter. We also received a $1,500,000 bonus as part of the newly negotiated debit brand agreement we entered into during the Q1, which was also included in other non interest income.

Speaker 1

Year to date, non interest income increased $6,900,000 were 52.3 percent in comparison to the prior year. The primary driver was 4 point $2,000,000 in lease revenue and residual fees from the addition of VFG late in 2022. These fees are primarily made up of operating lease payments and gains on the sale of equipment at the end of the lease term. Also included was the previously mentioned $1,500,000 bonus we received as part of the Debit brand agreement. 2nd quarter gains on the sale of mortgage loans were $615,000 which was consistent with our linked quarter.

Speaker 1

The year to date gain on the sale of mortgage loans was $1,200,000 and represented a 17.4% decline from the previous year. Wealth management revenues for the quarter were consistent with the linked quarter and declined slightly year to date compared to the prior year. While we anticipate that market uncertainty will continue for some time, we view the expansion of these services across our footprint as an opportunity to diversify and grow non interest income. Non interest expense for the quarter of $27,900,000 was comparable to our linked quarter as increases in FDIC assessments and software maintenance were mitigated by declines in compensation and professional fees. Year to date non interest expense increased $14,900,000 or 36.7 percent over the prior year.

Speaker 1

Much of the increase is attributable to our acquisitions of Comenavanc and VFG in the 3rd and 4th quarters of 2022. Our compensation expense increased $5,900,000 or 24.5 percent over the prior year. The bulk of the increase is due to $4,400,000 in additional salaries, commissions and benefits attributable to our new Community Banking and BFG employees. The increase in depreciation is primarily due to our new leasing company. Equipment that is under an operating lease is owned and depreciated by Savista until the end of the lease term.

Speaker 1

Included in this year's professional fees is a $400,000 payment to a consultant that assisted in the negotiation of our new debit card agreement. The increase in amortization of our deposit based intangible and marketing were also due to our 2022 acquisitions. The increase in other non interest expense was primarily due to growth in unfunded loan commitments and the related and $54,000 provision required by our adoption of CECL during the Q1. Our efficiency ratio was 67.9% compared to 62.4% for the linked quarter and 65.1% year to date. Turning to the balance sheet.

Speaker 1

Year to date, our total loans have grown by $89,600,000 which includes $24,800,000 of loans and leases originated by VFG. This represents an annualized rate of 7%. While non owner occupied CRE loans led the way, lease financing receivables were up due to lighter than anticipated sales. Residential real estate loans increased as we originate more of our on balance of mortgage products, including our CRA or in construction products. Commercial revolving lines of credit currently at a 35% utilization rate have not re advanced and are well below pre pandemic balances.

Speaker 1

Along with our year to date loan production, our undrawn construction lines were 200 and of $7,300,000 at June 30, adding to our confidence that we will grow our loan portfolio at a mid single digit rate over the balance of 2023. At June 30, our loan to deposit ratio, excluding deposits related to our tax refund processing program, was 98%. On the funding side, total deposits increased $322,800,000 or 12.3% since the beginning of the year. If we adjust for increases in brokered deposits and tax program funding, our deposits declined just 2.3% year to date. We believe this illustrates the strong relationships we have with our commercial and retail customers.

Speaker 1

Noninterest bearing demand accounts continue to be a focus, making up 34.1 percent of our total deposits at June 30th. If we exclude Savista's own deposit accounts and those related to our tax program, 13.2 percent or $390,700,000 of our deposits were uninsured by the FDIC at June 30. Our cash and unpledged securities were 415 $500,000 at quarter end, which more than covered our uninsured deposits at June 30. Other than the $378,200,000 of public funds with various municipalities across our footprint, we had no concentration in deposits at June 30. We continue to believe our low cost deposit franchise is one of Savista's most valuable characteristics and contribute significantly to our peer leading net interest margin and profitability.

Speaker 1

We ended the quarter with our Tier 1 leverage ratio at 8.86 percent, which is seen well capitalized for regulatory purposes. At June 30, all of our $619,200,000 in securities were classified as available for sale and had $63,100,000 of unrealized losses associated with them. Our tangible common equity ratio improved 6.16% at June 30, 2023 compared to 5.83% at December 31, 2022. Given the turmoil in the banking industry as we entered the quarter and our good fortune of being the Federal Reserve Bank of Cleveland's 1st safety and soundness and after the failure of Silicon Valley and Signature Bank, we thought it prudent to vote off on the resumption of our stock repurchase program during the quarter. I am happy to report that we received our exam report earlier this month and we were very pleased with the results.

Speaker 1

We continue to believe our stock is a value and anticipate resuming our repurchase program now that we have released earnings. Despite the uncertainties associated with the economy and the expense pressures our borrowers face, our credit quality is strong and our credit metrics remain stable. We did make an $861,000 provision during the quarter, which was primarily attributable to loan and lease growth. Our ratio of our allowance for loan losses to loans improved from 1.12% at December 31, 2022 to 1.33% at June 30, reflecting growth and our adoption of CECL during the Q1. In addition, our allowance for loan losses to non performing loans increased from 261.45 percent at December 31, 2022 to 327.05 percent at June 30.

Speaker 1

In summary, although our margin compressed more than anticipated, we continue to generate strong earnings and our margin remains healthy. We continue to see quality loan growth, solid opportunities across our footprint and no material deterioration in our crack quality. Our focus continues to be on creating shareholder value, which is evidenced by the year over year increase in our earnings per share and the 2 increases in our quarterly dividend. Thank you for your attention this afternoon, and now we'll be happy to address any questions that you may have.

Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. Our first question will come from Terry McEvoy with Stephens. You may now go ahead.

Speaker 2

Hi, thanks. Good afternoon, everybody. Dennis, you talked about or reminded us of the deposit strategy late in the Q1, and we definitely saw deposit costs come up in the Q2, could you just maybe run through your outlook for funding cost, deposit costs in the second half of this year? And ultimately and kind of think about how should we think about the net interest margin trends over the coming quarters as well?

Speaker 1

Yes, I think we're not going to be adding a big slug of deposits like we added there with the broker deposits in late Q1. So that was a 300 that's going to be with us now throughout the end of the year. So I don't think the NIM we don't expect the NIM I think the quarterly NIM contracted about 25 basis points. We don't expect that big of a decline as we move forward throughout the remainder of the year. We're going to see some contraction, I think, But not that significant of a decline, and that's really where our miss was this quarter, what was just with that slug of deposits.

Speaker 1

So we think maybe So we think maybe half of that amount, maybe 10, 12 basis points margin compression as we move forward is probably a little bit more reasonable as we throughout the year here.

Speaker 2

Thanks for that. And then last week, the larger Ohio based banks on their calls talked about just optimizing their balance sheet and being more selective on lending given new capital rules, I guess I'm wondering, are you seeing a change behavior in some of your larger competitors and how are you positioned to take advantage of market share gains should that continue?

Speaker 1

Yes. Chuck, you want to give some color around the competition and stuff?

Speaker 3

Yes. We've definitely seen some of the larger regional Kind of fall out of some of the deals from that perspective, Terry. We're still there's still a really competitive landscape out there That perspective, especially some of the other community banks, obviously Columbus, Cincinnati, Cleveland, they're all really competitive markets right now. But we do feel like We have the advantage of being still in the lending business and being in the lending business gives us the opportunity to ask for those deposits try to peel those deposits out of those larger regional banks.

Speaker 1

And Terry, we are adding new relationships. So as we look to fund new loans, That will be one way. We fund them with these new deposits that we're getting in. We do have some of our Journeys portfolio turning over and can fund loans there. But I do think from the lending side, we have also Tried to push loan yields, and we're seeing that as loans renew and new loans would come on our books.

Speaker 1

We are pushing our loan spreads. We just think we can do that in this environment And our teams have been pretty effective at pushing those spreads. And quite frankly, with the yield curve so inverted, we have I'm surprised that although we still see some outliers from some of the banks out there, and I'm surprised that not everyone is doing that at this point, but definitely some of the bigger players I think have pulled back a little bit.

Speaker 2

Great. Thanks for taking my questions.

Operator

Our next question will come from Nick Cucarelli with Hubbde. You may now go ahead.

Speaker 4

Good afternoon, everyone. How are you today?

Speaker 1

Hey, Nick. Good.

Speaker 4

Just a question on expenses. Can you help us think about your expectations in the near term and if you have any sizable initiatives on the horizon? Hey, Nick. This is Rich. I initiatives on the horizon.

Speaker 5

Hey, Nick, this is Rich. I don't know if we've got any sizable initiatives on the horizon. I think The run rate that we're kind of projecting for the balance of the year is probably $28,000,000 each of the next two quarters. So I don't think there's anything new in there. I'm trying to think what the big things in expense were this quarter.

Speaker 5

I don't know

Speaker 1

if there's any significant. Yes, the FDIC assessment had gone up. I think that was a pretty good jump. I think that was up maybe $400,000 or $200,000 $300,000 software expense was up slightly. Those are just things I think we're adding.

Speaker 1

The software expense, I think we absorb just different We've gone to more data analytics when we evaluate CRA and fair lending and stuff that's cost us a little bit more Money and so like Rich said, we don't have really any huge initiatives that should impact and expenses as we move forward throughout the rest of the year. I don't

Speaker 5

know if we talked about it on the last call, Nick, but we did and it wasn't a significant move, but we made some reductions in loan operating staff kind of in reaction to the kind of fall off in mortgage lending. Again, not big numbers, but certainly, I guess the point is that we're continuing to look at everything that makes sense to that we look at going forward.

Speaker 1

Yes, it absorbs some of those increases that we see.

Speaker 4

That's very helpful. And then at halfway point of the year pretty solid loan growth so far. Can you help us think about the size of your pipelines and how that may translate into a full year growth rate?

Speaker 3

Nick, it's Chuck. Pipeline still are pretty consistent. I would say they may be down slightly from last year, but really feel good about where we're sitting at mid year. Dennis mentioned in his comments that we've got $211,000,000 of Construction availability looking into the 2nd year, dollars 50,000,000 a little over $50,000,000 of that is the increase in our single family Construction programs that we seem like we're doing a lot more real estate construction, but the other $150,000,000 is out there in the commercial side. So we feel like we've got some good tailwinds coming into the second half.

Speaker 3

And I still would say we're in that mid single digit growth range looking forward.

Speaker 4

Just a follow-up on the construction. Is most of that in Columbus?

Speaker 3

I don't have a breakdown of all the different metropolitan areas, but I can tell you a nice sized chunk of it is in construction. We've had tremendous especially on the multifamily side, tremendous appetite there for multifamily. They can't build enough units fast enough to house Everybody that's either moving into town or getting ready to work in or on the Intel and other large projects in that city.

Speaker 4

Great. Thank you for the color and thank you for taking my questions.

Speaker 5

You bet, Nick. Thanks, Nick.

Operator

Our next question will come from Tim Switzer with KBW. You may now go ahead.

Speaker 6

Hey, good afternoon. Thanks for taking my questions.

Operator

You too. The

Speaker 6

first one I had just real quick. Do you guys have the purchase accounting accretion impact to NII or the NIM?

Speaker 5

I do. We do. Is it 8 basis points? I'm going from memory. My memory was correct, 8 basis points.

Speaker 6

Great. Thank you. I had a follow-up on the talk about some of the larger banks pulling back from lending. Has that opened you to maybe any opportunities to finding some new talent at all? Or do you think that's something that could happen down the road if the banks continue in this position?

Speaker 1

Yes, I think back when we had the great recession, we added talent in this organization. And I think anytime there's disruption or there's the big banks pull back, I think that does give us opportunity to add talent throughout the organization, both on the production and support side. So We continue to look for opportunities. If we think that it would add revenue, we definitely We look at that. Right now, it's a little bit more challenging just because you're pretty well loaned up, so you got to figure out how you're going to fund them.

Speaker 1

And with the yield curve so inverted, I think it does make it a little bit more challenging for that. But That's we view that as opportunity, in particular, when it comes to adding staff.

Speaker 3

Yes. And we're also seeing, Tim, this is Chuck, some talent start to float our direction, at least make some inquiries on the residential mortgage side. As you know, as the market gets tighter a little bit a lot of time with the mortgage brokers, we don't have the same array of products to be able to sell. And so we're starting to see that surface. We've got a few openings that we're trying to fill.

Speaker 3

It looks like we'll be able to do that with larger producers than what we had in our staff previously.

Speaker 1

And that really doesn't cost us anything because those are commission based positions. Generally, once they add originations, they're generally paying for themselves.

Speaker 6

Right. Yes, that makes a lot of sense. And then can you guys give us a quick update on the credit outlook? I think last quarter you guys were talking about everything seems fine in your major metro areas, but any updates you can provide on like the CRE and office exposure? I think you said it was like 4% to 5 set of loans?

Speaker 3

Yes. This is Paul Stark. We I would say that the outlook hasn't changed significantly. Lee, I think obviously we're watching the office market. We're diving into kind of the makeup of it, but the vast majority of our office space is more in the outlying communities as opposed to the urban centers.

Speaker 3

I think we only have 3 or 4 properties that are Kind of in the center of, I say, Cleveland. But overall, they've been performing very well. Occupancy remains high. The only thing you don't really know yet is what's going to happen in a few years when the leases are up. We don't have I think only about 15% of our leases or our properties are going to have maturities in the next 2 years, so really haven't seen anything in the landscape.

Speaker 3

Residential stays Pretty solid. I know that there's stress out there, but our numbers are good, pretty consistent quarter to quarter. And right now, we don't see any real dark areas that make us change that perspective. It's hard work staying on top of it, but right now I'm not seeing anything.

Speaker 1

And Tim, our portfolio is pretty diversified. So when you look at the CRE buckets between multifamily, industrial, retail, office, Pretty it's pretty diversified, so no real concentration in those areas.

Speaker 6

Okay. Yes, nothing too surprising there.

Speaker 3

Do you have what percentage of total loans does the office book?

Speaker 5

We do. This is Rich right now. So peer office, I guess, is just under 6%, 5.8%, and then we've got another Less than a percent

Speaker 1

of healthcare. Medical losses. Medical losses, yes.

Speaker 6

Less than 1% is healthcare?

Speaker 5

Yes. I'm looking at the wrong number. It's 1.2%. 1.2%.

Speaker 6

I highlighted the wrong number. That's great. Thank you guys. That's all for me.

Speaker 1

Thanks, Tim.

Operator

Our next question will come from Manuel Neves with D. A. Davidson. You may now go ahead.

Speaker 7

Hey, good afternoon. With your NIM outlook, just clarify, do you think that it kind of troughs in the 4th quarter? Can you just add a little color there?

Speaker 5

This is Rich, Ben. Well, yes, I guess it depends on what the Fed does. But I think kind of like what Dennis said, I mean, I think in terms of big chunks of funding, the moves that we made at the end of the Q1 are in place and will stay in place. And if you look at our deposit funding, even though we feel like we were aggressive in the first and second quarter, the non brokered cost of our deposits only went up 10 basis points this quarter. And if we assume similar moves from the Fed in the second or the third and fourth quarters, those would be the kind of moves that you might see on the deposit side.

Speaker 5

And again, our loan betas have been pretty consistent over the cycle. So it has been 9 basis points of expansion or not 9, 30 basis points of expansion in each of those quarters. So barring anything crazy happening and crazy things happen, but paring in, Craig, you have any I would say that that's a fair statement that probably a trough toward the end of the year.

Speaker 8

It's interesting you talked about loan yields. I was

Speaker 7

kind of wondering, they didn't move that much this past quarter. I would have thought they it seemed like maybe more of the production was end of quarter. I would think if keeping on leases, those are usually higher yielding. I just kind of was wondering why loan yield didn't rise even more?

Speaker 3

I think there's a couple of factors on that, Manuel. The first one was we had a couple of large payoffs in the month of May, April end of April, early May, so those balances actually went down a little bit. So a lot of the production did come in the back half of the quarter, Especially in mid to late June, I think the other thing that caused it not to expand quite as much. We talked about a little bit earlier, but our mortgage On the mortgage lending side, we did a little bit more on balance sheet versus, saleable product. And obviously, mortgage lending rates are To the consumer are a little bit lower than the commercial rates.

Speaker 3

So we had some growth in that area that may come down a little bit. But all in all, we're happy before we're going. Our in our production piece of it continues to upslope and we feel like that those rates will continue to rise Looking into the quarter, I don't have a great crystal ball as far as what those will go to, but we seem to be pinching them up on a production piece, Probably 10 basis points to 15 basis points a month lately as far as new originations.

Speaker 1

I think Chuck hit it right on the head, the payoffs early in the quarter and then the portfolio residential loans, those yields are not as high and that mix is We're portfolio a little bit more right now because people are buying the ARM products as opposed to the fixed rate products and those our residential rates are a little bit lower.

Speaker 3

And I don't think the payoffs were negative. The payoffs were both positive. We have one of our really good customers sold his business for a nice piece of change. And then we also had A large industrial building that went to the CNBC market.

Speaker 7

What are your new commercial yields?

Speaker 3

Well, I would tell you everything starts pretty much with the lowest of 7 and working up from there, I would tell you new production probably in that if you're doing a 3 year or maybe even a 5 somewhere between 7.25 percent and 7.75 percent, we're seeing some people choose with their thought process of rates Declining, probably in that sulfur plus 2.75 range as far as on some floating on the new floating originations from that side of

Speaker 7

it. If I jump over to the deposit side, I understand that the brokered came on early in the quarter. You gave some nice stats of deposit cost ex brokered. From here, what are your thoughts on just deposit cost increases from here?

Operator

Well, I think they're going

Speaker 1

to stabilize a little bit. Again, I don't we'll see the big new contraction that we had in the Q2. They are under pressure, but we are holding on to more of our deposits today. I think we're just a little closer on that. We have no deposit rates starting With a 5.

Speaker 1

And there's a lot of banks that do have that. And we found that our highest rate right now is 4.5. We found as we've gotten a little bit closer that before we were trying to hold it in the 3s and We were seeing some deposit runoff in the 1st couple of months of the year. So we got a little bit more aggressive. Right now we're at the 4.5%.

Speaker 1

We're not seeing we're meeting every we have every other week with our deposits. We're not seeing that runoff. So we feel that we do have this strong core deposit franchise. We do feel that our customers are pretty loyal. We've never chased the rate shopper before where we've gone out and advertised the highest rate in social media or the newspapers, that's not our customer.

Speaker 1

Our customer It's coming to us and they're asking what alternatives they have and we're telling them, hey, we got 4.5 month CD, 7 months CD special and they are taking some of that money from some of the lower interest bearing accounts and non interest bearing accounts and putting that money to use, but they're not leaving to some of our competitors that are paying 5.25 percent and 5.5 percent. So we feel we just have to stay close in the game. So it depends on what the competitors are doing, but we do feel there is value to this corporate deposit franchise that we have in which helps us maintain some of those customers.

Speaker 7

I appreciate that. In fees, you said you're keeping you kept leases this quarter. Do you feel like there's going to be an extra backlog of lease sales next quarter?

Speaker 1

No, probably not. We'll probably because of what happens as rates move, it makes it harder to sell those loans because

Speaker 7

the

Speaker 1

gain on sale that decreases. So it makes it harder. So we we're probably not going to go back and try to capture some of those. Just going forward, we'll just keep those additional loans kind of on the balance sheet. Their interest rate yields are good on those.

Speaker 1

So I think we just pick it back pick that back up here this quarter.

Speaker 7

Okay. I appreciate. Is there like just a ballpark fee run rate then?

Speaker 5

Gosh, I don't know. Let me think about that. I mean, I guess I would add to what Dennis said. I mean, we had some personnel changes at the leasing company. So as we integrate those guys in, that was part of maybe the slowdown in sales for the Q2, I think we've budgeted what for sales.

Speaker 5

I'm trying to back into a gain number for you. I don't it's probably dangerous for me to do that. Let me think about it. I'll get back to all of you guys. How about that?

Speaker 7

Okay. Thank you very much. I'll step back in

Operator

next question will come from Daniel Cardenas with Janney. You may now go ahead. Hey, good afternoon, guys.

Speaker 1

Hi, Daniel. Hi, Daniel.

Speaker 8

Just a couple of questions here. The runoff that we saw on the securities portfolio, was that anticipated and planned, I mean, we've seen some run off here the last couple of quarters in a row. And should we expect to see a continued reduction in your overall securities book throughout the second half of the year?

Speaker 5

I would say yes. Again, if you'll recall, I guess early last year when we kind of took some of our excess liquidity and bought some short term securities, those were all kept at the bank. And as those mature, we are letting them run off and use that to fund loan growth. Those pretty much run through the middle of next this year and then we're kind of done with that. We typically most of our securities are in our investment subsidiary and

Speaker 1

there are

Speaker 5

tax reasons not to bring those back if we don't have to. So those are the last ones we'll bring back. We'll continue to Reinvest those. But you're right, I mean, the one off that you've seen was just a kind of redeployment of the liquidity that we had early last year and then putting to the market.

Operator

Excellent. And then with some of the

Speaker 8

noise that we've kind of seen in the leasing side, are you still kind of sticking to your guidance in terms of where this book of business could be by the end of the year or does that get that truncated somewhat?

Speaker 1

I think we're sticking pretty much to the guidance. I mean, we're still the leasing business picks up. It's new to us, but we're told that it picks up. It's Pretty heavy in the Q4 and it picks up that second half of the year. So I think we're still probably picking up Sticking with the guidance that we provided earlier.

Speaker 5

Yes, I mean, they had about $27,000,000 of originations in Q1 and they had $37,000,000 of production in Q2 and that's in line with kind of what we thought. But like Dennis said, we're new to this. But I think also like Dennis said, I think what we guided to earlier on is kind of what we think is going to happen. That's our best guess. How about that?

Speaker 8

Sounds good. And then last question for me, how should I be thinking about your tax rate here in the second half of the year?

Speaker 3

I mean it's always been pretty good, right?

Speaker 5

I think our effective tax rate

Speaker 1

for the quarter was what 14%.

Speaker 5

And again, we kind of that's probably I put 15% or

Operator

There are no further questions. This concludes our question and answer session. I would like to turn the conference back over to Dennis Shafer for any closing remarks.

Speaker 1

Well, in closing, I just want to thank everyone for joining and those that participated in today's call. The interest rate environment continues to be a challenge. However, our earnings remain strong and our margins remain healthy. I remain optimistic that our low cost core deposit franchise will continue to produce superior results, and I look forward to talking to you all in a few months to share our Q3 results. Thank you very much.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Civista Bancshares Q2 2023
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