Q4 2023 Civista Bancshares Inc Earnings Call
Participants
Dennis Shaffer; President, Chief Executive Officer, Vice Chairman of the Board; Civista Bancshares Inc
Nick Cucharale; Analyst; Hovde Group
Terry McEvoy; Analyst; Stephens Inc.
Michael Perito; Analyst; Keefe, Bruyette & Woods North America
Emmanuel Navarre; Analyst; D.A. Davidson & Company
Daniel Cardenas; Analyst; Janney Montgomery Scott LLC
Presentation
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 Civista Bancshares, Inc. That involves risks and uncertainties with 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 Company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures 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 the call will be recorded and made available on Civista Bancshares' website at w. w. w. CIVB.com.
At the conclusion of Mr. Shea for his remarks, he and the Civista management team will take any questions you may have.
Now I will turn the call over to Mr. Shafer.
Dennis Shaffer
Good afternoon. This is Dennis Shaffer, President and CEO of Civista Bancshares, Inc., and I would like to thank you for joining us for our fourth quarter 2023 earnings call. I am joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank, and Chuck Parker, 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 fourth quarter of 9.7 million, or $0.62 per diluted share, which represents a 20.5% decrease from our fourth quarter in 2022. Our full year net income represented record earnings of $43 million or $2.73 per diluted share, which represents a 9% increase over our 2022 for OraTest. Our fourth quarter and year-to-date performance was set up by continued strong growth in our loan and lease portfolio. Excluding the participation adjustment, which grew in a 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 and new equipment finance loans and leases at 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 market. While we do not anticipate continuing to grow at this pace, we do anticipate continued growth at a single digit pace in 2024.
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 is still very intense. This led to a five basis point increase in our cost of deposits, excluding brokered 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 27 basis points from our linked quarter to 2.19% as we funded much of our growth with wholesale funding in the face of funding pressures, our margin compressed at the same pace 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% 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, noninterest income was up 8.6% for the linked quarter quarter, primarily on higher swap fee income, and it was up 27.8% year to date, primarily on lease revenue. While we continue to complete our integration of our leasing division. We view them as a significant contributor to our noninterest income as we move into 2020 or and beyond. Our tangible book value grew to $15.10 compared to $12.60 at September 30th, and $12.61 at December 31st, 2022. And our TCE ratio increased to 6.36% from 5.49% at September 30th and 5.66% at December 31st, 2022. This growth came from continued solid core earnings and marked a marked reduction in the 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 was consistent with our prior quarter dividend and represents a 23% dividend payout ratio based on our 2023 earnings. 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% 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. And 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%. Our return on equity was 12.5% during the quarter, noninterest income increased $698,000 or 8.6% in comparison to the linked quarter and decreased 1.2 million or 12.3% in comparison to the prior year fourth quarter 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 earn an annual CAD225,000 bonus from our Cabot brand partners 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 in residuals as the higher interest rate environment put pressure on our leasing divisions for production. In addition, in addition, we recorded $345,000 less in gains on 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, noninterest income increased $8.1 million or 27.8% in comparison to the prior year. Primary drivers of this increase were 5.3 million in lease revenue and residual fees. This was the result of the full year's income from our leasing 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 noninterest income was a $1.5 million bonus we received for entering into a new debit brand agreement during the first quarter and 1.2 million in interest payments generated by our leasing division that we did not have in the prior year. Wealth management revenues for the quarter were consistent with the linked quarter and declined slightly year to date compared to 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 noninterest income.
Noninterest expense for the quarter of 25.3 million represents a 5.4% decline from our linked quarter as we experienced improvement in nearly every line item of noninterest expense. Year to date, non-interest expense increased $17.1 million or 18.9% over the prior year, much of this increase was attributable to growth from our acquisitions of Premier Bank and BMG. in the third and fourth quarters of 2022, our compensation expense increased 7.2 million or 14.2% over the prior year. The bulk of the increase was due to $5.2 million in additional salaries, commissions and benefits attributable to new employees from last year's acquisitions. The balance of this increase is attributable to normal investment benefit and merit increases. While we do have an additional seven branch offices as a result of our Community Bank acquisition. The $6.7 million increase in occupancy and equipment expense 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 Civista until the end of the lease term. Depreciation related to operating leases was 6.5 million year to date. The increase in other noninterest expense was primarily due to a CAD515,000 provision for credit losses on unfunded loan commitments. That was a new expense category resulting from our adoption of CECL in January. 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 315.1 million, which includes 42.1 million 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 entered into some new relationships 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&I and 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 five years or less. Loans secured by office buildings make up about 5.2% of our total portfolio. These loans are not secured by high-rise office buildings rather than they are predominantly secured by single or two-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 $237.3 million at December 31st, we anticipate loan growth to moderate to a low single digit rate in 2024.
On the funding side, total deposits increased $365 million or 13.9% since the beginning of the year, as we were back out non-core pass 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 service fairly granular with our average deposit account. Excluding CDs, approximately $25,000. Noninterest-bearing demand accounts continue to be a focus excluding cash related and brokered deposits. Noninterest-bearing deposits made up 33.2% of the remaining total deposits at December 31st with respect to IC. insured deposits, excluding so this is own deposit accounts from those related to the tax program, 14.1% or 421.4 billion of our deposits were in excess of the FDIC. limits at December 31st. Our cash and unpledged securities at December 31st were $462.5 million, which more than covered these uninsured deposits other than the 336.5 billion of public funds with various municipalities across our footprint. We had no concentrations in deposits at December 31st and December 31st. 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, we believe our low-cost deposit franchise is one of services, most valuable characteristics contributing significantly to our strong net interest margin and overall profitability. At December 31st, all of our 620.4 million in securities were classified as available for sale at year end. The unrealized losses associated with our security portfolio improved from 93.1 million at September 30th to 54.5 million. At year end, our tangible common equity ratio had improved to 6.36%, which was even with an 87 basis point improvement over September 30th. And our Tier one leverage ratio at year end was 8.75%, which is well above what is deemed well capitalized for regulatory purposes. So this is strong earnings continue to accrete capital. And our overall goal remains to maintain adequate capital to support organic growth and potential acquisitions. 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 $1.5 million for an average price of $17.77 per share. All of our 2023 repurchase activity occurred during the third quarter. We have an authorization of approximately $12 million remaining on our current repurchase program. While our capital levels remain strong, we recognize our tangible common equity ratio screen low. We have stated publicly that we would like to rebuild our TCE ratio back to between 7% and 7.5%. To that end, we will continue to focus on earnings and will 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 of our borrowers face, our credit quality remains strong and our credit metrics remain stable. We did make a $2.3 million 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 December 31st, 2022 to 1.32% at December 31st, reflecting growth in our adoption of CECL during the first quarter. In addition, our allowance for loan losses to new to nonperforming loans declined slightly from 261.45% at December 31st, 2022 to 245.66% at December 31st, 2023.
As I conclude my remarks, I would like to thank our entire Civista 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. And while we do not anticipate growth at a similar pace in 2020 for our markets to 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 credit and our credit quality in 2024. Our focus will continue to be on creating shareholder value for 2023 in a tough interest rate environment. Our earnings per share increase 5%, which we believe is indicative of our disciplined approach to managing the Company.
So thank you for your attention this afternoon. And now we will be happy to address any questions you may have.
Question and Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)
Nick Cucharale, Hovde.
Nick Cucharale
Good afternoon.
If I may.
Could you really just to start on the net interest margin? Could you help us quantify the near term outlook? And then longer term, how your balance sheet reacts once the Fed starts cutting rates.
Dennis Shaffer
So that is rich. And that's the way our model projected rates down and rates separately, but 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 two basis point contraction in our margin. And again, I guess our model has got it loaded the second half of the year, and we use the Blue Chip forecast that has to kind of run that model. And that's three rate cuts I think may I'm looking at Todd May from Q2, Q3 and Q4 a year ago, Q2 to J&J that had a better answer next half. I will say just to kind of give a little color. We did have a bucket of brokered CDs, 150 million ish of CDs that matured or came due in December. The cost of those CDs was about five 30. We replaced those in December with a like amount, 100, 50 million CDs at a cost of five oh eight. So we picked up about 22 basis points there. We've got another similar financial group of about 150 million of CDs that will roll off in March. The cost on those was five, 40 and if we were going to replace those today with one year brokered CDs and be at 5%, so we pick up another 40 basis points there. So if nothing changes and we didn't grow much.
Those are two real positive.
Any kind of impacts on our margin well and the new loans are going on the books at the higher rates, existing loans are repricing at higher rates and we have started advantage down of 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. And we started that. So sometime mid-November, and we've done a couple of moves there, just small things to see it, but we had the impact and so far have not seen any real impact. So we'll continue to watch it, but I do think there's going to be some opportunity there.
Nick Cucharale
Okay, great. And then in that same vein, you saw the opportunity on the loan side. To your point, you utilize the brokered CDs that at the end of the year, this was pretty high historically relative to where you are so close to 17% of deposits. So your assumption is that you replace that with core funding over the course of the year and drive that down or are you at a peak in terms of brokered funding?
Dennis Shaffer
Yes.
I mean new idea that we're going to replace 100% of it, but certainly we've got a number of initiatives in place to kind of transition away from broker demand or funding and back to something more in line with what we've done historically.
Nick Cucharale
Got it.
And then a nice business good fit.
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 premiums with your partners, given liquidity constraints, how should we think about the pipeline there? And usually the fourth quarter, obviously, you're going to step up for for tax reasons with your with your borrowers there, just overall your thoughts there?
Dennis Shaffer
Well, we do think we're going to be able to pay, you know, improve on what we did in 23 from our leasing group. Having to you know, rates dictate a lot of what's going on.
Q4 is usually their strongest quarter.
So first quarter will probably be a little bit softer than what it was in that fourth quarter. But you know, we spent a lot of time, they were an unregulated company and we're a regulated company and we spend a lot of time you know, with consultants and they're looking at their IT systems, looking at just print compliance, training, things like that that I think took away from sales. So we do expect them to make up some additional income that in 24 that we didn't have in 2013.
And then because of Chuck, I would say from a from a budgeting perspective, we budgeted for them to be able to hit a little bit a little bit more production than than last year. But nothing that's nothing that would really move the needle.
Nick Cucharale
Very helpful. And 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 well.
Dennis Shaffer
And I think we've always kind of trued up our accruals at the end of the year and probably of slot is a technical term, but maybe we got a little slightly ahead handle award a true up at the end of the year than what we have traditionally done. I think we guided you guys to 27.5 million for the quarter mean that covenant at 25.3 when we normalize everything we guided to for the first quarter is about $28.4 billion of expense and you will recall in our merit increases all go into effect in the second quarter. So there will be a little bit of a jump. There may be tweaks 28.7 is what we're looking at, and that would be a decent run rate and for the rest of the year.
Thanks so much for the color. I appreciate you taking my questions you have.
Operator
Terry McEvoy, Stephens.
Terry McEvoy
Hi, guys.
Good afternoon, Terry, and maybe just to start off the New York Community Bank down that's been in the headlines this past week. Are you getting questions concerns from any of your clients on your commercial real estate loans or your liquidity position?
Dennis Shaffer
We really have not gotten hardly any we've gotten no calls. And I know unlike we've you know, when the banks failed in March, you know, there was quite a quite a few calls and stuff well, we've heard nothing so far with the or would the New York Community Bank struggles and stuff.
Terry McEvoy
Is that good to hear on Next question?
As you commented in the press release, you've had really good growth in multi-family Nano. None are nonowner-occupied loans. Could you just maybe talk about what your developers are seeing a turn in the markets in terms of your rates, vacancy trends? And are you being a bit more cautious at all on your multifamily on underwriting given those conditions?
Dennis Shaffer
Yes, Charlie, I would say, yes, we're being a lot more cautious for sure of the deal and looking at it. But we've got some we know that 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, the work 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 multifamily.
And then I would say, Terry, to 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 in the deals to make the numbers work. And so that's pulling the I think your smaller developers and even some of the mid-sized developers or go on the sidelines. So the guys that are going the deals are you pretty well heeled borrowers because they have that extra cash to put into deals where a lot of time, seven seeing 35% or so drawn into those multifamily deals to make a more.
Terry McEvoy
And then thanks for Then maybe one last one. When you put together the 2024 budget, any type of range you're 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?
Dennis Shaffer
What Terry, if I gave you a number, I'd be kind of fleshing?
Let me let me look, I'll give you a good number and I'll get it out to all you guys.
Okay.
Terry McEvoy
And I know handed from so.
Okay, appreciate that, Rich, thanks for taking my questions.
Dennis Shaffer
Thanks, Gary.
Operator
Michael Perito, KBW.
Michael Perito
And this is my associate Andrew filling and thanks for taking my questions, Sandra and later on.
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.
Dennis Shaffer
So six basis points, which has been pretty consistent, I think, for the last number of quarters in terms of accretion impact. So it takes six basis points off of it, and that's what it would. And I guess going forward, I don't see it changing over the next four quarters anyway.
Michael Perito
Great.
Thanks for that.
Arm.
And then I appreciate all the color on the on the capital front. Obviously, the focus here is kind of push back up towards that seven seven FTCE. 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&A. I know that's not the focus right now, but have conversations kind of started to return to the market here and and just any broad thoughts there would be great.
Dennis Shaffer
I still think it's fairly quiet on the M&A front. I mean, everybody's talking, but you know, 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 in and just to get done E&O and where banks are where we're trading at and other banks trading at, I think those deals are hard to do so for right now, we are laser focused on finding ways to grow our capital increase. That TCE ratio, though, because I don't know, I don't see a lot happening over this first half of the year. So we'll be laser focused in in growing, get that TCE ratio back in line.
Michael Perito
Great.
I appreciate all the color, and thanks for taking my questions.
Operator
Emmanuel Navarre, DA Davidson.
Emmanuel Navarre
Hey, good afternoon, guys to know the year kind of overall guide for fees, I guess that is in part driven by VFG. trends, but just kind of like an overall expectation for fees that include them include that business welcome.
Dennis Shaffer
I guess what we're seeing was a line item that was lease revenue and residuals. Would that be the operating piece of it that looks like it would have a run rate of about $2 billion a quarter. I think that's maybe a little bit better what we did this year.
Emmanuel Navarre
Okay.
And then the other pieces grow with industry trends behave and they're kind of varied and interest income on the Internet domain.
And I guess other ahead, as far as the sole selling of equipment at the end of the lease one that that's kind of buried in it just started leasing, right, just timing, it's just started leasing, right?
Dennis Shaffer
Because question overall fees are displacing my microphone, the overall fees, but I appreciate the the lease and sell that house, our upsize them and leasing them on line. And we'll quit, I would 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, you know, at least right now with the yield curve. So inverted that we can pick up some swap fees if rates move down even slightly. I think Chuck feels we've got so 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. So, you know, I think our guide is probably fairly close to that 37 or so million of noninterest income that we did in 23.
Mr. Jaeger, you'll issue a little high. I had I'd say that number is probably closer to 34 million and almost grows a little early. It's right, because we have tax was recognized by shows like an extra man. If you add 8 million from the first quarter of 19.28 0.7 and nine, I think that's the way we will budgeted for the year, and that's at 34.3.
Emmanuel Navarre
Okay. I appreciate that.
And I like the comments about the N with rate cuts, but just kind of for the next, what even more near term you put on a lot of loans this quarter and what where do you kind of see them going QUARTER?
Dennis Shaffer
I mean, it might float a little higher, I guess just based on what we did on the funding side. And again, we put a lot of higher-yielding loans on in December and November, but I don't know I think I think it stays about where it's at.
So we think it's pretty well from alone. But you know, we we we hope to get some improvement there. We'll see because we are now that we get better pricing on the brokered stuff, we're going to likely unclear. It will bring down some of the funding cost, which we've talked about.
We've started to do and with things repricing.
So we're optimistic that we'll be able to improve there.
I think we're going to see some pressure on the lending side, though, to from that perspective, the fourth quarter we felt like we had with a lot of our competition seemed like they kind of take went to the sidelines in the fourth quarter kind of waiting. So believe it or not December, our commercial production new and renewed was over 8%, which I think is the first time we've clipped 8% peak. We're seeing rates in the marketplace right now, really fall back here in mid January with almost all the competition back in it, a lot of the competition.
Now going back to pricing off the treasury as compared to pipe kind of pricing up core deposit costs.
Emmanuel Navarre
Right.
That's I appreciate that commentary. Overall, I guess I'd also probably drive some of the loan growth commentary, but I'm zero enough is a fair amount of success on the deposit side that that could give you some upside to low single digit loan growth?
Dennis Shaffer
Well, yes, 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 and 24 for 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 you know, we we we have scrubbed our existing loan portfolios, whether that's consumer or commercial.
There are customers that don't have a deposit relationship where we are. We know that have substantial other deposits.
So we'll be putting a campaign around that to go after those customers. So that will be one of our focuses to trying to build core deposits where yes, we are on the process of identifying another bucket of cash, heavy clients. And so you know that these cash, Rich businesses like law firms or title companies now business and professional associations, 100, you know, and then kind of creating niche product to go after trying to get some of those deposits and we will 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 investment place, and 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, we're going to expand our digital deposit product offerings. So there's a number of initiatives I think to do, though, that we're going to be embarking on throughout the year that will give us some opportunity to build upon.
It shows our strong core deposit franchise.
Emmanuel Navarre
Okay. That's great. I appreciate appreciate it.
I'll step back into the queue.
Operator
Daniel Cardenas, Janney Montgomery Scott.
Daniel Cardenas
We'll have to I guess, learn a couple of couple of questions here. On the tax rate, it's kind of been jumping around throughout the year. What's what's what's kind of a good run rate to use for you guys on a go-forward basis?
Similarly, 15 for the quarter, I mean, I kind of 15 or 16 is probably I think we're kind of settling in at.
Yes.
And then I've noticed a little bit of a creep up in your nonperformers this quarter. Can you give us a little color as to what was driving that in terms of was it one loan? Was it multiple loans, though the section of the portfolio that it was coming from and then also what your watch list trends look like for you guys?
Dennis Shaffer
It is like more President and Chief Credit Officer of we had one loan relationship that moved to nonaccrual about 3.5 million.
That was a big reason for the jump in the nonperformings.
And this last part of your question, I'm just trying to get a sense of well for that one loan.
The NetIQ, was that a commercial loan, I guess, assuming?
Yes.
Okay.
Non-cre, what they are.
Yes, not every high-low.
Yes.
Okay.
We have a video of our watch list, and I think that's pretty steady all year yet. And watch list and less expensive, pretty stable on very few great changes for the quarter end. I see no systemic issues that we're seeing right now.
And we're also doing whenever we've seen much movement as far 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, as you've seen, we always have a handful and you're looking at a bunch all in all. It's been very stable and knock on wood, and it remains that way.
Daniel Cardenas
And then are there any particular sectors or segments in your portfolio that maybe you're tapping the brakes on as you come into 24? Or is that not necessarily the case?
Dennis Shaffer
I mean, obviously, like everybody else, we're very mindful of office. Industrial and office exposure gets too high. We're watching the on the hotel com piece of it, but we've pretty much stayed pretty much flat from a percentage basis points.
And then as well on?
Yes, I think somebody earlier mentioned multifamily, we're still bullish on multifamily, but we are taking a closer look in any especially looking at communities. You can see how it can sustain the growth of the multifamily taking place. Other than I think we're you know, we're probably being a touch, more cautious, but we're not the we're not really shutting down any areas.
Daniel Cardenas
Okay.
Perfect.
Perfect. And then the last question I have is just the it looks like your home loan advances came down fairly substantially in the quarter. Was that did you guys do that in the brokered deposits that you raised or how was that achieved and that was exactly what it was.
Dennis Shaffer
And it was just it will be cheaper to go out with brokered deposits and it was borrowing from the Federal Home Loan Bank. And generally, we tried to keep the federal home loan banks that's freed up because that's something that's readily available. So we'll see inefficiencies or opportunities in either wholesale market or the broker market, we're always kind of looking. And if it makes sense, we'll take down a chunk of financing. There's because, again, it's it's economically to our advantage. And also just from a risk standpoint, we'll be trying to keep the Federal Home Loan Bank line as free as we can to just in case and how much how much capacity.
Daniel Cardenas
Do you guys have left them on that line?
Dennis Shaffer
Was that partly that?
I'll have to get back to you. It's a lot better than.
Daniel Cardenas
Great.
I'll step back.
Thanks.
Guys.
Operator
Yes, there are no further questions at this time.
Dennis Shaffer
Proceed.
Okay. Well, thank you. In closing, I just want to thank everyone for joining us and those that participated in the call. The interest rate environment continues to be a challenge. However, our earnings to remain strong in our margin remained solid. I am very proud of the fact that for the years we had record net income, we had year-over-year margin expansion and we had positive earnings per share growth.
And you know, and I'm sure there's a lot of community banks can say that they are all three of those things. So I remain optimistic that our disciplined approach to pricing and our solid core deposit franchise will continue to produce superior results and can I just look forward to talking to everyone in the next few months to share our first quarter results. So thank you.
Operator
Yes, ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please Connectra line.
Okay. Yes.
