8-K: Civista Bancshares Reports Third Quarter Earnings of $0.53 Per Share, Deposit Growth Offsets Margin Pressure

Civista Bancshares announced third quarter 2024 earnings of $0.53 per diluted share, down from $0.66 in the same period last year, but up from $0.45 last quarter, while experiencing significant deposit growth and a reduction in wholesale borrowings.

Summary

• Civista Bancshares reported a net income of $8.4 million, or $0.53 per diluted share, for the third quarter of 2024, compared to $10.4 million, or $0.66 per diluted share, for the same period in 2023.
• Year-to-date net income was $21.8 million, or $1.39 per diluted share, down from $33.3 million, or $2.12 per diluted share, for the first nine months of 2023.
• The company replaced nearly $5.7 million in non-interest income due to reductions in overdraft fees, tax refund processing revenue, and a one-time MasterCard renewal fee, but non-interest income is still $0.4 million higher year-to-date.
• The cost of deposits was 218 basis points, and total funding costs were 261 basis points for the quarter.
• The third quarter dividend of $0.16 per share equates to an annualized yield of 3.59% and a dividend payout ratio of 30.2%.
• Net interest income increased by $1.5 million, or 5.3%, compared to the second quarter of 2024, but decreased by $2.3 million compared to the third quarter of 2023.
• Net interest margin decreased to 3.16% for the third quarter of 2024, down from 3.69% in the same period last year.
• Total deposits increased by $246 million in the third quarter, while wholesale borrowings decreased by $213 million.
• Non-interest income for the third quarter was $9.7 million, a decrease of $0.9 million from the second quarter of 2024, but an increase of $1.6 million compared to the third quarter of 2023.
• Non-interest expense for the third quarter was $28.0 million, a decrease of $0.6 million from the second quarter of 2024, but an increase of $1.4 million compared to the third quarter of 2023.
• The efficiency ratio was 70.2% for the third quarter of 2024, compared to 65.6% for the same period in 2023.
• Total assets reached $4.1 billion as of September 30, 2024, an increase of $200 million since December 31, 2023.
• Total deposits were $3.2 billion, an increase of $238.7 million since December 31, 2023.
• Non-performing assets were $18.2 million, an increase of $3.1 million since December 31, 2023.
• The allowance for credit losses to loans ratio was 1.36% at September 30, 2024, up from 1.30% at December 31, 2023.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While earnings are down year-over-year, the company has shown strong deposit growth and reduced wholesale borrowings. The decrease in net interest margin and increase in non-performing assets are concerns, but management's outlook is positive.

Positives

• Civista successfully grew deposits by $246 million and reduced wholesale borrowings by $213 million in the third quarter.
• Non-interest income increased by 19.2% compared to the third quarter of 2023, driven by gains on loan sales, wealth management fees, and lease revenue.
• The company's loan portfolio grew by $182.2 million, or 6.4%, since December 31, 2023.
• The allowance for credit losses to total loans ratio increased to 1.36%, indicating a more conservative approach to loan loss reserves.
• The company's residential real estate portfolio grew by 13.9% and real estate construction grew by 22.1% since December 31, 2023, indicating strong demand in these sectors.
• The company's book value per share increased to $25.07 from $23.70 at the end of 2023.

Negatives

• Net income decreased to $8.4 million, or $0.53 per diluted share, for the third quarter of 2024, compared to $10.4 million, or $0.66 per diluted share, for the same period in 2023.
• Net interest margin decreased to 3.16% for the third quarter of 2024, down from 3.69% in the same period last year.
• The efficiency ratio increased to 70.2% for the third quarter of 2024, compared to 65.6% for the same period in 2023.
• Non-performing assets increased by $3.1 million since December 31, 2023, reaching $18.2 million.
• Net interest income decreased by $2.3 million when comparing the third quarter of 2024 to the same period of 2023.
• Interest-bearing deposit costs have increased 65.6% compared to a year ago.

Risks

• The decrease in net interest margin indicates potential pressure on profitability due to rising funding costs.
• The increase in non-performing assets could lead to higher loan losses in the future.
• The company's efficiency ratio has worsened, indicating higher operating costs relative to income.
• The company is facing increased competition for deposits, which could further increase funding costs.
• The company's reliance on wholesale funding, while reduced, still poses a risk if market conditions change.
• The company's exposure to the housing and construction market could be impacted by economic downturns.

Future Outlook

The company is well-positioned for a strong finish to 2024, with an inflection in net interest margin and a strong third quarter performance. Management is committed to meeting the rising demand for housing and construction financing.

Management Comments

• We're pleased with our third-quarter earnings and performance.
• This quarter, we maintained a disciplined approach to loan and deposit pricing and effectively implemented our downward beta strategy.
• We also launched some of our deposit initiatives, that better aligned our lending and core funding.
• As a result, we increased deposits by $246 million and reduced wholesale borrowings by $213 million, contributing to an Earnings Per Share of $0.53, up from $0.45 last quarter.
• Our credit quality remains strong, as we continue to support lending and deepen our customer relationships.
• We're committed to meeting the rising demand for housing and construction financing, ensuring we address the needs of our customers and communities.
• With a strong third quarter coupled with the inflection in our net interest margin, we're well positioned for a strong finish to 2024.

Industry Context

The results reflect the challenges faced by many regional banks in the current environment of rising interest rates, including increased funding costs and pressure on net interest margins. The company's focus on deposit growth and reducing wholesale borrowings aligns with industry trends to strengthen balance sheets and reduce interest rate risk.

Comparison to Industry Standards

• Civista's net interest margin of 3.16% is below the average for many regional banks, which have been experiencing margin compression due to rising deposit costs.
• The company's efficiency ratio of 70.2% is higher than the industry average, indicating a need to control operating expenses.
• The growth in deposits and reduction in wholesale borrowings is a positive sign, as many banks are struggling to attract and retain deposits in the current environment.
• The increase in non-performing assets is a concern, as it could indicate potential credit quality issues, which is a common challenge in the current economic climate.
• Compared to peers like First Financial Bancorp (FFBC) and Northwest Bancshares (NWBI), Civista's loan growth is moderate, while deposit growth is relatively strong.
• The company's focus on residential real estate and construction lending is similar to many regional banks, but the growth rate is higher than some peers.

Stakeholder Impact

• Shareholders may be concerned about the decrease in earnings and net interest margin, but encouraged by the deposit growth and reduction in wholesale borrowings.
• Employees may be impacted by the company's efforts to control costs and improve efficiency.
• Customers may benefit from the company's focus on meeting the demand for housing and construction financing.
• Creditors may be concerned about the increase in non-performing assets, but reassured by the increase in the allowance for credit losses.

Next Steps

• The company will host a conference call to discuss the financial results on October 29, 2024.
• The company will continue to focus on deposit growth and reducing reliance on wholesale funding.
• The company will continue to meet the rising demand for housing and construction financing.

Key Dates

Keywords

Civista Bancshares, Financial Results, Earnings, Net Income, Net Interest Margin, Deposits, Loans, Non-performing Assets, Efficiency Ratio, Banking