Civista Bancshares, Inc. — Q1 2023 Form 10-Q
Business context and period. This unaudited quarterly report covers the three months ended March 31, 2023; balance-sheet comparisons are against December 31, 2022, and operating comparisons against Q1 2022. Civista is an Ohio-based financial holding company operating primarily as a bank, with an equipment-leasing business acquired through Vision Financial Group (VFG) in October 2022. Unless noted, amounts below are in millions of dollars.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior year-end |
|---|---|---|
| Net income | $12.9; diluted EPS $0.82 | $8.5; diluted EPS $0.57 |
| Net interest income | $32.6 | $22.9 in Q1 2022 |
| Net interest margin | 4.11% fully tax-equivalent | 3.38% in Q1 2022 |
| Noninterest income / expense | $11.1 / $27.6 | $7.6 / $20.3 in Q1 2022 |
| Total assets | $3,584.6 | $3,537.8 at Dec. 31, 2022 |
| Total loans / net loans | $2,580.1 / $2,545.9 | $2,546.7 / $2,518.2 at Dec. 31, 2022 |
| Total deposits | $2,843.5 | $2,620.0 at Dec. 31, 2022 |
| Shareholders’ equity | $347.7; 9.7% of assets | $334.8; 9.5% at Dec. 31, 2022 |
- Earnings and margins: Net income increased $4.4 million, or about 52%, year over year. Net interest income rose $9.7 million as interest income growth exceeded higher funding costs. Average loan yield increased to 5.79% from 4.25%; total interest expense rose to $8.9 million from $1.7 million.
- Revenue and costs: Noninterest income increased 44.8%, including $2.0 million of VFG lease revenue and residual income and a $1.5 million Mastercard contract-renewal fee within “other” income. Noninterest expense rose 36.4%; compensation, equipment, and other operating costs were among the increases. The filing attributes higher staffing and certain operating costs partly to the Comunibanc and VFG acquisitions.
- Cash flow: Operating activities provided $19.8 million; investing activities used $38.6 million; financing activities provided $28.2 million. Cash and cash equivalents ended at $52.7 million, up $9.4 million during the quarter.
- Funding and liquidity: Deposits increased $223.5 million, while short-term FHLB advances fell $181.7 million to $212.0 million. The net loan-to-deposit ratio declined to 89.5% from 96.1%. The company reported approximately $632.2 million of remaining FHLB borrowing capacity and $30 million of federal-funds lines.
- Debt and capital: At March 31, short-term and long-term FHLB advances were $212.0 million and $3.4 million; subordinated debentures were $103.8 million. Capital ratios were 14.7% total risk-based, 10.8% Tier 1 risk-based, 9.7% CET1, and 8.6% leverage; each exceeded the stated well-capitalized thresholds.
- Credit: The allowance for credit losses was $34.2 million, or 1.33% of loans, versus $28.5 million, or 1.12%, at year-end. Q1 provision was $0.6 million; net charge-offs were $0.2 million, compared with net recoveries of $0.1 million in Q1 2022. Nonaccrual loans were $7.0 million, versus $6.5 million at year-end.
Material changes and unusual items
- CECL adoption on January 1, 2023 increased estimated credit-loss reserves and reduced retained earnings by $6.1 million after tax. The 2022 comparative figures were not restated and are not fully comparable under the new accounting method.
- Deposits included $82.0 million of temporary, noninterest-bearing balances related to the tax-refund processing program. Management expected these balances to return toward year-end levels over the following two quarters. Brokered deposits increased $201.2 million during the quarter.
- Available-for-sale securities had a $58.6 million gross unrealized loss at March 31, down from $67.8 million at year-end. Management attributed the losses mainly to higher market rates and stated it did not intend, and did not believe it would be required, to sell before recovery.
- The company reported $594.4 million of estimated uninsured deposits at March 31, up from $563.1 million at year-end.
Outlook, commentary, and risks
The filing provides no specific numerical earnings or growth guidance. Management notes that first-quarter results are not necessarily indicative of full-year results and that CECL estimates may change as economic conditions and model assumptions evolve. The tax-refund program is seasonal, and its fees are concentrated in the first quarter.
Risks highlighted include interest-rate and liquidity sensitivity; deposit competition and customer confidence following recent bank failures; economic weakness, inflation, and real-estate conditions; credit losses; LIBOR transition; cybersecurity and operational risks; acquisition integration; and uncertainty in tax-refund program revenue. Management said ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether deposit growth is sustained after seasonal tax-refund balances unwind, and the ongoing cost and composition of deposits, including brokered and uninsured balances.
- Whether net interest margin and earnings remain resilient as deposit pricing and wholesale funding costs change.
- Credit trends, including nonaccrual and past-due loans, charge-offs, and the adequacy of CECL reserves—particularly in commercial real estate and the lease-financing portfolio.
- Whether the securities portfolio’s unrealized losses remain manageable without sales or material liquidity pressure.
- VFG and Comunibanc integration, expense trends, and the durability of noninterest income items such as the Mastercard renewal fee and seasonal tax-refund fees.
- Any subsequent changes in liquidity access, capital ratios, regulatory requirements, or exposure to banking-sector confidence concerns.