Civista Bancshares, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; interim financial statements are unaudited. Unless noted, dollar amounts below are in millions. The company operated primarily as a community bank in Ohio. Formerly First Citizens Banc Corp, it changed its name to Civista Bancshares, Inc. effective May 1, 2015.
Financial performance and position
- Earnings: Net income was $3.171 million, up 16.9% from $2.712 million in Q1 2014. Net income available to common shareholders was $2.767 million; basic and diluted EPS were $0.36 and $0.29, respectively, compared with $0.27 and $0.22.
- Revenue and margin: Interest income was $11.762 million and noninterest income was $4.402 million, together approximately $16.164 million, versus $15.939 million a year earlier. Net interest income rose 7.4% to $10.915 million; net interest margin increased to 3.65% from 3.51%.
- Expenses and credit costs: Noninterest expense increased 1.7% to $10.603 million. Provision for loan losses declined to $0.400 million from $0.750 million; net charge-offs were $0.353 million versus $0.511 million.
- Assets and loans: Total assets were $1.407 billion, up 16.0% from year-end 2014. Net loans were $969.8 million, up 7.7%, primarily reflecting the TCNB acquisition. The allowance was $14.315 million, or 1.45% of loans, versus 1.56% at year-end. Nonaccrual loans were $13.582 million, broadly unchanged from $13.558 million.
- Funding, debt and liquidity: Deposits were $1.197 billion, up $228.4 million from year-end, including acquired deposits and growth in commercial accounts associated with tax-refund processing. FHLB advances fell $47.7 million to $17.5 million; repurchase-agreement funding was $21.5 million and subordinated debentures were $29.4 million. Cash and due from institutions was $142.3 million. The net loan-to-deposit ratio declined to 81.0% from 93.0%.
- Cash flow: Operating activities provided $13.0 million, investing activities provided $6.6 million, and financing activities provided $92.9 million. Financing inflows chiefly reflected deposits, partly offset by $47.7 million of FHLB repayments. Cash increased $112.5 million during the quarter.
- Capital: Shareholders’ equity was $118.9 million, 8.5% of assets, compared with $115.9 million, or 9.6%, at year-end. March 31 regulatory ratios included 13.4% total risk-based capital, 12.1% Tier 1 risk-based capital, 6.9% CET1 and 8.9% leverage; the filing says all exceeded applicable minimums.
Changes, acquisition and management commentary
- On March 6, Civista completed its all-cash acquisition of TCNB Financial Corp. for $17.226 million, or $23.50 per TCNB share. TCNB contributed $76.8 million of loans and $86.9 million of deposits at acquisition; $5.121 million of goodwill was recorded. Its results were included only from the acquisition date. Management cited market expansion and operating synergies as strategic benefits.
- Reported Q1 earnings comparisons include only a short post-acquisition contribution from TCNB. Unaudited pro forma net income, assuming the acquisition had occurred at the start of each period, was $2.598 million for Q1 2015 and $2.910 million for Q1 2014; the company cautions that these figures are not indicative of actual or future results.
- Net interest income benefited from higher average loan balances and lower funding costs, particularly lower FHLB borrowing costs. Noninterest income declined 4.8%, principally because tax-refund processing fees fell $0.277 million after a vendor fee-structure change. Management noted this income is seasonal and concentrated in Q1.
- Management considered the loan-loss allowance adequate and reduced the provision, citing lower specific reserve requirements and lower net charge-offs, while acknowledging continuing economic uncertainty. Two real-estate-related lending concentrations represented 21.3% and 14.2% of loans; repayment capacity depends in part on local real-estate and economic conditions.
Outlook, risks and other items
- The filing gives no specific earnings or financial guidance. Management describes liquidity as conservative and identifies deposits, loan repayments, securities maturities or sales, and borrowing as potential funding sources. At quarter-end, FHLB remaining borrowing capacity was approximately $85.1 million; correspondent-bank federal funds lines totaled $35 million.
- Principal disclosed risks include local and national economic conditions, real-estate weakness, interest-rate movements, loan credit risk, regulatory or tax changes, FDIC assessments, data-processing disruptions and litigation. Management identifies interest-rate risk as the primary market risk. Its modeled net portfolio value rose 12% under a +100 basis-point scenario and 19% under +200 basis points; results depend on assumptions and are not forecasts.
- There were no new material legal proceedings or material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How TCNB integration, acquired-loan performance and projected cost synergies develop; distinguish reported results from the unaudited pro forma comparison.
- Whether lower tax-refund processing fees and their seasonal concentration affect future noninterest income.
- Credit quality, allowance adequacy and exposure to the disclosed real-estate lending concentrations, including trends in nonaccrual and past-due loans.
- Deposit composition and stability, liquidity needs, and the sensitivity of earnings and capital to interest-rate changes.
- Capital ratios and the effects of acquisition growth, dividends and the preferred-share conversion on common shareholders.