Civista Bancshares, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Unless otherwise noted, amounts are in millions of dollars. The unaudited company operates primarily as a bank in Ohio, Indiana, and Kentucky.
Financial performance and condition
| Metric | Q1 2020 / March 31, 2020 | Comparison |
|---|---|---|
| Total assets | $2,575.9 | Up 11.5% from year-end 2019 |
| Total loans | $1,743.1 | Up 2.0% from year-end 2019 |
| Total deposits | $1,991.9 | Up 18.7% from year-end 2019 |
| Net interest income | $22.1 | Up 1.8% year over year |
| Net interest margin | 4.10% | 4.45% in Q1 2019 |
| Provision for loan losses | $2.1 | $0 in Q1 2019 |
| Noninterest income | $6.9 | Up 9.4% year over year |
| Noninterest expense | $17.9 | Up 8.6% year over year |
| Net income | $7.8 | Down from $9.7 in Q1 2019 |
| Basic / diluted EPS | $0.47 / $0.47 | $0.61 / $0.57 in Q1 2019 |
| Operating cash flow | $25.6 | $12.9 in Q1 2019 |
| Cash and due from institutions | $256.0 | Up from $48.5 at year-end |
| Shareholders’ equity | $328.2 | 12.7% of assets, versus 14.3% at year-end |
- Net interest income increased modestly as loan growth more than offset lower yields; the reported fully tax-equivalent margin declined 35 basis points.
- Lower earnings reflected the new $2.1 million credit-loss provision and higher operating expenses, partly offset by higher noninterest income and a lower effective tax rate (13.1%, versus 16.3%). Loan-sale gains rose to $0.8 million from $0.3 million; tax-refund processing fees declined to $1.9 million from $2.2 million.
- The allowance for loan losses was $16.9 million, or 0.97% of loans, versus $14.8 million, or 0.86%, at year-end. Management cited COVID-19-related economic uncertainty, borrower relief requests, potential revenue losses, and unemployment concerns in setting the provision.
- Nonaccrual loans were $5.6 million; loans past due 90 days or more and still accruing were $17,000. The filing reported $39.9 million of COVID-related loan modifications in Q1, all performing when modified and treated under CARES Act provisions as not troubled debt restructurings.
- Cash growth and the 18.7% deposit increase were substantially affected by tax-refund-processing balances: noninterest-bearing deposits rose $299.4 million, including $307.5 million attributed to that program. Management expected these balances to decline toward year-end levels over the following two quarters.
- Borrowings included $17.0 million of short-term FHLB advances, $125.0 million of other borrowings, $22.7 million of repurchase agreements, and $29.4 million of subordinated debentures. Short-term FHLB advances fell $84.5 million from year-end.
- Regulatory capital ratios remained above stated well-capitalized thresholds: total risk-based 15.2%, Tier 1 risk-based 14.3%, CET1 12.7%, and leverage 10.7%. The company repurchased 650,511 shares for $11.1 million during the quarter.
Material changes and outlook
- The COVID-19 pandemic and related shutdowns drove higher qualitative credit-risk reserves and increased uncertainty about borrower repayment, asset quality, and future earnings. The filing does not provide numerical earnings guidance.
- By May 5, 2020, Civista had SBA approval for 2,139 Paycheck Protection Program loans totaling $262.1 million. The company said it expected to match outstanding PPP loan volume with funding from the PPP Lending Facility.
- By May 5, the company had modified 653 loans totaling $357.5 million for pandemic-affected customers; all were reported performing in accordance with their terms at that date. These later figures are subsequent-event information, not Q1-end balances.
- Liquidity sources included available-for-sale securities, deposit funding, federal funds lines totaling $50 million, approximately $419.7 million of remaining FHLB borrowing capacity after standby letters of credit, and a $10 million parent-company credit line.
- Management identified interest-rate, liquidity, credit, real-estate, operational, and pandemic-related risks. The loan portfolio has notable concentrations in lessors of non-residential buildings and dwellings (26.8% of loans) and residential buildings and dwellings (10.6%). The company also warned that the effects and duration of COVID-19, government responses, and economic recovery were uncertain.
- Interest-rate sensitivity modeling showed estimated net portfolio value increases under the disclosed +100 and +200 basis-point scenarios and also under the disclosed -100 and -200 basis-point scenarios. These are hypothetical model results, not forecasts.
- Disclosure controls were reported effective as of March 31, 2020; no material change in internal control over financial reporting was reported. The filing reported no legal proceedings.
Important facts for investors to verify
- Whether temporary tax-refund-processing deposits unwind as management expected, and the resulting effect on liquidity and funding costs.
- Subsequent performance, delinquencies, and losses among the $357.5 million of pandemic-related modified loans, including the concentrated commercial real-estate exposures.
- PPP loan balances, facility funding, forgiveness, and any associated fees or operational costs after quarter-end.
- Whether the $16.9 million allowance remains adequate as economic conditions and borrower credit quality develop.
- How continued low interest rates, loan and deposit repricing, and margin pressure affect net interest income and capital.
- The impact of the $11.1 million share repurchase program and remaining authorization on capital and per-share results.