CIVB - Civista Bancshares Inc. Announces Third Quarter 2022 Financial Results

PR Newswire

SANDUSKY, Ohio , Oct. 27, 2022 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ: CIVB) ("Civista") announced its unaudited financial results for the three and nine month periods ending September 30 , 2022.

Third quarter and year-to-date 2022 highlights:

• Net income of $11.1 million , or $0.72 per diluted share, for the third quarter of 2022, compared to $9.6 million , or $0.64 per diluted share, for the third quarter of 2021.
• Net income of $27.3 million , or $1.82 per diluted share, compared to $29.6 million , or $1.90 per diluted share, for the nine months ended September 30, 2022 and 2021, respectively.
• Low cost of deposits of 14 basis points and total funding costs of 29 basis points for the quarter.
• Based on the September 30, 2022 market close share price of $20.76 , the $0.14 third quarter dividend is equivalent to an annualized yield of 2.70% and a dividend payout ratio of 19.44%.
• On July 1, 2022 , we consummated the merger of Comunibanc Corp. with and into Civista and Henry County Bank, a wholly owned subsidiary of Comunibanc, with and into Civista Bank.
• Negotiated the merger of Vision Financial Group, a leasing company based in Pittsburgh, PA , with and into Civista Bank.  The deal closed in the fourth quarter 2022.

"We are extremely pleased with our third quarter results.  Due to our strong core funding and rising interest rates, our net interest margin increased 60 basis points to 4.03% compared to the previous quarter.  Net interest income increased 25.4% compared to the previous quarter as we primarily benefitted from our first full quarter of earnings from the Henry County Bank acquisition, the rising interest rate environment, and excellent organic loan growth" said Dennis G. Shaffer , CEO and President of Civista.

For the three-month period ended September 30, 2022 and 2021

Net interest income increased $6.0 million , or 24.6%, for the third quarter of 2022 compared to the same period of 2021.  Interest income increased $6.7 million while interest expense increased $743 thousand .  Both increases were primarily due to rates.  Accretion of PPP fees was $122 thousand during the third quarter 2022 compared to $2.5 million for the same period in 2021.

Net interest margin increased 41 basis points to 4.03% for the third quarter of 2022, compared to 3.62% for the same period a year ago.  The increase in margin is primarily due to increases in the volume of earning assets and to the yield on earning assets.

The increase in interest income was primarily due to a $254.8 million increase in average earning assets, which led to a $4.6 million increase in interest income.  Additionally, increased interest rates led to a 48 basis point increase in asset yield and a $2.1 million increase in interest income.

Interest expense increased $743 thousand , or 55.0%, for the third quarter of 2022, compared to the same period last year.  The average rate paid on interest-bearing liabilities increased 13 basis points, while average interest-bearing liabilities increased $177.5 million .  The increase in the rate is primarily due to the issuance of $75 million , 3.25%  subordinated debt in November 2021.  The increase in interest rates has not yet translated to significant increases in deposit costs.

For the nine-month period ended September 30, 2022 and 2021

Net interest income increased $5.5 million , or 7.7%, compared to the same period in 2021.

Interest income increased $6.3 million , or 8.1%, for the first nine months of 2022.  Average earning assets increased $52.6 million , resulting in an increase in interest income of $6.1 million .  While average yields increased 17 basis points, interest income only increased $152 thousand due to yield.  During the nine-month period, the Bank had average PPP Loans totaling $13.7 million compared to $187.4 million for the same period last year.  For the nine months ended September 30, 2022 , these loans had an average yield of 17.82% including the amortization of PPP fees, which increased the margin by 7 basis points.

Interest expense increased $718 thousand , or 14.6%, for the first nine months of 2022 compared to the same period of 2021.  Average rates increased 3 basis points and average interest-bearing liabilities increased $126.8 million , resulting in a $1.4 million increase in interest expense.

Net interest margin increased 14 basis points to 3.62% for the first nine months of 2022, compared to 3.48% for the same period a year ago.

Provision for loan losses was $300 thousand for the third quarter of 2022 while nothing was provided in the third quarter of 2021.  Provision for loan losses was $1.0 million for the first nine months of 2022 compared to $830 thousand for the first nine months of 2021.  The reserve ratio was 1.19% at September 30, 2022 and 1.33% at December 31 , 2021.  Loans outstanding at September 30, 2022 include approximately $174.3 million related to the acquisition of Comunibanc, including a $2.8 million credit mark.

For the third quarter of 2022, noninterest income totaled $5.7 million , a decrease of $692 thousand , or 10.8%, compared to the prior year's third quarter.

Service charges increased due to a $196 thousand increase service charges on deposit accounts and a $130 thousand increase in overdraft fees.

Net loss on equity securities increased as a result of market value decreases.

Net gain on sale of loans decreased primarily because of a decrease in volume of loans sold, which was driven by increased interest rates.  Proceeds from the sale of loans sold totaled $11.7 million and $21.2 million during the three months ended September 30, 2022 and 2021, respectively.

Other income increased as result of an increase in servicing fee income.  Loans serviced total $457.1 million at September 30, 2022 compared to $395.3 million at September 30, 2021 .

For the nine months ended September 30, 2022 , noninterest income totaled $19.0 million , a decrease of $5.6 million , or 22.8%, compared to the same period in the prior year.

Service charges increased due to a $576 thousand increase overdraft fees and a $336 thousand increase in service charges on deposit accounts.

Net gain on sale of securities decreased due to the $1.8 million nonrecurring gain on the sale of Visa Class B shares in 2021.

Net loss on equity securities increased as a result of market value decreases.

Net gain on sale of loans decreased primarily because of a decrease in volume of loans sold, which was driven by increased interest rates.  Proceeds from the sale of loans sold totaled $107.6 million and $204.7 million during the nine months ended September 30, 2022 and 2021, respectively.

Wealth management fees increased due to an increase in the average rate earned on the assets in 2022.

Other income decreased as result of a $203 thousand increase in insurance loss reserves at Civista's reinsurance subsidiary.  The loss reserve is an accrual against unpaid claims.

For the third quarter of 2022, noninterest expense totaled $22.6 million , an increase of $3.3 million , or 17.2%, compared to the prior year's third quarter.

Compensation expense increased primarily due to the acquisition of Comunibanc Corp.

The increase in occupancy expense is due to increases in utilities and ground maintenance as a result of adding eight additional branches and general cost increases.  Equipment expense increased due to office equipment purchases of $101 thousand .

Taxes and assessments increased as Franchise tax expense increased due to an increase in equity capital, which is the basis of the Ohio Financial Institutions tax.  This was partially offset by a decrease in FDIC assessments due to lower assessment multipliers charged to Civista.

Professional services increased primarily due to one-time merger related legal and audit fees of $430 thousand , accompanied by increases in recruitment fees and fees related to increased call volumes at the Company's call center.

The increase in amortization of intangible assets is related to the merger with Comunibanc Corp.

The increase in Software maintenance expense is due to both increases in software maintenance contracts as well as the implementation of the new digital banking platform, introduced in June 2021 .

The increase in other operating expense is primarily due to merger related expenses of $116 thousand , travel, lodging and meals of $64 thousand .

The efficiency ratio was 61.4% for the quarter ended September 30, 2022 compared to 61.6% for the quarter ended September 30 , 2021.  The change in the efficiency ratio is primarily due to an increase in net interest income partially offset by an increase in noninterest expense.

Civista's effective income tax rate for the third quarter 2022 was 16.6% compared to 16.9% in 2021.

For the nine months ended September 30, 2022 , noninterest expense totaled $63.2 million , an increase of $2.5 million , or 4.1%, compared to the same period in the prior year.

The increase in compensation expense was due to increased payroll, 401k expenses, payroll taxes and commission and incentive-based costs.  Payroll and payroll related expenses increased due to annual pay increases.  The addition of Comunibanc also contributed to the increase.

Equipment expense increased due to a $354 thousand increase in computer and $202 thousand due to security equipment purchases.

Contracted data processing fees increased due to merger related system deconversion fees of $564 , offset by a decrease in computer processing fees.

Professional services primarily increased due to a $991 thousand increase in merger related expenses legal and audit and a $264 thousand increase in consulting fees, including recruiter and call center costs.

The increase in software maintenance expense is due to both increases in software maintenance contracts as well as the implementation of the new digital banking platform, introduced in June 2021 .

The decrease in other expense is due to the 2021 prepayment penalty of $3.7 million related to the early payoff of an FHLB long-term advance.  This was partially offset by a credit to the valuation adjustment for mortgage servicing rights posted in 2021 and increases in travel, lodging and meals, stationery and supplies and bad check expense.

The efficiency ratio was 64.4% for the nine months ended September 30, 2022 compared to 62.0% for the nine months ended September 30 , 2021.  The change in the efficiency ratio is primarily due to an increase in noninterest expense and a decrease in noninterest interest income.

Civista's effective income tax rate for the first nine months of 2022 was 16.0% compared to 16.0% in same period in 2021.

Total assets increased $228.8 million , or 7.6%, from December 31, 2021 to September 30, 2022 , primarily due to the acquisition of Comunibanc Corp. on July 1, 2022 .

Loan balances increased $330.7 million , or 16.6% since December 31, 2021 , including the $174.3 million portfolio related to Comunibanc Corp.  The growth is partially offset by a $43.4 million decrease in PPP loans.  Removing the balances in the portfolio related to Comunibanc and PPP loans, the loan portfolio increased $198.8 million or 10.2%.  Commercial Real Estate continued to grow due to consistent demand in both the Non-owner Occupied and Owner Occupied categories.  The growth has come from all regions and has been strong in our major metropolitan areas of Cleveland , Columbus and Cincinnati.  Residential Real Estate has increased due to more need this year for the on-balance sheet products of residential construction loans, Jumbo Loans and our Community View CRA product.  Commercial and Agriculture loans continue to grow as we successfully onboard new clients. Commercial Line of Credit utilization remains low.  Real Estate Construction continues to increase as the construction demand remains steady and construction availability continues to be near all-time highs.

In total, we processed over 3,600 loans totaling $399.4 million of PPP loans, of which $398.6 million have been forgiven or have paid off.  We recognized $122 thousand of PPP fees in income during the quarter and $1.7 million of PPP fees in income during the nine months ended September 30 , 2022.  As of September 30, 2022 , $38 thousand of unearned PPP fees remain.

Total deposits increased $291.6 million , or 12.1%, from December 31, 2021 to September 30, 2022 , including the addition of the $250.8 million of deposits related to the Comunibanc deal.

The increase in noninterest-bearing demand of $155.3 million was primarily due to $65.5 million of deposits related to the merger with Comunibanc Corp and to a $60.1 million increase in cash balances related to the Company's participation in a tax refund processing program.  In addition, demand deposit and public fund demand deposit accounts increased $19.7 million and $10.2 million , respectively.  Interest-bearing demand deposits increased $23.1 , primarily related to Comunibanc Corp balances, totaling $41.4 million .  Personal and public-fund interest bearing demand accounts increased $8.0 million and $11.8 million , respectively.  These increases were partially offset by decreases to business interest-bearing demand and Jumbo NOW accounts of $31.0 million and $9.5 million , respectively.  Savings and money market balances increased $87.6 million , primarily related to Comunibanc Corp balances.  Time deposits related to Comunibanc totaled $56.3 million , partially offset by a $17.4 million decrease to accounts over $100 thousand and a $ 11.4 million decrease to accounts under $100 thousand .

FHLB advances totaled $75.0 million at December 31 , 2021.  The entire outstanding balance was called in July.  This was replaced by $6.7 million of term advances related to Comunibanc and to overnight advances of $55.0 million .

During the first nine months of 2022, Civista repurchased 734,810 shares for $16.6 million at a weighted average price of $22.59 per share, including 392,847 shares repurchased under the previous authorization for $9.3 million .  We have approximately $6.2 million remaining of the current $13.5 million repurchase authorization, which was approved in April 2022.  In addition, Civista liquidated 5,403 shares held by employees, at $24.66 per share, to satisfy tax obligations stemming from vesting of restricted shares.

Total shareholders' equity decreased $52.6 million from December 31, 2021 to September 30, 2022 , primarily due to a $78.8 million increase in accumulated other comprehensive loss caused by an increase in interest rates.  The increase in other comprehensive loss does not impact our regulatory capital adequacy ratios.  Shareholders' equity also decreased due to a $16.7 million repurchase of treasury shares.  The decrease in equity was partially offset by a $21.0 million increase in retained earnings and a $21.8 million increase in common stock.  The increase in common stock was primarily a result of shares issued related to the Comunibanc acquisition.

Civista recorded net recoveries of $132 thousand for the nine months of 2022 compared to net recoveries of $710 thousand for the same period of 2021.  The allowance for loan losses to loans ratio was 1.19% at September 30, 2022 and 1.33% at December 31, 2021 .

Non-performing assets at September 30, 2022 were $5.8 million , an 8.6% increase from December 31, 2021 . The non-performing assets to assets ratio 0.18% at both September 30, 2022 and December 31 , 2021.  The allowance for loan losses to non-performing loans decreased from 496.10% at December 31, 2021 to 476.24% at September 30 , 2022.

Civista Bancshares, Inc. will also host a conference call to discuss the Company's financial results for the third quarter of 2022 at 1:00 p.m. ET on Thursday , October 27, 2022.  Interested parties can access the live webcast of the conference call through the Investor Relations section of the Company's website, www.civb.com .  Participants can also listen to the conference call by dialing 855-238-2712 and ask to be joined into the Civista Bancshares, Inc. third quarter 2022 earnings call.  Please log in or dial in at least 10 minutes prior to the start time to ensure a connection.

An archive of the webcast will be available for one year on the Investor Relations section of the Company's website ( www.civb.com ).

This press release may contain forward-looking statements regarding the financial performance, business prospects, growth and operating strategies of Civista.  For these statements, Civista claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.   Statements in this press release should be considered in conjunction with the other information available about Civista, including the information in the filings we make with the Securities and Exchange Commission.  Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance.  The forward-looking statements are based on management's expectations and are subject to a number of risks and uncertainties.  We have tried, wherever possible, to identify such statements by using words such as "anticipate," "estimate," "project," "intend," "plan," "believe," "will" and similar expressions in connection with any discussion of future operating or financial performance. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.  Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Civista' reports filed with the Securities and Exchange Commission, including those described in "Item 1A Risk Factors" of Part I of Civista's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 , and any additional risks identified in the Company's subsequent Form 10-Q's.  Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof.  Civista does not undertake, and specifically disclaims any obligation, to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

Civista Bancshares, Inc. is a $3.2 billion financial holding company headquartered in Sandusky, Ohio . Civista's banking subsidiary, Civista Bank, operates 43 locations in Northern, Central, Northwestern and Southwestern Ohio , Southeastern Indiana and Northern Kentucky.  Additional information on Civista may be accessed at www.civb.com , but information at that website is not part of this press release nor is it part of any filing by Civista with the Securities and Exchange Commission.  Civista's common shares are traded on the NASDAQ Capital Market under the symbol "CIVB".