Civista Bancshares, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Balance-sheet comparisons are against December 31, 2020. Amounts are in millions unless otherwise noted; the filing’s financial statements are unaudited.
Business context and financial performance
Civista is an Ohio-based financial holding company operating primarily as a bank, serving communities in Ohio, Indiana and Kentucky. It reported net income of $10.758 million, or $0.68 per diluted share, compared with $7.833 million, or $0.47 per diluted share, in Q1 2020.
| Metric | Q1 2021 / March 31, 2021 | Comparable period / December 31, 2020 |
|---|---|---|
| Net interest income | $23.828 million | $22.115 million in Q1 2020 |
| Provision for loan losses | $0.830 million | $2.126 million in Q1 2020 |
| Noninterest income | $9.190 million | $6.876 million in Q1 2020 |
| Noninterest expense | $19.390 million | $17.856 million in Q1 2020 |
| Income before taxes | $12.798 million | $9.009 million in Q1 2020 |
| Total assets | $3,057.368 million | $2,762.918 million |
| Total loans | $2,060.239 million | $2,057.502 million |
| Total deposits | $2,475.907 million | $2,189.398 million |
| Cash and cash equivalents | $437.238 million | $139.522 million |
| Shareholders’ equity | $350.058 million | $350.108 million |
Fully tax-equivalent net interest margin was 3.30%, down from 4.10% in Q1 2020. Average loan yield fell to 4.47% from 5.05%; lower deposit and borrowing costs helped lift net interest income despite lower asset yields. Operating cash flow was $16.413 million versus $25.554 million in Q1 2020. Financing activities provided $281.225 million, mainly reflecting deposit growth. Cash and cash equivalents increased $297.716 million during the quarter.
At March 31, the allowance for loan losses was $26.133 million, or 1.27% of total loans, compared with $25.028 million, or 1.22%, at year-end. The net loan-to-deposit ratio declined to 82.2% from 92.8%. Long-term FHLB advances were $125 million, repurchase agreements $29.513 million and subordinated debentures $29.427 million. Regulatory capital ratios were 16.4% total risk-based, 15.2% Tier 1 risk-based, 13.6% CET1 and 9.2% leverage; the filing states all exceeded applicable minimums.
Material changes versus comparable periods
- Net income increased $2.925 million year over year. Net interest income rose $1.713 million, while noninterest income rose $2.314 million and the loan-loss provision fell $1.296 million. Noninterest expense increased $1.534 million.
- Higher loan-sale gains were a significant contributor to noninterest income: $2.745 million versus $0.827 million. The company sold 376 loans totaling $77.554 million, compared with 214 loans totaling $35.368 million in Q1 2020.
- Deposits increased $286.509 million from year-end, including $136.858 million associated with seasonal tax-refund processing. Management expected that portion to recede toward year-end levels over the next two quarters. PPP proceeds also contributed to business deposits.
- Total loans were nearly flat versus year-end, but portfolio mix shifted: commercial real estate, non-owner occupied loans rose $18.584 million; residential real estate loans fell $11.082 million. PPP loans totaled $246.636 million at quarter-end, including $119.848 million funded in Q1 under the new program.
- Available-for-sale securities declined $6.640 million from year-end. A $5.050 million after-tax other comprehensive loss, largely from unrealized securities losses as market rates rose, reduced accumulated other comprehensive income.
Outlook, commentary and risks
- The filing provides no specific earnings or growth guidance. Management said economic conditions had stabilized or improved in some areas but remained cautious, particularly about classified loans in the hotel sector.
- COVID-19 risks include borrower revenue weakness, supply-chain disruption, added business costs, unemployment and customer requests for payment relief. Management expects commercial and commercial real estate portfolios to be among the most affected.
- Real estate lending is concentrated: lessors of non-residential buildings and dwellings represented 25.6% of loans, and lessors of residential buildings and dwellings 13.2%. Repayment depends in part on local real estate markets and economic conditions.
- At March 31, 51 loans totaling $70.660 million remained under CARES Act payment modifications. Management noted continuing caution despite lower provision expense and improving economic indicators.
- Interest-rate and liquidity risks remain important. The company’s primary market risk is interest-rate exposure; it also identified the transition away from LIBOR as a risk. Its customer-facilitating swaps had equal $243.438 million notionals and nearly offsetting fair values at quarter-end.
- Other notable items: Q1 share repurchases totaled 186,692 shares for $3.976 million; $7.610 million remained under the repurchase authorization at March 31. An Ohio tax audit led to $172,000 of additional state franchise tax expense. Management reported effective disclosure controls and no material change in internal control over financial reporting.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect, based on current knowledge and consultation with counsel. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether seasonal tax-refund deposits unwind as management expected, and how deposit levels and funding costs evolve.
- Performance of hotel and other commercial real estate credits, remaining COVID-19-modified loans, and the adequacy of the allowance.
- Whether elevated loan-sale gains and PPP-related fees are repeatable, and the effect of PPP forgiveness and fee amortization on future earnings.
- Changes in net interest margin and sensitivity to interest-rate movements, including the LIBOR transition and securities valuation effects.
- The eventual impact of CECL adoption, for which management was still evaluating methods and expected adoption in fiscal years beginning after December 15, 2022.