CIVISTA BANCSHARES, INC. Q3 FY2024 earnings call

• Transition year for Civista, replacing revenue from exited tax processor and overdraft changes. - Disciplined loan pricing slowed loan growth; loan-to-deposit ratio improved from 102% to 95%. - Successful deposit initiatives: 1,000 accounts opened via Ohio Homebuyer Plus program, $100 million from the State of Ohio, $87 million from wealth management clients. - Net interest income increased, margin expanded, and non-interest income had changes. Non-interest expense decreased 8.1%, with an $800,000 reserve related to lease accounting conversion. Capital levels remained strong, and credit quality was stable.

Net income for the third quarter was $8.4 million, or $0.53 per diluted share, a $1.3 million (18%) increase from the linked quarter but a $2 million decline from Q3 2023. Net interest income was $29.2 million, an increase of $1.5 million (5.3%) from the linked quarter. The loan and lease portfolio grew at an annualized rate of 4%, with the loan-to-deposit ratio at 95% as of September 30. Total deposits grew by $246 million during the quarter, including $100 million from the State of Ohio, $87 million from wealth management clients, and $49 million of organic growth. Net interest margin expanded to 3.16%, up seven basis points from the linked quarter.

• Margin is expected to continue expanding in the coming quarters, with the belief it troughed in the second quarter. - Plan to replace brokered CDs at lower costs. - Focus on building the Tier 1 leverage ratio to between 7% and 7.5% TCE. - Loan growth expected to remain in the low single-digit range for the next several quarters.

• Dependence on wholesale funding putting pressure on net interest margin. - Potential impact of interest rate changes on portfolio values and funding costs. - Issues with lease accounting conversion and the $800,000 reserve related to it. - Credit risks associated with commercial real estate concentration and economic uncertainties.

Q: Justin Crowley asked about margin, borrowings, and deposit gathering.

A: Ian Whinnem and Dennis Shaffer discussed lowering deposit costs, plans to reduce overnight borrowings, and continued efforts to gather deposits.

Q: Brendan Nosal inquired about the Ohio Homebuyers program and expense trajectory.

A: Dennis Shaffer and Chuck Parcher provided details on the program, including $100 million from the state and 35% new customers, and mentioned expenses would be flat into next year.

Q: Terry McEvoy asked about wholesale funding, loan-to-deposit ratio, and CRE concentration.

A: Dennis Shaffer and Chuck Parcher talked about targets for wholesale funding (15%-17% range), loan-to-deposit ratio goals, and plans to reduce CRE concentration.

Q: Tim Switzer questioned NIM, deposit initiatives, and loan growth.

A: Ian Whinnem and Dennis Shaffer discussed NIM response to Fed cuts, deposit initiatives like focusing on low/no balance customers, and loan growth outlook.

Q: Manuel Navas asked about NIM forecast, $800k reserve, and fees.

A: Ian Whinnem and Rich Dutton discussed NIM expectations, reserve details related to lease accounting conversion, and fee outlook.

Q: Daniel Cardenas inquired about criticized loans and deposit remnants.

A: Mike Mulford and Dennis Shaffer talked about criticized loans being stable and deposit remnants from the tax program being addressed.