Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Civista Bancshares Inc (CIVB, Financial) reported net income of $7.1 million for Q2 2024, a 10% increase over Q1 2024.
- The company announced a quarterly dividend of $0.16 per share, maintaining a 3.37% yield.
- Non-interest income increased by $2 million or 24% from Q1 2024, driven by leasing operations and wealth management fees.
- Loan and lease portfolio grew at an annual rate of 16%, indicating strong loan demand.
- The company is undertaking several deposit initiatives to attract more low-cost deposits and reduce dependency on higher interest funding sources.
Negative Points
- Net income declined by $3 million compared to Q2 2023.
- Higher cost of funding continues to put pressure on the net interest margin, which contracted by 13 basis points to 3.09% for the quarter.
- Allowance for credit losses increased due to strong loan growth and a $500,000 charge-off related to a fraud event.
- Non-interest expense increased by $866,000 or 3.1% over Q1 2024, primarily due to annual merit increases and software expenses.
- The tangible common equity ratio decreased slightly from 6.28% in Q1 2024 to 6.18% in Q2 2024, indicating a need to rebuild capital.
Q & A Highlights
Q: Can you unpack what drove the strong results in the leasing business this quarter? Was there any revenue pulled forward from later in the year?
A: Dennis Shaffer, President and CEO: We expect continued success in the leasing division, though revenue can be inconsistent from quarter to quarter. The second half of the year is usually stronger. Richard Dutton, SVP: The residual income makes it lumpy, and it's hard to predict when someone will buy out the equipment at the end of the lease.
Q: What is the best way to think about expense run rates moving forward? Are there any significant investments planned?
A: Richard Dutton, SVP: We guided to $28 million last time and came pretty close. We expect a similar run rate for the rest of the year, with no significant investments in software or hardware planned.
Q: What is your updated thinking on acquisitions, and what hurdles may still exist?
A: Dennis Shaffer, President and CEO: We continue to look for opportunities but have been focused on building capital. Recent stock price movements may spur more conversations. We remain opportunistic and will pursue acquisitions that are the right fit for Civista.
Q: What are you seeing in the non-owner occupied CRE portfolio in terms of underlying credit trends?
A: Dennis Shaffer, President and CEO: Asset quality remains strong with no significant issues. Richard Dutton, SVP: Delinquencies are down, and credit quality is holding nicely.
Q: What drove the decline in loan and overall earning asset yields this quarter versus the prior quarter? What trend do you expect in the margin for the back half of the year?
A: Richard Dutton, SVP: The decline was due to more portfolio residential loans being added to the balance sheet. We expect the margin to stabilize moving forward.
Q: Do you have a timeline for achieving a TCE ratio of 7-7.5%? Does it preclude you from doing buybacks?
A: Dennis Shaffer, President and CEO: It doesn't preclude buybacks, but we are focused on building capital. We don't have an exact timetable but aim to achieve it sooner rather than later.
Q: What impact do you expect from a Fed rate cut?
A: Richard Dutton, SVP: A 25 basis point rate cut would have a minimal impact. A more significant cut could improve our margin slightly. Dennis Shaffer, President and CEO: A non-inverted yield curve would help us significantly.
Q: Can you clarify your loan growth expectations for the back half of the year?
A: Dennis Shaffer, President and CEO: We project low single-digit loan growth for the back half of the year. We are being more selective and focusing on improving our margin.
Q: Have you hit peak deposit costs, and will they start to come down?
A: Richard Dutton, SVP: We believe we have room to decrease deposit costs in the third quarter.
Q: What were the loan yields on residential real estate added this quarter?
A: Dennis Shaffer, President and CEO: Residential real estate loans were originated at an average rate of 6.64%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
