Civista Bancshares (CIVB) Q2 Earnings call transcript Jul 29, 2024

In a recent earnings call, Civista Bancshares, Inc. reported a net income of $7.1 million for the second quarter of 2024, marking a 10% increase from the first quarter and a decline from the second quarter of 2023. Despite the challenges of transitioning from a significant revenue source, Civista remains optimistic about its future prospects, citing strong loan demand and a disciplined approach to pricing.

Strong Loan Demand and Strategic Pricing

Civista reported a 16% annualized growth rate in its loan and lease portfolio for the second quarter, which was largely organic and a testament to the continued strength of its markets and organization. The company has maintained a disciplined approach to holding loan rates at higher levels to ensure an appropriate return on liquidity and capital.

Despite the pressure on net interest margins due to higher cost of funding, Civista has managed to reduce its cost of deposits by 4 basis points, indicating a successful strategy in attracting lower-cost deposits. This, combined with the strong loan demand, positions Civista well for future growth.

Efficiency and Balance Sheet Management

Civista's efficiency ratio remained elevated due to the compression of net interest income and expenses associated with leasing depreciation and investments in digital banking. However, the company has taken steps to mitigate these challenges, including the implementation of a new program for Ohio Homebuyers Plus, which is expected to attract low-cost funds, and the ability to hold cash deposits for wealth management clients at the bank.

The company also reported a decline in loan and overall earning asset yields, primarily due to the addition of residential construction loans and portfolio loans. This strategic move, aimed at gathering primary deposit business, demonstrates Civista's focus on building a strong core deposit franchise and managing its balance sheet effectively.

Credit Quality and Outlook

Despite some isolated credit issues, Civista's credit quality remains strong, with a ratio of allowance for credit losses to total loans at 1.32%. The company has also seen a decrease in nonperforming loans, which is a positive sign for its credit metrics and overall financial health.

Future Prospects and Challenges

Civista's outlook for the back half of 2024 is cautious, with a focus on slowing loan growth and improving the margin. The company is exploring several initiatives to gather core funding, including the Ohio Homebuyers Plus program and the ability to hold cash deposits for wealth management clients. These efforts, along with a disciplined approach to pricing, are expected to support Civista's growth and profitability in the future.

Conclusion

Civista Bancshares, Inc.'s second-quarter earnings call provided insights into the company's strategic initiatives, financial performance, and outlook for the future. Despite facing challenges in transitioning from a significant revenue source, Civista remains committed to growing its business in a disciplined and sustainable manner. The company's focus on loan demand, pricing discipline, and balance sheet management positions it well for future success.