Civista Bancshares, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial statements are unaudited; monetary figures below are in millions of dollars unless stated otherwise. Civista is an Ohio-based bank holding company operating primarily in banking.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Net interest income | $12.892 | $12.235 | +5.4% |
| Noninterest income | $5.138 | $5.260 | -2.3% |
| Net interest income plus noninterest income | $18.030 | $17.495 | +3.1% |
| Noninterest expense | $11.502 | $10.907 | +5.5% |
| Income before taxes | $6.528 | $6.588 | -0.9% |
| Net income | $4.635 | $4.725 | -1.9% |
| Net income available to common shareholders | $4.316 | $4.334 | -0.4% |
| Basic / diluted EPS | $0.47 / $0.40 | $0.55 / $0.43 | Lower |
Net interest margin improved to 3.67% from 3.53%; the interest-rate spread rose to 3.51% from 3.38%. Average earning assets increased 1.9%. The effective tax rate was 29.0%, versus 28.3%. No loan-loss provision was recorded in either quarter. Q1 2017 net charge-offs were $5, compared with net recoveries of $72 in Q1 2016.
Financial position, funding and liquidity
- At March 31, 2017, total assets were $1,569.0, up 13.9% from year-end 2016; total liabilities were $1,394.3, up 12.5%.
- Total loans were $1,075.2, up 1.9% from year-end; net loans were $1,061.9. Deposits totaled $1,311.5, up $190.4. Net loan-to-deposit ratio fell to 81.0% from 93.0%.
- Cash and due from financial institutions increased to $182.4 from $36.7, largely from temporary tax-refund-processing balances. Management expected these balances and related deposits to trend back toward year-end levels over the following two quarters.
- Available-for-sale securities were $223.2, up $27.4 from year-end; the company reported $1.0 of gross unrealized losses. It said it did not intend or expect to need to sell the affected securities before recovery.
- FHLB advances were $15.0, down from $48.5 at year-end; repurchase-agreement liabilities were $23.7, down from $28.9. Subordinated debentures were $29.4.
- Operating cash flow was $9.0, versus $17.6 in Q1 2016; investing activities used $46.9, versus $11.3; financing activities provided $183.6, versus $172.5. Cash increased $145.8 during the quarter.
- Shareholders’ equity was $174.7, or 11.1% of assets, compared with $137.6, or 10.0%, at year-end. Regulatory capital ratios exceeded stated minimums: total risk-based 17.1%, Tier 1 risk-based 15.9%, CET1 11.7%, and leverage 11.1%.
- Management reported $343.7 of remaining FHLB borrowing capacity, $42.5 of federal-funds borrowing lines, and a $7.5 holding-company credit line.
Material changes and notable items
- A February 24 common-stock offering generated net proceeds of $32.8 from 1.61 million shares. The offering, earnings and preferred-to-common conversions increased equity and the common share count; common shares outstanding were 10.14 million at quarter-end.
- Tax-refund processing generated $2.2 of fees, unchanged year over year, and drove temporary quarter-end cash and deposit increases. The activity is seasonal.
- Noninterest expense rose by $0.6, principally as salaries, wages and benefits increased $0.8 (12.6%), with higher staffing, pay, incentives and insurance costs. FTEs increased by 13.2 to 341.3.
- Loan concentrations included $254.6 in loans to lessors of nonresidential buildings and dwellings (23.6% of loans) and $144.1 to lessors of residential buildings and dwellings (13.4%). Management cited dependence on local real-estate markets and economic conditions.
- Nonaccrual loans were $7.4, up from $6.9 at year-end. Total past-due loans were $6.8, versus $6.1; loans past due 90 days or more and still accruing were $0.007. The allowance was $13.3, or 1.24% of loans, versus 1.26% at year-end.
- Off-balance-sheet commitments totaled $270.7, primarily variable-rate lines of credit and construction loans. The company stated that material losses were not anticipated, but credit risk can extend to contractual commitment amounts.
Outlook, risks and contingencies
The filing provides no specific earnings or financial guidance. Management describes interest-rate risk and, to a lesser extent, liquidity risk as principal market exposures. Its interest-rate sensitivity model showed net portfolio value increasing 11% under a +100 basis-point scenario and 18% under +200 basis points, but decreasing 9% under a -100 basis-point scenario; these are modeled scenarios, not forecasts. Key risks identified include changes in local or national economic conditions, real-estate weakness, interest-rate movements, credit losses and allowance estimates, regulatory or tax changes, data-processing failures, and litigation. The company reported no new material legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls at quarter-end.
Important facts for investors to verify
- Whether temporary tax-refund-related cash and deposits unwind as management expected, and how that affects liquidity, funding costs and reported balance-sheet growth.
- Whether loan growth, nonaccrual balances and the allowance remain consistent with credit performance, particularly in the sizable real-estate-related loan concentrations.
- Whether expense growth—especially compensation and staffing—can be managed while sustaining net interest margin and earnings.
- The effect of the common-stock offering and preferred-share conversions on share count, dilution and per-share results.
- The assumptions and actual results underlying interest-rate sensitivity, securities valuations and future credit-loss estimates.