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Civista Bancshares(CIVB) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $6.4 million or $0.41 per diluted share, a decline of $6.5 million from Q1 2023 and a $3.3 million decline from the linked quarter [6] - Non-interest income decreased by approximately $3.8 million compared to the previous year, primarily due to changes in overdraft processing and the loss of a one-time bonus from a debit brand agreement [7][19] - The efficiency ratio for the quarter was 73.8%, compared to 64.3% for the linked quarter, but adjusted for depreciation expense, it would have been 70% [18] Business Line Data and Key Metrics Changes - Non-interest expense for the quarter was $27.7 million, representing a $2.3 million or 9% increase from the linked quarter, driven by higher compensation-related expenses [21] - The loan and lease portfolios grew at an annualized rate of 5% for the quarter, with significant increases in non-owner-occupied commercial real estate loans and residential real estate loans [16][23] - Non-interest income declined by $319,000 or 3.6% compared to the linked quarter, primarily due to declines in service charges and swap fee income [19] Market Data and Key Metrics Changes - Total deposits were mostly flat, declining just $4.3 million or negative 0.1% since the beginning of the year, but core deposits declined by $29 million or 1% year-to-date [25] - Non-interest-bearing deposits made up 29.5% of total deposits at March 31, with 13.1% of deposits exceeding FDIC limits [26] - The company’s cash and unpledged securities at March 31 were $452 million, covering uninsured deposits [27] Company Strategy and Development Direction - The company is focused on reducing reliance on wholesale and borrowed funding while enhancing core deposit gathering initiatives [11][25] - The Ohio Home Buyers Plus Program is expected to provide up to $100 million in low-cost funds to participating banks, which could help improve funding costs [14] - The company aims to rebuild its tangible common equity (TCE) ratio to between 7% and 7.5% while balancing share repurchases and dividend payments [31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the operating environment, including margin compression and the impact of regulatory scrutiny on tax refund processing [6][12] - The company remains optimistic about loan growth in the mid-single-digit range for the remainder of 2024, despite isolated credit issues [16][35] - Management emphasized the importance of maintaining a strong core deposit franchise and disciplined pricing strategies to support future success [104] Other Important Information - The company announced a quarterly dividend of $0.16 per share, representing a 4.16% yield and a dividend payout ratio of 42.11% [18] - The allowance for credit losses increased due to higher reserves required by the CECL model, primarily related to specific credits in hospitality and cellular tower sectors [17][33] Q&A Session Summary Question: Why was the CFO position filled now? - Management indicated that the timing was appropriate as the long-serving CFO is approaching retirement, allowing for a smooth transition [40][42] Question: What are the expectations for the expense base moving forward? - Management expects expenses to remain around $28.4 million for the rest of the year, with merit increases affecting the second quarter [43][44] Question: What is the outlook for net interest margin? - Management noted that while margin contraction is expected, there are positive signs for stabilization due to repricing of loans and funding initiatives [47][48] Question: How is the loan pipeline and growth outlook? - The loan pipeline is strong, particularly in multifamily and metro markets, with confidence in maintaining mid-single-digit growth [57][59] Question: What is the impact of the tax refund processing program on non-interest-bearing funds? - Management indicated that the remaining funds from the tax program would likely be depleted in the second quarter [61] Question: What is the expected trend for service charge revenue? - Management projected that service charge revenue would be lower than the first quarter run rate due to changes in overdraft processing [62]