Executive Summary

EPS rose to $0.45, up 10% QoQ, but down 30% YoY, as margin compression (3.09% NIM, -13 bps QoQ) and higher funding costs offset solid loan growth and strong leasing fees; noninterest income grew 24% QoQ on leasing residuals while credit costs included a fraud-related charge-off .
Funding mix remains the pressure point: total funding cost increased to 2.61% (from 2.54% in Q1), while cost of deposits fell 4 bps to 2.10%; management is executing multiple deposit initiatives (Ohio Homebuyers Plus, wealth cash migration) that they expect to lower funding costs and stabilize NIM in 2H24 .
Capital steady but below target: TCE ratio 6.18% (vs 6.28% in Q1, 6.36% in Q4’23); the company reiterates its 7–7.5% TCE target, balancing dividends ($0.16 declared for Q3) and potential buybacks against capital build .
Credit quality remains stable; ACL/Loans 1.32%, NPA/Assets 0.43%; Q2 provision mainly supported loan growth and a discrete $500K fraud event; office CRE remains ~5.1% of loans with no systemic deterioration observed .
Near-term stock catalysts: evidence of core deposit traction (OH Homebuyers/wealth migration), measured loan growth to reduce wholesale funding dependency, NIM stabilization, and potential fee normalization in leasing; M&A remains opportunistic but secondary to rebuilding TCE .

What Went Well and What Went Wrong

What Went Well

Noninterest income up 24% QoQ and 15% YoY on stronger leasing residual and renewal income; management noted leasing is seasonally stronger in 2H and lumpy, but underwriting is conservative on residuals .
Cost discipline broadly intact; Q2 expense run-rate aligns with reiterated ~$28.3M quarterly outlook for the rest of 2024, with no significant new software/hardware investments expected .
Deposit cost management: cost of deposits declined 4 bps QoQ to 2.10% amid a competitive market, reflecting “disciplined” pricing; multiple deposit initiatives are underway to replace higher-cost wholesale funding over time .

What Went Wrong

NIM compressed 13 bps QoQ to 3.09% as earning asset yields dipped 7 bps to 5.58% and funding costs rose 6 bps to 2.61% due to higher reliance on wholesale funding and retention of more portfolio mortgages .
Provision increased vs. prior year, reflecting growth and a discrete fraud charge-off; nonperforming loans rose to $17.1M, though reserve coverage remains strong at 233% of NPLs .
Margin trajectory still pressured by mix: brokered/time deposits and FHLB advances elevated (short-term FHLB advances $500.5M), and noninterest-bearing demand balances declined YoY with runoff of tax program deposits .

Financial Results

Metric	Q4 2023	Q1 2024	Q2 2024
Diluted EPS ($)	$0.62	$0.41	$0.45
Net Income ($USD Thousands)	$9,655	$6,360	$7,064
Net Interest Income ($USD Thousands)	$30,052	$28,372	$27,751
Noninterest Income ($USD Thousands)	$8,823	$8,504	$10,543
Net Interest Margin (FTE, %)	3.44%	3.22%	3.09%
Efficiency Ratio (%)	64.1%	73.8%	72.6%
Provision for Credit Losses – Loans ($USD Thousands)	$2,325	$1,992	$1,800
Provision for Unfunded Commitments ($USD Thousands)	$(80)	$(50)	$(145)
Total Funding Cost (%)	2.19%	2.54%	2.61%

Noninterest Income Breakdown (YoY):

Category ($USD Thousands)	Q2 2023	Q2 2024	Change	%
Service Charges	1,831	1,488	(343)	-18.7%
Net Gain on Sale of Loans	615	888	273	44.4%
Wealth Mgmt Fees	1,180	1,337	157	13.3%
Lease Revenue & Residual	2,201	3,529	1,328	60.3%
Other	1,256	1,444	188	15.0%
Total Noninterest Income	9,149	10,543	1,394	15.2%

Key Balance Sheet & Credit KPIs:

KPI	Q4 2023	Q1 2024	Q2 2024
Loans & Leases (End, $USD Thousands)	2,861,728	2,898,139	3,014,996
Total Deposits (End, $USD Thousands)	2,985,028	2,980,695	2,977,616
FHLB Advances – Short Term ($USD Thousands)	338,000	368,500	500,500
Tier 1 Leverage Ratio (%)	8.75%	8.62%	8.59%
Tangible Common Equity Ratio (%)	6.36%	6.28%	6.18%
ACL / Loans (%)	1.30%	1.34%	1.32%
NPA / Assets (%)	0.39%	0.41%	0.43%
Allowance to NPLs (%)	245.66%	247.06%	233.47%
Nonperforming Loans ($USD Thousands)	15,126	15,725	17,098

Notes: “Total funding cost” shown from management commentary/press materials. NIM=tax-equivalent.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Operating Expenses (Run-rate)	FY 2024 (rest of year)	~$28.4–$28.7M/quarter (guided on Q4’23/Q1’24 calls)	~$28.3M/quarter (Q2 call)	Lowered
Loan Growth	2H 2024	Mid-single digits FY24 (Q1 call)	Low single digits for back half of 2024 (Q2 call)	Lowered (near-term)
Net Interest Margin	2H 2024	Stabilization expected in 2H (Q1 call)	Stabilization expected in 2H (Q2 call)	Maintained
Deposit Costs	2H 2024	—	Peaked; room to decrease in Q3 (Q2 call)	New positive color
TCE Ratio Target	Medium-term	7–7.5% (Q1 call)	7–7.5% (Q2 call)	Maintained
M&A	Ongoing	Focus on capital; environment tough (Q1 call)	Opportunistic; some improved math as public comps lifted (Q2 call)	Slightly more constructive
Dividend	Q3 2024	$0.16 (Q1 payout)	$0.16 declared for Q3 (7/26/24)	Maintained

Earnings Call Themes & Trends

Topic	Q4 2023 (Q-2)	Q1 2024 (Q-1)	Q2 2024 (Current)	Trend
Funding mix & deposit initiatives	Brokered used tactically; focus on core rebuild	Ohio Homebuyers Plus & wealth cash migration plans introduced	Initiatives progressing; cost of deposits down; uninsured deposits covered by liquidity	Improving funding strategy execution
Margin trajectory	NIM 3.44%; troughing commentary	Further compression, stabilization expected 2H	NIM 3.09%; stabilization expected; asset yield mix weighed by portfolio mortgages	Stabilization targeted in 2H
Loan growth & pricing	Expect low single-digit 2024; loans adjustable-rate	Mid-single-digit guide; strong pipelines; higher pricing	Annualized 16% in Q2; guide to slow to low single digits in 2H	Near-term moderation to ease funding strain
Credit quality	Stable; office ~5.2% portfolio	Isolated issues drove higher CECL; still stable	Stable; fraud-related loss drove part of provision; office ~5.1% with no systemic issues	Stable overall
Leasing business	Expected modest improvement in 2024	Residual/gain-on-sale cadence focus; created syndication desk	Strong residuals; acknowledged lumpiness and 2H bias	Positive but variable
Capital/TCE	TCE 6.36%; rebuild to 7–7.5% target	TCE 6.28%; target reiterated	TCE 6.18%; target reiterated; buybacks on hold	Gradual build

Management Commentary

“This is a year of transition... our overnight borrowings and broker deposits are higher than we would like... initiatives will help reduce our dependency on higher interest funding sources.”
“Our overall cost of funding increased by 6 basis points to 2.61%, while our yield on earning assets decreased by 7 basis points to 5.58%... margin contracting by 13 basis points to 3.09%.”
“Noninterest income increased $2 million or 24% from the first quarter... primarily [from] fees related to leasing operations.”
“We would like to rebuild our TCE ratio back to between 7% and 7.5%... we will balance any repurchases and the payment of dividends with building capital.”
“We think [deposit costs] have peaked... room to decrease... in the third [quarter].”

Q&A Highlights

Leasing residuals: management emphasized revenue lumpiness tied to customer buyouts; core leasing fees ex-residuals seen as a better run-rate indicator; residuals typically stronger in 2H .
Expense run-rate: reiterated ~$28.3M per quarter for the remainder of 2024, with no large incremental investments planned .
M&A posture: still opportunistic; math remains difficult but improved public bank valuations could spur conversations; capital build remains priority .
Margin outlook & asset mix: NIM expected to stabilize; Q2 asset yields dipped as more portfolio residential mortgages were retained; potential refi upside if long rates fall; aim to slow loan growth until funding improves .
Rate cuts impact: modest/near-neutral initially due to mix of variable-rate loans, borrowings, and brokered CDs repricing; larger benefit if curve steepens and mortgage refi activity rises .
Deposit initiatives: Ohio Homebuyers Plus and wealth cash migration tracking; ~$44M added by Q2-end toward ~$175M target across initiatives .

Estimates Context

We attempted to fetch S&P Global consensus estimates for Q2 2024 (and surrounding periods), but the request was blocked by a daily limit at the data source; as a result, we cannot provide Wall Street consensus comparisons for revenue/EPS this quarter. Values retrieved from S&P Global were unavailable due to API rate limits.

Implication: Absent published consensus comparisons, the narrative hinges on sequential EPS improvement, NIM compression moderation, fee rebound (leasing), and funding mix normalization rather than beat/miss framing this quarter.

Key Takeaways for Investors

Core theme is funding normalization: watch traction in Ohio Homebuyers Plus and wealth cash migration in Q3 to confirm deposit cost downtrend and NIM stabilization; success here is likely to be stock-supportive .
Operating leverage hinges on NIM basing and expense control: expense run-rate guidance implies limited cost-driven downside; with NIM stabilizing, incremental earnings should improve QoQ in 2H24 absent credit surprises .
Leasing fees boosted Q2 but remain inherently volatile; avoid extrapolating residual gains—monitor fee cadence and the new syndication desk’s contribution to steadier gain-on-sale economics .
Credit remains benign with robust reserve coverage; Q2 provision reflected growth and a discrete fraud charge; no systemic deterioration, including in office CRE (~5.1% of loans) .
Capital build remains a medium-term objective; dividend is intact; buybacks on hold while TCE trends toward 7–7.5% .
Tactical: near-term catalysts include evidence of core deposit inflows in Q3, margin stabilization prints, and any uptick in mortgage refi gains if the long end rallies; medium term, a steeper curve and reduced wholesale reliance could drive multiple expansion .

Additional Detail and KPIs

Loan Mix Change (Dec 31, 2023 → Jun 30, 2024):

Loans +$153.3M (+5.4%), led by Residential Real Estate (+$69.4M, +10.5%), Non-owner Occupied CRE (+$51.4M, +4.4%), and Construction (+$23.0M, +8.8%) .
Office exposure ~5.1% of loans; predominantly suburban low-rise, monitoring shows stability .

Deposits and Wholesale:

Deposits modestly down YTD (-$7.4M), with mix shifts toward savings/MM and time certificates; short-term FHLB advances rose to $500.5M; brokered balances and CDs remain elevated as transitional funding .

Tax Rate:

Effective tax rate 12.6% in Q2; YTD 12.1% .

Dividends:

Declared $0.16 for Q3 2024 (~$2.5M; ~3.4% annualized yield on 7/25 close) .

Management tone: Cautiously constructive—calls 2024 a transition year, expects NIM stabilization in 2H, active in core funding initiatives, disciplined on pricing/growth, and focused on capital accretion toward target TCE .

CIVISTA BANCSHARES, INC. (CIVB)·Q2 2024 Earnings Summary