Civista Bancshares Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

There are 10 speakers on the call.

Operator

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 involves 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 Bancshares' website at www.civb.com. At the conclusion of Mr. Schafer's remarks, he and the Savista management team We'll take any questions you may have.

Operator

Now I will turn the call over to Mr. Schaeffer.

Speaker 1

Good afternoon. This is Dennis Schaeffer, President and CEO of Savista Bancshares Inc. And I would like to thank you for joining us for our Q4 2023 earnings call. I am joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank and Chuck Percher, 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 Q4 of $9,700,000 or $0.62 per diluted share, which represents a 20.5% decrease from our Q4 in 2022.

Speaker 1

Our full year net income represented record earnings of $43,000,000 or $2.73 per diluted share, which represents a 9% increase over our 2022 performance. Our 4th quarter year to date performance was set up by continued strong growth in our loan and lease portfolio, Excluding the participation adjustment, which grew at an annualized rate of 15.5% for the quarter and 12.4% year to date. We added new and renewed commercial loans at a yield of 7.94% During the quarter, a new equipment finance loans and leases had a yield of 9.80% during the quarter. Demand came from all areas of our footprint as we continue to strengthen market share in most of our markets and add new customers in our urban markets. While we do not anticipate continuing to grow at this pace, We do anticipate continued growth at a single digit pace in 2024.

Speaker 1

Net interest income declined compared to our linked quarter, but increased 13.9% for the year in comparison to 2022. Competition for deposits is becoming a little bit more rational, but it's still very intense. This led to a 5 basis point increase in our cost of deposits, excluding broker to 72 basis points For the quarter, during the quarter, we began a measured approach to decreasing rates paid on some of our higher tiered demand deposit accounts and select CDs. Excluding brokered and tax related deposit accounts, our deposit balances were consistent compared to the linked quarter. All in, our funding cost increased by 47 basis points from our linked quarter to 2.19 percent as we funded much of our growth with wholesale funding.

Speaker 1

In the face of funding pressures, our margin compressed at the same case as it did during the previous quarter coming in at 3.44% for the quarter and 3.7% year to date. Our yield on earning assets increased by 18 basis points during the quarter to 5.52% and was 5.35 percent year to date. However, the cost of funding our balance sheet increased by 47 basis points during the quarter to 2.19% and was 1.72% year to date. Non interest income was up 8.6% for the linked quarter, primarily on higher swap fee income It was up 27.8% year to date primarily on lease revenues. While we continue to complete our integration of our leasing division, We view them as a significant contributor to our non interest income as we move into 2024 and beyond.

Speaker 1

Our tangible book value grew to $15.10 compared to $12.60 at September 30, and $12.61 at December 31, 2022 And our TCE ratio increased to 6.36 percent from 5.49% at September 30 and 5.66% at December 31, 2022. This growth came from continued solid core earnings and marked and a marked reduction in unrealized losses related to our securities portfolio. We will continue to focus on growing our TCE ratio during 2024. Last week, we announced a quarterly dividend of $0.16 per share. This is consistent with our prior quarter dividend represents a 23% dividend payout ratio based on our 2023 earnings.

Speaker 1

Our efficiency ratio for the quarter was 64.1% compared to 66.5% for the linked quarter and 65.2% year to date. However, if we were to back out the depreciation expense related to our operating leases, Our efficiency ratio would have been 59.8 percent for the quarter and 61.3% year to date. Our return on average assets was 1.02% for the quarter compared to 1.12% For our linked quarter, our return on average equity was 11.34% for the quarter compared to 11.83% for the linked quarter. Year to date, our return on assets was 1.16% and our return on equity was 12.5%. During the quarter, non interest income increased $698,000 or 8.6 percent in comparison to the linked quarter and decreased $1,200,000 or 12.3 percent in comparison to the prior year 4th quarter.

Speaker 1

The primary drivers of the increase from our linked quarter were $454,000 in swap fees as borrowers took advantage of the inverted interest rate curve to lock in what they viewed as favorable rates. We also earned an annual $225,000 bonus from our debit brand partner that contributed to the increase. The primary driver for the decrease from the prior year's quarter was an $874,000 decline in lease revenue and residuals as the higher interest rate environment put pressure on our leasing division's production. In addition, We recorded $345,000 less in gains on the sale of loans and leases originated by our leasing division as our buyers paid lower premiums as their balance sheets became less liquid. Year to date, non interest income increased 8 $100,000 or 27.8 percent in comparison to the prior year.

Speaker 1

The primary drivers of this increase were $5,300,000 in lease revenue and residual fees. This was a result of the full year's income from our leasing division, which we acquired in October 2022. Division, which we acquired in October 2022. These fees are primarily made up of operating lease payments and gains on sale of equipment at the end of the lease term. Also included in other non interest income was a $1,500,000 bonus We received for entering into a new debit brand agreement during the Q1 and $12,200,000 in interim rent payments generated by our leasing division that we did not have in the prior year.

Speaker 1

Wealth Management revenues for the quarter We're consistent with the linked quarter and declined slightly year to date compared to the prior year. While we anticipate that market uncertainty will continue for some time, We continue to view the expansion of these services across our footprint as an opportunity to diversify and grow non interest income. Non interest expense for the quarter of $25,300,000 represents a 5.4% decline from our linked quarter as we experienced improvement in nearly every line item of non interest expense. Year to date non interest expense increased $17,100,000 or 18.9 percent over the prior year. Much of this increase is attributable to growth from our acquisitions of Tamina Bank and BFG in the 3rd and 4th quarters of 2020 2, our compensation expense increased $7,200,000 or 14.2 percent Over the prior year, the bulk of the increase is due to $5,200,000 in additional salaries, commissions and benefits attributable to new employees from last acquisition.

Speaker 1

The balance of this increase is attributable to normal benefit and merit increases. While we do have an additional 7 branch offices as a result of our CommuniBank acquisition, the $6,700,000 increase in occupancy and equipment was primarily due to an increase in depreciation expense on equipment related to our new leasing division. Equipment under an operating lease is owned and depreciated by Savista until the end of the lease term. Depreciation related to operating leases was $6,500,000 year to date. The increase in other non interest expense was primarily due to a $515,000 provision for credit losses On unfunded loan commitments, that was a new expense category resulting from our adoption of CECL in January.

Speaker 1

Like many in the industry, we experienced an increase of $400,000 in bad check losses year to date. Turning to the balance sheet. Year to date, our total loans excluding the participation adjustment grew by 315 $100,000 which includes $42,100,000 of loans and leases originated by the leasing division. This represents an annualized growth rate of 12.4%. During our last call, I noted that a number of banks in our markets had curtailed their lending efforts, which created some opportunities for us to expand existing relationships and enter into some new relationships.

Speaker 1

As we move into 2024, we have noticed that the larger regional banks in our markets are becoming more active. So we do not expect the rate of loan growth we experienced during the quarter to continue into 2024. While we experienced increases in nearly every loan category, our most significant increases were in C and I, non owner occupied CRE loans, Residential real estate loans and lease financing receivables. The loans we are originating are virtually all adjustable rate loans and leases and all have maturities of 5 years or less. Loans assured by office buildings make up about 5.2% of our total portfolio.

Speaker 1

These loans are not secured by high rise office buildings, rather they are predominantly secured by single or 2 story offices located outside of central business districts. Our CRE portfolio remains well diversified with no concentration risk by property type or by geography. Along with year to date loan production, our undrawn Construction lines were $237,300,000 at December 31. We anticipate loan growth to moderate to a low single digit rate in 2024. On the funding side, total deposits increased $365,000,000 or 13.9 percent since the beginning of the year.

Speaker 1

However, if we were back out Non core tax program and brokered deposits, our deposit balances declined 5.8% year to date. Our core deposit balances remain consistent from the linked quarter. Our deposit base is what we would term as fairly granular With our average deposit account, excluding CDs, approximately $25,000 Non interest bearing demand accounts continue to be a focus. Excluding tax related and broker deposits, Non interest bearing deposits made up 33.2 percent of the remaining total deposits at December 31. With respect to FDIC insured deposits, excluding Savista's own deposit accounts and those related to the tax program, 14.1% or $421,400,000 of our deposits were in excess of the FDIC limits at December 31.

Speaker 1

Our cash and unpledged securities at December 31 were $462,500,000 which more than covered these uninsured deposits. Other than the $336,500,000 of public funds with various municipalities across our footprint, We had no concentrations in deposits at December 31. At December 31, our loan to deposit ratio, Excluding deposits related to our tax refund processing program was 97.6%. Our commercial lenders, our treasury management officers and private bankers are having success requesting additional deposits and compensating balances from our commercial customers. We will continue to be disciplined in how we price our deposits and we will take advantage of brokered and wholesale funding sources when we think it makes sense.

Speaker 1

We believe our low cost of profit franchise is one of Savista's most valuable characteristics, Contributing significantly to our strong net interest margin and overall profitability. At December 31, all of our $620,400,000 in securities were classified as available for sale. At year end, the unrealized losses associated with our security portfolio improved from $93,100,000 at September 30 to $54,500,000 At year end, our tangible common equity ratio had improved to 6.36 percent, which was an 87 basis point improvement over September 30. And our Tier 1 leverage ratio at year end was 8.75%, which is well above what is deemed well capitalized for regulatory purposes. So Vista's strong earnings continue to create capital and our overall goal remains to maintain adequate capital to support organic growth and potential acquisitions.

Speaker 1

Although we did not repurchase any shares during the quarter, we continue to believe our stock is a value. During the year, we repurchased 84,230 shares of common stock for $1,500,000 For an average price of $17.77 per share, all of our 2023 repurchase activities occurred during the Q3. We have an authorization of approximately $12,000,000 remaining on our current repurchase program. While our capital levels remain strong, we recognize our tangible common equity ratio is screen low. We have stated publicly that we would like to rebuild our TCE ratio back to between 7% and 7.5%.

Speaker 1

To that end, we will continue to focus on earnings and we'll balance any repurchases and the payment of dividends with building capital to support growth. Despite the uncertainties associated with the economy and the expense pressures our borrowers face, our credit quality remains strong Our credit metrics remain stable. We did make a $2,300,000 provision during the quarter, which was primarily attributable to our strong loan and lease growth. Our ratio of allowance for loan losses to loans improved from 1.08% at 31, 2022 to 1.30 percent at December 31, reflecting growth and our adoption of CECL during the Q1. In addition, our allowance for loan losses to non performing loans declined slightly 261.45 percent at December 31, 2022 to 245.66% at December 31, 2023.

Speaker 1

As I conclude my remarks, I would like to thank our entire Savista team. 2023 was another challenging year and once again they showed me what it means to be a part of a team that cares about our customers, our communities, our shareholders and most importantly each other. I could not be more proud. Although our margin continues to be under pressure, we continue to generate strong earnings and our margin remains relatively strong. 2023 was a year of exceptional organic loan growth.

Speaker 1

And while we do not anticipate growth at a similar pace in 2024, Our markets do remain vibrant and we expect to grow at a mid single digit pace. We will continue to examine and stress our portfolios, But so far, we have seen no material deterioration in our credit quality. In 2024, our focus will to be on creating shareholder value for 2023 in a tough interest rate environment. Our earnings per share increased 5%, which we believe is indicative of our disciplined approach to managing the company. Thank you for your attention this afternoon.

Speaker 1

And now, we'll be happy to address any questions you may have.

Operator

Your first question comes from Nick

Speaker 2

Just to start on the net interest margin, can you help us quantify the near term outlook? And then longer term, Now how your balance sheet reacts once the Fed starts cutting rates?

Speaker 3

So, Nick, this is Rich. And the way our model projects it, Rates down and rates up really, it doesn't move much. I mean, I guess we kind of hit that trough. The model says that for each 25 basis point cut in rate. We would anticipate about a 2 basis point contraction in our margin.

Speaker 3

And again, I guess our model has got loaded the second half of the year and I think we use the blue chip forecast is to kind of run that model And that's 3 rate cuts. I think May, I'm looking at Todd, May

Speaker 4

Q2, Q3 and Q4, there

Speaker 3

you go, Q2, Q3, that's a better answer, Nick. I will say just to kind of give a little color, We did have a bucket of brokered CDs, dollars 150,000,000 ish of CDs that matured or came due in December, the cost of those CDs was about $530,000,000 We replaced those in December with a like amount $150,000,000 CDs at a cost of $508,000,000 So we picked up about 22 basis points there. We've got another similar tranche The whole group of about $150,000,000 of CDs that will roll off in March. The cost on those was 5.40. And if we were going to replace those today with 1 year brokered CDs, it'd be at 5%.

Speaker 3

So we pick up another 40 basis points there. So if nothing changes and we didn't grow much, those are 2 real positive I think kind of impacts on our margin.

Speaker 1

And then new loans are going on the books at higher rates. Existing loans are repricing at higher rates. And we have started to inch down some deposits, some of our CD specials, some of our just general money market rates and stuff, And we saw no real impact from that. We started that sometime mid November and We've done a couple of moves there, just small things to see if there'd be any impact. And so far, I've not seen any real impact.

Speaker 1

We'll continue to watch that, but I do think there's going to be some opportunity there.

Speaker 2

Okay, great. And then in that same vein, You saw the opportunity on the loan side. And to your point, you utilized the brokered CDs. At the end of the year, this was pretty high historically relative to where you are, close 17% of deposits. So your assumption is that you replace that with core funding over the course of the year Drive that down or are you at peak in terms of brokered funding?

Speaker 2

Yes.

Speaker 3

I mean, I doubt that we're going 100% of it, but certainly we've got a number of initiatives in place to kind of transition away from brokered or non core funding and back to something more in line with what we've done historically.

Speaker 5

Got it. And then on the leasing business Go ahead, Nick. Go ahead.

Speaker 2

Just a different question. Just on the leasing business, specifically on the gain on sale line. I appreciate your commentary on lower production due to the rate environment and lower with your partners given liquidity constraints. How should we think about the pipeline there? And usually the Q4, obviously, you get a step up For tax reasons with your borrowers there, just overall your thoughts there?

Speaker 1

Well, we do think we're going to be able to pick improve on what we did in 2023 from our leasing groups. I think rates dictate a lot of what's going on. 4th quarter is usually their strongest quarter. So Q1 will probably be a little bit softer than what it was in that Q4. But we spent a lot of time, They were an unregulated company and we're a regulated company and we spent a lot of time with consultants in there, Looking at their IT systems, looking at just print compliance training, things like that, that I think took away from sales.

Speaker 1

So we do expect that to make up some additional income in 2024 that we didn't have in 2023.

Speaker 5

Nick, this is Chuck. I would say from a budgeting perspective, we budgeted for them to be a little bit more production than last year, but nothing that's nothing that would really move the needle.

Speaker 2

Very helpful. Then just my last question on expenses. Your thoughts on the run rate going forward, it looks like a little bit of volatility in this quarter relative to what you're expecting.

Speaker 3

Well, Nick, we've always kind of trued up our accruals at the end of the year and probably, I don't know if sloppy is a technical term, Maybe we got a little sloppy. It had a little more to true up at the end of the year than what we have traditionally done. I think we guided you guys to $27,500,000 for the quarter and we ended up coming in at $25,300,000 When we normalize everything, we're guided for the Q1 is about $28,400,000 of expense. And you'll recall that our merit increases all go into effect in the 2nd quarter. So there'll be a little bit of a jump there maybe 28.7% is what we're looking at and that would be a decent run rate then for the rest of the year.

Speaker 2

Thanks so much for the color. I appreciate you taking my questions.

Speaker 3

You bet.

Operator

Your next question comes from Terry McEvoy with Stephens. Please go ahead.

Speaker 6

Hi, guys. Good afternoon.

Speaker 3

Hey, Terry.

Speaker 6

Maybe just to start off the New York Community Bank that's been in the headlines this past week. Are you getting questions, from any of your clients on your commercial real estate loans or your liquidity position?

Speaker 1

We really have not gotten hardly any anything that we've gotten no calls that I know of, unlike when the bank failed in March, there was quite a few calls and stuff, But we've heard nothing so far with the New York Community Bank struggles and stuff.

Speaker 6

That's good to hear. Next question, as you commented in the press, you've had Really good growth in multifamily, non owner occupied loans. Could you just maybe talk about what your developers seeing in the markets in terms of rates, vacancy trends and are you being a bit more cautious at all on your multifamily underwriting given those conditions?

Speaker 7

Yes, Terry, this is Chuck.

Speaker 5

I would say yes, we're being a little bit more cautious for sure and looking at it. So we've got some the markets that we're really strong in Cleveland, Columbus and Cincinnati and predominantly Columbus, They can't build units fast enough. And I would tell you that probably 80% of the deals that we're doing build up on As far as on a multifamily, the rental rates are coming in higher than what they were projected to be in the appraisal. So those markets are really, really strong still in multifamily. And I

Speaker 1

would say, Terry, too, I mean, as far as are we being a little bit more cautious, I think the interest rate environment is driving some of that because a lot of these deals you have to have more equity into the deals to make the numbers work. And so that's putting, I think, your smaller developers and even some of the midsized developers are going to the sidelines. So the guys that are going to deals are your pretty well heeled borrowers because they have that extra cash to put into the deals. We're a lot of times seeing 35% or so going into those multifamily deals to make them work.

Speaker 6

And then thanks for that. And maybe one last one. When you put together the 2024 budget, any type of range You were thinking about for that lease revenue and residual income line. I know you talked about it earlier, but it is a growing part of your fee income stream and Just maybe get some insight in terms of how you're thinking for the full year?

Speaker 3

You know what, Terry, if I gave you a number, I'd be kind of fudging. Let me Look, I'll get you a good number and I'll get it out to all you guys, okay? I don't have that in front of me.

Speaker 6

Okay. Appreciate that, Rich. Thanks for taking my questions.

Speaker 1

Thanks, Jerry.

Operator

Your next question comes from Michael Perito with KBW. Please go ahead.

Speaker 8

Hi, this is Mike Sousiate, Andrew filling in. Thanks for taking my questions. Just a quick one here for me first. I was just wondering, was there any accretion impact on the margin this quarter? And if so, what would the core NIM have looked like for 4Q?

Speaker 3

So it was 6 basis points, which has been pretty consistent, I think, for the last number of quarters in terms of accretion impact. So take 6 basis points off of it and that's what it would have been. And I guess going forward, I don't see a change over the next 4 quarters anyway.

Speaker 8

Great. Thanks for that. And then I appreciate all the color on the capital front. Obviously, the focus here is to kind of push back up towards that 7, 7.5 TCE. Broadly with the repurchase kind of expiring here in May, I know you said you're going to be opportunistic, but maybe just a high level comment on M and A.

Speaker 8

I know that's not the focus right now, but Conversations kind of started to return to the market here. And just any broad thoughts there would be great.

Speaker 1

I still think it's fairly quiet on the M and A I mean everybody is talking, but there's a few banks that are struggling that I think you would like to partner up, but they're just tough deals to do right now. The marks are so heavy And just to get done and where banks are we're trading at and other banks are trading at, I think those deals are hard to do. So for right now, we are laser focused just trying to grow our capital, increase that TCE ratio Because I don't see a lot happening over this first half of the year. So we're going to be laser focused in growing, getting that TCE ratio back in line.

Speaker 8

Great. Appreciate all the color. Thanks for taking my questions.

Operator

Your next question comes from Emmanuel Nieves with D. A. Davidson. Please go ahead.

Speaker 7

Hey, good afternoon guys.

Speaker 3

Good afternoon, Will.

Speaker 7

Do you have kind of an overall guide for fees? I guess, It's in part driven by VFG trends, but just kind of deal like an overall expectation for fees that include them, include that business?

Speaker 3

Looking. I guess what we're seeing towards the line item that was lease revenue and residuals, so that'd be the operating piece of it. That looks like it would have a run rate of about $2,000,000 a quarter. I think that's maybe a little bit better than what we did this year.

Speaker 7

Okay. And then the other pieces grow with industry trends?

Speaker 5

They do. And they're kind

Speaker 3

of buried in interest income. I mean they're not you know what I mean? And then I guess other as far as the selling of At the end of the lease and whatnot, that's kind of buried in You're just talking leasing. Right. You're just talking leasing.

Speaker 3

You're just talking leasing. Right.

Speaker 1

Is this question overall fees or just leasing?

Speaker 7

My question was overall fees, but I appreciate the lease itself. Okay.

Speaker 3

I'm sorry. I'm sorry. I had the lease on my mind.

Speaker 5

And we'll go ahead. So I was going to

Speaker 1

say we probably will do fairly close to what we did this year in fees. We have overdraft fees that are that we had some overdraft reform and we lose a little bit of overdraft income there. But we do think we're At least right now with the yield curve so inverted that we can pick up some swap fees. If rates We moved down even slightly. I think Chuck feels we've got some portfolio residential loans that we did put on the books that We probably can flip over into salable loans, which also frees up a little liquidity there.

Speaker 1

So I think our guide is probably Fairly close to that $37,000,000 or so of non interest income that we did in 2023.

Speaker 3

Mr. Schafer usually shoots a little high. I'd say that number is probably closer to $34,000,000 And I don't know if it grows linearly. That's right, because we got tax money in there. So I think if you had $8,000,000 from the Q1 and $8,200,000 $8,700,000 $9,000 I think that's the way we've budgeted for the year.

Speaker 3

How about that? 34, that's right.

Speaker 7

Okay. I appreciate that. I like the comments about the NIM with rate cuts, but just kind of for the next What even more near term, you put on a lot of loans this quarter. Where do you kind of see the NIM going next quarter?

Speaker 5

I mean it might float

Speaker 3

a little higher. Again just based on what we did on funding side and again we put a lot of higher yielding loans on in December November. But I don't know.

Speaker 1

Yes. I think it stays about where it's at. We think it's pretty well trough, but We hope to get some improvement there. We'll see because we are hopefully getting better pricing on the brokerage stuff. We're going to Hopefully, bring down some of the funding costs, which we've talked about, we've started to do and then with things repricing.

Speaker 1

We're optimistic that we'll be able to improve there.

Speaker 5

I think we're going to see some pressure on the lending side though too From that perspective, Q4, we felt like we had a lot of our competition seemed like they kind of take one to the sidelines in Q4 kind of waiting. So believe it or not, December, our commercial production new and renewed was over 8%, which I think is First time we've eclipsed 8% piece. We're seeing rates in the marketplace right now really fall back here mid January with almost all the competition back in and a lot of the competition now going back to pricing off the treasury as compared to kind of pricing off where deposit costs are at.

Speaker 7

I appreciate that commentary. Overall, I guess that also probably drives some of the loan growth But is there enough is there amount of success on the deposit side that could give you some upside to low single digit loan growth?

Speaker 1

Well, I think so. We're really focused on the funding side. I think that's going to be a big challenge not only for us in 2024, but all community banks. So we're all faced with the same thing. We've got a number of initiatives underway as Rich alluded to Some of those just we have scrubbed our existing loan portfolios, whether that's consumer or commercial.

Speaker 1

There are customers that don't have a deposit relationship or we know that have substantial other deposits. So we'll be putting a campaign around that to go after those customers. So that'll be one of our focuses to try to build Core deposits, we are on the process of identifying another bucket of cash Heavy clients that these cash rich businesses like law firms or Title companies, business and professional associations and then trying to create a niche product to go after to try to get some of those deposits. We'll probably throw some more dollars at our Treasury management area, we've had great success hiring commercial lenders who are pretty well connected with books of business and that's we've done that on the treasury side. I think we may want to do that some more and see if they can move over deposits.

Speaker 1

We're going to expand our digital deposit product offerings. So there's a number of initiatives I think to do that we're going to be embarking on throughout the year that will give us some opportunity to build upon our strong core deposit franchise.

Speaker 7

That's great. I appreciate it. I'll step back into the queue.

Operator

Your next question comes from Daniel Cardenas with Janney Montgomery Scott. A

Speaker 4

couple of questions here. The tax rate has kind of been jumping around throughout the year. What's kind of a good run rate to use for you guys on a go forward basis?

Speaker 3

So, 15% for the quarter. I mean, 15% or 16% is probably, I think we're kind of settling in at both.

Speaker 4

Okay. Thank you. And then, I noticed a little bit of a creep up in your non performers this quarter. Can you give us a little color as to What was driving that in terms of was it one loan,

Speaker 3

was it multiple loans, the

Speaker 4

section of the portfolio that it was coming from? And then also what do watch list trends look like for you guys?

Speaker 9

Hi, this is Mike Mollford, the Chief Credit Officer. We had one loan relationship that moved to non accrual. It about $3,500,000 That was a big reason for the jump, the nonperformings. And I missed the last part of your question.

Speaker 3

Yes, just trying to get

Speaker 4

a sense of well, for that one loan, was that a commercial loan?

Speaker 9

Yes.

Speaker 3

I'm assuming?

Speaker 9

Yes.

Speaker 6

Okay. Non CRE

Speaker 1

level. Non CRE level. Non CRE level. Yes. Non CRE level.

Speaker 1

Yes.

Speaker 3

Okay.

Speaker 1

I think he asked about watch list and I think that's pretty stable.

Speaker 9

Yes, the watch list credits Pretty stable, very few great changes for the quarter and systemic issues that we're seeing Right now.

Speaker 5

And we're also, Dan, we're not really seeing much movement as far as as some of our loans are repricing, We're not seeing a lot of pressure on those loans from the jump in interest rates causing cash flow issues. You always have a handful when you're looking at them, but All in all, it's been very stable. Knock on wood, it remains that way.

Speaker 4

Okay. And then are there any particular Segments in your portfolio that maybe you're tapping the brakes on as you come into 'twenty four, Or is that not necessarily the case?

Speaker 5

I mean, obviously like everybody else, we're very office and that's what office exposure gets too high. We're watching the hotel piece of it, but we've pretty much stayed pretty much flat from a percentage basis points in that as well. I think Somebody earlier mentioned multifamily. We're still bullish on multifamily, but we are taking a closer look and especially looking at communities to see if they can sustain the growth of the multifamily taking place. So other than that, I think we're probably being a touch more cautious, but we're not really shutting down any areas.

Speaker 3

Okay, perfect.

Speaker 4

And then the last question I have is It looks like your home loan advances came down fairly substantially in the quarter. Was that did you guys do that the broker deposits that you raised or how was that achieved?

Speaker 3

Yes, that was exactly what it was. And it was just It was cheaper to go out and get the broken deposits than it was to borrow it from the Federal Home Loan Bank. In generally we try to keep the federal home loan bank stuff freed up because that's something that's readily available. So when we see Inefficiencies or opportunities in the other wholesale market or the brokered market, we're always kind of looking and if it makes sense we'll take down A chunk of financing there is because again it's economically to our advantage and also just from a risk standpoint We try to keep the Federal Home Loan Bank line as free as we can just in case.

Speaker 4

And how much capacity do you guys have left on that line?

Speaker 3

I don't have that in front of me, but I'll have to get back to you. It's a lot.

Speaker 4

All right, great. I'll step back. Thanks, guys.

Operator

There are no further questions at this time. Please proceed.

Speaker 1

Okay. Well, thank you. In closing, I just want to thank everyone for joining us and those that participated in today's call. The interest rate environment continues to be a challenge. However, our earnings do remain strong and our margin remains solid.

Speaker 1

I am very proud of the fact Then for the year, we had record net income. We had year over year margin expansion and we had positive earnings per share growth. And I'm sure there's a lot of community banks that say that they had all three of those banks. So I remain optimistic that our disciplined approach to pricing in our solid core deposit franchise, we'll continue to produce superior results. And I just look forward to talking to everyone in the next few months to share our Q1 results.

Speaker 1

So thank you.

Operator

Ladies and gentlemen, this concludes your conference call for today.

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Earnings Conference Call
Civista Bancshares Q4 2023
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