Civista Bancshares, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; amounts below are in millions unless stated otherwise. Civista is a regional banking holding company operating in Ohio, Indiana and Kentucky.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net interest income | $24.3 | $23.8 | $47.2 | $47.7 |
| Provision for loan losses | $0.4 | $0.0 | $0.7 | $0.8 |
| Noninterest income | $5.6 | $9.0 | $13.3 | $18.2 |
| Noninterest expense | $20.4 | $22.3 | $40.6 | $41.5 |
| Net income | $7.7 | $9.2 | $16.2 | $19.9 |
| Diluted EPS | $0.53 | $0.59 | $1.10 | $1.27 |
| Tax-equivalent net interest margin | 3.43% | 3.53% | 3.40% | 3.41% |
- Q2 net income fell 16%; six-month net income declined 19%. Lower noninterest income was the main pressure: prior-year periods included a $1.8 million securities gain in Q2 and materially higher loan-sale gains.
- Q2 net interest income rose $0.4 million, while six-month net interest income declined $0.5 million. Management cited lower loan balances/yields over the six-month comparison and growth in securities income; the additional subordinated debt increased interest expense.
- Noninterest expense declined 8.5% in Q2 and 2.0% for six months. Lower other operating expense, including the absence of a prior-year FHLB prepayment fee, offset higher compensation, professional services and software costs. Merger-related legal, audit and system costs contributed to expense increases.
Financial position, liquidity and capital
- Total assets were $3.04 billion at June 30, up 0.9% from year-end 2021. Total loans were $2.06 billion, up 3.3%; commercial real estate non-owner-occupied loans increased $47.4 million. The net loan-to-deposit ratio rose to 82.9% from 81.6%.
- Deposits were $2.46 billion, up 1.6%. Noninterest-bearing deposits increased $53.6 million, including $39.5 million temporarily associated with tax-refund processing; management expected those balances to normalize over the following two quarters. Interest-bearing deposits declined $14.8 million.
- Cash and cash equivalents were $233.3 million. Six-month operating cash flow was $47.6 million; investing activities used $94.6 million and financing activities provided $16.0 million, resulting in a $31.0 million decrease in cash.
- Borrowings included $75.0 million of long-term FHLB advances, $103.7 million of subordinated debentures and $17.5 million of repurchase agreements. The company reported $629.1 million of remaining FHLB borrowing capacity and $50.0 million of federal funds lines; no third-party parent-company credit-line borrowings were outstanding.
- Shareholders’ equity was $302.1 million, or 9.9% of assets, versus $355.2 million, or 11.8%, at year-end. Regulatory capital ratios remained above minimum requirements: total risk-based capital 18.2%, Tier 1 13.6%, CET1 12.3%, and leverage 9.9%.
Credit, securities and material changes
- The allowance for loan losses was $27.4 million, or 1.33% of loans, compared with $26.6 million and the same allowance-to-loans ratio at year-end. Six-month net recoveries were $0.1 million. Nonaccrual loans decreased to $3.4 million from $3.7 million; no loans were reported 90 days past due and still accruing.
- Management described credit metrics as stable and remained cautious about classified loans, particularly hotel borrowers, and commercial and commercial real estate exposures. It cited inflation, supply-chain disruption, hiring costs and recession risk as continuing headwinds.
- Available-for-sale securities had a $530.8 million fair value, down $29.1 million from year-end. Gross unrealized losses were $52.8 million, partly offset by $1.5 million of gains; management attributed losses primarily to higher market rates and stated it did not intend or expect to need to sell before recovery. After-tax accumulated other comprehensive loss reached $46.2 million, a $55.1 million deterioration since year-end, weighing on reported equity.
- The company repurchased 453,627 shares during the first half for $10.6 million, at an average price of $23.41. It paid $4.1 million in dividends.
Outlook, events and risks
- The filing provides no specific earnings or financial guidance. Management remained optimistic about asset-quality improvement and encouraged by loan growth, while noting persistent economic uncertainty and classified commercial credits.
- On July 1, 2022, after quarter-end, Civista completed its acquisition of Comunibanc Corp. and Henry County Bank for approximately $46.1 million in total transaction value: about $25.0 million cash and 985,000 Civista shares. Purchase accounting and fair values remained preliminary.
- Interest-rate risk is material. The company’s modeled net portfolio value at June 30 increased 4% and 5% under +100 and +200 basis-point scenarios, respectively, and decreased 5% and 3% under -100 and -200 basis-point scenarios. These are hypothetical sensitivity estimates, not earnings forecasts.
- Other disclosed risks include economic and inflation conditions, rate changes, credit quality, the LIBOR transition, cybersecurity and operational disruption, regulatory changes, acquisition integration, competition, and uncertainty in tax-refund program revenues. Management said disclosure controls were effective and reported no material change in internal controls. Pending legal matters were not expected to have a material adverse effect based on current knowledge.
Important facts for investors to verify
- Whether temporary tax-refund deposits unwind as expected and how deposit composition, funding costs and the loan-to-deposit ratio evolve.
- Whether commercial real estate and hotel credit quality deteriorates, and whether allowance levels remain adequate as loans grow and economic conditions change.
- How rising rates affect net interest margin and the fair value of the securities portfolio, including the potential effect of unrealized losses on capital.
- Acquisition integration, final purchase-price allocation, and the acquired bank’s contribution to earnings, capital and credit risk.
- Whether recurring noninterest revenue and operating costs can offset lower loan-sale and securities gains and increased merger-related and technology expenses.