Civista Bancshares, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Civista Bancshares is a regional bank holding company operating primarily in Ohio, Indiana and Kentucky. Financial statement amounts below are in millions of dollars unless otherwise noted; per-share amounts are in dollars.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $30.4 | $24.4 | $77.6 | $72.1 |
| Provision for loan losses | $0.3 | $0.0 | $1.0 | $0.8 |
| Noninterest income | $5.7 | $6.4 | $19.0 | $24.6 |
| Noninterest expense | $22.6 | $19.3 | $63.2 | $60.7 |
| Net income | $11.1 | $9.6 | $27.3 | $29.6 |
| Diluted EPS | $0.72 | $0.64 | $1.82 | $1.90 |
| Fully tax-equivalent net interest margin | 4.03% | 3.62% | 3.62% | 3.48% |
At September 30, 2022, total assets were $3,241.7 million, loans net of allowance were $2,300.8 million, deposits were $2,708.3 million, and shareholders’ equity was $302.6 million. Cash and cash equivalents were $40.9 million, down from $264.2 million at year-end 2021. The allowance for loan losses was $27.8 million, or 1.19% of total loans.
Total deposits increased 12.1% from year-end 2021; the net loan-to-deposit ratio rose to 85.0% from 81.6%. Debt included $55.0 million of short-term FHLB advances, $6.7 million of long-term FHLB advances, $20.2 million of repurchase agreements and $103.8 million of subordinated debentures. The company reported $580.8 million of remaining FHLB borrowing capacity, alongside $50 million in correspondent-bank federal funds lines and an unused $10 million third-party credit line.
For the first nine months, operating cash flow was $27.4 million, investing cash flow was negative $207.8 million and financing cash flow was negative $43.0 million. Cash and cash equivalents declined $223.3 million over the period. Regulatory capital ratios at September 30 were 15.6% total risk-based capital, 11.6% Tier 1 risk-based capital, 10.5% CET1 and 9.3% leverage; each exceeded the stated well-capitalized thresholds.
Material changes and drivers
- Q3 net income increased 15.2% year over year, as higher net interest income more than offset lower noninterest income and higher expenses. Year-to-date net income fell 7.7%, despite higher net interest income, mainly amid weaker gains on loan and securities sales and increased costs.
- Q3 net interest income rose $6.0 million. The company attributed the increase to higher interest income, including loan growth and higher yields; interest expense also increased, including from subordinated debt.
- Loans increased 16.6% from year-end 2021, with growth in commercial real estate, residential real estate and construction lending. The acquisition contributed to balance-sheet growth; loan growth also reflected the company’s own activity.
- Noninterest income fell 22.8% year to date, primarily because loan-sale gains declined by $4.4 million and securities-sale gains declined by $1.8 million versus 2021. Service charges increased $0.9 million.
- Noninterest expense increased 4.1% year to date. Acquisition-related, professional-services, data-processing, compensation and software costs were among the increases; lower other operating expense partly offset them, including because 2021 included a $3.7 million FHLB early-repayment charge.
- Available-for-sale securities had $81.5 million of gross unrealized losses at quarter-end, compared with $2.1 million at December 31, 2021, largely attributed by management to rising market rates. Accumulated other comprehensive loss was $69.8 million; shareholders’ equity declined from $355.2 million at year-end.
Acquisitions, outlook and risks
- Civista completed its acquisition of Comunibanc Corp. on July 1, 2022, issuing 984,723 shares and paying approximately $25.0 million cash. The preliminary allocation recorded $24.8 million goodwill and $4.4 million core deposit intangibles. Acquired operations contributed $0.4 million net income from acquisition through September 30; acquisition-related costs were approximately $1.9 million in the first nine months.
- Civista acquired Vision Financial Group, an equipment leasing and financing company, on October 3, 2022, after quarter-end. Consideration included approximately $28.6 million cash, 150,145 common shares, contingent restricted shares valued at $5.25 million, and approximately $7.9 million of subordinated debt that was assumed and paid off. Purchase accounting remained preliminary.
- No specific earnings or financial guidance was provided. Management said credit metrics remained stable and criticized loans declined in Q3, while noting caution regarding inflation, supply-chain disruption, workforce shortages and recession prospects. Management also described optimism about asset quality and strong loan growth.
- Key risks include interest-rate and liquidity exposure, borrower credit deterioration, inflation and potential recession, integration and execution of acquisitions, cybersecurity and operational risks, competition, and the transition away from LIBOR. The company’s rate-sensitivity model showed estimated net portfolio value increasing 5% under a +200 basis-point shock and decreasing 5% under a -200 basis-point shock at September 30, 2022.
- Management stated that it did not expect material losses from off-balance-sheet credit commitments. Ordinary-course legal proceedings were not expected to have a material adverse effect. CECL was scheduled for adoption in fiscal years beginning after December 15, 2022; management was still evaluating its impact.
Important facts for investors to verify
- How post-quarter Vision Financial Group results, purchase accounting and integration costs affect earnings, capital and liquidity.
- Whether loan growth continues and whether criticized, past-due and nonaccrual loans or allowance needs increase as economic conditions change.
- How rising rates affect deposit pricing, net interest margin, funding needs and the company’s substantial unrealized securities losses; management’s stated intent is to hold securities and it did not expect to be required to sell before recovery.
- Whether cash balances, deposit composition and FHLB borrowing remain adequate as the loan-to-deposit ratio has risen.
- The impact of acquisition-related and ongoing operating costs, reduced loan-sale activity and adoption of CECL on future profitability.