Civista Bancshares, Inc. — 2022 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2022; amounts below are in U.S. dollars unless stated otherwise. Civista is an Ohio-based community banking holding company operating primarily in Ohio and Indiana, with operations in Kentucky and a nationwide equipment-leasing business. The filing reports annual—not standalone fourth-quarter—results.
Two acquisitions expanded the business: Comunibanc Corp. closed July 1, 2022, adding a bank and seven Ohio offices; Vision Financial Group (VFG), an equipment leasing and financing company, was acquired October 3, 2022. Aggregate consideration was approximately $46.1 million for each transaction.
Financial performance and condition
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Total assets | $3,537.8 million | $3,012.9 million | Up 17.4%, largely reflecting acquisitions and loan growth |
| Net loans | $2,518.2 million | $1,971.2 million | Up 27.7% |
| Total deposits | $2,620.0 million | $2,416.7 million | Up 8.4% |
| Net interest income | $110.2 million | $95.4 million | Up 15.5%; net interest margin rose to 3.75% from 3.47% |
| Net income | $39.4 million | $40.5 million | Down 2.8%; diluted EPS was $2.60 versus $2.63 |
| Net interest income plus noninterest income | $139.3 million | $126.9 million | Up approximately 9.6% |
| Noninterest income | $29.1 million | $31.5 million | Down 7.6% |
| Noninterest expense | $90.5 million | $77.7 million | Up 16.5%, including acquisition and integration-related costs |
| Net cash from operating activities | $25.2 million | $40.8 million | Down from prior year |
| Shareholders’ equity | $334.8 million | $355.2 million | Down $20.4 million, chiefly reflecting securities valuation losses, repurchases and dividends |
Interest and fees on loans were 69% of 2022 revenue. Average loan yield increased to 4.69% from 4.42%; total interest expense rose 74.9% to $11.0 million, mainly from higher short-term FHLB funding and subordinated-debt costs. The 2022 provision for loan losses was $1.8 million, versus $0.8 million in 2021; net recoveries were $0.1 million. The year-end allowance was $28.5 million, or 1.12% of loans, versus 1.33% a year earlier. Nonaccrual loans increased to $6.5 million from $3.7 million.
Cash and cash equivalents fell to $43.4 million from $264.2 million. Available-for-sale securities were $615.4 million, with $67.8 million of gross unrealized losses and $0.8 million of gross unrealized gains at year-end; management attributed the losses principally to higher market rates and stated it did not intend, and did not expect to be required, to sell before recovery. Remaining FHLB borrowing capacity was approximately $374.7 million. Deposits included $563.1 million estimated to be uninsured.
Year-end funding included $393.7 million of short-term FHLB advances, $3.6 million of long-term FHLB advances, $103.8 million of subordinated debentures, $15.5 million of other borrowings, and $25.1 million of repurchase agreements. Consolidated regulatory capital ratios were 14.5% total risk-based, 10.8% Tier 1 risk-based, 9.7% CET1 and 8.9% leverage; the bank was reported as well capitalized.
Material changes, outlook and risks
- Loan growth, acquisitions and higher asset yields supported net interest income. Earnings nevertheless declined as expenses rose and noninterest income fell; loan-sale gains were lower, and the prior year included a $1.8 million gain on VISA Class B shares.
- Acquisition-related expenses included approximately $2.9 million for Comunibanc and $0.8 million for VFG. Goodwill increased $48.8 million to $125.7 million; management reported no goodwill impairment.
- Shareholders received $0.56 per share in dividends in 2022, versus $0.52 in 2021. The company repurchased 747,443 shares during 2022 at an average price of $22.59.
- No specific earnings or financial guidance is provided. Management describes a strategy focused on relationship banking, core deposits, mortgage banking, efficiency, growth and maintaining capital and liquidity.
- Management expected first-quarter 2023 CECL adoption to increase the allowance for credit losses by approximately $3.3 million and add a liability of approximately $3.4 million for unfunded commitments; it did not expect a significant regulatory-capital impact and did not plan to use the permitted capital phase-in.
- Key exposures include commercial real estate concentration, interest-rate and deposit-funding sensitivity, economic and borrower-credit deterioration, acquisition integration, and cyber and third-party service-provider risks. Commercial real estate was approximately 54.6% of loans. The company reported no detected significant cybersecurity compromise or material related financial loss to date.
- Legal proceedings in the ordinary course were not expected by management to have a material adverse effect. The financial-statement and internal-control audits received unqualified opinions. However, the acquired Comunibanc and VFG businesses were excluded from management’s and the auditor’s internal-control assessment; together they represented about 7% of 2022 revenue and 10% of year-end assets.
Important facts for investors to verify
- Whether loan and deposit growth, particularly commercial real estate lending and the acquired portfolios, is being matched by stable credit quality and funding.
- How the $67.8 million pretax unrealized securities loss affects tangible equity, liquidity decisions and the ability to avoid selling securities at a loss.
- The sustainability of net interest margin as deposit competition and borrowing costs change, given the large increase in short-term FHLB advances.
- Actual CECL adoption adjustments and subsequent allowance trends compared with management’s estimates.
- VFG lease origination performance and contingent consideration: up to $5.25 million is payable subject to origination thresholds.
- The scope of internal-control testing over the acquired businesses and progress integrating their systems and controls.