Civista Bancshares, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Civista is an Ohio-based financial holding company operating primarily as a community bank across Ohio, Indiana and Kentucky. This unaudited filing covers the three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Amounts below are in millions unless otherwise noted.
Key financial results
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net income; diluted EPS | $8.5; $0.57 | $10.8; $0.68 in Q1 2021 |
| Net interest income | $22.9 | $23.8 in Q1 2021 |
| Fully tax-equivalent net interest margin | 3.38% | 3.30% in Q1 2021 |
| Total assets | $3,184.4 | $3,012.9 at December 31, 2021 |
| Total loans; allowance for loan losses | $2,018.2; $27.0 | $1,997.9; $26.6 at December 31, 2021 |
| Total deposits | $2,615.1 | $2,416.7 at December 31, 2021 |
| Cash and cash equivalents | $412.7 | $264.2 at December 31, 2021 |
| Shareholders’ equity | $327.7 | $355.2 at December 31, 2021 |
| Cash flows: operating / investing / financing | $9.1 / ($50.9) / $190.2 | $15.9 / $0.6 / $281.2 in Q1 2021 |
- Net interest income after loan-loss provision was $22.6 million. Total noninterest income was $7.6 million, down 16.8%; noninterest expense was $20.3 million, up 5.6%. The filing reports a 15.5% effective tax rate, versus 17.3% a year earlier.
- Outstanding borrowings included $75.0 million of long-term FHLB advances, $23.9 million of repurchase agreements and $103.7 million of subordinated debentures. No borrowings were outstanding on the parent company’s $10 million credit line.
- Regulatory capital ratios at March 31 were 18.7% total risk-based, 14.0% Tier 1 risk-based, 12.6% CET1 and 9.5% leverage. Each exceeded the stated “well capitalized” thresholds. The net loan-to-deposit ratio was 76.1%, down from 81.6% at year-end.
Material changes and notable items
- Net income fell $2.3 million year over year. Lower loan interest income and reduced gains on loan sales were important factors; lower interest expense and a smaller loan-loss provision partly offset them. Average loans were down 3.0% year over year, and loan yield declined to 4.25% from 4.47%.
- Noninterest income declined mainly because loan-sale gains fell to $0.9 million from $2.7 million as loan-sale volume decreased. Service charges and wealth-management fees increased. Seasonal tax-refund processing fees were $1.9 million in both periods.
- Deposits rose $198.4 million from year-end, largely due to approximately $199.4 million of temporary, noninterest-bearing balances associated with tax-refund processing. Management expected these balances to return toward prior levels over the following two quarters.
- Loans grew 1.0% from year-end, with commercial real estate—non-owner occupied up $40.4 million. Commercial and agriculture loans declined $28.1 million, primarily reflecting PPP loan forgiveness and payoffs; PPP loans outstanding fell to $15.5 million from $43.2 million.
- Shareholders’ equity declined $27.5 million, mainly reflecting a $29.6 million after-tax reduction in available-for-sale securities’ accumulated value, plus dividends and share repurchases, partly offset by net income. Other comprehensive loss was $29.5 million and comprehensive loss was $21.0 million for the quarter. Management attributed securities’ unrealized losses primarily to higher market interest rates, stated it had the intent and ability to hold the securities, and did not expect forced sales before recovery.
- The company repurchased 183,357 shares under its announced buyback program during the quarter for approximately $4.4 million; total treasury-share purchases were $4.6 million. About $4.9 million remained authorized under the program at March 31, 2022.
- Noninterest expense rose partly because of merger-related system deconversion, legal, audit and consulting costs, as well as digital-banking implementation and software costs. The filing includes a January 2022 merger agreement with Comunibanc Corp.; it does not report completion of the transaction.
Outlook, risks and contingencies
- The filing provides no specific earnings, revenue or margin guidance. Management described credit metrics as stable and economic conditions as improved in some respects, but remained cautious about classified loans, particularly hotel borrowers, and about supply-chain disruption, staffing challenges and inflation.
- Management reported a $27.0 million allowance, or 1.34% of total loans, and net recoveries of $92,000 in Q1. Nonaccrual loans were $3.7 million. Five loans totaling $2.8 million remained on CARES Act payment modifications. Management considered the allowance adequate but noted continuing business and economic risks.
- Interest-rate sensitivity modeling showed net portfolio value increasing 5% under a +100-basis-point scenario and decreasing 8% under a −100-basis-point scenario at March 31. These are modeled outcomes, not forecasts; results depend on assumptions about repricing, prepayments and deposit behavior.
- Management cited risks including COVID-19 effects, inflation and geopolitical developments including the Ukraine conflict, changing interest rates, LIBOR transition, cyber and operational threats, competition, regulation and uncertainty in future tax-refund program revenues. It was still evaluating the financial impact of adopting CECL, which was scheduled to take effect for the company in fiscal 2023.
- Management said pending and threatened legal matters were not expected to have a material adverse effect based on current knowledge and consultation with counsel. No material risk-factor changes were reported, and disclosure controls were concluded effective.
Important facts for investors to verify
- Whether seasonal tax-refund deposits unwind as expected and how that affects liquidity, deposit mix and funding costs.
- Whether margin and earnings respond as expected to changing rates, given declining loan yields, securities exposures and the filing’s interest-rate sensitivity assumptions.
- Whether commercial real estate and hotel credit quality remains stable, and whether allowance levels adequately reflect inflation, staffing and supply-chain pressures.
- The scale and timing of further securities valuation changes, and the effect of any sales or other-than-temporary credit concerns on equity and capital.
- The status, terms and expected costs or benefits of the Comunibanc merger agreement, and remaining capacity and duration of the share-repurchase program.
- The ultimate effect of CECL adoption and the LIBOR transition; the filing does not provide a clear quantified impact.